Two releases this week (see below), one by the Federal Reserve Board (“FRB”) and one by the Office of the Comptroller of the Currency (“OCC”), helped move the agencies forward in implementing their edict under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 to assume supervisory responsibility of federal savings associations (“FSAs”) and savings and loan holding companies (“SLHCs”) from the prior Office of Thrift Supervision (“OTS”). The OCC has assumed responsibility for FSAs, while the FRB has supervisory responsibility for SLHCs.
The process of transition has been slow to implement as FSAs and SLHCs have different structures and have been held to a different standard in the past than banks or bank holding companies (“BHCs”). The OTS was generally seen as being a more “hands-off” regulator, while the OCC and the FRB are both generally viewed as being very involved in the day-to-day activities of the institutions that they supervise and imposing more stringent standards. Initially, there was some speculation as to whether the FRB and OCC would simply continue using the standards implemented by the OTS; however, the FRB announced in Supervision and Regulation Letter 11-11 that it was their “intention, to the greatest extent possible taking into account any unique characteristics of SLHCs and the requirements of the Home Owner’s Loan Act (HOLA), to assess the condition, performance, and activities of SLHCs on a consolidated basis in a manner that is consistent with the Board’s established risk-based approach regarding bank holding company (BHC) supervision.” The FRB has been gradually incorporating the BHC examination standards into their review of SLHCs. This gradual approach has served both (i) to allow the FRB to better understand the unique nature of the SLHC business, and (ii) to allow SLHCs to implement new policies and procedures where discovery reviews indicate that the SLHC has a deficiency based on the new FRB standards that they are being held to.
This is an area that is ripe for conflict as institutions and regulators clash over the proper standards required to ensure safety and soundness. We will continue to update you on developments in this area, or please reach out to your normal Winston and Strawn attorney or a member of the Winston and Strawn Financial Services team for assistance with a particular matter.