Title 12
SECTION 5.58
5.58 Pass-through investments by a Federal savings association.
§ 5.58 Pass-through investments by a Federal savings association.(a) Authority. 12 U.S.C. 1462a, 1463, 1464, 1828, and 5412(b)(2)(B).
(b) Scope. Federal savings associations are permitted to make various types of equity investments pursuant to 12 U.S.C. 1464 and other statutes, including pass-through investments authorized under 12 CFR 160.32(a). These investments are in addition to those subject to §§ 5.35, 5.37, 5.38, and 5.59. This section describes the procedure governing the filing of the application or notice that the OCC requires in connection with certain of these investments. The OCC may review other permissible equity investments on a case-by-case basis.
(c) Licensing requirements. A Federal savings association must file a notice or application as prescribed in this section to make a pass-through investment authorized under 12 CFR 160.32(a).
(d) Definitions. For purposes of this section:
(1) Enterprise means any corporation, limited liability company, partnership, trust, or similar business entity.
(2) Pass-through investment means an investment authorized under 12 CFR 160.32(a). A pass-through investment does not include a Federal savings association holding interests in a trust formed for the purposes of securitizing assets held by the savings association as part of its business or for the purposes of holding multiple legal titles of motor vehicles or equipment in conjunction with lease financing transactions.
(e) Pass-through investments; notice procedure. Except as provided in paragraphs (f) through (i) of this section, a Federal savings association may make a pass-through investment, directly or through its operating subsidiary, in an enterprise that engages in an activity described in § 5.38(f)(5) or in an activity that is substantively the same as a previously approved activity by filing a written notice. The Federal savings association must file this written notice with the appropriate OCC licensing office no later than 10 days after making the investment. The written notice must:
(1) Describe the structure of the investment and the activity or activities conducted by the enterprise in which the Federal savings association is investing. To the extent the notice relates to the initial affiliation of the Federal savings association with a company engaged in insurance activities, the savings association should describe the type of insurance activity that the company is engaged in and has present plans to conduct. The Federal savings association must also list for each State the lines of business for which the company holds, or will hold, an insurance license, indicating the State where the company holds a resident license or charter, as applicable;
(2) State:
(i) Which paragraphs of § 5.38(f)(5) describe the activity; or
(ii) If the activity is substantively the same as a previously approved activity:
(A) How, the activity is substantively the same as a previously approved activity;
(B) The citation to the applicable precedent; and
(C) That the activity will be conducted in accordance with the same terms and conditions applicable to the previously approved activity;
(3) Certify that the Federal savings association is well capitalized and well managed at the time of the investment;
(4) Describe how the Federal savings association has the ability to prevent the enterprise from engaging in an activity that is not set forth in § 5.38(f)(5) or not contained in published OCC (including published former OTS) precedent for previously approved activities, or how the savings association otherwise has the ability to withdraw its investment;
(5) Describe how the investment is convenient and useful to the Federal savings association in carrying out its business and not a mere passive investment unrelated to the savings association's banking business;
(6) Certify that the Federal savings association's loss exposure is limited as a legal matter and that the savings association does not have unlimited liability for the obligations of the enterprise; and
(7) Certify that the enterprise in which the Federal savings association is investing agrees to be subject to OCC supervision and examination, subject to the limitations and requirements of section 45 of the Federal Deposit Insurance Act (12 U.S.C. 1831v) and section 115 of the Gramm-Leach-Bliley Act (12 U.S.C. 1820a).
(f) Pass-through investments; application procedure - (1) In general. A Federal savings association must file an application and obtain prior approval before making or acquiring, either directly or through an operating subsidiary, a pass-through investment in an enterprise if the pass-through investment does not qualify for the notice procedure set forth in paragraph (e) of this section because the savings association is unable to make the representation required by paragraph (e)(2) or the certification required by paragraphs (e)(3) or (e)(7) of this section. The application must include the information required in paragraphs (e)(1) and (e)(4) through (e)(6) of this section and, if possible, paragraphs (e)(2), (e)(3), and (e)(7) of this section. If the Federal savings association is unable to make the representation set forth in paragraph (e)(2) of this section, the savings association's application must explain why the activity in which the enterprise engages is a permissible activity for a Federal savings association and why the filer should be permitted to hold a pass-through investment in an enterprise engaged in that activity. A Federal savings association may not make a pass-through investment if it is unable to make the representations and certifications specified in paragraphs (e)(1) and (e)(4) through (e)(6) of this section.
(2) Expedited review. An application submitted by a Federal savings association is deemed approved by the OCC as of the 10th day after the application is received by the OCC if:
(A) The Federal savings association makes the representation required by paragraph (e)(2) and the certification required by paragraph (e)(3) of this section;
(B) The book value of the Federal savings association's pass-through investment for which the application is being submitted is no more than 1% of the savings association's capital and surplus;
(C) No more than 50% of the enterprise is owned or controlled by banks or savings associations subject to examination by an appropriate Federal banking agency or credit unions insured by the National Credit Union Association; and
(D) The OCC has not notified the Federal savings association that the application has been removed from expedited review, or the expedited review process is extended, under § 5.13(a)(2).
(3) Investments requiring a filing under 12 U.S.C. 1828(m). Notwithstanding any other provision in this section, if an enterprise in which a Federal savings association proposes to invest would be a subsidiary of the Federal savings association for purposes of 12 U.S.C. 1828(m) and the enterprise would not be an operating subsidiary or a service corporation, the Federal savings association must file an application with the OCC under paragraph (f)(3) of this section at least 30 days prior to making the investment and obtain prior approval from the OCC before making the investment. The application must include the information required in paragraphs (e)(1) and (e)(4) through (e)(6) of this section and, if possible, paragraphs (e)(2), (e)(3), and (e)(7) of this section. If the Federal savings association is unable to make the representation set forth in paragraph (e)(2) of this section, the savings association's application must explain why the activity in which the enterprise engages is a permissible activity for a Federal savings association and why the filer should be permitted to hold a pass-through investment in an enterprise engaged in that activity. A Federal savings association may not make a pass-through investment if it is unable to make the representations and certifications specified in paragraphs (e)(1) and (e)(4) through (e)(6) of this section.
(g) Pass-through investments; no application or notice required. A Federal savings association may make or acquire, either directly or through an operating subsidiary, a pass-through investment in an enterprise, without an application or notice to the OCC, if:
(1) The activities of the enterprise are limited to those activities previously reported by the savings association in connection with the making or acquiring of a pass-through investment;
(2) The activities in the enterprise continue to be legally permissible for a Federal savings association;
(3) The savings association's pass-through investment will be made in accordance with any conditions imposed by the OCC or OTS in approving any prior pass-through investment conducting these activities;
(4) The savings association is able to make the representations and certifications specified in paragraphs (e)(3) through (e)(7) of this section; and
(5) The enterprise will not be a subsidiary for purposes of 12 U.S.C. 1828(m).
(h) Pass-through investments in enterprises holding assets in satisfaction of debts previously contracted. Certain pass-through investments may be eligible for expedited treatment where the Federal savings association's investment is in an enterprise holding assets in satisfaction of debts previously contracted or the savings association acquires shares of a company in satisfaction of debts previously contracted.
(1) Notice required. A Federal savings association that is well capitalized and well managed may acquire a pass-through investment, directly or through its operating subsidiary, in an enterprise that engages in the activities of holding and managing assets acquired by the parent savings association through foreclosure or otherwise in good faith to compromise a doubtful claim, or in the ordinary course of collecting a debt previously contracted, by filing a written notice in accordance with this paragraph (h)(1). The activities of the enterprise must be conducted pursuant to the same terms and conditions as would be applicable if the activity were conducted directly by a Federal savings association. The Federal savings association must file the written notice with the appropriate OCC licensing office no later than 10 days after making the pass-through investment. This notice must include a complete description of the Federal savings association's investment in the enterprise and the activities conducted, a description of how the savings association plans to divest the pass-through investment or the underlying assets within applicable statutory time frames, and a representation and undertaking that the savings association will conduct the activities in accordance with OCC policies contained in guidance issued by the OCC regarding the activities. Any Federal savings association receiving approval under this paragraph (h)(1) is deemed to have agreed that the enterprise will conduct the activity in a manner consistent with published OCC guidance.
(2) No notice or application required. A Federal savings association is not required to file a notice or application under this § 5.58 if it acquires a non-controlling investment in shares of a company through foreclosure or otherwise in good faith to compromise a doubtful claim, or in the ordinary course of collecting a debt previously contracted.
(i) Additional exception to filing requirement. A Federal savings association may make a pass-through investment without filing a notice or application to the OCC if all of the following conditions are met:
(1) The investment is in an investment company the portfolio of which consists exclusively of assets that the Federal savings association may hold directly;
(2) The Federal savings association is not investing more than 10 percent of its total capital (or, in the case of a Federal savings association that is a qualifying community banking organization that has elected to use the community bank leverage ratio framework, 10 percent of its tier 1 capital, as used under § 3.12 of this chapter) in one company;
(3) The book value of the Federal savings association's aggregate pass-through investments does not exceed 25 percent of its total capital (or, in the case of a Federal savings association that is a qualifying community banking organization that has elected to use the community bank leverage ratio framework, 25 percent of its tier 1 capital, as used under § 3.12 of this chapter) after making the investment;
(4) The investment would not give Federal savings association direct or indirect control of the company; and
(5) The Federal savings association's liability is limited to the amount of its investment.
(j) Exceptions to rules of general applicability. Sections 5.8, 5.9, 5.10, and 5.11 do not apply to this section. However, if the OCC concludes that an application presents significant or novel policy, supervisory, or legal issues, the OCC may determine that some or all provisions in §§ 5.8, 5.9, 5.10, and 5.11 apply.
[80 FR 28466, May 18, 2015, as amended at 84 FR 61794, Nov. 13, 2019; 84 FR 69297, Dec. 18, 2019; 85 FR 80468, Dec. 11, 2020; 86 FR 1255, Jan. 8, 2021]