A bulletin that explains to federal savings associations (FSAs) the ins and outs of becoming “covered” savings institutions that may engage in national bank powers – an option created by last year’s regulatory relief statute – was issued Monday by the Office of the Comptroller of the Currency (OCC).
This change in status is permitted under a final rule adopted in May, and effective as of Monday, that implements provisions of the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA, S. 2155).
The law permits an FSA with total consolidated assets of $20 billion or less as reported to the OCC as of Dec. 31, 2017, to elect to operate as a covered savings association. While this allows an institution to engage in national bank powers, the rule also requires that the institution making this election divest of any “nonconforming” subsidiary, asset, or activity – that is, one that a national bank would not be permitted to engage in.
The final rule establishes time frames for the divesture, conformance, or discontinuation of the subsidiary, asset or activity, and it says the OCC may require that a plan be submitted for each divestiture, conformance, or discontinuation.
An election to become a covered savings association takes effect 60 days after the date the OCC receives the notice (unless the agency notifies the institution that it isn’t eligible for the election), according to the bulletin, though the supervisory office may notify the FSA in writing that the election is effective before the expiration of that 60-day period.
Among other things, the bulletin also states that a covered savings association:
- must comply with certain rules and regulations applicable to the powers and investments of a national bank;
- is not required to comply with the lending and investment limits in the Home Owners’ Loan Act (HOLA);
- is not required to be a qualified thrift lender under HOLA;
- is not permitted to retain or engage in any subsidiaries, assets, or activities that are not permissible for a national bank;
- retains its federal savings association charter and continues to be treated as a federal savings association for purposes of governance, including incorporation, bylaws, board of directors, shareholders, mutual members, and distribution of dividends;
- is treated as an FSA for purposes of consolidation, merger, dissolution, conversion (including conversion to a stock bank or another charter), conservatorship, and receivership, and for other purposes described in the final rule;
- must maintain federal deposit insurance (and trust-only covered savings associations continue to be required to maintain deposit insurance).
The switch to a covered savings association doesn’t require the institution to change its corporate form, nor does it alter mutual member or depositor rights, the bulletin states. Additional provisions describe permissible extensions of time for making required divestitures, terminating and reelecting “covered savings association” status, and information on certain areas where national bank and FSA powers differ.