Compliance Bulletin

Treasury Releases Proposal to Create National Bank Supervisor
July 27, 2009

The Obama Administration released Title III of its regulatory restructuring plan, the “Federal Depository Institutions Supervision and Regulation Improvements Act of 2009” (Act), which creates the National Bank Supervisor (NBS). The NBS will be a bureau in the Department of the Treasury and its Director will be appointed by the President for a term of five years, subject to Senate confirmation. The functions of the Comptroller of the Currency and the Director of the Office of Thrift Supervision, together with staff, will be transferred to the NBS, except that OTS functions relating to the supervision of state savings associations are transferred to the FDIC, and the “consumer financial protection functions” of the OCC and OTS are transferred to the yet to be created Consumer Financial Protection Agency.

The effective date of the transfers of functions is designated as one year after enactment of the Act, with an allowance for a six month extension. Ninety days after the transfer, the OCC and OTS will cease to exist.

The Act establishes at the Department of Treasury a separate “National Bank Supervisor Fund,” which will consist of amounts transferred from the OCC and OTS and moneys received from fees and investment earnings. Moneys in the fund will be available to pay the new agency’s expenses to carry out its duties and responsibilities, and will not be construed to be government funds or appropriated monies or subject to apportionment.

Within six months after the Act is enacted, each savings association is required to notify the OTS, the OCC, and the NBS whether it elects to be a national bank, mutual national bank, state bank, or state savings association. If it elects to convert to a national bank or mutual national bank, the savings association must provide the OCC with supporting information and the new charter will be issued within one year after enactment. The Act authorizes the NBS to write regulations covering mutuals and conversions to mutual national banks or to stock banks.

If an association elects to convert to a state bank or (as to federal savings associations) to a state savings association, it must apply for a state bank or savings association charter, respectively, under applicable state law. If a federal savings association does not make an election or if its application to convert to a state chartered bank is not approved within the one-year period, it will become a national bank or mutual national bank by operation of law as of the end of the one-year period and must file articles of association and an organizational certificate with the NBS. No new charters for federal savings associations may be granted by as of the date of the Act’s enactment.

Federal associations, state associations that convert to a national or state bank charter, and state associations that keep their existing charters may continue to engage in their current activities and hold assets as currently allowed for three years (with up to two one-year extensions) after the date of enactment. To limit rapid expansion of new powers, the Act establishes maximum increases of a converted association’s activities that are “subject to limitations based on a percentage of assets.” The expansion limits are phased in over a five year period, such that at the end of the period the converted association’s asset-based limits are the same as a national bank’s. As to other activities limited in amount by statute, the converted association may increase the level of activities as permitted by the appropriate federal banking agency.

If a depository institution or bank holding company acquires a savings association that becomes a bank within a year from the date of enactment, any branch or agency of that association (or branch or agency that is in the process of being established) may continue to be treated as a branch or agency. Thereafter, any additional branch or conversion of an agency to a branch is subject to Bank Holding Company Act limitations and other applicable laws. Also, there is a three-year transition rule regarding loan limits to a single borrower for pending and outstanding loans of a converting savings association. The Act would also make conforming amendments to various statutes.

The information contained in this CBA Regulatory Compliance Bulletin is not intended to constitute, and should not be received as, legal advice. Please consult with your counsel for more detailed information applicable to your institution.

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