Savings and Loan Holding Companies: Supervision by the Federal Reserve Board

Savings and Loan Holding Companies: Supervision by the Federal Reserve Board

by Dwight C. Smith, Barbara R. Mendelson, Charles M. Horn, Henry M. Fields and Oliver I. Ireland

The first formal step in the transition of the Federal Reserve Board taking over the supervisory responsibilities of the Office of Thrift Supervision occurred when the FRB published a notice seeking comment on the application to thrift holding companies of its examination and supervision framework for bank holding companies. This Commentary addresses the implications of the Notice for differently sized savings and loan holding companies.


Savings and loan holding companies ("SLHCs") will face important changes when the Federal Reserve Board ("FRB") takes over the supervisory responsibilities of the Office of Thrift Supervision ("OTS") on July 21, 2011. The first formal step in this transition occurred on April 15, when the FRB published a notice seeking comment on the application to thrift holding companies of its examination and supervision framework for bank holding companies (the "Notice"). The Notice states that the FRB's supervision regime would not require "any specific action" by SLHCs before the transfer date. The potential impact of some of the changes, however, warrants serious attention now by most SLHCs.

Critically, the Notice appears to be the only written guidance from the FRB before the transfer date. The Notice states that guidance and proposed rules will be issued after July 21, taking into account comments on the Notice. Comments are due by May 23.

The Notice explicitly describes a supervisory regime that is "more intensive" than that to which SLHCs are accustomed. For that reason alone, every SLHC should pay careful attention to the Notice. Additionally, the Notice outlines changes across two dimensions-the nature of an examination based almost solely on the size of the SLHC and changes that are industry-wide or that, at least, could affect a large segment of the thrift industry, regardless of size.

Certain SLHCs may have greater exposure under the FRB supervisory regime-among them small SLHCs, grandfathered unitary SLHCs, and SLHCs with a considerable portion of their capital in hybrid instruments.-and should give meaningful consideration to the possibility of submitting a comment. In any event, all SLHCs should review the Notice, since it is the only guidance that will be forthcoming before the FRB takes over from OTS. [footnotes omitted]

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Dwight C. Smith, a Partner at Morrison & Foerster, focuses his practice on bank regulatory matters that affect the full range of the operations of banks and thrifts. His recent representations have covered new requirements for banking institutions under the Dodd-Frank Act and Basel III, bank mergers and acquisitions, efforts to raise capital, and formal administrative enforcement proceedings.

Barbara R. Mendelson is a partner at Morrison & Foerster. Her practice involves advising foreign and U.S. banks in a variety of complex regulatory matters, including sales and acquisitions of U.S. banking and nonbanking firms, applications to federal and state bank regulators for expansion of activities and new products, Bank Secrecy Act and OFAC matters and over-the-counter and exchange-based trading of various instruments and derivatives. She has represented foreign banks in their U.S. operations for more than 25 years. She has also been instrumental in forming a number of commercial bank subsidiaries of foreign bank holding companies. In addition, she works with sovereign entities and multilateral organizations with respect to the investment of their foreign currency assets.

Charles M. Horn, a Partner at Morrison & Foerster, is a regulatory and transactional attorney whose practice focuses primarily on banking and financial services matters. He represents domestic and global financial services firms of all sizes on regulatory and transactional issues affecting their organization, structure, governance, management and operations. In addition, he provides sophisticated regulatory counseling to banks and other financial services firms relative to federal and state financial regulation, supervision, and compliance matters affecting their corporate, institutional, and retail business activities.

Henry M. Fields is a Partner at Morrison & Foerster. His financial services practice focuses on providing regulatory advice, including bank securities activities, margin regulations, and capital compliance, to international and domestic financial institutions and representing them in compliance and enforcement matters, new products and services, new entity formation, geographic expansion, mergers and acquisitions, and capital markets transactions. He also represents clients in a range of other industries, including branded apparel, consumer goods, and travel services, in mergers and acquisitions and capital markets transactions.

Oliver I. Ireland is a Partner at Morrison & Foerster, His practice focuses on retail financial services and bank regulatory issues including consumer protection rules such as Federal Reserve Regulations Z and E, the Gramm-Leach-Bliley Act privacy provisions, the Fair Credit Reporting Act, and all types of payment transactions, including compliance with NACHA rules. His practice also includes regulatory issues applicable to bank and thrift holding companies and to national and state charter banks, federal and state chartered thrifts, and federal and state chartered credit unions, as well as other financial regulatory issues, including margin lending. He was named one of Washington's top banking and privacy lawyers by the Washingtonian magazine (2004) and he has been listed in The Best Lawyers in America as a leader in the field of banking law since 2006.