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Financial Institution Letters


[Federal Register: January 5, 2001 (Volume 66, Number 4)]
[Rules and Regulations]               
[Page 1018-1031]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr05ja01-3]                         

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FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Parts 303, 337, and 362

RIN 3064-AC38

 
Activities and Investments of Insured State Banks

AGENCY: Federal Deposit Insurance Corporation (FDIC).

ACTION: Final rule and confirmation of interim final rule with changes.

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SUMMARY: The FDIC is adopting a final rule to implement certain 
provisions of the Gramm-Leach-Bliley Act (G-L-B Act), governing 
activities and investments of insured state banks. Under the final 
rule, the FDIC adopts a streamlined certification process for insured 
state nonmember banks to follow before they may conduct activities as 
principal through a financial subsidiary. State nonmember banks will 
self-certify that they meet the requirements to carry out these 
activities, which will allow the banks to conduct the new activities 
immediately. There will be no delay for administrative approval or 
review, although the FDIC will evaluate these activities as part of its 
normal supervision process for safety and soundness standards pursuant 
to the FDIC's authority under section 8 of the Federal Deposit 
Insurance Act (FDI Act). The final rule confirms, with modifications, 
an interim rule that has been in effect since March 11, 2000. To 
eliminate unnecessary provisions and make technical amendments, the 
FDIC also has revised its rule implementing sections 24 and 18(m) of 
the FDI Act dealing with other activities and investments of insured 
state banks.

EFFECTIVE DATE: January 5, 2001.

[[Page 1019]]


FOR FURTHER INFORMATION CONTACT: Curtis Vaughn, Examination Specialist 
((202) 898-6759), Division of Supervision; Linda L. Stamp, Counsel 
((202) 898-7310), Legal Division, FDIC, 550 17th Street, NW., 
Washington, DC 20429.

SUPPLEMENTARY INFORMATION:

I. Background

    On March 23, 2000, the FDIC published an interim final rule with 
request for comment (65 FR 15526) to implement certain provisions of 
the G-L-B Act (Pub. L. 106-102), which President Clinton signed into 
law on November 12, 1999. Section 121(d) of the G-L-B Act amended the 
FDI Act (12 U.S.C. 1811 et seq.) by adding a new section 46 (12 U.S.C. 
1831w). New section 46(a) of the FDI Act provides that an insured state 
bank may control or hold an interest in a subsidiary that engages as 
principal in activities that would be permissible for a national bank 
to conduct only through a ``financial subsidiary,'' subject to certain 
conditions. Because section 46(a) applies only to ``as principal'' 
activities, state nonmember banks may engage in agency activities 
without considering the requirements of this rule or section.
    As set forth in the interim final rule, section 121(a) of the G-L-B 
Act permits national banks to control or hold an interest in a 
financial subsidiary, which is a new type of subsidiary governed by new 
section 5136A of the Revised Statutes. A financial subsidiary may 
engage in specified newly authorized activities that are financial in 
nature and activities that are incidental to financial activities, if 
the bank and the subsidiary meet certain requirements and comply with 
stated safeguards. A financial subsidiary also may combine these 
financial subsidiary activities with activities that are permissible 
for national banks to engage in directly. The financial subsidiary 
activities include many of the activities which are authorized for the 
new ``financial holding companies'' as laid out in new section 4(k) of 
the Bank Holding Company Act (BHCA) (12 U.S.C. 1841 et seq.) as created 
by section 103(a) of the G-L-B Act. In the future, the Secretary of the 
Treasury (Treasury) and the Board of Governors of the Federal Reserve 
System (FRB) may determine that additional activities are financial in 
nature and therefore authorized for a financial subsidiary of a 
national bank.
    Section 121(d) of the G-L-B Act, which creates new section 46 of 
the FDI Act, permits state banks to control or hold an interest in a 
financial subsidiary that engages in activities as principal. To 
qualify, a state bank must comply with four statutory conditions and a 
mandatory Community Reinvestment Act (CRA) (12 U.S.C. 2901 et seq.) 
requirement found in section 103(a) of the G-L-B Act, which added a new 
subsection (4)(l)(2) to the BHCA (12 U.S.C. 1843(l)(2)).
    The FDIC has a long history of reviewing applications from state 
banks to engage in activities not permissible for national banks under 
section 24 of the FDI Act (12 U.S.C. 1831a) as implemented through part 
362 of the FDIC's rules and regulations. As stated in the preamble to 
the interim final rule, certain activities which the FDIC previously 
addressed under section 24 and subpart A of part 362, such as general 
securities underwriting, are now authorized for a financial subsidiary 
of a national bank. As a result, the FDIC will now analyze the 
commencement of such activities under section 46(a) rather than section 
24, and the FDIC will apply the restrictions contained in subpart E 
rather than those in subpart A of part 362. These statutory changes 
necessitate that the FDIC conform its regulation by limiting the 
sections pertaining to such activities from subpart A to existing 
subsidiaries.
    Other activities conducted as principal, such as real estate 
development or investment, which are prohibited to national bank 
financial subsidiaries, are outside the scope of section 46(a). These 
activities will continue to be governed by section 24 and subpart A of 
part 362. State banks that wish to engage in activities prohibited to 
national banks may continue to seek the FDIC's consent by filing a 
notice or application. Should the Treasury and FRB in the future 
determine that additional activities are authorized for a financial 
subsidiary of a national bank, state nonmember banks commencing such 
activities for the first time after such determinations will have to 
proceed under section 46(a). However, banks that obtained FDIC consent 
under section 24, whether by notice, order, or regulation before such 
determination may continue to engage in any such activity pursuant to 
the requirements imposed under section 24.

II. Comments Received

    The FDIC received 15 comments in response to the interim final 
rule. The comments came from four trade associations, four state 
banking departments, two community-based associations, a law firm, a 
state regulators association, a bank holding company, and four United 
States Senators. Three commenters expressed support for the FDIC's 
interim final rule. The other commenters expressed various objections 
to the rule. Several of the commenters recommended specific changes to 
the interim final rule. A discussion of these comments and the changes 
and additions made to the interim final rule and the rule implementing 
sections 24 and 18(m) of the FDI Act are discussed in the section by 
section analysis. The final rule adopts a more streamlined process than 
the interim rule. A summary of the comments follows.
    The FDIC's interim rule to implement section 46 of the G-L-B Act 
provided that section 46 is the exclusive method for an insured state 
nonmember bank to engage in ``financial subsidiary activities.'' Six of 
the comments, including a comment from three United States Senators, 
argued that Congress intended to preserve the FDIC's authority to 
approve activities under section 24. These commenters argued that the 
preservation of authority provision \1\ was meant to ensure that the 
FDIC's authority to approve activities under section 24 is not 
diminished by section 46, and that section 46 was intended to permit 
(but not require) state banks to use the financial subsidiary vehicle 
to conduct financial or incidental activities. On the other hand, 
another United States Senator argued that the interim final rule was 
consistent with the statutory language and legislative history of the 
G-L-B Act and that the interim final rule correctly applies the G-L-B 
Act to require state banks to use the financial subsidiary vehicle to 
conduct financial or incidental activities.
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    \1\ 12 U.S.C. 1831w(d)(1).
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    Four commenters argued that if section 46 was read as the only 
method under which a state nonmember bank could engage in financial 
subsidiary activities, then innovation in the state bank system would 
be stifled and the dual banking system would be undermined. Some 
commenters argued that Congress' purpose behind section 46 was to 
assure state banks that they would not be disadvantaged if national 
banks are authorized to engage in activities through financial 
subsidiaries that the FDIC concludes would not be permitted to state 
banks under section 24. The four commenters also noted that although 
certain activities which were previously addressed by the FDIC under 
section 24 are now authorized for a national bank financial subsidiary, 
the grandfather provisions of the G-L-B Act \2\ make it clear that any 
activities lawfully conducted prior to the G-L-B Act through a 
subsidiary under section

[[Page 1020]]

24 survive. These commenters believed that Congress intended to 
preserve the FDIC's section 24 authority regardless of whether the 
activities are permissible for national bank financial subsidiaries and 
that the requirements placed on state banks under section 24 have 
proven to be appropriate.
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    \2\ 12 U.S.C. 1831w(b).
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    With regard to the structure of the FDIC's interim rule, half of 
the commenters believed the FDIC's rule was more restrictive than the 
Office of the Comptroller of the Currency's (OCC's) and the FRB's 
comparable rules. They argued that the inconsistencies between the 
FDIC's rule and the other federal banking agencies' rules have the 
effect of competitively disadvantaging state nonmember banks. Some of 
them believed that the potential disadvantage to state nonmember banks 
could lead to confusion and increased regulatory burden, all for no 
apparent safety and soundness reason.
    One commenter noted that while section 24 of the FDI Act expressly 
requires state banks to apply to the FDIC before they can engage in any 
activity not authorized for national banks, section 46 does not have a 
similar requirement. This commenter contended that the FDIC recognized 
that section 46 does not include a discretionary ``gatekeeping'' 
regulatory authority since the FDIC stated in its preamble to the 
interim final rule that it was imposing requirements in addition to 
those specified in the G-L-B Act. Other commenters read section 46 as 
not requiring state banks to seek FDIC approval prior to engaging in 
covered activities. One commenter argued that section 8 of the FDI Act 
and section 114(c) of the G-L-B Act, which provides that the FDIC may 
impose restrictions or requirements on relationships or transactions 
between a state nonmember bank and a subsidiary of a state nonmember 
bank, do not provide the FDIC with authority to require state nonmember 
banks to obtain prior approval before a subsidiary engages in financial 
subsidiary activity.
    Another commenter contended that the prior approval requirement is 
not necessary because the activities will have been approved by the 
Congress or the Treasury and the FRB. This commenter believed that an 
approval process is only appropriate where the activity is not already 
authorized for a national bank and noted that the FDIC has sufficient 
authority under general supervisory authority to intervene should it be 
necessary.
    Also with regard to the structure of the FDIC's rule, several of 
the commenters favored a more uniform approach to the rules. These 
commenters believed that all of the federal banking agencies' rules on 
financial subsidiary activities should be consistent, and that because 
the rules of the OCC and the FRB are similar, the FDIC should adopt a 
rule that is as consistent with those rules as is possible given the 
differing statutes. Specifically, some of the commenters state that the 
OCC's self-certification, streamlined approval process should be 
adopted by the FDIC because it would reduce regulatory burden and 
establish parity for state banks and national banks. Other commenters 
believed the FDIC's rule should be consistent with the FRB's rule that 
requires only a 15-day approval as opposed to the FDIC's 30-day 
approval.
    The FDIC also received comment on the scope of the activities 
covered by the rule. Some of the commenters contended that the FRB's 
rule provides more flexibility to the state system because it excludes 
from coverage activities that the state member bank is permitted to 
engage in directly, but chooses to do so in a subsidiary, or conducts 
in a subsidiary as is otherwise authorized by federal law. These 
commenters believed the FDIC should permit state nonmember banks to 
follow section 24 if the state nonmember bank is authorized to engage 
in the activity directly or in any state bank subsidiary that is 
otherwise expressly permitted under state or federal law. They believe 
this would allow state nonmember banks to continue to choose where to 
conduct these activities and not force state banking authorities to 
conform determinations to that of the OCC.
    Some commenters expressed concern that the FDIC's rule would 
require a state nonmember bank that is conducting an activity approved 
under section 24 after the effective date of the G-L-B Act that is 
later determined to be permissible for a national bank financial 
subsidiary to switch from section 24 to section 46. These commenters 
are concerned about the burden and uncertainty entailed in altering the 
subsidiary's structure and operations so as to bring it into compliance 
with the statutory conditions of section 46(a), rather than the 
conditions the FDIC previously imposed under section 24. Several 
commenters believed this will create potentially significant 
administrative, compliance, personnel, and legal burdens, and will cast 
a pall of uncertainty over the FDIC's section 24 post G-L-B Act 
approvals because it will be unclear whether the conditions placed upon 
the activity will change at some unknown date in the future. They 
contend that this uncertainty also would be disruptive to bank 
supervisors who would have to examine banks under a different set of 
conditions. One of the commenters found this to be inconsistent with 
FDIC practice and detrimental to its authority under section 24 and 
believed that once an activity is approved under section 24, it should 
not have to be re-qualified under section 46.
    The FDIC received a small number of comments on other areas of 
concern. Two commenters contended that the FDIC's rule would limit 
existing state authority. Three commenters raised concern about the CRA 
rating requirement. Two of them asked that the FDIC's rule allow for 
public comment with regard to the CRA rating requirement because they 
felt the public should be given the opportunity to comment on a bank's 
plans to engage in financial subsidiary activity. These commenters also 
asked that in cases where the CRA rating is a low satisfactory, the 
FDIC should condition approval of new activities on specific 
improvements in a bank's CRA performance rating. One of the commenters 
believed the FDIC was importing a CRA standard that Congress did not 
impose on section 24 directly or through the G-L-B Act by forcing state 
banks to conduct activities in financial subsidiaries under section 46 
requirements instead of section 24 requirements. This commenter 
suggested that because most state banks have a satisfactory or better 
rating, the FDIC rule disadvantages a majority of them for the purpose 
of preventing a few banks from evading the CRA requirements.
    Another commenter believed that the FDIC's rule should require that 
state nonmember banks be well-managed just like national banks and 
state member banks because this will promote consistency and alleviate 
FDIC concerns that may be behind the FDIC's reason for advance review 
of section 46 activities.
    Last, the FDIC received some comments seeking clarification of 
certain provisions in the interim final rule. One commenter asked that 
the FDIC's rule clearly provide that authorizations given to state 
nonmember banks prior to the FDIC's adoption of the current subpart A 
of part 362 are covered by the grandfather provision. Another commenter 
asked for further clarification on the financial and operational 
safeguards requirement.
    We have responded to these comments by conforming the FDIC's 
definition of ``financial subsidiary'' to the definition adopted by the 
FRB and adopting a streamlined self-certification

[[Page 1021]]

process similar to the OCC but without any waiting period. More 
specific discussions of the FDIC's particular responses to the comments 
are found in the section by section analysis.

III. Final Rule--Section by Section Analysis

Part 362

A. Subpart A--Activities of Insured State Banks

    The FDIC made several technical amendments to subpart A. As noted 
in the preamble to the interim final rule, the G-L-B Act provisions 
amending the FDI Act created a need for the elimination and 
clarification of certain provisions of subparts A and B. We discuss the 
specific changes below.
Section 362.1  Purpose and Scope
    The references to safety and soundness concerns relating to real 
estate investment activities of insured state nonmember banks and their 
subsidiaries in subpart B of part 362 have been eliminated from 
paragraph (c) of Sec. 362.1. The G-L-B Act expressly provides that 
national banks may not engage in real estate development and real 
estate investment activities \3\ through a financial subsidiary or 
operating subsidiary. Thus, the safety and soundness standards set 
forth in subpart B of part 362 relating to real estate investment 
activities of a type that are not permissible for a national bank, but 
may be otherwise permissible for a subsidiary of a national bank, are 
not necessary. Any insured state nonmember bank desiring to engage in 
real estate investment activities through a subsidiary will continue to 
be subject to the requirements relating to such activities in subpart 
A.
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    \3\ 12 U.S.C. 24a(a)(2)(B)(ii).
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Section 362.2  Definitions
    We are changing the definition of ``subsidiary'' in paragraph (r) 
of Sec. 362.2 to make it consistent with the exception in 
Sec. 362.4(b)(3)(ii), which permits a subsidiary of an insured state 
bank to own equity securities of certain companies if, among other 
things, the subsidiary controls the company or the company is 
controlled by insured depository institutions. Thus, a more appropriate 
definition for ``subsidiary'' would include any company that is owned 
or controlled directly or indirectly by one or more insured depository 
institutions. The rule has been changed accordingly.
Section 362.4  Subsidiaries of Insured State Banks
    Paragraphs (b)(5) (i) and (ii) of Sec. 362.4 formerly provided the 
requirements for a state nonmember bank to engage in real estate 
investment activities and general securities underwriting through a 
majority-owned subsidiary. Under the G-L-B Act, a financial subsidiary 
of a national bank is permitted to engage in general securities 
underwriting activities. Thus, state nonmember banks may commence 
conducting this activity pursuant to section 46(a) of the FDI Act 
through a financial subsidiary as set forth in subpart E. Applications 
to engage in general securities underwriting will no longer be 
processed under section 24 and subpart A of part 362. However, the 
regulatory language found in Sec. 362.4(b)(5)(ii) will continue to 
govern those banks engaged in this activity as of the effective date of 
the G-L-B Act. The restrictions contained in this section will continue 
to apply only to existing state bank subsidiaries that are covered by 
section 46(b) of the FDI Act.\4\
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    \4\ 12 U.S.C. 1831w(b).
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    In Sec. 362.4(c)(2)(vi), the word ``officers'' is more inclusive 
than the FDIC had intended and has required the FDIC to provide 
repeated informal interpretations that ``officers'' should be read as 
``executive officers.'' To eliminate the need for repeated informal 
interpretations and to utilize the definition for ``executive 
officers'' already contained in part 362, this paragraph of the rule 
has been changed to conform to the defined term.
Section 362.5  Approvals Previously Granted
    Due to the passage of time, some of the transitional deadlines 
contained in this section have expired and the provisions are no longer 
of any effect. We removed and reserved Sec. 362.5(b) (1), (2), and (3), 
which relate to securities underwriting activities, grandfathered 
insurance underwriting activities, and the ownership of the stock of 
certain corporations approved by the FDIC prior to January 1, 1999.

B. Subpart B--Safety and Soundness Rules Governing Insured State 
Nonmember Banks

Section 362.6  Purpose and Scope
Section 362.8  Restrictions on Activities of Insured State Nonmember 
Banks
    We removed the safety and soundness standards governing real estate 
investment activities formerly found in this section of the rule 
because they are no longer necessary. As provided in the G-L-B Act, 
national bank financial subsidiaries are not permitted to engage in 
real estate development or real estate investment activities, unless 
otherwise expressly authorized by law.\5\
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    \5\ 12 U.S.C. 24a(a)(2)(B)(ii).
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    Regarding the separation standards that any affiliate company that 
engages in general securities underwriting and any state nonmember bank 
must meet, we also revised the introductory paragraph to more clearly 
cover the appropriate entities in the scope of the rule. Now, the 
language provides that unless the affiliated company that engages in 
general securities underwriting is a subsidiary of an entity that is 
supervised by a federal banking agency, the affiliated company that 
engages in general securities underwriting and the state nonmember bank 
must meet the separation standards. To conform to the less burdensome 
separation standards found in the sections implementing section 46, we 
also streamlined the separation standards to lessen the burden of 
compliance with this section.
    On December 1, 1998 (63 FR 66339), the FDIC proposed and published 
an amendment to part 362 that added safety and soundness standards to 
govern insured state nonmember banks that engage in the public sale, 
distribution or underwriting of stocks, bonds, debentures, notes or 
other securities through a subsidiary if those activities are 
permissible for a national bank subsidiary but are not permissible for 
the national bank itself. In addition, the FDIC proposed and published 
a proposal (63 FR 66339) to require that insured state nonmember banks 
file a notice before commencing any activities permissible for 
subsidiaries of a national bank that are not permissible for the parent 
national bank itself. This proposal also contained language to remove 
and reserve the provisions found in Sec. 337.4 entitled, ``Securities 
Activities of Subsidiaries of Insured State Banks: Bank Transactions 
with Affiliated Securities Companies.'' The effect of these amendments 
was described as requiring banks to notify the FDIC prior to conducting 
securities or other activities through subsidiaries that are not 
permissible for the bank itself. The FDIC also stated that when the 
FDIC adopts these amendments in final form, the FDIC's securities 
activities regulation would be fully consolidated in part 362. Only two 
comments were received on this proposal, both of which supported the 
elimination of Sec. 337.4. One of the commenters stated that it agrees 
with

[[Page 1022]]

the FDIC's assertion that the revised standards contain more flexible 
physical separation requirements than those currently imposed on the 
bank and its subsidiaries in Sec. 337.4. This most recent and still 
outstanding proposal was limited in scope and followed the more 
comprehensive revision of part 362 that was published in final form in 
the Federal Register on the same day and became effective on January 1, 
1999.
    During this interim period, Sec. 337.4 has continued to be 
operative to govern separation standards for affiliations among banks 
and general securities underwriting companies when coverage is not 
provided under Sec. 362.8(b). Thus, Sec. 337.4 currently provides 
separation standards for any such affiliated entity that may not 
otherwise be covered by the language in the currently effective version 
of Sec. 362.8(b). As we indicated in the December 1, 1998 Proposed 
Rule, we intended to reserve and remove Sec. 337.4. As a part of that 
effort, we are moving the coverage of those entities into Sec. 362.8 
and making the standards more flexible and reducing the regulatory 
burden. By modifying the language of Sec. 362.8(b) in the manner 
suggested, the coverage of separation standards also is made more 
transparent to banks and their general securities underwriting 
affiliates.
    As set forth in this final rule, the separation standards under 
Sec. 362.8, which will be imposed on these affiliates, are nearly 
identical to the separation standards to be imposed on financial 
subsidiaries of insured state nonmember banks engaged in underwriting 
securities under new Sec. 362.18(a)(4)(B). Because of the G-L-B Act, 
financial subsidiaries of insured state nonmember banks engaged in 
general securities underwriting are subject to two additional 
requirements, which are a CRA rating requirement applicable to the bank 
and all insured depository institution affiliates and compliance with 
the financial and operational safeguards applicable to a financial 
subsidiary of a national bank. The FDIC believes it is appropriate to 
have substantially the same requirements apply to securities 
underwriting activities, whether they are conducted by an affiliate 
engaging in general securities underwriting under subpart B or a 
financial subsidiary engaging in general securities underwriting under 
new subpart E. The FDIC believes that it makes no difference to the 
safety and soundness of the insured state nonmember bank whether the 
general securities underwriting activity is conducted by a securities 
underwriting affiliate under subpart B or in a financial subsidiary 
under new subpart E. To achieve that consistency, the FDIC is adopting 
comparable standards for all of these entities in its final rule. In 
addition, to provide flexibility to the regulated entities, the FDIC 
will consider applications for relief from these separation safeguards 
in appropriate circumstances.
Section 362.7  Definitions
    In paragraph (a) of Sec. 362.7, ``affiliate'' is defined as any 
company that directly or indirectly, through one or more 
intermediaries, controls or is under common control with an insured 
state nonmember bank but does not include a subsidiary of an insured 
state nonmember bank. We have changed this definition to be consistent 
with the definition in subpart E of part 362, which provides that an 
``affiliate'' has the same meaning contained in section 3 of the FDI 
Act (12 U.S.C. 1813). That section incorporates by reference the 
definition in section 2 of the BHCA (12 U.S.C. 1841(k)), which provides 
that an ``affiliate'' means any company that controls, is controlled 
by, or is under common control with another company. For the purpose of 
uniformity and to avoid confusion and inconsistency, we will now use a 
definition for ``affiliate'' that is the same in all subparts of part 
362 that use the term ``affiliate.'' Therefore, the rule has been 
changed accordingly.
    We also removed the definition for ``real estate investment 
activity'' in paragraph (b) of Sec. 362.7 because of the changes to the 
substantive Secs. 362.6 and 362.8.

C. Subpart C--Activities of Insured Savings Associations

Section 362.10  Definitions
    Because of the substantive change to the definition for 
``affiliate,'' and our decision to use a uniform definition for 
``affiliate'' throughout part 362, we have removed the prior definition 
for ``affiliate'' in paragraph (a) of Sec. 362.10 and replaced it with 
a simple cross-reference to the newly defined term in subpart B of part 
362.
Section 362.12  Service Corporations of Insured State Savings 
Associations
    In paragraph (b)(2)(i) of Sec. 362.12, an incorrect reference to 
``bank'' has been changed to ``savings association'' since that 
provision pertains to activities of service corporations of insured 
state savings associations.
    We removed the safety and soundness standards and the requirements 
governing service corporations of insured state savings associations 
conducting securities underwriting activities under paragraphs 
(b)(2)(ii) and (b)(4) of Sec. 362.12 because no insured state savings 
associations have asked the FDIC for permission to engage in this 
activity. The FDIC's decision to remove these provisions from the rule 
should not be construed as a prohibition to engage in securities 
underwriting activity by service corporations of insured state savings 
associations. Rather, the FDIC believes that any request to engage in 
such activity could be better handled by a custom drafted order that 
deals with the particular circumstances of the institution requesting 
the authority, rather than through a general rule that also will 
require interpretation. We removed the authority granting provisions 
for insured state banks to commence securities underwriting activities 
from subpart A because the authority to commence engaging in that 
activity is now found in section 46 of the FDI Act and subpart E. 
However, any subsidiaries lawfully in existence and engaging in these 
activities under this authority on November 11, 1999 will continue to 
be covered under the regulatory language found in subpart A. We also 
removed the comparable authority granting provisions from subpart C of 
part 362 governing savings associations. Hereafter, any service 
corporation of an insured state savings association desiring to engage 
in securities underwriting activities through a service corporation may 
submit an application to the FDIC for consent to engage in the 
activity. At such time, the FDIC will determine the appropriate safety 
and soundness standards that should be applicable to the institution's 
particular situation.

D. Subpart E--Financial Subsidiary Activities of Insured State 
Nonmember Banks

Section 362.16  Purpose and Scope
    As provided in the interim final rule, the FDIC will continue to 
implement section 46(a) through subpart E of part 362. Section 362.16 
sets out the purpose and scope of the subpart, including the scope of 
the activities covered. Subpart E applies to any financial subsidiaries 
of state nonmember banks.
    Several commenters stated that Congress intended to preserve the 
FDIC's authority to approve activities under section 24 given the 
specific reference in section 46(d). Section 46(d) provides that 
section 46 shall not be construed as superseding the authority of the 
FDIC to review subsidiary activities under section 24. Some commented 
that if section 46(a) is read

[[Page 1023]]

as the only method under which a state nonmember bank could engage in 
financial subsidiary activities, then innovation in the state bank 
system would be stifled and the dual banking system would be 
undermined. In light of the comments received, the FDIC has 
reconsidered some of its interpretation of section 46 and other 
relevant provisions of the G-L-B Act. For example, the FDIC has adopted 
the definition for ``financial subsidiary'' used by the FRB to exclude 
activities that may be carried out directly by the bank. However, the 
other comments have not dissuaded the FDIC as to the correctness of 
much of its interpretation of section 46. The FDIC believes that the 
statutory language in section 46 that preserves the authority of the 
FDIC under section 24 and the grandfather provision for subsidiaries 
lawfully in existence before enactment of the G-L-B Act would not be 
necessary, if section 46 was intended to serve only as an alternative 
mechanism for approving financial activities. This interpretation also 
is consistent with the FDIC's historic practices in applying section 24 
to activities: Once an activity becomes permissible for a national 
bank, section 24 no longer applies to insured state nonmember banks 
that want to commence engaging in the activity. The FDIC believes that 
this construction of the statute will have little effect on innovation 
in the state bank system because state nonmember banks are still free 
to seek the FDIC's approval under section 24 to engage in innovative 
activities that are not permissible to national banks directly or 
through a financial subsidiary. The only constraint that this 
interpretation imposes on state nonmember banks is that insured state 
nonmember banks will have to conform to standards that are consistent 
with those imposed on national banks and state member banks when 
engaging in the same activities as principal through a financial 
subsidiary. State banks under the authority of the States are free to 
innovate with respect to all other activities with the FDIC's consent 
under section 24, as Congress intended and expressed in section 46(d).
    Some commenters expressed apprehension about the impact of the 
FDIC's interpretation upon a state nonmember bank subsidiary that 
obtains a section 24 approval to engage in an activity, if the Treasury 
and FRB subsequently authorize the same activity for financial 
subsidiaries of national banks. The statutory grandfather under section 
46(b) covers subsidiary activities lawfully conducted as of the G-L-B 
Act's enactment date. These commenters infer from this grandfather 
provision that section 24 approvals issued by the FDIC after enactment 
of the G-L-B Act are subject to being voided if the activity in 
question later becomes subject to section 46(a).
    The FDIC recognizes that this paradox exists under one possible 
interpretation of section 46(a). However, the FDIC wishes to clarify 
that, under the FDIC's interpretation of section 46, this is not the 
case. As the FDIC stated in the preamble to the interim final rule, 
activities will become subject to section 46(a) rather than section 24 
only if the Treasury and FRB declare activities to be financial in 
nature and permissible for financial subsidiaries of national banks. 
However, this means only that state nonmember banks seeking to commence 
such activities for the first time after a Treasury and FRB 
determination will proceed under section 46(a). If a state nonmember 
bank has obtained a section 24 approval to conduct the activity before 
the Treasury and FRB determination, the state nonmember bank remains 
subject to any section 24 approval obtained from the FDIC, and the 
section 24 approval conditions remain in effect. Existing orders under 
section 24 and part 362 continue to apply to the particular banks bound 
by those orders until modified by the FDIC.
    Because section 46 does not explicitly address what is to be done 
in this situation the FDIC is exercising its administrative expertise 
to determine the outcome. In resolving this issue, the FDIC must 
determine how to best interpret section 46. Congress, in reserving the 
FDIC's section 24 authority over activities not covered by section 46, 
clearly intended to foster state innovation with respect to these 
reserved activities. In order for state nonmember banks to be able to 
venture into these innovative opportunities still open to them as a 
result of Congress' action, a certain amount of predictability is 
necessary. A state nonmember bank contemplating whether to engage in a 
line of business subject to the FDIC's conditions under section 24 must 
be reasonably comfortable that the ground rules will not change 
suddenly at some uncertain future point. Therefore, the FDIC's 
interpretation best effectuates Congress' intent to foster innovation 
as a continuing dynamic within the dual banking system.
Section 362.17  Definitions
    Section 362.17 of the final rule contains the definitions used in 
this subpart. Rather than repeating terms defined in subpart A, certain 
of the definitions contained in Sec. 362.2 are incorporated into 
subpart E by reference. The definitions of ``activity'', ``company,'' 
``control,'' ``insured depository institution,'' ``insured state 
bank,'' and ``subsidiary'' apply as they are described in subpart A. In 
a similar way, we have incorporated into subpart E by reference the 
definition of ``affiliate'' as it is described in subpart B. These 
definitions remain consistent throughout part 362 to avoid confusion 
among the various subparts of the rule.
    This subpart E sets forth the requirements for financial 
subsidiaries of insured state nonmember banks. In response to the 
comments, the FDIC has changed the scope of the rule by defining 
``financial subsidiary'' in the same way as the FRB did in its rule, 
except that the definition is conformed to the circumstances of the 
state nonmember bank. Thus, any activity that may lawfully be conducted 
by the state nonmember bank directly is not required to be conducted 
through a financial subsidiary whenever the bank employs a subsidiary 
to conduct the activity.
    This result was reached because of comments the FDIC received that 
the interim rule was more restrictive than the FRB's rule governing 
financial subsidiaries. This view is based on the fact that the FRB's 
rule excludes from the definition of ``financial subsidiary'' those 
activities that the state member bank is permitted to engage in 
directly or through a subsidiary of a state member bank that is 
otherwise authorized by federal law. The commenters say the FDIC's 
interim rule competitively disadvantages insured state nonmember banks.
    In response to the comments, the FDIC has adopted the FRB's 
definition while conforming it to the circumstances of the state 
nonmember bank. In the final rule, ``financial subsidiary'' is defined 
as any company that is controlled by one or more insured depository 
institutions other than 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 the state 
nonmember bank is specifically authorized to control by the express 
terms of a federal statute (other than section 46(a) of the FDI Act), 
and not by implication or interpretation, such as the Bank Service 
Company Act (12 U.S.C. 1861 et seq.).
    In the interim final rule, the FDIC implicitly carried the literal 
statutory restriction from the definition of

[[Page 1024]]

financial subsidiary in section 5136A. In contrast, the FRB substituted 
the state member bank for the national bank when reproducing this 
definition in its regulation.
    The FDIC has been persuaded by the comments and has revised its 
rule to make it consistent with the FRB's rule by defining a financial 
subsidiary to exclude subsidiaries that conduct only activities that 
may be conducted by the state nonmember bank directly. The goals of 
parity among the banking charters and making banking regulations as 
uniform as possible among the banking agencies are enhanced by this 
interpretation and are goals that the FDIC consistently pursues 
whenever possible.
    In the interim rule, the FDIC defined ``affiliate'' differently in 
subpart E from subparts B and C. The subpart E definition incorporated 
the definition from section 3 of the FDI Act (12 U.S.C. 1813). To make 
the entire regulation more internally consistent, the definition of 
``affiliate'' has been changed in subparts B and C to match the subpart 
E definition. Subpart E now incorporates the definition from subpart B, 
which incorporates the definition from section 3 of the FDI Act (12 
U.S.C. 1813). Thus, the final rule has the same definition of 
``affiliate'' in subpart E as is contained in the interim rule, but the 
source is different.
    Section 362.17 also includes definitions for ``tangible capital,'' 
``Tier 2 capital'' and ``well-managed.'' These were included because of 
the comments we received in favor of making the FDIC's rule consistent 
with the OCC's and FRB's rules. As discussed below with regard to 
Sec. 362.18(a), the FDIC requires that any insured state nonmember bank 
desiring to control or hold an interest in a financial subsidiary or 
commence any new financial activity pursuant to section 46(a) must 
certify, among other things, that it is well-managed. This is not 
required by section 46(a), but as discussed below, the FDIC has decided 
to revise the interim rule to allow for a self-certification process 
similar to the OCC's, except that the FDIC's self-certification process 
does not impose any waiting period on a state nonmember bank before the 
state bank may engage in any activity pursuant to section 46(a). The 
state nonmember bank only has to file a notice with the FDIC and 
certify to certain facts. Compliance with the requirements will be 
evaluated using the FDIC's usual supervisory powers. This process is 
more streamlined than the 30-day processing that was included in the 
FDIC's interim rule. However, for safety and soundness reasons, the 
insured state nonmember bank must certify that it is well-managed in 
order to qualify for this streamlined process. Although the G-L-B Act 
imposes a well-managed requirement on national banks and state member 
banks as well as their insured depository institution affiliates, the 
FDIC's statute does not include such a requirement. In adopting the 
streamlined notice process with no waiting period, the FDIC believes it 
is necessary to impose the requirement that the state bank be well-
managed by this regulation. The FDIC will, however, consider 
applications for relief from the ``well-managed'' requirement in 
appropriate circumstances.
Section 362.18  Financial Subsidiaries of Insured State Nonmember Banks
    Section 362.18(a) requires that an insured state nonmember bank 
file a notice that contains the usual information required for a notice 
or application under Sec. 303.121(b) prior to acquiring control of, or 
holding an interest in a financial subsidiary under section 46(a). In 
addition, the insured state nonmember bank must certify that it is 
well-managed; that it and all of its insured depository institution 
affiliates are well-capitalized; and that the insured state nonmember 
bank will comply with the capital deduction requirement, which is found 
in the statute and in the OCC's and FRB's rules. The insured state 
nonmember bank must 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), 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). An insured state 
nonmember bank may not commence any new activity under section 46(a) or 
directly or indirectly acquire control of a company engaged in any such 
activity pursuant to Sec. 362.18, if the bank or any of its insured 
depository institution affiliates received a rating of less than 
satisfactory in its most recent CRA examination.\6\ An insured state 
nonmember bank controlling or holding an interest in a financial 
subsidiary also must comply with sections 23A and 23B of the Federal 
Reserve Act (12 U.S.C. 371c and 371c-1), as amended by the G-L-B Act 
and meet the financial and operational safeguards required by section 
5136A(d) of the Revised Statutes of the United States (12 U.S.C. 
24a(d)), unless otherwise determined by the FDIC.
---------------------------------------------------------------------------

    \6\ This prohibition is required by section 4(l)(2) of the BHCA 
as enacted in section 103(a) of the G-L-B Act which is codified at 
12 U.S.C. 1843(l)(2).
---------------------------------------------------------------------------

    However, the FDIC continues to be concerned that adequate 
separation standards exist between an insured state nonmember bank and 
its financial subsidiary when the financial subsidiary engages in 
certain types of securities underwriting activities. Thus, if the 
financial subsidiary of the insured state nonmember bank will engage in 
the public sale, distribution or underwriting of stocks, bonds, 
debentures, notes, or other securities activity of a type permissible 
for a national bank only through a financial subsidiary, then the state 
nonmember bank and the financial subsidiary also must comply with the 
same separation standards as are applicable to affiliates of insured 
state nonmember banks that are not controlled by an entity regulated by 
a federal banking agency under subpart B. These separation standards 
require that the securities business of the financial subsidiary be 
physically separate and distinct in its operations from the operations 
of the bank; that the financial subsidiary 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. In addition, 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 may 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.
    Notwithstanding the comments on the CRA requirement, the FDIC will 
not revise its rule to allow for public comment with regard to the CRA 
rating requirement or give the FDIC the authority to condition approval 
of new activities on specific improvements in a bank's CRA performance 
rating because the FDIC does not have the authority to impose such 
additional CRA requirements on state nonmember banks.
    The final rule provides that an insured state nonmember bank may 
not acquire control or hold an interest in a financial subsidiary that 
engages in

[[Page 1025]]

financial activities as principal or commence any such new activity 
pursuant to section 46(a) of the FDI Act, unless the insured state 
nonmember bank submits a notice under the procedures set forth in 
Sec. 362.18(a). An insured state nonmember bank that submits such a 
notice must comply with the requirements of Sec. 362.18(a),(b), (c) and 
(d), as applicable. The bank must file the notice with the appropriate 
regional office prior to acquiring control of, or holding an interest 
in, a financial subsidiary that engages in financial activities as 
principal that a national bank must conduct through a financial 
subsidiary. Similarly, the bank must file such notice prior to 
commencing any additional as principal financial activity under section 
46(a). Before acquiring control of a financial subsidiary or commencing 
any new as principal financial activity under section 46(a), the 
insured state nonmember bank also must meet the CRA requirement and 
certify that it is well-managed; that it and all of its insured 
depository institution affiliates are well-capitalized; and that the 
insured state nonmember bank will comply with the capital deduction 
requirement.
    The insured state nonmember bank is not required to certify that 
the bank and its insured depository institution affiliates have 
received a rating of at least a satisfactory record of meeting 
community credit needs under the CRA. As specified in 
Sec. 362.18(a)(2), an insured state nonmember bank is prohibited from 
commencing a new activity under section 46(a) or directly or indirectly 
acquiring control of a company as a financial subsidiary under section 
46(a), if the state bank or any of the state bank's insured depository 
institution affiliates has received at each one's most recent 
examination a CRA rating of less than a satisfactory record of meeting 
community credit needs. The FDIC will monitor compliance with this CRA 
requirement at the time the new activity is commenced or control is 
acquired. Should the FDIC find that the bank or any of its insured 
depository institution affiliates is not in compliance with this CRA 
requirement, the FDIC will take appropriate action, including requiring 
divestiture.
    As discussed above, one comment on the FDIC's interim final rule 
was that the agencies' rules should be uniform. Since the FDIC favors 
uniformity in rules as much as possible among the banking agencies, we 
considered whether the interim final rule's approach that required a 
30-day advance notice process was the best way to implement section 
46(a) or whether the OCC's self-certification process with a five-day 
advance notice or the FRB's approach, which requires a 15-day advance 
notice, would be preferable. After serious consideration of the 
comments and a careful evaluation of all of these approaches, the FDIC 
determined that conduct of as principal financial activities under 
section 46(a) can be adequately evaluated during the normal supervisory 
process. Thus, the final rule requires only that the bank file a 
certification prior to acquiring control of, or an interest in, a 
financial subsidiary that engages in section 46(a) financial activities 
as principal. A certification must also be filed prior to commencing a 
new as principal financial activity under section 46(a). The FDIC 
believes that this streamlined process will relieve regulatory burden 
and increase the predictability of regulatory compliance for insured 
state nonmember banks without sacrificing safety or soundness.
    In the future, the FDIC will evaluate any section 46(a) activity by 
an insured state nonmember bank through the normal supervisory process.
    The FDIC was asked to clarify the financial and operational 
safeguards requirement in Sec. 362.18. The insured state nonmember bank 
and the financial subsidiary must comply with the financial and 
operational safeguards required by section 5136A(d) of the Revised 
Statutes. In the preamble to the interim rule, the FDIC stated that the 
OCC had not released any guidance or interpretations of these financial 
and operational safeguards, and there are still no guidelines from the 
OCC for the FDIC to evaluate. The FDIC has the authority to interpret 
this section as it is made applicable to state nonmember banks and 
their financial subsidiaries. Thus, the FDIC may relieve such banks and 
subsidiaries from any financial or operational safeguards that may be 
imposed by the OCC on national banks. The FDIC derives this authority 
from its independent interpretative and supervisory authority over 
state nonmember banks including the safety and soundness standards that 
govern state nonmember banks. The final rule now expressly provides a 
process for a state nonmember bank to seek such relief. Such 
determinations will be made by the FDIC on a case-by-case basis as it 
becomes aware of appropriate circumstances where the financial and 
operational safeguards applicable to national bank financial 
subsidiaries are not appropriate for state nonmember banks collectively 
or individually.
    Section 362.18(c) provides that the bank must comply with the 
requirements of Sec. 362.18(a) at the time of filing its certification 
and continue to comply with these requirements as long as the bank's 
subsidiary is engaged in financial activities. Section 362.18(f) also 
provides that the insured state nonmember bank and its insured 
depository institution affiliates must continue to comply with the 
requirements of Sec. 362.18(d), unless the FDIC has granted an 
exception as set forth in Sec. 362.18(e). If a bank or any of its 
insured depository institution affiliates fails to continue to meet the 
applicable requirements, then the FDIC may limit the bank's financial 
activities.
    The FDIC believes that it has some discretion in this area since 
section 46 does not prescribe in detail what the FDIC must do should an 
insured state nonmember bank not be in compliance with the 
requirements. Section 5136A and new section 4(m) of the BHCA prescribe 
what the OCC and the FRB must do. In contrast, the statutory provisions 
do not prescribe how the FDIC should treat any such deficiencies. As a 
result, the FDIC will determine what is appropriate on a case-by-case 
basis.
    Section 362.18(g) addresses subsidiaries covered under section 
46(b), permitting insured nonmember state banks to retain their 
interests in subsidiaries lawfully held before the date of enactment of 
the G-L-B Act. The FDIC received one comment requesting that the final 
rule clearly state that any authorizations issued by the FDIC under 
section 24 prior to the adoption of subpart A of part 362 is covered by 
the grandfather provision. This clarification was made. Section 
362.18(g)(1) provides that any insured state nonmember bank that began 
conducting an activity with the FDIC's approval under section 24 before 
such activity became subject to section 46(a) may continue to conduct 
the activity in compliance with the conditions and restrictions of the 
applicable section 24 order or regulation. In addition, any such state 
nonmember bank may submit an application to the FDIC for modification 
of any conditions the FDIC previously imposed in connection with such 
approval or imposed by regulation in association with notice-type 
approval for the activity. The FDIC interprets section 46 to invest the 
FDIC with retained section 24 jurisdiction over these activities. The 
FDIC draws this conclusion from two items in the G-L-B Act. First, the 
grandfather language in section 46(b) clearly authorizes state banks to 
retain pre-G-L-B Act subsidiaries and conduct pre-G-L-B Act activities 
through them, without also requiring the subsidiary to conduct the 
activity subject to conditions or restrictions in place as of the 
effective

[[Page 1026]]

date of the G-L-B Act. Second, the reservation of authority language in 
section 46(d) clearly states that the FDIC's authority to review 
subsidiary activities under section 24 is not superseded by anything in 
section 46.
    As a separate matter, the FDIC has determined that the banks that 
are grandfathered to hold equity securities under section 24(f) may 
form new subsidiaries to engage in the grandfathered investment 
activity. Under the grandfathered authority provided by section 24(f), 
this activity is lawful for these banks at the bank level. As a result, 
subsidiaries established under this authority are exempt from the 
definition of financial subsidiary, as interpreted by both the FDIC and 
the FRB. Accordingly, banks that are grandfathered to hold equity 
securities under section 24(f) may form new subsidiaries to engage in 
the grandfathered investment activity.
    The FDIC also has amended its notice processing rules to be 
consistent with part 303, subpart G to add references to the new 
certifications and applications required by the final rule.

Part 337

Section 337.4  Securities Activities of Insured State Nonmember Banks: 
Bank Transactions With Affiliated Securities Companies
    On December 1, 1998, the FDIC proposed an amendment to subpart B 
that would have added safety and soundness guidelines to govern an 
insured state nonmember bank subsidiary which engages in the public 
sale, distribution or underwriting of stocks, bonds, debentures, notes 
or other securities activity that would be permissible for a subsidiary 
of a national bank but not permissible for a national bank directly.\7\ 
These securities provisions were intended to address pending or 
approved applications under regulations issued by the OCC which 
permitted national banks to engage in certain activities through 
subsidiaries, even though the activities were not permissible for the 
national bank itself. Part 5 of the OCC's regulations governs operating 
subsidiaries. Former Sec. 5.34(f), which confirmed that there could be 
activities not permissible for a national bank itself that could be 
conducted by an operating subsidiary, has been superseded and removed 
from the OCC's regulations. (65 FR 12905 (March 10, 2000)). Because of 
this change in the OCC's regulations and the fact that the G-L-B Act, 
through section 5136A of the Revised Statutes and section 46(a) of the 
FDI Act, established a new analytical framework, the FDIC will not be 
pursuing these amendments to subpart B.
---------------------------------------------------------------------------

    \7\ 63 FR 66339 (December 1, 1998).
---------------------------------------------------------------------------

    The FDIC's proposal to amend subpart B also included a proposal to 
consolidate the remaining provisions of the FDIC's securities 
activities regulation found in Sec. 337.4 into subpart B. The FDIC 
received two comments on this proposal, both of which expressed 
approval of eliminating Sec. 337.4, and imposing less restrictive 
standards than those currently found in Sec. 337.4. The FDIC has 
decided to finalize its proposal to eliminate Sec. 337.4. Therefore, 
the FDIC is removing and reserving Sec. 337.4.

Part 303

Section 303.120  Scope
    Subpart G of part 303 contains the procedures for complying with 
the notice and application requirements of part 362 including the 
procedures for filing notices and applications described in subpart E 
of part 362. Subpart E of part 362 allows a state nonmember bank to 
file a notice and follow the FDIC's self-certification process if the 
bank chooses to engage in activities pursuant to section 46(a) of the 
FDI Act. The notice filing content and procedures in Sec. 303.121(b) 
are unchanged for section 46(a) notices, but these notices will no 
longer be processed under Sec. 303.122. In addition, Sec. 303.120 
provides the procedures for filing an application for relief from 
certain of the requirements contained in subpart E of part 362. These 
applications will continue to be processed under Sec. 303.122(b).
Section 303.122  Processing
    In paragraphs (a) and (b) of Sec. 303.122, references to certain 
sections in part 362 have to be corrected because they were either 
inadvertently omitted or need to be deleted as a result of substantive 
changes to part 362. In Sec. 303.122(a), a reference to 
Sec. 362.3(a)(2)(iii)(A)(2) was inadvertently omitted. The substantive 
section, Sec. 362.3(a)(2)(iii)(A)(2) references the expedited 
processing section. Thus, Sec. 362.3(a)(2)(iii)(A)(2) is being added to 
the list of sections listed under Sec. 303.122(a). Also, in 
Sec. 303.122(a), because the substantive Sec. 362.8(a)(2) is listed as 
one of those sections but is being removed from part 362, it is being 
removed from the list of sections listed under Sec. 303.122(a).
    In Sec. 303.122(b), because Secs. 362.5(b)(2) and 362.8(a)(2) are 
being removed from part 362, they also are being removed from the list 
of sections subject to the standard processing section under 
Sec. 303.122(b). In addition, the reference to Sec. 362.18(a) also will 
be removed because notices filed under that section would no longer be 
processed under Sec. 303.122.
    The delegations contained in Sec. 303.123(b) are unchanged. This 
section continues to permit the review of notices and any additional 
supervisory follow-up to be handled at the regional offices.
Section 303.141  Filing Procedures
    In paragraph (b)(1)(ii) of Sec. 303.141, the language ``of part 
362'' has been added to enhance the clarity of the reference to 
subparts C and D in that sentence.
Section 303.142  Processing
    In paragraph (a) of Sec. 303.142, because Secs. 362.12(b)(2)(i) and 
362.12(b)(4) are being removed from part 362, they also are being 
removed from the list of sections subject to the expedited processing 
section under Sec. 303.142(a). In paragraphs (a) and (b) of 
Sec. 303.142, references to certain sections in part 362 have to be 
corrected because they were incorrectly referenced. In paragraph (a) of 
Sec. 303.142, the reference to Sec. 362.11(b)(2)(i) was removed because 
it was inadvertently added. This change is consistent with 
Sec. 362.11(b)(2)(i). In paragraph (b), the reference to 
Sec. 362.11(a)(2) was incomplete and has been modified to add the 
paragraph (ii) to correspond to the substantive section, and the 
reference to Sec. 362.11(b)(2) was incomplete and has been modified to 
add the paragraph (i) to correspond to the substantive section.
    In paragraph (c) of Sec. 303.142, ``insured state savings 
association'' has been replaced with ``insured savings association'' 
because some filings required under this section are made by federal 
savings associations. This change is consistent with the substantive 
section.

IV. Administrative Procedure Act

    The FDIC will make this final rule effective immediately to permit 
state nonmember banks to immediately take advantage of the streamlined 
procedures and benefit from the regulatory burden relief that is found 
in this final rule. The interim final rule was effective as of March 
11, 2000 because the FDIC found that it was impracticable to review 
public comments prior to the effective date of the interim final rule, 
and that there was good cause to make the interim rule effective on 
March 11, 2000, due to the fact that the rule set forth procedures to 
implement statutory changes that became effective on March 11, 2000. 
While the FDIC invited interested parties to comment on the rule at 
that time, the FDIC determined it would amend the rule as appropriate

[[Page 1027]]

after reviewing the comments. In addition in December 1998, the FDIC 
published a proposed amendment to part 362 on which the FDIC received 
and reviewed comments (63 FR 66339). This proposed amendment has not 
been the subject of final Board action. Accordingly, the FDIC reviewed 
the comments applicable to activities conducted under the new section 
46 of the FDI Act and considered technical changes to subparts A and B 
with respect to activities conducted under section 24 of the FDI Act 
and subparts C and D with respect to activities conducted under section 
28 and section 18(m) of the FDI Act that were necessitated by the new 
section 46. The FDIC finds that it may adopt an effective date that is 
less than 30 days after the date of publication in the Federal Register 
pursuant to the Administrative Procedure Act (5 U.S.C. 553(d)), because 
this rule removes restrictions and regulatory burden. Therefore, the 
regulation is effective upon publication. In addition, section 302 of 
the Riegle Community Development and Regulatory Improvement Act of 1994 
\8\ states that a final rule imposing new requirements must take effect 
on the first day of a calendar quarter following its publication. This 
rule does not impose new requirements; rather, depository institutions 
will be allowed to commence new activities immediately with no waiting 
period under the final rule. The FDIC finds that the final rule does 
not impose new reporting, disclosure or other requirements on insured 
depository institutions. Instead, this rule relieves burden and permits 
banks to engage in new activities in a more expedited fashion than was 
permitted under the interim rule. Thus, this final rule is effective 
immediately upon publication.
---------------------------------------------------------------------------

    \8\ 12 U.S.C. 4802.
---------------------------------------------------------------------------

V. Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995 (PRA) (44 
U.S.C. 3501 et seq.), the FDIC may not conduct or sponsor, and a person 
is not required to respond to, a collection of information unless it 
displays a currently valid Office of Management and Budget (OMB) 
control number. No comments were received explicitly about PRA issues 
in response to the interim final rule. The collection of information 
contained in this rule was submitted to OMB for review and approval in 
accordance with the PRA and has been approved under OMB control number 
3064-0111, which expires on May 31, 2003. The FDIC continues to welcome 
comments about any of its collections of information. Please send 
comments to: Steven F. Hanft, Assistant Executive Secretary, Office of 
the Executive Secretary, Federal Deposit Insurance Corporation, 550 
17th Street, N.W., Washington, DC.

VI. Regulatory Flexibility Act Analysis

    Pursuant to section 605(b) of the Regulatory Flexibility Act, the 
FDIC certifies that this final rule will not have a significant 
economic impact on a substantial number of small entities. The 
incidences in which insured state nonmember banks will be required to 
file a certification under the rule with respect to activities under 
the new section 46 of the FDI Act will be infrequent and will not 
require significant time to complete. Furthermore, the final rule 
streamlines requirements for insured state nonmember banks. It 
simplifies the requirements that apply when insured state nonmember 
banks conduct certain activities through subsidiaries. Whenever 
possible, the final rule clarifies the expectations of the FDIC when it 
requires filings to consent to activities by insured state banks. The 
final rule also will make it easier for smaller insured state nonmember 
banks to locate the rules that apply to their activities.

VII. Assessment of Impact of Federal Regulation on Families

    The FDIC has determined that this regulation will not affect family 
well-being within the meaning of section 654 of the Treasury and 
General Government Appropriations Act, 1999, enacted as part of the 
Omnibus Consolidated and Emergency Supplemental Appropriations Act, 
1999 (Pub. L. 105-277, 112 Stat. 2681).

VIII. Congressional Review Act

    The OMB has determined that this final rule is not a ``major rule'' 
within the meaning of the Congressional Review Act (5 U.S.C. 801 et 
seq.). The FDIC will file the appropriate reports with Congress and the 
General Accounting Office so that this final rule can be reviewed.

List of Subjects

12 CFR Part 303

    Administrative practice and procedure, Authority delegations 
(Government agencies), Banks, banking, Bank deposit insurance, 
Reporting and recordkeeping requirements, Savings associations.

12 CFR Part 337

    Banks, banking, Reporting and recordkeeping requirements, Savings 
associations, Securities.

12 CFR Part 362

    Administrative practice and procedure, Authority delegations 
(Government agencies), Bank deposit insurance, Banks, banking, Insured 
depository institutions, Investments, Reporting and recordkeeping 
requirements, Savings associations.

    For the reasons set forth above and under the authority of 12 
U.S.C. 1819(a)(Tenth), the interim final rule amending 12 CFR parts 303 
and 362 which was published at 65 FR 15526 on March 23, 2000 is adopted 
as a final rule with changes and 12 CFR parts 303, 362, and 337 are 
amended to read as follows:

PART 303--FILING PROCEDURES AND DELEGATIONS OF AUTHORITY

    1. The authority citation for part 303 continues to read as 
follows:

    Authority: 12 U.S.C. 378, 1813, 1815, 1816, 1817, 1818, 1819 
(Seventh and Tenth), 1820, 1823, 1828, 1828a, 1831a, 1831e, 1831o, 
1831p-1, 1831w, 1835a, 1843(l), 3104, 3105, 3108; 3207; 15 U.S.C. 
1601-1607.

    2. Section 303.120 is revised to read as follows:


Sec. 303.120  Scope.

    This subpart sets forth procedures for complying with notice and 
application requirements contained in subpart A of part 362 of this 
chapter, governing insured state banks and their subsidiaries engaging 
in activities which are not permissible for national banks and their 
subsidiaries. This subpart sets forth procedures for complying with 
notice and application requirements contained in subpart B of part 362 
of this chapter, governing certain activities of insured state 
nonmember banks, their subsidiaries, and certain affiliates. This 
subpart also sets forth procedures for filing the notices and 
applications described in subpart E of part 362 of this chapter, 
governing subsidiaries of insured state nonmember banks engaging in 
financial activities.

    3. In Sec. 303.122, the first sentence of paragraph (a) and the 
first sentence of paragraph (b) are revised to read as follows:


Sec. 303.122  Processing.

    (a) Expedited processing. A notice filed by an insured state bank 
seeking to commence or continue an activity under 
Sec. 362.3(a)(2)(iii)(A)(2), Sec. 362.4(b)(3)(i), or Sec. 362.4(b)(5) 
of this chapter will be acknowledged in writing by the FDIC

[[Page 1028]]

and will receive expedited processing, unless the applicant is notified 
in writing to the contrary and provided a basis for that decision. * * 
*
    (b) Standard processing for applications and notices that have been 
removed from expedited processing. For an application filed by an 
insured state bank seeking to commence or continue an activity under 
Sec. 362.3(a)(2)(iii)(A)(2), Sec. 362.3(b)(2)(i), 
Sec. 362.3(b)(2)(ii)(A), Sec. 362.3(b)(2)(ii)(C), Sec. 362.4(b)(1), 
Sec. 362.4(b)(2), Sec. 362.4(b)(4), Sec. 362.8(b), or seeking a waiver 
or modification under Sec. 362.18(e) or Sec. 362.18(g)(3) of this 
chapter, or for notices which are not processed pursuant to the 
expedited processing procedures, the FDIC will provide the insured bank 
with written notification of the final action as soon as the decision 
is rendered. * * *

    4. In Sec. 303.141, paragraph (b)(1)(ii) is revised to read as 
follows:


Sec. 303.141  Filing procedures.

* * * * *
    (b) * * *
    (1) * * *
    (ii) The amount of the association's existing or proposed direct or 
indirect investment in the activity as well as calculations sufficient 
to indicate compliance with any specific capital ratio or investment 
percentage limitation detailed in subpart C or D of part 362 of this 
chapter;
* * * * *

    5. In Sec. 303.142, the first sentence of paragraph (a), the first 
sentence of paragraph (b), and the first sentence of paragraph (c) are 
revised to read as follows:


Sec. 303.142  Processing.

    (a) Expedited processing. A notice filed by an insured state 
savings association seeking to commence or continue an activity under 
Sec. 362.11(b)(2)(ii) of this chapter will be acknowledged in writing 
by the FDIC and will receive expedited processing, unless the applicant 
is notified in writing to the contrary and provided a basis for that 
decision. * * *
    (b) Standard processing for applications and notices that have been 
removed from expedited processing. For an application filed by an 
insured state savings association seeking to commence or continue an 
activity under Sec. 362.11(a)(2)(ii), Sec. 362.11(b)(2)(i), or 
Sec. 362.12(b)(1) of this chapter or for notices which are not 
processed pursuant to the expedited processing procedures, the FDIC 
will provide the insured state savings association with written 
notification of the final action as soon as the decision is rendered. * 
* *
    (c) Notices of activities in excess of an amount permissible for a 
federal savings association; subsidiary notices. Receipt of a notice 
filed by an insured savings association as required by 
Sec. 362.11(b)(3) or Sec. 362.15 of this chapter will be acknowledged 
in writing by the appropriate regional director (DOS). * * *

PART 337--UNSAFE AND UNSOUND BANKING PRACTICES

    6. The authority citation for part 337 continues to read as 
follows:

    Authority: 12 U.S.C. 375a(4), 375b, 1816, 1818(a), 1818(b), 
1819, 1820(d)(10), 1821(f), 1828(j)(2), 1831, 1831f-1.


Sec. 337.4  [Removed and Reserved]

    7. Section 337.4 is removed and reserved.

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

    8. The authority citation for part 362 is revised to read as 
follows:

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

    9. In Sec. 362.1, paragraph (c) is revised to read as follows:


Sec. 362.1  Purpose and scope.

* * * * *
    (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.
* * * * *

    10. In Sec. 362.2, paragraph (r) is revised to read as follows:


Sec. 362.2  Definitions.

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

    11. In Sec. 362.4, paragraphs (b)(5)(ii) introductory text and 
(c)(2)(vi) are revised to read as follows:


Sec. 362.4  Subsidiaries of insured State banks.

* * * * *
    (b) * * *
    (5) * * *
    (ii) Securities activities. Engage in the public sale, distribution 
or underwriting of securities that are not permissible for a national 
bank under section 16 of the Banking Act of 1933 (12 U.S.C. 24 
Seventh), provided that the insured state nonmember bank lawfully 
controlled or acquired the subsidiary and had an approved notice or 
order from the FDIC prior to November 12, 1999 and provided that the 
following additional conditions are, and continue to be, met:
* * * * *
    (c) * * *
    (2) * * *
    (vi) Has a majority of its board of directors who are neither 
directors nor executive officers of the state-chartered depository 
institution;
* * * * *


Sec. 362.5  [Amended]

    13. In Sec. 362.5, paragraphs (b)(1), (b)(2), and (b)(3) are 
removed and reserved.

    14. Section 362.6 is revised to read as follows:


Sec. 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.

    15. In Sec. 362.7, paragraphs (a) and (b) are revised to read as 
follows:


Sec. 362.7  Definitions.

    (a) Affiliate has the same meaning contained in section 3 of the 
Federal Deposit Insurance Act (12 U.S.C. 1813).
    (b) Activity, company, control, equity security, insured state 
nonmember bank, security and subsidiary have the same meaning as 
provided in subpart A of this part.

    16. Section 362.8 is revised to read as follows:

[[Page 1029]]

Sec. 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 Sec. 303.121 of this chapter and the FDIC grants its consent under 
the procedure in Sec. 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.

    17. In Sec. 362.10, paragraph (a) is revised to read as follows:


Sec. 362.10  Definitions.

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

    18. In Sec. 362.12, paragraphs (b)(2)(i) and (b)(4) are removed and 
reserved, the paragraph (c) heading ``Investments and transaction 
limits.'' is italicized, and paragraph (b)(1) is amended by adding a 
new sentence at the end to read as follows:


Sec. 362.12  Service corporations of insured State savings 
associations.

* * * * *
    (b) * * *
    (1) * * * The activities covered by this paragraph may include, but 
are not limited to, acquiring and retaining equity securities of a 
company engaged in the public sale distribution or underwriting of 
securities.
* * * * *

    19. Subpart E is revised to read as follows:

Subpart E--Financial Subsidiaries of Insured State Nonmember Banks

Sec.
362.16  Purpose and scope.
362.17  Definitions.
362.18  Financial subsidiaries of insured state nonmember banks.

Subpart E--Financial Subsidiaries of Insured State Nonmember Banks


Sec. 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.) 
requirement set forth in subsection (4)(l)(2) of the Bank Holding 
Company Act (12 U.S.C. 1843(l)(2)), which is applicable to state 
nonmember banks that commence new activities through a financial 
subsidiary or directly or indirectly acquire control of a company 
engaged in an activity under section 46(a).
    (b) This subpart does not cover activities conducted other than 
``as principal''. For purposes of this subpart, activities conducted 
other than ``as principal'' are defined as activities conducted as 
agent for a customer, conducted in a brokerage, custodial, advisory, or 
administrative capacity, or conducted as trustee, or in any 
substantially similar capacity. For example, this subpart does not 
cover acting solely as agent for the sale of insurance, securities, 
real estate, or travel services; nor does it cover acting as trustee, 
providing personal financial planning advice, or safekeeping services.


Sec. 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 have 
the same meaning as provided in subpart A of this part.
    (b) Affiliate has the same meaning provided in subpart B of this 
part.
    (c) Financial subsidiary means any company that is controlled by 
one or more insured depository institutions other than:
    (1) A subsidiary that only engages in activities that the state 
nonmember bank is permitted to engage in directly and that are 
conducted on the same terms and conditions that govern the conduct of 
the activities by the state nonmember bank; or
    (2) A subsidiary that the state nonmember bank is specifically 
authorized to control by the express terms of a federal statute (other 
than section 46(a) of the Federal Deposit Insurance Act (12 U.S.C. 
1831w)), and not by implication or interpretation, such as the Bank 
Service Company Act (12 U.S.C. 1861 et seq.).
    (d) Tangible equity and Tier 2 capital have the same meaning as set 
forth in part 325 of this chapter.
    (e) Well-managed means:
    (1) Unless otherwise determined in writing by the appropriate 
federal banking agency, the institution has received a composite rating 
of 1 or 2 under the Uniform Financial Institutions Rating System (or an 
equivalent rating under an equivalent rating system) in connection with 
the most recent state or federal examination or subsequent review of 
the depository institution and at least a rating of 2 for management, 
if such a rating is given; or
    (2) In the case of any depository institution that has not been 
examined by its appropriate federal banking agency, the existence and 
use of managerial resources that the appropriate federal banking agency 
determines are satisfactory.


Sec. 362.18  Financial subsidiaries of insured state nonmember banks.

    (a) ``As principal'' activities. An insured state nonmember bank 
may not

[[Page 1030]]

obtain control of or hold an interest in a financial subsidiary that 
engages in activities as principal or commence any such new activity 
pursuant to section 46(a) of the Federal Deposit Insurance Act (12 
U.S.C. 1831w) unless the insured state nonmember bank files a notice 
containing the information required in Sec. 303.121(b) of this chapter 
and certifies that:
    (1) The insured state nonmember bank is well-managed;
    (2) The insured state nonmember bank and all of its insured 
depository institution affiliates are well-capitalized as defined in 
the appropriate capital regulation and guidance of each institution's 
primary federal regulator; and
    (3) The insured state nonmember bank will deduct the aggregate 
amount of its outstanding equity investment, including retained 
earnings, in all financial subsidiaries that engage in activities as 
principal pursuant to section 46(a) of the Federal Deposit Insurance 
Act (12 U.S.C. 1831w), from the bank's total assets and tangible equity 
and deduct such investment from its total risk-based capital (this 
deduction shall be made equally from Tier 1 and Tier 2 capital).
    (b) Community Reinvestment Act (CRA). An insured state nonmember 
bank may not commence any new activity subject to section 46(a) of the 
Federal Deposit Insurance Act (12 U.S.C. 1831w) or directly or 
indirectly acquire control of a company engaged in any such activity 
pursuant to Sec. 362.18(a)(1), if the bank or any of its insured 
depository institution affiliates received a CRA rating of less than 
``satisfactory record of meeting community credit needs'' in its most 
recent CRA examination.
    (c) Other requirements. An insured state nonmember bank controlling 
or holding an interest in a financial subsidiary under section 46(a) of 
the Federal Deposit Insurance Act (12 U.S.C. 1831w) must meet and 
continue to meet the requirements set forth in paragraph (a) of this 
section as long as the insured state nonmember bank holds the financial 
subsidiary and:
    (1) Disclose and continue to disclose the capital separation 
required in paragraph (a)(3) in any published financial statements;
    (2) Comply and continue to comply with sections 23A and 23B of the 
Federal Reserve Act (12 U.S.C. 371c and 371c-1) as if the subsidiary 
were a financial subsidiary of a national bank; and
    (3) Comply and continue to comply with the financial and 
operational standards provided by section 5136A(d) of the Revised 
Statutes of the United States (12 U.S.C. 24A(d)), unless otherwise 
determined by the FDIC.
    (d) Securities underwriting. If the financial subsidiary of the 
insured state nonmember bank will engage in the public sale, 
distribution or underwriting of stocks, bonds, debentures, notes, or 
other securities activity of a type permissible for a national bank 
only through a financial subsidiary, then the state nonmember bank and 
the financial subsidiary also must comply and continue to comply with 
the following additional requirements:
    (1) The securities business of the financial subsidiary must be 
physically separate and distinct in its operations from the operations 
of the bank, provided that this requirement shall not be construed to 
prohibit the bank and its financial subsidiary from sharing the same 
facility if the area where the financial subsidiary conducts securities 
business with the public is physically distinct from the routine 
deposit taking area of the bank;
    (2) The financial subsidiary must conduct its securities business 
pursuant to independent policies and procedures designed to inform 
customers and prospective customers of the financial subsidiary that 
the financial subsidiary is a separate organization from the insured 
state nonmember bank and that the insured state nonmember bank is not 
responsible for and does not guarantee the obligations of the financial 
subsidiary;
    (3) The bank must adopt policies and procedures, including 
appropriate limits on exposure, to govern its participation in 
financing transactions underwritten by its financial subsidiary; and
    (4) The bank must not express an opinion on the value or the 
advisability of the purchase or sale of securities underwritten or 
dealt in by its financial subsidiary unless the bank notifies the 
customer that the entity underwriting, making a market, distributing or 
dealing in the securities is a financial subsidiary of the bank.
    (e) Applications for exceptions to certain requirements. Any 
insured state nonmember bank that is unable to comply with the well-
managed requirement of Sec. 362.18(a)(1) and (c)(1), any state 
nonmember bank that has appropriate reasons for not meeting the 
financial and operational standards applicable to a financial 
subsidiary of a national bank conducting the same activities as 
provided in Sec. 362.18(c)(3) or any state nonmember bank and its 
financial subsidiary subject to the securities underwriting activities 
requirements in Sec. 362.18(d) that is unable to meet such requirements 
may submit an application in compliance with Sec. 303.121 of this 
chapter to seek a waiver or modification of such requirements under the 
procedure in Sec. 303.122(b) of this chapter. The FDIC may impose 
additional prudential safeguards as are necessary as a condition of its 
consent.
    (f) Failure to meet requirements. (1) Notification by FDIC. The 
FDIC will notify the insured state nonmember bank in writing and 
identify the areas of noncompliance, if:
    (i) The FDIC finds that an insured state nonmember bank or any of 
its insured depository institution affiliates is not in compliance with 
the CRA requirement of Sec. 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 Sec. 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 
Sec. 362.18(c) and (d), if applicable, and the FDIC has not granted an 
exception under the procedures set forth in Sec. 362.18(e) and in 
Sec. 303.122(b) of this chapter.
    (2) Notification by state nonmember bank. An insured state 
nonmember bank that controls or holds an interest in a financial 
subsidiary must promptly notify the FDIC if the bank becomes aware that 
any depository institution affiliate of the bank has ceased to be well-
capitalized.
    (3) Subsequent action by FDIC. The FDIC may take any appropriate 
action or impose any limitations, including requiring that the insured 
state nonmember bank to divest control of any such financial 
subsidiary, on the conduct or activities of the insured state nonmember 
bank or any financial subsidiary of the insured state bank that fails 
to:
    (i) Meet the requirements listed in Sec. 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 
Sec. 362.18(c) and (d), as applicable.
    (g) Coordination with section 24 of the Federal Deposit Insurance 
Act. (1) Continuing authority under section 24. Notwithstanding 
Sec. 362.18(a) through (f), an insured state bank may retain its 
interest in any subsidiary:

[[Page 1031]]

    (i) That was conducting a financial activity with authorization in 
accordance with section 24 of the Federal Deposit Insurance Act (12 
U.S.C. 1831a) and the applicable implementing regulation found in 
subpart A of this part 362 before the date on which any such activity 
became for the first time permissible for a financial subsidiary of a 
national bank; and
    (ii) Which insured state nonmember bank and its subsidiary continue 
to meet the conditions and restrictions of the section 24 order or 
regulation approving the activity as well as other applicable law.
    (2) Continuing authority under section 24(f) of the Federal Deposit 
Insurance Act. Notwithstanding Sec. 362.18(a) through (f), an insured 
state bank with authority under section 24(f) of the Federal Deposit 
Insurance Act (12 U.S.C. 1831a(f)) to hold equity securities may 
continue to establish new subsidiaries to engage in that investment 
activity.
    (3) Relief from conditions. Any state nonmember bank that meets the 
requirements of paragraph (g)(1) of this section or that is subject to 
section 46(b) of the Federal Deposit Insurance Act (12 U.S.C. 1831w(b)) 
may submit an application in compliance with Sec. 303.121 of this 
chapter and seek the consent of the FDIC under the procedure in 
Sec. 303.122(b) of this chapter for modification of any conditions or 
restrictions the FDIC previously imposed in connection with a section 
24 order or regulation approving the activity.
    (4) New financial subsidiaries. Notwithstanding subpart A of this 
part 362, an insured state bank may not, on or after November 12, 1999, 
acquire control of, or acquire an interest in, a financial subsidiary 
that engages in activities as principal or commences any new activity 
under section 46(a) of the Federal Deposit Insurance Act (12 U.S.C. 
1831w) other than as provided in this section.

    By order of the Board of Directors.

    Dated at Washington, D.C. this 21st day of December, 2000.

Federal Deposit Insurance Corporation.
James D. LaPierre,
Deputy Executive Secretary.
[FR Doc. 01-175 Filed 1-4-01; 8:45 am]
BILLING CODE 6714-14-P

Last Updated 10/18/2011 communications@fdic.gov