§ 1831e. — Activities of savings associations.
[Laws in effect as of January 24, 2002]
[Document not affected by Public Laws enacted between
January 24, 2002 and December 19, 2002]
[CITE: 12USC1831e]
TITLE 12--BANKS AND BANKING
CHAPTER 16--FEDERAL DEPOSIT INSURANCE CORPORATION
Sec. 1831e. Activities of savings associations
(a) In general
On and after January 1, 1990, a savings association chartered under
State law may not engage as principal in any type of activity, or in any
activity in an amount, that is not permissible for a Federal savings
association unless--
(1) the Corporation has determined that the activity would pose
no significant risk to the affected deposit insurance fund; and
(2) the savings association is and continues to be in compliance
with the fully phased-in capital standards prescribed under section
1464(t) of this title.
(b) Differences of magnitude between State and Federal powers
Notwithstanding subsection (a)(1) of this section, if an activity
(other than an activity described in section 1464(c)(2)(B) of this
title) is permissible for a Federal savings association, a savings
association chartered under State law may engage as principal in that
activity in an amount greater than the amount permissible for a Federal
savings association if--
(1) the Corporation has not determined that engaging in that
amount of the activity poses any significant risk to the affected
deposit insurance fund; and
(2) the savings association chartered under State law is and
continues to be in compliance with the fully phased-in capital
standards prescribed under section 1464(t) of this title.
(c) Equity investments by State savings associations
(1) In general
Notwithstanding subsections (a) and (b) of this section, a
savings association chartered under State law may not directly
acquire or retain any equity investment of a type or in an amount
that is not permissible for a Federal savings association.
(2) Exception for service corporations
Paragraph (1) does not prohibit a savings association from
acquiring or retaining shares of one or more service corporations
if--
(A) the Corporation has determined that no significant risk
to the affected deposit insurance fund is posed by--
(i) the amount that the association proposes to acquire
or retain; or
(ii) the activities in which the service corporation
engages; and
(B) the savings association is and continues to be in
compliance with the fully phased-in capital standards prescribed
under section 1464(t) of this title.
(3) Transition rule
(A) In general
The Corporation shall require any savings association to
divest any equity investment the retention of which is not
permissible under paragraph (1) or (2) as quickly as can be
prudently done, and in any event not later than July 1, 1994.
(B) Treatment of noncompliance during divestment
With respect to any equity investment held by any savings
association on May 1, 1989, the savings association shall be
deemed not to be in violation of the prohibition in paragraph
(1) or (2) on retaining such investment so long as the savings
association complies with any applicable requirement established
by the Corporation pursuant to subparagraph (A) for divesting
such investments.
(d) Corporate debt securities not of investment grade
(1) In general
No savings association may, directly or through a subsidiary,
acquire or retain any corporate debt security not of investment
grade.
(2) Exception for securities held by qualified affiliate
Paragraph (1) shall not apply with respect to any corporate debt
security not of investment grade which is acquired and retained by
any qualified affiliate of a savings association.
(3) Transition rule
(A) In general
The Corporation shall require any savings association or any
subsidiary of any savings association to divest any corporate
debt security not of investment grade the retention of which is
not permissible under paragraph (1) as quickly as can be
prudently done, and in any event not later than July 1, 1994.
(B) Treatment of noncompliance during divestment
With respect to any corporate debt security not of
investment grade held by any savings association or subsidiary
on August 9, 1989, the savings association or subsidiary shall
be deemed not to be in violation of the prohibition in paragraph
(1) on retaining such investment so long as the association or
subsidiary complies with any applicable requirement established
by the Corporation pursuant to subparagraph (A) for divesting
such securities.
(4) Definitions
For purposes of this section--
(A) Investment grade
Any corporate debt security is not of ``investment grade''
unless that security, when acquired by the savings association
or subsidiary, was rated in one of the 4 highest rating
categories by at least one nationally recognized statistical
rating organization.
(B) Qualified affiliate
The term ``qualified affiliate'' means--
(i) in the case of a stock savings association, an
affiliate other than a subsidiary or an insured depository
institution; and
(ii) in the case of a mutual savings association, a
subsidiary other than an insured depository institution, so
long as all of the savings association's investments in and
extensions of credit to the subsidiary are deducted from the
savings association's capital.
(C) Certain securities not included
The term ``corporate debt security not of investment grade''
does not include any obligation issued or guaranteed by a
corporation that may be held by a Federal savings association
without limitation as to percentage of assets under subparagraph
(D), (E), or (F) of section 1464(c)(1) of this title.
(e) Transfer of corporate debt security not of investment grade in
exchange for a qualified note
(1) Acquisition of note
Notwithstanding subsections (a), (b), and (c) of section 1464
\1\ of this title and any other provision of Federal or State law
governing extensions of credit by savings associations, any insured
savings association, and any subsidiary of any insured savings
association, that, on August 9, 1989, holds any corporate debt
security not of investment grade may acquire a qualified note in
exchange for the transfer of such security to--
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\1\ So in original. Probably should be section ``1468''.
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(A) any holding company which controls 80 percent or more of
the shares of such insured savings association; or
(B) any company other than an insured savings association,
or any subsidiary of any insured savings association, 80 percent
or more of the shares of which are controlled by such holding
company,
if the conditions of paragraph (2) are met.
(2) Conditions for exchange of security for qualified note
The conditions of this paragraph are met if--
(A) the insured savings association was in compliance with
applicable capital requirements on December 31, 1988, and the
insured savings association after such date--
(i) remains in compliance with applicable capital
requirements; or
(ii) adopts and complies with a capital plan acceptable
to the Director of the Office of Thrift Supervision;
(B) the company to which the corporate debt security not of
investment grade is transferred is not a bank holding company,
an insured savings association, or a direct or indirect
subsidiary of such holding company or insured savings
association;
(C) before the end of the 90-day period beginning on August
9, 1989, the insured savings association notifies the Director
of the Office of Thrift Supervision of such association's
intention to transfer the corporate debt security not of
investment grade to the savings and loan holding company or the
subsidiary of such holding company;
(D) the transfer of the corporate debt security not of
investment grade is completed--
(i) before the end of the 1-year period beginning on
August 9, 1989, in the case of an insured savings
association that, as of August 9, 1989, is controlled by a
savings and loan holding company; or
(ii) before the end of the 2-year period beginning on
August 9, 1989, in the case of a savings association that is
not, as of August 9, 1989, a subsidiary of a savings and
loan holding company;
(E) the insured savings association receives in exchange for
the corporate debt security not of investment grade the fair
market value of such security;
(F) the Director of the Office of Thrift Supervision has--
(i) approved the transaction; and
(ii) determined that the transfer represents a complete
and effective divestiture of the corporate debt security not
of investment grade and is in compliance with the provisions
of this subsection; and
(G) any gain on the sale of the corporate debt security not
of investment grade is recognized, and included for applicable
regulatory capital requirements, by the insured savings
association only at such time and to the extent that the insured
savings association receives payment of principal on the note in
cash in excess of the fair market value of the transferred
corporate debt security not of investment grade as carried on
the accounts of the insured savings association immediately
prior to the transfer.
(3) ``Qualified note'' defined
The term ``qualified note'' means any note that--
(A) is at all times fully secured by the corporate debt
security not of investment grade transferred in exchange for the
note, or by other collateral of at least equivalent value that
is acceptable to the Director of the Office of Thrift
Supervision;
(B) contains provisions acceptable to the Director of the
Office of Thrift Supervision that would--
(i) prevent any action to encumber or impair the value
of the collateral referred to in subparagraph (A); and
(ii) allow the sale of the corporate debt security not
of investment grade if the proceeds of the sale are
reinvested in assets of equivalent value;
(C) is on market terms, including interest rate, which must
in all cases be above the insured savings association's
borrowing rate for similar term funds;
(D) is fully repayable over a period of time not to exceed 5
years from the date of transfer;
(E) is repaid with annual principal payments at least as
large as would be necessary to repay the note within 5 years if
it were on a level payment amortization schedule and the
interest rate for the first year of repayment were fixed
throughout the amortization period;
(F) is fully guaranteed by each holding company of the
insured savings association that acquires such note; and
(G) is repaid in full in cash in accordance with its terms
and this subsection.
(4) Failure to repay on schedule
The exemption provided by this subsection from subsections (a),
(b), and (c) of section 1468 of this title and any other applicable
provision of Federal or State law shall terminate immediately if the
insured savings association or any affiliate of such association
fails to comply with the terms of the qualified note or this
subsection.
(f) Determinations
The Corporation shall make determinations under this section by
regulation or order.
(g) ``Activity'' defined
For purposes of subsections (a) and (b) of this section--
(1) In general
The term ``activity'' includes acquiring or retaining any
investment.
(2) Divestiture of certain assets
Notwithstanding paragraph (1), subsections (a) and (b) of this
section shall not be construed to require a savings association to
divest itself of any assets acquired before August 9, 1989.
(h) Other authority not affected
This section may not be construed as limiting--
(1) any other authority of the Corporation; or
(2) any authority of the Director of the Office of Thrift
Supervision or of a State to impose more stringent restrictions.
(Sept. 21, 1950, ch. 967, Sec. 2[28], as added Pub. L. 101-73, title II,
Sec. 222, Aug. 9, 1989, 103 Stat. 269; amended Pub. L. 102-242, title I,
Sec. 151(a)(3), Dec. 19, 1991, 105 Stat. 2284; Pub. L. 103-325, title
VI, Sec. 602(a)(56)-(58), Sept. 23, 1994, 108 Stat. 2290, 2291; Pub. L.
104-208, div. A, title II, Sec. 2704(d)(14)(X), Sept. 30, 1996, 110
Stat. 3009-494.)
Amendments
1996--Subsecs. (a)(1), (b)(1), (c)(2)(A). Pub. L. 104-208, which
directed substitution of ``Deposit Insurance Fund'' for ``affected
deposit insurance fund'', was not executed. See Effective Date of 1996
Amendment note below.
1994--Subsec. (c)(2)(A)(i). Pub. L. 103-325, Sec. 602(a)(56),
substituted ``; or'' for ``, or''.
Subsec. (d)(4)(C). Pub. L. 103-325, Sec. 602(a)(57), substituted
``subparagraph'' for ``subparagraphs''.
Subsec. (e)(4). Pub. L. 103-325, Sec. 602(a)(58), substituted ``and
any other'' for ``any other''.
1991--Subsecs. (h), (i). Pub. L. 102-242 redesignated subsec. (i) as
(h) and struck out former subsec. (h) which required that all savings
associations with uninsured deposits disclose in clear and conspicuous
statements that its deposits were not insured.
Effective Date of 1996 Amendment
Amendment by Pub. L. 104-208 effective Jan. 1, 1999, if no insured
depository institution is a savings association on that date, see
section 2704(c) of Pub. L. 104-208, set out as a note under section 1821
of this title.
Effective Date of 1991 Amendment
Section 151(a)(3) of Pub. L. 102-242 provided that the amendment
made by that section is effective 1 year after Dec. 19, 1991.
