The Office of Thrift Supervision (OTS) has proposed expanding the permissible activities of certain savings and loan holding companies (S&LHCs) to those permissible for bank holding companies. Since passage of the Gramm-Leach-Bliley Act of 1999 (GLB Act), the permissible activities of non-grandfathered S&LHCs have, in some respects, been less broad than those of bank holding companies, particularly bank holding companies organized under the laws of a foreign country. The OTS proposal, if adopted, would eliminate this disparity.
Currently, non-grandfathered S&LHCs may engage in (i) certain activities specified by the OTS that are permissible for multiple savings and loan holding companies, (ii) the laundry list of permissible activities permissible for bank holding companies that are deemed closely related to banking under Section 4(c)(8) of the Bank Holding Company Act, as specified by the Federal Reserve Board (FRB) in Regulation Y and (iii) the list of financial activities permissible for financial holding companies pursuant to the GLB Act. Those activities include, among others: (i) insurance underwriting and agency activities; (ii) securities underwriting and brokerage activities; (iii) sponsoring, organizing and managing mutual funds; (iv) asset management and advisory activities; (v) management consulting; and (vi) real estate development activities. Commercial and industrial activities generally are not permitted for non-grandfathered S&LHCs.
The purpose of the proposed OTS rule is to provide non-grandfathered S&LHCs parity with bank holding companies from the standpoint of permissible investments and activities. Thus, rather than limiting S&LHCs to the laundry list of permissible activities permissible for bank holding companies under Section 4(c)(8), the proposal would permit S&LHCs to engage in whatever activities are permissible for bank holding companies under all of Section 4(c) - not just those specified in subparagraph (8). The most significant of the Section 4(c) activities currently impermissible for S&LHCs are the activities permissible for foreign bank holding companies under Section 4(c)(9), as implemented by the FRB's Regulation K. There are currently no special exceptions from activities limitations for S&LHCs that are located in a foreign country. Thus, under the OTS' current regulations, foreign S&LHCs would be subject to the same activities limitations as domestic S&LHCs, which could severely limit the ability of a foreign company to acquire a U.S. thrift, since many foreign companies also engage in commercial or industrial activities abroad. On the other hand, pursuant to an exception in the Bank Holding Company Act, foreign bank holding companies that meet certain tests specified by the FRB may engage in a far broader range of activities both outside and within the U.S. than domestic bank holding companies. The rules governing the permissible activities of foreign bank holding companies are specified in the FRB's Regulation K.
Thus, if the proposal were adopted, a foreign company seeking to acquire a U.S. depository institution could equally consider the merits of a bank or a thrift charter without having to consider that additional activities limitations would be imposed on it if it acquired a thrift charter. The proposal presumably would require the OTS to apply the FRB's Regulation K to foreign S&LHCs in the same manner that it is applied by the FRB to foreign bank holding companies.
The proposal also clarifies that S&LHCs may acquire up to 5% of the stock of a company engaged in nonpermissible activities. This exemption is available to bank holding companies under Section 4(c)(6) of the BHCA.