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 notice satisfying (2) You must file a notice satisfying
savings association Sec. 559.11. Any finance subsidiary Sec. 559.11. Depending upon your
(``you'') establish an that existed on January 1, 1997 is condition and the activities in which
operating subsidiary or a deemed an operating subsidiary without the service corporation will engage,
service corporation? further action on your part. Sec. 559.3(e)(2) may require you to
file an application.----------------------------------------------------------------------------------------------------------------(b) Who may be an owner? (1) Anyone may have an ownership interest (2) Only savings associations with home
in an operating subsidiary. 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, directly or indirectly, (2) You are not required to have any
requirements apply? more than 50% of the voting shares of particular percentage ownership
the operating subsidiary. No one else interest and need not have control of
may exercise effective operating the service corporation.
control.----------------------------------------------------------------------------------------------------------------(d) What geographic (1) An operating subsidiary may be (2) A service corporation must be
restrictions apply? organized in any geographic location. organized in the state where your home
office is located.----------------------------------------------------------------------------------------------------------------
(e) What activities are (1) After you have notified OTS in (2)(i) If you are eligible for expedited
permissible? accordance with Sec. 559.11, an treatment under Sec. 516.5 of this
operating subsidiary may engage in any chapter, and notify OTS as required by
activity that you may conduct directly. Sec. 559.11, your service corporation
You may hold another insured depository may engage in the preapproved
institution as an operating subsidiary. activities listed in Sec. 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 Sec. 516.5 of this
chapter, and notify OTS as required by
Sec. 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 Sec. 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 (1)(i) An operating subsidiary may itself (2) A service corporation may invest in
subsidiary or service hold an operating subsidiary. Part 559 all types of lower-tier entities as
corporation invest in applies equally to a lower-tier long as the lower-tier entity is
lower-tier entities? operating subsidiary. In applying the engaged solely in activities that are
regulations in this part, the investing permissible for a service corporation.
operating subsidiary should substitute All of the requirements of this part
``investing operating subsidiary'' apply to such entities except for
wherever the part uses ``you'' or paragraphs (b)(2) and (d)(2) of this
``savings association.'' section.
(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 (1) There are no limits on the amount you (2) Section 559.5 limits your aggregate
(2) and (d)(2) of this section.----------------------------------------------------------------------------------------------------------------(g) How much may a federal (1) There are no limits on the amount you (2) Section 559.5 limits your aggregate
savings association may invest in your operating investments in service corporations and
invest? subsidiaries, either separately or in indicates when your investments (both
the 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 specifically (2) (i) If the federal statute or
regulations that apply to provided by statute, regulation, or OTS regulation specifically refers to
the savings association policy, all federal statutes and ``service corporation,'' it applies to
apply? regulations apply to operating all service corporations, even if you
subsidiaries in the same manner as they do not control the service corporation
apply to you. You and your operating or it is not a GAAP-consolidated
subsidiary are generally consolidated subsidiary.
and treated as a unit for statutory and (ii) If the federal statute or
regulatory purposes. regulation refers to ``subsidiary,'' it
applies only to service corporations
that you directly or indirectly
(i) Do the investment (1) Your assets and those of your (2) Your service corporation's assets
limits that apply to operating subsidiary are aggregated when are not subject to the same investment
federal savings calculating investment limitations. limitations that apply to you. The
associations (HOLA section investment activities of your service
5(c) and part 560 of this corporation are governed by paragraph
chapter) apply? (e)(2) of this section and Sec.
559.4.----------------------------------------------------------------------------------------------------------------(j) How does the capital (1) Your assets and those of your (2) The capital treatment of a service
regulation (part 567 of operating subsidiary are consolidated corporation depends upon whether it is
this chapter) apply? for all capital purposes. an includable 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- (1) The LTOB regulation does not apply to (2) The LTOB regulation does not apply
one-borrower (LTOB) loans from you to your operating to loans from you to your service
regulation (Sec. 560.93 subsidiary or loans from your operating corporation or from your service
of this chapter) apply? subsidiary to you. Other loans made by corporation to you. However, Sec.
your operating subsidiary are aggregated 559.5 imposes restrictions on the
with your loans for LTOB purposes. amount of loans 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 (1) Section 563.41 of this chapter (2) Section 563.41 of this chapter
with affiliates (TWA) explains how TWA applies. Generally, an explains how TWA applies. Generally, a
regulations (Sec. 563.41 operating subsidiary is not an service corporation is not an
of this chapter) apply? affiliate, unless it is a depository affiliate, unless it is a depository
institution; is directly controlled by institution; is directly controlled by
another affiliate of the savings another affiliate of the savings
association or by shareholders that association or by shareholders that
control the savings association; or is control the savings association; or is
an employee stock option plan, trust, or an employee stock option plan, trust,
similar organization that exists for the or similar organization that exists for
benefit of shareholders, partners, the benefit of shareholders, partners,
members, or employees of the savings members, or employees of the savings
association or an affiliate. A non- association or an affiliate. If a
affiliate operating subsidiary is savings association directly or
treated as a part of the savings indirectly controls a service
association and its transactions with corporation and the service corporation
affiliates of the savings association is not otherwise an affiliate under
are aggregated with those of the savings Sec. 563.41 of this chapter, the
association service 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 (1) Under 12 U.S.C. 1467a(m)(5), you may (2) Under 12 U.S.C. 1467a(m)(5), you may
Thrift Lender (QTL) (12 determine whether to consolidate the determine whether to consolidate the
U.S.C. 1467a(m)) test assets of a particular operating assets of a particular service
apply? subsidiary for purposes of calculating corporation for purposes of calculating
your qualified thrift investments. If your qualified thrift investments. If a
the operating subsidiary's assets are service corporation's assets are not
not consolidated with yours for that consolidated with yours for that
purpose, your investment in the purpose, your investment in the service
operating subsidiary will be considered corporation will be considered in
in calculating your qualified thrift calculating your qualified thrift
investments. 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 it
applies to you. applies to you, except where there is a
conflict with federal law.----------------------------------------------------------------------------------------------------------------(o) May OTS conduct (1) An operating subsidiary is subject to (2) A service corporation is subject to
examinations? examination by OTS. examination by OTS.----------------------------------------------------------------------------------------------------------------(p) What must be done to (1) Before redesignating an operating (2) Before redesignating a service
redesignate an operating subsidiary as a service corporation, you corporation as an operating subsidiary,
subsidiary as a service should consult with the OTS Regional you should consult with the OTS
corporation or a service Director for the Region in which your Regional Director for the Region in
corporation as an home office is located. You must which your home office is located. You
operating subsidiary? maintain adequate internal records, must maintain adequate internal
available for examination by OTS, records, available for examination by
demonstrating that the redesignated OTS, demonstrating that the
service corporation meets all of the redesignated operating subsidiary meets
applicable requirements of this part and all of the applicable requirements of
that your board of directors has this part and that your board of
approved the redesignation. directors has approved the
redesignation.----------------------------------------------------------------------------------------------------------------(q) What are the (1) If an operating subsidiary, or any (2) If a service corporation, or any
consequences of failing to lower-tier entity in which the operating lower-tier entity in which the service
comply with the subsidiary invests pursuant to paragraph corporation invests pursuant to
requirements of this part? (f)(1) of this section fails to meet any paragraph (f)(2) of this section, fails
of the requirements of this section, you to meet any of the requirements of this
must notify OTS. Unless otherwise section, you must notify OTS. Unless
advised by OTS, if the company cannot otherwise advised by OTS, if the
comply within 90 days with all of the company cannot comply within 90 days
requirements for either an operating with all of the requirements for either
subsidiary or a service corporation an operating subsidiary or a service
under this section, or any other corporation under this section, or any
investment authorized by 12 U.S.C. other investment authorized by 12
1464(c) or part 560 of this chapter, you U.S.C. 1464(c) or part 560 of this
must promptly dispose of your chapter, you must promptly dispose of
investment. your investment.---------------------------------------------------------------------------------------------------------------- [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]