12 C.F.R. § 559.3 What are the characteristics of, and what requirements apply to, subordinate organizations of Federal savings associations?
Title 12 - Banks and Banking
A federal savings association (“you”) that meets the requirements of this section, as detailed in the following chart, may establish, or obtain an interest in an operating subsidiary or a service corporation. For ease of reference, this section cross-references other regulations in this chapter affecting operating subsidiaries and service corporations. You should refer to those regulations for the details of how they apply. The chart also discusses the regulations that may apply to lower-tier entities in which you have an indirect ownership interest through your operating subsidiary or service corporation. The chart follows: [61 FR 66571, Dec. 18, 1996, as amended at 62 FR 66262, Dec. 18, 1997; 63 FR 65683, Nov. 30, 1998; 66 FR 13006, Mar. 2, 2001; 67 FR 77916, Dec. 20, 2002; 67 FR 78152, Dec. 23, 2002; 68 FR 57796, Oct. 7, 2003]
Title 12: Banks and Banking
PART 559—SUBORDINATE ORGANIZATIONS
Subpart A—Regulations Applicable to Federal Savings Associations
§ 559.3 What are the characteristics of, and what requirements apply to, subordinate organizations of Federal savings associations?
---------------------------------------------------------------------------------------------------------------- Operating subsidiary Service corporation----------------------------------------------------------------------------------------------------------------(a) How may a federal savings (1) You must file a notice (2) You must file a notice association (``you'') establish an satisfying § 559.11. Any satisfying § 559.11. Depending operating subsidiary or a service finance subsidiary that existed on upon your condition and the corporation? January 1, 1997 is deemed an activities in which the service operating subsidiary without corporation will engage, § further action on your part. 559.3(e)(2) may require you to file an application.----------------------------------------------------------------------------------------------------------------(b) Who may be an owner? (1) Anyone may have an ownership (2) Only savings associations with interest in an operating home offices in the state where you subsidiary. have your home office may have an ownership interest in any service corporation in which you invest.----------------------------------------------------------------------------------------------------------------(c) What ownership requirements (1) You must own, directly or (2) You are not required to have any apply? indirectly, more than 50% of the particular percentage ownership voting shares of the operating interest and need not have control subsidiary. No one else may of the service corporation. exercise effective operating control.----------------------------------------------------------------------------------------------------------------(d) What geographic restrictions (1) An operating subsidiary may be (2) A service corporation must be apply? organized in any geographic organized in the state where your location. home office is located.----------------------------------------------------------------------------------------------------------------(e) What activities are permissible? (1) After you have notified OTS in (2)(i) If you are eligible for accordance with § 559.11, an expedited treatment under § operating subsidiary may engage in 516.5 of this chapter, and notify any activity that you may conduct OTS as required by § 559.11, directly. You may hold another your service corporation may engage insured depository institution as in the preapproved activities an operating subsidiary. listed in § 559.4. You may request OTS approval for your service corporation to engage in any other activity reasonably related to the activities of financial institutions by filing an application in accordance with standard treatment processing procedures at part 516, subparts A and E of this chapter. (ii) If you are subject to standard treatment under § 516.5 of this chapter, and notify OTS as required by § 559.11, your service corporation may engage in any activity that you may conduct directly except taking deposits. You may request OTS approval for your service corporation to engage in any other activity reasonably related to the activities of financial institutions, including the activities set forth in § 559.4(b)-(j), by filing an application in accordance with standard treatment processing procedures at part 516, subparts A and E of this chapter.----------------------------------------------------------------------------------------------------------------(f) May the operating subsidiary or (1)(i) An operating subsidiary may (2) A service corporation may invest service corporation invest in lower- itself hold an operating in all types of lower-tier entities tier entities? subsidiary. Part 559 applies as long as the lower-tier entity is equally to a lower-tier operating engaged solely in activities that subsidiary. In applying the are permissible for a service regulations in this part, the corporation. All of the investing operating subsidiary requirements of this part apply to should substitute ``investing such entities except for paragraphs operating subsidiary'' wherever the (b)(2) and (d)(2) of this section. part uses ``you'' or ``savings association.'' (ii) An operating subsidiary may also invest in other types of lower- tier entities. These entities must comply with all of the requirements of this part 559 that apply to service corporations except for paragraphs (b)(2) and (d)(2) of this section.----------------------------------------------------------------------------------------------------------------(g) How much may a federal savings (1) There are no limits on the (2) Section 559.5 limits your association invest? amount you may invest in your aggregate investments in service operating subsidiaries, either corporations and indicates when separately or in the aggregate. your investments (both debt and equity) in lower-tier entities must be aggregated with your investments in service corporations.----------------------------------------------------------------------------------------------------------------(h) Do federal statutes and (1) Unless otherwise specifically (2) (i) If the federal statute or regulations that apply to the provided by statute, regulation, or regulation specifically refers to savings association apply? OTS policy, all federal statutes ``service corporation,'' it applies and regulations apply to operating to all service corporations, even subsidiaries in the same manner as if you do not control the service they apply to you. You and your corporation or it is not a GAAP- operating subsidiary are generally consolidated subsidiary. consolidated and treated as a unit (ii) If the federal statute or for statutory and regulatory regulation refers to purposes. ``subsidiary,'' it applies only to service corporations that you directly or indirectly control.----------------------------------------------------------------------------------------------------------------(i) Do the investment limits that (1) Your assets and those of your (2) Your service corporation's apply to federal savings operating subsidiary are aggregated assets are not subject to the same associations (HOLA section 5(c) and when calculating investment investment limitations that apply part 560 of this chapter) apply? limitations. to you. The investment activities of your service corporation are governed by paragraph (e)(2) of this section and § 559.4.----------------------------------------------------------------------------------------------------------------(j) How does the capital regulation (1) Your assets and those of your (2) The capital treatment of a (part 567 of this chapter) apply? operating subsidiary are service corporation depends upon consolidated for all capital whether it is an includable purposes. subsidiary. That determination is based upon factors set forth in part 567 of this chapter, including your percentage ownership of the service corporation and the activities in which the service corporation engages. Both debt and equity investments in service corporations that are GAAP- consolidated subsidiaries are considered investments in subsidiaries for purposes of the capital regulation, regardless of the authority under which they are made.----------------------------------------------------------------------------------------------------------------(k) How does the loans-to-one- (1) The LTOB regulation does not (2) The LTOB regulation does not borrower (LTOB) regulation (§ apply to loans from you to your apply to loans from you to your 560.93 of this chapter) apply? operating subsidiary or loans from service corporation or from your your operating subsidiary to you. service corporation to you. Other loans made by your operating However, § 559.5 imposes subsidiary are aggregated with your restrictions on the amount of loans loans for LTOB purposes. you may make to certain service corporations. Loans made by a service corporation that you control to entities other than you or your subordinate organizations are aggregated with your loans for LTOB purposes.----------------------------------------------------------------------------------------------------------------(l) How do the transactions with (1) Section 563.41 of this chapter (2) Section 563.41 of this chapter affiliates (TWA) regulations explains how TWA applies. explains how TWA applies. (§ 563.41 of this chapter) Generally, an operating subsidiary Generally, a service corporation is apply? is not an affiliate, unless it is a not an affiliate, unless it is a depository institution; is directly depository institution; is directly controlled by another affiliate of controlled by another affiliate of the savings association or by the savings association or by shareholders that control the shareholders that control the savings association; or is an savings association; or is an employee stock option plan, trust, employee stock option plan, trust, or similar organization that exists or similar organization that exists for the benefit of shareholders, for the benefit of shareholders, partners, members, or employees of partners, members, or employees of the savings association or an the savings association or an affiliate. A non-affiliate affiliate. If a savings association operating subsidiary is treated as directly or indirectly controls a a part of the savings association service corporation and the service and its transactions with corporation is not otherwise an affiliates of the savings affiliate under § 563.41 of association are aggregated with this chapter, the service those of the savings association corporation is treated as a part of the savings association and its transactions with affiliates of the savings association are aggregated with those of the savings association.----------------------------------------------------------------------------------------------------------------(m) How does the Qualified Thrift (1) Under 12 U.S.C. 1467a(m)(5), you (2) Under 12 U.S.C. 1467a(m)(5), you Lender (QTL) (12 U.S.C. 1467a(m)) may determine whether to may determine whether to test apply? consolidate the assets of a consolidate the assets of a particular operating subsidiary for particular service corporation for purposes of calculating your purposes of calculating your qualified thrift investments. If qualified thrift investments. If a the operating subsidiary's assets service corporation's assets are are not consolidated with yours for not consolidated with yours for that purpose, your investment in that purpose, your investment in the operating subsidiary will be the service corporation will be considered in calculating your considered in calculating your qualified thrift investments. qualified thrift investments.----------------------------------------------------------------------------------------------------------------(n) Does state law apply? (1) State law applies to operating (2) State law applies to service subsidiaries only to the extent it corporations regardless of whether applies to you. it applies to you, except where there is a conflict with federal law.----------------------------------------------------------------------------------------------------------------(o) May OTS conduct examinations? (1) An operating subsidiary is (2) A service corporation is subject subject to examination by OTS. to examination by OTS.----------------------------------------------------------------------------------------------------------------(p) What must be done to redesignate (1) Before redesignating an (2) Before redesignating a service an operating subsidiary as a operating subsidiary as a service corporation as an operating service corporation or a service corporation, you should consult subsidiary, you should consult with corporation as an operating with the OTS Regional Director for the OTS Regional Director for the subsidiary? the Region in which your home Region in which your home office is office is located. You must located. You must maintain adequate maintain adequate internal records, internal records, available for available for examination by OTS, examination by OTS, demonstrating demonstrating that the redesignated that the redesignated operating service corporation meets all of subsidiary meets all of the the applicable requirements of this applicable requirements of this part and that your board of part and that your board of directors has approved the directors has approved the redesignation. redesignation.----------------------------------------------------------------------------------------------------------------(q) What are the consequences of (1) If an operating subsidiary, or (2) If a service corporation, or any failing to comply with the any lower-tier entity in which the lower-tier entity in which the requirements of this part? operating subsidiary invests service corporation invests pursuant to paragraph (f)(1) of pursuant to paragraph (f)(2) of this section fails to meet any of this section, fails to meet any of the requirements of this section, the requirements of this section, you must notify OTS. Unless you must notify OTS. Unless otherwise advised by OTS, if the otherwise advised by OTS, if the company cannot comply within 90 company cannot comply within 90 days with all of the requirements days with all of the requirements for either an operating subsidiary for either an operating subsidiary or a service corporation under this or a service corporation under this section, or any other investment section, or any other investment authorized by 12 U.S.C. 1464(c) or authorized by 12 U.S.C. 1464(c) or part 560 of this chapter, you must part 560 of this chapter, you must promptly dispose of your promptly dispose of your investment. investment.----------------------------------------------------------------------------------------------------------------
