PART 362—ACTIVITIES OF INSURED STATE BANKS AND INSURED SAVINGS ASSOCIATIONS Authority: 12 U.S.C. 1816, 1818, 1819(a)(Tenth), 1828(j), 1828(m), 1828a, 1831a, 1831e, 1831w, 1843(l). Source: 63 FR 66326, Dec. 1, 1998, unless otherwise noted. Subpart A—Activities of Insured State Banks § 362.1 Purpose and scope. (a) This subpart, along with the notice and application procedures in subpart G of part 303 of this chapter, implements the provisions of section 24 of the Federal Deposit Insurance Act (12 U.S.C. 1831a) that restrict and prohibit insured State banks and their subsidiaries from engaging in activities and investments that are not permissible for national banks and their subsidiaries. The phrase “activity permissible for a national bank” means any activity authorized for national banks under any statute including the National Bank Act (12 U.S.C. 21 et seq. (b) This subpart does not cover the following activities: (1) Activities conducted other than “as principal,” defined for purposes of this subpart as activities conducted as agent for a customer, conducted in a brokerage, custodial, advisory, or administrative capacity, or conducted as trustee, or in any substantially similar capacity. For example, this subpart does not cover acting solely as agent for the sale of insurance, securities, real estate, or travel services; nor does it cover acting as trustee, providing personal financial planning advice, or safekeeping services; (2) Interests in real estate in which the real property is used or intended in good faith to be used within a reasonable time by an insured State bank or its subsidiaries as offices or related facilities for the conduct of its business or future expansion of its business or used as public welfare investments of a type permissible for national banks; and (3) Equity investments acquired in connection with debts previously contracted (DPC) if the insured State bank does not hold the property for speculation and takes only such actions as would be permissible for a national bank's DPC. The bank must dispose of the property within the shorter of the period set by Federal law for national banks or the period allowed under State law. For real estate, national banks may not hold DPC for more than 10 years. For equity securities, national banks must generally divest DPC as soon as possible consistent with obtaining a reasonable return. (c) A subsidiary of an insured state bank may not engage in real estate investment activities that are not permissible for a subsidiary of a national bank unless the bank does so through a subsidiary of which the bank is a majority owner, is in compliance with applicable capital standards, and the FDIC has determined that the activity poses no significant risk to the appropriate deposit insurance fund. This subpart provides standards for majority-owned subsidiaries of insured state banks engaging in real estate investment activities that are not permissible for a subsidiary of a national bank. (d) The FDIC intends to allow insured State banks and their subsidiaries to undertake only safe and sound activities and investments that do not present significant risks to the Deposit Insurance Fund and that are consistent with the purposes of Federal deposit insurance and other applicable law. This subpart does not authorize any insured State bank to make investments or to conduct activities that are not authorized or that are prohibited by either State or Federal law. [63 FR 66326, Dec. 1, 1998, as amended at 66 FR 1028, Jan. 5, 2001; 71 FR 20527, Apr. 21, 2006] § 362.2 Definitions. For the purposes of this subpart, the following definitions will apply: (a) Bank, State bank, savings association, State savings association, depository institution, insured depository institution, insured State bank, Federal savings association, insured State nonmember bank (b) Activity (c) Change in control (1) By a State bank or its holding company for which a notice is required to be filed with the FDIC, or the Board of Governors of the Federal Reserve System (FRB), pursuant to section 7(j) of the Federal Deposit Insurance Act (12 U.S.C. 1817(j)) except a transaction that is presumed to be an acquisition of control under the FDIC's or FRB's regulations implementing section 7(j); (2) As a result of which a State bank eligible for the exception described in § 362.3(a)(2)(iii) is acquired by or merged into a depository institution that is not eligible for the exception, or as a result of which its holding company is acquired by or merged into a holding company which controls one or more bank subsidiaries not eligible for the exception; or (3) In which control of the State bank is acquired by a bank holding company in a transaction requiring FRB approval under section 3 of the Bank Holding Company Act (12 U.S.C. 1842), other than a one bank holding company formation in which all or substantially all of the shares of the holding company will be owned by persons who were shareholders of the bank. (d) Company (e) Control (f) Convert its charter (g) Equity investment (h) Equity security (i) Extension of credit, executive officer, director, principal shareholder, related interest (j) Institution (k) Majority-owned subsidiary (l) National securities exchange (m) Real estate investment activity (n) Residents of the state (o) Security (p) Significant risk to the Deposit Insurance Fund (q) State-chartered depository institution (r) Subsidiary (s) Tier one capital (t) Well-capitalized [63 FR 66326, Dec. 1, 1998, as amended at 66 FR 1028, Jan. 5, 2001; 71 FR 20527, Apr. 21, 2006; 78 FR 55596, Sept. 10, 2013; 83 FR 17741, Apr. 24, 2018] § 362.3 Activities of insured State banks. (a) Equity investments Prohibited equity investments. (2) Exceptions Equity investment in majority-owned subsidiaries. (ii) Investments in qualified housing projects. Aggregate investment Qualified housing project Lower income (iii) Grandfathered investments in common or preferred stock; shares of investment companies General. ( 1 i ( ii et seq. ( 2 (B) Loss of grandfather exception. (C) Maximum permissible investment. 2 (iv) Stock investment in insured depository institutions owned exclusively by other banks and savings associations. (v) Stock investment in insurance companies Stock of director and officer liability insurance company. (B) Stock of savings bank life insurance company. 1 1 (b) Activities other than equity investments Prohibited activities. (2) Exceptions Consent obtained through application. (ii) Insurance underwriting Savings bank life insurance. (B) Federal crop insurance. (C) Grandfathered insurance underwriting. (iii) Acquiring and retaining adjustable rate and money market preferred stock. (B) An insured State bank may acquire or retain other instruments of a type determined by the FDIC to have the character of debt securities and not to represent a significant risk to the Deposit Insurance Fund. Such instruments shall be included in the 15 percent of tier one capital limit imposed in paragraph (b)(2)(iii)(A) of this section. An insured State bank may conduct this activity without first obtaining the FDIC's consent, provided that the bank meets and continues to meet the applicable capital standards as prescribed by the appropriate Federal banking agency. The fact that prior consent is not required by this subpart does not preclude the FDIC from taking any appropriate action with respect to the activities if the facts and circumstances warrant such action. (c) Core standards. (1) The department is physically distinct from the remainder of the bank; (2) The department maintains separate accounting and other records; (3) The department has assets, liabilities, obligations and expenses that are separate and distinct from those of the remainder of the bank; (4) The department is subject to State statute that requires its obligations, liabilities and expenses be satisfied only with the assets of the department; and (5) The department informs its customers that only the assets of the department may be used to satisfy the obligations of the department. [63 FR 66326, Dec. 1, 1998, as amended at 71 FR 20527, Apr. 21, 2006] § 362.4 Subsidiaries of insured State banks. (a) Prohibition. (b) Exceptions Consent obtained through application. (2) Grandfathered insurance underwriting subsidiaries. (i) Engage in grandfathered insurance underwriting if the insured State bank or its subsidiary on November 21, 1991, was lawfully providing insurance as principal. The subsidiary may continue to provide the same types of insurance as principal to the residents of the State or states in which the bank or subsidiary did so on such date provided that: (A)( 1 ( 2 (B) The bank submits an application in compliance with § 303.121 of this chapter and the FDIC grants its consent under the procedures in § 303.122(b) of this chapter. (ii) Continue to provide as principal title insurance, provided the bank was required before June 1, 1991, to provide title insurance as a condition of the bank's initial chartering under State law and neither the bank nor its parent holding company undergoes a change in control. (iii) May continue to provide as principal insurance which is reinsured in whole or in part by the Federal Crop Insurance Corporation if the subsidiary was engaged in the activity on or before September 30, 1991. (3) Majority-owned subsidiaries' ownership of equity investments that represent a control interest in a company. (i) Equity investment in a company engaged in real estate or securities activities authorized in paragraph (b)(5) of this section if the bank complies with the following restrictions and files a notice in compliance with § 303.121 of this chapter and the FDIC processes the notice without objection under § 303.122(a) of this chapter. The FDIC is not precluded from taking any appropriate action or imposing additional requirements with respect to the activity if the facts and circumstances warrant such action. If changes to the management or business plan of the company at any time result in material changes to the nature of the company's business or the manner in which its business is conducted, the insured State bank shall advise the appropriate regional director (DSC) in writing within 10 business days after such change. Investment under this paragraph is authorized if: (A) The majority-owned subsidiary controls the company; (B) The bank meets the core eligibility criteria of paragraph (c)(1) of this section; (C) The majority-owned subsidiary meets the core eligibility criteria of paragraph (c)(2) of this section (including any modifications thereof applicable under paragraph (b)(5)(i) of this section), or the company is a corporation meeting such criteria; (D) The bank's transactions with the majority-owned subsidiary, and the bank's transactions with the company, comply with the investment and transaction limits of paragraph (d) of this section; (E) The bank complies with the capital requirements of paragraph (e) of this section with respect to the majority-owned subsidiary and the company; and (F) To the extent the company is engaged in securities activities authorized by paragraph (b)(5)(ii) of this section, the bank and the company comply with the additional requirements therein as if the company were a majority-owned subsidiary. (ii) Equity securities of a company engaged in the following activities, if the majority-owned subsidiary controls the company or the company is controlled by insured depository institutions, and the bank meets and continues to meet the applicable capital standards as prescribed by the appropriate Federal banking agency. The FDIC consents that a majority-owned subsidiary may conduct such activity without first obtaining the FDIC's consent. The fact that prior consent is not required by this subpart does not preclude the FDIC from taking any appropriate action with respect to the activity if the facts and circumstances warrant such action: (A) Any activity that is permissible for a national bank, including such permissible activities that may require the company to register as a securities broker; (B) Acting as an insurance agency; (C) Engaging in any activity permissible for an insured State bank under § 362.3(b)(2)(iii) to the same extent permissible for the insured bank thereunder, so long as instruments held under this paragraph (b)(3)(ii)(C), paragraph (b)(7) of this section, and § 362.3(b)(2)(iii) in the aggregate do not exceed the limit set by § 362.3(b)(2)(iii); (D) Engaging in any activity permissible for a majority-owned subsidiary of an insured State bank under paragraph (b)(6) of this section to the same extent and manner permissible for the majority-owned subsidiary thereunder; and (4) Majority-owned subsidiary's ownership of certain securities that do not represent a control interest Grandfathered investments in common or preferred stock and shares of investment companies. (ii) Bank stock. (5) Majority-owned subsidiaries conducting real estate investment activities and securities underwriting. (i) Real estate investment activities. (ii) Securities activities. (A) The state-chartered depository institution adopts policies and procedures, including appropriate limits on exposure, to govern the institution's participation in financing transactions underwritten or arranged by an underwriting majority-owned subsidiary; (B) The state-chartered depository institution may not express an opinion on the value or the advisability of the purchase or sale of securities underwritten or dealt in by a majority-owned subsidiary unless the state-chartered depository institution notifies the customer that the majority-owned subsidiary is underwriting or distributing the security; (C) The majority-owned subsidiary is registered with the Securities and Exchange Commission, is a member in good standing with the appropriate self-regulatory organization, and promptly informs the appropriate regional director (DSC) in writing of any material actions taken against the majority-owned subsidiary or any of its employees by the State, the appropriate self-regulatory organizations or the Securities and Exchange Commission; and (D) The state-chartered depository institution does not knowingly purchase as principal or fiduciary during the existence of any underwriting or selling syndicate any securities underwritten by the majority-owned subsidiary unless the purchase is approved by the state-chartered depository institution's board of directors before the securities are initially offered for sale to the public. (6) Real estate leasing. (i) Lease criteria Capital lease. (B) Nonoperating basis. (ii) Underlying real property requirements Acquisition. ( 1 ( 2 ( 3 (B) Improvements. (C) Divestiture. ( 1 ( 2 (7) Acquiring and retaining adjustable rate and money market preferred stock and similar instruments. (c) Core eligibility requirements. (1) A state-chartered depository institution is an “eligible depository institution” if it: (i) Has been chartered and operating for three or more years, unless the appropriate regional director (DSC) finds that the state-chartered depository institution is owned by an established, well-capitalized, well-managed holding company or is managed by seasoned management; (ii) Has an FDIC-assigned composite rating of 1 or 2 assigned under the Uniform Financial Institutions Rating System (UFIRS) (or such other comparable rating system as may be adopted in the future) as a result of its most recent Federal or State examination for which the FDIC assigned a rating; (iii) Received a rating of 1 or 2 under the “management” component of the UFIRS as assigned by the institution's appropriate Federal banking agency; (iv) Has a satisfactory or better Community Reinvestment Act rating at its most recent examination conducted by the institution's appropriate Federal banking agency; (v) Has a compliance rating of 1 or 2 at its most recent examination conducted by the institution's appropriate Federal banking agency; and (vi) Is not subject to a cease and desist order, consent order, prompt corrective action directive, formal or informal written agreement, or other administrative agreement with its appropriate Federal banking agency or chartering authority. (2) A subsidiary of a state-chartered depository institution is an “eligible subsidiary” if it: (i) Meets applicable statutory or regulatory capital requirements and has sufficient operating capital in light of the normal obligations that are reasonably foreseeable for a business of its size and character within the industry; (ii) Is physically separate and distinct in its operations from the operations of the state-chartered depository institution, provided that this requirement shall not be construed to prohibit the state-chartered depository institution and its subsidiary from sharing the same facility if the area where the subsidiary conducts business with the public is clearly distinct from the area where customers of the state-chartered depository institution conduct business with the institution. The extent of the separation will vary according to the type and frequency of customer contact; (iii) Maintains separate accounting and other business records; (iv) Observes separate business entity formalities such as separate board of directors' meetings; (v) Has a chief executive officer of the subsidiary who is not an employee of the institution; (vi) Has a majority of its board of directors who are neither directors nor executive officers of the state-chartered depository institution; (vii) Conducts business pursuant to independent policies and procedures designed to inform customers and prospective customers of the subsidiary that the subsidiary is a separate organization from the state-chartered depository institution and that the state-chartered depository institution is not responsible for and does not guarantee the obligations of the subsidiary; (viii) Has only one business purpose within the types described in paragraphs (b)(2) and (b)(5) of this section; (ix) Has a current written business plan that is appropriate to the type and scope of business conducted by the subsidiary; (x) Has qualified management and employees for the type of activity contemplated, including all required licenses and memberships, and complies with industry standards; and (xi) Establishes policies and procedures to ensure adequate computer, audit and accounting systems, internal risk management controls, and has necessary operational and managerial infrastructure to implement the business plan. (d) Investment and transaction limits General. (2) Investment limits Aggregate investment in subsidiaries. (ii) Definition of investment. ( 1 ( 2 ( 3 ( 4 (B) For the purposes of this paragraph (d), the term “investment” does not include: ( 1 ( 2 ( 3 (3) Transaction requirements Arm's length transaction requirement. (A) Make an investment in the subsidiary; (B) Purchase from or sell to the subsidiary any assets (including securities); (C) Enter into a contract, lease, or other type of agreement with the subsidiary; (D) Pay compensation to a majority-owned subsidiary or any person or company who has an interest in the subsidiary; or (E) Engage in any such transaction in which the proceeds thereof are used for the benefit of, or are transferred to, the subsidiary. (ii) Prohibition on purchase of low quality assets. (A) An asset classified as “substandard”, “doubtful”, or “loss” or treated as “other assets especially mentioned” in the most recent report of examination of the bank; (B) An asset in a nonaccrual status; (C) An asset on which principal or interest payments are more than 30 days past due; or (D) An asset whose terms have been renegotiated or compromised due to the deteriorating financial condition of the obligor. (iii) Insider transaction restriction. (A) The transactions are on terms and conditions that are substantially the same as those prevailing at the time for comparable transactions with persons not affiliated with the insured State bank; or (B) The transactions are pursuant to a benefit or compensation program that is widely available to employees of the bank, and that does not give preference to the bank's executive officers, directors, principal shareholders or related interests of such persons over other bank employees. (iv) Anti-tying restriction. (4) Collateralization requirements. (A) 100 percent of the amount of the transaction if the collateral is composed of: ( 1 ( 2 ( 3 ( 4 (B) 110 percent of the amount of the transaction if the collateral is composed of obligations of any State or political subdivision of any State; (C) 120 percent of the amount of the transaction if the collateral is composed of other debt instruments, including receivables; or (D) 130 percent of the amount of the transaction if the collateral is composed of stock, leases, or other real or personal property. (ii) An insured State bank may not release collateral prior to proportional payment of the extension of credit; however, collateral may be substituted if there is no diminution of collateral coverage. (5) Investment and transaction limits extended to insured State bank subsidiaries. (e) Capital requirements. (1) Be well-capitalized after deducting from its tier one capital the investment in equity securities of the subsidiary as well as the bank's pro rata share of any retained earnings of the subsidiary; (2) Reflect this deduction on the appropriate schedule of the bank's consolidated report of income and condition; and (3) Use such regulatory capital amount for the purposes of the bank's assessment risk classification under part 327 of this chapter and its categorization as a “well-capitalized”, an “adequately capitalized”, an “undercapitalized”, or a “significantly undercapitalized” institution as defined in § 324.403(b) of this chapter, provided that the capital deduction shall not be used for purposes of determining whether the bank is “critically undercapitalized” under part 324 of this chapter. [63 FR 66326, Dec. 1, 1998, as amended at 66 FR 1028, Jan. 5, 2001; 71 FR 20527, Apr. 21, 2006; 78 FR 55596, Sept. 10, 2013; 83 FR 17741, Apr. 24, 2018] § 362.5 Approvals previously granted. (a) FDIC consent by order or notice. (b) Approvals by regulation (1)-(5) [Reserved] (6) Adjustable rate or money market preferred stock. (c) Charter conversions. (2) Exception for prior consent. (i) The terms of the FDIC approval order; and (ii) The provisions of § 362.4(c)(2), (d), and (e) regarding operating as an “eligible subsidiary”, “investment and transaction limits”, and “capital requirements'. (3) Divestiture. [63 FR 66326, Dec. 1, 1998, as amended at 66 FR 1028, Jan. 5, 2001] Subpart B—Safety and Soundness Rules Governing Insured State Nonmember Banks § 362.6 Purpose and scope. This subpart, along with the notice and application procedures in subpart G of part 303 of this chapter apply to certain banking practices that may have adverse effects on the safety and soundness of insured state nonmember banks. This subpart contains the required prudential separations between certain securities underwriting affiliates and insured state nonmember banks. The standards only will apply to affiliates of insured state nonmember banks that are not controlled by an entity that is supervised by a federal banking agency. [66 FR 1028, Jan. 5, 2001] § 362.7 Definitions. For the purposes of this subpart, the following definitions apply: (a) Affiliate (b) Activity, company, control, equity security, insured state nonmember bank, security and subsidiary [63 FR 66326, Dec. 1, 1998, as amended at 66 FR 1028, Jan. 5, 2001] § 362.8 Restrictions on activities of insured state nonmember banks affiliated with certain securities companies. (a) The FDIC has found that an unrestricted affiliation between an insured state nonmember bank and certain companies may have adverse effects on the safety and soundness of insured state nonmember banks. (b) An insured state nonmember bank is prohibited from becoming or remaining affiliated with any securities underwriting affiliate company that directly engages in the public sale, distribution or underwriting of stocks, bonds, debentures, notes, or other securities activity, of a type not permissible for a national bank directly, unless the company is controlled by an entity that is supervised by a federal banking agency or the state nonmember bank submits an application in compliance with § 303.121 of this chapter and the FDIC grants its consent under the procedure in § 303.122(b) of this chapter, or the state nonmember bank and the securities underwriting affiliate company comply with the following requirements: (1) The securities business of the affiliate is physically separate and distinct in its operations from the operations of the bank, provided that this requirement shall not be construed to prohibit the bank and its affiliate from sharing the same facility if the area where the affiliate conducts retail sales activity with the public is physically distinct from the routine deposit taking area of the bank; (2) The affiliate conducts business pursuant to independent policies and procedures designed to inform customers and prospective customers of the affiliate that the affiliate is a separate organization from the bank and the state-chartered depository institution is not responsible for and does not guarantee the obligations of the affiliate; (3) The bank adopts policies and procedures, including appropriate limits on exposure, to govern its participation in financing transactions underwritten by an underwriting affiliate; (4) The bank does not express an opinion on the value or the advisability of the purchase or sale of securities underwritten or dealt in by an affiliate unless it notifies the customer that the entity underwriting, making a market, distributing or dealing in the securities is an affiliate of the bank; and (5) The bank complies with the investment and transaction limitations in sections 23A and 23B of the Federal Reserve Act (12 U.S.C. 371c and 371c-1) with respect to the affiliate. [66 FR 1028, Jan. 5, 2001] Subpart C—Activities of Insured State Savings Associations § 362.9 Purpose and scope. (a) This subpart, along with the notice and application procedures in subpart H of part 303 of this chapter, implements the provisions of section 28(a) of the Federal Deposit Insurance Act (12 U.S.C. 1831e(a)) that restrict and prohibit insured state savings associations and their service corporations from engaging in activities and investments of a type that are not permissible for a Federal savings association and their service corporations. This subpart also implements the provision of section 28(d) of the Federal Deposit Insurance Act (12 U.S.C. 1831e(d)) that restricts state and federal savings associations from investing in certain corporate debt securities. The phrase “activity permissible for a Federal savings association” means any activity authorized for a Federal savings association under any statute including the Home Owners' Loan Act (HOLA) (12 U.S.C. 1464 et seq. (b) This subpart does not cover the following activities: (1) Activities conducted by the insured state savings association other than “as principal”, defined for purposes of this subpart as activities conducted as agent for a customer, conducted in a brokerage, custodial, advisory, or administrative capacity, or conducted as trustee, or in any substantially similar capacity. For example, this subpart does not cover acting solely as agent for the sale of insurance, securities, real estate, or travel services; nor does it cover acting as trustee, providing personal financial planning advice, or safekeeping services. (2) Interests in real estate in which the real property is used or intended in good faith to be used within a reasonable time by an insured savings association or its service corporations as offices or related facilities for the conduct of its business or future expansion of its business or used as public welfare investments of a type and in an amount permissible for Federal savings associations. (3) Equity investments acquired in connection with debts previously contracted (DPC) if the insured savings association or its service corporation takes only such actions as would be permissible for a Federal savings association's or its service corporation's DPC holdings. (c) The FDIC intends to allow insured state savings associations and their service corporations to undertake only safe and sound activities and investments that do not present significant risks to the Deposit Insurance Fund and that are consistent with the purposes of Federal deposit insurance and other applicable law. This subpart does not authorize any insured state savings association to make investments or conduct activities that are not authorized or that are prohibited by either Federal or state law. [63 FR 66326, Dec. 1, 1998, as amended at 71 FR 20527, Apr. 21, 2006; 77 FR 43155, July 24, 2012] § 362.10 Definitions. For the purposes of this subpart, the definitions provided in § 362.2 apply. Additionally, the following definitions apply to this subpart: (a) Affiliate (b) Corporate debt securities not of investment grade (c) Insured state savings association (d) Qualified affiliate (e) Service corporation [63 FR 66326, Dec. 1, 1998, as amended at 66 FR 1029, Jan. 5, 2001] § 362.11 Activities of insured savings associations. (a) Equity investments Prohibited investments. (2) Exception: Equity investment in service corporations. (i) Not permissible for a Federal savings association to the extent the service corporation is engaging in activities that are allowed pursuant to the provisions of or an application under § 362.12(b); or (ii) Of a type permissible for a Federal savings association, but in an amount exceeding the investment limits applicable to Federal savings associations, if the insured state savings association obtains the FDIC's prior consent. Consent will be given only if the FDIC determines that the amount of the investment in a service corporation engaged in such activities does not present a significant risk to the Deposit Insurance Fund. Applications should be filed in accordance with § 303.141 of this chapter and will be processed under § 303.142(b) of this chapter. Approvals granted under § 303.142(b) of this chapter may be made subject to any conditions or restrictions found by the FDIC to be necessary to protect the Deposit Insurance Fund from significant risk, to prevent unsafe or unsound practices, and/or to ensure that the activity is consistent with the purposes of Federal deposit insurance and other applicable law. (b) Activities other than equity investments Prohibited activities. (2) Exceptions Consent obtained through application. (ii) Nonresidential realty loans permissible for a Federal savings association conducted in an amount not permissible. (iii) Acquiring and retaining adjustable rate and money market preferred stock. (B) An insured state savings association may acquire or retain other instruments of a type determined by the FDIC to have the character of debt securities and not to represent a significant risk to the Deposit Insurance Fund. Such instruments shall be included in the 15 percent of tier one capital limit imposed in paragraph (b)(2)(iii)(A) of this section. An insured state savings association may conduct this activity without first obtaining the FDIC's consent, provided that the association meets and continues to meet the applicable capital standards as prescribed by the appropriate Federal banking agency. The fact that prior consent is not required by this subpart does not preclude the FDIC from taking any appropriate action with respect to the activities if the facts and circumstances warrant such action. (3) Activities permissible for a Federal savings association conducted in an amount not permissible. [63 FR 66326, Dec. 1, 1998, as amended at 71 FR 20527, Apr. 21, 2006; 77 FR 43155, July 24, 2012] § 362.12 Service corporations of insured State savings associations. (a) Prohibition. (b) Exceptions Consent obtained through application. (2) Service corporations conducting unrestricted activities. (i) [Reserved] (ii) A service corporation of an insured state savings association may acquire and retain equity securities of a company engaged in the following activities, if the service corporation controls the company or the company is controlled by insured depository institutions, and the association continues to meet the applicable capital standards as prescribed by the appropriate Federal banking agency. The FDIC consents that such activity may be conducted by a service corporation of an insured state savings association without first obtaining the FDIC's consent. The fact that prior consent is not required by this subpart does not preclude the FDIC from taking any appropriate action with respect to the activities if the facts and circumstances warrant such action. (A) Equity securities of a company that engages in permissible activities. (B) Equity securities of a company that acquires and retains adjustable-rate and money market preferred stock. (C) Equity securities of a company acting as an insurance agency. (iii) Activities that are not conducted “as principal (iv) Acquiring and retaining adjustable-rate and money market preferred stock. (3)-(4) [Reserved] (c) Investment and transaction limits. 3 4 (d) Capital requirements. (1) Be well-capitalized after deducting from its capital any investment in the service corporation, both equity and debt. (2) Use such regulatory capital amount for the purposes of the insured state savings association's assessment risk classification under part 327 of this chapter. [63 FR 66326, Dec. 1, 1998, as amended at 66 FR 1029, Jan. 5, 2001; 71 FR 20527, Apr. 21, 2006] § 362.13 Approvals previously granted. FDIC consent by order or notice. Subpart D—Acquiring, Establishing, or Conducting New Activities Through a Subsidiary by an Insured Savings Association § 362.14 Purpose and scope. This subpart implements section 18(m) of the Federal Deposit Insurance Act (12 U.S.C. 1828(m)) which requires that prior notice be given the FDIC when an insured savings association establishes or acquires a subsidiary or engages in any new activity in a subsidiary. For the purposes of this subpart, the term “subsidiary” does not include any insured depository institution as that term is defined in the Federal Deposit Insurance Act. Unless otherwise indicated, the definitions provided in § 362.2 apply to this subpart. § 362.15 Acquiring or establishing a subsidiary; conducting new activities through a subsidiary. No state insured savings association may establish or acquire a subsidiary, or conduct any new activity through a subsidiary, unless it files a notice in compliance with § 303.142(c) of this chapter at least 30 days prior to establishment of the subsidiary or commencement of the activity and the FDIC does not object to the notice. This section does not apply to any state savings association that acquired its principal assets from a Federal savings bank that was chartered prior to October 15, 1982, as a savings bank under state law. [86 FR 8104, Feb. 3, 2021] Subpart E—Financial Subsidiaries of Insured State Nonmember Banks Source: 66 FR 1029, Jan. 5, 2001, unless otherwise noted. § 362.16 Purpose and scope. (a) This subpart, along with the notice and application procedures in subpart G of part 303 of this chapter, implements section 46 of the Federal Deposit Insurance Act (12 U.S.C. 1831w) and requires that an insured state nonmember bank certify certain facts and file a notice with the FDIC before the insured state nonmember bank may control or hold an interest in a financial subsidiary under section 46(a) of the Federal Deposit Insurance Act. This subpart also implements the statutory Community Reinvestment Act (CRA) (12 U.S.C. 2901 et seq. (b) This subpart does not cover activities conducted other than “as principal”. For purposes of this subpart, activities conducted other than “as principal” are defined as activities conducted as agent for a customer, conducted in a brokerage, custodial, advisory, or administrative capacity, or conducted as trustee, or in any substantially similar capacity. For example, this subpart does not cover acting solely as agent for the sale of insurance, securities, real estate, or travel services; nor does it cover acting as trustee, providing personal financial planning advice, or safekeeping services. § 362.17 Definitions. For the purposes of this subpart, the following definitions will apply: (a) Activity, company, control, insured depository institution, insured state bank, insured state nonmember bank and subsidiary (b) Affiliate (c) Financial subsidiary (1) A subsidiary that only engages in activities that the state nonmember bank is permitted to engage in directly and that are conducted on the same terms and conditions that govern the conduct of the activities by the state nonmember bank; or (2) A subsidiary that the state nonmember bank is specifically authorized to control by the express terms of a federal statute (other than section 46(a) of the Federal Deposit Insurance Act (12 U.S.C. 1831w)), and not by implication or interpretation, such as the Bank Service Company Act (12 U.S.C. 1861 et seq. (d) Tangible equity Tier 2 capital (e) Well-managed (1) Unless otherwise determined in writing by the appropriate federal banking agency, the institution has received a composite rating of 1 or 2 under the Uniform Financial Institutions Rating System (or an equivalent rating under an equivalent rating system) in connection with the most recent state or federal examination or subsequent review of the depository institution and at least a rating of 2 for management, if such a rating is given; or (2) In the case of any depository institution that has not been examined by its appropriate federal banking agency, the existence and use of managerial resources that the appropriate federal banking agency determines are satisfactory. [63 FR 66326, Dec. 1, 1998, as amended at 78 FR 55596, Sept. 10, 2013; 83 FR 17741, Apr. 24, 2018] § 362.18 Financial subsidiaries of insured state nonmember banks. (a) “As principal” activities. (1) The insured state nonmember bank is well-managed; (2) The insured state nonmember bank and all of its insured depository institution affiliates are well-capitalized as defined in the appropriate capital regulation and guidance of each institution's primary federal regulator; and (3) The insured state nonmember bank will deduct the aggregate amount of its outstanding equity investment, including retained earnings, in all financial subsidiaries that engage in activities as principal pursuant to section 46(a) of the Federal Deposit Act (12 U.S.C. 1831w(a)), from the bank's total assets and tangible equity and deduct such investment from its total risk-based capital (this deduction shall be made equally from tier 1 and tier 2 capital) or from common equity tier 1 capital in accordance with 12 CFR part 324, subpart C, as applicable. (b) Community Reinvestment Act (CRA). (c) Other requirements. (1) Disclose and continue to disclose the capital separation required in paragraph (a)(3) in any published financial statements; (2) Comply and continue to comply with sections 23A and 23B of the Federal Reserve Act (12 U.S.C. 371c and 371c-1) as if the subsidiary were a financial subsidiary of a national bank; and (3) Comply and continue to comply with the financial and operational standards provided by section 5136A(d) of the Revised Statutes of the United States (12 U.S.C. 24A(d)), unless otherwise determined by the FDIC. (d) Securities underwriting. (1) The securities business of the financial subsidiary must be physically separate and distinct in its operations from the operations of the bank, provided that this requirement shall not be construed to prohibit the bank and its financial subsidiary from sharing the same facility if the area where the financial subsidiary conducts securities business with the public is physically distinct from the routine deposit taking area of the bank; (2) The financial subsidiary must conduct its securities business pursuant to independent policies and procedures designed to inform customers and prospective customers of the financial subsidiary that the financial subsidiary is a separate organization from the insured state nonmember bank and that the insured state nonmember bank is not responsible for and does not guarantee the obligations of the financial subsidiary; (3) The bank must adopt policies and procedures, including appropriate limits on exposure, to govern its participation in financing transactions underwritten by its financial subsidiary; and (4) The bank must not express an opinion on the value or the advisability of the purchase or sale of securities underwritten or dealt in by its financial subsidiary unless the bank notifies the customer that the entity underwriting, making a market, distributing or dealing in the securities is a financial subsidiary of the bank. (e) Applications for exceptions to certain requirements. (f) Failure to meet requirements Notification by FDIC. (i) The FDIC finds that an insured state nonmember bank or any of its insured depository institution affiliates is not in compliance with the CRA requirement of § 362.18(b) at the time any new activity is commenced or control of the financial subsidiary is acquired; (ii) The FDIC finds that the facts to which an insured state nonmember bank certified under § 362.18(a) are not accurate in whole or in part; or (iii) The FDIC finds that the insured state nonmember bank or any of its insured depository institution affiliates or the financial subsidiary fails to meet or continue to comply with the requirements of § 362.18(c) and (d), if applicable, and the FDIC has not granted an exception under the procedures set forth in § 362.18(e) and in § 303.122(b) of this chapter. (2) Notification by state nonmember bank. (3) Subsequent action by FDIC. (i) Meet the requirements listed in § 362.18(a) and (b) at the time that any new section 46 activity is commenced or control of a financial subsidiary is acquired by an insured state nonmember bank; or (ii) Meet and continue to meet the requirements listed in § 362.18(c) and (d), as applicable. (g) Coordination with section 24 of the Federal Deposit Insurance Act Continuing authority under section 24. (i) That was conducting a financial activity with authorization in accordance with section 24 of the Federal Deposit Insurance Act (12 U.S.C. 1831a) and the applicable implementing regulation found in subpart A of this part 362 before the date on which any such activity became for the first time permissible for a financial subsidiary of a national bank; and (ii) Which insured state nonmember bank and its subsidiary continue to meet the conditions and restrictions of the section 24 order or regulation approving the activity as well as other applicable law. (2) Continuing authority under section 24(f) of the Federal Deposit Insurance Act. (3) Relief from conditions. (4) New financial subsidiaries. [63 FR 66326, Dec. 1, 1998, as amended at 78 FR 55596, Sept. 10, 2013]