The Federal Reserve on July 21 issued supervisory guidance with respect to its supervision of savings and loan holding companies (SLHCs) and their non-depository subsidiaries. Board Supervision and Regulation Letter 11-11 describes the supervisory approach the Federal Reserve will take during the first supervisory cycle for SLHCs. For purposes of the guidance, the first supervisory cycle for an SLHC is the period of time between July 21, 2011, and the close of the first required examination. The guidance states that it is important that any company that owns and operates a savings association be held to appropriate standards of capitalization, liquidity, and risk management consistent with principles of safety and soundness, and appropriate standards of consumer compliance risk management especially where non-depository subsidiaries are engaged in activities involving consumer financial products or services. However, the guidance states, the Federal Reserve is “aware that it will take time” for Federal Reserve supervisory staff “to better understand an SLHC’s operations and business model.” The Federal Reserve “also is aware that SLHC management may need a period of time to make operational changes in response to the Federal Reserve’s supervisory expectations, if necessary.” The first cycle of SLHC examinations “will be instructive to both the Federal Reserve and SLHC management in terms of practical issues that arise in the supervision of an SLHC, particularly in the supervision of an SLHC that engages primarily in commercial, insurance, or broker-dealer activities.”

Nutter Notes:  Title III of the Dodd-Frank Act transferred to the Federal Reserve on July 21, 2011 the supervisory functions of the OTS related to SLHCs and their non-depository subsidiaries. As a result, approximately 430 SLHCs transferred to Federal Reserve supervision on July 21, 2011. The Dodd-Frank Act provides that all regulations, guidelines, and other advisory materials issued by the OTS on or before the transfer date with respect to SLHCs and their non-depository subsidiaries will be enforceable until modified, terminated, set aside, or superseded. The Federal Reserve has approved a notice that will be published in the Federal Register shortly which outlines the OTS regulations that the Federal Reserve intends to continue to enforce after the transfer date. See “Other Developments” below. The Federal Reserve generally intends to transition SLHCs into the Federal Reserve’s designated supervisory portfolios of holding companies with similar characteristics and risk profiles. SLHCs that engage in significant commercial, insurance, and broker-dealer activities may be included in separate supervisory portfolios. Depending on the size and activities of the SLHC, Federal Reserve supervisory staff will use the first supervisory cycle to develop an understanding of the SLHC’s business profile; prepare an institutional overview, risk assessment, and supervisory plan; and begin initial discovery reviews and assessments, the guidance states.