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Federal Register / Vol. 86, No. 34 / Tuesday, February 23, 2021 / Rules and Regulations
Policy Statement, acknowledges this practice, noting that a consolidated group may prepare and file Federal and State income tax returns as a group so long as the interests of any insured depository institution subsidiaries are not prejudiced. Given the potential harm to insured subsidiary institutions, the Policy Statement encourages parent companies and their insured depository institution subsidiaries to enter into written, comprehensive tax allocation agreements, and notes that inconsistent practices regarding tax obligations may be viewed as an unsafe and unsound practice prompting either informal or formal corrective action. The final rule, consistent with the proposed rule, similarly seeks to avoid potential harm to a subsidiary industrial bank by requiring such a written tax allocation agreement. The final rule includes commitment 8 as proposed.
In addition to the eight commitments discussed above, 354.4b of the proposed rule permitted the FDIC to condition the approval of an application or non-objection to a notice on the Covered Company and industrial bank committing to adopt, maintain, and implement an FDIC-approved contingency plan that presents one or more actions to address potential significant financial or operational stress that could threaten the safe and sound operation of the insured industrial bank. The plan also would reflect strategies for the orderly disposition of the industrial bank without the need for the appointment of a receiver or conservator. Such disposition could include, for example, sale of the industrial bank to, or merger with, a third party.
The FDIC received two comments on the contingency plan requirement. One commenter stated that the FDIC should consider size, complexity, interdependencies, and other relevant factors in requiring, reviewing, and approving a contingency plansimilar to the living will requirements under section 165d of the Dodd-Frank Act where the FRB has tiered certain requirements based upon an institutions asset size. This commenter also suggested that the FDIC formalize FR 64757 Nov. 23, 1998; Addendum to the Interagency Policy Statement on Income Tax Allocation in a Holding Company Structure, 79 FR
35228 June 19, 2014. The 2014 Addendum to the Interagency Policy Statement on Income Tax Allocation in a Holding Company Structure also clarifies that all tax allocation agreements are subject to the requirements of section 23B of the Federal Reserve Act, and tax allocation agreements that do not clearly acknowledge that an agency relationship exists may be subject to additional requirements under section 23A of the Federal Reserve Act.

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these considerations in the final rule.
The other commenter stated that, while dissolution requirements may be appropriate for large complex institutions that pose a risk to the DIF, smaller banks do not pose the same risks nor require the same level of complex planning. According to this commenter, the cost of contingency planning would outweigh its benefit for smaller institutions. This commenter also stated that, at a minimum, any contingency planning requirement should be no more stringent than the requirement for other FDIC-insured intuitions of the same size.
As discussed in the NPR, a contingency plan commitment would only be required in certain circumstances based upon the facts and circumstances presented, and after taking into consideration size, complexity, interdependencies, and other relevant factors. The final rule preserves the FDICs supervisory discretion to tailor the contents of any contingency plan to a specific Covered Company and its insured industrial bank subsidiary. This ability to tailor the requirements of a contingency plan serves to minimize the burdens of developing and implementing such a plan. It should also be noted that contingency plans are not the same as resolution plans under section 165d of the Dodd-Frank Act or 360.10 of the FDICs Rules and Regulations, and the contents of a contingency plan if required would be far less complex. A
contingency plan is an explanation of the steps the industrial bank and Covered Company could take to mitigate the impacts of financial and operational stress outside of the receivership process. Finally, the FDIC believes that a contingency plan, when required, may help the FDIC, the Covered Company, and its industrial bank subsidiary to better understand the relevant interdependencies, operational risks, and other circumstances or events that could create safety and soundness concerns and attendant risk to the DIF.
Accordingly, the FDIC is finalizing this requirement as proposed.
While the contingency plan is one type of commitment that the FDIC
would be able to require of Covered Companies and their industrial bank subsidiaries, there may be other commitments that the FDIC may determine to be appropriate given the business plan, capital levels, or organizational structure of a Covered Company or its subsidiary industrial bank. Section 354.4c of the proposed rule provided that the FDIC may require such additional commitments from a Covered Company or controlling
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shareholder of a Covered Company in addition to those described in 354.4a or b in order to ensure the safety and soundness of the industrial bank and reduce potential risk to the DIF.
Several commenters specifically addressed 354.4c.122 One commenter raised concerns that the rule would be applied to Covered Companies or controlling shareholders of existing industrial banks. As discussed above, because the rule is constructed to apply prospectively, parties will become subject to the rule only as the result of 1 the formation of an industrial bank on or after the effective date of the final rule, or 2 a merger transaction or change in control on or after the effective date of the final rule, assuming the institution retains its industrial bank charter.
A second commenter raised concerns that 354.4c vests open-ended authority in the FDIC to change, at any time and for any reason, the obligations of a Covered Company or controlling shareholder. The commenter further suggested that agreements should be negotiated at the outset. Another commenter also suggested that the FDIC
should rely on its enforcement authority rather than including additional commitments in the written agreements.
In response to commenters concerns about the application of this section, the FDIC is removing 354.4c to avoid confusion that the FDIC would unilaterally impose additional commitments or restrictions.
Notwithstanding this deletion, the FDIC
retains its general supervision, examination, and enforcement authorities as reserved by 354.6 to take any actions beyond the scope of the final rule, including actions to ensure the safe and sound operation of any insured depository institution, including an industrial bank, and further to ensure that a parent of an industrial bank acts as a source of financial strength to that insured institution. For example, the FDIC may require additional, unique commitments from a Covered Company or a controlling shareholder of a Covered Company when the FDIC determines it is necessary to address specific elements of a filing or circumstances related to the filer. Additional commitments may be derived, for instance, from elements of the business model presented, including the nature and scope of activities conducted, the risk profile of the activities, and the complexity of operations. The proposed relationships 122 These commenters raised the same or similar concerns with respect to 354.5b, which the FDIC
also is deleting in the final rule.

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