Regulatory Framework Realignment

July 8, 2010

Authored by: Bryan Cave

As part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Enhancing Financial Institution Safety and Soundness Act of 2010 (the “Act”) shifts regulatory authority from the OTS to the other federal banking regulatory authorities.

The Federal Reserve will become the federal regulator for savings and loan holding companies and their subsidiaries (other than depository institutions) and will have rulemaking authority under Section 11 of the Home Owners’ Loan Act, which generally covers the same types of transactions as currently governed by Regulations O and W as applied to savings associations.  The OCC will be charged with regulating federal savings associations and FDIC will pick up regulatory authority over state savings associations.  These transfers of power are to occur within one year of the enactment of the Act, subject to a potential 18-month extension if necessary to effectively complete the transition.  The OTS will be abolished 90 days after the transfers have been finalized.  The OCC and FDIC will work jointly with the OTS to transfer former OTS employees to OCC and FDIC to perform, to the extent practicable, the same functions that the employees performed at the OTS.

All existing OTS orders, resolutions, agreements, regulations and interpretations will continue to be in full force and effect and will be enforced by the Federal Reserve, OCC or FDIC, as applicable, until modified or superseded by the respective regulatory agency.  Prior to the official dates of the transfers of power, each of the Federal Reserve, OCC and FDIC will publish a list specifying the former OTS regulations that will be enforced by the respective agency going forward.

While the OTS is being abolished, the federal thrift charter is not affected by the Act.  Prior versions of the Act contemplated the elimination of the thrift charter and automatic conversion of federal thrifts into national banks.  However, the Act as currently agreed to preserves the federal thrift charter.  The authority to grant new thrift charters will be given to the OCC, as noted above, but the Act does not mandate whether new thrift charters should be issued, apparently leaving that to the discretion of the OCC.