Frequently Asked Questions about Covered Savings Associations Pursuant to Section 5A of the Home Owners’ Loan Act
Staff of the Board of Governors of the Federal Reserve System has developed the following frequently asked questions (FAQs) to assist covered savings associations (CSAs) and companies that control a CSA in complying with statutes and regulations administered by the Board. Except as noted below, these FAQs are staff interpretations and have not been approved by the Board of Governors. Staff may supplement or revise these FAQs as necessary or appropriate in the future. Any questions regarding these FAQs, or requests for modification, rescission, or waiver, should be submitted through the Board’s Contact Us form.
Scope of Section 5A
Q1: How does the Board treat a CSA under section 5A of the Home Owners’ Loan Act (HOLA)?
Q2: How does the Board treat a company that controls a CSA under section 5A?
Membership in the Federal Reserve System
Q1: Must a CSA become a member of the Federal Reserve System?
Filing Requirements
Requirements Applicable to a CSA or a Company That Controls a CSA
Q1: May a company that controls a CSA engage in activities that are not permissible for a BHC?
Q5: How does the Board treat dividends declared by a CSA subsidiary of an SLHC?
Q6: How does the Board examine a company that controls a CSA?
Mutual CSAs and Mutual Holding Companies That Control a CSA
Q2: Does the Board’s Regulation MM apply to a mutual holding company that controls a CSA?
Q3: Can a mutual CSA reorganize in mutual holding company form?
Transactions Involving a CSA or a Company That Controls a CSA
Termination of an Election to Operate as a CSA
Scope of Section 5A
Q1: How does the Board treat a CSA under section 5A of the Home Owners’ Loan Act (HOLA)?
A1: The Board generally treats a CSA as a national bank. Section 5A of HOLA (section 5A) allows a federal savings association (thrift) with less than $20 billion in assets as of December 31, 2017, to elect to operate as a CSA and provides that a CSA has the same “rights and privileges” and is subject to the same “duties, restrictions, penalties, liabilities, conditions, and limitations” as a national bank that has its main office in the same location as the home office of the CSA. 12 U.S.C. § 1464a(c). However, section 5A also enumerates a set of purposes for which a CSA should continue to be treated as a thrift (the “enumerated purposes”). 12 U.S.C. § 1464a(d).
The Board administers certain statutes and regulations that apply directly to national banks or thrifts, such as sections 23A and 23B of the Federal Reserve Act and the requirement under the Federal Reserve Act that national banks become members of the Federal Reserve System. For such statutes and regulations, the Board treats a CSA as a national bank except for the enumerated purposes.
Source: Letter from Mark E. Van Der Weide, General Counsel of the Board, to Trisha L. Kalscheur (April 1, 2021), available here; 12 U.S.C. § 1464a; 12 U.S.C. § 222; 12 U.S.C. § 371c; 12 U.S.C. § 371c-1.
Posted: 12/30/2021
Q2: How does the Board treat a company that controls a CSA under section 5A?
A2: The Board generally treats a company that controls a CSA as a bank holding company (BHC). As described above, the Board interprets section 5A as requiring it to treat a CSA as a national bank except for the enumerated purposes. The Board likewise interprets section 5A as requiring the Board to treat a company that controls a CSA as a company that controls a national bank, namely as a BHC, except for the enumerated purposes.
Source: Letter from Mark E. Van Der Weide, General Counsel of the Board, to Trisha L. Kalscheur (April 1, 2021), available here.
Posted: 12/30/2021
Q3: What does it mean for a CSA to be treated as a national bank or for a company that controls a CSA to be treated as a bank holding company (BHC)?
A3: Treating a CSA as a national bank means that the Board applies the same statutes and regulations to the CSA as it would apply to a national bank that has its main office in the same location as the home office of the CSA, except for the enumerated purposes. Treating a CSA as a national bank does not mean that the CSA becomes a national bank—it remains a thrift and is treated as such for the enumerated purposes.
Likewise, treating a company that controls a CSA as a BHC means applying the same statutes and regulations to the CSA holding company as would apply to a BHC. A company that controls a CSA does not become a BHC—it remains an SLHC and is treated as such for the enumerated purposes.
Source: Letter from Mark E. Van Der Weide, General Counsel of the Board, to Trisha L. Kalscheur (April 1, 2021), available here.
Posted: 12/30/2021
Q4: What are the enumerated purposes for which the Board treats a CSA as a thrift and a company that controls a CSA as a savings and loan holding company (SLHC)?
A4: The enumerated purposes are: (1) governance, including incorporation, bylaws, boards of directors, shareholders, and dividends; (2) consolidation, merger, dissolution, conversion (including conversion to a stock bank or to another charter), conservatorship, and receivership; and (3) those determined by regulation of the Comptroller of the Currency, which are currently found at 12 CFR 101.4. 12 U.S.C. § 1464a(d); 12 CFR 101.4. Any CSA or company that controls a CSA that has questions about the scope of the enumerated purposes is encouraged to contact staff at the Board or at the appropriate Federal Reserve Bank.
Source: 12 U.S.C. § 1464a(d); 12 CFR 101.4.
Posted: 12/30/2021
Q5: Does the Board’s interpretation that section 5A requires the Board to treat a CSA as a national bank and a company that controls a CSA as a BHC only extend to legacy unitary SLHCs as defined in section 10(c)(9)(C) of HOLA?
A5: No. The Board has published interpretive letters analyzing the requirements of section 5A in response to inquiries from legacy unitary SLHCs, but the interpretation contained in those letters applies generally.
The Board treats any CSA—including a CSA that may not have a holding company or may be in mutual form—as a national bank other than for the enumerated purposes. The Board treats any company that controls a CSA—including a mutual holding company or a company that had been a legacy unitary SLHC—as a BHC other than for the enumerated purposes.
Source: Letter from Mark E. Van Der Weide, General Counsel of the Board, to Trisha L. Kalscheur (April 1, 2021), available here; Letter from Mark E. Van Der Weide, General Counsel of the Board, to John Bruno (April 1, 2021), available here.
Posted: 12/30/2021
Membership in the Federal Reserve System
Q1: Must a CSA become a member of the Federal Reserve System?
A1: Yes. Every national bank must become a member of the Federal Reserve System. 12 U.S.C. § 222. Membership in the Federal Reserve System is therefore required for a CSA as one of the “rights and privileges” and “duties, restrictions, penalties, liabilities, conditions, and limitations” that would apply to a national bank. 12 U.S.C. § 1464a(c).
Source: 12 U.S.C. § 222; 12 U.S.C. § 1464a(c); Letter from Mark E. Van Der Weide, General Counsel of the Board, to Trisha L. Kalscheur (April 1, 2021), available here.
Posted: 12/30/2021
Q2: Would becoming a member of the Federal Reserve System change the primary federal regulator of a CSA from the Office of the Comptroller of the Currency (OCC) to the Board?
A2: No. Electing to operate as a CSA and correspondingly becoming a member of the Federal Reserve System would not result in a change to the identity of a CSA’s primary federal regulator or make the CSA a state member bank. Like a national bank, a CSA must become a member of the Federal Reserve System but is subject to primary supervision by the OCC.
Source: 12 U.S.C. § 161; 12 U.S.C. § 222
Posted: 12/30/2021
Filing Requirements
Q1: What forms or applications must a thrift that is electing to operate as a CSA submit to the Board?
A1: A thrift that is electing or has elected to operate as a CSA must submit an Application for Federal Reserve Bank Stock, Form FR 2030a, to the appropriate Federal Reserve Bank. No other application for Federal Reserve Bank membership is required.
Source: 12 U.S.C. § 1464a(c).
Posted: 12/30/2021
Q2: Does an SLHC with a subsidiary thrift that elects to operate as a CSA have to file an application under the Bank Holding Company Act (BHC Act) to register as a BHC?
A2: No. An SLHC whose subsidiary thrift elects to operate as a CSA will be treated as a BHC but does not have to file an application under the BHC Act for Board approval to register as a BHC.
Source: Letter from Mark E. Van Der Weide, General Counsel of the Board, to Trisha L. Kalscheur (April 1, 2021), available here.
Posted: 12/30/2021
Q3: What forms or applications must a company that controls a thrift electing to operate as a CSA submit to the Board?
A3: A company that controls a thrift electing to operate as a CSA must file a Form FR Y-10 to report its subsidiary thrift’s election to operate as a CSA by selecting the box “Other, describe” and inputting “Covered Savings Association” for item 9 of the Savings and Loan Schedule of the FR Y-10. The company should also provide the appropriate Reserve Bank with a copy of the election to operate as a CSA.
Source: Reporting Form FR Y-10, Instructions for Preparation of Report of Changes in Organizational Structure, available here.
Posted: 12/30/2021
Q4: How does the Board treat an inter vivos trust that controls a CSA and would be a “company” under HOLA but not under the BHC Act and Regulation Y?
A4: The Board treats a CSA as a thrift for the enumerated purposes and as a national bank for all other purposes. An inter vivos trust meeting the criteria set forth in Regulation Y would, therefore, be treated as a company that controls a thrift, namely as an SLHC, for the enumerated purposes, and as an inter vivos trust that controls a bank, which would not be a company or a BHC, for all other purposes. See 12 CFR 225.2(d)(3). Accordingly, the trust would be supervised as an SLHC for the enumerated purposes in section 5A and not supervised for all other purposes.
As noted in “Q3: What does it mean for a CSA to be treated as a national bank or for a company that controls a CSA to be treated as a bank holding company (BHC)?”, however, the inter vivos trust would remain an SLHC, even though it would be treated as though it is not a company for purposes of the BHC Act. Such a trust should not submit an application to deregister as an SLHC if the thrift that it controls elects to operate as a CSA. If the trust’s subsidiary CSA reverses its election to operate as a CSA, the trust would be supervised as an SLHC for all purposes after the CSA’s reversal becomes effective.
Source: 12 CFR 225.2(d)(3); 12 U.S.C. § 1467a(a)(3)(B).
Posted: 12/30/2021
Requirements Applicable to a CSA or a Company That Controls a CSA
Q1: May a company that controls a CSA engage in activities that are not permissible for a BHC?
A1: No. A company that controls a CSA must conform its activities to those that are permissible for a BHC.
Source: Letter from Mark E. Van Der Weide, General Counsel of the Board, to Trisha L. Kalscheur (April 1, 2021), available here.
Posted: 12/30/2021
Q2: What should a company that controls a CSA do if it engages in activities that are not permissible for a BHC?
A2: Section 4(a)(2) of the BHC Act governs the divestiture of impermissible assets for a BHC and for a company that controls a CSA. 12 U.S.C. § 1843(a)(2). A company that controls a CSA must divest or conform all assets and activities that are not permissible for a BHC within two years of the effective date of its subsidiary thrift’s election to operate as a CSA. The Board, in its discretion, may extend this period for up to one year at a time, but the aggregate extensions may not exceed three years. A company that controls a CSA and is engaged in activities subject to section 4(a)(2) is encouraged to contact staff at the Board or at the appropriate Federal Reserve Bank.
Source: 12 U.S.C. § 1843(a)(2); 12 U.S.C. § 1464a(c).
Posted: 12/30/2021
Q3: Do the qualified thrift lender (QTL) requirements under section 10 of HOLA apply to a CSA or a company that controls a CSA?
A3: The OCC, as the primary regulator of a CSA, is responsible for determining whether electing to operate as a CSA affects the thrift’s QTL obligations under section 10(m) of HOLA. The OCC has indicated, in FAQs regarding its CSA rule, that a CSA does not have to comply with the QTL test. A company that controls a CSA is not subject to the QTL test because the Board treats the company as a BHC for purposes of permissible activities.
Source: Office of the Comptroller of the Currency, “Frequently Asked Questions: Implementation of Covered Savings Association Final Rule,” OCC Bull. 2019-31 (July 1, 2019), available here.
Posted: 12/30/2021
Q4: Can a legacy unitary SLHC continue legacy activities if its subsidiary thrift elects to operate as a CSA?
A4: No. The legacy unitary SLHC would be treated as a BHC and would be required to conform its activities to those permissible for a BHC. 12 U.S.C. § 1843(a)(2).
Source: 12 U.S.C. § 1843(a)(2); Letter from Mark E. Van Der Weide, General Counsel of the Board, to Trisha L. Kalscheur (April 1, 2021), available here; Letter from Mark E. Van Der Weide, General Counsel of the Board, to John Bruno (April 1, 2021), available here.
Posted: 12/30/2021
Q5: How does the Board treat dividends declared by a CSA subsidiary of an SLHC?
A5: Electing to operate as a CSA does not affect the Board’s treatment of dividends declared by a thrift because dividends are one of the enumerated purposes for which a CSA shall continue to be treated as a thrift. 12 U.S.C. § 1464a(d)(1). Thus, any CSA that is a subsidiary of an SLHC must continue to provide notice to the Board at least 30 days before declaring a dividend under HOLA and subpart K of the Board’s Regulation LL. 12 U.S.C. § 1467a(f); 12 CFR part 238, subpart K. As noted above, however, a CSA is not required to be a QTL and does not become subject to penalties for failing to become or remain a QTL, including the limitations on dividends in section 10(m)(3)(B)(III) of HOLA.
Source: 12 U.S.C. § 1464a(d)(1); 12 U.S.C. § 1467a(f); 12 U.S.C. § 1467a(m)(3)(B)(III); 12 CFR part 238, subpart K.
Posted: 12/30/2021
Q6: How does the Board examine a company that controls a CSA?
A6: The Board examines a company that controls a CSA under the same procedures, and for compliance with the same provisions of law, applicable to a BHC of similar size and risk, except where treating a CSA as a thrift for one of the enumerated purposes is required by section 5A.
Source: 12 U.S.C. § 1464a(c); 12 U.S.C. § 1464a(d).
Posted: 12/30/2021
Q7: Must a CSA submit the reporting forms applicable for a national bank? Must a company that controls a CSA submit the reporting forms applicable for a BHC?
A7: Yes. The reporting obligations of a CSA are “duties, restrictions, penalties, liabilities, conditions, and limitations” that would apply to a national bank. 12 U.S.C. § 1464a(c). A CSA or a company that controls a CSA must comply with all Board reporting, recordkeeping, and disclosure requirements, as though it were a national bank or a BHC, respectively.
Source: 12 U.S.C. § 1464a(c).
Posted: 12/30/2021
Mutual CSAs and Mutual Holding Companies That Control a CSA
Q1: Is a federally chartered mutual SLHC or stock holding company subsidiary of a mutual SLHC required to obtain a new charter if it, or its subsidiary, elects to operate as a CSA?
A1: No. A mutual holding company that controls a CSA retains its federal charter and is treated as an SLHC for the enumerated purposes. See “Q3: What does it mean for a CSA to be treated as a national bank or for a company that controls a CSA to be treated as a bank holding company (BHC)?”
Source: 12 U.S.C. § 1464a(d).
Posted: 12/30/2021
Q2: Does the Board’s Regulation MM apply to a mutual holding company that controls a CSA?
A2: Yes, except for the provisions of Regulation MM that do not relate to one of the enumerated purposes. Most of the provisions of Regulation MM do relate to one of the enumerated purposes, however. For example, subpart E of Regulation MM governs conversions from mutual to stock form, and the enumerated purposes include “conversion (including conversion to a stock bank or to another charter).” 12 CFR part 239, subpart E; 12 U.S.C. § 1464a(d)(2). Other parts of Regulation MM are primarily concerned with reorganization and incorporation in mutual holding company form, bylaws, boards of directors, member rights, and distribution of dividends, which are also enumerated purposes. 12 U.S.C. § 1464a(d)(1).
Provisions of Regulation MM that are unrelated to the enumerated purposes do not apply to a mutual holding company that controls a CSA. For example, section 239.8(a) of Regulation MM limits the activities of a mutual holding company to those permitted under section 10 of HOLA. 12 CFR 239.8(a). Applying this limitation to a mutual holding company that controls a CSA would be inconsistent with according the CSA the full rights, privileges, duties, restrictions, penalties, liabilities, conditions, and limitations of a national bank. A mutual holding company that controls a CSA is permitted to engage in the set of activities permissible for a BHC.
Any mutual holding company that has questions about the scope of the enumerated purposes and Regulation MM is encouraged to contact staff at the Board or at the appropriate Federal Reserve Bank.
Source: 12 U.S.C. § 1464a(c); 12 U.S.C. § 1464a(d); 12 CFR part 239.
Posted: 12/30/2021
Q3: Can a mutual CSA reorganize in mutual holding company form?
A3: Yes. A mutual CSA may reorganize in mutual holding company form because it is treated as a federal savings association for purposes of “governance of the covered savings association, including incorporation, bylaws, boards of directors, shareholders, and distribution of dividends,” as well as for purposes of “conversion (including conversion to a stock bank or to another charter).” 12 U.S.C. § 1464a(d).
Source: 12 U.S.C. § 1464a(d).
Posted: 12/30/2021
Q4: How does the Board treat dividends declared by a CSA subsidiary of a mutual holding company or by a stock holding company subsidiary of a mutual holding company that controls a CSA?
A4: Electing to operate as a CSA does not affect the treatment of dividends declared by the CSA. See “Q5: How does the Board treat dividends declared by a CSA subsidiary of an SLHC?”
The Board’s treatment of dividends declared by a CSA subsidiary of a mutual holding company or by a stock holding company subsidiary of a mutual holding company that controls a CSA would therefore be unaffected by the thrift’s election to operate as a CSA and would continue to be subject to the limitations in HOLA and Regulation MM.
Source: 12 U.S.C. § 1464a(d)(1).
Posted: 12/30/2021
Transactions Involving a CSA or a Company That Controls a CSA
Q1: What kind of application must a CSA or a company that controls a CSA submit for proposals requiring Board review?
A1: A CSA or a company that controls a CSA must submit the application or form that a national bank or BHC, respectively, would be required to submit under the same circumstances, except for the enumerated purposes. For example, a company that controls a CSA that proposes to acquire a thrift is required to submit an application under section 4 of the BHC Act. Please consult staff at the appropriate Reserve Bank regarding any questions relating to the filing requirements associated with specific proposals.
Source: 12 U.S.C. § 1464a(c); 12 U.S.C. § 1464a(d).
Posted: 12/30/2021
Q2: Should a company that proposes to acquire a CSA submit an application under section 3 of the BHC Act or section 10(e) of HOLA?
A2: A company that is proposing to acquire a CSA or a company that controls a CSA must submit an application under section 3 of the BHC Act.
Source: 12 U.S.C. § 1464a(c).
Posted: 12/30/2021
Termination of an Election to Operate as a CSA
Q1: How does the Board treat a thrift that has terminated its election to operate as a CSA or a company that controls such a thrift?
A1: The Board treats a thrift that has terminated its election to operate as a CSA as a thrift for all purposes on and after the effective date of the termination. The thrift would therefore no longer be eligible for membership in the Federal Reserve System and would be required to surrender its stock of the relevant Federal Reserve Bank. In addition, the thrift would be subject to the affiliate transaction limitations under HOLA rather than under sections 23A and 23B of the Federal Reserve Act.
Likewise, the Board treats a company that controls such a thrift as an SLHC for all purposes on and after the effective date of the termination.
Source: 12 U.S.C. § 1464a(c); 12 U.S.C. § 1464a(d); 12 U.S.C. § 1464a(f)(4)(A); 12 CFR 101.6; Letter from Mark E. Van Der Weide, General Counsel of the Board, to Trisha L. Kalscheur (April 1, 2021), available here.
Posted: 12/30/2021
Q2: Can a former legacy unitary SLHC that is treated as a BHC because it controls a CSA engage in legacy activities if its subsidiary CSA terminates its election to operate as a CSA?
A2: No. An SLHC ceases to meet the criteria under section 10(c)(9)(C) of HOLA when its subsidiary thrift becomes a CSA and cannot resume legacy activities if its subsidiary thrift terminates its election to operate as a CSA.
Posted: 12/30/2021
Q3: What forms or applications must a thrift that is terminating its election to operate as a CSA submit to the Board?
A3: A thrift that is terminating its election to operate as a CSA must submit an Application for Cancellation of Federal Reserve Bank Stock, Form FR 2086a, to the appropriate Reserve Bank with a copy of its notice terminating its election to operate as a CSA.
Source: 12 U.S.C. § 1464a(c).
Posted: 12/30/2021
Q4: What forms or applications must a company that controls a thrift that is terminating its election to operate as a CSA submit to the Board?
A4: A company that controls a thrift that is terminating its election to operate as a CSA must file a Form FR Y-10 to report the termination of its subsidiary thrift’s election to operate as a CSA by selecting the “Federal Savings Association” box for item 9 of the Savings and Loan Schedule of the FR Y-10. The company also must provide the appropriate Reserve Bank with a copy of its subsidiary thrift’s notice terminating its election to operate as a CSA.
Source: Reporting Form FR Y-10, Instructions for Preparation of Report of Changes in Organizational Structure, available here.
Posted: 12/30/2021
Q5: Does a company that controls a CSA that terminates its CSA election have to divest assets or come back into compliance with requirements applicable to SLHCs?
A5: Yes. If a thrift terminates its election to operate as a CSA, a company that controls that thrift must comply with the requirements applicable to SLHCs under HOLA unless the company remains a BHC because it controls a different depository institution that is a bank. See generally 12 U.S.C. § 1467a; 12 U.S.C. § 1841(c).
Source: 12 U.S.C. § 1467a.
Posted: 12/30/2021