Code of Federal Regulations (alpha)

CFR /  Title 12  /  Part 159  /  Sec. 159.3 What are the characteristics of, and what requirements

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: ------------------------------------------------------------------------

(a) How may a Federal (1) You must file a (2) You must file a

savings association notice, with the notice, with the

(``you'') establish an appropriate OCC appropriate OCC

operating subsidiary or a licensing office, licensing office,

service corporation? satisfying Sec. satisfying Sec.

159.11. Any finance 159.11. Depending

subsidiary that upon your condition

existed on January and the activities

1, 1997 is deemed in which the

an operating service corporation

subsidiary without will engage, Sec.

further action on 159.3(e)(2) may

your part. require you to file

an application.(b) Who may be an owner? (1) Anyone may have (2) Only Federal or

an ownership state chartered

interest in an savings

operating associations with

subsidiary. home offices in the

state where you

have your home

office may have an

ownership interest

in any service

corporation in

which you invest.(c) What ownership (1) You must own, (2) You are not

requirements apply? directly or required to have

indirectly, more any particular

than 50% of the percentage

voting shares of ownership interest

the operating and need not have

subsidiary. No one control of the

else may exercise service

effective operating corporation.

control.(d) What geographic (1) An operating (2) A service

restrictions apply? subsidiary may be corporation must be

organized in any organized in the

geographic state where your

location. home office is

located.(e) What activities are (1) After you have (2)(i) If you are

permissible? notified the OCC in eligible for

accordance with expedited treatment

Sec. 159.11, an under Sec. 116.5

operating of this chapter,

subsidiary may and notify the OCC

engage in any as required by Sec.

activity that you 159.11, your

may conduct service corporation

directly. You may may engage in the

hold another preapproved

insured depository activities listed

institution as an in Sec. 159.4. You

operating may request OCC

subsidiary. 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

116, subparts A and

E of this chapter.

(ii) If you are

subject to standard

treatment under

Sec. 116.5 of this

chapter, and notify

the OCC as required

by Sec. 159.11,

your service

corporation may

engage in any

activity that you

may conduct

directly except

taking deposits.

You may request OCC

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 Sec.

159.4(b)-(j), by

filing an

application in

accordance with

standard treatment

processing

procedures at part

116, subparts A and

E of this chapter.(f) May the operating (1)(i) An operating (2) A service

subsidiary or service subsidiary may corporation may

corporation invest in lower- itself hold an invest in all types

tier entities? operating of lower-tier

subsidiary. Part entities as long as

159 applies equally the lower-tier

to a lower-tier entity is engaged

operating solely in

subsidiary. In activities that are

applying the permissible for a

regulations in this service

part, the investing corporation. All of

operating the requirements of

subsidiary should this part apply to

substitute such entities

``investing except for

operating paragraphs (b)(2)

subsidiary'' and (d)(2) of this

wherever the part section.

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 159 that

apply to service

corporations except

for paragraphs

(b)(2) and (d)(2)

(2) and (d)(2)

of this section.(g) How much may a Federal (1) There are no (2) Section 159.5

savings association invest? limits on the limits your

amount you may aggregate

invest in your investments in

operating service

subsidiaries, corporations and

either separately indicates when your

or in the investments (both

aggregate. debt and equity) in

lower-tier entities

must be aggregated

with your

investments in

service

corporations.(h) Do Federal statutes and (1) Unless otherwise (2)(i) If the

regulations that apply to specifically Federal statute or

the savings association provided by regulation

apply? statute, specifically refers

regulation, or OCC to ``service

policy, all Federal corporation,'' it

statutes and applies to all

regulations apply service

to operating corporations, even

subsidiaries in the if you do not

same manner as they control the service

apply to you. You corporation or it

and your operating is not a GAAP-

subsidiary are consolidated

generally subsidiary.

consolidated and (ii) If the Federal

treated as a unit statute or

for statutory and regulation refers

regulatory to ``subsidiary,''

purposes. it applies only to

service

corporations that

you directly or

(i) Do the investment limits (1) Your assets and (2) Your service

that apply to Federal those of your corporation's

savings associations (HOLA operating assets are not

section 5(c) and part 160 subsidiary are subject to the same

of this chapter) apply? aggregated when investment

calculating limitations that

investment apply to you. The

limitations. investment

activities of your

service corporation

are governed by

paragraph (e)(2) of

this section and

Sec. 159.4.(j) How does the capital (1) Your assets and (2) The capital

regulation 12 CFR part 3 or those of your treatment of a

part 167, as applicable operating service corporation

apply? subsidiary are depends upon

consolidated for whether it is an

all capital includable

purposes. subsidiary. That

determination is

based upon factors

set forth in 12 CFR

part 3 or part 167,

as applicable,

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- (1) The LTOB (2) The LTOB

one-borrower (LTOB) regulation does not regulation does not

regulation (12 CFR part 32) apply to loans from apply to loans from

apply? you to your you to your GAAP-

operating consolidated

subsidiary or loans service corporation

from your operating or from your GAAP-

subsidiary to you. consolidated

Other loans made by service corporation

your operating to you. However,

subsidiary are part 32 imposes

aggregated with restrictions on the

your loans for LTOB amount of loans you

purposes. may make to non-

consolidated

service

corporations. Loans

made by a GAAP-

consolidated

service corporation

are aggregated with

your loans for LTOB

purposes.(l) How do the transactions (1) Board rules (2) Board rules

with affiliates (TWA) explain how TWA explain how TWA

regulations of the Board of applies. Generally, applies. Generally,

Governors of the Federal an operating a service

Reserve System (Board) subsidiary is not corporation is not

apply? an affiliate, an affiliate,

unless it is a unless it is a

depository depository

institution; is institution; is

directly controlled directly controlled

by another by another

affiliate of the affiliate of the

savings association savings association

or by shareholders or by shareholders

that control the that control the

savings savings

association; or is association; or is

an employee stock an employee stock

option plan, trust, option plan, trust,

or similar or similar

organization that organization that

exists for the exists for the

benefit of benefit of

shareholders, shareholders,

partners, members, partners, members,

or employees of the or employees of the

savings association savings association

or an affiliate. A or an affiliate. If

non-affiliate a savings

operating association

subsidiary is directly or

treated as a part indirectly controls

of the savings a service

association and its corporation and the

transactions with service corporation

affiliates of the is not otherwise an

savings association affiliate under

are aggregated with Board rules, the

those of the service corporation

savings association 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 (1) Under 12 U.S.C. (2) Under 12 U.S.C.

Thrift Lender (QTL) (12 1467a(m)(5), you 1467a(m)(5), you

U.S.C. 1467a(m)) test may determine may determine

apply? whether to whether to

consolidate the consolidate the

assets of a assets of a

particular particular service

operating corporation for

subsidiary for purposes of

purposes of calculating your

calculating your qualified thrift

qualified thrift investments. If a

investments. If the service

operating corporation's

subsidiary's assets assets are not

are not consolidated with

consolidated with yours for that

yours for that purpose, your

purpose, your investment in the

investment in the service corporation

operating will be considered

subsidiary will be in calculating your

considered in qualified thrift

calculating your investments.

qualified thrift

investments.(n) Does state law apply? (1) State law (2) State law

applies to applies to service

operating corporations

subsidiaries regardless of

regardless of whether it applies

whether it applies to you.

to you.(o) May the OCC conduct (1) An operating (2) A service

examinations? subsidiary is corporation is

subject to subject to

examination by the examination by the

OCC. OCC.(p) What must be done to (1) Before (2) Before

redesignate an operating redesignating an redesignating a

subsidiary as a service operating service corporation

corporation or a service subsidiary as a as an operating

corporation as an operating service subsidiary, you

subsidiary? corporation, you should consult with

should consult with the OCC licensing

the OCC licensing office in the

office in the district in which

district in which your home office is

your home office is located. You must

located. You must maintain adequate

maintain adequate internal records,

internal records, available for

available for examination by the

examination by the OCC, demonstrating

OCC, demonstrating that the

that the redesignated

redesignated operating

service corporation subsidiary meets

meets all of the all of the

applicable applicable

requirements of requirements of

this part and that this part and that

your board of your board of

directors has directors has

approved the approved the

redesignation. redesignation.

(q) What are the (1) If an operating (2) If a service

consequences of failing to subsidiary, or any corporation, or any

comply with the lower-tier entity lower-tier entity

requirements of this part? in which the in which the

operating service corporation

subsidiary invests invests pursuant to

pursuant to paragraph (f)(2) of

paragraph (f)(1) of this section, fails

this section fails to meet any of the

to meet any of the requirements of

requirements of this section, you

this section, you must notify the

must notify the appropriate OCC

appropriate OCC licensing office.

licensing office. Unless otherwise

Unless otherwise advised by the OCC,

advised by the OCC, if the company

if the company cannot comply

cannot comply within 90 days with

within 90 days with all of the

all of the requirements for

requirements for either an operating

either an operating subsidiary or a

subsidiary or a service corporation

service corporation under this section,

under this section, or any other

or any other investment

investment authorized by 12

authorized by 12 U.S.C. 1464(c) or

U.S.C. 1464(c) or part 160 of this

part 160 of this chapter, you must

chapter, you must promptly dispose of

promptly dispose of your investment.

your investment.------------------------------------------------------------------------ [76 FR 49025, Aug. 9, 2011,, as amended at 77 FR 37282, June 21, 2012; 78 FR 37946, June 25, 2013; 79 FR 11313, Feb. 28, 2014]