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Federal Register / Vol. 86, No. 22 / Thursday, February 4, 2021 / Proposed Rules savings association-issued securities are not exempt from the general antifraud provisions of the Securities Act.20
The original exemption in section 3a5 of the Securities Act exempted an institution substantially all the business of which is confined to the making of loans to members. . . . 21
However, in 1970, the law was amended to require an exempted institution to be supervised and examined by a State or Federal supervisory authority.22
Lawmakers intended the oversight provided by State and Federal banking regulators to serve as an alternative to oversight by the SEC.
Legislative history of the Securities Act supports this assertion.23 In explaining why the 1933 bill did not cover bank-issued securities, Representative Rayburn explained, because the United States Government, through its examiners and State officials, is supervising these banks, and it has been complained that we are going into fields where we had no business. 24
D. OTS Offering Circular Regulations at 12 CFR Part 563g
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In 1985, the Federal Home Loan Bank Board FHLBB adopted the original predecessor rule to part 390, subpart W, the rules codified at 12 CFR part 563g, to regulate an area of thrift activity currently left unregulated by an exemption in the Securities Act for securities issued by regulated thrift institutions. 25 The FHLBB determined that uniform disclosure requirements were necessary to address the risk that securities offerings without uniform disclosure requirements would have a negative effect on the ability of institutions to raise capital and a concomitant adverse effect on the safety and soundness of such institutions and or Federal supervisory authority to qualify for the exemption.
20 See footnote 6.
21 See Public Law 91547, sec. 27c, 84 Stat. 1434
1970 amended to require that the institution be supervised and examined by a State or Federal supervisory authority to qualify for the exemption.
22 Id.
23 See e.g., Hearings before the Senate Comm. On Banking and Currency on S. 875, 73d Cong., 1st Sess. 99 at 76 1933 Mr. Thompson explaining that banks should be exempted from securities regulations because other regulators provide the necessary oversight: But when it comes to supervision of anything that has to do with Federal Reserve banks . . . , or rather, that they investigate and control in the sense of the issuance of securities, then so far as the surveillance of this bill is concerned we exempted them..
24 77 Cong. Rec. 2941 1933 remarks of Rep.
Rayburn; cf. id. at 2942 remarks of Rep. Cannon:
the banks are not properly supervised . . . with respect to the sale of their securities..
25 50 FR 53284 Dec. 31, 1985.

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the Federal Savings and Loan Insurance Corporation FSLIC. 26
In explaining the impetus for part 563g, the FHLBB cited Louis D.
Brandeis endorsement of full disclosure: sunlight is said to be the best of disinfectants. 27 In additional explanations for promulgating part 563g, the FHLBB cited section 3a2 of the Securities Act and stated that the main reason for the exemption of securities issued by savings and loans associations and similar institutions is that the principal Federal authority, rather than the SEC, should regulate such activity.28 As such, the FHLBB
determined it was appropriate to promulgate securities disclosure regulations to protect the public, as well as the FSLIC fund.29
In 1989, the Financial Institutions Reform, Recovery and Enforcement Act FIRREA transferred authority to regulate savings associations from the FHLB System and the FSLIC to the OTS.30 FIRREA required the OTS to adopt and publish the FHLBB
regulations and transfer the regulations to the OTS as the thrift regulatory authority designated by FIRREA.31 The OTS transferred and republished part 563g in 1989 with minor changes.32
Obsolete exceptions from offering circular requirements were removed, the definition of savings association was added, the definition of insured institution was removed, and language on what constitutes an unsafe and 26 Id. at 5328485. At the time, the FHLBB was the operating head of the FSLIC.
27 Id. at 53285 also citing Professor Louis Loss, people who are forced to undress in public will presumably pay some attention to their figures..
28 50 FR 38839, 38840 Sept. 24, 1985.
29 Id. The use of inadequate or misleading disclosure by individual insured institutions in connection with the offer and sale of securities could have a significant adverse effect on the capabilities of other insured institutions to raise capital, could result in an irrational allocation of capital within the industry, and could lead to illiquid and disorderly markets for the securities of insured institutions. Therefore, the FHLBB Board has the responsibility of regulating the securities activities of insured institutions when it determines that such regulation is necessary or appropriate for the preservation of the safety and soundness of insured institutions. Further, the FHLBB Board has the responsibility of regulating the securities activities of insured institutions when it determines that such regulation is necessary or appropriate to ensure that they are able to perform their functions as providers of housing finance. Finally, the FHLBB Board has the responsibility of regulating the securities activities of all insured institutions with a class of securities registered under the Exchange Act when it determines that such regulation is necessary or appropriate in the public interest for the protection of investors and to ensure fair dealing in the securities of such insured institutions..
30 Pub. L. 10173, 103 Stat. 183 1989.
31 Id.; 54 FR 49411 Nov. 30, 1989.
32 54 FR at 49417.

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unsound practice was clarified.33
Beyond these minimal changes, the OTS
transferred part 563g from the FHLBB
without substantive discussions on policy.
E. Part 390, Subpart W
As discussed above in section II.B. of this Supplementary Information section, the Dodd-Frank Act transferred the functions, powers, and duties of the former OTS relating to State saving associations to the FDIC, and named the FDIC as the appropriate Federal banking agency for State saving associations.34 In 2011, the FDIC
transferred all regulations of the former OTS applicable to State savings associations from 12 CFR chapter V to 12 CFR chapter III.35
Part 563g of the former OTSs regulations addressed securities offerings.36 The FDIC transferred the rules in part 563g with only technical revisions to part 390, subpart W.37 For part 390, subpart W, the FDIC removed references to Federal savings associations as well as the enforcement provisions of the Home Owners Loan Act HOLA.38 The FDICs reasons for rescinding part 390, subpart W at this time are discussed in section III of this Supplementary Information section, below.
F. FDIC-Proposed Securities Disclosure Regulations and Previously Adopted Statements of Policy Issuance of securities for FDICsupervised institutions generally is addressed by State securities laws and regulations, which until fairly recently have required State-chartered institutions to follow SEC regulations.
In May of 1974, the FDIC proposed a regulation that would have required State nonmember banks issuing securities to comply with disclosure and offering-circular requirements.39 The FDIC reissued the proposal in 1977 for comment with changes based on the FDICs experience reviewing offering circulars voluntarily submitted by State nonmember banks.40 The re-proposed regulation would have established minimum standards for disclosure of material facts in connection with the offer and sale by or on behalf of an insured State nonmember bank of securities issued by the bank where such offer and sale meet the criteria 33 Id.
34 76

FR 47652 Aug. 5, 2011.
at 47653.
36 Id. at 47654.
37 Id.
38 Id. at 47654.
39 See 39 FR 7434 Feb. 26, 1974.
40 See 42 FR 27955 June 1, 1977.
35 Id.

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