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Federal Register / Vol. 86, No. 21 / Wednesday, February 3, 2021 / Rules and Regulations
references the FRBs 12 CFR part 225, Regulation Y.33
The definition of equity investment in 362.2g is broader than the definition of ownership interest in 390.251, which means any equity interest in a business organization, limited or general partnership interests, or shares in a limited liability company. Similarly, the definition of subsidiary pursuant to 362.2r is substantially similar to the subsidiary definition in 390.251. The distinction is that 362.2r defines a subsidiary as any company that is owned or controlled directly or indirectly by one or more insured depository institutions, rather than only by a State savings association.
Therefore, the State savings associations would refer to those definitions in part 362 after subpart O was removed from the CFR.
A separate definition for GAAPconsolidated subsidiary is unnecessary as State savings association reports and financial statements are required to be uniform and consistent with U.S.
generally accepted accounting principles GAAP pursuant to section 37 of the FDI Act and section 4b of HOLA.34 Further, the instructions to the Consolidated Reports of Condition and Income Call Report state that the regulatory reporting requirements applicable to the Call Report shall conform to GAAP as set forth in the Financial Accounting Standards Boards Accounting Standards Codification.35
Because State savings associations have existing statutory directives to use GAAP in reporting and financial statements, eliminating a substantially similar regulation regarding GAAPconsolidated subsidiaries likely would not affect the quality of State savings association reporting and financial statements.

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B. Section 390.252How must separate corporate entities be maintained?
The core eligibility requirements in 362.4c describe corporate separateness in the context of the Statechartered depository institutionsubsidiary. The eligible subsidiary requirements in 362.4c2which are more detailed than eligible subsidiary requirements of 390.252
are designed specifically for the bank/
subsidiary relationship, and provide for separation between the State-chartered depository institution and its subsidiary 33 12 CFR 5.59d; 12 CFR part 225; 12 CFR
362.2e.
34 12 U.S.C. 1831na2; 12 U.S.C. 1463b2.
35 Instructions for Preparation of Consolidated Reports of Condition and Income, Form FFIEC 031
and 041 https www.ffiec.gov/pdf/FFIEC_forms/
FFIEC031_FFIEC041_201906_i.pdf.

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to lessen the possibility of piercing the corporate veil; deduction of the Statechartered depository institution investment in the subsidiary to segregate the capital supporting the State-chartered depository institution from the capital supporting the subsidiary; and limitations on the Statechartered depository institutions investment in the subsidiary and on transactions with the subsidiary to ensure transactions are arms-length.36
The eligible subsidiary requirements are also incorporated into 362.13. Section 362.13 permits a State savings association that previously filed an application, and obtained the FDICs consent to engage in an activity or to acquire or retain an investment in a service corporation engaging as principal in an activity, to continue the activity or retain the investment without seeking the FDICs consent, provided the State savings association and the service corporation, if applicable, continue to meet the conditions and restrictions of approval if the insured State savings association and any applicable service corporation meet the requirements of 362.4c2.37
The provisions of 362.4c2 that are duplicative of 390.252 require that an eligible subsidiary: 1 Meet applicable statutory or regulatory capital requirements and have sufficient operating capital for normal obligations that are reasonably foreseeable for a business of its size and character; 2 be physically separate and distinct in its operations from the operations of the state-chartered depository institution;
3 maintain separate accounting and other business records; 4 observe separate business entity formalities; 5
conduct business pursuant to independent policies and procedures designed to inform customers and prospective customers of the subsidiary that the subsidiary is a separate organization from the State-chartered depository institution; and 6 that the State-chartered depository institution is not responsible for, and does not guarantee, the obligations of the subsidiary.38
State savings associations and service corporations that qualify as eligible depository institutions and eligible subsidiaries pursuant to 362.4c maintain separate corporate identities, which should sufficiently insulate State savings associations from the liabilities of subsidiaries.
36 12 CFR 362.4c. See FIL9797. September 23, 1997.
37 12 CFR 362.13.
38 Section 362.4c2vii corresponds to 390.252a4 and 5.

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C. Section 390.253What notices are required to establish or acquire a new subsidiary or engage in new activities through a subsidiary?
This section provides that such a notice must contain all of the information required under 362.15, is subject to FDIC objection, and must be filed at least 30 days prior to the establishment or acquisition of a subsidiary or commencement of a new activity through a subsidiary. The notice requirements of 362.15 are substantially similar to the transferred OTS notice requirement in 390.253.
The proposal included a technical amendment to remove references to Federal savings association notice requirements in 362.15. Section 18m of the FDI Act, as amended by section 3637 of the Dodd-Frank Act,39 no longer requires Federal savings associations to provide notice to the FDIC prior to the establishment, or acquisition, of a subsidiary, or prior to commencement of a new activity in a subsidiary controlled by a Federal savings association.40 State savings associations must continue to notify the FDIC at least 30 days prior to establishing or acquiring a subsidiary or prior to commencement of a new activity through a State savings association-controlled subsidiary pursuant to section 18m and 362.15, as described in the NPR.41
D. Section 390.254How may a subsidiary of a State savings association issue securities?
State savings association subsidiaries are permitted to issue securities pursuant to section 28 of the FDI Act because the operating subsidiaries and service corporations of Federal savings associations are permitted to issue securities, subject to regulatory limitations. State savings associations and their subsidiaries are reminded that subsidiary issuances, like other permissible activities, are subject to the same restrictions or conditions imposed on the Federal savings association and must be conducted in the same manner in which an operating subsidiary or service corporation is authorized to issue such securities.42
Accordingly, a State savings association subsidiary should not state or imply that the securities it issues are covered by Federal deposit insurance, or issue any security the payment, maturity, or redemption of which may be accelerated upon the condition that 39 Public
Law 111203, 124 Stat 1376 2010.
U.S.C. 1828m.
41 85 FR 67684, 67687 Oct. 26, 2020.
42 85 FR 67684, 67688 Oct. 26, 2020.
40 12

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