12 CFR Part 208 — Membership of State Banking Institutions in the Federal Reserve System (Regulation H)

PART 208—MEMBERSHIP OF STATE BANKING INSTITUTIONS IN THE FEDERAL RESERVE SYSTEM (REGULATION H) Authority: 12 U.S.C. 24, 36, 92a, 93a, 248(a), 248(c), 321-338a, 371d, 461, 481-486, 601, 611, 1814, 1816, 1817(a)(3), 1817(a)(12), 1818, 1820(d)(9), 1833(j), 1828(o), 1831, 1831o, 1831p-1, 1831r-1, 1831w, 1831x, 1835a, 1882, 2901-2907, 3105, 3310, 3331-3351, 3905-3909, 5371, and 5371 note; 15 U.S.C. 78b, 78I(b), 78 l Source: Reg. H, 17 FR 8006, Sept. 4, 1952, unless otherwise noted. Subpart A—General Membership and Branching Requirements Source: 63 FR 37637, July 13, 1998, unless otherwise noted. § 208.1 Authority, purpose, and scope. (a) Authority. (b) Purpose and scope of Part 208. 1 1 (c) Purpose and scope of Subpart A. § 208.2 Definitions. For the purposes of this part: (a) Board of Directors (b) Board (c) Branch. (2) Branch (i) A loan origination facility where the proceeds of loans are not disbursed; (ii) An office of an affiliated or unaffiliated institution that provides services to customers of the member bank on behalf of the member bank so long as the institution is not established or operated by the bank; (iii) An automated teller machine; (iv) A remote service unit; (v) A facility to which the bank does not permit members of the public to have physical access for purposes of making deposits, paying checks, or borrowing money (such as an office established by the bank that receives deposits only through the mail); or (vi) A facility that is located at the site of, or is an extension of, an approved main office or branch. The Board determines whether a facility is an extension of an existing main or branch office on a case-by-case basis. (d) Capital stock and surplus (1) Tier 1 and tier 2 capital included in a member bank's risk-based capital (as defined in § 217.2 of Regulation Q); and (2) The balance of a member bank's allowance for loan and lease losses or adjusted allowance for credit losses, as applicable, not included in its tier 2 capital for calculation of risk-based capital, based on the bank's most recent Report of Condition and Income filed under 12 U.S.C. 324. (3) For a qualifying community banking organization (as defined in § 217.12 of this chapter) that is subject to the community bank leverage ratio framework (as defined in § 217.12 of this chapter), capital stock and surplus means the bank's Tier 1 capital (as defined in § 217.2 of this chapter and calculated in accordance with § 217.12(b) of this chapter) plus allowance for loan and lease losses or adjusted allowance for credit losses, as applicable. (e) Eligible bank (1) Is well capitalized as defined in subpart D of this part; (2) Has a composite Uniform Financial Institutions Rating System (CAMELS) rating of 1 or 2; (3) Has a Community Reinvestment Act (CRA) (12 U.S.C. 2906) rating of “Outstanding” or “Satisfactory;” (4) Has a compliance rating of 1 or 2; and (5) Has no major unresolved supervisory issues outstanding (as determined by the Board or appropriate Federal Reserve Bank in its discretion). (f) State bank (g) State member bank or member bank [63 FR 37637, July 13, 1998, as amended by Reg. H, 78 FR 62281, Oct. 11, 2013; 80 FR 70672, Nov. 16, 2015; 84 FR 4240, Feb. 14, 2019; 84 FR 61796, Nov. 13, 2019] § 208.3 Application and conditions for membership in the Federal Reserve System. (a) Applications for membership and stock. 2 2 (2) Board approval. (3) Effective date of membership. (b) Factors considered in approving applications for membership. (1) Financial condition and management. (2) Capital. (3) Convenience and needs. (4) Corporate powers. (c) Expedited approval for eligible banks and bank holding companies Availability of expedited treatment. (i) An eligible bank; and (ii) A bank that cannot be determined to be an eligible bank because it has not received CAMELS compliance or CRA ratings from a bank regulatory authority, if it is controlled by a bank holding company that meets the criteria for expedited processing under § 225.14(c) of Regulation Y (12 CFR 225.14(c)). (2) Expedited procedures. (i) The bank will offer banking services that are materially different from those currently offered by the bank, or by the affiliates of the proposed bank; (ii) The bank or bank holding company does not meet the criteria under § 208.3(c)(1); (iii) The application contains a material error or is otherwise deficient; or (iv) The application raises significant supervisory, compliance, policy or legal issues that have not been resolved, or a timely substantive adverse comment is submitted. A comment will be considered substantive unless it involves individual complaints, or raises frivolous, previously considered, or wholly unsubstantiated claims or irrelevant issues. (d) Conditions of membership Safety and soundness. (2) General character of bank's business. (3) Compliance with conditions of membership. (e) Waivers Conditions of membership. (2) Reports of affiliates. (f) Voluntary withdrawal from membership. [Reg. H, 63 FR 37637, July 13, 1998, as amended at 63 FR 58620, Nov. 2, 1998; 66 FR 8634, Feb. 1, 2001; 69 FR 77617, Dec. 28, 2004; 78 FR 62282, Oct. 11, 2013; 80 FR 70672, Nov. 16, 2015] § 208.4 Capital adequacy. (a) Adequacy. (b) Standards for evaluating capital adequacy. [Regulation H, 78 FR 62282, Oct. 11, 2013, as amended at 80 FR 70672, Nov. 16, 2015] § 208.5 Dividends and other distributions. (a) Definitions. (1) Capital surplus (2) Permanent capital (b) Limitations. (c) Earnings limitations on payment of dividends. (2) “Retained net income” in a calendar year is equal to the bank's net income (as reported in its Report of Condition and Income for such year), less any dividends declared during such year. 3 4 3 4 (d) Limitation on withdrawal of capital by dividend or otherwise. (2) A member bank may not permit any portion of its permanent capital to be withdrawn unless the withdrawal has been approved by the Board and by at least two-thirds of the shareholders of each class of stock outstanding. (3) If a member bank has capital surplus in excess of that required by law, the excess amount may be transferred to the bank's undivided profits account and be available for the payment of dividends if: (i) The amount transferred came from the earnings of prior periods, excluding earnings transferred as a result of stock dividends; (ii) The bank's board of directors approves the transfer of funds; and (iii) The transfer has been approved by the Board. (e) Payment of capital distributions. (f) Compliance. [63 FR 37637, July 13, 1998, as amended by Reg. H, 78 FR 62282, Oct. 11, 2013; 80 FR 70672, Nov. 16, 2015] § 208.6 Establishment and maintenance of branches. (a) Branching. (2) Branch applications. (3) Public notice of branch applications Location of publication. (ii) Contents of notice. (iii) Timing of publication. (4) Public comment Timely comments. (ii) Extension of comment period. (b) Factors considered in approving domestic branch applications. (1) Financial condition and management. (2) Capital. (3) Convenience and needs. (4) CRA performance. et seq. (5) Investment in bank premises. (c) Expedited approval for eligible banks and bank holding companies Availability of expedited treatment. (i) An eligible bank; and (ii) A bank that cannot be determined to be an eligible bank because it has not received CAMELS compliance or CRA ratings from a bank regulatory authority, if it is controlled by a bank holding company that meets the criteria for expedited processing under § 225.14(c) of Regulation Y (12 CFR 225.14(c)). (2) Expedited procedures. (i) The bank or bank holding company does not meet the criteria under § 208.6(c)(1); (ii) The application contains a material error or is otherwise deficient; or (iii) The application or the notice required under paragraph (a)(3) of this section, raises significant supervisory, Community Reinvestment Act, compliance, policy or legal issues that have not been resolved, or a timely substantive adverse comment is submitted. A comment will be considered substantive unless it involves individual complaints, or raises frivolous, previously considered, or wholly unsubstantiated claims or irrelevant issues. (d) Consolidated Applications Proposed branches; notice of branch opening. (2) Duration of branch approval. (e) Branch closings. (f) Branch relocations. [63 FR 37639, July 13, 1998, as amended at 63 FR 58621, Nov. 2, 1998] § 208.7 Prohibition against use of interstate branches primarily for deposit production. (a) Purpose and scope Purpose. (2) Scope. (ii) This section describes the requirements imposed under 12 U.S.C. 1835a, which requires the appropriate Federal banking agencies (the Board, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation) to prescribe uniform rules that prohibit a bank from using any authority to engage in interstate branching pursuant to the Interstate Act, or any amendment made by the Interstate Act to any other provision of law, primarily for the purpose of deposit production. (b) Definitions. (1) Bank (i) A State member bank as that term is defined in 12 U.S.C. 1813(d)(2); and (ii) A foreign bank as that term is defined in 12 U.S.C. 3101(7) and 12 CFR 211.21. (2) Covered interstate branch (i) Any branch of a State member bank, and any uninsured branch of a foreign bank licensed by a State, that: (A) Is established or acquired outside the bank's home State pursuant to the interstate branching authority granted by the Interstate Act or by any amendment made by the Interstate Act to any other provision of law; or (B) Could not have been established or acquired outside of the bank's home State but for the establishment or acquisition of a branch described in paragraph (b)(2)(i) of this section; and (ii) Any bank or branch of a bank controlled by an out-of-State bank holding company. (3) Home State (i) With respect to a State bank, the State that chartered the bank; (ii) With respect to a national bank, the State in which the main office of the bank is located; (iii) With respect to a bank holding company, the State in which the total deposits of all banking subsidiaries of such company are the largest on the later of: (A) July 1, 1966; or (B) The date on which the company becomes a bank holding company under the Bank Holding Company Act. (iv) With respect to a foreign bank: (A) For purposes of determining whether a U.S. branch of a foreign bank is a covered interstate branch, the home State of the foreign bank as determined in accordance with 12 U.S.C. 3103(c) and 12 CFR 211.22; and (B) For purposes of determining whether a branch of a U.S. bank controlled by a foreign bank is a covered interstate branch, the State in which the total deposits of all banking subsidiaries of such foreign bank are the largest on the later of: ( 1 ( 2 (4) Host State (5) Host state loan-to-deposit ratio (6) Out-of-State bank holding company (7) State (8) Statewide loan-to-deposit ratio (c)(1) Application of screen. (2) Results of screen. (ii) If the Board determines that the bank's statewide loan-to-deposit ratio is less than 50 percent of the host state loan-to-deposit ratio, or if reasonably available data are insufficient to calculate the bank's statewide loan-to-deposit ratio, the Board will make a credit needs determination for the bank as provided in paragraph (d) of this section. (d) Credit needs determination In general. (2) Guidelines. (i) Whether covered interstate branches were formerly part of a failed or failing depository institution; (ii) Whether covered interstate branches were acquired under circumstances where there was a low loan-to-deposit ratio because of the nature of the acquired institution's business or loan portfolio; (iii) Whether covered interstate branches have a high concentration of commercial or credit card lending, trust services, or other specialized activities, including the extent to which the covered interstate branches accept deposits in the host state; (iv) The Community Reinvestment Act ratings received by the bank, if any, under 12 U.S.C. 2901 et seq.; (v) Economic conditions, including the level of loan demand, within the communities served by the covered interstate branches; (vi) The safe and sound operation and condition of the bank; and (vii) The Board's Regulation BB—Community Reinvestment (12 CFR part 228) and interpretations of that regulation. (e) Sanctions In general. (i) May order that a bank's covered interstate branch or branches be closed unless the bank provides reasonable assurances to the satisfaction of the Board, after an opportunity for public comment, that the bank has an acceptable plan under which the bank will reasonably help to meet the credit needs of the communities served by the bank in the host state; and (ii) Will not permit the bank to open a new branch in the host state that would be considered to be a covered interstate branch unless the bank provides reasonable assurances to the satisfaction of the Board, after an opportunity for public comment, that the bank will reasonably help to meet the credit needs of the community that the new branch will serve. (2) Notice prior to closure of a covered interstate branch. (3) Hearing. [63 FR 37637, July 13, 1998, as amended at 67 FR 38848, June 6, 2002] Subpart B—Investments and Loans Source: 63 FR 37641, July 13, 1998, unless otherwise noted. § 208.20 Authority, purpose, and scope. (a) Authority. (b) Purpose and scope. § 208.21 Investments in premises and securities. (a) Investment in bank premises. (1) The bank notifies the appropriate Reserve Bank at least fifteen days prior to such investment and has not received notice that the investment is subject to further review by the end of the fifteen day notice period; (2) The aggregate of all such investments and loans, together with the amount of any indebtedness incurred by any such corporation that is an affiliate of the bank (as defined in section 2 of the Banking Act of 1933, as amended, 12 U.S.C. 221a), is less than or equal to the bank's perpetual preferred stock and related surplus plus common stock plus surplus, as those terms are defined in the FFIEC Consolidated Reports of Condition and Income; or (3)(i) The aggregate of all such investments and loans, together with the amount of any indebtedness incurred by any such corporation that is an affiliate of the bank, is less than or equal to 150 percent of the bank's perpetual preferred stock and related surplus plus common stock plus surplus, as those terms are defined in the FFIEC Consolidated Reports of Condition and Income; and (ii) The bank: (A) Has a CAMELS composite rating of 1 or 2 under the Uniform Interagency Bank Rating System 5 5 See (B) Is well capitalized and will continue to be well capitalized, in accordance with subpart D of this part, after the investment or loan. (b) Investments in securities. [63 FR 37641, July 13, 1998, as amended by Reg. H, 78 FR 62282, Oct. 11, 2013; 80 FR 70672, Nov. 16, 2015] § 208.22 Community development and public welfare investments. (a) Definitions. (1) Low- or moderate-income area (i) One or more census tracts in a Metropolitan Statistical Area where the median family income adjusted for family size in each census tract is less than 80 percent of the median family income adjusted for family size of the Metropolitan Statistical Area; or (ii) If not in a Metropolitan Statistical Area, one or more census tracts or block-numbered areas where the median family income adjusted for family size in each census tract or block-numbered area is less than 80 percent of the median family income adjusted for family size of the State. (2) Low- and moderate-income persons (3) Small business (b) Investments not requiring prior Board approval. (1) The investment is in a corporation, limited partnership, or other entity, and: (i) The Board has determined that an investment in that entity or class of entities is a public welfare investment under paragraph 23 of section 9 of the Federal Reserve Act (12 U.S.C. 338a), or a community development investment under Regulation Y (12 CFR 225.25(b)(6)); or (ii) The Comptroller of the Currency has determined, by order or regulation, that an investment in that entity by a national bank is a public welfare investment under section 5136 of the Revised Statutes (12 U.S.C. 24 (Eleventh)); or (iii) The entity is a community development financial institution as defined in section 103(5) of the Community Development Banking and Financial Institutions Act of 1994 (12 U.S.C. 4702(5)); or (iv) The entity, directly or indirectly, engages solely in or makes loans solely for the purposes of one or more of the following community development activities: (A) Investing in, developing, rehabilitating, managing, selling, or renting residential property if a majority of the units will be occupied by low- and moderate-income persons, or if the property is a “qualified low-income building” as defined in section 42(c)(2) of the Internal Revenue Code (26 U.S.C. 42(c)(2)); (B) Investing in, developing, rehabilitating, managing, selling, or renting nonresidential real property or other assets located in a low- or moderate-income area and targeted towards low- and moderate-income persons; (C) Investing in one or more small businesses located in a low- or moderate-income area to stimulate economic development; (D) Investing in, developing, or otherwise assisting job training or placement facilities or programs that will be targeted towards low- and moderate-income persons; (E) Investing in an entity located in a low- or moderate-income area if the entity creates long-term employment opportunities, a majority of which (based on full-time equivalent positions) will be held by low- and moderate-income persons; and (F) Providing technical assistance, credit counseling, research, and program development assistance to low- and moderate-income persons, small businesses, or nonprofit corporations to help achieve community development; (2) The investment is permitted by state law; (3) The investment will not expose the member bank to liability beyond the amount of the investment; (4) The aggregate of all such investments of the member bank does not exceed the sum of five percent of its capital stock and surplus; (5) The member bank is well capitalized or adequately capitalized under §§ 208.43(b) (1) and (2); (6) The member bank received a composite CAMELS rating of “1” or “2” under the Uniform Financial Institutions Rating System as of its most recent examination and an overall rating of “1” or “2” as of its most recent consumer compliance examination; and (7) The member bank is not subject to any written agreement, cease-and-desist order, capital directive, prompt-corrective-action directive, or memorandum of understanding issued by the Board or a Federal Reserve Bank. (c) Notice to Federal Reserve Bank. (d) Investments requiring Board approval. (2) Requests for Board approval under this paragraph (d) shall include, at a minimum: (i) The amount of the proposed investment; (ii) A description of the entity in which the investment is to be made; (iii) An explanation of why the investment is a public welfare investment under paragraph 23 of section 9 of the Federal Reserve Act (12 U.S.C. 338a); (iv) A description of the member bank's potential liability under the proposed investment; (v) The amount of the member bank's aggregate outstanding public welfare investments under paragraph 23 of section 9 of the Federal Reserve Act; (vi) The amount of the member bank's capital stock and surplus; and (vii) If the bank investment is not eligible under paragraph (b) of this section, explain the reason or reasons why it is ineligible. (3) The Board shall act on a request under this paragraph (d) within 60 calendar days of receipt of a request that meets the requirements of paragraph (d)(2) of this section, unless the Board notifies the requesting member bank that a longer time period will be required. (e) Divestiture of investments. § 208.23 Agricultural loan loss amortization. (a) Definitions. (1) Accepting official (i) The Reserve Bank in whose district the bank is located; or (ii) The Director of the Division of Banking Supervision and Regulation in cases in which the Reserve Bank cannot determine that the bank qualifies. (2) Agriculturally related other property (3) Participating bank (4) Qualified agricultural loan (i) Loans that finance agricultural production or are secured by farm land for purposes of Schedule RC-C of the FFIEC Consolidated Report of Condition or such other comparable schedule; (ii) Loans secured by farm machinery; (iii) Other loans that a bank proves to be sufficiently related to agriculture for classification as an agricultural loan by the Board; and (iv) The remaining unpaid balance of any loans described in paragraphs (a)(4) (i), (ii) and (iii) of this section that have been charged off since January 1, 1984, and that qualify for deferral under this section. (b)(1) Provided there is no evidence that the loss resulted from fraud or criminal abuse on the part of the bank, the officers, directors, or principal shareholders, a participating bank may amortize in its Reports of Condition and Income: (i) Any loss on a qualified agricultural loan that the bank would be required to reflect in its financial statements for any period between and including 1984 and 1991; or (ii) Any loss that the bank would be required to reflect in its financial statements for any period between and including 1983 and 1991 resulting from a reappraisal or sale of agriculturally-related other property. (2) Amortization under this section shall be computed over a period not to exceed seven years on a quarterly straight-line basis commencing in the first quarter after the loan was or is charged off so as to be fully amortized not later than December 31, 1998. (c) Accounting for amortization. (d) Conditions of participation. (1) Adhere to the approved capital plan and obtain the prior approval of the accepting official before making any modifications to the plan; (2) Maintain accounting records for each asset subject to loss deferral under the program that document the amount and timing of the deferrals, repayments, and authorizations; (3) Maintain the financial condition of the bank so that it does not deteriorate to the point where it is no longer a viable, fundamentally sound institution; (4) Make a reasonable effort, consistent with safe and sound banking practices, to maintain in its loan portfolio a percentage of agricultural loans, including agriculturally-related other property, not less than the percentage of such loans in its loan portfolio on January 1, 1986; and (5) Provide the accepting official, upon request, with any information the accepting official deems necessary to monitor the bank's amortization, its compliance with the conditions of participation, and its continued eligibility. (e) Revocation of eligibility for loss amortization. (f) Expiration date. [63 FR 37641, July 13, 1998, as amended by Reg. H, 78 FR 62282, Oct. 11, 2013] § 208.24 Letters of credit and acceptances. (a) Standby letters of credit. (1) To repay money borrowed by or advanced to or for the account of the account party; or (2) To make payment on account of any evidence of indebtedness undertaken by the account party; or (3) To make payment on account of any default by the party procuring the issuance of the letter of credit in the performance of an obligation. 6 6 (b) Ineligible acceptance. (c) Bank's lending limits. (d) Exceptions. (1) The issuing bank is paid an amount equal to the bank's maximum liability under the standby letter of credit; or (2) The party procuring the issuance of a letter of credit or ineligible acceptance has set aside sufficient funds in a segregated, clearly earmarked deposit account to cover the bank's maximum liability under the standby letter of credit or ineligible acceptance. [63 FR 37641, July 13, 1998, as amended by Reg. H, 78 FR 62282, Oct. 11, 2013; 80 FR 70672, Nov. 16, 2015] § 208.25 Loans in areas having special flood hazards. (a) Purpose and scope Purpose. (2) Scope. (b) Definitions. (1) Act (2) Administrator of FEMA (3) Building (4) Community (5) Designated loan (6) Mobile home mobile home mobile home mobile home (7) Mutual aid society (i) Whose members share a common religious, charitable, educational, or fraternal bond; (ii) That covers losses caused by damage to members' property pursuant to an agreement, including damage caused by flooding, in accordance with this common bond; and (iii) That has a demonstrated history of fulfilling the terms of agreements to cover losses to members' property caused by flooding. (8) NFIP (9) Private flood insurance (i) Is issued by an insurance company that is: (A) Licensed, admitted, or otherwise approved to engage in the business of insurance by the insurance regulator of the State or jurisdiction in which the property to be insured is located; or (B) Recognized, or not disapproved, as a surplus lines insurer by the insurance regulator of the State or jurisdiction in which the property to be insured is located in the case of a policy of difference in conditions, multiple peril, all risk, or other blanket coverage insuring nonresidential commercial property; (ii) Provides flood insurance coverage that is at least as broad as the coverage provided under an SFIP for the same type of property, including when considering deductibles, exclusions, and conditions offered by the insurer. To be at least as broad as the coverage provided under an SFIP, the policy must, at a minimum: (A) Define the term “flood” to include the events defined as a “flood” in an SFIP; (B) Contain the coverage specified in an SFIP, including that relating to building property coverage; personal property coverage, if purchased by the insured mortgagor(s); other coverages; and increased cost of compliance coverage; (C) Contain deductibles no higher than the specified maximum, and include similar non-applicability provisions, as under an SFIP, for any total policy coverage amount up to the maximum available under the NFIP at the time the policy is provided to the lender; (D) Provide coverage for direct physical loss caused by a flood and may only exclude other causes of loss that are excluded in an SFIP. Any exclusions other than those in an SFIP may pertain only to coverage that is in addition to the amount and type of coverage that could be provided by an SFIP or have the effect of providing broader coverage to the policyholder; and (E) Not contain conditions that narrow the coverage provided in an SFIP; (iii) Includes all of the following: (A) A requirement for the insurer to give written notice 45 days before cancellation or non-renewal of flood insurance coverage to: ( 1 ( 2 (B) Information about the availability of flood insurance coverage under the NFIP; (C) A mortgage interest clause similar to the clause contained in an SFIP; and (D) A provision requiring an insured to file suit not later than one year after the date of a written denial of all or part of a claim under the policy; and (iv) Contains cancellation provisions that are as restrictive as the provisions contained in an SFIP. (10) Residential improved real estate (11) Servicer (i) Receiving any scheduled, periodic payments from a borrower under the terms of a loan, including amounts for taxes, insurance premiums, and other charges with respect to the property securing the loan; and (ii) Making payments of principal and interest and any other payments from the amounts received from the borrower as may be required under the terms of the loan. (12) SFIP (13) Special flood hazard area (14) Table funding (c) Requirement to purchase flood insurance where available In general. (2) Table funded loans. (3) Private flood insurance Mandatory acceptance. (ii) Compliance aid for mandatory acceptance. (iii) Discretionary acceptance. (A) Provides coverage in the amount required by paragraph (c)(1) of this section; (B) Is issued by an insurer that is licensed, admitted, or otherwise approved to engage in the business of insurance by the insurance regulator of the State or jurisdiction in which the property to be insured is located; or in the case of a policy of difference in conditions, multiple peril, all risk, or other blanket coverage insuring nonresidential commercial property, is issued by a surplus lines insurer recognized, or not disapproved, by the insurance regulator of the State or jurisdiction where the property to be insured is located; (C) Covers both the mortgagor(s) and the mortgagee(s) as loss payees, except in the case of a policy that is provided by a condominium association, cooperative, homeowners association, or other applicable group and for which the premium is paid by the condominium association, cooperative, homeowners association, or other applicable group as a common expense; and (D) Provides sufficient protection of the designated loan, consistent with general safety and soundness principles, and the member bank documents its conclusion regarding sufficiency of the protection of the loan in writing. (iv) Mutual aid societies. (A) The Board has determined that such plans qualify as flood insurance for purposes of the Act. (B) The plan provides coverage in the amount required by paragraph (c)(1) of this section; (C) The plan covers both the mortgagor(s) and the mortgagee(s) as loss payees; and (D) The plan provides sufficient protection of the designated loan, consistent with general safety and soundness principles, and the member bank documents its conclusion regarding sufficiency of the protection of the loan in writing. (d) Exemptions. (1) Any State-owned property covered under a policy of self-insurance satisfactory to the Administrator of FEMA, who publishes and periodically revises the list of States falling within this exemption; (2) Property securing any loan with an original principal balance of $5,000 or less and a repayment term of one year or less; or (3) Any structure that is a part of any residential property but is detached from the primary residential structure of such property and does not serve as a residence. For purposes of this paragraph (d)(3): (i) “A structure that is a part of a residential property” is a structure used primarily for personal, family, or household purposes, and not used primarily for agricultural, commercial, industrial, or other business purposes; (ii) A structure is “detached” from the primary residential structure if it is not joined by any structural connection to that structure; and (iii) “Serve as a residence” shall be based upon the good faith determination of the member bank that the structure is intended for use or actually used as a residence, which generally includes sleeping, bathroom, or kitchen facilities. (e) Escrow requirement In general Applicability. (ii) Exceptions. (A) The loan is an extension of credit primarily for business, commercial, or agricultural purposes; (B) The loan is in a subordinate position to a senior lien secured by the same residential improved real estate or mobile home for which the borrower has obtained flood insurance coverage that meets the requirements of paragraph (c) of this section; (C) Flood insurance coverage for the residential improved real estate or mobile home is provided by a policy that: ( 1 ( 2 ( 3 (D) The loan is a home equity line of credit; (E) The loan is a nonperforming loan, which is a loan that is 90 or more days past due and remains nonperforming until it is permanently modified or until the entire amount past due, including principal, accrued interest, and penalty interest incurred as the result of past due status, is collected or otherwise discharged in full; or (F) The loan has a term of not longer than 12 months. (iii) Duration of exception. (iv) Escrow account. (2) Notice. (3) Small lender exception Qualification. (A) That has total assets of less than $1 billion as of December 31 of either of the two prior calendar years; and (B) On or before July 6, 2012: ( 1 ( 2 (ii) Change in status. (4) Option to escrow In general. (A) The loan or the member bank qualifies for an exception from the escrow requirement under paragraphs (e)(1)(ii) or (e)(3) of this section, respectively; (B) The borrower is already escrowing all premiums and fees for flood insurance for the loan; or (C) The member bank is required to escrow flood insurance premiums and fees pursuant to paragraph (e)(1) of this section. (ii) Notice. (iii) Timing. (f) Required use of standard flood hazard determination form Use of form. www.fema.gov. (2) Retention of form. (g) Force placement of flood insurance Notice and purchase of coverage. (2) Termination of force-placed insurance Termination and refund. (A) Notify the insurance provider to terminate any insurance purchased by the member bank or its servicer under paragraph (g)(1) of this section; and (B) Refund to the borrower all premiums paid by the borrower for any insurance purchased by the member bank or its servicer under paragraph (g)(1) of this section during any period during which the borrower's flood insurance coverage and the insurance coverage purchased by the member bank or its servicer were each in effect, and any related fees charged to the borrower with respect to the insurance purchased by the member bank or its servicer during such period. (ii) Sufficiency of demonstration. (h) Determination fees. General. (2) Borrower fee. (i) Is made in connection with a making, increasing, extending, or renewing of the loan that is initiated by the borrower; (ii) Reflects the Administrator of FEMA's revision or updating of flood plain areas or flood-risk zones; (iii) Reflects the Administrator of FEMA's publication of a notice or compendium that: (A) Affects the area in which the building or mobile home securing the loan is located; or (B) By determination of the Administrator of FEMA, may reasonably require a determination whether the building or mobile home securing the loan is located in a special flood hazard area; or (iv) Results in the purchase of flood insurance coverage by the lender or its servicer on behalf of the borrower under paragraph (g) of this section. (3) Purchaser or transferee fee. (i) Notice of special flood hazards and availability of Federal disaster relief assistance. (1) Contents of notice. (i) A warning, in a form approved by the Administrator of FEMA, that the building or the mobile home is or will be located in a special flood hazard area; (ii) A description of the flood insurance purchase requirements set forth in section 102(b) of the Flood Disaster Protection Act of 1973, as amended (42 U.S.C. 4012a(b)); (iii) A statement, where applicable, that flood insurance coverage is available from private insurance companies that issue standard flood insurance policies on behalf of the NFIP or directly from the NFIP; (iv) A statement that flood insurance that provides the same level of coverage as a standard flood insurance policy under the NFIP also may be available from a private insurance company that issues policies on behalf of the company; (v) A statement that the borrower is encouraged to compare the flood insurance coverage, deductibles, exclusions, conditions, and premiums associated with flood insurance policies issued on behalf of the NFIP and policies issued on behalf of private insurance companies and that the borrower should direct inquiries regarding the availability, cost, and comparisons of flood insurance coverage to an insurance agent; and (vi) A statement whether Federal disaster relief assistance may be available in the event of damage to the building or mobile home caused by flooding in a Federally declared disaster. (2) Timing of notice. (3) Record of receipt. (4) Alternate method of notice. (5) Use of sample form of notice. (j) Notice of servicer's identity Notice requirement. (2) Transfer of servicing rights. Appendix A to § 208.25—Sample Form of Notice of Special Flood Hazards and Availability of Federal Disaster Relief Assistance Notice of Special Flood Hazards and Availability of Federal Disaster Relief Assistance We are giving you this notice to inform you that: The building or mobile home securing the loan for which you have applied is or will be located in an area with special flood hazards. The area has been identified by the Administrator of the Federal Emergency Management Agency (FEMA) as a special flood hazard area using FEMA's Flood Insurance Rate Map Flood Hazard Boundary Map Federal law allows a lender and borrower jointly to request the Administrator of FEMA to review the determination of whether the property securing the loan is located in a special flood hazard area. If you would like to make such a request, please contact us for further information. ____ The community in which the property securing the loan is located participates in the National Flood Insurance Program (NFIP). Federal law will not allow us to make you the loan that you have applied for if you do not purchase flood insurance. The flood insurance must be maintained for the life of the loan. If you fail to purchase or renew flood insurance on the property, Federal law authorizes and requires us to purchase the flood insurance for you at your expense. • At a minimum, flood insurance purchased must cover the lesser of: (1) the outstanding principal balance of the loan; or (2) the maximum amount of coverage allowed for the type of property under the NFIP. Flood insurance coverage under the NFIP is limited to the building or mobile home and any personal property that secures your loan and not the land itself. • Federal disaster relief assistance (usually in the form of a low-interest loan) may be available for damages incurred in excess of your flood insurance if your community's participation in the NFIP is in accordance with NFIP requirements. • Although you may not be required to maintain flood insurance on all structures, you may still wish to do so, and your mortgage lender may still require you to do so to protect the collateral securing the mortgage. If you choose not to maintain flood insurance on a structure and it floods, you are responsible for all flood losses relating to that structure. Availability of Private Flood Insurance Coverage Flood insurance coverage under the NFIP may be purchased through an insurance agent who will obtain the policy either directly through the NFIP or through an insurance company that participates in the NFIP. Flood insurance that provides the same level of coverage as a standard flood insurance policy under the NFIP may be available from private insurers that do not participate in the NFIP. You should compare the flood insurance coverage, deductibles, exclusions, conditions, and premiums associated with flood insurance policies issued on behalf of the NFIP and policies issued on behalf of private insurance companies and contact an insurance agent as to the availability, cost, and comparisons of flood insurance coverage. [Escrow Requirement for Residential Loans Federal law may require a lender or its servicer to escrow all premiums and fees for flood insurance that covers any residential building or mobile home securing a loan that is located in an area with special flood hazards. If your lender notifies you that an escrow account is required for your loan, then you must pay your flood insurance premiums and fees to the lender or its servicer with the same frequency as you make loan payments for the duration of your loan. These premiums and fees will be deposited in the escrow account, which will be used to pay the flood insurance provider.] ____ Flood insurance coverage under the NFIP is not available for the property securing the loan because the community in which the property is located does not participate in the NFIP. In addition, if the non-participating community has been identified for at least one year as containing a special flood hazard area, properties located in the community will not be eligible for Federal disaster relief assistance in the event of a Federally declared flood disaster. Appendix B to § 208.25—Sample Clause for Option to Escrow for Outstanding Loans Escrow Option Clause You have the option to escrow all premiums and fees for the payment on your flood insurance policy that covers any residential building or mobile home that is located in an area with special flood hazards and that secures your loan. If you choose this option: • Your payments will be deposited in an escrow account to be paid to the flood insurance provider. • The escrow amount for flood insurance will be added to the regular mortgage payment that you make to your lender or its servicer. • The payments you make into the escrow account will accumulate over time and the funds will be used to pay your flood insurance policy when your lender or servicer receives a notice from your flood insurance provider that the flood insurance premium is due. To choose this option, follow the instructions below. If you have any questions about the option, contact [Insert Name of Lender or Servicer] at [Insert Contact Information]. [Insert Instructions for Selecting to Escrow] [Reg. H, 80 FR 43245, July 21, 2015, as amended at 80 FR 43247, July 21, 2015; 84 FR 4970, Feb. 20, 2019] Subpart C—Bank Securities and Securities-Related Activities Source: 63 FR 37646, July 13, 1998, unless otherwise noted. § 208.30 Authority, purpose, and scope. (a) Authority. (b) Purpose and scope. § 208.31 State member banks as transfer agents. (a) The rules adopted by the Securities and Exchange Commission (SEC) pursuant to section 17A of the Securities Exchange Act of 1934 (15 U.S.C. 78q-l) prescribing procedures for registration of transfer agents for which the SEC is the appropriate regulatory agency (17 CFR 240.17Ac2-1) apply to member bank transfer agents. References to the “Commission” are deemed to refer to the Board. (b) The rules adopted by the SEC pursuant to section 17A prescribing operational and reporting requirements for transfer agents (17 CFR 240.17Ac2-2 and 240.17Ad-1 through 240.17Ad-16) apply to member bank transfer agents. § 208.32 Notice of disciplinary sanctions imposed by registered clearing agency. (a) Notice requirement. (1) Imposes any final disciplinary sanction on any participant therein; (2) Denies participation to any applicant; or (3) Prohibits or limits any person in respect to access to services offered by the clearing agency, shall file with the Board (and the appropriate regulatory agency, if other than the Board, for a participant or applicant) notice thereof in the manner prescribed in this section. (b) Notice of final disciplinary actions. final disciplinary action (i) One or more violations of the rules of the registered clearing agency; or (ii) Acts or practices constituting a statutory disqualification of a type defined in paragraph (iv) or (v) (except prior convictions) of section 3(a)(39) of the Act. (2) However, if a registered clearing agency fee schedule specifies certain charges for errors made by its participants in giving instructions to the registered clearing agency which are de minimis (c) Contents of final disciplinary action notice. (1) The name of the respondent and the respondent's last known address, as reflected on the records of the clearing agency, and the name of the person, committee, or other organizational unit that brought the charges. However, identifying information as to any respondent found not to have violated a provision covered by a charge may be deleted insofar as the notice reports the disposition of that charge and, prior to the filing of the notice, the respondent does not request that identifying information be included in the notice; (2) A statement describing the investigative or other origin of the action; (3) As charged in the proceeding, the specific provision or provisions of the rules of the clearing agency violated by the respondent, or the statutory disqualification referred to in paragraph (b)(2) of this section, and a statement describing the answer of the respondent to the charges; (4) A statement setting forth findings of fact with respect to any act or practice in which the respondent was charged with having engaged in or omitted; the conclusion of the clearing agency as to whether the respondent violated any rule or was subject to a statutory disqualification as charged; and a statement of the clearing agency in support of its resolution of the principal issues raised in the proceedings; (5) A statement describing any sanction imposed, the reasons therefor, and the date upon which the sanction became or will become effective; and (6) Such other matters as the clearing agency may deem relevant. (d) Notice of final denial, prohibition, termination or limitation based on qualification or administrative rules. (i) Comply with the qualification standards prescribed by the rules of the registered clearing agency pursuant to section 17A(b)(4)(B) of the Act; or (ii) Comply with any administrative requirements of the registered clearing agency (including failure to pay entry or other dues or fees, or to file prescribed forms or reports) not involving charges of violations that may lead to a disciplinary sanction. (2) However, no such action shall be considered final pursuant to this paragraph (d) that results merely from a notice of such failure to comply to the person affected, if such person has not sought an adjudication of the matter, including a hearing, or otherwise exhausted the administrative remedies within the registered clearing agency with respect to such a matter. (e) Contents of notice required by paragraph (d) of this section. (1) The name of each person concerned and each person's last known address, as reflected in the records of the clearing agency; (2) The specific grounds upon which the action of the clearing agency was based, and a statement describing the answer of the person concerned; (3) A statement setting forth findings of fact and conclusions as to each alleged failure of the person to comply with qualification standards or administrative obligations, and a statement of the clearing agency in support of its resolution of the principal issues raised in the proceeding; (4) The date upon which such action became or will become effective; and (5) Such other matters as the clearing agency deems relevant. (f) Notice of final action based on prior adjudicated statutory disqualifications. (1) Denies or conditions participation to any person, or prohibits or limits access to services offered by the clearing agency; and (2) Is based upon a statutory disqualification of a type defined in paragraph (A), (B) or (C) of section 3(a)(39) of the Act, consisting of a prior conviction, as described in subparagraph (E) of section 3(a)(39) of the Act. However, no such action shall be considered final pursuant to this paragraph (f) that results merely from a notice of such disqualification to the person affected, if such person has not sought an adjudication of the matter, including a hearing, or otherwise exhausted the administrative remedies within the clearing agency with respect to such a matter. (g) Contents of notice required by paragraph (f) of this section. (1) The name of each person concerned and each person's last known address, as reflected in the records of the clearing agency; (2) A statement setting forth the principal issues raised, the answer of any person concerned, and a statement of the clearing agency in support of its resolution of the principal issues raised in the proceeding; (3) Any description furnished by or on behalf of the person concerned of the activities engaged in by the person since the adjudication upon which the disqualification is based; (4) A copy of the order or decision of the court, appropriate regulatory agency, or self-regulatory organization that adjudicated the matter giving rise to the statutory disqualification; (5) The nature of the action taken and the date upon which such action is to be made effective; and (6) Such other matters as the clearing agency deems relevant. (h) Notice of summary suspension of participation. (i) Contents of notice of summary suspension. (1) The name of the participant concerned and the participant's last known address, as reflected in the records of the clearing agency; (2) The date upon which the summary action became or will become effective; (3) If the summary action is based upon the provisions of section 17A(b)(5)(C)(i) of the Act, a copy of the relevant order or decision of the self-regulatory organization, if available to the clearing agency; (4) If the summary action is based upon the provisions of section 17A(b)(5)(C)(ii) of the Act, a statement describing the default of any delivery of funds or securities to the clearing agency; (5) If the summary action is based upon the provisions of section 17A(b)(5)(C)(iii) of the Act, a statement describing the financial or operating difficulty of the participant based upon which the clearing agency determined that the suspension and closing of accounts was necessary for the protection of the clearing agency, its participants, creditors, or investors; (6) The nature and effective date of the suspension; and (7) Such other matters as the clearing agency deems relevant. § 208.33 Application for stay or review of disciplinary sanctions imposed by registered clearing agency. (a) Stays. (b) Reviews. § 208.34 Recordkeeping and confirmation of certain securities transactions effected by State member banks. (a) Exceptions and safe and sound operations. (i) De minimis transactions. (ii) Government securities. (iii) Municipal securities. (iv) Foreign branches. (2) Every State member bank qualifying for an exemption under paragraph (a)(1) of this section that conducts securities transactions for customers shall, to ensure safe and sound operations, maintain effective systems of records and controls regarding its customer securities transactions that clearly and accurately reflect appropriate information and provide an adequate basis for an audit of the information. (b) Definitions. (1) Asset-backed security (2) Collective investment fund (i) In a common trust fund maintained by such bank exclusively for the collective investment and reinvestment of monies contributed thereto by the bank in its capacity as trustee, executor, administrator, guardian, or custodian under the Uniform Gifts to Minors Act; or (ii) In a fund consisting solely of assets of retirement, pension, profit sharing, stock bonus or similar trusts which are exempt from Federal income taxation under the Internal Revenue Code (26 U.S.C.). (3) Completion of the transaction (i) For purchase transactions, the time when the customer pays the bank any part of the purchase price (or the time when the bank makes the book-entry for any part of the purchase price if applicable); however, if the customer pays for the security prior to the time payment is requested or becomes due, then the transaction shall be completed when the bank transfers the security into the account of the customer; and (ii) For sale transactions, the time when the bank transfers the security out of the account of the customer or, if the security is not in the bank's custody, then the time when the security is delivered to the bank; however, if the customer delivers the security to the bank prior to the time delivery is requested or becomes due then the transaction shall be completed when the banks makes payment into the account of the customer. (4) Crossing of buy and sell orders (5) Customer (6) Debt security et seq., (7) Government security (i) A security that is a direct obligation of, or obligation guaranteed as to principal and interest by, the United States; (ii) A security that is issued or guaranteed by a corporation in which the United States has a direct or indirect interest and which is designated by the Secretary of the Treasury for exemption as necessary or appropriate in the public interest or for the protection of investors; (iii) A security issued or guaranteed as to principal and interest by any corporation whose securities are designated, by statute specifically naming the corporation, to constitute exempt securities within the meaning of the laws administered by the Securities and Exchange Commission; or (iv) Any put, call, straddle, option, or privilege on a security as described in paragraphs (b)(7) (i), (ii), or (iii) of this section other than a put, call, straddle, option, or privilege that is traded on one or more national securities exchanges, or for which quotations are disseminated though an automated quotation system operated by a registered securities association. (8) Investment discretion (9) Municipal security (10) Periodic plan (i) A written authorization for a State member bank to act as agent to purchase or sell for a customer a specific security or securities, in a specific amount (calculated in security units or dollars) or to the extent of dividends and funds available, at specific time intervals, and setting forth the commission or charges to be paid by the customer or the manner of calculating them (including dividend reinvestment plans, automatic investment plans, and employee stock purchase plans); or (ii) Any prearranged, automatic transfer or sweep of funds from a deposit account to purchase a security, or any prearranged, automatic redemption or sale of a security with the funds being transferred into a deposit account (including cash management sweep services). (11) Security (i) Any note, stock, treasury stock, bond, debenture, certificate of interest or participation in any profit-sharing agreement or in any oil, gas, or other mineral royalty or lease, any collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, for a security, any put, call, straddle, option, or privilege on any security, or group or index of securities (including any interest therein or based on the value thereof), any instrument commonly known as a “security”; or any certificate of interest or participation in, temporary or interim certificate for, receipt for, or warrant or right to subscribe to or purchase, any of the foregoing. (ii) But does not include a deposit or share account in a federally or state insured depository institution, a loan participation, a letter of credit or other form of bank indebtedness incurred in the ordinary course of business, currency, any note, draft, bill of exchange, or bankers acceptance which has a maturity at the time of issuance of not exceeding nine months, exclusive of days of grace, or any renewal thereof the maturity of which is likewise limited, units of a collective investment fund, interests in a variable amount (master) note of a borrower of prime credit, or U.S. Savings Bonds. (c) Recordkeeping. (1) Chronological records of original entry containing an itemized daily record of all purchases and sales of securities. The records of original entry shall show the account or customer for which each such transaction was effected, the description of the securities, the unit and aggregate purchase or sale price (if any), the trade date and the name or other designation of the broker/dealer or other person from whom purchased or to whom sold; (2) Account records for each customer which shall reflect all purchases and sales of securities, all receipts and deliveries of securities, and all receipts and disbursements of cash with respect to transactions in securities for such account and all other debits and credits pertaining to transactions in securities; (3) A separate memorandum (order ticket) of each order to purchase or sell securities (whether executed or canceled), which shall include: (i) The account(s) for which the transaction was effected; (ii) Whether the transaction was a market order, limit order, or subject to special instructions; (iii) The time the order was received by the trader or other bank employee responsible for effecting the transaction; (iv) The time the order was placed with the broker/dealer, or if there was no broker/dealer, the time the order was executed or canceled; (v) The price at which the order was executed; and (vi) The broker/dealer utilized; (4) A record of all broker/dealers selected by the bank to effect securities transactions and the amount of commissions paid or allocated to each such broker during the calendar year; and (5) A copy of the written notification required by paragraphs (d) and (e) of this section. (d) Content and time of notification. (1) A copy of the confirmation of a broker/dealer relating to the securities transaction; and if the bank is to receive remuneration from the customer or any other source in connection with the transaction, and the remuneration is not determined pursuant to a prior written agreement between the bank and the customer, a statement of the source and the amount of any remuneration to be received; or (2) A written notification disclosing: (i) The name of the bank; (ii) The name of the customer; (iii) Whether the bank is acting as agent for such customer, as agent for both such customer and some other person, as principal for its own account, or in any other capacity; (iv) The date of execution and a statement that the time of execution will be furnished within a reasonable time upon written request of such customer specifying the identity, price and number of shares or units (or principal amount in the case of debt securities) of such security purchased or sold by such customer; (v) The amount of any remuneration received or to be received, directly or indirectly, by any broker/dealer from such customer in connection with the transaction; (vi) The amount of any remuneration received or to be received by the bank from the customer and the source and amount of any other remuneration to be received by the bank in connection with the transaction, unless remuneration is determined pursuant to a written agreement between the bank and the customer, provided, however, in the case of Government securities and municipal securities, this paragraph (d)(2)(vi) shall apply only with respect to remuneration received by the bank in an agency transaction. If the bank elects not to disclose the source and amount of remuneration it has or will receive from a party other than the customer pursuant to this paragraph (d)(2)(vi), the written notification must disclose whether the bank has received or will receive remuneration from a party other than the customer, and that the bank will furnish within a reasonable time the source and amount of this remuneration upon written request of the customer. This election is not available, however, if, with respect to a purchase, the bank was participating in a distribution of that security; or with respect to a sale, the bank was participating in a tender offer for that security; (vii) The name of the broker/dealer utilized; or, where there is no broker/dealer, the name of the person from whom the security was purchased or to whom it was sold, or the fact that such information will be furnished within a reasonable time upon written request; (viii) In the case of a transaction in a debt security subject to redemption before maturity, a statement to the effect that the debt security may be redeemed in whole or in part before maturity, that the redemption could affect the yield represented and that additional information is available on request; (ix) In the case of a transaction in a debt security effected exclusively on the basis of a dollar price: (A) The dollar price at which the transaction was effected; (B) The yield to maturity calculated from the dollar price; provided, however, that this paragraph (c)(2)(ix)(B) shall not apply to a transaction in a debt security that either has a maturity date that may be extended by the issuer with a variable interest payable thereon, or is an asset-backed security that represents an interest in or is secured by a pool of receivables or other financial assets that are subject to continuous prepayment; (x) In the case of a transaction in a debt security effected on the basis of yield: (A) The yield at which the transaction was effected, including the percentage amount and its characterization (e.g., current yield, yield to maturity, or yield to call) and if effected at yield to call, the type of call, the call date, and the call price; and (B) The dollar price calculated from the yield at which the transaction was effected; and (C) If effected on a basis other than yield to maturity and the yield to maturity is lower than the represented yield, the yield to maturity as well as the represented yield; provided, however, that this paragraph (c)(2)(x)(C) shall not apply to a transaction in a debt security that either has a maturity date that may be extended by the issuer with a variable interest rate payable thereon, or is an asset-backed security that represents an interest in or is secured by a pool of receivables or other financial assets that are subject to continuous prepayment; (xi) In the case of a transaction in a debt security that is an asset-backed security which represents an interest in or is secured by a pool of receivables or other financial assets that are subject continuously to prepayment, a statement indicating that the actual yield of such asset-backed security may vary according to the rate at which the underlying receivables or other financial assets are prepaid and a statement of the fact that information concerning the factors that affect yield (including at a minimum, the estimated yield, weighted average life, and the prepayment assumptions underlying yield) will be furnished upon written request of such customer; and (xii) In the case of a transaction in a debt security, other than a government security, that the security is unrated by a nationally recognized statistical rating organization, if that is the case. (e) Notification by agreement; alternative forms and times of notification. (1) Accounts (except periodic plans) where the bank does not exercise investment discretion and the bank and the customer agree in writing to a different arrangement as to the time and content of the notification; provided, however, that such agreement makes clear the customer's right to receive the written notification pursuant to paragraph (c) of this section at no additional cost to the customer; (2) Accounts (except collective investment funds) where the bank exercises investment discretion in other than an agency capacity, in which instance the bank shall, upon request of the person having the power to terminate the account or, if there is no such person, upon the request of any person holding a vested beneficial interest in such account, give or send to such person the written notification within a reasonable time. The bank may charge such person a reasonable fee for providing this information; (3) Accounts, where the bank exercises investment discretion in an agency capacity, in which instance: (i) The bank shall give or send to each customer not less frequently than once every three months an itemized statement which shall specify the funds and securities in the custody or possession of the bank at the end of such period and all debits, credits and transactions in the customer's accounts during such period; and (ii) If requested by the customer, the bank shall give or send to each customer within a reasonable time the written notification described in paragraph (c) of this section. The bank may charge a reasonable fee for providing the information described in paragraph (c) of this section; (4) A collective investment fund, in which instance the bank shall at least annually furnish a copy of a financial report of the fund, or provide notice that a copy of such report is available and will be furnished upon request, to each person to whom a regular periodic accounting would ordinarily be rendered with respect to each participating account. This report shall be based upon an audit made by independent public accountants or internal auditors responsible only to the board of directors of the bank; (5) A periodic plan, in which instance the bank: (i) Shall (except for a cash management sweep service) give or send to the customer a written statement not less than every three months if there are no securities transactions in the account, showing the customer's funds and securities in the custody or possession of the bank; all service charges and commissions paid by the customer in connection with the transaction; and all other debits and credits of the customer's account involved in the transaction; or (ii) Shall for a cash management sweep service or similar periodic plan as defined in § 208.34(b)(10)(ii) give or send its customer a written statement in the same form as prescribed in paragraph (e)(3) above for each month in which a purchase or sale of a security takes place in a deposit account and not less than once every three months if there are no securities transactions in the account subject to any other applicable laws or regulations; (6) Upon the written request of the customer the bank shall furnish the information described in paragraph (d) of this section, except that any such information relating to remuneration paid in connection with the transaction need not be provided to the customer when paid by a source other than the customer. The bank may charge a reasonable fee for providing the information described in paragraph (d) of this section. (f) Settlement of securities transactions. (g) Securities trading policies and procedures. (1) Assignment of responsibility for supervision of all officers or employees who: (i) Transmit orders to or place orders with broker/dealers; (ii) Execute transactions in securities for customers; or (iii) Process orders for notification and/or settlement purposes, or perform other back office functions with respect to securities transactions effected for customers; provided that procedures established under this paragraph (g)(1)(iii) should provide for supervision and reporting lines that are separate from supervision of personnel under paragraphs (g)(1)(i) and (g)(1)(ii) of this section; (2) For the fair and equitable allocation of securities and prices to accounts when orders for the same security are received at approximately the same time and are placed for execution either individually or in combination; (3) Where applicable and where permissible under local law, for the crossing of buy and sell orders on a fair and equitable basis to the parties to the transaction; and (4) That bank officers and employees who make investment recommendations or decisions for the accounts of customers, who participate in the determination of such recommendations or decisions, or who, in connection with their duties, obtain information concerning which securities are being purchased or sold or recommended for such action, must report to the bank, within ten days after the end of the calendar quarter, all transactions in securities made by them or on their behalf, either at the bank or elsewhere in which they have a beneficial interest. The report shall identify the securities purchased or sold and indicate the dates of the transactions and whether the transactions were purchases or sales. Excluded from this requirement are transactions for the benefit of the officer or employee over which the officer or employee has no direct or indirect influence or control, transactions in mutual fund shares, and all transactions involving in the aggregate $10,000 or less during the calendar quarter. For purposes of this paragraph (g)(4), the term securities does not include government securities. § 208.35 Qualification requirements for transactions in certain securities. [Reserved] § 208.36 Reporting requirements for State member banks subject to the Securities Exchange Act of 1934. (a) Filing, disclosure and other requirements General. (i) Sections 10A(m), 12, 13, 14(a), 14(c), 14(d), 14(f) and 16 of the 1934 Act (15 U.S.C. 78f(m), 78l, 78m, 78n(a), (c), (d) and (f), and 78p); and (ii) Sections 302, 303, 304, 306, 401(b), 404, 406 and 407 of the Sarbanes-Oxley Act of 2002 (codified at 15 U.S.C. 7241, 7242, 7243, 7244, 7261, 7262, 7264 and 7265). (2) References to the Commission. (b) Elections permitted for member banks with total assets of $150 million or less. (2) A member bank qualifying for and electing to file financial statements from its quarterly report of condition pursuant to paragraph (b)(1) of this section in its form 10-Q shall include earnings per share or net loss per share data prepared in accordance with GAAP and disclose any material contingencies, as required by Article 10 of the Commission's Regulation S-X (17 CFR 210.10-01), in the Management's Discussion and Analysis of Financial Condition and Results of Operations section of Form 10-Q. (3) Notwithstanding paragraph (b)(1) of this section, a member bank may, from December 2, 2020, through December 31, 2021, make the election described in paragraph (b)(1) of this section if it has no foreign offices and had total assets of $150 million or less, determined based on the lesser of total assets as of December 31, 2019, and total assets as of the end of the bank's most recent fiscal year. The relief provided under this paragraph (b)(3) of this section does not apply to a member bank if the Board determines that permitting the member bank to determine its assets in accordance with that paragraph would not be commensurate with the risk profile of the member bank. When making this determination, the Board will consider all relevant factors, including the extent of asset growth of the member bank since December 31, 2019; the causes of such growth, including whether growth occurred as a result of mergers or acquisitions; whether such growth is likely to be temporary or permanent; whether the member bank has become involved in any additional activities since December 31, 2019; the asset size of any parent companies; and the type of assets held by the member bank. In making a determination pursuant to this paragraph (b)(3), the Board will apply notice and response procedures in the same manner and to the same extent as the notice and response procedures in 12 CFR 263.202. (c) Required filings Place and timing of filing. (2) Filing fees. (3) Public inspection. (d) Confidentiality of filing. (1) The person shall omit from the statement, report, or document, when it is filed, the portion thereof that the person desires to keep undisclosed (hereinafter called the confidential portion). The person shall indicate at the appropriate place in the statement, report, or document that the confidential portion has been omitted and filed separately with the Board. (2) The person shall file the following with the copies of the statement, report, or document filed with the Board: (i) As many copies of the confidential portion, each clearly marked “CONFIDENTIAL TREATMENT,” as there are copies of the statement, report, or document filed with the Board. Each copy of the confidential portion shall contain the complete text of the item and, notwithstanding that the confidential portion does not constitute the whole of the answer, the entire answer thereto; except that in case the confidential portion is part of a financial statement or schedule, only the particular financial statement or schedule need be included. All copies of the confidential portion shall be in the same form as the remainder of the statement, report, or document; and (ii) An application making objection to the disclosure of the confidential portion. The application shall be on a sheet or sheets separate from the confidential portion, and shall: (A) Identify the portion of the statement, report, or document that has been omitted; (B) Include a statement of the grounds of objection; and (C) Include the name of each exchange, if any, with which the statement, report, or document is filed. (3) The copies of the confidential portion and the application filed in accordance with this paragraph shall be enclosed in a separate envelope marked “CONFIDENTIAL TREATMENT,” and addressed to Secretary, Board of Governors of the Federal Reserve System, Washington, DC 20551. (4) Pending determination by the Board on the objection filed in accordance with this paragraph, the confidential portion shall not be disclosed by the Board. (5) If the Board determines to sustain the objection, a notation to that effect shall be made at the appropriate place in the statement, report, or document. (6) If the Board determines not to sustain the objection because disclosure of the confidential portion is in the public interest, a finding and determination to that effect shall be entered and notice of the finding and determination sent by registered or certified mail to the person. (7) If the Board determines not to sustain the objection, pursuant to paragraph (d)(6) of this section, the confidential portion shall be made available to the public: (i) 15 days after notice of the Board's determination not to sustain the objection has been given, as required by paragraph (d)(6) of this section, provided that the person filing the objection has not previously filed with the Board a written statement that he intends, in good faith, to seek judicial review of the finding and determination; or (ii) 60 days after notice of the Board's determination not to sustain the objection has been given as required by paragraph (d)(6) of this section and the person filing the objection has filed with the Board a written statement of intent to seek judicial review of the finding and determination, but has failed to file a petition for judicial review of the Board's determination; or (iii) Upon final judicial determination, if adverse to the party filing the objection. (8) If the confidential portion is made available to the public, a copy thereof shall be attached to each copy of the statement, report, or document filed with the Board. [63 FR 37646, July 13, 1998, as amended at 67 FR 57941, Sept. 13, 2002; 68 FR 4096, Jan. 28, 2003; 85 FR 77360, Dec. 2, 2020] § 208.37 Government securities sales practices. (a) Scope. (b) Definitions. (1) Bank that is a government securities broker or dealer (2) Customer (3) Government security (4) Non-institutional customer (i) A bank, savings association, insurance company, or registered investment company; (ii) An investment adviser registered under section 203 of the Investment Advisers Act of 1940 (15 U.S.C. 80b-3); or (iii) Any entity (whether a natural person, corporation, partnership, trust, or otherwise) with total assets of at least $50 million. (c) Business conduct. (d) Recommendations to customers. (e) Customer information. (1) The customer's financial status; (2) The customer's tax status; (3) The customer's investment objectives; and (4) Such other information used or considered to be reasonable by the bank in making recommendations to the customer. Subpart D—Prompt Corrective Action Source: 63 FR 37652, July 13, 1998, unless otherwise noted. § 208.40 Authority, purpose, scope, other supervisory authority, and disclosure of capital categories. (a) Authority. (b) Purpose and scope. (c) Other supervisory authority. (d) Disclosure of capital categories. (e) Timing. [63 FR 37652, July 13, 1998, as amended by Reg. H, 78 FR 62282, Oct. 11, 2013; 80 FR 70672, Nov. 16, 2015] § 208.41 Definitions for purposes of this subpart. For purposes of this subpart, except as modified in this section or unless the context otherwise requires, the terms used have the same meanings as set forth in section 38 and section 3 of the FDI Act. (a) Advanced approaches bank (b) Bank (c) Common equity tier 1 capital (d) Common equity tier 1 risk-based capital ratio (e) Control Control controlled control. (2) Exclusion for fiduciary ownership. (3) Exclusion for debts previously contracted. (f) Controlling person (g) Global systemically important BHC (h) Leverage ratio (i) Management fee (j) Supplementary leverage ratio (k) Tangible equity (l) Tier 1 capital (m) Tier 1 risk-based capital ratio (n) Total assets (o) Total leverage exposure (p) Total risk-based capital ratio (q) Total risk-weighted assets [Regulation H, 78 FR 62282, Oct. 11, 2013, as amended at 80 FR 49102, Aug. 14, 2015; 80 FR 70672, Nov. 16, 2015; 90 FR 55289, Dec. 1, 2025] § 208.42 Notice of capital category. (a) Effective date of determination of capital category. (b) Notice of capital category. (1) A Report of Condition and Income (Call Report) is required to be filed with the Board; (2) A final report of examination is delivered to the bank; or (3) Written notice is provided by the Board to the bank of its capital category for purposes of section 38 of the FDI Act and this subpart or that the bank's capital category has changed as provided in paragraph (c) of this section or § 208.43(c). (c) Adjustments to reported capital levels and capital category Notice of adjustment by bank. (2) Determination by Board to change capital category. § 208.43 Capital measures and capital category definitions. (a) Capital measures. (i) Total Risk-Based Capital Measure: The total risk-based capital ratio; (ii) Tier 1 Risk-Based Capital Measure: The tier 1 risk-based capital ratio; (iii) Common Equity Tier 1 Capital Measure: The common equity tier 1 risk-based capital ratio; and (iv) Leverage Measure: (A) The leverage ratio; and (B) With respect to an advanced approaches bank or, if applicable, a bank that is a Category III Board-regulated institution (as defined in § 217.2 of this chapter), the supplementary leverage ratio. (2) For a qualifying community banking organization (as defined in § 217.12 of this chapter), that has elected to use the community bank leverage ratio framework (as defined in § 217.12 of this chapter), the leverage ratio calculated in accordance with § 217.12(b) of this chapter is used to determine the well capitalized capital category under paragraph (b)(1)(i)(A) through (D) of this section. (b) Capital categories. (1)(i) “Well capitalized” if: (A) Total Risk-Based Capital Measure: The bank has a total risk-based capital ratio of 10.0 percent or greater; and (B) Tier 1 Risk-Based Capital Measure: The bank has a tier 1 risk-based capital ratio of 8.0 percent or greater; and (C) Common Equity Tier 1 Capital Measure: The bank has a common equity tier 1 risk-based capital ratio of 6.5 percent or greater; and (D) Leverage Measure: The bank has a leverage ratio of 5.0 percent or greater; and (E) The bank is not subject to any written agreement, order, capital directive, or prompt corrective action directive issued by the Board pursuant to section 8 of the FDI Act, the International Lending Supervision Act of 1983 (12 U.S.C. 3907), or section 38 of the FDI Act, or any regulation thereunder, to meet and maintain a specific capital level for any capital measure. (ii) A qualifying community banking organization, as defined in § 217.12 of this chapter, that has elected to use the community bank leverage ratio framework under § 217.12 of this chapter, shall be considered to have met the capital ratio requirements for the well capitalized capital category in paragraph (b)(1)(i)(A) through (D) of this section. (2) “Adequately capitalized” if: (i) Total Risk-Based Capital Measure: the bank has a total risk-based capital ratio of 8.0 percent or greater; (ii) Tier 1 Risk-Based Capital Measure: the bank has a tier 1 risk-based capital ratio of 6.0 percent or greater; (iii) Common Equity Tier 1 Capital Measure: the bank has a common equity tier 1 risk-based capital ratio of 4.5 percent or greater; (iv) Leverage Measure: (A) The bank has a leverage ratio of 4.0 percent or greater; and (B) With respect to an advanced approaches bank or bank that is a Category III Board-regulated institution (as defined in § 217.2 of this chapter), the bank has a supplementary leverage ratio of 3.0 percent or greater; and (v) The bank does not meet the definition of a “well capitalized” bank. (3) “Undercapitalized” if: (i) Total Risk-Based Capital Measure: the bank has a total risk-based capital ratio of less than 8.0 percent; (ii) Tier 1 Risk-Based Capital Measure: the bank has a tier 1 risk-based capital ratio of less than 6.0 percent; (iii) Common Equity Tier 1 Capital Measure: the bank has a common equity tier 1 risk-based capital ratio of less than 4.5 percent; or (iv) Leverage Measure: (A) The bank has a leverage ratio of less than 4.0 percent; or (B) With respect to an advanced approaches bank or bank that is a Category III Board-regulated institution (as defined in § 217.2 of this chapter), the bank has a supplementary leverage ratio of less than 3.0 percent. (4) “Significantly undercapitalized” if: (i) Total Risk-Based Capital Measure: the bank has a total risk-based capital ratio of less than 6.0 percent; (ii) Tier 1 Risk-Based Capital Measure: the bank has a tier 1 risk-based capital ratio of less than 4.0 percent; (iii) Common Equity Tier 1 Capital Measure: the bank has a common equity tier 1 risk-based capital ratio of less than 3.0 percent; or (iv) Leverage Measure: the bank has a leverage ratio of less than 3.0 percent. (5) “Critically undercapitalized” if the bank has a ratio of tangible equity to total assets that is equal to or less than 2.0 percent. (c) Reclassification based on supervisory criteria other than capital. (1) Unsafe or unsound condition. (2) Unsafe or unsound practice. [63 FR 37652, July 13, 1998, as amended by Reg. H, 78 FR 62283, Oct. 11, 2013; 79 FR 24540, May 1, 2014; 80 FR 49102, Aug. 14, 2015; 80 FR 70672, Nov. 16, 2015; 84 FR 61796, Nov. 13, 2019; 84 FR 70887, Dec. 26, 2019; 85 FR 32989, June 1, 2020; 90 FR 55289, Dec. 1, 2025] § 208.44 Capital restoration plans. (a) Schedule for filing plan In general. (2) Additional capital restoration plans. (b) Contents of plan. (c) Review of capital restoration plans. (d) Disapproval of capital plan. (e) Failure to submit capital restoration plan. (f) Failure to implement capital restoration plan. (g) Amendment of capital plan. (h) Notice to FDIC. (i) Performance guarantee by companies that control a bank Limitation on Liability Amount limitation. (A) An amount equal to 5.0 percent of the bank's total assets at the time the bank was notified or deemed to have notice that the bank was undercapitalized; or (B) The amount necessary to restore the relevant capital measures of the bank to the levels required for the bank to be classified as adequately capitalized, as those capital measures and levels are defined at the time that the bank initially fails to comply with a capital restoration plan under this subpart. (ii) Limit on duration. (iii) Collection on guarantee. (2) Failure to provide guarantee. (3) Failure to perform guarantee. § 208.45 Mandatory and discretionary supervisory actions under section 38. (a) Mandatory supervisory actions Provisions applicable to all banks. (2) Provisions applicable to undercapitalized, significantly undercapitalized, and critically undercapitalized banks. (i) Restricting payment of capital distributions and management fees (section 38(d)); (ii) Requiring that the Board monitor the condition of the bank (section 38(e)(1)); (iii) Requiring submission of a capital restoration plan within the schedule established in this subpart (section 38(e)(2)); (iv) Restricting the growth of the bank's assets (section 38(e)(3)); and (v) Requiring prior approval of certain expansion proposals (section 3(e)(4)). (3) Additional provisions applicable to significantly undercapitalized, and critically undercapitalized banks. (4) Additional provisions applicable to critically undercapitalized banks. (i) Restricting the activities of the bank (section 38(h)(1)); and (ii) Restricting payments on subordinated debt of the bank (section 38(h)(2)). (b) Discretionary supervisory actions. Subpart E—Real Estate Lending, Appraisal Standards, and Minimum Requirements for Appraisal Management Companies § 208.50 Authority, purpose, and scope. (a) Authority. (b) Purpose and scope. [80 FR 32681, June 9, 2015] § 208.51 Real estate lending standards. (a) Adoption of written policies. (b) Requirements of lending policies. (i) Consistent with safe and sound banking practices; (ii) Appropriate to the size of the institution and the nature and scope of its operations; and (iii) Reviewed and approved by the bank's board of directors at least annually. (2) The lending policies shall establish: (i) Loan portfolio diversification standards; (ii) Prudent underwriting standards, including loan-to-value limits, that are clear and measurable; (iii) Loan administration procedures for the bank's real estate portfolio; and (iv) Documentation, approval, and reporting requirements to monitor compliance with the bank's real estate lending policies. (c) Monitoring conditions. (d) Interagency guidelines. Subpart F—Miscellaneous Requirements Source: 63 FR 37655, July 13, 1998, unless otherwise noted. § 208.60 Authority, purpose, and scope. (a) Authority. (b) Purpose and scope. § 208.61 Bank security procedures. (a) Authority, purpose, and scope. (b) Designation of security officer. (c) Security program. (i) Establish procedures for opening and closing for business and for the safekeeping of all currency, negotiable securities, and similar valuables at all times; (ii) Establish procedures that will assist in identifying persons committing crimes against the institution and that will preserve evidence that may aid in their identification and prosecution. Such procedures may include, but are not limited to: maintaining a camera that records activity in the banking office; using identification devices, such as prerecorded serial-numbered bills, or chemical and electronic devices; and retaining a record of any robbery, burglary, or larceny committed against the bank; (iii) Provide for initial and periodic training of officers and employees in their responsibilities under the security program and in proper employee conduct during and after a burglary, robbery, or larceny; and (iv) Provide for selecting, testing, operating, and maintaining appropriate security devices, as specified in paragraph (c)(2) of this section. (2) Security devices. (i) A means of protecting cash and other liquid assets, such as a vault, safe, or other secure space; (ii) A lighting system for illuminating, during the hours of darkness, the area around the vault, if the vault is visible from outside the banking office; (iii) Tamper-resistant locks on exterior doors and exterior windows that may be opened; (iv) An alarm system or other appropriate device for promptly notifying the nearest responsible law enforcement officers of an attempted or perpetrated robbery or burglary; and (v) Such other devices as the security officer determines to be appropriate, taking into consideration: the incidence of crimes against financial institutions in the area; the amount of currency and other valuables exposed to robbery, burglary, or larceny; the distance of the banking office from the nearest responsible law enforcement officers; the cost of the security devices; other security measures in effect at the banking office; and the physical characteristics of the structure of the banking office and its surroundings. (d) Annual reports. (e) Reserve Banks. § 208.62 Suspicious activity reports. (a) Purpose. (b) Definitions. (1) FinCEN (2) Institution-affiliated (3) SAR (c) SARs required. (1) Insider abuse involving any amount. (2) Violations aggregating $5,000 or more where a suspect can be identified. (3) Violations aggregating $25,000 or more regardless of a potential suspect. (4) Transactions aggregating $5,000 or more that involve potential money laundering or violations of the Bank Secrecy Act. (i) The transaction involves funds derived from illegal activities or is intended or conducted in order to hide or disguise funds or assets derived from illegal activities (including, without limitation, the ownership, nature, source, location, or control of such funds or assets) as part of a plan to violate or evade any law or regulation or to avoid any transaction reporting requirement under federal law; (ii) The transaction is designed to evade any regulations promulgated under the Bank Secrecy Act; or (iii) The transaction has no business or apparent lawful purpose or is not the sort in which the particular customer would normally be expected to engage, and the bank knows of no reasonable explanation for the transaction after examining the available facts, including the background and possible purpose of the transaction. (d) Time for reporting. (e) Reports to state and local authorities. (f) Exceptions. (2) A member bank need not file a SAR for lost, missing, counterfeit, or stolen securities if it files a report pursuant to the reporting requirements of 17 CFR 240.17f-1. (g) Retention of records. (h) Notification to board of directors. (i) Compliance. (j) Confidentiality of SARs. (k) Safe harbor. § 208.63 Procedures for monitoring Bank Secrecy Act compliance. (a) Purpose. et seq. (b) Establishment of BSA compliance program Program requirement. (2) Customer identification program. (c) Contents of compliance program. (1) Provide for a system of internal controls to assure ongoing compliance; (2) Provide for independent testing for compliance to be conducted by bank personnel or by an outside party; (3) Designate an individual or individuals responsible for coordinating and monitoring day-to-day compliance; and (4) Provide training for appropriate personnel. [63 FR 37655, July 13, 1998, as amended at 68 FR 25111, May 9, 2003] § 208.64 Frequency of examination. (a) General. (b) 18-month rule for certain small institutions. (1) The bank has total assets of less than $3 billion; (2) The bank is well capitalized as defined in subpart D of this part (§ 208.43); (3) At the most recent examination conducted by either the Federal Reserve or applicable State banking agency, the Federal Reserve— (i) Assigned the bank a rating of 1 or 2 for management as part of the bank's rating under the Uniform Financial Institutions Rating System (commonly referred to as CAMELS); and (ii) Assigned the bank a composite CAMELS rating of 1 or 2 under the Uniform Financial Institutions Rating System; (4) The bank currently is not subject to a formal enforcement proceeding or order by the Federal Reserve or the FDIC; and (5) No person acquired control of the bank during the preceding 12-month period in which a full-scope examination would have been required but for this paragraph (b). (c) Authority to conduct more frequent examinations. (d)(1) Except as provided in paragraph (c) of this section, from December 2, 2020, through December 31, 2021, for purposes of determining eligibility for the extended examination cycle described in paragraph (b) of this section, the total assets of a member bank shall be determined based on the lesser of: (i) The assets of the member bank as of December 31, 2019; and (ii) The assets of the member bank as of the end of the most recent calendar quarter. (2) Nothing in paragraph (d)(1) of this section limits the authority of the Federal Reserve to examine any member bank as frequently as the agency deems necessary pursuant to paragraph (c) of this section. [63 FR 37655, July 13, 1998, as amended at 72 FR 17802, Apr. 10, 2007; 81 FR 10069, Feb. 29, 2016; 83 FR 43965, Aug. 29, 2018; 85 FR 77360, Dec. 2, 2020] Subpart G—Financial Subsidiaries of State Member Banks Source: Reg. H, 66 FR 42933, Aug. 16, 2001, unless otherwise noted. § 208.71 What are the requirements to invest in or control a financial subsidiary? (a) In general. (1) The state member bank and each depository institution affiliate of the state member bank are well capitalized and well managed; (2) The aggregate consolidated total assets of all financial subsidiaries of the state member bank do not exceed the lesser of: (i) 45 percent of the consolidated total assets of the parent bank; or (ii) $50 billion, which dollar amount shall be adjusted according to an indexing mechanism jointly established by the Board and the Secretary of the Treasury; (3) The state member bank, if it is one of the largest 100 insured banks (based on consolidated total assets as of the end of the previous calendar year), meets the debt rating or alternative requirement of paragraph (b) of this section, if applicable; and (4) The Board or the appropriate Reserve Bank has approved the bank to acquire the interest in or control the financial subsidiary under § 208.76. (b) Debt rating or alternative requirement for 100 largest insured banks General. (i) The bank has at least one issue of eligible debt outstanding that is currently rated in one of the three highest investment grade rating categories by a nationally recognized statistical rating organization; or (ii) If the bank is one of the second 50 largest insured banks (based on consolidated total assets as of the end of the previous calendar year), the bank has a current long-term issuer credit rating from at least one nationally recognized statistical rating organization that is within the three highest investment grade rating categories used by the organization. (2) Financial subsidiaries engaged in financial activities only as agent. § 208.72 What activities may a financial subsidiary conduct? (a) Authorized activities. (1) Any financial activity listed in § 225.86(a), (b), or (c) of the Board's Regulation Y (12 CFR 225.86(a), (b), or (c)); (2) Any activity that the Secretary of the Treasury, in consultation with the Board, has determined to be financial in nature or incidental to a financial activity and permissible for financial subsidiaries pursuant to Section 5136A(b) of the Revised Statutes of the United States (12 U.S.C. 24a(b)); and (3) Any activity that the state member bank is permitted to engage in directly (subject to the same terms and conditions that govern the conduct of the activity by the state member bank). (b) Impermissible activities. (1) Insuring, guaranteeing, or indemnifying against loss, harm, damage, illness, disability or death (except to the extent permitted under applicable state law and section 302 or 303(c) of the Gramm-Leach-Bliley Act (15 U.S.C. 6712 or 6713(c)); (2) Providing or issuing annuities the income of which is subject to tax treatment under section 72 of the Internal Revenue Code of 1986 (26 U.S.C. 72); (3) Real estate development or real estate investment, unless otherwise expressly authorized by applicable state and Federal law; and (4) Any merchant banking or insurance company investment activity permitted for financial holding companies by section 4(k)(4)(H) or (I) of the Bank Holding Company Act (12 U.S.C. 1843(k)(4)(H) and (I)). § 208.73 What additional provisions are applicable to state member banks with financial subsidiaries? (a) Capital deduction required prior to January 1, 2015, for state member banks that are not advanced approaches banks (as defined in § 208.41). (1) The bank must not consolidate the assets and liabilities of any financial subsidiary with those of the bank. (2) For purposes of determining the bank's risk-based capital ratios under appendix A of this part, the bank must— (i) Deduct 50 percent of the aggregate amount of its outstanding equity investment (including retained earnings) in all financial subsidiaries from both the bank's Tier 1 capital and Tier 2 capital; and (ii) Deduct the entire amount of the bank's outstanding equity investment (including retained earnings) in all financial subsidiaries from the bank's risk-weighted assets. (3) For purposes of determining the bank's leverage capital ratio under appendix B of this part, the bank must— (i) Deduct 50 percent of the aggregate amount of its outstanding equity investment (including retained earnings) in all financial subsidiaries from the bank's Tier 1 capital; and (ii) Deduct the entire amount of the bank's outstanding equity investment (including retained earnings) in all financial subsidiaries from the bank's average total assets. (4) For purposes of determining the bank's ratio of tangible equity to total assets under § 208.43(b)(5), the bank must deduct the entire amount of the bank's outstanding equity investment (including retained earnings) in all financial subsidiaries from the bank's tangible equity and total assets. (5) If the deduction from Tier 2 capital required by paragraph (a)(2)(i) of this section exceeds the bank's Tier 2 capital, any excess must be deducted from the bank's Tier 1 capital. (b) Capital requirements for advanced approaches banks (as defined in § 208.41) and, after January 1, 2015, all state member banks. (c) Financial statement disclosure of capital deduction. (d) Safeguards for the bank. (1) Establish and maintain procedures for identifying and managing financial and operational risks within the state member bank and the financial subsidiary that adequately protect the state member bank from such risks; and (2) Establish and maintain reasonable policies and procedures to preserve the separate corporate identity and limited liability of the state member bank and the financial subsidiary. (e) Application of Sections 23A and 23B of the Federal Reserve Act. (1) A financial subsidiary of a state member bank shall be deemed an affiliate, and not a subsidiary, of the bank; (2) The restrictions contained in section 23A(a)(1)(A) of the Federal Reserve Act (12 U.S.C. 371c(a)(1)(A)) shall not apply with respect to covered transactions between the bank and any individual financial subsidiary of the bank; (3) The bank's investment in a financial subsidiary shall not include retained earnings of the financial subsidiary; (4) Any purchase of, or investment in, the securities of a financial subsidiary by an affiliate of the bank will be considered to be a purchase of, or investment in, such securities by the bank; and (5) Any extension of credit by an affiliate of the bank to a financial subsidiary of the bank will be considered to be an extension of credit by the bank to the financial subsidiary if the Board determines that such treatment is necessary or appropriate to prevent evasions of the Federal Reserve Act and the Gramm-Leach-Bliley Act. (f) Application of anti-tying prohibitions. et seq. [Reg. H, 66 FR 42933, Aug. 16, 2001, as amended at 78 FR 62284, Oct. 11, 2013] § 208.74 What happens if the state member bank or a depository institution affiliate fails to continue to meet certain requirements? (a) Qualifications and safeguards. (1) Notice by Board. (2) Notification by state member bank. (3) Execution of agreement. (i) State member bank must execute an agreement acceptable to the Board to comply with all applicable capital, management, asset and safeguard requirements; and (ii) Any relevant depository institution affiliate of the state member bank must execute an agreement acceptable to its appropriate Federal banking agency to comply with all applicable capital and management requirements. (4) Agreement requirements. (i) Explain the specific actions that the state member bank will take to correct all areas of noncompliance; (ii) Provide a schedule within which each action will be taken; and (iii) Provide any other information the Board may require. (5) Imposition of limits. (i) The Board may impose any limitations on the conduct or activities of the state member bank or any subsidiary of the bank as the Board determines to be appropriate under the circumstances and consistent with the purposes of section 121 of the Gramm-Leach-Bliley Act, including requiring the Board's prior approval for any financial subsidiary of the bank to acquire any company or engage in any additional activity; and (ii) The appropriate Federal banking agency for any relevant depository institution affiliate may impose any limitations on the conduct or activities of the depository institution or any subsidiary of that institution as the agency determines to be appropriate under the circumstances and consistent with the purposes of section 121 of the Gramm-Leach-Bliley Act. (6) Divestiture. (7) Consultation. (b) Debt rating or alternative requirement. § 208.75 What happens if the state member bank or any of its insured depository institution affiliates receives less than a “satisfactory” CRA rating? (a) Limits on establishment of financial subsidiaries and expansion of existing financial subsidiaries. et seq. (1) The state member bank may not, directly or indirectly, acquire control of any financial subsidiary; and (2) Any financial subsidiary controlled by the state member bank may not commence any additional activity or acquire control, including all or substantially all of the assets, of any company. (b) Exception for certain activities. (c) Duration of prohibitions. § 208.76 What Federal Reserve approvals are necessary for financial subsidiaries? (a) Notice requirements. (2) A state member bank may not engage in any additional activity pursuant to § 208.72(a)(1) or (2) through an existing financial subsidiary unless the state member bank files a notice (in letter form, with enclosures) with the appropriate Reserve Bank. (b) Contents of Notice. (1) In the case of a notice filed under paragraph (a)(1) of this section, describe the transaction(s) through which the bank proposes to acquire control of, or an interest in, the financial subsidiary; (2) Provide the name and head office address of the financial subsidiary; (3) Provide a description of the current and proposed activities of the financial subsidiary and the specific authority permitting each activity; (4) Provide the capital ratios as of the close of the previous calendar quarter for all relevant capital measures, as defined in section 38 of the Federal Deposit Insurance Act (12 U.S.C. 1831o), for the bank and each of its depository institution affiliates; (5) Certify that the bank and each of its depository institution affiliates was well capitalized at the close of the previous calendar quarter and is well capitalized as of the date the bank files its notice; (6) Certify that the bank and each of its depository institution affiliates is well managed as of the date the bank files its notice; (7) Certify that the bank meets the debt rating or alternative requirement of § 208.71(b), if applicable; and (8) Certify that the bank and its financial subsidiaries are in compliance with the asset limit set forth in § 208.71(a)(2) both before the proposal and on a pro forma basis. (c) Insurance activities. (2) The appropriate Reserve Bank will send a copy of any notice described in paragraph (c)(1) of this section to the appropriate state insurance regulatory authorities and provide such authorities with an opportunity to comment on the proposal. (d) Approval procedures. § 208.77 Definitions. The following definitions shall apply for purposes of this subpart: (a) Affiliate, Company, Control, and Subsidiary. (b) Appropriate Federal Banking Agency, Depository Institution, Insured Bank and Insured Depository Institution. (c) [Reserved] (d) Eligible Debt. (1) Is not supported by any form of credit enhancement, including a guarantee or standby letter of credit; and (2) Is not held in whole or in any significant part by any affiliate, officer, director, principal shareholder, or employee of the bank or any other person acting on behalf of or with funds from the bank or an affiliate of the bank. (e) Financial Subsidiary In general. other than: (i) A subsidiary that engages only in activities that the state member 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 member bank; or (ii) A subsidiary that the state member bank is specifically authorized by the express terms of a Federal statute (other than section 9 of the Federal Reserve Act (12 U.S.C. 335)), and not by implication or interpretation, to control, such as by section 25 or 25A of the Federal Reserve Act (12 U.S.C. 601-604a, 611-631) or the Bank Service Company Act (12 U.S.C. 1861 et seq. (2) Subsidiaries of financial subsidiaries. (f) Long-term Issuer Credit Rating. (g) Well Capitalized Insured depository institutions. (2) Uninsured depository institutions. (h) Well Managed In general. (i) 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) and at least a rating of 2 for management (if such rating is given) in connection with its most recent examination or subsequent review by the institution's appropriate Federal banking agency (or the appropriate state banking agency in an examination described in section 10(d) of the Federal Deposit Insurance Act (12 U.S.C. 1820(d)); or (ii) In the case of any depository institution that has not been examined by its appropriate Federal banking agency or been subject to an examination by its appropriate state banking agency that meets the requirements of section 10(d) of the Federal Deposit Insurance Act (18 U.S.C. 1820(d)), the existence and use of managerial resources that the appropriate Federal banking agency determines are satisfactory. (2) Merged depository institutions Merger involving well managed institutions. (ii) Merger involving a poorly rated institution. [Reg. H, 66 FR 42933, Aug. 16, 2001, as amended at 78 FR 62284, Oct. 11, 2013] Subpart H—Consumer Protection in Sales of Insurance Source: 65 FR 75841, Dec. 4, 2000, unless otherwise noted. § 208.81 Purpose and scope. This subpart establishes consumer protections in connection with retail sales practices, solicitations, advertising, or offers of any insurance product or annuity to a consumer by: (a) Any state member bank; or (b) Any other person that is engaged in such activities at an office of the bank or on behalf of the bank. § 208.82 Definitions for purposes of this subpart. As used in this subpart: (a) Affiliate (b) Bank (c) Company (d) Consumer (e) Control (f) Domestic violence (1) Attempting to cause or causing or threatening another person physical harm, severe emotional distress, psychological trauma, rape, or sexual assault; (2) Engaging in a course of conduct or repeatedly committing acts toward another person, including following the person without proper authority, under circumstances that place the person in reasonable fear of bodily injury or physical harm; (3) Subjecting another person to false imprisonment; or (4) Attempting to cause or causing damage to property so as to intimidate or attempt to control the behavior of another person. (g) Electronic media (h) Office (i) Subsidiary (j)(1) You (i) A bank; or (ii) Any other person only when the person sells, solicits, advertises, or offers an insurance product or annuity to a consumer at an office of the bank or on behalf of a bank. (2) For purposes of this definition, activities on behalf of a bank include activities where a person, whether at an office of the bank or at another location sells, solicits, advertises, or offers an insurance product or annuity and at least one of the following applies: (i) The person represents to a consumer that the sale, solicitation, advertisement, or offer of any insurance product or annuity is by or on behalf of the bank; (ii) If the bank refers a consumer to a seller of insurance products or annuities and the bank has a contractual arrangement to receive commissions or fees derived from the sale of an insurance product or annuity resulting from that referral; or (iii) Documents evidencing the sale, solicitation, advertising, or offer of an insurance product or annuity identify or refer to the bank. § 208.83 Prohibited practices. (a) Anticoercion and antitying rules. (1) The purchase of an insurance product or annuity from the bank or any of its affiliates; or (2) An agreement by the consumer not to obtain, or a prohibition on the consumer from obtaining, an insurance product or annuity from an unaffiliated entity. (b) Prohibition on misrepresentations generally. (1) The fact that an insurance product or annuity sold or offered for sale by you or any subsidiary of the bank is not backed by the Federal government or the bank or the fact that the insurance product or annuity is not insured by the Federal Deposit Insurance Corporation; (2) In the case of an insurance product or annuity that involves investment risk, the fact that there is an investment risk, including the potential that principal may be lost and that the product may decline in value; or (3) In the case of a bank or subsidiary of the bank at which insurance products or annuities are sold or offered for sale, the fact that: (i) The approval of an extension of credit to a consumer by the bank or subsidiary may not be conditioned on the purchase of an insurance product or annuity by the consumer from the bank or a subsidiary of the bank; and (ii) The consumer is free to purchase the insurance product or annuity from another source. (c) Prohibition on domestic violence discrimination. § 208.84 What you must disclose. (a) Insurance disclosures. (1) The insurance product or annuity is not a deposit or other obligation of, or guaranteed by, the bank or an affiliate of the bank; (2) The insurance product or annuity is not insured by the Federal Deposit Insurance Corporation (FDIC) or any other agency of the United States, the bank, or (if applicable) an affiliate of the bank; and (3) In the case of an insurance product or annuity that involves an investment risk, there is investment risk associated with the product, including the possible loss of value. (b) Credit disclosure. (1) The consumer's purchase of an insurance product or annuity from the bank or any of its affiliates; or (2) The consumer's agreement not to obtain, or a prohibition on the consumer from obtaining, an insurance product or annuity from an unaffiliated entity. (c) Timing and method of disclosures In general. (2) Exceptions for transactions by mail. (3) Exception for transactions by telephone. (4) Electronic form of disclosures. (ii) Any disclosures required by paragraphs (a) or (b) of this section that are provided by electronic media are not required to be provided orally. (5) Disclosures must be readily understandable. • NOT A DEPOSIT • NOT FDIC-INSURED • NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY • NOT GUARANTEED BY THE BANK • MAY GO DOWN IN VALUE (6) Disclosures must be meaningful. (A) A plain-language heading to call attention to the disclosures; (B) A typeface and type size that are easy to read; (C) Wide margins and ample line spacing; (D) Boldface or italics for key words; and (E) Distinctive type size, style, and graphic devices, such as shading or sidebars, when the disclosures are combined with other information. (ii) You have not provided the disclosures in a meaningful form if you merely state to the consumer that the required disclosures are available in printed material, but you do not provide the printed material when required and do not orally disclose the information to the consumer when required. (iii) With respect to those disclosures made through electronic media for which paper or oral disclosures are not required, the disclosures are not meaningfully provided if the consumer may bypass the visual text of the disclosures before purchasing an insurance product or annuity. (7) Consumer acknowledgment. (i) Obtain an oral acknowledgment of receipt of the disclosures and maintain sufficient documentation to show that the acknowledgment was given; and (ii) Make reasonable efforts to obtain a written acknowledgment from the consumer. (d) Advertisements and other promotional material for insurance products or annuities. § 208.85 Where insurance activities may take place. (a) General rule. (b) Referrals. § 208.86 Qualification and licensing requirements for insurance sales personnel. A bank may not permit any person to sell or offer for sale any insurance product or annuity in any part of its office or on its behalf, unless the person is at all times appropriately qualified and licensed under applicable State insurance licensing standards with regard to the specific products being sold or recommended. Appendix A to Subpart H of Part 208—Consumer Grievance Process Any consumer who believes that any bank or any other person selling, soliciting, advertising, or offering insurance products or annuities to the consumer at an office of the bank or on behalf of the bank has violated the requirements of this subpart should contact the Consumer Complaints Section, Division of Consumer and Community Affairs, Board of Governors of the Federal Reserve System at the following address: 20th & C Streets, NW, Washington, D.C. 20551. Subpart I [Reserved] Subpart J—Interpretations Source: Reg. H, 63 FR 37658, July 13, 1998, unless otherwise noted. Redesignated at 65 FR 14814, Mar. 20, 2000. Redesignated further at 65 FR 75841, Dec. 4, 2000. Redesignated further at 75 FR 44688, July 28, 2010. § 208.110 Sale of bank's money orders off premises as establishment of branch office. (a) The Board of Governors has been asked to consider whether the appointment by a member bank of an agent to sell the bank's money orders, at a location other than the premises of the bank, constitutes the establishment of a branch office. (b) Section 5155 of the Revised Statutes (12 U.S.C. 36), which is also applicable to member banks, defines the term branch as including “any branch bank, branch office, branch agency, additional office, or any branch place of business * * * at which deposits are received, or checks paid, or money lent.” The basic question is whether the sale of a bank's money orders by an agent amounts to the receipt of deposits at a branch place of business within the meaning of this statute. (c) Money orders are classified as deposits for certain purposes. However, they bear a strong resemblance to traveler's checks that are issued by banks and sold off premises. In both cases, the purchaser does not intend to establish a deposit account in the bank, although a liability on the bank's part is created. Even though they result in a deposit liability, the Board is of the opinion that the issuance of a bank's money orders by an authorized agent does not involve the receipt of deposits at a “branch place of business” and accordingly does not require the Board's permission to establish a branch. § 208.111 Obligations concerning institutional customers. (a) As a result of broadened authority provided by the Government Securities Act Amendments of 1993 (15 U.S.C. 78o-3 and 78o-5), the Board is adopting sales practice rules for the government securities market, a market with a particularly broad institutional component. Accordingly, the Board believes it is appropriate to provide further guidance to banks on their suitability obligations when making recommendations to institutional customers. (b) The Board's Suitability Rule, § 208.37(d), is fundamental to fair dealing and is intended to promote ethical sales practices and high standards of professional conduct. Banks' responsibilities include having a reasonable basis for recommending a particular security or strategy, as well as having reasonable grounds for believing the recommendation is suitable for the customer to whom it is made. Banks are expected to meet the same high standards of competence, professionalism, and good faith regardless of the financial circumstances of the customer. (c) In recommending to a customer the purchase, sale, or exchange of any government security, the bank shall have reasonable grounds for believing that the recommendation is suitable for the customer upon the basis of the facts, if any, disclosed by the customer as to the customer's other security holdings and financial situation and needs. (d) The interpretation in this section concerns only the manner in which a bank determines that a recommendation is suitable for a particular institutional customer. The manner in which a bank fulfills this suitability obligation will vary, depending on the nature of the customer and the specific transaction. Accordingly, the interpretation in this section deals only with guidance regarding how a bank may fulfill customer-specific suitability obligations under § 208.37(d). 8 8 (e) While it is difficult to define in advance the scope of a bank's suitability obligation with respect to a specific institutional customer transaction recommended by a bank, the Board has identified certain factors that may be relevant when considering compliance with § 208.37(d). These factors are not intended to be requirements or the only factors to be considered but are offered merely as guidance in determining the scope of a bank's suitability obligations. (f) The two most important considerations in determining the scope of a bank's suitability obligations in making recommendations to an institutional customer are the customer's capability to evaluate investment risk independently and the extent to which the customer is exercising independent judgement in evaluating a bank's recommendation. A bank must determine, based on the information available to it, the customer's capability to evaluate investment risk. In some cases, the bank may conclude that the customer is not capable of making independent investment decisions in general. In other cases, the institutional customer may have general capability, but may not be able to understand a particular type of instrument or its risk. This is more likely to arise with relatively new types of instruments, or those with significantly different risk or volatility characteristics than other investments generally made by the institution. If a customer is either generally not capable of evaluating investment risk or lacks sufficient capability to evaluate the particular product, the scope of a bank's customer-specific obligations under § 208.37(d) would not be diminished by the fact that the bank was dealing with an institutional customer. On the other hand, the fact that a customer initially needed help understanding a potential investment need not necessarily imply that the customer did not ultimately develop an understanding and make an independent investment decision. (g) A bank may conclude that a customer is exercising independent judgement if the customer's investment decision will be based on its own independent assessment of the opportunities and risks presented by a potential investment, market factors and other investment considerations. Where the bank has reasonable grounds for concluding that the institutional customer is making independent investment decisions and is capable of independently evaluating investment risk, then a bank's obligations under § 208.25(d) for a particular customer are fulfilled. 9 9 See (h) A determination of capability to evaluate investment risk independently will depend on an examination of the customer's capability to make its own investment decisions, including the resources available to the customer to make informed decisions. Relevant considerations could include: (1) The use of one or more consultants, investment advisers, or bank trust departments; (2) The general level of experience of the institutional customer in financial markets and specific experience with the type of instruments under consideration; (3) The customer's ability to understand the economic features of the security involved; (4) The customer's ability to independently evaluate how market developments would affect the security; and (5) The complexity of the security or securities involved. (i) A determination that a customer is making independent investment decisions will depend on the nature of the relationship that exists between the bank and the customer. Relevant considerations could include: (1) Any written or oral understanding that exists between the bank and the customer regarding the nature of the relationship between the bank and the customer and the services to be rendered by the bank; (2) The presence or absence of a pattern of acceptance of the bank's recommendations; (3) The use by the customer of ideas, suggestions, market views and information obtained from other government securities brokers or dealers or market professionals, particularly those relating to the same type of securities; and (4) The extent to which the bank has received from the customer current comprehensive portfolio information in connection with discussing recommended transactions or has not been provided important information regarding its portfolio or investment objectives. (j) Banks are reminded that these factors are merely guidelines that will be utilized to determine whether a bank has fulfilled its suitability obligation with respect to a specific institutional customer transaction and that the inclusion or absence of any of these factors is not dispositive of the determination of suitability. Such a determination can only be made on a case-by-case basis taking into consideration all the facts and circumstances of a particular bank/customer relationship, assessed in the context of a particular transaction. (k) For purposes of the interpretation in this section, an institutional customer shall be any entity other than a natural person. In determining the applicability of the interpretation in this section to an institutional customer, the Board will consider the dollar value of the securities that the institutional customer has in its portfolio and/or under management. While the interpretation in this section is potentially applicable to any institutional customer, the guidance contained in this section is more appropriately applied to an institutional customer with at least $10 million invested in securities in the aggregate in its portfolio and/or under management. [Reg. H, 63 FR 37658, July 13, 1998. Redesignated at 65 FR 14814, Mar. 20, 2000. Redesignated further at 65 FR 75841, Dec. 4, 2000. Redesignated further at 75 FR 44688, July 28, 2010; 75 FR 44692, July 28, 2010; 78 FR 62284, Oct. 11, 2013; 80 FR 70672, Nov. 16, 2015] § 208.112 Policy statement on section 9(13) of the Federal Reserve Act. (a) Under section 9(13) of the Federal Reserve Act (12 U.S.C. 330), a State member bank may exercise all corporate powers granted it by the State in which it was created except that the Board may limit the activities of State member banks and subsidiaries of State member banks in a manner consistent with section 24 of the Federal Deposit Insurance Act.” The Board interprets this provision as vesting in the Board the authority to prohibit or otherwise restrict State member banks and their subsidiaries from engaging as principal in any activity (including acquiring or retaining any investment) that is not permissible for a national bank, unless the activity is permissible for State-chartered banks by Federal statute or under section 24(a) of the Federal Deposit Insurance Act. (b) The Board generally believes that the same activity, presenting the same risks, should be subject to the same regulatory framework, and that a different activity, presenting different risks, should be subject to a different regulatory framework. Consistent with this principle, the Board intends to interpret section 9(13) of the Federal Reserve Act (12 U.S.C. 330) to facilitate innovation by insured and uninsured State member banks in a manner consistent with safety and soundness of State member banks and preserving the stability of the U.S. financial system. (c) In alignment with this principle, the Board generally presumes that it will exercise its discretion under section 9(13) of the Federal Reserve Act (12 U.S.C. 330) to limit the authority of insured State member banks and their subsidiaries to engage in any activity as principal to those activities that are permissible for national banks—in each case, subject to the terms, conditions, and limitations placed on national banks with respect to the activity—unless those activities are permissible for insured State-chartered banks under section 24 of the Federal Deposit Insurance Act. (d) If an activity is authorized for national banks to conduct as principal, it is generally permissible for State member banks to conduct as principal, provided that it is permitted under relevant State law and the bank adheres to the terms, conditions, and limitations placed on national banks by the OCC with respect to the activity. (e) If the FDIC, by rule, permits insured State-chartered banks to engage in any activity as principal under section 24 of the Federal Deposit Insurance Act that is not permissible for national banks, it is generally permissible for State member banks to engage in that activity, provided it is permitted under applicable State law. If there is no authority for an insured State-chartered bank to engage in a particular activity as principal under Federal statute or part 362 of the FDIC's regulations, that activity must be authorized for insured depository institutions by the FDIC under section 24 of the Federal Deposit Insurance Act (12 U.S.C. 1831a) and the insured State member bank must be in compliance with applicable capital requirements issued by the Board. (f) An uninsured State member bank may not engage in any activity as principal that is not authorized for national banks or insured State-chartered banks, unless the Board has provided otherwise by regulation, order, or other means, or the uninsured State member bank has received the permission of the Board under § 208.3(d)(2) of the Board's Regulation H. In determining whether to grant an uninsured state member bank or an uninsured State-chartered bank applicant for membership permission to engage in an activity as principal that is not permissible for insured State member banks, the Board will consider whether the uninsured State member bank would be capable of engaging in such activity in a safe and sound manner and in a manner that is consistent with preserving the stability of the U.S. financial system. [90 FR 59733, Dec. 22, 2025] Subpart K—Forms, Instructions and Reports Source: Reg. H, 84 FR 29051, June 21, 2019, unless otherwise noted. § 208.120 Authority, purpose, and scope. (a) Authority. (b) Purpose and scope. § 208.121 Definitions. Covered depository institution (1) Has less than $5 billion in total consolidated assets as reported in its report of condition for the second calendar quarter of the preceding year, except that, during the calendar year 2021, a state member bank shall determine whether it meets the requirement in paragraph (1) of this section by using the lesser of its total consolidated assets as reported in its report of condition as of December 31, 2019, and its total consolidated assets as reported in its report of condition for the second calendar quarter of 2020. The relief provided under this paragraph (1) of this section does not apply to a state member bank if the Board determines that permitting the state member bank to determine its assets in accordance with that paragraph would not be commensurate with the risk profile of the state member bank. When making this determination, the Board will consider all relevant factors, including the extent of asset growth of the state member bank since December 31, 2019; the causes of such growth, including whether growth occurred as a result of mergers or acquisitions; whether such growth is likely to be temporary or permanent; whether the state member bank has become involved in any additional activities since December 31, 2019; the asset size of any parent companies; and the type of assets held by the state member bank. In making a determination pursuant to this paragraph (1), the Board will apply notice and response procedures in the same manner and to the same extent as the notice and response procedures in 12 CFR 263.202. (2) Has no foreign offices, as defined in this section; (3) Is not required to or has not elected to use 12 CFR part 217, subpart E, to calculate its risk-based capital requirements; and (4) Is not a large institution or highly complex institution, as such terms are defined in 12 CFR 327.8, or treated as a large institution, as requested under 12 CFR 327.16(f). Foreign country Foreign office (1) A branch or consolidated subsidiary in a foreign country, unless the branch is located on a U.S. military facility; (2) An international banking facility as such term is defined in 12 CFR 204.8; (3) A majority-owned Edge Act or Agreement subsidiary including both its U.S. and its foreign offices; and (4) For an institution chartered or headquartered in any U.S. state or the District of Columbia, a branch or consolidated subsidiary located in a U.S. territory or possession. Report of condition Total consolidated assets [Reg. H, 84 FR 29051, June 21, 2019, as amended at 85 FR 77360, Dec. 2, 2020] § 208.122 Reporting. (a) A state member bank is required to file the report of condition (Call Report) in accordance with the instructions for these reports. All assets and liabilities, including contingent assets and liabilities, must be reported in, or otherwise taken into account in the preparation of, the Call Report. The Board uses Call Report data to monitor the condition, performance, and risk profile of individual state member banks and the banking industry. Reporting state member banks must also submit annually such information on small business and small farm lending as the Board may need to assess the availability of credit to these sectors of the economy. The report forms and instructions can be obtained from Federal Reserve District Banks or through the website of the Federal Financial Institutions Examination Council, http://www.ffiec.gov/. (b) Every insured U.S. branch of a foreign bank is required to file the FFIEC 002 version of the report of condition (Report of Assets and Liabilities of U.S. Branches and Agencies of Foreign Banks) in accordance with the instructions for the report. All assets and liabilities, including contingent assets and liabilities, must be reported in, or otherwise taken into account in the preparation of the report. The Board uses the reported data to monitor the condition, performance, and risk profile of individual insured branches and the banking industry. Insured branches must also submit annually such information on small business and small farm lending as the Board may need to assess the availability of credit to these sectors of the economy. The report forms and instructions can be obtained from Federal Reserve District Banks or through the website of the Federal Financial Institutions Examination Council, http://www.ffiec.gov/. § 208.123 Reduced reporting. A covered depository institution may file the FFIEC 051 version of the report of condition, or any successor thereto, which shall provide for reduced reporting for the reports of condition for the first and third calendar quarters for a year. § 208.124 Reservation of authority. (a) Notwithstanding § 208.123, the Board in consultation with the applicable state chartering authority may require an otherwise eligible covered depository institution to file the FFIEC 041 version of the report of condition, or any successor thereto, based on an institution-specific determination. In making this determination, the Board may consider criteria including, but not limited to, whether the institution is significantly engaged in one or more complex, specialized, or other higher risk activities, such as those for which limited information is reported in the FFIEC 051 version of the report of condition compared to the FFIEC 041 version of the report of condition. Nothing in this part shall be construed to limit the Board's authority to obtain information from a state member bank. (b) Nothing in this subpart limits the authority of the Board under any other provision of law or regulation to take supervisory or enforcement action, including action to address unsafe or unsound practices or conditions or violations of law. Appendixes A-B to Part 208 [Reserved] Appendix C to Part 208—Interagency Guidelines for Real Estate Lending Policies The agencies' regulations require that each insured depository institution adopt and maintain a written policy that establishes appropriate limits and standards for all extensions of credit that are secured by liens on or interests in real estate or made for the purpose of financing the construction of a building or other improvements. 1 1 Each institution's policies must be comprehensive, and consistent with safe and sound lending practices, and must ensure that the institution operates within limits and according to standards that are reviewed and approved at least annually by the board of directors. Real estate lending is an integral part of many institutions' business plans and, when undertaken in a prudent manner, will not be subject to examiner criticism. Loan Portfolio Management Considerations The lending policy should contain a general outline of the scope and distribution of the institution's credit facilities and the manner in which real estate loans are made, serviced, and collected. In particular, the institution's policies on real estate lending should: • Identify the geographic areas in which the institution will consider lending. • Establish a loan portfolio diversification policy and set limits for real estate loans by type and geographic market (e.g., limits on higher risk loans). • Identify appropriate terms and conditions by type of real estate loan. • Establish loan origination and approval procedures, both generally and by size and type of loan. • Establish prudent underwriting standards that are clear and measurable, including loan-to-value limits, that are consistent with these supervisory guidelines. • Establish review and approval procedures for exception loans, including loans with loan-to-value percentages in excess of supervisory limits. • Establish loan administration procedures, including documentation, disbursement, collateral inspection, collection, and loan review. • Establish real estate appraisal and evaluation programs. • Require that management monitor the loan portfolio and provide timely and adequate reports to the board of directors. The institution should consider both internal and external factors in the formulation of its loan policies and strategic plan. Factors that should be considered include: • The size and financial condition of the institution. • The expertise and size of the lending staff. • The need to avoid undue concentrations of risk. • Compliance with all real estate related laws and regulations, including the Community Reinvestment Act, anti-discrimination laws, and for savings associations, the Qualified Thrift Lender test. • Market conditions. The institution should monitor conditions in the real estate markets in its lending area so that it can react quickly to changes in market conditions that are relevant to its lending decisions. Market supply and demand factors that should be considered include: • Demographic indicators, including population and employment trends. • Zoning requirements. • Current and projected vacancy, construction, and absorption rates. • Current and projected lease terms, rental rates, and sales prices, including concessions. • Current and projected operating expenses for different types of projects. • Economic indicators, including trends and diversification of the lending area. • Valuation trends, including discount and direct capitalization rates. Underwriting Standards Prudently underwritten real estate loans should reflect all relevant credit factors, including: • The capacity of the borrower, or income from the underlying property, to adequately service the debt. • The value of the mortgaged property. • The overall creditworthiness of the borrower. • The level of equity invested in the property. • Any secondary sources of repayment. • Any additional collateral or credit enhancements (such as guarantees, mortgage insurance or takeout commitments). The lending policies should reflect the level of risk that is acceptable to the board of directors and provide clear and measurable underwriting standards that enable the institution's lending staff to evaluate these credit factors. The underwriting standards should address: • The maximum loan amount by type of property. • Maximum loan maturities by type of property. • Amortization schedules. • Pricing structure for different types of real estate loans. • Loan-to-value limits by type of property. For development and construction projects, and completed commercial properties, the policy should also establish, commensurate with the size and type of the project or property: • Requirements for feasibility studies and sensitivity and risk analyses ( e.g., • Minimum requirements for initial investment and maintenance of hard equity by the borrower ( e.g., • Minimum standards for net worth, cash flow, and debt service coverage of the borrower or underlying property. • Standards for the acceptability of and limits on non-amortizing loans. • Standards for the acceptability of and limits on the use of interest reserves. • Pre-leasing and pre-sale requirements for income-producing property. • Pre-sale and minimum unit release requirements for non-income-producing property loans. • Limits on partial recourse or nonrecourse loans and requirements for guarantor support. • Requirements for takeout commitments. • Minimum covenants for loan agreements. Loan Administration The institution should also establish loan administration procedures for its real estate portfolio that address: • Documentation, including: Type and frequency of financial statements, including requirements for verification of information provided by the borrower; Type and frequency of collateral evaluations (appraisals and other estimates of value). • Loan closing and disbursement. • Payment processing. • Escrow administration. • Collateral administration. • Loan payoffs. • Collections and foreclosure, including: Delinquency follow-up procedures; Foreclosure timing; Extensions and other forms of forbearance; Acceptance of deeds in lieu of foreclosure. • Claims processing ( e.g., • Servicing and participation agreements. Supervisory Loan-to-Value Limits Institutions should establish their own internal loan-to-value limits for real estate loans. These internal limits should not exceed the following supervisory limits: Loan category Loan-to-value limit (percent) Raw land 65 Land development 75 Construction: Commercial, multifamily, 1 80 1- to 4-family residential 85 Improved property 85 Owner-occupied 1- to 4-family and home equity ( 2 1 2 The supervisory loan-to-value limits should be applied to the underlying property that collateralizes the loan. For loans that fund multiple phases of the same real estate project (e.g., a loan for both land development and construction of an office building), the appropriate loan-to-value limit is the limit applicable to the final phase of the project funded by the loan; however, loan disbursements should not exceed actual development or construction outlays. In situations where a loan is fully cross-collateralized by two or more properties or is secured by a collateral pool of two or more properties, the appropriate maximum loan amount under supervisory loan-to-value limits is the sum of the value of each property, less senior liens, multiplied by the appropriate loan-to-value limit for each property. To ensure that collateral margins remain within the supervisory limits, lenders should redetermine conformity whenever collateral substitutions are made to the collateral pool. In establishing internal loan-to-value limits, each lender is expected to carefully consider the institution-specific and market factors listed under “Loan Portfolio Management Considerations,” as well as any other relevant factors, such as the particular subcategory or type of loan. For any subcategory of loans that exhibits greater credit risk than the overall category, a lender should consider the establishment of an internal loan-to-value limit for that subcategory that is lower than the limit for the overall category. The loan-to-value ratio is only one of several pertinent credit factors to be considered when underwriting a real estate loan. Other credit factors to be taken into account are highlighted in the “Underwriting Standards” section above. Because of these other factors, the establishment of these supervisory limits should not be interpreted to mean that loans at these levels will automatically be considered sound. Loans in Excess of the Supervisory Loan-to-Value Limits The agencies recognize that appropriate loan-to-value limits vary not only among categories of real estate loans but also among individual loans. Therefore, it may be appropriate in individual cases to originate or purchase loans with loan-to-value ratios in excess of the supervisory loan-to-value limits, based on the support provided by other credit factors. Such loans should be identified in the institutions's records, and their aggregate amount reported at least quarterly to the institution's board of directors. (See additional reporting requirements described under “Exceptions to the General Policy.”) The aggregate amount of all loans in excess of the supervisory loan-to-value limits should not exceed 100 percent of total capital. 2 2 In determining the aggregate amount of such loans, institutions should: (a) Include all loans secured by the same property if any one of those loans exceeds the supervisory loan-to-value limits; and (b) include the recourse obligation of any such loan sold with recourse. Conversely, a loan should no longer be reported to the directors as part of aggregate totals when reduction in principal or senior liens, or additional contribution of collateral or equity (e.g., improvements to the real property securing the loan), bring the loan-to-value ratio into compliance with supervisory limits. Excluded Transactions The agencies also recognize that there are a number of lending situations in which other factors significantly outweigh the need to apply the supervisory loan-to-value limits. These include: • Loans guaranteed or insured by the U.S. government or its agencies, provided that the amount of the guaranty or insurance is at least equal to the portion of the loan that exceeds the supervisory loan-to-value limit. • Loans backed by the full faith and credit of a state government, provided that the amount of the assurance is at least equal to the portion of the loan that exceeds the supervisory loan-to-value limit. • Loans guaranteed or insured by a state, municipal or local government, or an agency thereof, provided that the amount of the guaranty or insurance is at least equal to the portion of the loan that exceeds the supervisory loan-to-value limit, and provided that the lender has determined that the guarantor or insurer has the financial capacity and willingness to perform under the terms of the guaranty or insurance agreement. • Loans that are to be sold promptly after origination, without recourse, to a financially responsible third party. • Loans that are renewed, refinanced, or restructured without the advancement of new funds or an increase in the line of credit (except for reasonable closing costs), or loans that are renewed, refinanced, or restructured in connection with a workout situation, either with or without the advancement of new funds, where consistent with safe and sound banking practices and part of a clearly defined and well-documented program to achieve orderly liquidation of the debt, reduce risk of loss, or maximize recovery on the loan. • Loans that facilitate the sale of real estate acquired by the lender in the ordinary course of collecting a debt previously contracted in good faith. • Loans for which a lien on or interest in real property is taken as additional collateral through an abundance of caution by the lender (e.g., the institution takes a blanket lien on all or substantially all of the assets of the borrower, and the value of the real property is low relative to the aggregate value of all other collateral). • Loans, such as working capital loans, where the lender does not rely principally on real estate as security and the extension of credit is not used to acquire, develop, or construct permanent improvements on real property. • Loans for the purpose of financing permanent improvements to real property, but not secured by the property, if such security interest is not required by prudent underwriting practice. Exceptions to the General Lending Policy Some provision should be made for the consideration of loan requests from creditworthy borrowers whose credit needs do not fit within the institution's general lending policy. An institution may provide for prudently underwritten exceptions to its lending policies, including loan-to-value limits, on a loan-by-loan basis. However, any exceptions from the supervisory loan-to-value limits should conform to the aggregate limits on such loans discussed above. The board of directors is responsible for establishing standards for the review and approval of exception loans. Each institution should establish an appropriate internal process for the review and approval of loans that do not conform to its own internal policy standards. The approval of any such loan should be supported by a written justification that clearly sets forth all of the relevant credit factors that support the underwriting decision. The justification and approval documents for such loans should be maintained as a part of the permanent loan file. Each institution should monitor compliance with its real estate lending policy and individually report exception loans of a significant size to its board of directors. Supervisory Review of Real Estate Lending Policies and Practices The real estate lending policies of institutions will be evaluated by examiners during the course of their examinations to determine if the policies are consistent with safe and sound lending practices, these guidelines, and the requirements of the regulation. In evaluating the adequacy of the institution's real estate lending policies and practices, examiners will take into consideration the following factors: • The nature and scope of the institution's real estate lending activities. • The size and financial condition of the institution. • The quality of the institution's management and internal controls. • The expertise and size of the lending and loan administration staff. • Market conditions. Lending policy exception reports will also be reviewed by examiners during the course of their examinations to determine whether the institutions' exceptions are adequately documented and appropriate in light of all of the relevant credit considerations. An excessive volume of exceptions to an institution's real estate lending policy may signal a weakening of its underwriting practices, or may suggest a need to revise the loan policy. Definitions For the purposes of these Guidelines: Construction loan Extension of credit loan (1) The total amount of any loan, line of credit, or other legally binding lending commitment with respect to real property; and (2) The total amount, based on the amount of consideration paid, of any loan, line of credit, or other legally binding lending commitment acquired by a lender by purchase, assignment, or otherwise. Improved property loan (1) Farmland, ranchland or timberland committed to ongoing management and agricultural production; (2) 1- to 4-family residential property that is not owner-occupied; (3) Residential property containing five or more individual dwelling units; (4) Completed commercial property; or (5) Other income-producing property that has been completed and is available for occupancy and use, except income-producing owner-occupied 1- to 4-family residential property. Land development loan Loan origination Loan-to-value loan-to-value ratio Other acceptable collateral Owner-occupied, 1- to 4-family residential property Readily marketable collateral Value 1- to 4-family residential property [57 FR 62896, 62900, Dec. 31, 1992; 58 FR 4460, Jan. 14, 1993; 63 FR 58621, Nov. 2, 1998; 78 FR 62284, Oct. 11, 2013] Appendix D-1 to Part 208—Interagency Guidelines Establishing Standards for Safety and Soundness Table of Contents I. Introduction A. Preservation of existing authority. B. Definitions. II. Operational and Managerial Standards A. Internal controls and information systems. B. Internal audit system. C. Loan documentation. D. Credit underwriting. E. Interest rate exposure. F. Asset growth. G. Asset quality. H. Earnings. I. Compensation, fees and benefits. III. Prohibition on Compensation That Constitutes an Unsafe and Unsound Practice A. Excessive compensation. B. Compensation leading to material financial loss. I. Introduction i. Section 39 of the Federal Deposit Insurance Act 1 1 ii. Section 39(a) requires the agencies to establish operational and managerial standards relating to: (1) Internal controls, information systems and internal audit systems, in accordance with section 36 of the FDI Act (12 U.S.C. 1831m); (2) loan documentation; (3) credit underwriting; (4) interest rate exposure; (5) asset growth; and (6) compensation, fees, and benefits, in accordance with subsection (c) of section 39. Section 39(b) requires the agencies to establish standards relating to asset quality, earnings, and stock valuation that the agencies determine to be appropriate. iii. Section 39(c) requires the agencies to establish standards prohibiting as an unsafe and unsound practice any compensatory arrangement that would provide any executive officer, employee, director, or principal shareholder of the institution with excessive compensation, fees or benefits and any compensatory arrangement that could lead to material financial loss to an institution. Section 39(c) also requires that the agencies establish standards that specify when compensation is excessive. iv. If an agency determines that an institution fails to meet any standard established by guideline under subsection (a) or (b) of section 39, the agency may require the institution to submit to the agency an acceptable plan to achieve compliance with the standard. In the event that an institution fails to submit an acceptable plan within the time allowed by the agency or fails in any material respect to implement an accepted plan, the agency must, by order, require the institution to correct the deficiency. The agency may, and in some cases must, take other supervisory actions until the deficiency has been corrected. v. The agencies have adopted amendments to their rules and regulations to establish deadlines for submission and review of compliance plans. 2 2 vi. The following Guidelines set out the safety and soundness standards that the agencies use to identify and address problems at insured depository institutions before capital becomes impaired. The agencies believe that the standards adopted in these Guidelines serve this end without dictating how institutions must be managed and operated. These standards are designed to identify potential safety and soundness concerns and ensure that action is taken to address those concerns before they pose a risk to the deposit insurance funds. A. Preservation of Existing Authority Neither section 39 nor these Guidelines in any way limits the authority of the agencies to address unsafe or unsound practices, violations of law, unsafe or unsound conditions, or other practices. Action under section 39 and these Guidelines may be taken independently of, in conjunction with, or in addition to any other enforcement action available to the agencies. Nothing in these Guidelines limits the authority of the FDIC pursuant to section 38(i)(2)(F) of the FDI Act (12 U.S.C. 1831(o)) and Part 325 of title 12 of the Code of Federal Regulations. B. Definitions 1. In general. 2. Board of directors, 3. Compensation 4. Director 3 3 5. Executive officer 4 4 6. Principal shareholder l 5 5 II. Operational and Managerial Standards A. Internal controls and information systems. 1. An organizational structure that establishes clear lines of authority and responsibility for monitoring adherence to established policies; 2. Effective risk assessment; 3. Timely and accurate financial, operational and regulatory reports; 4. Adequate procedures to safeguard and manage assets; and 5. Compliance with applicable laws and regulations. B. Internal audit system. 1. Adequate monitoring of the system of internal controls through an internal audit function. For an institution whose size, complexity or scope of operations does not warrant a full scale internal audit function, a system of independent reviews of key internal controls may be used; 2. Independence and objectivity; 3. Qualified persons; 4. Adequate testing and review of information systems; 5. Adequate documentation of tests and findings and any corrective actions; 6. Verification and review of management actions to address material weaknesses; and 7. Review by the institution's audit committee or board of directors of the effectiveness of the internal audit systems. C. Loan documentation. 1. Enable the institution to make an informed lending decision and to assess risk, as necessary, on an ongoing basis; 2. Identify the purpose of a loan and the source of repayment, and assess the ability of the borrower to repay the indebtedness in a timely manner; 3. Ensure that any claim against a borrower is legally enforceable; 4. Demonstrate appropriate administration and monitoring of a loan; and 5. Take account of the size and complexity of a loan. D. Credit underwriting. 1. Are commensurate with the types of loans the institution will make and consider the terms and conditions under which they will be made; 2. Consider the nature of the markets in which loans will be made; 3. Provide for consideration, prior to credit commitment, of the borrower's overall financial condition and resources, the financial responsibility of any guarantor, the nature and value of any underlying collateral, and the borrower's character and willingness to repay as agreed; 4. Establish a system of independent, ongoing credit review and appropriate communication to management and to the board of directors; 5. Take adequate account of concentration of credit risk; and 6. Are appropriate to the size of the institution and the nature and scope of its activities. E. Interest rate exposure. 1. Manage interest rate risk in a manner that is appropriate to the size of the institution and the complexity of its assets and liabilities; and 2. Provide for periodic reporting to management and the board of directors regarding interest rate risk with adequate information for management and the board of directors to assess the level of risk. F. Asset growth. 1. The source, volatility and use of the funds that support asset growth; 2. Any increase in credit risk or interest rate risk as a result of growth; and 3. The effect of growth on the institution's capital. G. Asset quality. 1. Conduct periodic asset quality reviews to identify problem assets; 2. Estimate the inherent losses in those assets and establish reserves that are sufficient to absorb estimated losses; 3. Compare problem asset totals to capital; 4. Take appropriate corrective action to resolve problem assets; 5. Consider the size and potential risks of material asset concentrations; and 6. Provide periodic asset reports with adequate information for management and the board of directors to assess the level of asset risk. H. Earnings. 1. Compare recent earnings trends relative to equity, assets, or other commonly used benchmarks to the institution's historical results and those of its peers; 2. Evaluate the adequacy of earnings given the size, complexity, and risk profile of the institution's assets and operations; 3. Assess the source, volatility, and sustainability of earnings, including the effect of nonrecurring or extraordinary income or expense; 4. Take steps to ensure that earnings are sufficient to maintain adequate capital and reserves after considering the institution's asset quality and growth rate; and 5. Provide periodic earnings reports with adequate information for management and the board of directors to assess earnings performance. I. Compensation, fees and benefits. III. Prohibition on Compensation That Constitutes an Unsafe and Unsound Practice A. Excessive Compensation Excessive compensation is prohibited as an unsafe and unsound practice. Compensation shall be considered excessive when amounts paid are unreasonable or disproportionate to the services performed by an executive officer, employee, director, or principal shareholder, considering the following: 1. The combined value of all cash and non-cash benefits provided to the individual; 2. The compensation history of the individual and other individuals with comparable expertise at the institution; 3. The financial condition of the institution; 4. Comparable compensation practices at comparable institutions, based upon such factors as asset size, geographic location, and the complexity of the loan portfolio or other assets; 5. For postemployment benefits, the projected total cost and benefit to the institution; 6. Any connection between the individual and any fraudulent act or omission, breach of trust or fiduciary duty, or insider abuse with regard to the institution; and 7. Any other factors the agencies determines to be relevant. B. Compensation Leading to Material Financial Loss Compensation that could lead to material financial loss to an institution is prohibited as an unsafe and unsound practice. [60 FR 35678, 35682, July 10, 1995, as amended by Reg. H, 61 FR 43951, Aug. 27, 1996] Appendix D-2 to Part 208—Interagency Guidelines Establishing Information Security Standards Table of Contents I. Introduction A. Scope B. Preservation of Existing Authority C. Definitions II. Standards for Safeguarding Customer Information A. Information Security Program B. Objectives III. Development and Implementation of Customer Information Security Program A. Involve the Board of Directors B. Assess Risk C. Manage and Control Risk D. Oversee Service Provider Arrangements E. Adjust the Program F. Report to the Board G. Implement the Standards I. Introduction These Interagency Guidelines Establishing Standards for Safeguarding Customer Information (Guidelines) set forth standards pursuant to sections 501 and 505 of the Gramm-Leach-Bliley Act (15 U.S.C. 6801 and 6805), in the same manner, to the extent practicable, as standards prescribed pursuant to section 39 of the Federal Deposit Insurance Act (12 U.S.C. 1831p-1). These Guidelines address standards for developing and implementing administrative, technical, and physical safeguards to protect the security, confidentiality, and integrity of customer information. These Guidelines also address standards with respect to the proper disposal of consumer information, pursuant to sections 621 and 628 of the Fair Credit Reporting Act (15 U.S.C. 1681s and 1681w). A. Scope. B. Preservation of Existing Authority. C. Definitions. 1. Except as modified in the Guidelines, or unless the context otherwise requires, the terms used in these Guidelines have the same meanings as set forth in sections 3 and 39 of the Federal Deposit Insurance Act (12 U.S.C. 1813 and 1831p-1). 2. For purposes of the Guidelines, the following definitions apply: a. Board of directors, b. Consumer information i. Examples. Consumer information (A) A consumer report that a bank obtains; (B) Information from a consumer report that the bank obtains from its affiliate after the consumer has been given a notice and has elected not to opt out of that sharing; (C) Information from a consumer report that the bank obtains about an individual who applies for but does not receive a loan, including any loan sought by an individual for a business purpose; (D) Information from a consumer report that the bank obtains about an individual who guarantees a loan (including a loan to a business entity); or (E) Information from a consumer report that the bank obtains about an employee or prospective employee. (2) Consumer information does not include: (A) Aggregate information, such as the mean credit score, derived from a group of consumer reports; or (B) Blind data, such as payment history on accounts that are not personally identifiable, that may be used for developing credit scoring models or for other purposes. c. Consumer report d. Customer e. Customer f. Customer information systems g. Service provider h. Subsidiary II. Standards for Information Security A. Information Security Program. B. Objectives. 1. Ensure the security and confidentiality of customer information; 2. Protect against any anticipated threats or hazards to the security or integrity of such information; 3. Protect against unauthorized access to or use of such information that could result in substantial harm or inconvenience to any customer; and 4. Ensure the proper disposal of customer information and consumer information. III. Development and Implementation of Information Security Program A. Involve the Board of Directors. 1. Approve the bank's written information security program; and 2. Oversee the development, implementation, and maintenance of the bank's information security program, including assigning specific responsibility for its implementation and reviewing reports from management. B. Assess Risk. 1. Identify reasonably foreseeable internal and external threats that could result in unauthorized disclosure, misuse, alteration, or destruction of customer information or customer information systems. 2. Assess the likelihood and potential damage of these threats, taking into consideration the sensitivity of customer information. 3. Assess the sufficiency of policies, procedures, customer information systems, and other arrangements in place to control risks. C. Manage and Control Risk. 1. Design its information security program to control the identified risks, commensurate with the sensitivity of the information as well as the complexity and scope of the bank's activities. Each bank must consider whether the following security measures are appropriate for the bank and, if so, adopt those measures the bank concludes are appropriate: a. Access controls on customer information systems, including controls to authenticate and permit access only to authorized individuals and controls to prevent employees from providing customer information to unauthorized individuals who may seek to obtain this information through fraudulent means. b. Access restrictions at physical locations containing customer information, such as buildings, computer facilities, and records storage facilities to permit access only to authorized individuals; c. Encryption of electronic customer information, including while in transit or in storage on networks or systems to which unauthorized individuals may have access; d. Procedures designed to ensure that customer information system modifications are consistent with the bank's information security program; e. Dual control procedures, segregation of duties, and employee background checks for employees with responsibilities for or access to customer information; f. Monitoring systems and procedures to detect actual and attempted attacks on or intrusions into customer information systems; g. Response programs that specify actions to be taken when the bank suspects or detects that unauthorized individuals have gained access to customer information systems, including appropriate reports to regulatory and law enforcement agencies; and h. Measures to protect against destruction, loss, or damage of customer information due to potential environmental hazards, such as fire and water damage or technological failures. 2. Train staff to implement the bank's information security program. 3. Regularly test the key controls, systems and procedures of the information security program. The frequency and nature of such tests should be determined by the bank's risk assessment. Tests should be conducted or reviewed by independent third parties or staff independent of those that develop or maintain the security programs. 4. Develop, implement, and maintain, as part of its information security program, appropriate measures to properly dispose of customer information and consumer information in accordance with each of the requirements in this paragraph III. D. Oversee Service Provider Arrangements. 1. Exercise appropriate due diligence in selecting its service providers; 2. Require its service providers by contract to implement appropriate measures designed to meet the objectives of these Guidelines; and 3. Where indicated by the bank's risk assessment, monitor its service providers to confirm that they have satisfied their obligations as required by paragraph D.2. As part of this monitoring, a bank should review audits, summaries of test results, or other equivalent evaluations of its service providers. E. Adjust the Program. F. Report to the Board. G. Implement the Standards. 1. Effective date. 2. Two-year grandfathering of agreements with service providers. 3. Effective date for measures relating to the disposal of consumer information. 4. Exception for existing agreements with service providers relating to the disposal of consumer information. Supplement A to Appendix D-2 to Part 208—Interagency Guidance on Response Programs for Unauthorized Access to Customer Information and Customer Notice I. Background This Guidance 1 2 1 2 A. Interagency Security Guidelines Section 501(b) of the GLBA required the Agencies to establish appropriate standards for financial institutions subject to their jurisdiction that include administrative, technical, and physical safeguards, to protect the security and confidentiality of customer information. Accordingly, the Agencies issued Security Guidelines requiring every financial institution to have an information security program designed to: 1. Ensure the security and confidentiality of customer information; 2. Protect against any anticipated threats or hazards to the security or integrity of such information; and 3. Protect against unauthorized access to or use of such information that could result in substantial harm or inconvenience to any customer. B. Risk Assessment and Controls 1. The Security Guidelines direct every financial institution to assess the following risks, among others, when developing its information security program: a. Reasonably foreseeable internal and external threats that could result in unauthorized disclosure, misuse, alteration, or destruction of customer information or customer information systems; b. The likelihood and potential damage of threats, taking into consideration the sensitivity of customer information; and c. The sufficiency of policies, procedures, customer information systems, and other arrangements in place to control risks. 3 3 See 2. Following the assessment of these risks, the Security Guidelines require a financial institution to design a program to address the identified risks. The particular security measures an institution should adopt will depend upon the risks presented by the complexity and scope of its business. At a minimum, the financial institution is required to consider the specific security measures enumerated in the Security Guidelines, 4 4 See a. Access controls on customer information systems, including controls to authenticate and permit access only to authorized individuals and controls to prevent employees from providing customer information to unauthorized individuals who may seek to obtain this information through fraudulent means; b. Background checks for employees with responsibilities for access to customer information; and c. Response programs that specify actions to be taken when the financial institution suspects or detects that unauthorized individuals have gained access to customer information systems, including appropriate reports to regulatory and law enforcement agencies. 5 5 See C. Service Providers The Security Guidelines direct every financial institution to require its service providers by contract to implement appropriate measures designed to protect against unauthorized access to or use of customer information that could result in substantial harm or inconvenience to any customer. 6 6 See II. Response Program Millions of Americans, throughout the country, have been victims of identity theft. 7 8 9 10 7 See Identity Theft Survey Report, http://www.ftc.gov/os/2003/09/synovatereport.pdf. 8 9 customer information systems See 10 See http://www.ffiec.gov/ffiecinfobase/html_pages/infosec_book_frame.htm. In addition, each institution should be able to address incidents of unauthorized access to customer information in customer information systems maintained by its domestic and foreign service providers. Therefore, consistent with the obligations in the Guidelines that relate to these arrangements, and with existing guidance on this topic issued by the Agencies, 11 11 See A. Components of a Response Program 1. At a minimum, an institution's response program should contain procedures for the following: a. Assessing the nature and scope of an incident, and identifying what customer information systems and types of customer information have been accessed or misused; b. Notifying its primary Federal regulator as soon as possible when the institution becomes aware of an incident involving unauthorized access to or use of sensitive c. Consistent with the Agencies' Suspicious Activity Report (“SAR”) regulations, 12 12 See See See also http://www.ots.treas.gov/BSA d. Taking appropriate steps to contain and control the incident to prevent further unauthorized access to or use of customer information, for example, by monitoring, freezing, or closing affected accounts, while preserving records and other evidence; 13 13 See e. Notifying customers when warranted. 2. Where an incident of unauthorized access to customer information involves customer information systems maintained by an institution's service providers, it is the responsibility of the financial institution to notify the institution's customers and regulator. However, an institution may authorize or contract with its service provider to notify the institution's customers or regulator on its behalf. III. Customer Notice Financial institutions have an affirmative duty to protect their customers' information against unauthorized access or use. Notifying customers of a security incident involving the unauthorized access or use of the customer's information in accordance with the standard set forth below is a key part of that duty. Timely notification of customers is important to manage an institution's reputation risk. Effective notice also may reduce an institution's legal risk, assist in maintaining good customer relations, and enable the institution's customers to take steps to protect themselves against the consequences of identity theft. When customer notification is warranted, an institution may not forgo notifying its customers of an incident because the institution believes that it may be potentially embarrassed or inconvenienced by doing so. A. Standard for Providing Notice When a financial institution becomes aware of an incident of unauthorized access to sensitive customer information, the institution should conduct a reasonable investigation to promptly determine the likelihood that the information has been or will be misused. If the institution determines that misuse of its information about a customer has occurred or is reasonably possible, it should notify the affected customer as soon as possible. Customer notice may be delayed if an appropriate law enforcement agency determines that notification will interfere with a criminal investigation and provides the institution with a written request for the delay. However, the institution should notify its customers as soon as notification will no longer interfere with the investigation. 1. Sensitive Customer Information Under the Guidelines, an institution must protect against unauthorized access to or use of customer information that could result in substantial harm or inconvenience to any customer. Substantial harm or inconvenience is most likely to result from improper access to sensitive customer information sensitive customer information Sensitive customer information 2. Affected Customers If a financial institution, based upon its investigation, can determine from its logs or other data precisely which customers' information has been improperly accessed, it may limit notification to those customers with regard to whom the institution determines that misuse of their information has occurred or is reasonably possible. However, there may be situations where the institution determines that a group of files has been accessed improperly, but is unable to identify which specific customers' information has been accessed. If the circumstances of the unauthorized access lead the institution to determine that misuse of the information is reasonably possible, it should notify all customers in the group. B. Content of Customer Notice 1. Customer notice should be given in a clear and conspicuous manner. The notice should describe the incident in general terms and the type of customer information that was the subject of unauthorized access or use. It also should generally describe what the institution has done to protect the customers' information from further unauthorized access. In addition, it should include a telephone number that customers can call for further information and assistance. 14 14 a. A recommendation that the customer review account statements and immediately report any suspicious activity to the institution; b. A description of fraud alerts and an explanation of how the customer may place a fraud alert in the customer's consumer reports to put the customer's creditors on notice that the customer may be a victim of fraud; c. A recommendation that the customer periodically obtain credit reports from each nationwide credit reporting agency and have information relating to fraudulent transactions deleted; d. An explanation of how the customer may obtain a credit report free of charge; and e. Information about the availability of the FTC's online guidance regarding steps a consumer can take to protect against identity theft. The notice should encourage the customer to report any incidents of identity theft to the FTC, and should provide the FTC's Web site address and toll-free telephone number that customers may use to obtain the identity theft guidance and report suspected incidents of identity theft. 15 15 http://www.consumer.gov/idtheft 2. The Agencies encourage financial institutions to notify the nationwide consumer reporting agencies prior to sending notices to a large number of customers that include contact information for the reporting agencies. C. Delivery of Customer Notice Customer notice should be delivered in any manner designed to ensure that a customer can reasonably be expected to receive it. For example, the institution may choose to contact all customers affected by telephone or by mail, or by electronic mail for those customers for whom it has a valid e-mail address and who have agreed to receive communications electronically. [Reg. H, 66 FR 8634, Feb. 1, 2001, as amended at 69 FR 77617, Dec. 28, 2004; 70 FR 15753, Mar. 29, 2005; 71 FR 5780, Feb. 3, 2006; 79 FR 37166, July 1, 2014] Appendixes E-F to Part 208 [Reserved]

Related documents

• 12 CFR Part 305 — XXX#634995
• 50 CFR Part 600 — Magnuson-Stevens Act Provisions#512148
• 50 CFR Part 622 — Fisheries of the Caribbean, Gulf of America, and South Atlantic#512149
• 50 CFR Part 635 — Atlantic Highly Migratory Species#512150
• 50 CFR Part 648 — Fisheries of the Northeastern United States#512151