[Federal Register Volume 65, Number 213 (Thursday, November 2, 2000)]
[Proposed Rules]
[Pages 66116-66118]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-27841]
[[Page 66115]]
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Part IV
Department of the Treasury
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Office of Thrift Supervision
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12 CFR Part 516 et al.
Federal Savings Association Bylaws; Integrity of Directors and
Application Processing; Proposed Rules
Federal Register / Vol. 65, No. 213 / Thursday, November 2, 2000 /
Proposed Rules
[[Page 66116]]
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DEPARTMENT OF THE TREASURY
Office of Thrift Supervision
12 CFR Parts 544 and 552
[No. 2000-93]
RIN 1550-AB39
Federal Savings Association Bylaws; Integrity of Directors
AGENCY: Office of Thrift Supervision, Treasury.
ACTION: Notice of proposed rulemaking.
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SUMMARY: The Office of Thrift Supervision (OTS) is proposing to change
its regulations concerning corporate governance to create a class of
preapproved optional bylaw provisions that federally chartered savings
associations may adopt. The proposal decreases regulatory burden on
federal savings associations by permitting them to adopt certain bylaws
expeditiously without prior OTS review. In addition, OTS is proposing
the first preapproved optional bylaw. If adopted by a savings
association, the bylaw would preclude persons who, among other things,
are under indictment for or have been convicted of certain crimes, or
are subject to a cease and desist order entered by any of the banking
agencies, from being members of the association's board of directors.
The proposed preapproved bylaw is intended to permit federal savings
associations to better protect their business from the adverse effects
that are likely to result when the reputation of its board members does
not elicit the public's trust.
DATES: Your comments must be received by January 2, 2001.
ADDRESSES:
Mail: Send comments to Manager, Dissemination Branch, Information
Management and Services Division, Office of Thrift Supervision, 1700 G
Street, NW., Washington, DC 20552, Attention Docket No. 2000-93.
Delivery: Hand deliver comments to the Guard's Desk, East Lobby
Entrance, 1700 G Street, NW., from 9 a.m. to 4 p.m. on business days,
Attention Docket No. 2000-93.
Facsimiles: Send facsimile transmissions to FAX Number (202) 906-
7755, Attention Docket No. 2000-93; or (202) 906-6956 (if comments are
over 25 pages).
E-Mail: Send e-mails to ``public.info@ots.treas.gov">public.info@ots.treas.gov'', Attention
Docket No. 2000-93, and include your name and telephone number.
Public Inspection: Interested persons may inspect comments at the
Public Reference Room, 1700 G St. NW., from 10 a.m. until 4 p.m. on
Tuesdays and Thursdays or obtain comments and/or an index of comments
by facsimile by telephoning the Public Reference Room at (202) 906-5900
from 9 a.m. until 5 on business days. Comments and the related index
will also be posted on the OTS Internet Site at ``www.ots.treas.gov''.
FOR FURTHER INFORMATION CONTACT: Aaron B. Kahn, Special Counsel (202)
906-6263, Office of Thrift Supervision, 1700 G Street, NW., Washington,
DC 20552.
SUPPLEMENTARY INFORMATION:
I. Proposed Regulation
OTS requires federal savings associations to operate under bylaws
that meet certain regulatory requirements and has drafted a set of
``model'' bylaws that would satisfy those requirements. The text of
this set of model bylaws for federal savings associations is located in
the Application Processing Handbook (Handbook). Federal savings
associations may adopt this set of model bylaws without prior notice to
OTS, provided that they notify OTS within 30 days after their adoption.
The current proposal is intended to reduce regulatory burden on
federal savings associations that wish to address other topics by
providing additional preapproved ``optional'' bylaws that federal
savings associations may adopt with a post-adoption notice to OTS.
Federal savings associations are not required to adopt the optional
bylaws. The amendment simply reduces the regulatory burden on federal
savings associations desiring to adopt the specific provisions.
II. Proposed Bylaw
In addition to seeking comment on the proposal to include
preapproved optional bylaws in the Handbook, OTS also requests comment
on the first proposed preapproved bylaw. This bylaw would provide
standards for the integrity of directors of federal savings
associations.
It is important that the directors of savings associations be
persons of good character and integrity. They oversee management and
they have the ultimate responsibility for the operations of the savings
association. In addition, directors of savings associations are
expected to assist their institutions in attracting and retaining
business. Their reputations in the community or communities served by
the savings association reflect on the institution and affect their
ability to help the institution attract and retain business. People
must be able to trust the institution that holds their money. Moreover,
people may be wary of contracting with an institution that they do not
trust. Thus, a director who has an exemplary reputation may be a
valuable asset to the association. Conversely, a director whose
reputation is tainted, for example because a court has found he or she
personally profited from a breach of his or her fiduciary duties, may
injure an institution just by being a member of the board.
This proposed bylaw would permit federal savings associations to
assure themselves that those persons subject to adverse actions
concerning their fiduciary integrity or compliance with financial
regulatory laws do not become board members. The proposed optional
bylaw does not bar anyone from the industry. Rather, the proposed rule
and optional bylaw would merely permit an individual federal savings
association to set qualifications for board membership for that
institution. Federal savings associations that adopt the preapproved
bylaw amendment would not have to provide prior notice to OTS, but
would have to file notice of the adoption of the bylaw within 30 days
after adopting the bylaw.\1\
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\1\ Federal savings associations that wish to adopt a bylaw
addressing director qualifications that does not conform to the
preapproved bylaw amendment would continue to be required to obtain
prior approval from OTS.
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Congress has repeatedly expressed concerns about the character and
integrity of the people who control savings associations. When it
created the federal savings and loan regulatory system, Congress
directed the federal regulatory agency to give primary consideration to
the best practices then existing in the savings and loan industry. See
12 U.S.C. 1464(a), 48 Stat. 128, 132 (1933). One such practice was that
directors of savings associations should be persons of good judgment
and character who have the respect and confidence of the community
served by their respective institution. See Joseph H. Sundheim, Law of
Building and Loan Associations, Sec. 71 (3d ed.1933).
In 1966 Congress specifically addressed the integrity issue. At
that time Congress gave the banking agencies authority to remove
officers and directors of a savings association and prohibit them from
affiliating with the institution in the future if the officer or
director had engaged in certain conduct.\2\ Congress subsequently
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broadened the scope of the prohibition to prevent such persons from
being affiliated with other insured depository institutions, including
savings associations.\3\
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\2\ See Financial Institutions Supervisory Act of 1966, Pub. L.
89-695, 80 Stat. 1028, 1030-32, 1039-40, 1049-50. Currently, section
8(e) of the Federal Deposit Insurance Act (FDIA), provides for the
removal and prohibition of persons a banking agency finds to have
committed certain acts involving personal dishonesty or willful or
continuing disregard for the safety or soundness of an insured
depository institution and has either received financial gain or
other benefit, injured the institution or prejudiced the interests
of its depositors. Similarly, section 19 of the FDIA prohibits
persons who have been convicted of any criminal offense involving
dishonesty or a breach of trust from controlling or participating in
the conduct of the affairs of any insured depository institutions
without the prior consent of the Federal Deposit Insurance
Corporation. See also 12 U.S.C. 1818(g).
\3\ See 12 U.S.C. 1818(e).
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The fact that Congress found certain conduct so egregious that it
authorized the debarment of perpetrators from the industry does not
demonstrate that it believed everyone else was qualified to sit on the
boards of savings associations. For example, Congress' concerns
regarding the management of savings associations is evident in: (i) The
Change in Bank Control Act,\4\ which allows the applicable Federal
banking agency to disapprove a proposed acquisition if, among other
things, the competence, experience and integrity of any of the
acquiror's proposed management personnel might jeopardize the financial
stability of the institution or prejudice the interests of the
depositors of the institution; and (ii) the holding company acquisition
provisions of the Home Owners' Loan Act, which require OTS in reviewing
managerial resources to consider the competence, experience and
integrity of directors of an acquiror and the savings association
involved.\5\
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\4\ 12 U.S.C. 1817(j)(7)(D).
\5\ 12 U.S.C. 1467a(e)(1)(B), (e)(2).
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Congress again recognized the need to ensure integrity in the
banking industry when it enacted the Financial Institutions Reform,
Recovery, and Enforcement Act of 1989 (FIRREA). In FIRREA, Congress
required certain financial institutions to provide prior notice to
their federal regulator of any new board members and authorized the
regulator to disapprove such a board member if he or she lacked the
requisite character or integrity to advance the interests of the
depositors of the institution.\6\
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\6\ Section 914 of FIRREA (12 U.S.C. 1831i), provided that the
banking agencies should disapprove a proposed director ``if the
competence, experience, character, or integrity of the [proposed
director] indicates that it would not be in the best interests of
the depositors of the depository institution or in the best
interests of the public to permit the individual to be [so]
employed. * * *'' In 1996, Congress changed the categories of
institutions subject to this requirement. See Section 2209 of the
Economic Growth and Regulatory Paperwork Reduction Act, P.L. 104-
208, 110 Stat. 3009-409.
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OTS has also been concerned with the character of persons who would
hold director positions in savings associations. Under OTS's
regulations governing the chartering of federal savings associations,
the background of the proposed directors of a new federal association
must reflect a history of personal integrity.\7\
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\7\ See 12 CFR 543.3(d)(2) (2000).
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The proposed bylaw standards for determining integrity of
prospective board members are derived in part from the existing
standards in Sec. 563.39(b)(1) for terminating savings association
officers for cause. Because that provision deals with the integrity of
officials who are supervised by the board of directors, the board
members should be held to at least a comparable standard of integrity.
The bylaw focuses particularly on actions against an individual
predicated on serious dishonesty, breach of fiduciary duty or willful
violation of financial regulatory law.
The wording of the proposed optional bylaw dealing with directors'
integrity is as follows:
A person is not qualified to serve as a director if he or she:
(1) Is under indictment for, or has ever been convicted of, a
criminal offense involving dishonesty or breach of trust and the
penalty for such offense could be imprisonment for more than one
year, or (2) is a person against whom a banking agency has, within
the past ten years, issued a cease and desist order for conduct
involving dishonesty or breach of trust and that order is final and
not subject to appeal, or (3) has been found either by a regulatory
agency whose decision is final and not subject to appeal or by a
court to have (i) breached a fiduciary duty involving personal
profit or (ii) committed a willful violation of any law, rule or
regulation governing banking, securities, commodities or insurance,
or any final cease and desist order issued by a banking, securities,
commodities or insurance regulatory agency.
OTS welcomes comment on those standards, and also requests comments
on whether (and, if so, why) the bylaw should also prevent persons
covered by the bylaw from nominating anyone for board membership.
III. Plain Language Statement
OTS invites your comments on how to make this proposed rule easier
to understand. Do we clearly state the requirements in the rule? If
not, how could the rule be more clearly stated?
IV. Regulatory Flexibility Act
Pursuant to section 605(b) of the Regulatory Flexibility Act, OTS
certifies that this proposal will not have a significant impact on a
substantial number of small entities. The proposal reduces regulatory
burden on federal savings associations, including small federal savings
associations, by permitting them to adopt certain bylaws without
providing prior notice to OTS. The proposal does not require any
savings association to modify its bylaws and all federal savings
associations currently can request permission to adopt such bylaws, if
they choose to do so. Accordingly, a regulatory flexibility analysis is
not required.
V. Executive Order 12286
The Director of OTS has determined that this proposal does not
constitute a ``significant regulatory action'' for purposes of
Executive Order 12866.
VI. Unfunded Mandates Reform Act of 1995
OTS has determined that this proposed rule will not result in
expenditures by state, local and tribal governments, or by the private
sector, of $100 million or more in any one year. Therefore, OTS has not
prepared a budgetary impact statement or specifically addressed the
regulatory alternatives considered. The proposal simply reduces
regulatory burden on federal savings associations by permitting them to
adopt certain bylaws without having to first request permission from
OTS.
List of Subjects
12 CFR Part 544
Reporting and recordkeeping requirements, Savings associations.
12 CFR Part 552
Reporting and recordkeeping requirements, Savings associations,
Securities.
Accordingly, the Office of Thrift Supervision proposes to amend
title 12, chapter V, of the Code of Federal Regulations as set forth
below:
PART 544--CHARTER AND BYLAWS
1. The authority citation for part 544 continues to read as
follows:
Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 2901 et
seq.
2. Section 544.5 is amended by revising paragraph (c)(1)(iii) to
read as follows:
Sec. 544.5 Federal mutual savings association bylaws.
* * * * *
(c) * * *
(1) * * *
(iii) For purposes of this paragraph (c), bylaw provisions that
adopt the
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language of the model or optional bylaws in OTS's Application
Processing Handbook, if adopted without change, and filed with OTS
within 30 days after adoption, are effective upon adoption.
* * * * *
PART 552--INCORPORATION, ORGANIZATION, AND CONVERSION OF FEDERAL
STOCK ASSOCIATIONS
3. The authority citation for part 552 continues to read as
follows:
Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a.
4. Section 552.5 is amended by revising paragraph (b)(1)(iii) to
read as follows:
Sec. 552.5 Bylaws.
* * * * *
(b) * * *
(1) * * *
(iii) Bylaw provisions that adopt the language of the model or
optional bylaws in OTS's Application Processing Handbook, if adopted
without change, and filed with OTS within 30 days after adoption, are
effective upon adoption.
* * * * *
Dated: October 25, 2000.
By the Office of Thrift Supervision.
Ellen Seidman,
Director.
[FR Doc. 00-27841 Filed 11-1-00; 8:45 am]
BILLING CODE 6720-01-P