Financial Institutions, Industrial Loan Corporations

Rule R339-6

Rule Clarifying Industrial Loan Corporation Investments

Notice of Proposed Rule

(Amendment)

DAR File No.: 34205
Filed: 11/01/2010 04:31:17 PM

RULE ANALYSIS

Purpose of the rule or reason for the change:

With the current economic downturn, depository institutions are now experiencing a greater number of foreclosures and acquiring portfolios of Other Real Estate Owned (OREO) property. It is important to provide regulatory standards for safe and sound management of OREO. The Department has concluded that it would be beneficial to have a uniform rule for all depositories under its jurisdiction.

Summary of the rule or change:

Rule R339-6, applicable to state-chartered industrial banks, is being amended by deleting provisions involving OREO. The removed provisions will be replaced with a new Rule R331-26. The purpose of the new rule is to protect the safety and soundness of all state-chartered depository institutions by prescribing requirements and restrictions for the prudent management of real estate held for purposes other than conducting the depository institution's business. The rule sets forth uniform regulatory standards for the safe and sound management of OREO by depositories under the jurisdiction of the Department of Financial Institutions. (DAR NOTE: The proposed new Rule R331-26 is under DAR No. 34207 in this issue, November 15, 2010, of the Bulletin.)

State statutory or constitutional authorization for this rule:

• Section 7-8-13
• Subsection 7-1-301(8)
• Section 7-8-14

Anticipated cost or savings to:

the state budget:

The deleted provisions of Rule R339-6 will be replaced by a proposed new rule and will not require additional appropriations.

local governments:

Local governments are not involved in regulating depository institutions and are therefore not subject to this rule.

small businesses:

Depository institutions, under the jurisdiction of the Department, are currently required to comply with minimum accounting standards for the treatment of OREO under generally accepted accounting principles (GAAP) and compliance to the rule should have minimal budgetary impact.

persons other than small businesses, businesses, or local governmental entities:

Depository institutions, under the jurisdiction of the Department, are currently required to comply with minimum accounting standards for the treatment of OREO under GAAP and compliance to the rule should have minimal budgetary impact.

Compliance costs for affected persons:

Depository institutions, under the jurisdiction of the Department, are currently required to comply with minimum accounting standards for the treatment of OREO under GAAP and compliance to the rule should have minimal budgetary impact.

Comments by the department head on the fiscal impact the rule may have on businesses:

Depository institutions, under the jurisdiction of the Department, are currently required to comply with minimum accounting standards for the treatment of OREO under GAAP and compliance to the rule should have minimal budgetary impact.

Edward Leary, Commissioner

The full text of this rule may be inspected, during regular business hours, at the Division of Administrative Rules, or at:

Financial Institutions
Industrial Loan Corporations
324 S STATE ST
SALT LAKE CITY, UT 84111-2393

Direct questions regarding this rule to:

• Paul Allred at the above address, by phone at 801-538-8854, by FAX at 801-538-8894, or by Internet E-mail at pallred@utah.gov

Interested persons may present their views on this rule by submitting written comments to the address above no later than 5:00 p.m. on:

12/15/2010

This rule may become effective on:

02/01/2011

Authorized by:

Edward Leary, Commissioner

R339. Financial Institutions, Industrial Loan Corporations.

R339-6. Rule Clarifying Industrial Loan Corporation Investments.

R339-6-3. Acceptable Investments for the Deposits and Other Funds of Industrial Loan Corporations.

(1) In the absence of a statute or rule to the contrary, an industrial loan corporation is unrestricted as to a percentage of its total capital being invested in the following:

(a) Cash, demand, or time deposits in a federally insured depository institution, or in deposits maintained directly with a federal reserve bank;

(b) Obligations of, or obligations which are fully guaranteed as to principal and interest by, the United States or this state or any of its political subdivisions;

(c) Any investment grade securities;

(d) Any securities purchased under agreements to resell;

(e) Leases, loans, or extensions of credit, whether unsecured or secured;

(f) Real estate contracts;

(g) Consumer and commercial installment sales contracts and security agreements;

(h) A subsidiary with the prior written approval of the commissioner upon finding that the subsidiary is primarily engaged in activities closely related to banking; or

(i) Such real estate as the industrial loan corporation may purchase at any sale, public or private, or which may be conveyed to the industrial loan corporation in satisfaction of or on account of a debt previously contracted in the conduct of its business upon which it had a mortgage, trust deed, judgment, assignment, lien or other claim[; however:]as set forth in Rule R331-26.

[(i) Any real estate acquired under this section shall be sold within two years after the date of acquisition;

(ii) If real estate acquired under this section is not sold within the two year period, it shall be charged off the books of the industrial loan corporation at the rate of 20% of the acquisition book value thereof each year commencing one year from the date of expiration of the two year period. The same shall be entirely charged off within five years from the expiration of the two year period.

](j) Any other investment with the prior written approval of the commissioner.

(2) An industrial loan corporation is restricted to 50% of its total capital at any one time being invested in the following:

Premises used in the conduct of the business which include real property and any interest therein, property such as furniture, fixtures, and equipment for use in carrying on its own business and the stock, bonds, debentures, or other obligations of any subsidiary or affiliate having as its exclusive activity the ownership and management of the property or interests.

(a) The amount invested in premises may exceed 50% of total capital upon application and finding by the commissioner that the additional investment is necessary to promote the viability and stability of the industrial loan corporation;

(b) If the use of any of the premises for the conduct of business of the thrift institution is discontinued, the industrial loan corporation shall consider the real property as an investment under the 10% of total capital limitation cited in Section (3) below.

(3) An industrial loan corporation is restricted to 10% of its total capital at any one time being invested in real estate other than real estate used in the premises in the conduct of the business or real estate purchased or conveyed on account of a debt previously contracted. Such limited investment by an industrial loan corporation may include real estate or participation interests in real estate whether in partnership, joint venture or participation interest in the real estate for the purpose of producing income or for inventory and sale or for improvement, including the erection of buildings on the real estate for sale or rental purposes, and the industrial loan corporation may hold, sell, lease, operate or otherwise exercise the rights of any owner of any property.

(4) An industrial loan corporation is restricted to an aggregate of 20% of its total capital at any time being invested in any other "prudent investments" not specifically mentioned above, in Rule R339-6-3(1) through (3); provided however, that the aggregate of investments in any form in any one person made pursuant to this section shall not exceed 10% of total capital.

 

KEY: financial institutions

Date of Enactment or Last Substantive Amendment: [1995]2010

Notice of Continuation: September 24, 2007

Authorizing, and Implemented or Interpreted Law: 7-1-301; 7-8-13; 7-8-14