12 CFR Part 238 — Savings and Loan Holding Companies (Regulation LL)

PART 238—SAVINGS AND LOAN HOLDING COMPANIES (REGULATION LL) Authority: 5 U.S.C. 552, 559; 12 U.S.C. 1462, 1462a, 1463, 1464, 1467, 1467a, 1468, 5365; 1813, 1817, 1829e, 1831i, 1972, 15 U.S.C. 78 l. Source: Reg. LL, 76 FR 56532, Sept. 13, 2011, unless otherwise noted. Subpart A—General Provisions § 238.1 Authority, purpose and scope. (a) Authority. Board HOLA Bank Control Act et seq. (b) Purpose. (1) Regulate the acquisition of control of savings associations by companies and individuals; (2) Define and regulate the activities in which savings and loan holding companies may engage; (3) Set forth the procedures for securing approval for these transactions and activities; and (4) Set forth the procedures under which directors and executive officers may be appointed or employed by savings and loan holding companies in certain circumstances. § 238.2 Definitions. As used in this part and in the forms under this part, the following definitions apply, unless the context otherwise requires: (a) Affiliate (b) Bank (c) Bank holding company (d) Company (1) The Federal Deposit Insurance Corporation, the Resolution Trust Corporation, or any Federal Home Loan Bank, or (2) Any company the majority of shares of which is owned by: (i) The United States or any State, (ii) An officer of the United States or any State in his or her official capacity, or (iii) An instrumentality of the United States or any State. (e) A person shall be deemed to have control (1) A savings association if the person directly or indirectly or acting in concert with one or more other persons, or through one or more subsidiaries, owns, controls, or holds with power to vote, or holds proxies representing, more than 25 percent of the voting shares of such savings association, or controls in any manner the election of a majority of the directors of such association; (2) Any other company if the person directly or indirectly or acting in concert with one or more other persons, or through one or more subsidiaries, owns, controls, or holds with power to vote, or holds proxies representing, more than 25 percent of the voting shares or rights of such other company, or controls in any manner the election or appointment of a majority of the directors or trustees of such other company, or is a general partner in or has contributed more than 25 percent of the capital of such other company; (3) A trust if the person is a trustee thereof; (4) A company if the Board determines, after reasonable notice and opportunity for hearing, that such person directly or indirectly exercises a controlling influence over the management or policies of such association or other company; or (5) Voting securities or assets owned, controlled, or held, directly or indirectly: (i) By the company, or by any subsidiary of the company; (ii) That the company has power to vote or to dispose of; (iii) In a fiduciary capacity for the benefit of the company or any of its subsidiaries; (iv) In a fiduciary capacity (including by pension and profit-sharing trusts) for the benefit of the shareholders, members, or employees (or individuals serving in similar capacities) of the company or any of its subsidiaries; or (v) According to the standards under § 238.9 of this part. (f) Director (g) Management official (h) Multiple savings and loan holding company (i) Officer (j) Person (k) Qualified thrift lender (l) Savings Association (m) Savings and loan holding company (1) Any company by virtue of its ownership or control of voting stock of a savings association acquired in connection with the underwriting of securities if such stock is held only for such period of time (not exceeding 120 days unless extended by the Board) as will permit the sale thereof on a reasonable basis; (2) Any trust (other than a pension, profit-sharing, stockholders', voting, or business trust) which controls a savings association if such trust by its terms must terminate within 25 years or not later than 21 years and 10 months after the death of individuals living on the effective date of the trust, and: (i) Was in existence and in control of a savings association on June 26, 1967, or (ii) Is a testamentary trust; (3) A bank holding company that is registered under, and subject to, the Bank Holding Company Act of 1956, or any company directly or indirectly controlled by such company (other than a savings association); (4) A company that controls a savings association that functions solely in a trust or fiduciary capacity as provided in section 2(c)(2)(D) of the Bank Holding Company Act; or (5) A company described in section 10(c)(9)(C) of HOLA solely by virtue of such company's control of an intermediate holding company established under section 10A of the Home Owners' Loan Act. (n) Shareholder Controlling shareholder (2) Principal shareholder (o) Stock (p) Subsidiary (q) Uninsured institution (r)(1) Voting securities (i) To vote for or to select directors, trustees, or partners (or persons exercising similar functions of the issuing company); or (ii) To vote on or to direct the conduct of the operations or other significant policies of the issuing company. (2) Nonvoting securities. voting securities (i) Any voting rights associated with the securities are limited solely to the type customarily provided by statute with regard to matters that would significantly and adversely affect the rights or preference of the security, such as the issuance of additional amounts or classes of senior securities, the modification of the terms of the security, the dissolution of the issuing company, or the payment of dividends by the issuing company when preferred dividends are in arrears; (ii) The securities represent an essentially passive investment or financing device and do not otherwise provide the holder with control over the issuing company; and (iii) The securities do not entitle the holder, by statute, charter, or in any manner, to select or to vote for the selection of directors, trustees, or partners (or persons exercising similar functions) of the issuing company; except that limited partnership interests or membership interests in limited liability companies are not voting securities due to voting rights that are limited solely to voting for the removal of a general partner or managing member (or persons exercising similar functions at the company) for cause, to replace a general partner or managing member (or persons exercising similar functions at the company) due to incapacitation or following the removal of such person, or to continue or dissolve the company after removal of the general partner or managing member (or persons exercising similar functions at the company). (3) Class of voting shares. (s) Well capitalized. (i) Each of the savings and loan holding company's depository institutions is well capitalized; and (ii) The savings and loan holding company is not subject to any written agreement, order, capital directive, or prompt corrective action directive issued by the Board to meet and maintain a specific capital level for any capital measure. (2) In the case of a savings association, “well capitalized” takes the meaning provided in § 225.2(r)(2) of this chapter. (t) Well managed. (u) Depository institution. (v) Applicable accounting standards (w) Average cross-jurisdictional activity (x) Average off-balance sheet exposure (y) Average total consolidated assets (z) Average total nonbank assets (aa) Average weighted short-term wholesale funding (bb) Banking organization. (1) Incorporated in or organized under the laws of the United States or any State; and (2) Not a consolidated subsidiary of a covered savings and loan holding company that is incorporated in or organized under the laws of the United States or any State. (cc) Category II savings and loan holding company (dd) Category III savings and loan holding company (ee) Category IV savings and loan holding company (ff) Covered savings and loan holding company (1) A top-tier savings and loan holding company that is: (i) A grandfathered unitary savings and loan holding company as defined in section 10(c)(9)(C) of the Home Owners' Loan Act (12 U.S.C. 1461 et seq. (ii) As of June 30 of the previous calendar year, derived 50 percent or more of its total consolidated assets or 50 percent of its total revenues on an enterprise-wide basis (as calculated under GAAP) from activities that are not financial in nature under section 4(k) of the Bank Holding Company Act (12 U.S.C. 1843(k)); (2) A top-tier depository institution holding company that is an insurance underwriting company; or (3)(i) A top-tier depository institution holding company that, as of June 30 of the previous calendar year, held 25 percent or more of its total consolidated assets in subsidiaries that are insurance underwriting companies (other than assets associated with insurance for credit risk); and (ii) For purposes of paragraph (ff)(3)(i) of this section, the company must calculate its total consolidated assets in accordance with GAAP, or if the company does not calculate its total consolidated assets under GAAP for any regulatory purpose (including compliance with applicable securities laws), the company may estimate its total consolidated assets, subject to review and adjustment by the Board of Governors of the Federal Reserve System. (gg) Cross-jurisdictional activity. (hh) Foreign banking organization (ii) FR Y-9C (jj) FR Y-9LP (kk) FR Y-15 (ll) GAAP (mm) Off-balance sheet exposure. (1) The total exposure of the banking organization, as reported by the banking organization on the FR Y-15; minus (2) The total consolidated assets of the banking organization for the same calendar quarter. (nn) State (oo) Total consolidated assets. (pp) Total nonbank assets. (qq) U.S. government agency (rr) U.S. government-sponsored enterprise (ss) Weighted short-term wholesale funding (tt) Voting percentage. (1) The quotient, expressed as a percentage, of the number of shares of the class of voting securities controlled by the person, divided by the number of shares of the class of voting securities that are issued and outstanding, both as adjusted by § 238.9 of this part; and (2) The quotient, expressed as a percentage, of the number of votes that may be cast by the person on the voting securities controlled by the person, divided by the total votes that are legally entitled to be cast by the issued and outstanding shares of the class of voting securities, both as adjusted by § 238.9 of this part. [Reg. LL, 76 FR 56532, Sept. 13, 2011, as amended at 84 FR 59076, Nov. 1, 2019; 85 FR 12426, Mar. 2, 2020] § 238.3 Administration. (a) Delegation of authority. (b) Appropriate Federal Reserve Bank. (1) For a savings and loan holding company (or a company applying to become a savings and loan holding company): the Reserve Bank of the Federal Reserve district in which the company's banking operations are principally conducted, as measured by total domestic deposits in its subsidiary savings association on the date it became (or will become) a savings and loan holding company; (2) For an individual or company submitting a notice under subpart D of this part: The Reserve Bank of the Federal Reserve district in which the banking operations of the savings and loan holding company to be acquired are principally conducted, as measured by total domestic deposits on the date the notice is filed. § 238.4 Records, reports, and inspections. (a) Records. The records shall be maintained in the United States and be readily accessible for examination and other supervisory purposes within 5 business days upon request by the Board, at a location acceptable to the Board. (b) Reports. (c) Registration statement Filing of registration statement. (2) Date of registration. (3) Extension of time for registration. (d) Release from registration. (e) Examinations. (f) Appointment of agent. § 238.5 Audit of savings association holding companies. (a) General. (b) Audits required for safety and soundness purposes. (2) Except as provided in paragraph (b)(3) of this section, with regard to a savings and loan holding company's fiscal year beginning in the calendar years 2020 or 2021, the applicability of the requirement in paragraph (b)(1) of this section shall be determined based on the lesser of: (i) The aggregate consolidated assets of the savings and loan holding company as of December 31, 2019; and (ii) The aggregate consolidated assets of the savings and loan holding company as of the end of its fiscal year ending in calendar year 2020. (3) The relief provided under paragraph (b)(2) of this section does not apply to a savings and loan holding company if the Board determines that permitting the savings and loan holding company to determine its assets in accordance with that paragraph would not be commensurate with the risk profile of the savings and loan holding company. When making this determination, the Board will consider all relevant factors, including the extent of asset growth of the savings and loan holding company 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 savings and loan holding company 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 savings and loan holding company. 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) Procedures. (2) When the Board requires the application of procedures agreed upon by the Board for safety and soundness purposes, the Board shall identify the procedures to be performed. The Board shall also determine whether the agreed upon procedures were conducted and filed in a manner satisfactory to the Board. (d) Qualifications for independent public accountants. (1) Is registered or licensed to practice as a public accountant, and is in good standing, under the laws of the state or other political subdivision of the United States in which the savings association's or holding company's principal office is located; (2) Agrees in the engagement letter to provide the Board with access to and copies of any work papers, policies, and procedures relating to the services performed; (3)(i) Is in compliance with the American Institute of Certified Public Accountants' (AICPA) Code of Professional Conduct; and (ii) Meets the independence requirements and interpretations of the Securities and Exchange Commission and its staff; and (4) Has received, or is enrolled in, a peer review program that meets guidelines acceptable to the Board. (e) Voluntary audits. [Reg. LL, 76 FR 56532, Sept. 13, 2011, as amended at 85 FR 77362, Dec. 2, 2020] § 238.6 Penalties for violations. (a) Criminal and civil penalties. (2) Civil money penalty assessments for violations of HOLA shall be made in accordance with subpart C of the Board's Rules of Practice for Hearings (12 CFR part 263, subpart C). For any willful violation of the Bank Control Act or any regulation or order issued under it, the Board may assess a civil penalty as provided in 12 U.S.C. 1817(j)(15). (b) Cease-and-desist proceedings. et seq. § 238.7 Tying restriction exception. (a) Safe harbor for combined-balance discounts. (1) That company (if it is a savings association) or a savings association affiliate of that company (if it is not a savings association) offers deposits, and all such deposits are eligible products; and (2) Balances in deposits count at least as much as non-deposit products toward the minimum balance. (b) Limitations on exception. § 238.8 Safe and sound operations, and Small Bank Holding Company Policy Statement. (a) Savings and loan holding company policy and operations. (2) Whenever the Board believes an activity of a savings and loan holding company or control of a nonbank subsidiary (other than a nonbank subsidiary of a savings association) constitutes a serious risk to the financial safety, soundness, or stability of a subsidiary savings association of the savings and loan holding company and is inconsistent with sound banking principles or the purposes of HOLA or the Financial Institutions Supervisory Act of 1966, as amended (12 U.S.C. 1818(b) et seq. (b) The Board's Small Bank Holding Company Policy Statement (12 CFR part 225, appendix C) (Policy Statement) applies to savings and loan holding companies as if they were bank holding companies. To qualify or rely on the Policy Statement, savings and loan holding companies must meet all qualifying requirements in the Policy Statement as if they were a bank holding company. For purposes of applying the Policy Statement, the term “nonbank subsidiary” as used in the Policy Statement refers to a subsidiary of a savings and loan holding company other than a savings association or a subsidiary of a savings association. (c) The Board may exclude any savings and loan holding company, regardless of asset size, from the Policy Statement under paragraph (b) of this section if the Board determines that such action is warranted for supervisory purposes. [Reg. LL, 76 FR 56532, Sept. 13, 2011, as amended at 85 FR 12426, Mar. 2, 2020] § 238.9 Control over securities. (a) Contingent rights, convertible securities, options, and warrants. (2) If a financial instrument of the type described in paragraph (a)(1) of this section is convertible into, exercisable for, exchangeable for, or otherwise may become a number of securities that varies according to a formula, rate, or other variable metric, the number of securities controlled under paragraph (a)(1) of this section is the maximum number of securities that the financial instrument could be converted into, be exercised for, be exchanged for, or otherwise become under the formula, rate, or other variable metric. (3) Notwithstanding paragraph (a)(1) of this section, a person does not control voting securities due to controlling a financial instrument if the financial instrument: (i) By its terms is not convertible into, is not exercisable for, is not exchangeable for, and may not otherwise become voting securities in the hands of the person or an affiliate of the person; and (ii) By its terms is only convertible into, exercisable for, exchangeable for, or may otherwise become voting securities in the hands of a transferee after a transfer: (A) In a widespread public distribution; (B) To the issuing company; (C) In transfers in which no transferee (or group of associated transferees) would receive 2 percent or more of the outstanding securities of any class of voting securities of the issuing company; or (D) To a transferee that would control more than 50 percent of every class of voting securities of the issuing company without any transfer from the person. (4) Notwithstanding paragraph (a)(1) of this section, a person that has agreed to acquire securities or other financial instruments pursuant to a securities purchase agreement does not control such securities or financial instruments until the person acquires the securities or financial instruments. (5) Notwithstanding paragraph (a)(1) of this section, a right that provides a person the ability to acquire securities in future issuances or to convert nonvoting securities into voting securities does not cause the person to control the securities that could be acquired under the right, so long as the right does not allow the person to acquire a higher percentage of the class of securities than the person controlled immediately prior to the future acquisition. (6) Notwithstanding paragraph (a)(1) of this section, a preferred security that would be a nonvoting security but for a right to vote on directors that activates only after six or more quarters of unpaid dividends is not considered to be a voting security until the security holder is entitled to exercise the voting right. (7) For purposes of determining the percentage of a class of voting securities of a company controlled by a person that controls a financial instrument of the type described in paragraph (a)(1) of this section: (i) The securities controlled by the person under paragraphs (a)(1) through (6) of this section are deemed to be issued and outstanding; and (ii) Any securities controlled by anyone other than the person under paragraphs (a)(1) through (6) of this section are not deemed to be issued and outstanding, unless by the terms of the financial instruments the securities controlled by the other persons must be issued and outstanding in order for the securities of the person to be issued and outstanding. (b) Restriction on securities. (1) A requirement that the second person offer the securities for sale to the first person for a reasonable period of time prior to transferring the securities to a third party; (2) A requirement that, if the second person agrees to sell the securities, the second person provide the first person with the opportunity to participate in the sale of the securities by the second person; (3) A requirement under which the second person agrees to sell its securities to a third party if a majority of security holders agrees to sell their securities to the third party; (4) Incident to a bona fide loan transaction in which the securities serve as collateral; (5) A short-term and revocable proxy; (6) A restriction on transferability that continues only for a reasonable amount of time necessary to complete an acquisition by the first person of the securities from the second person, including the time necessary to obtain required approval from an appropriate government authority with respect to the acquisition; (7) A requirement that the second person vote the securities in favor of a specific acquisition of control of the issuing company, or against competing transactions, if the restriction continues only for a reasonable amount of time necessary to complete the transaction, including the time necessary to obtain required approval from an appropriate government authority with respect to an acquisition or merger; or (8) An agreement among security holders of the issuing company intended to preserve the tax status or tax benefits of the company, such as qualification of the issuing company as a Subchapter S corporation, as defined in 26 U.S.C. 1361(a)(1) or any successor statute, or prevention of events that could impair deferred tax assets, such as net operating loss carryforwards, as described in 26 U.S.C. 382 or any successor statute. (c) Securities held by senior management officials or controlling equity holders of a company. (d) Reservation of authority. [85 FR 12426, Mar. 2, 2020] § 238.10 Categorization of banking organizations. (a) General. (b) Category II. (i) $700 billion or more in average total consolidated assets; or (ii)(A) $75 billion or more in average cross-jurisdictional activity; and (B) $100 billion or more in average total consolidated assets. (2) After meeting the criteria in paragraph (b)(1) of this section, a banking organization continues to be a Category II banking organization until the banking organization has: (i)(A) Less than $700 billion in total consolidated assets for each of the four most recent calendar quarters; and (B) Less than $75 billion in cross-jurisdictional activity for each of the four most recent calendar quarters; or (ii) Less than $100 billion in total consolidated assets for each of the four most recent calendar quarters. (c) Category III. (i) Has: (A) $250 billion or more in average total consolidated assets; or (B) $100 billion or more in average total consolidated assets and at least: ( 1 ( 2 ( 3 (ii) Is not a Category II banking organization. (2) After meeting the criteria in paragraph (c)(1) of this section, a banking organization continues to be a Category III banking organization until the banking organization: (i) Has: (A) Less than $250 billion in total consolidated assets for each of the four most recent calendar quarters; (B) Less than $75 billion in total nonbank assets for each of the four most recent calendar quarters; (C) Less than $75 billion in weighted short-term wholesale funding for each of the four most recent calendar quarters; and (D) Less than $75 billion in off-balance sheet exposure for each of the four most recent calendar quarters; or (ii) Has less than $100 billion in total consolidated assets for each of the four most recent calendar quarters; or (iii) Meets the criteria in paragraph (b)(1) of this section to be a Category II banking organization. (d) Category IV. (i) Is not a Category II banking organization; and (ii) Is not a Category III banking organization. (2) After meeting the criteria in paragraph (d)(1) of this section, a banking organization continues to be a Category IV banking organization until the banking organization: (i) Has less than $100 billion in total consolidated assets for each of the four most recent calendar quarters; (ii) Meets the criteria in paragraph (b)(1) of this section to be a Category II banking organization; or (iii) Meets the criteria in paragraph (c)(1) of this section to be a Category III banking organization. [84 FR 59077, Nov. 1, 2019] Subpart B—Acquisitions of Saving Association Securities or Assets § 238.11 Transactions requiring Board approval. The following transactions require the Board's prior approval under section 10 of HOLA except as exempted under § 238.12: (a) Formation of savings and loan holding company. (b) Acquisition of subsidiary savings association. (c) Acquisition of control of savings association or savings and loan holding company securities. (2) An acquisition includes the purchase of additional securities through the exercise of preemptive rights, but does not include securities received in a stock dividend or stock split that does not alter the savings and loan holding company's proportional share of any class of voting securities. (3) In the case of a multiple savings and loan holding company, acquisition of direct or indirect ownership or control of any voting securities of a savings association or savings and loan holding company, that is not a subsidiary, if the acquisition results in the company's control of more than 5 percent of the outstanding shares of any class of voting securities of the savings association or savings and loan holding company that is engaged in any business activity other than those specified in § 238.51 of this part. (d) Acquisition of savings association or savings and loan holding company assets. (e) Merger of savings and loan holding companies. (f) Acquisition of control by certain individuals. § 238.12 Transactions not requiring Board approval. (a) The requirements of § 238.11(a), (b), (d), (e) and (f) do not apply to: (1) Control of a savings association acquired by devise under the terms of a will creating a trust which is excluded from the definition of savings and loan holding company; (2) Control of a savings association acquired in connection with a reorganization that involves solely the acquisition of control of that association by a newly formed company that is controlled by the same acquirors that controlled the savings association for the immediately preceding three years, and entails no other transactions, such as an assumption of the acquirors' debt by the newly formed company: Provided, that the acquirors have filed the designated form with the appropriate Reserve Bank and have provided all additional information requested by the Board or Reserve Bank, and the Board nor the appropriate Reserve Bank object to the acquisition within 30 days of the filing date; (3) Control of a savings association acquired by a bank holding company that is registered under and subject to, the Bank Holding Company Act of 1956, or any company controlled by such bank holding company; (4) Control of a savings association acquired solely as a result of a pledge or hypothecation of stock to secure a loan contracted for in good faith or the liquidation of a loan contracted for in good faith, in either case where such loan was made in the ordinary course of the business of the lender: Provided, further, Provided, further, (5) Control of a savings association acquired through a percentage increase in stock ownership following a pro rata (6) Acquisitions of up to twenty-five percent (25%) of a class of stock by a tax-qualified employee stock benefit plan; and (7) Acquisitions of up to 15 percent of the voting stock of any savings association by a savings and loan holding company (other than a bank holding company) in connection with a qualified stock issuance if such acquisition is approved by the Board pursuant to subpart E. (b) The requirements of § 238.11(c) do not apply to voting shares of a savings association or of a savings and loan holding company— (1) Held as a bona fide (2) Held temporarily pursuant to an underwriting commitment in the normal course of an underwriting business; (3) Held in an account solely for trading purposes or over which no control is held other than control of voting rights acquired in the normal course of a proxy solicitation; (4) Acquired in securing or collecting a debt previously contracted in good faith, for two years after the date of acquisition or for such additional time (not exceeding three years) as the Board may permit if, in the Board's judgment, such an extension would not be detrimental to the public interest; (5) Acquired under section 13(k)(1)(A)(i) of the Federal Deposit Insurance Act (or section 408(m) of the National Housing Act as in effect immediately prior to the enactment of the Financial Institutions Reform, Recovery and Enforcement Act of 1989); (6) Held by any insurance companies as defined in section 2(a)(17) of the Investment Company Act of 1940: Provided, (7) Acquired pursuant to a qualified stock issuance if such a purchase is approved pursuant to subpart E of this part. (c) The aggregate amount of shares held under paragraph (b) of this section (other than pursuant to paragraphs (b)(1) through (4) and (b)(6)) may not exceed 15 percent of all outstanding shares or the voting power of a savings association or savings and loan holding company. (d) Acquisitions involving savings association mergers and internal corporate reorganizations. (1) Certain transactions subject to the Bank Merger Act. (i) The savings association merger, consolidation, or asset purchase occurs simultaneously with the acquisition of the shares of the savings association or savings and loan holding company or the merger of holding companies, and the savings association is not operated by the acquiring savings and loan holding company as a separate entity other than as the survivor of the merger, consolidation, or asset purchase; (ii) The transaction requires the prior approval of a federal supervisory agency under the Bank Merger Act (12 U.S.C. 1828(c)); (iii) The transaction does not involve the acquisition of any company that would require prior notice or approval under section 10(c) of the HOLA; (iv) The transaction does not involve a depository institution organized in mutual form, a savings and loan holding company organized in mutual form, a subsidiary holding company of a savings and loan holding company organized in mutual form, or a bank holding company organized in mutual form; (v) The transaction will not have a material adverse impact on the financial condition of the acquiring savings and loan holding company; (vi) At least 10 days prior to the transaction, the acquiring savings and loan holding company has provided to the Reserve Bank written notice of the transaction that contains: (A) A copy of the filing made to the appropriate federal banking agency under the Bank Merger Act; and (B) A description of the holding company's involvement in the transaction, the purchase price, and the source of funding for the purchase price; and (vii) Prior to expiration of the period provided in paragraph (d)(1)(vi) of this section, neither the Board nor the Reserve Bank has informed the savings and loan holding company that an application under § 238.11 is required. (2) Internal corporate reorganizations. (A) The merger of holding companies that are subsidiaries of the savings and loan holding company; (B) The formation of a subsidiary holding company; 1 1 (C) The transfer of control or ownership of a subsidiary savings association or a subsidiary holding company between one subsidiary holding company and another subsidiary holding company or the savings and loan holding company. (ii) A transaction described in paragraph (d)(2)(i) of this section qualifies for this exception if— (A) The transaction represents solely a corporate reorganization involving companies and insured depository institutions that, both preceding and following the transaction, are lawfully controlled and operated by the savings and loan holding company; (B) The transaction does not involve the acquisition of additional voting shares of an insured depository institution that, prior to the transaction, was less than majority owned by the savings and loan holding company; (C) The transaction does not involve a savings and loan holding company organized in mutual form, a subsidiary holding company of a savings and loan holding company organized in mutual form, or a bank holding company organized in mutual form; and (D) The transaction will not have a material adverse impact on the financial condition of the holding company. § 238.13 Prohibited acquisitions. (a) No savings and loan holding company may, directly or indirectly, or through one or more subsidiaries or through one or more transactions, acquire control of an uninsured institution or retain, for more than one year after the date any savings association subsidiary becomes uninsured, control of such association. (b) Control of mutual savings association. § 238.14 Procedural requirements. (a) Filing application. (b) Request for confidential treatment. (c) Public notice Newspaper publication Location of publication. (ii) Contents of notice. (iii) Timing of publication. (2) Federal Register Notice Publication by Board. Federal Register (ii) Request for advance publication. Federal Register. Federal Register Federal Register (3) Waiver or shortening of notice. (d) Public comment Timely comments. (2) Extension of comment period In general. (ii) Requests in connection with obtaining application or notice. (iii) Joint requests by interested person and applicant. (3) Substantive comment. (e) Hearings. (f) Accepting application for processing. (g) Action on applications Action under delegated authority. (i) Not earlier than the third business day following the close of the public comment period; and (ii) Not later than the later of the fifth business day following the close of the public comment period or the 30th calendar day after the acceptance date for the application. (2) Board action. (3) Approval through failure to act Ninety-one day rule. (ii) Complete record. (A) The date of receipt by the Board of an application that has been accepted by the Reserve Bank; (B) The last day provided in any notice for receipt of comments and hearing requests on the application or notice; (C) The date of receipt by the Board of the last relevant material regarding the application that is needed for the Board's decision, if the material is received from a source outside of the Federal Reserve System; or (D) The date of completion of any hearing or other proceeding. (4) Expedited reorganization In general. (A) Not earlier than the third business day following the close of the public comment period; and (B) Not later than the fifth business day following the close of the public comment period, except that the Board may extend the period for action under this paragraph (g)(4) for up to 5 business days. (ii) Acceptance of notice in event expedited procedure not available. § 238.15 Factors considered in acting on applications. (a) Generally. (1) The transaction would result in a monopoly or would further any combination or conspiracy to monopolize, or to attempt to monopolize, the savings and loan business in any part of the United States; (2) The effect of the transaction may be substantially to lessen competition in any section of the country, tend to create a monopoly, or in any other manner be in restraint of trade, unless the Board finds that the transaction's anti-competitive effects are clearly outweighed by its probable effect in meeting the convenience and needs of the community; (3) The applicant has failed to provide the Board with adequate assurances that it will make available such information on its operations or activities, and the operations or activities of any affiliate of the applicant, that the Board deems appropriate to determine and enforce compliance with HOLA and other applicable federal banking statutes, and any regulations thereunder; or (4) In the case of an application involving a foreign banking organization, the foreign banking organization is not subject to comprehensive supervision or regulation on a consolidated basis by the appropriate authorities in its home country, as provided in § 211.24(c)(1)(ii) of the Board's Regulation K (12 CFR 211.24(c)(1)(ii)). (5) In the case of an application by a savings and loan holding company to acquire an insured depository institution, section 10(e)(2)(E) of HOLA prohibits the Board from approving the transaction. (b) Other factors. (1) Financial condition. (2) Managerial resources. (3) Convenience and needs of community. et seq. (c) Presumptive disqualifiers Integrity factors. (i) During the 10-year period immediately preceding filing of the application or notice, criminal, civil or administrative judgments, consents or orders, and any indictments, formal investigations, examinations, or civil or administrative proceedings (excluding routine or customary audits, inspections and investigations) that terminated in any agreements, undertakings, consents or orders, issued against, entered into by, or involving the acquiror or affiliates of the acquiror by any federal or state court, any department, agency, or commission of the U.S. Government, any state or municipality, any Federal Home Loan Bank, any self-regulatory trade or professional organization, or any foreign government or governmental entity, which involve: (A) Fraud, moral turpitude, dishonesty, breach of trust or fiduciary duties, organized crime or racketeering; (B) Violation of securities or commodities laws or regulations; (C) Violation of depository institution laws or regulations; (D) Violation of housing authority laws or regulations; or (E) Violation of the rules, regulations, codes of conduct or ethics of a self-regulatory trade or professional organization; (ii) Denial, or withdrawal after receipt of formal or informal notice of an intent to deny, by the acquiror or affiliates of the acquiror, of (A) Any application relating to the organization of a financial institution, (B) An application to acquire any financial institution or holding company thereof under HOLA or the Bank Holding Company Act or otherwise, (C) A notice relating to a change in control of any of the foregoing under the CIC Act; or (D) An application or notice under a state holding company or change in control statute; (iii) The acquiror or affiliates of the acquiror were placed in receivership or conservatorship during the preceding 10 years, or any management official of the acquiror was a management official or director (other than an official or director serving at the request of the Board, the Federal Deposit Insurance Corporation, the Resolution Trust Corporation, the former Federal Savings and Loan Insurance Corporation, or their predecessors) or principal shareholder of a company or savings association that was placed into receivership, conservatorship, or a management consignment program, or was liquidated during his or her tenure or control or within two years thereafter; (iv) Felony conviction of the acquiror, an affiliate of the acquiror or a management official of the acquiror or an affiliate of the acquiror; (v) Knowingly making any written or oral statement to the Board or any predecessor agency (or its delegate) in connection with an application, notice or other filing under this part that is false or misleading with respect to a material fact or omits to state a material fact with respect to information furnished or requested in connection with such an application, notice or other filing; (vi) Acquisition and retention at the time of submission of an application or notice, of stock in the savings association by the acquiror in violation of this part or its predecessor regulations. (2) Financial factors. (i) Liability for amounts of debt which, in the opinion of the Board, create excessive risks of default and pressure on the savings association to be acquired; or (ii) Failure to furnish a business plan or furnishing a business plan projecting activities which are inconsistent with economical home financing. (d) Competitive factor. (e) Expedited reorganizations. (1) The holding company shall not be capitalized initially in an amount exceeding the amount the savings association is permitted to pay in dividends to its holding company as of the date of the reorganization pursuant to applicable regulations or, in the absence thereof, pursuant to the then current policy guidelines; (2) The creation of the savings and loan holding company by the association is the sole transaction contained in the application, and there are no other transactions requiring approval incident to the creation of the holding company (other than the creation of an interim association that will disappear upon consummation of the reorganization and the merger of the savings association with such interim association to effect the reorganization), and the holding company is not also seeking any regulatory waivers, regulatory forbearances, or resolution of legal or supervisory issues; (3) The board of directors and executive officers of the holding company are composed of persons who, at the time of acquisition, are executive officers and directors of the association; (4) The acquisition raises no significant issues of law or policy; (5) Prior to consummation of the reorganization transaction, the holding company shall enter into any dividend limitation, regulatory capital maintenance, or prenuptial agreement required by Board regulations, or in the absence thereof, required pursuant to policy guidelines issued by the Board; and (f) Conditional approvals. (g) No acquisition shall be approved by the Board pursuant to § 238.11 which would result in the formation by any company, through one or more subsidiaries or through one or more transactions, of a multiple savings and loan holding company controlling savings associations in more than one state where the acquisition causes a savings association to become an affiliate of another savings association with which it was not previously affiliated unless: (1) Such company, or a savings association subsidiary of such company, is authorized to acquire control of a savings association subsidiary, or to operate a home or branch office, in the additional state or states pursuant to section 13(k) of the Federal Deposit Insurance Act, 12 U.S.C. 1823(k) (or section 408(m) of the National Housing Act as in effect immediately prior to enactment of the Financial Institutions Reform, Recovery and Enforcement Act of 1989); (2) Such company controls a savings association subsidiary which operated a home or branch office in the additional state or states as of March 5, 1987; or (3) The statute laws of the state in which the savings association, control of which is to be acquired, is located are such that a savings association chartered by such state could be acquired by a savings association chartered by the state where the acquiring savings association or savings and loan holding company is located (or by a holding company that controls such a state chartered savings association), and such statute laws specifically authorize such an acquisition by language to that effect and not merely by implication. Subpart C—Control Proceedings Source: 85 FR 12427, Mar. 2, 2020, unless otherwise noted. § 238.21 Control proceedings. (a) Preliminary determination of control. (2) If the Board makes a preliminary determination of control under this section, the Board shall send notice to the first company containing a statement of the facts upon which the preliminary determination is based. (b) Response to preliminary determination of control. (i) Consent to the preliminary determination of control and either: (A) Submit for the Board's approval a specific plan for the prompt termination of the control relationship; or (B) File an application or notice under this part, as applicable; or (ii) Contest the preliminary determination by filing a response, setting forth the facts and circumstances in support of its position that no control exists, and, if desired, requesting a hearing or other proceeding. (2) If the first company fails to respond to the preliminary determination of control within 30 days or such longer period permitted by the Board in its discretion, the first company will be deemed to have waived its right to present additional information to the Board or to request a hearing or other proceeding regarding the preliminary determination of control. (c) Hearing and final determination. (2) At a hearing or other proceeding, any applicable presumptions established under this subpart shall be considered in accordance with the Federal Rules of Evidence and the Board's Rules of Practice for Formal Hearings (12 CFR part 263). (3) After considering the submissions of the first company and other evidence, including the record of any hearing or other proceeding, the Board will issue a final order determining whether the first company has the power to exercise a controlling influence over the management or policies of the second company. If a controlling influence is found, the Board may direct the first company to terminate the control relationship or to file an application or notice for the Board's approval to retain the control relationship. (d) Submission of evidence. (2) Evidence or other relevant information submitted to the Board pursuant to paragraph (d)(1) of this section must be in writing and may include a description of all current and proposed relationships between the first company and the second company, including relationships of the type that are identified under any of the rebuttable presumptions in §§ 238.22 and 238.23 of this part, copies of any formal agreements related to such relationships, and a discussion regarding why the Board should not determine the first company to control the second company. (e) Definitions. (1) Board of directors (2) Director representative (i) A current officer, employee, or director of the first company; (ii) An individual who was an officer, employee, or director of the first company within the prior two years; and (iii) An individual who was nominated or proposed to be a director of the second company by the first company. (iv) A director representative does not include a nonvoting observer. (3) First company (4) Investment adviser (i) Is registered as an investment adviser with the Securities and Exchange Commission under the Investment Advisers Act of 1940 (15 U.S.C. 80b-1 et seq. (ii) Is registered as a commodity trading advisor with the Commodity Futures Trading Commission under the Commodity Exchange Act (7 U.S.C. 1 et seq. (iii) Is a foreign equivalent of an investment adviser or commodity trading advisor, as described in paragraph (e)(4)(i) or (ii) of this section; or (iv) Engages in any of the activities set forth in 12 CFR 225.28(b)(6)(i) through (iv). (5) Limiting contractual right (i) Examples of limiting contractual rights may include, but are not limited to, a right that allows the first company to restrict or to exert significant influence over decisions related to: (A) Activities in which the second company may engage, including a prohibition on entering into new lines of business, making substantial changes to or discontinuing existing lines of business, or entering into a contractual arrangement with a third party that imposes significant financial obligations on the second company; (B) How the second company directs the proceeds of the first company's investment; (C) Hiring, firing, or compensating one or more senior management officials of the second company, or modifying the second company's policies or budget concerning the salary, compensation, employment, or benefits plan for its employees; (D) The second company's ability to merge or consolidate, or its ability to acquire, sell, lease, transfer, spin-off, recapitalize, liquidate, dissolve, or dispose of subsidiaries or assets; (E) The second company's ability to make investments or expenditures; (F) The second company achieving or maintaining a financial target or limit, including, for example, a debt-to-equity ratio, a fixed charges ratio, a net worth requirement, a liquidity target, a working capital target, or a classified assets or nonperforming loans limit; (G) The second company's payment of dividends on any class of securities, redemption of senior instruments, or voluntary prepayment of indebtedness; (H) The second company's ability to authorize or issue additional junior equity or debt securities, or amend the terms of any equity or debt securities issued by the second company; (I) The second company's ability to engage in a public offering or to list or de-list securities on an exchange, other than a right that allows the securities of the first company to have the same status as other securities of the same class; (J) The second company's ability to amend its articles of incorporation or by-laws, other than in a way that is solely defensive for the first company; (K) The removal or selection of any independent accountant, auditor, investment adviser, or investment banker employed by the second company; or (L) The second company's ability to significantly alter accounting methods and policies, or its regulatory, tax, or liability status ( e.g., (ii) A limiting contractual right does not include a contractual right that would not allow the first company to significantly restrict, directly or indirectly, the discretion of the second company over operational and policy decisions of the second company. Examples of contractual rights that are not limiting contractual rights may include: (A) A right that allows the first company to restrict or to exert significant influence over decisions relating to the second company's ability to issue securities senior to securities owned by the first company; (B) A requirement that the first company receive financial reports or other information of the type ordinarily available to common stockholders; (C) A requirement that the second company maintain its corporate existence; (D) A requirement that the second company consult with the first company on a reasonable periodic basis; (E) A requirement that the second company provide notices of the occurrence of material events affecting the second company; (F) A requirement that the second company comply with applicable statutory and regulatory requirements; (G) A market standard requirement that the first company receive similar contractual rights as those held by other investors in the second company; (H) A requirement that the first company be able to purchase additional securities issued by the second company in order to maintain the first company's percentage ownership in the second company; (I) A requirement that the second company ensure that any security holder who intends to sell its securities of the second company provide other security holders of the second company or the second company itself the opportunity to purchase the securities before the securities can be sold to a third party; or (J) A requirement that the second company take reasonable steps to ensure the preservation of tax status or tax benefits, such as status of the second company as a Subchapter S corporation or the protection of the value of net operating loss carry-forwards. (6) Second company (7) Senior management official (f) Reservation of authority. § 238.22 Rebuttable presumptions of control of a company. (a) General. (2) For purposes of the presumptions in this section, any company that is a subsidiary of the first company and also a subsidiary of the second company is considered to be a subsidiary of the first company and not a subsidiary of the second company. (b) Management contract or similar agreement. (c) Ownership or control of 5 percent or more of voting securities. (1)(i) Director representatives of the first company or any of its subsidiaries comprise 25 percent or more of the board of directors of the second company or any of its subsidiaries; or (ii) Director representatives of the first company or any of its subsidiaries are able to make or block the making of major operational or policy decisions of the second company or any of its subsidiaries; (2) Two or more employees or directors of the first company or any of its subsidiaries serve as senior management officials of the second company or any of its subsidiaries; (3) An employee or director of the first company or any of its subsidiaries serves as the chief executive officer, or serves in a similar capacity, of the second company or any of its subsidiaries; (4) The first company or any of its subsidiaries enters into transactions or has business relationships with the second company or any of its subsidiaries that generate in the aggregate 10 percent or more of the total annual revenues or expenses of the second company, each on a consolidated basis; or (5) The first company or any of its subsidiaries has any limiting contractual right with respect to the second company or any of its subsidiaries, unless such limiting contractual right is part of an agreement to merge with or make a controlling investment in the second company that is reasonably expected to close within one year and such limiting contractual right is designed to ensure that the second company continues to operate in the ordinary course until the merger or investment is consummated or such limiting contractual right requires the second company to take an action necessary for the merger or investment to be consummated. (d) Ownership or control of 10 percent or more of voting securities. (1) The first company or any of its subsidiaries propose a number of director representatives to the board of directors of the second company or any of its subsidiaries in opposition to nominees proposed by the management or board of directors of the second company or any of its subsidiaries that, together with any director representatives of the first company or any of its subsidiaries on the board of directors of the second company or any of its subsidiaries, would comprise 25 percent or more of the board of directors of the second company or any of its subsidiaries; (2) Director representatives of the first company and its subsidiaries comprise more than 25 percent of any committee of the board of directors of the second company or any of its subsidiaries that can take action that binds the second company or any of its subsidiaries; or (3) The first company or any of its subsidiaries enters into transactions or has business relationships with the second company or any of its subsidiaries that: (i) Are not on market terms; or (ii) Generate in the aggregate 5 percent or more of the total annual revenues or expenses of the second company, each on a consolidated basis. (e) Ownership or control of 15 percent or more of voting securities. (1) A director representative of the first company or of any of its subsidiaries serves as the chair of the board of directors of the second company or any of its subsidiaries; (2) One or more employees or directors of the first company or any of its subsidiaries serves as a senior management official of the second company or any of its subsidiaries; or (3) The first company or any of its subsidiaries enters into transactions or has business relationships with the second company or any of its subsidiaries that generate in the aggregate 2 percent or more of the total annual revenues or expenses of the second company, each on a consolidated basis. (f) Accounting consolidation. (g) Control of an investment fund. (2) The presumption of control in paragraph (g)(1) of this section does not apply if the first company organized and sponsored the second company within the preceding 12 months. (h) Divestiture of control. (2) Notwithstanding paragraph (h)(1) of this section, a first company will not be presumed to control a second company under this paragraph if 50 percent or more of the outstanding securities of each class of voting securities of the second company is controlled by a person that is not a senior management official or director of the first company, or by a company that is not an affiliate of the first company. (i) Securities held in a fiduciary capacity. § 238.23 Rebuttable presumption of noncontrol of a company. (a) In any proceeding under § 238.21(b) or (c) of this part, a first company is presumed not to control a second company if: (1) The first company controls less than 10 percent of the outstanding securities of each class of voting securities of the second company; and (2) The first company is not presumed to control the second company under § 238.22 of this part. (b) In any proceeding under this subpart, or judicial proceeding under the Home Owners' Loan Act, other than a proceeding in which the Board has made a preliminary determination that a first company has the power to exercise a controlling influence over the management or policies of a second company, a first company may not be held to have had control over a second company at any given time, unless the first company, at the time in question, controlled 5 percent or more of the outstanding securities of any class of voting securities of the second company, or had already been found to have control on the basis of the existence of a controlling influence relationship. Subpart D—Change in Bank Control § 238.31 Transactions requiring prior notice. (a) Prior notice requirement. (b) Definitions. (1) Acquisition (2) Acting in concert (3) Immediate family (c) Acquisitions requiring prior notice Acquisition of control. (2) Rebuttable presumption of control. (i) The institution has registered securities under section 12 of the Securities Exchange Act of 1934 (15 U.S.C. 78l); or (ii) No other person will own, control, or hold the power to vote a greater percentage of that class of voting securities immediately after the transaction. 2 2 (d) Rebuttable presumption of concerted action. (1) A company and any principal shareholder, partner, trustee, or management official of the company, if both the company and the person own voting securities of the savings and loan holding company; (2) An individual and the individual's immediate family; (3) Companies under common control; (4) Persons that are parties to any agreement, contract, understanding, relationship, or other arrangement, whether written or otherwise, regarding the acquisition, voting, or transfer of control of voting securities of a savings and loan holding company, other than through a revocable proxy as described in § 238.32(a)(5) of this subpart; (5) Persons that have made, or propose to make, a joint filing under sections 13 or 14 of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78n), and the rules promulgated thereunder by the Securities and Exchange Commission; and (6) A person and any trust for which the person serves as trustee. (e) Acquisitions of loans in default. (f) Other transactions. (g) Rebuttal of presumptions. § 238.32 Transactions not requiring prior notice. (a) Exempt transactions. (1) Existing control relationships. (i) Continuously since March 9, 1979 (or since the institution commenced business, if later), held power to vote 25 percent or more of any class of voting securities of the institution; or (ii) Is presumed, under § 238.31(c)(2), to have controlled the institution continuously since March 9, 1979, if the aggregate amount of voting securities held does not exceed 25 percent or more of any class of voting securities of the institution or, in other cases, where the Board determines that the person has controlled the institution continuously since March 9, 1979; (2) Increase of previously authorized acquisitions. (3) Acquisitions subject to approval under HOLA or Bank Merger Act. (4) Transactions exempt under HOLA. (5) Proxy solicitation. (6) Stock dividends. (7) Acquisition of foreign banking organization. (b) Prior notice exemption. (i) Acquisition of voting securities through inheritance; (ii) Acquisition of voting securities as a bona fide (iii) Acquisition of voting securities in satisfaction of a debt previously contracted (DPC) in good faith. (2) The following acquisitions of voting securities of a savings and loan holding company, which would otherwise require prior notice under this subpart, are not subject to the prior notice requirements if the acquiring person does not reasonably have advance knowledge of the transaction, and provides the written notice required under § 238.33 to the appropriate Reserve Bank within 90 calendar days after the transaction occurs: (i) Acquisition of voting securities resulting from a redemption of voting securities by the issuing savings and loan holding company; and (ii) Acquisition of voting securities as a result of actions (including the sale of securities) by any third party that is not within the control of the acquiror. (3) Nothing in paragraphs (b)(1) or (b)(2) of this section limits the authority of the Board to disapprove a notice pursuant to § 238.33(h). § 238.33 Procedures for filing, processing, publishing, and acting on notices. (a) Filing notice. (2) The Board may waive any of the informational requirements of the notice if the Board determines that it is in the public interest. (3) A notificant shall notify the appropriate Reserve Bank or the Board immediately of any material changes in a notice submitted to the Reserve Bank, including changes in financial or other conditions. (4) When the acquiring person is an individual, or group of individuals acting in concert, the requirement to provide personal financial data may be satisfied by a current statement of assets and liabilities and an income summary, as required in the designated Board form, together with a statement of any material changes since the date of the statement or summary. The Reserve Bank or the Board, nevertheless, may request additional information, if appropriate. (b) Acceptance of notice. (c) Publication Newspaper Announcement. (2) Contents of newspaper announcement. (i) The name of each person identified in the notice as a proposed acquiror of the savings and loan holding company; (ii) The name of the savings and loan holding company to be acquired, including the name of each of the savings and loan holding company's subsidiary savings association; and (iii) A statement that interested persons may submit comments on the notice to the Board or the appropriate Reserve Bank for a period of 20 days, or such shorter period as may be provided, pursuant to paragraph (c)(5) of this section. (3) Federal Register Announcement. Federal Register Federal Register Federal Register (4) Delay of publication. (5) Shortening or waiving notice. (6) Consideration of public comments. Federal Register (7) Standing. (d) Time period for Board action Consummation of acquisition (ii) The notificant(s) may consummate the proposed transaction before the expiration of the 60-day period if the Board notifies the notificant(s) in writing of the Board's intention not to disapprove the acquisition. (2) Extensions of time period. (ii) The Board may further extend the period during which it may disapprove a notice for two additional periods of not more than 45 days each, if the Board determines that: (A) Any acquiring person has not furnished all the information required under paragraph (a) of this section; (B) Any material information submitted is substantially inaccurate; (C) The Board is unable to complete the investigation of an acquiring person because of inadequate cooperation or delay by that person; or (D) Additional time is needed to investigate and determine that no acquiring person has a record of failing to comply with the requirements of the Bank Secrecy Act, subchapter II of Chapter 53 of title 31, United States Code. (iii) If the Board extends the time period under this paragraph, it shall notify the acquiring person(s) of the reasons therefor and shall include a statement of the information, if any, deemed incomplete or inaccurate. (e) Advice to bank supervisory agencies. (f) Investigation and report. (2) The Board or the appropriate Reserve Bank shall prepare a written report of its investigation, which shall contain, at a minimum, a summary of the results of the investigation. (g) Factors considered in acting on notices. (h) Disapproval and hearing Disapproval of notice. i.e., (2) Disapproval notification. (3) Hearing. Subpart E—Qualified Stock Issuances § 238.41 Qualified stock issuances by undercapitalized savings associations or holding companies. (a) Acquisitions by savings and loan holding companies. (b) Qualification. (1) The shares of stock are issued by— (i) An undercapitalized savings association, which for purposes of this paragraph (b)(1)(i) shall mean any savings association— (A) The assets of which exceed the liabilities of such association; and (B) Which does not comply with one or more of the capital standards in effect under section 5(t) of HOLA; or (ii) A savings and loan holding company which is not a bank holding company but which controls an undercapitalized savings association if, at the time of issuance, the savings and loan holding company is legally obligated to contribute the net proceeds from the issuance of such stock to the capital of an undercapitalized savings association subsidiary of such holding company. (2) All shares of stock issued consist of previously unissued stock or treasury shares. (3) All shares of stock issued are purchased by a savings and loan holding company that is registered, as of the date of purchase, with the Board in accordance with the provisions of section 10(b) of the HOLA and the Board's regulations promulgated thereunder. (4) Subject to paragraph (c) of this section, the Board approves the purchase of the shares of stock by the acquiring savings and loan holding company. (5) The entire consideration for the stock issued is paid in cash by the acquiring savings and loan holding company. (6) At the time of the stock issuance, each savings association subsidiary of the acquiring savings and loan holding company (other than an association acquired in a transaction pursuant to section 13(c) or 13(k) of the Federal Deposit Insurance Act, or section 408(m) of the National Housing Act, as in effect immediately prior to enactment of the Financial Institutions Reform, Recovery and Enforcement Act of 1989) has capital (after deducting any subordinated debt, intangible assets, and deferred, unamortized gains or losses) of not less than 6 1/2 (7) Immediately after the stock issuance, the acquiring savings and loan holding company holds not more than 15 percent of the outstanding voting stock of the issuing undercapitalized savings association or savings and loan holding company. (8) Not more than one of the directors of the issuing association or company is an officer, director, employee, or other representative of the acquiring company or any of its affiliates. (9) Transactions between the savings association or savings and loan holding company that issues the shares pursuant to this section and the acquiring company and any of its affiliates shall be subject to the provisions of section 11 of HOLA and the Board's regulations promulgated thereunder. (c) Approval of acquisitions Criteria. (2) Additional capital commitments not required. (3) Other conditions. (i) A requirement that any savings association subsidiary of the acquiring savings and loan holding company limit dividends paid to such holding company for such period of time as the Board may require; and (ii) Such other conditions as the Board deems necessary or appropriate to prevent evasions of this section. (4) Application deemed approved if not disapproved within 90 days. (d) No limitation on class of stock issued. (e) Application form. Subpart F—Savings and Loan Holding Company Activities and Acquisitions § 238.51 Prohibited activities. (a) Evasion of law or regulation. (b) Unrelated business activity. (1) Furnishing or performing management services for a savings association subsidiary of such company; (2) Conducting an insurance agency or an escrow business; (3) Holding, managing, or liquidating assets owned by or acquired from a subsidiary savings association of such company; (4) Holding or managing properties used or occupied by a subsidiary savings association of such company; (5) Acting as trustee under deed of trust; (6) Any other activity: (i) That the Board of Governors of the Federal Reserve System has permitted for bank holding companies pursuant to regulations promulgated under section 4(c) of the Bank Holding Company Act; or (ii) Is set forth in § 238.53, subject to the limitations therein; or (7) (i) In the case of a savings and loan holding company, purchasing, holding, or disposing of stock acquired in connection with a qualified stock issuance if prior approval for the acquisition of such stock by such savings and loan holding company is granted by the Board pursuant to § 238.41. (ii) Notwithstanding the provisions of this paragraph (b), any savings and loan holding company that, between March 5, 1987 and August 10, 1987, received approval pursuant to 12 U.S.C. 1730a(e), as then in effect, to acquire control of a savings association shall not continue any business activity other than those activities set forth in this paragraph (b) after August 10, 1987. (c) Treatment of certain holding companies. § 238.52 Exempt savings and loan holding companies and grandfathered activities. (a) Exempt savings and loan holding companies. (i) Any savings and loan holding company (or subsidiary of such company) that controls only one savings association, if the savings association subsidiary of such company is a qualified thrift lender as defined in § 238.2(k). (ii) Any savings and loan holding company (or subsidiary thereof) that controls more than one savings association if all, or all but one of the savings association subsidiaries of such company were acquired pursuant to an acquisition under section 13(c) or 13(k) of the Federal Deposit Insurance Act, or section 408(m) of the National Housing Act, as in effect immediately prior to the date of enactment of the Financial Institutions Reform, Recovery and Enforcement Act of 1989, and all of the savings association subsidiaries of such company are qualified thrift lenders as defined in § 238.2(k). (2) Any savings and loan holding company whose subsidiary savings association(s) fails to qualify as a qualified thrift lender pursuant to 12 U.S.C. 1467a(m) may not commence, or continue, any service or activity other than those permitted under § 238.51(b) of this part, except that, the Board may allow, for good cause shown, such company (or subsidiary of such company which is not a savings association) up to 3 years to comply with the limitations set forth in § 238.51(b) of this part: Provided, (b) Grandfathered activities for certain savings and loan holding companies. provided, (1) The holding company does not, after August 10, 1987, acquire control of a bank or an additional savings association, other than a savings association acquired pursuant to section 13(c) or 13(k) of the Federal Deposit Insurance Act, or section 406(f) or 408(m) of the National Housing Act, as in effect immediately prior to the date of enactment of the Financial Institutions Reform, Recovery and Enforcement Act of 1989; (2) Any savings association subsidiary of the holding company continues to qualify as a domestic building and loan association under section 7701(a)(19) of the Internal Revenue Code of 1986 after August 10, 1987; (3) The holding company does not engage in any business activity other than those permitted under § 238.51(b) or in which it was engaged on March 5, 1987; (4) Any savings association subsidiary of the holding company does not increase the number of locations from which such savings association conducts business after March 5, 1987, other than an increase due to a transaction under section 13(c) or 13(k) of the Federal Deposit Insurance Act, or under section 408(m) of the National Housing Act, as in effect immediately prior to the date of enactment of the Financial Institutions Reform, Recovery and Enforcement Act of 1989; and (5) Any savings association subsidiary of the holding company does not permit any overdraft (including an intra-day overdraft) or incur any such overdraft in its account at a Federal Reserve bank, on behalf of an affiliate, unless such overdraft results from an inadvertent computer or accounting error that is beyond the control of both the savings association subsidiary and the affiliate. (c) Termination by the Board of grandfathered activities. (1) To prevent conflicts of interest; (2) To prevent unsafe or unsound practices; or (3) To protect the public interest. (d) Foreign holding company. § 238.53 Prescribed services and activities of savings and loan holding companies. (a) General. (b) Prescribed services and activities. (1) Originating, purchasing, selling and servicing any of the following: (i) Loans, and participation interests in loans, on a prudent basis and secured by real estate, including brokerage and warehousing of such real estate loans, except that such a company or subsidiary shall not invest in a loan secured by real estate as to which a subsidiary savings association of such company has a security interest; (ii) Manufactured home chattel paper (written evidence of both a monetary obligation and a security interest of first priority in one or more manufactured homes, and any equipment installed or to be installed therein), including brokerage and warehousing of such chattel paper; (iii) Loans, with or without security, for the altering, repairing, improving, equipping or furnishing of any residential real estate; (iv) Educational loans; and (v) Consumer loans, as defined in § 160.3 of this title, Provided, (2) Subject to the provisions of 12 U.S.C. 1468, furnishing or performing clerical accounting and internal audit services primarily for its affiliates; (3) Subject to the provisions of 12 U.S.C. 1468, furnishing or performing the following services primarily for its affiliates, and for any savings association and service corporation subsidiary thereof, and for other multiple holding companies and affiliates thereof: (i) Data processing; (ii) Credit information, appraisals, construction loan inspections, and abstracting; (iii) Development and administration of personnel benefit programs, including life insurance, health insurance, and pension or retirement plans; (iv) Research, studies, and surveys; (v) Purchase of office supplies, furniture and equipment; (vi) Development and operation of storage facilities for microfilm or other duplicate records; and (vii) Advertising and other services to procure and retain both savings accounts and loans; (4) Acquisition of unimproved real estate lots, and acquisition of other unimproved real estate for the purpose of prompt development and subdivision, for: (i) Construction of improvements, (ii) Resale to others for such construction, or (iii) Use as mobile home sites; (5) Development, subdivision and construction of improvements on real estate acquired pursuant to paragraph (b)(4) of this section, for sale or rental; (6) Acquisition of improved real estate and mobile homes to be held for rental; (7) Acquisition of improved real estate for remodeling, rehabilitation, modernization, renovation, or demolition and rebuilding for sale or for rental; (8) Maintenance and management of improved real estate; (9) Underwriting or reinsuring contract of credit life or credit health and accident insurance in connection with extensions of credit by the savings and loan holding company or any of its subsidiaries, or extensions of credit by any savings association or service corporation subsidiary thereof, or any other savings and loan holding company or subsidiary thereof; (10) Preparation of State and Federal tax returns for accountholders of or borrowers from (including immediate family members of such accountholders or borrowers but not including an accountholder or borrower which is a corporation operated for profit) an affiliated savings association; (11) Purchase and sale of gold coins minted and issued by the United States Treasury pursuant to Public Law 99-185, 99 Stat. 1177 (1985), and activities reasonably incident thereto; and (12) Any services or activities approved by order of the former Federal Savings and Loan Insurance Corporation prior to March 5, 1987, pursuant to its authority under section 408(c)(2)(F) of the National Housing Act, as in effect at the time. (c) Procedures for commencing services or activities. (1) Engaging de novo in services or activities. (2) Acquiring company engaged in services or activities. (i) A description of the proposal, including a description of each proposed service or activity; (ii) The identity of any entity involved in the proposal, and, if the notificant proposes to conduct the service or activity through an existing subsidiary, a description of the existing activities of the subsidiary; (iii) If the savings and loan holding company has consolidated assets of $150 million or more: (A) Parent company and consolidated pro forma balance sheets for the acquiring savings and loan holding company as of the most recent quarter showing credit and debit adjustments that reflect the proposed transaction; (B) Consolidated pro forma risk-based capital and leverage ratio calculations for the acquiring savings and loan holding company as of the most recent quarter (or, in the case of 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), consolidated pro forma leverage ratio calculations for the acquiring savings and loan holding company as of the most recent quarter); and (C) A description of the purchase price and the terms and sources of funding for the transaction; (iv) If the savings and loan holding company has consolidated assets of less than $150 million: (A) A pro forma parent-only balance sheet as of the most recent quarter showing credit and debit adjustments that reflect the proposed transaction; and (B) A description of the purchase price and the terms and sources of funding for the transaction and, if the transaction is debt funded, one-year income statement and cash flow projections for the parent company, and the sources and schedule for retiring any debt incurred in the transaction; (v)(A) For each insured depository institution (that is not 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)) whose Tier 1 capital, total capital, total assets or risk-weighted assets change as a result of the transaction, the total risk-weighted assets, total assets, Tier 1 capital, and total capital of the institution on a pro forma basis; and (B) For each insured depository institution that is 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), whose Tier 1 capital (as defined in § 217.2 of this chapter and calculated in accordance with § 217.12(b) of this chapter) or total assets change as a result of the transaction, the total assets and Tier 1 capital of the institution on a pro forma basis; (vi) A description of the management expertise, internal controls and risk management systems that will be utilized in the conduct of the proposed service or activity; and (vii) A copy of the purchase agreements, and balance sheet and income statements for the most recent quarter and year-end for any company to be acquired. (3)(i) Except as provided in paragraph (c)(3)(ii) of this section, from December 2, 2020, until December 31, 2021, the determination of whether a savings and loan holding company must comply with the filing requirements in paragraph (c)(2)(iii) or (iv) of this section shall be made based on the lesser of: (A) The consolidated assets of the savings and loan holding company as of December 31, 2019; and (B) The consolidated assets of the savings and loan holding company as of the end of the most recent calendar quarter. (ii) The relief provided under paragraph (c)(3)(i) of this section does not apply to a savings and loan holding company if the Board determines that permitting the savings and loan holding company to determine its assets in accordance with that paragraph would not be commensurate with the risk profile of the savings and loan holding company. When making this determination, the Board will consider all relevant factors, including the extent of asset growth of the savings and loan holding company 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 savings and loan holding company 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 savings and loan holding company. In making a determination pursuant to this paragraph (c)(3)(ii), 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. (d) Notice provided to Board. (e) Notice to public Federal Register (i) A notice under paragraph (c) of this section or (ii) A written request that notice of a proposal under paragraph (c) of this section be published in the Federal Register. Federal Register (2) The Federal Register (f) Action on notices Reserve Bank action In general. (A) Approve the notice; or (B) Refer the notice to the Board for decision because action under delegated authority is not appropriate. (ii) Return of incomplete notice. (iii) Notice of action. (iv) Close of public comment period. (2) Board action; internal schedule. (3)(i) Required time limit for System action. (ii) Extension of required period for action. The Board may extend the 60-day period required for Board action under paragraph (e)(3)(i) of this section for an additional 30 days upon notice to the notificant. (4) Requests for additional information. (5) Tolling of period. (g) Modification or termination of service or activity. (h) Alterations. (i) Service corporation subsidiaries of savings associations. [Reg. LL, 76 FR 56532, Sept. 13, 2011, as amended at 84 FR 61801, Nov. 13, 2019; 85 FR 77363, Dec. 2, 2020] § 238.54 Permissible bank holding company activities of savings and loan holding companies. (a) General. Provided, (1) The holding company received a rating of satisfactory or above prior to January 1, 2008, or thereafter, either received a composite rating of “1” or “2” or be considered satisfactory under the applicable rating system in its most recent examination, and is not in a troubled condition as defined in § 238.72, and the holding company does not propose to commence the activity by an acquisition (in whole or in part) of a going concern; or (2) The activity is permissible under authority other than section 10(c)(2)(F)(i) of the HOLA without prior notice or approval. Where an activity is within the scope of both § 238.53 and this section, the procedures of § 238.53 shall govern. (b) Procedures for applications. (c) Factors considered in acting on applications. [Reg. LL, 76 FR 56532, Sept. 13, 2011, as amended at 83 FR 58734, Nov. 21, 2018] Subpart G—Financial Holding Company Activities § 238.61 Scope. Section 10(c)(2)(H) of the HOLA (12 U.S.C. 1467a(c)(2)(H)) permits a savings and loan holding company to engage in activities that are permissible for a financial holding company if the savings and holding company meets the criteria to qualify as a financial holding company and complies with all of the requirements applicable to a financial holding company under sections 4(l) and 4(m) of the BHC Act as if the savings and loan holding company was a bank holding company. This subpart provides the requirements and restrictions for a savings and holding company to be treated as a financial holding company for the purpose of engaging in financial holding company activities. This subpart does not apply to savings and loan holding companies described in section 10(c)(9)(C) of the HOLA (12 U.S.C. 1467a(c)(9)(C)). § 238.62 Definitions. For the purposes of this subpart: (a) Financial holding company activities (b) [Reserved] § 238.63 Requirements to engage in financial holding company activities. (a) In general. (1) The savings and loan holding company and all depository institutions controlled by the savings and loan holding company must be and remain well capitalized; (2) The savings and loan holding company and all depository institutions controlled by the savings and loan company must be and remain well managed; and (3) The savings and loan holding company must have made an effective election to be treated as a financial holding company. § 238.64 Election required. (a) In general. (b) Activities performed under separate HOLA authority. (1) BHC Act section 4(c)(8) activities. (2) Insurance agency or escrow business activities. (3) “1987 List” activities. (c) Existing requirements apply. § 238.65 Election procedures. (a) Filing requirement. (b) Contents of declaration. (1) State that the savings and loan holding company elects to be treated as a financial holding company in order to engage in financial holding company activities; (2) Provide the name and head office address of the savings and loan holding company and of each depository institution controlled by the savings and loan holding company; (3) Certify that the savings and loan holding company and each depository institution controlled by the savings and loan holding company is well capitalized as of the date the savings and loan holding company submits its declaration; (4) Certify that the savings and loan holding company and each savings association controlled by the savings and loan holding company is well managed as of the date the savings and loan holding company submits its declaration; (c) Effectiveness of election. (1) Any insured depository institution controlled by the savings and loan holding company (except an institution excluded under paragraph (d) of this section) has not achieved at least a rating of “satisfactory record of meeting community credit needs” under the Community Reinvestment Act at the savings association's most recent examination; or (2) Any depository institution controlled by the bank holding company is not both well capitalized and well managed. (d) Consideration of the CRA performance of a recently acquired savings association. (1) The savings and loan holding company acquired the savings association during the 12-month period preceding the filing of an election under paragraph (a) of this section; (2) The savings and loan holding company has submitted an affirmative plan to the appropriate Federal banking agency for the savings association to take actions necessary for the institution to achieve at least a rating of “satisfactory record of meeting community credit needs” under the Community Reinvestment Act at the next examination of the savings association; and (3) The appropriate Federal banking agency for the savings association has accepted the plan described in paragraph (d)(2) of this section. (e) Effective date of election In general. (2) Earlier notification that an election is effective. (3) Special effective date rules for the OTS transfer date Deadline for filing declaration. (ii) Effective date of election. (iii) Earlier notification that an election is effective. (iv) Filings by savings and loan holding companies that do not meet requirements. ( 1 ( 2 ( 3 ( 4 (B) A savings and loan holding company covered by this subparagraph will be subject to: ( 1 ( 2 (f) Requests to be treated as a financial holding company submitted as part of an application to become a savings and loan holding company. (g) Board's authority to exercise supervisory authority over a savings and loan holding company treated as a financial holding company. § 238.66 Ongoing requirements. (a) In general. (b) Consequences of failing to continue to meet applicable capital and management requirements. (c) Consequences of failing to continue to maintain a satisfactory or better rating under the Community Reinvestment Act at all insured depository institution subsidiaries. (d) Notice and approval requirements for conducting financial holding company activities; permissible activities. Subpart H—Notice of Change of Director or Senior Executive Officer § 238.71 Purpose. This subpart implements 12 U.S.C. 1831i, which requires certain savings and loan holding companies to notify the Board before appointing or employing directors and senior executive officers. § 238.72 Definitions. The following definitions apply to this subpart: (a) Director (1) Is not elected by the shareholders; (2) Is not authorized to vote on any matters before the board of directors or any committee of the board of directors; (3) Provides only general policy advice to the board of directors or any committee of the board of directors; and (4) Has not been identified by the Board or Reserve Bank in writing as an individual who performs the functions of a director, or who exercises significant influence over, or participates in, major policymaking decisions of the board of directors. (b) Senior executive officer Senior executive officer (c) Troubled condition (1) A savings and loan holding company that has an unsatisfactory rating under the applicable holding company rating system, or that is informed in writing by the Board or Reserve Bank that it has an adverse effect on its subsidiary savings association. (2) A savings and loan holding company that is subject to a capital directive, a cease-and-desist order, a consent order, a formal written agreement, or a prompt corrective action directive relating to the safety and soundness or financial viability of the savings association, unless otherwise informed in writing by the Board or Reserve Bank; or (3) A savings and loan holding company that is informed in writing by the Board or Reserve Bank that it is in troubled condition based on information available to the Board or Reserve Bank. § 238.73 Prior notice requirements. (a) Savings and loan holding company. (b) Notice by individual. § 238.74 Filing and processing procedures. (a) Filing notice Content. (i) The information required by paragraph 6(A) of the Change in Bank Control Act (12 U.S.C. 1817(j)(6)(A)) as may be prescribed in the designated Board form; (ii) Additional information consistent with the Federal Financial Institutions Examination Council's Joint Statement of Guidelines on Conducting Background Checks and Change in Control Investigations, as set forth in the designated Board form; and (iii) Such other information as may be required by the Board or Reserve Bank. (2) Modification. (3) Acceptance and processing of notice. (b) [Reserved] § 238.75 Standards for review. (a) Notice of disapproval. (b) Appeal of a notice of disapproval. (2) Written notice of the final decision of the Board shall be sent to the appealing party within 60 days of the receipt of an appeal, unless the appealing party's request for an informal hearing is granted. (3) The disapproved individual may not serve as a director or senior executive officer of the state member bank or bank holding company while the appeal is pending. (c) Informal hearing. (2) An informal hearing shall be held within 30 days of a request, if granted, unless the requesting party agrees to a later date. (3) Written notice of the final decision of the Board shall be given to the individual and the regulated institution within 60 days of the conclusion of any informal hearing ordered by the Board, unless the requesting party agrees to a later date. § 238.76 Waiting period. (a) At expiration of period. (b) Prior to expiration of period. § 238.77 Waiver of prior notice requirement. (a) Waiver request. (1) Delay would threaten the safety or soundness of the savings and loan holding company; (2) Delay would not be in the public interest; or (3) Other extraordinary circumstances exist that justify waiver of prior notice. (b) Automatic waiver. (1) Is not proposed by the management of the savings and loan holding company; (2) Is elected as a new member of the board of directors at a meeting of the savings and loan holding company; and (3) Provides to the appropriate Reserve Bank all the information required in § 238.74 within two (2) business days after the individual's election. (c) Subsequent Board or Reserve Bank action. Subpart I—Prohibited Service at Savings and Loan Holding Companies § 238.81 Purpose. This subpart implements section 19(e)(1) of the Federal Deposit Insurance Act (FDIA), which prohibits persons who have been convicted of certain criminal offenses or who have agreed to enter into a pre-trial diversion or similar program in connection with a prosecution for such criminal offenses from occupying various positions with a savings and loan holding company. This part also implements section 19(e)(2) of the FDIA, which permits the Board to provide exemptions, by regulation or order, from the application of the prohibition. This subpart provides an exemption for savings and loan holding company employees whose activities and responsibilities are limited solely to agriculture, forestry, retail merchandising, manufacturing, or public utilities operations, and a temporary exemption for certain persons who held positions with respect to a savings and loan holding company as of October 13, 2006. The subpart also describes procedures for applying to the Board for an exemption. § 238.82 Definitions. The following definitions apply to this subpart: (a) Institution-affiliated party (b) Enforcement Counsel (c) Person (d) Savings and loan holding company § 238.83 Prohibited actions. (a) Person. (1) Become, or continue as, an institution-affiliated party with respect to any savings and loan holding company. (2) Own or control, directly or indirectly, any savings and loan holding company. A person will own or control a savings and loan holding company if he or she owns or controls that company under subpart D of this part. (3) Otherwise participate, directly or indirectly, in the conduct of the affairs of any savings and loan holding company. (b) Savings and loan holding company. § 238.84 Covered convictions or agreements to enter into pre-trial diversions or similar programs. (a) Covered convictions and agreements. (1) Any conviction of a criminal offense involving dishonesty, breach of trust, or money laundering. Convictions do not cover arrests, pending cases not brought to trial, acquittals, convictions reversed on appeal, pardoned convictions, or expunged convictions. (2) Any agreement to enter into a pretrial diversion or similar program in connection with a prosecution for a criminal offense involving dishonesty, breach of trust or money laundering. A pretrial diversion or similar program is a program involving a suspension or eventual dismissal of charges or of a criminal prosecution based upon an agreement for treatment, rehabilitation, restitution, or other non-criminal or non-punitive alternative. (b) Dishonesty or breach of trust. (1) “Dishonesty” means directly or indirectly to cheat or defraud, to cheat or defraud for monetary gain or its equivalent, or to wrongfully take property belonging to another in violation of any criminal statute. Dishonesty includes acts involving a want of integrity, lack of probity, or a disposition to distort, cheat, or act deceitfully or fraudulently, and may include crimes which federal, state or local laws define as dishonest. (2) “Breach of trust” means a wrongful act, use, misappropriation, or omission with respect to any property or fund which has been committed to a person in a fiduciary or official capacity, or the misuse of one's official or fiduciary position to engage in a wrongful act, use, misappropriation, or omission. § 238.85 Adjudications and offenses not covered. (a) Youthful offender or juvenile delinquent. (1) A youthful offender under any youthful offender law; or (2) A juvenile delinquent by a court with jurisdiction over minors as defined by state law. (b) De minimis criminal offense. de minimis de minimis (1) The person has only one conviction or pretrial diversion or similar program of record; (2) The offense was punishable by imprisonment for a term of less than one year, a fine of less than $1,000, or both, and the person did not serve time in jail. (3) The conviction or program was entered at least five years before the date the person first held a position described in § 238.83(a); and (4) The offense did not involve an insured depository institution, insured credit union, or other banking organization (including a savings and loan holding company, bank holding company, or financial holding company). (5) The person must disclose the conviction or pretrial diversion or similar program to all insured depository institutions and other banking organizations the affairs of which he or she participates. (6) The person must be covered by a fidelity bond to the same extent as others in similar positions with the savings and loan holding company. § 238.86 Exemptions. (a) Employees. (1) The employee's responsibilities and activities are limited solely to agriculture, forestry, retail merchandising, manufacturing, or public utilities operations. (2) The savings and loan holding company maintains a list of all policymaking positions and reviews this list annually. (3) The employee's position does not appear on the savings and loan holding company's list of policymaking positions, and the employee does not, in fact, exercise any policymaking function with the savings and loan holding company. (4) The employee: (i) Is not an institution-affiliated party of the savings and loan holding company other than by virtue of the employment described in paragraph (a) of this section. (ii) Does not own or control, directly or indirectly, the savings and loan holding company; and (iii) Does not participate, directly or indirectly, in the conduct of the affairs of the savings and loan holding company. (b) Temporary exemption. (2) This exemption expires on December 31, 2012, unless the savings and loan holding company or the person files an application seeking a case-by-case exemption for the person under § 238.87 by that date. If the savings and loan holding company or the person files such an application, the temporary exemption expires on: (i) The date of issuance of a Board approval of the application under § 238.89(a); (ii) The expiration of the 20-day period for filing a request for hearing under § 238.90(a) provided there is no timely request for hearing following the issuance by the Board of a denial of the application under that section; (iii) The date that the Board denies a timely request for hearing under § 238.90(b) following the issuance of a Board denial of the application under § 238.89(b); (iv) The date that the Board issues a decision under § 238.90(d); or (v) The date an applicant withdraws the application. § 238.87 Filing procedures. (a) Who may file. (2) A savings and loan holding company or a person may seek an exemption only for a designated position (or positions) with respect to a named savings and loan holding company. (3) A savings and loan holding company or a person may not file an application less than one year after the latter of the date of a denial of the same exemption under § 238.89(b), § 238.90(a) or § 238.90(d). (b) Prohibition pending Board action. § 238.88 Factors for review. (a) Board review. (i) Participate in the major policymaking functions of the savings and loan holding company; or (ii) Threaten the safety and soundness of any insured depository institution that is controlled by the savings and loan holding company, the interests of its depositors, or the public confidence in the insured depository institution. (2) The Board will also consider whether the applicant has demonstrated the person's fitness to hold the described position. Some positions may be approved without an extensive review of a person's fitness because the position does not enable a person to take the actions described in paragraph (a)(1) of this section. (b) Factors. (1) The position; (2) The amount of influence and control a person holding the position will be able to exercise over the affairs and operations of the savings and loan holding company and the insured depository institution; (3) The ability of the management of the savings and loan holding company to supervise and control the activities of a person holding the position; (4) The level of ownership that the person will have at the savings and loan holding company; (5) The specific nature and circumstances of the criminal offense. The question whether a person who was convicted of a crime or who agreed to enter into a pretrial diversion or similar program for a crime was guilty of that crime is not relevant; (6) Evidence of rehabilitation; and (7) Any other relevant factor. § 238.89 Board action. (a) Approval. (b) Denial. § 238.90 Hearings. (a) Hearing requests. (b) Board review of hearing request. (c) Hearing procedures. (1) The hearing shall be held in Washington, DC, or at another designated place, before a presiding officer designated by the Board. (2) An applicant may elect in writing to have the matter determined on the basis of written submissions, rather than an oral hearing. (3) The parties to the hearing are Enforcement Counsel and the applicant. (4) The provisions of §§ 263.2, 263.4, 263.6 through 263.12, and 263.16 of this chapter apply to the hearing. (5) Discovery is not permitted. (6) A party may introduce relevant and material documents and make oral argument at the hearing. (7) At the discretion of the presiding officer, witnesses may be presented within specified time limits, provided that a list of witnesses is furnished to the presiding officer and to all other parties prior to the hearing. Witnesses must be sworn, unless otherwise directed by the presiding officer. The presiding officer may ask questions of any witness. Each party may cross-examine any witness presented by the opposing party. The Board will furnish a transcript of the proceedings upon an applicant's request and upon the payment of the costs of the transcript. (8) The presiding officer has the power to administer oaths and affirmations, to take or cause to be taken depositions of unavailable witnesses, and to issue, revoke, quash, or modify subpoenas and subpoenas duces tecum. (9) Upon the request of a party, the record will remain open for five business days following the hearing for additional submissions to the record. (10) Enforcement Counsel has the burden of proving a prima facie (11) The presiding officer must make recommendations to the Board, where possible, within 20 days after the last day for the parties to submit additions to the record. (12) The presiding officer must forward his or her recommendation to the Board who shall promptly certify the entire record, including the presiding officer's recommendations. The Board's certification will close the record. (d) Decision. (1) An approval order will require fidelity bond coverage for the position to the same extent as similar positions with the savings and loan holding company. The approval order may include such other conditions as may be appropriate. (2) A denial order will include a summary of the relevant factors under § 238.88(b). Subpart J—Management Official Interlocks § 238.91 Authority, purpose, and scope. (a) Authority. et seq. (b) Purpose. (c) Scope. § 238.92 Definitions. For purposes of this subpart, the following definitions apply: (a) Affiliate. affiliate (2) For purposes of section 202(3)(B) of the Interlocks Act (12 U.S.C. 3201(3)(B)), an affiliate relationship involving a savings and loan holding company based on common ownership does not exist if the Board determines, after giving the affected persons the opportunity to respond, that the asserted affiliation was established in order to avoid the prohibitions of the Interlocks Act and does not represent a true commonality of interest between the depository organizations. In making this determination, the Board considers, among other things, whether a person, including members of his or her immediate family, whose shares are necessary to constitute the group owns a nominal percentage of the shares of one of the organizations and the percentage is substantially disproportionate to that person's ownership of shares in the other organization. (b) Area median income (1) The median family income for the metropolitan statistical area (MSA), if a depository organization is located in an MSA; or (2) The statewide nonmetropolitan median family income, if a depository organization is located outside an MSA. (c) Community (d) Contiguous or adjacent cities, towns, or villages (e) Depository holding company (f) Depository institution (g) Depository institution affiliate (h) Depository organization (i) Low- and moderate-income areas (j) Management official. management official (i) A director; (ii) An advisory or honorary director of a depository institution with total assets of $100 million or more; (iii) A senior executive officer as that term is defined in § 225.71(c) of this chapter; (iv) A branch manager; (v) A trustee of a depository organization under the control of trustees; and (vi) Any person who has a representative or nominee serving in any of the capacities in this paragraph (j)(1). (2) The term management official (i) A person whose management functions relate exclusively to the business of retail merchandising or manufacturing; (ii) A person whose management functions relate principally to the business outside the United States of a foreign commercial bank; or (iii) A person described in the provisos of section 202(4) of the Interlocks Act (12 U.S.C. 3201(4)) (referring to an officer of a State-chartered savings bank, cooperative bank, or trust company that neither makes real estate mortgage loans nor accepts savings). (k) Office Office (l) Person (m) Relevant metropolitan statistical area (RMSA) (n) Representative or nominee representative or nominee. (o) Savings association (1) Any Federal savings association (as defined in section 3(b)(2) of the Federal Deposit Insurance Act (12 U.S.C. 1813(b)(2))); (2) Any state savings association (as defined in section 3(b)(3) of the Federal Deposit Insurance Act (12 U.S.C. 1813(b)(3))) the deposits of which are insured by the Federal Deposit Insurance Corporation; and (3) Any corporation (other than a bank as defined in section 3(a)(1) of the Federal Deposit Insurance Act (12 U.S.C. 1813(a)(1))) the deposits of which are insured by the Federal Deposit Insurance Corporation, that the Board of Directors of the Federal Deposit Insurance Corporation and the Comptroller of the Currency jointly determine to be operating in substantially the same manner as a savings association. (p) Total assets. total assets (2) The term total assets (i) Assets of a diversified savings and loan holding company as defined by section 10(a)(1)(F) of the Home Owners' Loan Act (12 U.S.C. 1467a(a)(1)(F)) other than the assets of its depository institution affiliate; (ii) Assets of a bank holding company that is exempt from the prohibitions of section 4 of the Bank Holding Company Act of 1956 pursuant to an order issued under section 4(d) of that Act (12 U.S.C. 1843(d)) other than the assets of its depository institution affiliate; or (iii) Assets of offices of a foreign commercial bank other than the assets of its United States branch or agency. (3) Temporary relief for 2020 and 2021. total assets, (q) United States [Reg. LL, 76 FR 56532, Sept. 13, 2011, as amended at 85 FR 77363, Dec. 2, 2020] § 238.93 Prohibitions. (a) Community. (b) RMSA. (c) Major assets. Federal Register. [Reg. LL, 76 FR 56532, Sept. 13, 2011, as amended at 84 FR 54472, Oct. 10, 2019] § 238.94 Interlocking relationships permitted by statute. The prohibitions of § 238.93 do not apply in the case of any one or more of the following organizations or to a subsidiary thereof: (a) A depository organization that has been placed formally in liquidation, or which is in the hands of a receiver, conservator, or other official exercising a similar function; (b) A corporation operating under section 25 or section 25A of the Federal Reserve Act (12 U.S.C. 601 et seq. et seq., (c) A credit union being served by a management official of another credit union; (d) A depository organization that does not do business within the United States except as an incident to its activities outside the United States; (e) A State-chartered savings and loan guaranty corporation; (f) A Federal Home Loan Bank or any other bank organized solely to serve depository institutions (a bankers' bank) or solely for the purpose of providing securities clearing services and services related thereto for depository institutions and securities companies; (g) A depository organization that is closed or is in danger of closing as determined by the appropriate Federal depository institutions regulatory agency and is acquired by another depository organization. This exemption lasts for five years, beginning on the date the depository organization is acquired; (h)(1) A diversified savings and loan holding company (as defined in section 10(a)(1)(F) of the Home Owners' Loan Act (12 U.S.C. 1467a(a)(1)(F)) with respect to the service of a director of such company who also is a director of an unaffiliated depository organization if: (i) Both the diversified savings and loan holding company and the unaffiliated depository organization notify their appropriate Federal depository institutions regulatory agency at least 60 days before the dual service is proposed to begin; and (ii) The appropriate regulatory agency does not disapprove the dual service before the end of the 60-day period. (2) The Board may disapprove a notice of proposed service if it finds that: (i) The service cannot be structured or limited so as to preclude an anticompetitive effect in financial services in any part of the United States; (ii) The service would lead to substantial conflicts of interest or unsafe or unsound practices; or (iii) The notificant failed to furnish all the information required by the Board. (3) The Board may require that any interlock permitted under this paragraph (h) be terminated if a change in circumstances occurs with respect to one of the interlocked depository organizations that would have provided a basis for disapproval of the interlock during the notice period; and (i) Any savings association or any savings and loan holding company (as defined in section 10(a)(1)(D) of the Home Owners' Loan Act) which has issued stock in connection with a qualified stock issuance pursuant to section 10(q) of such Act, except that this paragraph (i) shall apply only with regard to service by a single management official of such savings association or holding company, or any subsidiary of such savings association or holding company, by a single management official of the savings and loan holding company which purchased the stock issued in connection with such qualified stock issuance, and shall apply only when the Board has determined that such service is consistent with the purposes of the Interlocks Act and the Home Owners' Loan Act. § 238.95 Small market share exemption. (a) Exemption. (1) The interlock is not prohibited by § 238.93(c); and (2) The depository organizations (and their depository institution affiliates) hold, in the aggregate, no more than 20 percent of the deposits in each RMSA or community in which both depository organizations (or their depository institution affiliates) have offices. The amount of deposits shall be determined by reference to the most recent annual Summary of Deposits published by the FDIC for the RMSA or community. (b) Confirmation and records. § 238.96 General exemption. (a) Exemption. (b) Presumptions. (1) Primarily serves low- and moderate-income areas; (2) Is controlled or managed by persons who are members of a minority group, or women; (3) Is a depository institution that has been chartered for less than two years; or (4) Is deemed to be in “troubled condition” as defined in § 238.72. (c) Duration. § 238.97 Change in circumstances. (a) Termination. (b) Transition period. § 238.98 Enforcement. Except as provided in this section, the Board administers and enforces the Interlocks Act with respect to savings and loan holding companies and its affiliates, and may refer any case of a prohibited interlocking relationship involving these entities to the Attorney General of the United States to enforce compliance with the Interlocks Act and this part. If an affiliate of a savings and loan holding company is subject to the primary regulation of another Federal depository organization supervisory agency, then the Board does not administer and enforce the Interlocks Act with respect to that affiliate. § 238.99 Interlocking relationships permitted pursuant to Federal Deposit Insurance Act. A management official or prospective management official of a depository organization may enter into an otherwise prohibited interlocking relationship with another depository organization for a period of up to 10 years if such relationship is approved by the Federal Deposit Insurance Corporation pursuant to section 13(k)(1)(A)(v) of the Federal Deposit Insurance Act, as amended (12 U.S.C. 1823(k)(1)(A)(v)). Subpart K—Dividends by Subsidiary Savings Associations § 238.101 Authority and purpose. This subpart implements section 10(f) of HOLA which requires savings associations with holding companies to provide the Board not less than 30 days' notice of a proposed declaration of a dividend. This subpart applies to all declarations of dividends by a subsidiary savings association of a savings and loan holding company. § 238.102 Definitions. The following definitions apply to this subpart: (a) Appropriate Federal banking agency (b) Dividend (1) A distribution of cash or other property to owners of a savings association made on account of their ownership, but not any dividend consisting only of shares or rights to purchase shares; or (2) Any transaction that the Board determines, by order or regulation, to be in substance a dividend. (c) Shares § 238.103 Filing requirement. (a) Filing. (b) Schedules. § 238.104 Board action and criteria for review. (a) Board action. (2) A subsidiary savings association of a savings and loan holding company may declare a proposed dividend before the end of the 30-day period if the Board or Reserve Bank notifies the applicant in writing of the Board's or Reserve Bank's intention not to disapprove the notice. (b) Criteria. (1) Following the dividend the subsidiary savings association will be undercapitalized, significantly undercapitalized, or critically undercapitalized as set forth in applicable regulations under 12 U.S.C. 1831o. (2) The proposed dividend raises safety or soundness concerns. (3) The proposed dividend violates a prohibition contained in any statute, regulation, enforcement action, or agreement between the subsidiary savings association or any savings and loan holding company of which it is a subsidiary and an appropriate Federal banking agency, a condition imposed on the subsidiary savings association or any savings and loan holding company of which it is a subsidiary in an application or notice approved by an appropriate Federal banking agency, or any formal or informal enforcement action involving the subsidiary savings association or any savings and loan holding company of which it is a subsidiary. If so, the Board will determine whether it may permit the dividend notwithstanding the prohibition, condition, or enforcement action. Subpart L [Reserved] Subpart M—Risk Committee Requirement for Covered Savings and Loan Holding Companies With Total Consolidated Assets of $50 Billion or More and Less Than $100 Billion Source: 84 FR 59077, Nov. 1, 2019, unless otherwise noted. § 238.118 Applicability. (a) General applicability. (b) Cessation of requirements. (1) Its total consolidated assets are below $50 billion for each of four consecutive calendar quarters; and (2) It becomes subject to the requirements of subpart N of this part. § 238.119 Risk committee requirement for covered savings and loan holding companies with total consolidated assets of $50 billion or more. (a) Risk committee General. (2) Risk-management framework. (i) Policies and procedures establishing risk-management governance, risk-management procedures, and risk-control infrastructure for its global operations; and (ii) Processes and systems for implementing and monitoring compliance with such policies and procedures, including: (A) Processes and systems for identifying and reporting risks and risk-management deficiencies, including regarding emerging risks, and ensuring effective and timely implementation of actions to address emerging risks and risk-management deficiencies for its global operations; (B) Processes and systems for establishing managerial and employee responsibility for risk management; (C) Processes and systems for ensuring the independence of the risk-management function; and (D) Processes and systems to integrate risk management and associated controls with management goals and its compensation structure for its global operations. (3) Corporate governance requirements. (i) Have a formal, written charter that is approved by the covered savings and loan holding company's board of directors; (ii) Be an independent committee of the board of directors that has, as its sole and exclusive function, responsibility for the risk-management policies of the covered savings and loan holding company's global operations and oversight of the operation of the company's global risk-management framework; (iii) Report directly to the covered savings and loan holding company's board of directors; (iv) Receive and review regular reports on a not less than a quarterly basis from the covered savings and loan holding company's chief risk officer provided pursuant to paragraph (b)(3)(ii) of this section; and (v) Meet at least quarterly, or more frequently as needed, and fully document and maintain records of its proceedings, including risk-management decisions. (4) Minimum member requirements. (i) Include at least one member having experience in identifying, assessing, and managing risk exposures of large, complex financial firms; and (ii) Be chaired by a director who: (A) Is not an officer or employee of the covered savings and loan holding company and has not been an officer or employee of the covered savings and loan holding company during the previous three years; (B) Is not a member of the immediate family, as defined in § 238.31(b)(3), of a person who is, or has been within the last three years, an executive officer of the covered savings and loan holding company, as defined in § 215.2(e)(1) of this chapter; and (C)( 1 ( 2 (b) Chief risk officer General. (2) Responsibilities. (A) The establishment of risk limits on an enterprise-wide basis and the monitoring of compliance with such limits; (B) The implementation of and ongoing compliance with the policies and procedures set forth in paragraph (a)(2)(i) of this section and the development and implementation of the processes and systems set forth in paragraph (a)(2)(ii) of this section; and (C) The management of risks and risk controls within the parameters of the company's risk control framework, and monitoring and testing of the company's risk controls. (ii) The chief risk officer is responsible for reporting risk-management deficiencies and emerging risks to the risk committee and resolving risk-management deficiencies in a timely manner. (3) Corporate governance requirements. (ii) The chief risk officer must report directly to both the risk committee and chief executive officer of the company. Subpart N—Risk Committee, Liquidity Risk Management, and Liquidity Buffer Requirements for Covered Savings and Loan Holding Companies With Total Consolidated Assets of $100 Billion or More Source: 84 FR 59078, Nov. 1, 2019, unless otherwise noted. § 238.120 Scope. This subpart applies to covered savings and loan holding companies with average total consolidated assets of $100 billion or more. § 238.121 Applicability. (a) Applicability Initial applicability. (2) Changes in requirements following a change in category. (b) Cessation of requirements. § 238.122 Risk-management and risk committee requirements. (a) Risk committee General. (2) Risk-management framework. (i) Policies and procedures establishing risk-management governance, risk-management procedures, and risk-control infrastructure for its global operations; and (ii) Processes and systems for implementing and monitoring compliance with such policies and procedures, including: (A) Processes and systems for identifying and reporting risks and risk-management deficiencies, including regarding emerging risks, and ensuring effective and timely implementation of actions to address emerging risks and risk-management deficiencies for its global operations; (B) Processes and systems for establishing managerial and employee responsibility for risk management; (C) Processes and systems for ensuring the independence of the risk-management function; and (D) Processes and systems to integrate risk management and associated controls with management goals and its compensation structure for its global operations. (3) Corporate governance requirements. (i) Have a formal, written charter that is approved by the covered savings and loan holding company's board of directors; (ii) Be an independent committee of the board of directors that has, as its sole and exclusive function, responsibility for the risk-management policies of the covered savings and loan holding company's global operations and oversight of the operation of the covered savings and loan holding company's global risk-management framework; (iii) Report directly to the covered savings and loan holding company's board of directors; (iv) Receive and review regular reports on not less than a quarterly basis from the covered savings and loan holding company's chief risk officer provided pursuant to paragraph (b)(3)(ii) of this section; and (v) Meet at least quarterly, or more frequently as needed, and fully document and maintain records of its proceedings, including risk-management decisions. (4) Minimum member requirements. (i) Include at least one member having experience in identifying, assessing, and managing risk exposures of large, complex financial firms; and (ii) Be chaired by a director who: (A) Is not an officer or employee of the covered savings and loan holding company and has not been an officer or employee of the covered savings and loan holding company during the previous three years; (B) Is not a member of the immediate family, as defined in § 238.31(b)(3), of a person who is, or has been within the last three years, an executive officer of the covered savings and loan holding company, as defined in § 215.2(e)(1) of this chapter; and (C)( 1 ( 2 (b) Chief risk officer General. (2) Responsibilities. (A) The establishment of risk limits on an enterprise-wide basis and the monitoring of compliance with such limits; (B) The implementation of and ongoing compliance with the policies and procedures set forth in paragraph (a)(2)(i) of this section and the development and implementation of the processes and systems set forth in paragraph (a)(2)(ii) of this section; and (C) The management of risks and risk controls within the parameters of the company's risk control framework, and monitoring and testing of the company's risk controls. (ii) The chief risk officer is responsible for reporting risk-management deficiencies and emerging risks to the risk committee and resolving risk-management deficiencies in a timely manner. (3) Corporate governance requirements. (ii) The chief risk officer must report directly to both the risk committee and chief executive officer of the company. § 238.123 Liquidity risk-management requirements. (a) Responsibilities of the board of directors Liquidity risk tolerance. (i) Approve the acceptable level of liquidity risk that the covered savings and loan holding company may assume in connection with its operating strategies (liquidity risk tolerance) at least annually, taking into account the covered savings and loan holding company's capital structure, risk profile, complexity, activities, and size; and (ii) Receive and review at least semi-annually information provided by senior management to determine whether the covered savings and loan holding company is operating in accordance with its established liquidity risk tolerance. (2) Liquidity risk-management strategies, policies, and procedures. (b) Responsibilities of the risk committee. (c) Responsibilities of senior management Liquidity risk. (ii) Senior management must oversee the development and implementation of liquidity risk measurement and reporting systems, including those required by this section and § 238.124. (iii) Senior management must determine at least quarterly whether the covered savings and loan holding company is operating in accordance with such policies and procedures and whether the covered savings and loan holding company is in compliance with this section and § 238.124 (or more often, if changes in market conditions or the liquidity position, risk profile, or financial condition warrant), and establish procedures regarding the preparation of such information. (2) Liquidity risk tolerance. (3) Business lines or products. (ii) Senior management must review at least annually significant business lines and products to determine whether any line or product creates or has created any unanticipated liquidity risk, and to determine whether the liquidity risk of each strategy or product is within the company's established liquidity risk tolerance. (4) Cash-flow projections. (5) Liquidity risk limits. (6) Liquidity stress testing. (i) Approve the liquidity stress testing practices, methodologies, and assumptions required in § 238.124(a) at least quarterly, and whenever the covered savings and loan holding company materially revises its liquidity stress testing practices, methodologies or assumptions; (ii) Review the liquidity stress testing results produced under § 238.124(a) at least quarterly; (iii) Review the independent review of the liquidity stress tests under § 238.123(d) periodically; and (iv) Approve the size and composition of the liquidity buffer established under § 238.124(b) at least quarterly. (d) Independent review function. (2) The independent review function must: (i) Regularly, but no less frequently than annually, review and evaluate the adequacy and effectiveness of the company's liquidity risk management processes, including its liquidity stress test processes and assumptions; (ii) Assess whether the company's liquidity risk-management function complies with applicable laws and regulations, and sound business practices; and (iii) Report material liquidity risk management issues to the board of directors or the risk committee in writing for corrective action, to the extent permitted by applicable law. (e) Cash-flow projections. (2) The covered savings and loan holding company must establish a methodology for making cash-flow projections that results in projections that: (i) Include cash flows arising from contractual maturities, intercompany transactions, new business, funding renewals, customer options, and other potential events that may impact liquidity; (ii) Include reasonable assumptions regarding the future behavior of assets, liabilities, and off-balance sheet exposures; (iii) Identify and quantify discrete and cumulative cash flow mismatches over these time periods; and (iv) Include sufficient detail to reflect the capital structure, risk profile, complexity, currency exposure, activities, and size of the covered savings and loan holding company and include analyses by business line, currency, or legal entity as appropriate. (3) The covered savings and loan holding company must adequately document its methodology for making cash flow projections and the included assumptions and submit such documentation to the risk committee. (f) Contingency funding plan General. (2) Components of the contingency funding plan Quantitative assessment. (A) Identify liquidity stress events that could have a significant impact on the covered savings and loan holding company's liquidity; (B) Assess the level and nature of the impact on the covered savings and loan holding company's liquidity that may occur during identified liquidity stress events; (C) Identify the circumstances in which the covered savings and loan holding company would implement its action plan described in paragraph (f)(2)(ii)(A) of this section, which circumstances must include failure to meet any minimum liquidity requirement imposed by the Board; (D) Assess available funding sources and needs during the identified liquidity stress events; (E) Identify alternative funding sources that may be used during the identified liquidity stress events; and (F) Incorporate information generated by the liquidity stress testing required under § 238.124(a). (ii) Liquidity event management process. (A) Include an action plan that clearly describes the strategies the company will use to respond to liquidity shortfalls for identified liquidity stress events, including the methods that the company will use to access alternative funding sources; (B) Identify a liquidity stress event management team that would execute the action plan described in paragraph (f)(2)(ii)(A) of this section; (C) Specify the process, responsibilities, and triggers for invoking the contingency funding plan, describe the decision-making process during the identified liquidity stress events, and describe the process for executing contingency measures identified in the action plan; and (D) Provide a mechanism that ensures effective reporting and communication within the covered savings and loan holding company and with outside parties, including the Board and other relevant supervisors, counterparties, and other stakeholders. (iii) Monitoring. (iv) Testing. (A) The components of the contingency funding plan to assess the plan's reliability during liquidity stress events; (B) The operational elements of the contingency funding plan, including operational simulations to test communications, coordination, and decision-making by relevant management; and (C) The methods the covered savings and loan holding company will use to access alternative funding sources to determine whether these funding sources will be readily available when needed. (g) Liquidity risk limits General. (2) Liquidity risk limits established by a Category II savings and loan holding company, or Category III savings and loan holding company. (i) Concentrations in sources of funding by instrument type, single counterparty, counterparty type, secured and unsecured funding, and as applicable, other forms of liquidity risk; (ii) The amount of liabilities that mature within various time horizons; and (iii) Off-balance sheet exposures and other exposures that could create funding needs during liquidity stress events. (h) Collateral, legal entity, and intraday liquidity risk monitoring. (1) Collateral. (i) Calculates all of its collateral positions according to the frequency specified in paragraphs (h)(1)(i)(A) and (B) of this section or as directed by the Board, specifying the value of pledged assets relative to the amount of security required under the relevant contracts and the value of unencumbered assets available to be pledged: (A) If the covered savings and loan holding company is not a Category IV savings and loan holding company, on at least a weekly basis; (B) If the covered savings and loan holding company is a Category IV savings and loan holding company, on at least a monthly basis; (ii) Monitors the levels of unencumbered assets available to be pledged by legal entity, jurisdiction, and currency exposure; (iii) Monitors shifts in the covered savings and loan holding company's funding patterns, such as shifts between intraday, overnight, and term pledging of collateral; and (iv) Tracks operational and timing requirements associated with accessing collateral at its physical location (for example, the custodian or securities settlement system that holds the collateral). (2) Legal entities, currencies and business lines. (3) Intraday exposures. (i) Monitor and measure expected daily gross liquidity inflows and outflows; (ii) Manage and transfer collateral to obtain intraday credit; (iii) Identify and prioritize time-specific obligations so that the covered savings and loan holding company can meet these obligations as expected and settle less critical obligations as soon as possible; (iv) Manage the issuance of credit to customers where necessary; and (v) Consider the amounts of collateral and liquidity needed to meet payment systems obligations when assessing the covered savings and loan holding company's overall liquidity needs. § 238.124 Liquidity stress testing and buffer requirements. (a) Liquidity stress testing requirement General. (i) The covered savings and loan holding company must take into consideration its balance sheet exposures, off-balance sheet exposures, size, risk profile, complexity, business lines, organizational structure, and other characteristics of the covered savings and loan holding company that affect its liquidity risk profile in conducting its stress test. (ii) In conducting a liquidity stress test using the scenarios described in paragraphs (a)(3)(i) and (ii) of this section, the covered savings and loan holding company must address the potential direct adverse impact of associated market disruptions on the covered savings and loan holding company and incorporate the potential actions of other market participants experiencing liquidity stresses under the market disruptions that would adversely affect the covered savings and loan holding company. (2) Frequency. (i) If the covered savings and loan holding company is not a Category IV savings and loan holding company, at least monthly; or (ii) If the covered savings and loan holding company is a Category IV savings and loan holding company, at least quarterly. (3) Stress scenarios. (A) A scenario reflecting adverse market conditions; (B) A scenario reflecting an idiosyncratic stress event for the covered savings and loan holding company; and (C) A scenario reflecting combined market and idiosyncratic stresses. (ii) The covered savings and loan holding company must incorporate additional liquidity stress scenarios into its liquidity stress test, as appropriate, based on its financial condition, size, complexity, risk profile, scope of operations, or activities. The Board may require the covered savings and loan holding company to vary the underlying assumptions and stress scenarios. (4) Planning horizon. (5) Requirements for assets used as cash-flow sources in a stress test. (ii) Assets used as cash-flow sources during a planning horizon must be diversified by collateral, counterparty, borrowing capacity, and other factors associated with the liquidity risk of the assets. (iii) A line of credit does not qualify as a cash flow source for purposes of a stress test with a planning horizon of 30 days or less. A line of credit may qualify as a cash flow source for purposes of a stress test with a planning horizon that exceeds 30 days. (6) Tailoring. (7) Governance Policies and procedures. (ii) Controls and oversight. (iii) Management information systems. (8) Notice and response. (b) Liquidity buffer requirement. (2) Net stressed cash-flow need. (3) Asset requirements. (i) Highly liquid asset. (A) Cash; (B) Assets that meet the criteria for high quality liquid assets as defined in 12 CFR 249.20; or (C) Any other asset that the covered savings and loan holding company demonstrates to the satisfaction of the Board: ( 1 ( 2 ( 3 (ii) Unencumbered. (A) Is free of legal, regulatory, contractual, or other restrictions on the ability of such company promptly to liquidate, sell or transfer the asset; and (B) Is either: ( 1 ( 2 (iii) Calculating the amount of a highly liquid asset. (iv) Operational requirements. (A) Establish and implement policies and procedures that require highly liquid assets comprising the liquidity buffer to be under the control of the management function in the covered savings and loan holding company that is charged with managing liquidity risk; and (B) Demonstrate the capability to monetize a highly liquid asset under each scenario required under § 238.124(a)(3). (v) Diversification. Subpart O—Supervisory Stress Test Requirements for Covered Savings and Loan Holding Companies Source: 84 FR 59083, Nov. 1, 2019, unless otherwise noted. § 238.130 Definitions. For purposes of this subpart, the following definitions apply: Advanced approaches Baseline scenario Covered company Planning horizon Pre-provision net revenue Provision for credit losses (1) With respect to a covered company that has adopted the current expected credit losses methodology under GAAP, the provision for credit losses, as would be reported by the covered company on the FR Y-9C in the current stress test cycle; and, (2) With respect to a covered company that has not adopted the current expected credit losses methodology under GAAP, the provision for loan and lease losses as would be reported by the covered company on the FR Y-9C in the current stress test cycle. Regulatory capital ratio Scenarios Severely adverse scenario Stress test cycle Subsidiary § 238.131 Applicability. (a) Scope Applicability. (2) Ongoing applicability. (b) Transitional arrangements. (2) A covered savings and loan holding company that becomes a covered company after September 30 of a calendar year must comply with the requirements of this subpart beginning on January 1 of the third calendar year after the covered savings and loan holding company becomes a covered company, unless that time is extended by the Board in writing. § 238.132 Analysis conducted by the Board. (a) In general. (2) The analysis will include an assessment of the projected losses, net income, and pro forma capital levels and regulatory capital ratios and other capital ratios for the covered company and use such analytical techniques that the Board determines are appropriate to identify, measure, and monitor risks of the covered company. (3) In conducting the analyses, the Board will coordinate with the appropriate primary financial regulatory agencies and the Federal Insurance Office, as appropriate. (4) In conducting the analysis, the Board will not incorporate changes to a firm's business plan that are likely to have a material impact on the covered company's capital adequacy and funding profile in its projections of losses, net income, pro forma capital levels, and capital ratios. (b) Economic and financial scenarios related to the Board's analysis. (c) Frequency of analysis conducted by the Board General. Table 1 to § 238.132( c If the covered company is a Then the Board will conduct its analysis Category II savings and loan holding company Annually. Category III savings and loan holding company Annually. Category IV savings and loan holding company Biennially, occurring in each year ending in an even number. (2) Change in frequency. (ii) A Category IV savings and loan holding company may elect to have the Board conduct a stress test with respect to the company in a year ending in an odd number by providing notice to the Board and the appropriate Federal Reserve Bank by January 15 of that year. (3) Notice and response Notification of change in frequency. (ii) Request for reconsideration and Board response. (d) Capital Action Assumptions. (1) The covered company will not pay any dividends on any instruments that qualify as common equity tier 1 capital; (2) The covered company will make payments on instruments that qualify as additional tier 1 capital or tier 2 capital equal to the stated dividend, interest, or principal due on such instrument; (3) The covered company will not make a redemption or repurchase of any capital instrument that is eligible for inclusion in the numerator of a regulatory capital ratio; and (4) The covered company will not make any issuances of common stock or preferred stock. [84 FR 59083, Nov. 1, 2019, as amended at 86 FR 7943, Feb. 3, 2021] § 238.133 Data and information required to be submitted in support of the Board's analyses. (a) Regular submissions. (b) Additional submissions required by the Board. (1) Ensure that the Board has sufficient information to conduct its analysis under this subpart; and (2) Project a company's pre-provision net revenue, losses, provision for credit losses, and net income; and pro forma capital levels, regulatory capital ratios, and any other capital ratio specified by the Board under the scenarios described in § 238.132(b). (c) Confidential treatment of information submitted. § 238.134 Review of the Board's analysis; publication of summary results. (a) Review of results. (b) Publication of results by the Board. (2) The Board will notify companies of the date on which it expects to publicly disclose a summary of the Board's analyses pursuant to paragraph (b)(1) of this section at least 14 calendar days prior to the expected disclosure date. § 238.135 Corporate use of stress test results. The board of directors and senior management of each covered company must consider the results of the analysis conducted by the Board under this subpart, as appropriate: (a) As part of the covered company's capital plan and capital planning process, including when making changes to the covered company's capital structure (including the level and composition of capital); and (b) When assessing the covered company's exposures, concentrations, and risk positions. Subpart P—Company-Run Stress Test Requirements for Savings and Loan Holding Companies Source: 84 FR 59085, Nov. 1, 2019, unless otherwise noted. § 238.140 Authority and purpose. (a) Authority. (b) Purpose. § 238.141 Definitions. For purposes of this subpart, the following definitions apply: Advanced approaches Baseline scenario Capital action Covered company (1) A Category II savings and loan holding company; (2) A Category III savings and loan holding company; or (3) A savings and loan holding company with average total consolidated assets of greater than $250 billion. Planning horizon Pre-provision net revenue Provision for credit losses (1) With respect to a covered company that has adopted the current expected credit losses methodology under GAAP, the provision for credit losses, as would be reported by the covered company on the FR Y-9C in the current stress test cycle; and (2) With respect to a covered company that has not adopted the current expected credit losses methodology under GAAP, the provision for loan and lease losses as would be reported by the covered company on the FR Y-9C in the current stress test cycle. Regulatory capital ratio Scenarios Severely adverse scenario Stress test Stress test cycle § 238.142 Applicability. (a) Scope Applicability. (i) Any Category II savings and loan holding company; (ii) Any Category III savings and loan holding company; and (iii) Any savings and loan holding company with average total consolidated assets of greater than $250 billion. (2) Ongoing applicability. (i) Is not a Category II savings and loan holding company; (ii) Is not a Category III savings and loan holding company; and (iii) Has $250 billion or less in total consolidated assets in each of four consecutive calendar quarters. (3) Insurance savings and loan holding companies. (b) Transitional arrangements. (2) A savings and loan holding company that is subject to minimum capital requirements and that becomes a covered company after September 30 of a calendar year must comply with the requirements of this subpart beginning on January 1 of the third calendar year after the savings and loan holding company becomes a covered company, unless that time is extended by the Board in writing. [84 FR 59085, Nov. 1, 2019, as amended at 88 FR 82979, Nov. 27, 2023] § 238.143 Stress test. (a) Stress test requirement In general. (2) Frequency General. Table 1 of § 238.143( a i If the covered company is a Then the stress test must be conducted Category II savings and loan holding company Annually, by April 5 of each calendar year based on data as of December 31 of the preceding calendar year, unless the time or the as-of date is extended by the Board in writing. Category III savings and loan holding company Biennially, by April 5 of each calendar year ending in an even number, based on data as of December 31 of the preceding calendar year, unless the time or the as-of date is extended by the Board in writing. Savings and loan holding company that is not: Periodically, as determined by rule or order. (A) A Category II savings and loan holding company; or (B) A Category III savings and loan holding company. (ii) Change in frequency. (3) Notice and response Notification of change in frequency. (ii) Request for reconsideration and Board response. (b) Scenarios provided by the Board In general. (2) Additional components. (ii) The Board may require a covered company to include one or more additional components in its severely adverse scenario in the stress test required by this section based on the company's financial condition, size, complexity, risk profile, scope of operations, or activities, or risks to the U.S. economy. (3) Additional scenarios. (4) Notice and response Notification of additional component. (ii) Request for reconsideration and Board response. (iii) Description of component. § 238.144 Methodologies and practices. (a) Potential impact on capital. (1) Losses, pre-provision net revenue, provision for credit losses, and net income; and (2) The potential impact on pro forma regulatory capital levels and pro forma capital ratios (including regulatory capital ratios and any other capital ratios specified by the Board), and in so doing must: (i) Incorporate the effects of any capital actions over the planning horizon and maintenance of an allowance for credit losses appropriate for credit exposures throughout the planning horizon; and (ii) Exclude the impacts of changes to a firm's business plan that are likely to have a material impact on the covered company's capital adequacy and funding profile. (b) Assumptions regarding capital actions. (1) The covered company will not pay any dividends on any instruments that qualify as common equity tier 1 capital; (2) The covered company will make payments on instruments that qualify as additional tier 1 capital or tier 2 capital equal to the stated dividend, interest, or principal due on such instrument; (3) The covered company will not make a redemption or repurchase of any capital instrument that is eligible for inclusion in the numerator of a regulatory capital ratio; and (4) The covered company will not make any issuances of common stock or preferred stock. (c) Controls and oversight of stress testing processes In general. (2) Oversight of stress testing processes. (3) Role of stress testing results. (i) As part of the covered company's capital plan and capital planning process, including when making changes to the covered company's capital structure (including the level and composition of capital); and (ii) When assessing the covered company's exposures, concentrations, and risk positions. [84 FR 59085, Nov. 1, 2019, as amended at 86 FR 7943, Feb. 3, 2021] § 238.145 Reports of stress test results. (a) Reports to the Board of stress test results. (b) Confidential treatment of information submitted. § 238.146 Disclosure of stress test results. (a) Public disclosure of results In general. (ii) A covered company that is not subject to a supervisory stress test under § 238.132 must publicly disclose a summary of the results of the stress test required under § 238.143 in the period beginning on June 15 and ending on June 30 in the year in which the stress test is conducted, unless that time is extended by the Board in writing. (2) Disclosure method. (b) Summary of results. (1) A description of the types of risks included in the stress test; (2) A general description of the methodologies used in the stress test, including those employed to estimate losses, revenues, provision for credit losses, and changes in capital positions over the planning horizon; (3) Estimates of— (i) Pre-provision net revenue and other revenue; (ii) Provision for credit losses, realized losses or gains on available-for-sale and held-to-maturity securities, trading and counterparty losses, and other losses or gains; (iii) Net income before taxes; (iv) Loan losses (dollar amount and as a percentage of average portfolio balance) in the aggregate and by subportfolio, including: Domestic closed-end first-lien mortgages; domestic junior lien mortgages and home equity lines of credit; commercial and industrial loans; commercial real estate loans; credit card exposures; other consumer loans; and all other loans; and (v) Pro forma regulatory capital ratios and any other capital ratios specified by the Board; and (4) An explanation of the most significant causes for the changes in regulatory capital ratios; and (5) With respect to any depository institution subsidiary that is subject to stress testing requirements pursuant to 12 U.S.C. 5365(i)(2), 12 CFR part 46 (OCC), or 12 CFR part 325, subpart C (FDIC), changes over the planning horizon in regulatory capital ratios and any other capital ratios specified by the Board and an explanation of the most significant causes for the changes in regulatory capital ratios. (c) Content of results. (i) Pre-provision net revenue and other revenue; (ii) Provision for credit losses, realized losses or gains on available-for-sale and held-to-maturity securities, trading and counterparty losses, and other losses or gains; (iii) Net income before taxes; and (iv) Loan losses in the aggregate and by subportfolio. (2) The disclosure of pro forma regulatory capital ratios and any other capital ratios specified by the Board that is required under paragraph (b) of this section must include the beginning value, ending value, and minimum value of each ratio over the planning horizon. [84 FR 59085, Nov. 1, 2019, as amended at 86 FR 7943, Feb. 3, 2021] Subpart Q—Single Counterparty Credit Limits for Covered Savings and Loan Holding Companies Source: 84 FR 59087, Nov. 1, 2019, unless otherwise noted. § 238.150 Applicability and general provisions. (a) In general. (i) A Category II savings and loan holding company; or (ii) A Category III savings and loan holding company. (b) Credit exposure limits. (2) A covered company is required to calculate its aggregate net credit exposure, gross credit exposure, and net credit exposure to a counterparty using the methods in this subpart. (c) Applicability of this subpart. (2) [Reserved] (d) Cessation of requirements. Editorial Note: At 84 FR 59087, Nov. 1, 2019, subpart Q was added, and within that subpart, § 238.150 was added with incorrect paragraph coding in paragraph (a). § 238.151 Definitions. Unless defined in this section, terms that are set forth in § 238.2 and used in this subpart have the definitions assigned in § 238.2. For purposes of this subpart: (a) Adjusted market value (1) With respect to the value of cash, securities, or other eligible collateral transferred by the covered company to a counterparty, the sum of: (i) The market value of the cash, securities, or other eligible collateral; and (ii) The product of the market value of the securities or other eligible collateral multiplied by the applicable collateral haircut in table 1 to § 217.132 of this chapter; and (2) With respect to cash, securities, or other eligible collateral received by the covered company from a counterparty: (i) The market value of the cash, securities, or other eligible collateral; minus (ii) The market value of the securities or other eligible collateral multiplied by the applicable collateral haircut in table 1 to § 217.132 of this chapter. (3) Prior to calculating the adjusted market value pursuant to paragraphs (a)(1) and (2) of this section, with regard to a transaction that meets the definition of “repo-style transaction” in § 217.2 of this chapter, the covered company would first multiply the applicable collateral haircuts in table 1 to § 217.132 of this chapter by the square root of 1/2. (b) Affiliate (1) Any subsidiary of the company and any other company that is consolidated with the company under applicable accounting standards; or (2) For a company that is not subject to principles or standards referenced in paragraph (b)(1) of this section, any subsidiary of the company and any other company that would be consolidated with the company, if consolidation would have occurred if such principles or standards had applied. (c) Aggregate net credit exposure (d) Bank-eligible investments (e) Counterparty (1) With respect to a natural person, the natural person, and, if the credit exposure of the covered company to such natural person exceeds 5 percent of the covered company's tier 1 capital, the natural person and members of the person's immediate family collectively; (2) With respect to any company that is not a subsidiary of the covered company, the company and its affiliates collectively; (3) With respect to a State, the State and all of its agencies, instrumentalities, and political subdivisions (including any municipalities) collectively; (4) With respect to a foreign sovereign entity that is not assigned a zero percent risk weight under the standardized approach in 12 CFR part 217, subpart D, the foreign sovereign entity and all of its agencies and instrumentalities (but not including any political subdivision) collectively; and (5) With respect to a political subdivision of a foreign sovereign entity such as a state, province, or municipality, any political subdivision of the foreign sovereign entity and all of such political subdivision's agencies and instrumentalities, collectively. 1 1 (f) Covered company (g) Credit derivative (h) Credit transaction (1) Any extension of credit to the counterparty, including loans, deposits, and lines of credit, but excluding uncommitted lines of credit; (2) Any repurchase agreement or reverse repurchase agreement with the counterparty; (3) Any securities lending or securities borrowing transaction with the counterparty; (4) Any guarantee, acceptance, or letter of credit (including any endorsement, confirmed letter of credit, or standby letter of credit) issued on behalf of the counterparty; (5) Any purchase of securities issued by or other investment in the counterparty; (6) Any credit exposure to the counterparty in connection with a derivative transaction between the covered company and the counterparty; (7) Any credit exposure to the counterparty in connection with a credit derivative or equity derivative between the covered company and a third party, the reference asset of which is an obligation or equity security of, or equity investment in, the counterparty; and (8) Any transaction that is the functional equivalent of the above, and any other similar transaction that the Board, by regulation or order, determines to be a credit transaction for purposes of this subpart. (i) Depository institution (j) Derivative transaction (k) Eligible collateral (1) Cash on deposit with the covered company or a subsidiary of the covered company (including cash in foreign currency or U.S. dollars held for the covered company by a custodian or trustee, whether inside or outside of the United States); (2) Debt securities (other than mortgage- or asset-backed securities and resecuritization securities, unless those securities are issued by a U.S. government-sponsored enterprise) that are bank-eligible investments and that are investment grade, except for any debt securities issued by the covered company or any subsidiary of the covered company; (3) Equity securities that are publicly traded, except for any equity securities issued by the covered company or any subsidiary of the covered company; (4) Convertible bonds that are publicly traded, except for any convertible bonds issued by the covered company or any subsidiary of the covered company; or (5) Gold bullion. (l) Eligible credit derivative (1) The contract meets the requirements of an eligible guarantee and has been confirmed by the protection purchaser and the protection provider; (2) Any assignment of the contract has been confirmed by all relevant parties; (3) If the credit derivative is a credit default swap, the contract includes the following credit events: (i) Failure to pay any amount due under the terms of the reference exposure, subject to any applicable minimal payment threshold that is consistent with standard market practice and with a grace period that is closely in line with the grace period of the reference exposure; and (ii) Receivership, insolvency, liquidation, conservatorship, or inability of the reference exposure issuer to pay its debts, or its failure or admission in writing of its inability generally to pay its debts as they become due, and similar events; (4) The terms and conditions dictating the manner in which the contract is to be settled are incorporated into the contract; (5) If the contract allows for cash settlement, the contract incorporates a robust valuation process to estimate loss reliably and specifies a reasonable period for obtaining post-credit event valuations of the reference exposure; (6) If the contract requires the protection purchaser to transfer an exposure to the protection provider at settlement, the terms of at least one of the exposures that is permitted to be transferred under the contract provide that any required consent to transfer may not be unreasonably withheld; and (7) If the credit derivative is a credit default swap, the contract clearly identifies the parties responsible for determining whether a credit event has occurred, specifies that this determination is not the sole responsibility of the protection provider, and gives the protection purchaser the right to notify the protection provider of the occurrence of a credit event. (m) Eligible equity derivative (1) The derivative contract has been confirmed by all relevant parties; (2) Any assignment of the derivative contract has been confirmed by all relevant parties; and (3) The terms and conditions dictating the manner in which the derivative contract is to be settled are incorporated into the contract. (n) Eligible guarantee (o) Eligible guarantor (p) Equity derivative (q) Exempt counterparty (r) Financial entity (1)(i) A bank holding company or an affiliate thereof; a savings and loan holding company; a U.S. intermediate holding company established or designated pursuant to 12 CFR 252.153; or a nonbank financial company supervised by the Board; (ii) A depository institution as defined in section 3(c) of the Federal Deposit Insurance Act (12 U.S.C. 1813(c)); an organization that is organized under the laws of a foreign country and that engages directly in the business of banking outside the United States; a federal credit union or state credit union as defined in section 2 of the Federal Credit Union Act (12 U.S.C. 1752(1) and (6)); a national association, state member bank, or state nonmember bank that is not a depository institution; an institution that functions solely in a trust or fiduciary capacity as described in section 2(c)(2)(D) of the Bank Holding Company Act (12 U.S.C. 1841(c)(2)(D)); an industrial loan company, an industrial bank, or other similar institution described in section 2(c)(2)(H) of the Bank Holding Company Act (12 U.S.C. 1841(c)(2)(H)); (iii) An entity that is state-licensed or registered as: (A) A credit or lending entity, including a finance company; money lender; installment lender; consumer lender or lending company; mortgage lender, broker, or bank; motor vehicle title pledge lender; payday or deferred deposit lender; premium finance company; commercial finance or lending company; or commercial mortgage company; except entities registered or licensed solely on account of financing the entity's direct sales of goods or services to customers; (B) A money services business, including a check casher; money transmitter; currency dealer or exchange; or money order or traveler's check issuer; (iv) Any person registered with the Commodity Futures Trading Commission as a swap dealer or major swap participant pursuant to the Commodity Exchange Act of 1936 (7 U.S.C. 1 et seq. et seq. (v) A securities holding company as defined in section 618 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (12 U.S.C. 1850a); a broker or dealer as defined in sections 3(a)(4) and 3(a)(5) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(4)-(5)); an investment adviser as defined in section 202(a) of the Investment Advisers Act of 1940 (15 U.S.C. 80b-2(a)); an investment company registered with the U.S. Securities and Exchange Commission under the Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq. (vi) A private fund as defined in section 202(a) of the Investment Advisers Act of 1940 (15 U.S.C. 80b-2(a)); an entity that would be an investment company under section 3 of the Investment Company Act of 1940 (15 U.S.C. 80a-3) but for section 3(c)(5)(C); or an entity that is deemed not to be an investment company under section 3 of the Investment Company Act of 1940 pursuant to Investment Company Act Rule 3a-7 (17 CFR 270.3a-7) of the U.S. Securities and Exchange Commission; (vii) A commodity pool, a commodity pool operator, or a commodity trading advisor as defined, respectively, in sections 1a(10), 1a(11), and 1a(12) of the Commodity Exchange Act of 1936 (7 U.S.C. 1a(10), 1a(11), and 1a(12)); a floor broker, a floor trader, or introducing broker as defined, respectively, in sections 1a(22), 1a(23) and 1a(31) of the Commodity Exchange Act of 1936 (7 U.S.C. 1a(22), 1a(23), and 1a(31)); or a futures commission merchant as defined in section 1a(28) of the Commodity Exchange Act of 1936 (7 U.S.C. 1a(28)); (viii) An employee benefit plan as defined in paragraphs (3) and (32) of section 3 of the Employee Retirement Income and Security Act of 1974 (29 U.S.C. 1002); (ix) An entity that is organized as an insurance company, primarily engaged in writing insurance or reinsuring risks underwritten by insurance companies, or is subject to supervision as such by a State insurance regulator or foreign insurance regulator; (x) Any designated financial market utility, as defined in section 803 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (12 U.S.C. 5462); and (xi) An entity that would be a financial entity described in paragraphs (r)(1)(i) through (x) of this section, if it were organized under the laws of the United States or any State thereof; and (2) Provided that, for purposes of this subpart, “financial entity” does not include any counterparty that is a foreign sovereign entity or multilateral development bank. (s) Foreign sovereign entity (t) Gross credit exposure (u) Immediate family (v) Intraday credit exposure (w) Investment grade (x) Multilateral development bank (y) Net credit exposure (z) Qualifying central counterparty (aa) Qualifying master netting agreement (bb) Securities financing transaction (cc) Short sale (dd) Sovereign entity (ee) Subsidiary. subsidiary (1) The company is consolidated by the other company under applicable accounting standards; or (2) For a company that is not subject to principles or standards referenced in paragraph (ee)(1) of this section, consolidation would have occurred if such principles or standards had applied. (ff) Tier 1 capital (gg) Total consolidated assets. (1) The average of the company's total consolidated assets in the four most recent consecutive quarters as reported quarterly on the FR Y-9C; or (2) If the company has not filed an FR Y-9C for each of the four most recent consecutive quarters, the average of the company's total consolidated assets, as reported on the company's FR Y-9C, for the most recent quarter or consecutive quarters, as applicable. § 238.152 Credit exposure limits. General limit on aggregate net credit exposure. § 238.153 Gross credit exposure. (a) Calculation of gross credit exposure. (1) A deposit of the covered company held by the counterparty, loan by a covered company to the counterparty, and lease in which the covered company is the lessor and the counterparty is the lessee, equal to the amount owed by the counterparty to the covered company under the transaction. (2) A debt security or debt investment held by the covered company that is issued by the counterparty, equal to: (i) The market value of the securities, for trading and available-for-sale securities; and (ii) The amortized purchase price of the securities or investments, for securities or investments held to maturity. (3) An equity security held by the covered company that is issued by the counterparty, equity investment in a counterparty, and other direct investments in a counterparty, equal to the market value. (4) A securities financing transaction must be valued using any of the methods that the covered company is authorized to use under 12 CFR part 217, subparts D and E to value such transactions: (i)(A) As calculated for each transaction, in the case of a securities financing transaction between the covered company and the counterparty that is not subject to a bilateral netting agreement or does not meet the definition of “repo-style transaction” in § 217.2 of this chapter; or (B) As calculated for a netting set, in the case of a securities financing transaction between the covered company and the counterparty that is subject to a bilateral netting agreement with that counterparty and meets the definition of “repo-style transaction” in § 217.2 of this chapter; (ii) For purposes of paragraph (a)(4)(i) of this section, the covered company must: (A) Assign a value of zero to any security received from the counterparty that does not meet the definition of “eligible collateral” in § 238.151; and (B) Include the value of securities that are eligible collateral received by the covered company from the counterparty (including any exempt counterparty), calculated in accordance with paragraphs (a)(4)(i) through (iv) of this section, when calculating its gross credit exposure to the issuer of those securities; (iii) Notwithstanding paragraphs (a)(4)(i) and (ii) of this section and with respect to each credit transaction, a covered company's gross credit exposure to a collateral issuer under this paragraph (a)(4) is limited to the covered company's gross credit exposure to the counterparty on the credit transaction; and (iv) In cases where the covered company receives eligible collateral from a counterparty in addition to the cash or securities received from that counterparty, the counterparty may reduce its gross credit exposure to that counterparty in accordance with § 238.154(b). (5) A committed credit line extended by a covered company to a counterparty, equal to the face amount of the committed credit line. (6) A guarantee or letter of credit issued by a covered company on behalf of a counterparty, equal to the maximum potential loss to the covered company on the transaction. (7) A derivative transaction must be valued using any of the methods that the covered company is authorized to use under 12 CFR part 217, subparts D and E to value such transactions: (i)(A) As calculated for each transaction, in the case of a derivative transaction between the covered company and the counterparty, including an equity derivative but excluding a credit derivative described in paragraph (a)(8) of this section, that is not subject to a qualifying master netting agreement; or (B) As calculated for a netting set, in the case of a derivative transaction between the covered company and the counterparty, including an equity derivative but excluding a credit derivative described in paragraph (a)(8) of this section, that is subject to a qualifying master netting agreement. (ii) In cases where a covered company is required to recognize an exposure to an eligible guarantor pursuant to § 238.154(d), the covered company must exclude the relevant derivative transaction when calculating its gross exposure to the original counterparty under this section. (8) A credit derivative between the covered company and a third party where the covered company is the protection provider and the reference asset is an obligation or debt security of the counterparty, equal to the maximum potential loss to the covered company on the transaction. (b) Investments in and exposures to securitization vehicles, investment funds, and other special purpose vehicles that are not subsidiaries. (c) Attribution rule. § 238.154 Net credit exposure. (a) In general. (b) Eligible collateral. (2) A covered company that reduces its gross credit exposure to a counterparty as required under paragraph (b)(1) of this section must include the adjusted market value of the eligible collateral, when calculating its gross credit exposure to the collateral issuer. (3) Notwithstanding paragraph (b)(2) of this section, a covered company's gross credit exposure to a collateral issuer under this paragraph (b) is limited to: (i) Its gross credit exposure to the counterparty on the credit transaction, or (ii) In the case of an exempt counterparty, the gross credit exposure that would have been attributable to that exempt counterparty on the credit transaction if valued in accordance with § 238.153(a). (c) Eligible guarantees. (2) A covered company that reduces its gross credit exposure to a counterparty as required under paragraph (c)(1) of this section must include the amount of eligible guarantees when calculating its gross credit exposure to the eligible guarantor. (3) Notwithstanding paragraph (c)(2) of this section, a covered company's gross credit exposure to an eligible guarantor with respect to an eligible guarantee under this paragraph (c) is limited to: (i) Its gross credit exposure to the counterparty on the credit transaction prior to recognition of the eligible guarantee, or (ii) In the case of an exempt counterparty, the gross credit exposure that would have been attributable to that exempt counterparty on the credit transaction prior to recognition of the eligible guarantee if valued in accordance with § 238.153(a). (d) Eligible credit and equity derivatives. (i) In the case of any eligible credit derivative from an eligible guarantor, the notional amount of the eligible credit derivative; or (ii) In the case of any eligible equity derivative from an eligible guarantor, the gross credit exposure amount to the counterparty (calculated in accordance with § 238.153(a)(7)). (2)(i) A covered company that reduces its gross credit exposure to a counterparty as provided under paragraph (d)(1) of this section must include, when calculating its net credit exposure to the eligible guarantor, including in instances where the underlying credit transaction would not be subject to the credit limits of § 238.152 (for example, due to an exempt counterparty), either (A) In the case of any eligible credit derivative from an eligible guarantor, the notional amount of the eligible credit derivative; or (B) In the case of any eligible equity derivative from an eligible guarantor, the gross credit exposure amount to the counterparty (calculated in accordance with § 238.153(a)(7)). (ii) Notwithstanding paragraph (d)(2)(i) of this section, in cases where the eligible credit derivative or eligible equity derivative is used to hedge covered positions that are subject to the Board's market risk rule (12 CFR part 217, subpart F) and the counterparty on the hedged transaction is not a financial entity, the amount of credit exposure that a company must recognize to the eligible guarantor is the amount that would be calculated pursuant to § 238.153(a). (3) Notwithstanding paragraph (d)(2) of this section, a covered company's gross credit exposure to an eligible guarantor with respect to an eligible credit derivative or an eligible equity derivative this paragraph (d) is limited to: (i) Its gross credit exposure to the counterparty on the credit transaction prior to recognition of the eligible credit derivative or the eligible equity derivative, or (ii) In the case of an exempt counterparty, the gross credit exposure that would have been attributable to that exempt counterparty on the credit transaction prior to recognition of the eligible credit derivative or the eligible equity derivative if valued in accordance with § 238.153(a). (e) Other eligible hedges. (1) The instrument in which the covered company has a short position is junior to, or pari passu (2) The instrument in which the covered company has a short position and the instrument in which the covered company has the long position are either both treated as trading or available-for-sale exposures or both treated as held-to-maturity exposures. (f) Unused portion of certain extensions of credit. (2) To the extent that the used portion of a credit extension has been secured by eligible collateral, the covered company may reduce its gross credit exposure by the adjusted market value of any eligible collateral received from the counterparty, even if the used portion has not been fully secured by eligible collateral. (3) To qualify for the reduction in net credit exposure under this paragraph, the credit contract must specify that any used portion of the credit extension must be fully secured by the adjusted market value of any eligible collateral. (g) Credit transactions involving exempt counterparties. (2) Notwithstanding paragraph (g)(1) of this section, in cases where a covered company has a credit transaction with an exempt counterparty and the covered company has obtained eligible collateral from that exempt counterparty or an eligible guarantee or eligible credit or equity derivative from an eligible guarantor, the covered company must include (for purposes of this subpart) such exposure to the issuer of such eligible collateral or the eligible guarantor, as calculated in accordance with the rules set forth in this section, when calculating its gross credit exposure to that issuer of eligible collateral or eligible guarantor. (h) Currency mismatch adjustments. (1) When reducing its gross credit exposure to a counterparty resulting from any credit transaction due to any eligible collateral and calculating its gross credit exposure to an issuer of eligible collateral, pursuant to paragraph (b) of this section, the currency mismatch adjustment approach of § 217.37(c)(3)(ii) of this chapter; and (2) When reducing its gross credit exposure to a counterparty resulting from any credit transaction due to any eligible guarantee, eligible equity derivative, or eligible credit derivative from an eligible guarantor and calculating its gross credit exposure to an eligible guarantor, pursuant to paragraphs (c) and (d) of this section, the currency mismatch adjustment approach of § 217.36(f) of this chapter. (i) Maturity mismatch adjustments. (1) When reducing its gross credit exposure to a counterparty resulting from any credit transaction due to any eligible collateral or any eligible guarantees, eligible equity derivatives, or eligible credit derivatives from an eligible guarantor, pursuant to paragraphs (b) through (d) of this section, and (2) In calculating its gross credit exposure to an issuer of eligible collateral, pursuant to paragraph (b) of this section, or to an eligible guarantor, pursuant to paragraphs (c) and (d) of this section; provided that (3) The eligible collateral, eligible guarantee, eligible equity derivative, or eligible credit derivative subject to paragraph (i)(1) of this section: (i) Has a shorter maturity than the credit transaction; (ii) Has an original maturity equal to or greater than one year; (iii) Has a residual maturity of not less than three months; and (iv) The adjustment approach is otherwise applicable. § 238.155 Investments in and exposures to securitization vehicles, investment funds, and other special purpose vehicles that are not subsidiaries of the covered company. (a) In general. (i) SPV (ii) SPV exposure (2)(i) A covered company must determine whether the amount of its gross credit exposure to an issuer of assets in an SPV, due to an SPV exposure, is equal to or greater than 0.25 percent of the covered company's tier 1 capital using one of the following two methods: (A) The sum of all of the issuer's assets (with each asset valued in accordance with § 238.153(a)) in the SPV; or (B) The application of the look-through approach described in paragraph (b) of this section. (ii) With respect to the determination required under paragraph (a)(2)(i) of this section, a covered company must use the same method to calculate gross credit exposure to each issuer of assets in a particular SPV. (iii) In making a determination under paragraph (a)(2)(i) of this section, the covered company must consider only the credit exposure to the issuer arising from the covered company's SPV exposure. (iv) For purposes of this paragraph (a)(2), a covered company that is unable to identify each issuer of assets in an SPV must attribute to a single unknown counterparty the amount of its gross credit exposure to all unidentified issuers and calculate such gross credit exposure using one method in either paragraph (a)(2)(i)(A) or (a)(2)(i)(B) of this section. (3)(i) If a covered company determines pursuant to paragraph (a)(2) of this section that the amount of its gross credit exposure to an issuer of assets in an SPV is less than 0.25 percent of the covered company's tier 1 capital, the amount of the covered company's gross credit exposure to that issuer may be attributed to either that issuer of assets or the SPV: (A) If attributed to the issuer of assets, the issuer of assets must be identified as a counterparty, and the gross credit exposure calculated under paragraph (a)(2)(i)(A) of this section to that issuer of assets must be aggregated with any other gross credit exposures (valued in accordance with § 238.153) to that same counterparty; and (B) If attributed to the SPV, the covered company's gross credit exposure is equal to the covered company's SPV exposure, valued in accordance with § 238.153(a). (ii) If a covered company determines pursuant to paragraph (a)(2) of this section that the amount of its gross credit exposure to an issuer of assets in an SPV is equal to or greater than 0.25 percent of the covered company's tier 1 capital or the covered company is unable to determine that the amount of the gross credit exposure is less than 0.25 percent of the covered company's tier 1 capital: (A) The covered company must calculate the amount of its gross credit exposure to the issuer of assets in the SPV using the look-through approach in paragraph (b) of this section; (B) The issuer of assets in the SPV must be identified as a counterparty, and the gross credit exposure calculated in accordance with paragraph (b) of this section must be aggregated with any other gross credit exposures (valued in accordance with § 238.153) to that same counterparty; and (C) When applying the look-through approach in paragraph (b) of this section, a covered company that is unable to identify each issuer of assets in an SPV must attribute to a single unknown counterparty the amount of its gross credit exposure, calculated in accordance with paragraph (b) of this section, to all unidentified issuers. (iii) For purposes of this section, a covered company must aggregate all gross credit exposures to unknown counterparties for all SPVs as if the exposures related to a single unknown counterparty; this single unknown counterparty is subject to the limits of § 238.152 as if it were a single counterparty. (b) Look-through approach. (1) Where all investors in the SPV rank pari passu, (2) Where all investors in the SPV do not rank pari passu, (i) The pro rata share of the covered company's investment in the tranche of the SPV; multiplied by (ii) The lesser of: (A) The market value of the tranche in which the covered company has invested, except in the case of a debt security that is held to maturity, in which case the tranche must be valued at the amortized purchase price of the securities; and (B) The value of each underlying asset attributed to the issuer in the SPV, each as calculated pursuant to § 238.153(a). (c) Exposures to third parties. (2) The amount of any gross credit exposure that is required to be recognized to a third party under paragraph (c)(1) of this section is equal to the covered company's SPV exposure, up to the maximum contractual obligation of that third party to the SPV, valued in accordance with § 238.153(a). (This gross credit exposure is in addition to the covered company's gross credit exposure to the SPV or the issuers of assets of the SPV, calculated in accordance with paragraphs (a) and (b) of this section.) (3) A covered company must aggregate the gross credit exposure to a third party recognized in accordance with paragraphs (c)(1) and (2) of this section with its other gross credit exposures to that third party (that are unrelated to the SPV) for purposes of compliance with the limits of § 238.152. § 238.156 Aggregation of exposures to more than one counterparty due to economic interdependence or control relationships. (a) In general. (2) If, pursuant to an assessment required under paragraph (a)(1) of this section, the covered company determines that one or more of the factors of paragraph (b)(2) or (c)(1) of this section are met with respect to one or more counterparties, or the Board determines pursuant to paragraph (d) of this section that one or more other counterparties of a covered company are economically interdependent or that one or more other counterparties of a covered company are connected by a control relationship, the covered company must aggregate its net credit exposure to the counterparties for all purposes under this subpart, including, but not limited to, § 238.152. (3) In connection with any request pursuant to paragraph (b)(3) or (c)(2) of this section, the Board may require the covered company to provide additional information. (b) Aggregation of exposures to more than one counterparty due to economic interdependence. (2) A covered company must assess whether the financial distress of one counterparty (counterparty A) would prevent the ability of the other counterparty (counterparty B) to fully and timely repay counterparty B's liabilities and whether the insolvency or default of counterparty A is likely to be associated with the insolvency or default of counterparty B and, therefore, these counterparties are economically interdependent, by evaluating the following: (i) Whether 50 percent or more of one counterparty's gross revenue is derived from, or gross expenditures are directed to, transactions with the other counterparty; (ii) Whether counterparty A has fully or partly guaranteed the credit exposure of counterparty B, or is liable by other means, in an amount that is 50 percent or more of the covered company's net credit exposure to counterparty A; (iii) Whether 25 percent or more of one counterparty's production or output is sold to the other counterparty, which cannot easily be replaced by other customers; (iv) Whether the expected source of funds to repay the loans of both counterparties is the same and neither counterparty has another independent source of income from which the loans may be serviced and fully repaid; 1 1 (v) Whether two or more counterparties rely on the same source for the majority of their funding and, in the event of the common provider's default, an alternative provider cannot be found. (3)(i) Notwithstanding paragraph (b)(2) of this section, if a covered company determines that one or more of the factors in paragraph (b)(2) is met, the covered company may request in writing a determination from the Board that those counterparties are not economically interdependent and that the covered company is not required to aggregate those counterparties. (ii) Upon a request by a covered company pursuant to paragraph (b)(3) of this section, the Board may grant temporary relief to the covered company and not require the covered company to aggregate one counterparty with another counterparty provided that the counterparty could promptly modify its business relationships, such as by reducing its reliance on the other counterparty, to address any economic interdependence concerns, and provided that such relief is in the public interest and is consistent with the purpose of this subpart. (c) Aggregation of exposures to more than one counterparty due to certain control relationships. (i) Counterparty A owns, controls, or holds with the power to vote 25 percent or more of any class of voting securities of counterparty B; or (ii) Counterparty A controls in any manner the election of a majority of the directors, trustees, or general partners (or individuals exercising similar functions) of counterparty B. (2)(i) Notwithstanding paragraph (c)(1) of this section, if a covered company determines that one or more of the factors in paragraph (c)(1) is met, the covered company may request in writing a determination from the Board that counterparty A does not control counterparty B and that the covered company is not required to aggregate those counterparties. (ii) Upon a request by a covered company pursuant to paragraph (c)(2) of this section, the Board may grant temporary relief to the covered company and not require the covered company to aggregate counterparty A with counterparty B provided that, taking into account the specific facts and circumstances, such indicia of control does not result in the entities being connected by control relationships for purposes of this subpart, and provided that such relief is in the public interest and is consistent with the purpose of this subpart. (d) Board determinations for aggregation of counterparties due to economic interdependence or control relationships. (1) Economically interdependent for purposes of this subpart, considering the factors in paragraph (b)(2) of this section, as well as any other indicia of economic interdependence that the Board determines in its discretion to be relevant; or (2) Connected by control relationships for purposes of this subpart, considering the factors in paragraph (c)(1) of this section and whether counterparty A: (i) Controls the power to vote 25 percent or more of any class of voting securities of Counterparty B pursuant to a voting agreement; (ii) Has significant influence on the appointment or dismissal of counterparty B's administrative, management, or governing body, or the fact that a majority of members of such body have been appointed solely as a result of the exercise of counterparty A's voting rights; or (iii) Has the power to exercise a controlling influence over the management or policies of counterparty B. (e) Board determinations for aggregation of counterparties to prevent evasion. § 238.157 Exemptions. (a) Exempted exposure categories. (1) Any direct claim on, and the portion of a claim that is directly and fully guaranteed as to principal and interest by, the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation, only while operating under the conservatorship or receivership of the Federal Housing Finance Agency, and any additional obligation issued by a U.S. government-sponsored entity as determined by the Board; (2) Intraday credit exposure to a counterparty; (3) Any trade exposure to a qualifying central counterparty related to the covered company's clearing activity, including potential future exposure arising from transactions cleared by the qualifying central counterparty and pre-funded default fund contributions; (4) Any credit transaction with the Bank for International Settlements, the International Monetary Fund, the International Bank for Reconstruction and Development, the International Finance Corporation, the International Development Association, the Multilateral Investment Guarantee Agency, or the International Centre for Settlement of Investment Disputes; (5) Any credit transaction with the European Commission or the European Central Bank; and (6) Any transaction that the Board exempts if the Board finds that such exemption is in the public interest and is consistent with the purpose of this subpart. (b) Exemption for Federal Home Loan Banks. (c) Additional exemptions by the Board. § 238.158 Compliance. (a) Scope of compliance. (2) A covered company must report its compliance to the Federal Reserve as of the end of the quarter, unless the Board determines and notifies that company in writing that more frequent reporting is required. (3) In reporting its compliance, a covered company must calculate and include in its gross credit exposure to an issuer of eligible collateral or eligible guarantor the amounts of eligible collateral, eligible guarantees, eligible equity derivatives, and eligible credit derivatives that were provided to the covered company in connection with credit transactions with exempt counterparties, valued in accordance with and as required by § 238.154(b) through (d) and § 238.154 (g). (b) Qualifying master netting agreement. (c) Noncompliance. (2) A covered company may request a special temporary credit exposure limit exemption from the Board. The Board may grant approval for such exemption in cases where the Board determines that such credit transactions are necessary or appropriate to preserve the safety and soundness of the covered company. In acting on a request for an exemption, the Board will consider the following: (i) A decrease in the covered company's capital stock and surplus; (ii) The merger of the covered company with another covered company; (iii) A merger of two counterparties; or (iv) An unforeseen and abrupt change in the status of a counterparty as a result of which the covered company's credit exposure to the counterparty becomes limited by the requirements of this section; or (v) Any other factor(s) the Board determines, in its discretion, is appropriate. (d) Other measures. Subpart R—Company-Run Stress Test Requirements for Foreign Savings and Loan Holding Companies With Total Consolidated Assets Over $250 Billion Source: 84 FR 59095, Nov. 1, 2019, unless otherwise noted. § 238.160 Definitions. For purposes of this subpart, the following definitions apply: (a) Foreign savings and loan holding company (b) Pre-provision net revenue (c) Stress test cycle (d) Total loan loss provisions § 238.161 Applicability. (a) Applicability for foreign savings and loan holding companies with total consolidated assets of more than $250 billion General. (2) Cessation of requirements. (b) [Reserved] § 238.162 Capital stress testing requirements. (a) In general. (i) Be subject on a consolidated basis to a capital stress testing regime by its home-country supervisor that meets the requirements of paragraph (a)(2) of this section; and (ii) Conduct such stress tests or be subject to a supervisory stress test and meet any minimum standards set by its home-country supervisor with respect to the stress tests. (2) The capital stress testing regime of a foreign savings and loan holding company's home-country supervisor must include: (i) A supervisory capital stress test conducted by the relevant home-country supervisor or an evaluation and review by the home-country supervisor of an internal capital adequacy stress test conducted by the foreign savings and loan holding company, conducted on at least a biennial basis; and (ii) Requirements for governance and controls of stress testing practices by relevant management and the board of directors (or equivalent thereof). (b) Additional standards. (i) Conduct an annual stress test of its U.S. subsidiaries to determine whether those subsidiaries have the capital necessary to absorb losses as a result of adverse economic conditions; and (ii) Report on at least a biennial basis a summary of the results of the stress test to the Board that includes a description of the types of risks included in the stress test, a description of the conditions or scenarios used in the stress test, a summary description of the methodologies used in the stress test, estimates of aggregate losses, pre-provision net revenue, total loan loss provisions, net income before taxes and pro forma regulatory capital ratios required to be computed by the home-country supervisor of the foreign savings and loan holding company and any other relevant capital ratios, and an explanation of the most significant causes for any changes in regulatory capital ratios. (2) An enterprise-wide stress test that is approved by the Board may meet the stress test requirement of paragraph (b)(1)(ii) of this section. Subpart S—Capital Planning and Stress Capital Buffer Requirement Source: 86 FR 7943, Feb. 3, 2021, unless otherwise noted. § 238.170 Capital planning and stress capital buffer requirement. (a) Purpose. (b) Scope and reservation of authority Applicability. (i) Any top-tier covered savings and loan holding company domiciled in the United States with average total consolidated assets of $100 billion or more ($100 billion asset threshold); and (ii) Any other covered savings and loan holding company domiciled in the United States that is made subject to this section, in whole or in part, by order of the Board. (2) Average total consolidated assets. (3) Ongoing applicability. (4) Reservation of authority. (5) Application of this section by order. (c) Transition periods for certain covered savings and loan holding companies. (2) A covered savings and loan holding company that meets the $100 billion asset threshold after September 30 of a calendar year must comply with the requirements of this section beginning on January 1 of the second calendar year after the covered savings and loan holding company meets the $100 billion asset threshold, unless that time is extended by the Board in writing. Notwithstanding the previous sentence, the Board will not provide a covered savings and loan holding company with notice of its stress capital buffer requirement until the first year in which the Board conducts an analysis of the covered savings and loan holding company pursuant to 12 CFR 238.132. (3) The Board, or the appropriate Reserve Bank with the concurrence of the Board, may require a covered savings and loan holding company described in paragraph (c)(1) or (2) of this section to comply with any or all of the requirements of this section if the Board, or appropriate Reserve Bank with concurrence of the Board, determines that the requirement is appropriate on a different date based on the company's risk profile, scope of operation, or financial condition and provides prior notice to the company of the determination. (d) Definitions. (1) Advanced approaches (2) Average total nonbank assets (3) Capital action (4) Capital distribution (5) Capital plan (6) Capital plan cycle (7) Capital policy (8) Category IV savings and loan holding company (9) Common equity tier 1 capital (10) Effective capital distribution limitations (11) Final planned capital distributions (12) Internal baseline scenario (13) Internal stress scenario (14) Planning horizon (15) Regulatory capital ratio (16) Severely adverse scenario (17) Stress capital buffer requirement (18) Supervisory stress test (e) Capital planning requirements and procedures Annual capital planning. (ii) A covered savings and loan holding company must submit its complete capital plan to the Board and the appropriate Reserve Bank by April 5 of each calendar year, or such later date as directed by the Board or by the appropriate Reserve Bank with concurrence of the Board. (iii) The covered savings and loan holding company's board of directors or a designated committee thereof must at least annually and prior to submission of the capital plan under paragraph (e)(1)(ii) of this section: (A) Review the robustness of the covered savings and loan holding company's process for assessing capital adequacy; (B) Ensure that any deficiencies in the covered savings and loan holding company's process for assessing capital adequacy are appropriately remedied; and (C) Approve the covered savings and loan holding company's capital plan. (2) Mandatory elements of capital plan. (i) An assessment of the expected uses and sources of capital over the planning horizon that reflects the covered savings and loan holding company's size, complexity, risk profile, and scope of operations, assuming both expected and stressful conditions, including: (A) Estimates of projected revenues, losses, reserves, and pro forma capital levels, including regulatory capital ratios, and any additional capital measures deemed relevant by the covered savings and loan holding company, over the planning horizon under a range of scenarios, including: ( 1 ( 2 (B) A discussion of the results of any stress test required by law or regulation, and an explanation of how the capital plan takes these results into account; and (C) A description of all planned capital actions over the planning horizon. Planned capital actions must be consistent with effective capital distribution limitations, except as may be adjusted pursuant to paragraph (h) of this section. In determining whether a covered savings and loan holding company's planned capital distributions are consistent with effective capital distribution limitations, a covered savings and loan holding company must assume that any countercyclical capital buffer amount currently applicable to the covered savings and loan holding company remains at the same level, except that the covered savings and loan holding company must reflect any increases or decreases in the countercyclical capital buffer amount that have been announced by the Board at the times indicated by the Board's announcement for when such increases or decreases will take effect. (ii) A detailed description of the covered savings and loan holding company's process for assessing capital adequacy, including: (A) A discussion of how the covered savings and loan holding company will, under expected and stressful conditions, maintain capital commensurate with its risks, maintain capital above the regulatory capital ratios, and serve as a source of strength to its subsidiary depository institutions; (B) A discussion of how the covered savings and loan holding company will, under expected and stressful conditions, maintain sufficient capital to continue its operations by maintaining ready access to funding, meeting its obligations to creditors and other counterparties, and continuing to serve as a credit intermediary; (iii) The covered savings and loan holding company's capital policy; and (iv) A discussion of any expected changes to the covered savings and loan holding company's business plan that are likely to have a material impact on the covered savings and loan holding company's capital adequacy or liquidity. (3) Data collection. (i) The covered savings and loan holding company's financial condition, including its capital; (ii) The covered savings and loan holding company's structure; (iii) Amount and risk characteristics of the covered savings and loan holding company's on- and off-balance sheet exposures, including exposures within the covered savings and loan holding company's trading account, other trading-related exposures (such as counterparty-credit risk exposures) or other items sensitive to changes in market factors, including, as appropriate, information about the sensitivity of positions to changes in market rates and prices; (iv) The covered savings and loan holding company's relevant policies and procedures, including risk management policies and procedures; (v) The covered savings and loan holding company's liquidity profile and management; (vi) The loss, revenue, and expense estimation models used by the covered savings and loan holding company for stress scenario analysis, including supporting documentation regarding each model's development and validation; and (vii) Any other relevant qualitative or quantitative information requested by the Board or by the appropriate Reserve Bank to facilitate review of the covered savings and loan holding company's capital plan under this section. (4) Resubmission of a capital plan. (A) The covered savings and loan holding company determines there has been or will be a material change in the covered savings and loan holding company's risk profile, financial condition, or corporate structure since the covered savings and loan holding company last submitted the capital plan to the Board and the appropriate Reserve Bank under this section; or (B) The Board, or the appropriate Reserve Bank with concurrence of the Board, directs the covered savings and loan holding company in writing to revise and resubmit its capital plan for any of the following reasons: ( 1 ( 2 ( 3 (ii) The Board, or the appropriate Reserve Bank with concurrence of the Board, may extend the 30-day period in paragraph (e)(4)(i) of this section for up to an additional 60 calendar days, or such longer period as the Board or the appropriate Reserve Bank, with concurrence of the Board, determines appropriate. (iii) Any updated capital plan must satisfy all the requirements of this section; however, a covered savings and loan holding company may continue to rely on information submitted as part of a previously submitted capital plan to the extent that the information remains accurate and appropriate. (5) Confidential treatment of information submitted. (f) Calculation of the stress capital buffer requirement General. (2) Stress capital buffer requirement calculation. (i) The following calculation: (A) The ratio of a covered savings and loan holding company's common equity tier 1 capital to risk-weighted assets, as calculated under 12 CFR part 217, subpart D, as of the final quarter of the previous capital plan cycle, unless otherwise determined by the Board; minus (B) The lowest projected ratio of the covered savings and loan holding company's common equity tier 1 capital to risk-weighted assets, as calculated under 12 CFR part 217, subpart D, in any quarter of the planning horizon under a supervisory stress test; plus (C) The ratio of: ( 1 ( 2 (ii) 2.5 percent. (3) Recalculation of stress capital buffer requirement. (4) Adjustment of stress capital buffer requirement. 1 (g) Review of capital plans by the Federal Reserve. (1) The comprehensiveness of the capital plan, including the extent to which the analysis underlying the capital plan captures and addresses potential risks stemming from activities across the covered savings and loan holding company and the covered savings and loan holding company's capital policy; (2) The reasonableness of the covered savings and loan holding company's capital plan, the assumptions and analysis underlying the capital plan, and the robustness of its capital adequacy process; (3) Relevant supervisory information about the covered savings and loan holding company and its subsidiaries; (4) The covered savings and loan holding company's regulatory and financial reports, as well as supporting data that would allow for an analysis of the covered savings and loan holding company's loss, revenue, and reserve projections; (5) The results of any stress tests conducted by the covered savings and loan holding company or the Federal Reserve; and (6) Other information requested or required by the Board or the appropriate Reserve Bank, as well as any other information relevant, or related, to the savings and loan holding company's capital adequacy. (h) Federal Reserve notice of stress capital buffer requirement; final planned capital distributions Notice. (2) Response to notice Request for reconsideration of stress capital buffer requirement. (ii) Adjustments to planned capital distributions. (A) Determine whether the planned capital distributions for the fourth through seventh quarters of the planning horizon under the Internal baseline scenario would be consistent with effective capital distribution limitations assuming the stress capital buffer requirement provided by the Board under paragraph (h)(1) or (i)(5) of this section, as applicable, in place of any stress capital buffer requirement in effect; and ( 1 ( 2 (B) Notify the Board of any adjustments made to planned capital distributions for the fourth through seventh quarters of the planning horizon under the Internal baseline scenario. (3) Final planned capital distributions. (i) The expiration of the time for requesting reconsideration under paragraph (i) of this section; and (ii) The expiration of the time for adjusting planned capital distributions pursuant to paragraph (h)(2)(ii) of this section. (4) Effective date of final stress capital buffer requirement. (ii) Unless otherwise determined by the Board, a covered savings and loan holding company's final planned capital distributions and final stress capital buffer requirement shall: (A) Be effective on October 1 of the calendar year in which a capital plan was submitted pursuant to paragraph (e)(1)(ii) of this section; and (B) Remain in effect until superseded. (5) Publication. (i) The stress capital buffer requirement provided to a covered savings and loan holding company under paragraph (h)(1) or (i)(5) of this section; (ii) Adjustments made pursuant to paragraph (h)(2)(ii); (iii) A summary of the results of the supervisory stress test; and (iv) Other information. (i) Administrative remedies; request for reconsideration. (1) General. (2) Timing of request. (3) Contents of request. (ii) A request for reconsideration may include a request for an informal hearing on the covered savings and loan holding company's request for reconsideration. (4) Hearing. (ii) An informal hearing shall be held within 30 calendar days of a request, if granted, provided that the Board may extend this period upon notice to the requesting party. (5) Response to request. (6) Distributions during the pendency of a request for reconsideration. (j) Approval requirements for certain capital actions Circumstances requiring approval Resubmission of a capital plan. (2) Contents of request. (i) The covered savings and loan holding company's capital plan or a discussion of changes to the covered savings and loan holding company's capital plan since it was last submitted to the Federal Reserve; (ii) The purpose of the transaction; (iii) A description of the capital distribution, including for redemptions or repurchases of securities, the gross consideration to be paid and the terms and sources of funding for the transaction, and for dividends, the amount of the dividend(s); and (iv) Any additional information requested by the Board or the appropriate Reserve Bank (which may include, among other things, an assessment of the covered savings and loan holding company's capital adequacy under a severely adverse scenario, a revised capital plan, and supporting data). (3) Approval of certain capital distributions. (ii) In acting on a request for prior approval of a capital distribution, the Board, or appropriate Reserve Bank with concurrence of the Board, will apply the considerations and principles in paragraph (g) of this section, as appropriate. In addition, the Board, or the appropriate Reserve Bank with concurrence of the Board, may disapprovethe transaction if the covered savings and loan holding company does not provide all of the information required to be submitted under paragraph (j)(2) of this section. (4) Disapproval and hearing. (ii) The Board may, in its sole discretion, order an informal hearing if the Board finds that a hearing is appropriate or necessary to resolve disputes regarding material issues of fact. An informal hearing shall be held within 30 calendar days of a request, if granted, provided that the Board may extend this period upon notice to the requesting party. (iii) Written notice of the final decision of the Board shall be given to the covered savings and loan holding company within 60 calendar days of the conclusion of any informal hearing ordered by the Board, provided that the Board may extend this period upon notice to the requesting party. (iv) While the Board's decision is pending and until such time as the Board, or the appropriate Reserve Bank with concurrence of the Board, approves the capital distribution at issue, the covered savings and loan holding company may not make such capital distribution. (k) Post notice requirement. (1) The capital distribution was approved pursuant to paragraph (j)(3) of this section; or (2) The dollar amount of the capital distribution will exceed the dollar amount of the covered savings and loan holding company's final planned capital distributions, as measured on an aggregate basis beginning in the fourth quarter of the planning horizon through the quarter at issue.

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