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Data is current as of April 23, 2008

Title 12:
Banks and Banking

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PART 559—SUBORDINATE ORGANIZATIONS

Section Contents
§ 559.1   What
does this part cover?
§ 559.2   Definitions.

Subpart
A—Regulations Applicable to Federal Savings
Associations
§ 559.3   What
are the characteristics of, and what requirements apply to, subordinate
organizations of Federal savings associations?
§ 559.4   What
activities are preapproved for service corporations?
§ 559.5   How
much may a savings association invest in service corporations or
lower-tier entities?

Subpart
B—Regulations Applicable to All Savings
Associations
§ 559.10   How
must separate corporate identities be maintained?
§ 559.11   What
notices are required to establish or acquire a new subsidiary or engage in
new activities through an existing subsidiary?
§ 559.12   How
may a subsidiary of a savings association issue
securities?
§ 559.13   How
may a savings association exercise its salvage power in connection with a
service corporation or lower-tier entities?

Authority:   12 U.S.C. 1462, 1462a,
1463, 1464, 1828.

Source:   61 FR 66571, Dec. 18, 1996,
unless otherwise noted.

§ 559.1   What does this part cover?

top

(a) OTS is issuing this part 559 pursuant to its general rulemaking and
supervisory authority under the Home Owners' Loan Act, 12 U.S.C. 1462
et seq., and its specific authority under section 18(m) of the
Federal Deposit Insurance Act, 12 U.S.C. 1828(m). Subpart A of this part
559 applies to subordinate organizations of federal savings associations.
Subpart B of this part applies to subordinate organizations of all savings
associations. OTS may, at any time, limit a savings association's
investment in any of these entities, or may limit or refuse to permit any
activities of any of these entities for supervisory, legal, or safety and
soundness reasons.

(b) Notices under this part are applications for purposes of statutory
and regulatory references to “applications.” Any conditions that OTS
imposes in approving any application are enforceable as a condition
imposed in writing by the OTS in connection with the granting of a request
by a savings association within the meaning of 12 U.S.C. 1818(b) or
1818(i).

§ 559.2   Definitions.

top

For purposes of this part:

Control has the same meaning as in part 574 of this chapter.

GAAP-consolidated subsidiary means an entity in which a savings
association has a direct or indirect ownership interest and whose assets
are consolidated with those of the savings association for purposes of
reporting under Generally Accepted Accounting Principles (GAAP).
Generally, these are entities in which a savings association has a
majority ownership interest.

Lower-tier entity includes any company in which an operating
subsidiary or a service corporation has a direct or indirect ownership
interest.

Operating subsidiary means any entity that satisfies all of the
requirements for an operating subsidiary set forth in §559.3 of this part
and that is designated by the parent savings association as an operating
subsidiary pursuant to §559.3 of this part. More than 50% of the voting
shares of an operating subsidiary must be owned, directly or indirectly,
by a federal savings association and no other person or entity may
exercise effective operating control. An operating subsidiary may only
engage in activities permissible for a federal savings association.

Ownership interest means any equity interest in a business
organization, including stock, limited or general partnership interests,
or shares in a limited liability company.

Service corporation means any entity that satisfies all of the
requirements for service corporations in 12 U.S.C. 1464(c)(4)(B) and
§559.3 of this part and that is designated by the investing savings
association as a service corporation pursuant to §559.3 of this part. A
service corporation must be organized under the laws of the state where
the federal savings association's home office is located, may only be
owned by savings associations with home offices in that state, and may
engage in the activities identified in §§559.3(e)(2) and 559.4 of this
part.

Subordinate organization means any corporation, partnership,
business trust, association, joint venture, pool, syndicate, or other
similar business organization in which a savings association has a direct
or indirect ownership interest, unless that ownership interest qualifies
as a pass-through investment pursuant to §560.32 of this chapter and is so
designated by the investing savings association.

Subsidiary means any subordinate organization directly or
indirectly controlled by a savings association.

Subpart A—Regulations Applicable to Federal Savings
Associations

top

§ 559.3   What are the characteristics of, and
what requirements apply to, subordinate organizations of Federal savings
associations?

top

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:

Operating subsidiary

Service corporation

(a) How may a federal
savings association (“you”) establish an operating subsidiary or a
service corporation?

(1) You must file a notice
satisfying §559.11. Any finance subsidiary that existed on January
1, 1997 is deemed an operating subsidiary without further action on
your part.

(2) You must file a notice
satisfying §559.11. Depending upon your condition and the activities
in which the service corporation will engage, §559.3(e)(2) may
require you to file an application.

(b) Who may be an
owner?

(1) Anyone may have an ownership
interest in an operating subsidiary.

(2) Only savings associations with
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
requirements apply?

(1) You must own, directly or
indirectly, more than 50% of the voting shares of the operating
subsidiary. No one else may exercise effective operating control.

(2) You are not required to have any
particular percentage ownership interest and need not have control
of the service corporation.

(d) What geographic
restrictions apply?

(1) An operating subsidiary may be
organized in any geographic location.

(2) A service corporation must be
organized in the state where your home office is located.

(e) What activities are
permissible?

(1) After you have notified OTS in
accordance with §559.11, an operating subsidiary may engage in any
activity that you may conduct directly. You may hold another insured
depository institution as an operating subsidiary.

(2)(i) If you are eligible for
expedited treatment under §516.5 of this chapter, and notify OTS as
required by §559.11, your service corporation may engage in the
preapproved activities listed in §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 §516.5 of this chapter, and notify OTS as required
by §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 §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
subsidiary or service corporation invest in lower-tier entities?

(1)(i) An operating subsidiary may
itself hold an operating subsidiary. Part 559 applies equally to a
lower-tier operating subsidiary. In applying the regulations in this
part, the investing operating subsidiary should substitute
“investing operating subsidiary” wherever the part uses “you” or
“savings association.”

(2) A service corporation may invest
in all types of lower-tier entities as long as the lower-tier entity
is engaged solely in activities that are permissible for a service
corporation. All of the requirements of this part apply to such
entities except for paragraphs (b)(2) and (d)(2) of this
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
savings association invest?

(1) There are no limits on the
amount you may invest in your operating subsidiaries, either
separately or in the aggregate.

(2) Section 559.5 limits your
aggregate investments in service corporations and indicates when
your investments (both debt and equity) in lower-tier entities must
be aggregated with your investments in service corporations.

(h) Do federal statutes
and regulations that apply to the savings association apply?

(1) Unless otherwise specifically
provided by statute, regulation, or OTS policy, all federal statutes
and regulations apply to operating subsidiaries in the same manner
as they apply to you. You and your operating subsidiary are
generally consolidated and treated as a unit for statutory and
regulatory purposes.

(2) (i) If the federal statute or
regulation specifically refers to “service corporation,” it applies
to all service corporations, even if you do not control the service
corporation or it is not a GAAP-consolidated subsidiary.
(ii) If
the federal statute or regulation refers to “subsidiary,” it applies
only to service corporations that you directly or indirectly
control.

(i) Do the investment
limits that apply to federal savings associations (HOLA section 5(c)
and part 560 of this chapter) apply?

(1) Your assets and those of your
operating subsidiary are aggregated when calculating investment
limitations.

(2) Your service corporation's
assets are not subject to the same investment limitations that apply
to you. The investment activities of your service corporation are
governed by paragraph (e)(2) of this section and §559.4.

(j) How does the capital
regulation (part 567 of this chapter) apply?

(1) Your assets and those of your
operating subsidiary are consolidated for all capital purposes.

(2) The capital treatment of a
service corporation depends upon whether it is 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-one-borrower (LTOB) regulation (§560.93 of this chapter)
apply?

(1) The LTOB regulation does not
apply to loans from you to your operating subsidiary or loans from
your operating subsidiary to you. Other loans made by your operating
subsidiary are aggregated with your loans for LTOB purposes.

(2) The LTOB regulation does not
apply to loans from you to your service corporation or from your
service corporation to you. However, §559.5 imposes restrictions on
the 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 with affiliates (TWA) regulations (§563.41 of this
chapter) apply?

(1) Section 563.41 of this chapter
explains how TWA applies. Generally, an operating subsidiary is not
an affiliate, unless it is a depository institution; is directly
controlled by another affiliate of the savings association or by
shareholders that control the savings association; or is an employee
stock option plan, trust, or similar organization that exists for
the benefit of shareholders, partners, members, or employees of the
savings association or an affiliate. A non-affiliate operating
subsidiary 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

(2) Section 563.41 of this chapter
explains how TWA applies. Generally, a service corporation is not an
affiliate, unless it is a depository institution; is directly
controlled by another affiliate of the savings association or by
shareholders that control the savings association; or is an employee
stock option plan, trust, or similar organization that exists for
the benefit of shareholders, partners, members, or employees of the
savings association or an affiliate. If a savings association
directly or indirectly controls a service corporation and the
service corporation is not otherwise an affiliate under §563.41 of
this chapter, the 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
Thrift Lender (QTL) (12 U.S.C. 1467a(m)) test apply?

(1) Under 12 U.S.C. 1467a(m)(5), you
may determine whether to consolidate the assets of a particular
operating subsidiary for purposes of calculating your qualified
thrift investments. If the operating subsidiary's assets are not
consolidated with yours for that purpose, your investment in the
operating subsidiary will be considered in calculating your
qualified thrift investments.

(2) Under 12 U.S.C. 1467a(m)(5), you
may determine whether to consolidate the assets of a particular
service corporation for purposes of calculating your qualified
thrift investments. If a service corporation's assets are not
consolidated with yours for that purpose, your investment in the
service corporation will be considered in calculating your qualified
thrift investments.

(n) Does state law
apply?

(1) State law applies to operating
subsidiaries only to the extent it applies to you.

(2) State law applies to service
corporations regardless of whether it applies to you, except where
there is a conflict with federal law.

(o) May OTS conduct
examinations?

(1) An operating subsidiary is
subject to examination by OTS.

(2) A service corporation is subject
to examination by OTS.

(p) What must be done to
redesignate an operating subsidiary as a service corporation or a
service corporation as an operating subsidiary?

(1) Before redesignating an
operating subsidiary as a service corporation, you should consult
with the OTS Regional Director for the Region in which your home
office is located. You must maintain adequate internal records,
available for examination by OTS, demonstrating that the
redesignated service corporation meets all of the applicable
requirements of this part and that your board of directors has
approved the redesignation.

(2) Before redesignating a service
corporation as an operating subsidiary, you should consult with the
OTS Regional Director for the Region in which your home office is
located. You must maintain adequate internal records, available for
examination by OTS, demonstrating that the redesignated operating
subsidiary meets all of the applicable requirements of this part and
that your board of directors has approved the redesignation.

(q) What are the
consequences of failing to comply with the requirements of this
part?

(1) If an operating subsidiary, or
any lower-tier entity in which the operating subsidiary invests
pursuant to paragraph (f)(1) of this section fails to meet any of
the requirements of this section, you must notify OTS. Unless
otherwise advised by OTS, if the company cannot comply within 90
days with all of the requirements for either an operating subsidiary
or a service corporation under this section, or any other investment
authorized by 12 U.S.C. 1464(c) or part 560 of this chapter, you
must promptly dispose of your investment.

(2) If a service corporation, or any
lower-tier entity in which the service corporation invests pursuant
to paragraph (f)(2) of this section, fails to meet any of the
requirements of this section, you must notify OTS. Unless otherwise
advised by OTS, if the company cannot comply within 90 days with all
of the requirements for either an operating subsidiary or a service
corporation under this section, or any other investment authorized
by 12 U.S.C. 1464(c) or part 560 of this chapter, you must promptly
dispose of 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]

§ 559.4   What activities are preapproved for
service corporations?

top

This section sets forth the activities that have been preapproved for
service corporations. Section 559.3(e)(2) of this part sets forth the
procedures for engaging in a broader scope of activities on a case-by-case
basis. You should read these two sections together to determine whether
you must file a notice with OTS under §559.11 of this part, or whether you
must file an application under part 516 of this chapter and receive prior
written OTS approval for your service corporation to engage in a
particular activity. To the extent permitted by §559.3(e)(2) of this part,
a service corporation may engage in the following activities:

(a) Any activity that all federal savings associations may conduct
directly, except taking deposits.

(b) Business and professional services. The following services are
preapproved for service corporations only when they are limited to
financial documents or financial clients or are generally
finance-related:

(1) Accounting or internal audit;

(2) Advertising, marketing research and other marketing;

(3) Clerical;

(4) Consulting;

(5) Courier;

(6) Data processing;

(7) Data storage facilities operation and related services;

(8) Office supplies, furniture, and equipment purchasing and
distribution;

(9) Personnel benefit program development or administration;

(10) Printing and selling forms that require Magnetic Ink Character
Recognition (MICR) encoding;

(11) Relocation of personnel;

(12) Research studies and surveys;

(13) Software development and systems integration; and

(14) Remote service unit operation, leasing, ownership or
establishment.

(c) Credit-related activities.

(1) Abstracting;

(2) Acquiring and leasing personal property;

(3) Appraising;

(4) Collection agency;

(5) Credit analysis;

(6) Check or credit card guaranty and verification;

(7) Escrow agent or trustee (under deeds of trust, including executing
and deliverance of conveyances, reconveyances and transfers of title);
and

(8) Loan inspection.

(d) Consumer services.

(1) Financial advice or consulting;

(2) Foreign currency exchange;

(3) Home ownership counseling;

(4) Income tax return preparation;

(5) Postal services;

(6) Stored value instrument sales;

(7) Welfare benefit distribution;

(8) Check printing and related services; and

(9) Remote service unit operation, leasing, ownership, or
establishment.

(e) Real estate related services.

(1) Acquiring real estate for prompt development or subdivision, for
construction of improvements, for resale or leasing to others for such
construction, or for use as manufactured home sites, in accordance with a
prudent program of property development;

(2) Acquiring improved real estate or manufactured homes to be held for
rental or resale, for remodeling, renovating, or demolishing and
rebuilding for sale or rental, or to be used for offices and related
facilities of a stockholder of the service corporation;

(3) Maintaining and managing real estate; and

(4) Real estate brokerage for property owned by a savings association
that owns capital stock of the service corporation, the service
corporation, or a lower-tier entity in which the service corporation
invests.

(f) Securities activities, liquidity management, and coins.

(1) Execution of transactions in securities on an agency or riskless
principal basis solely upon the order and for the account of customers or
the provision of investment advice. The service corporation must register
with the Securities and Exchange Commission and State securities
regulators, as required by applicable Federal and State law and
regulations.

(2) Liquidity management;

(3) Issuing notes, bonds, debentures, or other obligations or
securities;

(4) Purchase or sale of coins issued by the U.S. Treasury.

(g) Investments. (1) Tax-exempt bonds used to finance
residential real property for family units;

(2) Tax-exempt obligations of public housing agencies used to finance
housing projects with rental assistance subsidies;

(3) Small business investment companies and new markets venture capital
companies licensed by the U.S. Small Business Administration;

(4) Rural business investment companies; and

(5) Investing in savings accounts of an investing thrift.

(h) Community development and charitable activities:

(1) Investments in governmentally insured, guaranteed, subsidized or
otherwise sponsored programs for housing, small farms, or businesses that
are local in character;

(2) Investments designed primarily to promote the public welfare,
including the welfare of low- and moderate-income communities or families
(such as providing housing, services, or jobs);

(3) Investments in low-income housing tax credit and new markets tax
credit projects and entities authorized by statute (e.g., community
development financial institutions) to promote community, inner city, and
community development purposes; and

(4) Establishing a corporation that is recognized by the Internal
Revenue Service as organized for charitable purposes under 26 U.S.C.
501(c)(3) of the Internal Revenue Code and making a reasonable
contribution to capitalize it, provided that the corporation
engages exclusively in activities designed to promote the well-being of
communities in which the owners of the service corporation operate.

(i) Activities conducted on behalf of a customer on an other than “as
principal” basis.

(j) Activities reasonably incident to those listed in paragraphs (a)
through (i) of this section if the service corporation engages in those
activities.

[61 FR 66571, Dec. 18, 1996, as amended by 66 FR 13007, Mar. 2, 2001;
66 FR 65824, Dec. 21, 2001; 69 FR 68249, Nov. 24, 2004; 70 FR 76675, Dec.
28, 2005]

§ 559.5   How much may a savings association
invest in service corporations or lower-tier entities?

top

The amount that a federal savings association (“you”) may invest in a
service corporation or any lower-tier entity depends upon several factors.
These include your total assets, your capital, the purpose of the
investment, and your ownership interest in the service corporation or
entity.

(a) Under section 5(c)(4)(B) of the HOLA, you may invest up to 3% of
your assets in the capital stock, obligations, and other securities of
service corporations. Any investment you make under this paragraph that
would cause your investment, in the aggregate, to exceed 2% of your assets
must serve primarily community, inner city, or community development
purposes. You must designate the investments serving those purposes, which
include:

(1) Investments in governmentally insured, guaranteed, subsidized or
otherwise sponsored programs for housing, small farms, or businesses that
are local in character;

(2) Investments for the preservation or revitalization of either urban
or rural communities;

(3) Investments designed to meet the community development needs of,
and primarily benefit, low- and moderate-income communities; or

(4) Other community, inner city, or community development-related
investments approved by OTS.

(b) In addition to the amounts you may invest under paragraph (a) of
this section, and to the extent that you have authority under other
provisions of section 5(c) of the HOLA and part 560 of this chapter, and
available capacity within any applicable investment limits, you may make
loans to any service corporation and any lower-tier entity, subject to the
following conditions:

(1) You and your GAAP-consolidated subsidiaries may, in the aggregate,
make loans of up to 15% of your total capital, as described in part 567 of
this chapter to each subordinate organization that does not qualify as a
GAAP-consolidated subsidiary. All loans made under this paragraph (b)(1)
may not, in the aggregate, exceed 50% of your total capital, as described
in part 567 of this chapter.

(2) The Regional Director may limit the amount of loans to a
GAAP-consolidated subsidiary, or may adjust the limits set forth in
paragraph (b)(1) of this section where safety and soundness considerations
warrant such action.

(c) For purposes of this section, the terms “loans” and “obligations”
include all loans and other debt instruments (except accounts payable
incurred in the ordinary course of business and paid within 60 days) and
all guarantees or take-out commitments of such loans or debt
instruments.

[61 FR 66571, Dec. 18, 1996, as amended at 72 FR 69438, Dec. 7,
2007]

Subpart B—Regulations Applicable to All Savings
Associations

top

§ 559.10   How must separate corporate identities
be maintained?

top

(a) Each savings association and subordinate organization thereof must
be operated in a manner that demonstrates to the public that each
maintains a separate corporate existence. Each must operate so that:

(1) Their respective business transactions, accounts, and records are
not intermingled;

(2) Each observes the formalities of their separate corporate
procedures;

(3) Each is adequately financed as a separate unit in light of normal
obligations reasonably foreseeable in a business of its size and
character;

(4) Each is held out to the public as a separate enterprise; and

(5) Unless the parent savings association has guaranteed a loan to the
subordinate organization, all borrowings by the subordinate organization
indicate that the parent is not liable.

(b) OTS regulations that apply both to savings associations and
subordinate organizations shall not be construed as requiring a savings
association and its subordinate organizations to operate as a single
entity.

§ 559.11   What notices are required to establish
or acquire a new subsidiary or engage in new activities through an
existing subsidiary?

top

When required by section 18(m) of the Federal Deposit Insurance Act, a
savings association (“you”) must file a notice (“Notice”) under part 516,
subpart A of this chapter at least 30 days before establishing or
acquiring a subsidiary or engaging in new activities in a subsidiary. The
Notice must contain all of the information the Federal Deposit Insurance
Corporation (FDIC) requires under 12 CFR 362.15. Providing OTS with a copy
of the notice you file with the FDIC will satisfy this requirement. If OTS
notifies you within 30 days that the Notice presents supervisory concerns,
or raises significant issues of law or policy, you must apply for and
receive OTS's prior written approval under the standard treatment
processing procedures at part 516, subpart A and E of this chapter before
establishing or acquiring the subsidiary or engaging in new activities in
the subsidiary.

[61 FR 66571, Dec. 18, 1996, as amended at 64 FR 69185, Dec. 10, 1999;
66 FR 13007, Mar. 2, 2001]

§ 559.12   How may a subsidiary of a savings
association issue securities?

top

(a) A subsidiary may issue, either directly or through a third party
intermediary, any securities that its parent savings association (“you”)
may issue. The subsidiary must not state or imply that the securities it
issues are covered by federal deposit insurance. A subsidiary may not
issue any security the payment, maturity, or redemption of which may be
accelerated upon the condition that you are insolvent or have been placed
into receivership.

(b) You must file a notice with OTS in accordance with §559.11 of this
part at least 30 days before your first issuance of any securities through
an existing subsidiary or in conjunction with establishing or acquiring a
new subsidiary. If OTS notifies you within 30 days that the notice
presents supervisory concerns or raises significant issues of law or
policy, you must receive OTS's prior written approval before issuing
securities through your subsidiary.

(c) For as long as any securities are outstanding, you must maintain
all records generated through each securities issuance in the ordinary
course of business, including a copy of any prospectus, offering circular,
or similar document concerning such issuance, and make such records
available for examination by OTS. Such records must include, but are not
limited to:

(1) The amount of your assets or liabilities (including any guarantees
you make with respect to the securities issuance) that have been
transferred or made available to the subsidiary; the percentage that such
amount represents of the current book value of your assets on an
unconsolidated basis; and the current book value of all such assets of the
subsidiary;

(2) The terms of any guarantee(s) issued by you or any third party;

(3) A description of the securities the subsidiary issued;

(4) The net proceeds from the issuance of securities (or the pro rata
portion of the net proceeds from securities issued through a jointly owned
subsidiary); the gross proceeds of the securities issuance; and the market
value of assets collateralizing the securities issuance (any assets of the
subsidiary, including any guarantees of its securities issuance you have
made);

(5) The interest or dividend rates and yields, or the range thereof,
and the frequency of payments on the subsidiary's securities;

(6) The minimum denomination of the subsidiary's securities; and

(7) Where the subsidiary marketed or intends to market the
securities.

[61 FR 66571, Dec. 18, 1996, as amended at 69 FR 68249, Nov. 24,
2004]

§ 559.13   How may a savings association exercise
its salvage power in connection with a service corporation or lower-tier
entities?

top

(a) In accordance with this section, a savings association (“you”) may
exercise your salvage power to make a contribution or a loan (including a
guarantee of a loan made by any other person) to your service corporation
or lower-tier entity (“salvage investment”) that exceeds the maximum
amount otherwise permitted under law or regulation. You must notify OTS at
least 30 days before making such a salvage investment. This notice must
demonstrate that:

(1) The salvage investment protects your interest in the service
corporation or lower-tier entity;

(2) The salvage investment is consistent with safety and soundness;
and

(3) You considered alternatives to the salvage investment and
determined that such alternatives would not adequately satisfy paragraphs
(a)(1) and (a)(2) of this section.

(b) If OTS notifies you within 30 days that the Notice presents
supervisory concerns, or raises significant issues of law or policy, you
must apply for and receive OTS's prior written approval under the standard
treatment processing procedures at part 516, subparts A and E of this
chapter before making a salvage investment.

(c) If your service corporation or lower-tier entity is a
GAAP-consolidated subsidiary, your salvage investment under this section
will be considered an investment in a subsidiary for purposes of part 567
of this chapter.

[61 FR 66571, Dec. 18, 1996, as amended at 66 FR 13007, Mar. 2,
2001]

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