other capital level imposed by the Board or Corporation.

(c) Qualifying for capital forbearance. The Principal Supervisory Agent may permit insured institutions to continue to operate and obtain capital forbearance, except as provided in paragraphs (f) and (g) of this section,

if

(1) The insured institution, at the time it submits its request for forbearance, has a weak capital condition;

(2) The insured institution's weak capital condition is primarily the result of losses recognized on, the nonperforming status of, or the failure of borrowers to otherwise remain in compliance with the repayment terms of loans or participations in loans that

are:

(i) Secured by collateral whose value is determined, in the discretion of the Principal Supervisory Agent, to have been adversely affected by economic conditions in an economically depressed region; or

(ii) Made by a minority insured institution that has

(A) 50 percent or more of its loans qualifying as minority loans or participations in minority loans; and

(B) 50 percent or more of its originated loans secured by one-to-four family residences;

(3) The insured institution submits and the Principal Supervisory Agent approves a capital plan that meets the requirements of paragraph (d) of this section for increasing the insured institution's regulatory capital to the required level;

(4) The insured institution, if its regulatory capital as calculated in accordance with § 561.13 at the time it requests forbearance is less than 0.5 percent, demonstrates and the Principal Supervisory Agent determines, in his discretion, that the institution has evidenced in its plan reasonable and demonstrable prospects for achieving its required level of regulatory capital thereafter, but not later than January 1, 1995; and

(5) In the case of a Federal association whose deposits are insured by the Federal Deposit Insurance Corporation ("FDIC"), the FDIC concurs in the PSA's determination.

(d) The capital plan. The plan referred to in paragraph (c)(3) of this section should contain a detailed description of the steps the insured institution will take to meet its minimum capital requirements, including capital infusions, mergers, and operating changes to increase regulatory capital or decrease asset size; address the insured institution's operations during the time it has capital forbearance, including lending and investment strategies, asset-liability growth, dividend levels, and compensation of directors and officers; and include forecasts and pro forma financial statements and set forth a reasonable time frame for achieving its minimum capital requirement that is not later than January 1, 1995. The Principal Supervisory Agent may require that the plan include other restrictions or requirements before approving the plan.

(e) Reporting. Any insured institution determined by the Principal Supervisory Agent to qualify for capital forbearance shall submit thorough and complete reports on such insured institution's progress in meeting the goals set forth in its capital plan. Such reports must provide the Principal Supervisory Agent with a detailed ongoing evaluation of capital recovery progress and explain any deviations from the schedule, methods, operations, or goals set forth in the plan. These reports shall be submitted as frequently as required by the Principal Supervisory Agent, but not less often than semiannually.

(f) Management and operating practices. The Principal Supervisory Agent must review the past and present management structure and operating practices of any insured institution that has submitted a request for capital forbearance and shall not approve that request if the Principal Supervisory Agent determines that the institution is not well-managed or that the institution's weak capital condition is the result of imprudent operating practices.

(1) In determining whether an insured institution is not well-managed, the Principal Supervisory Agent may consider, among other things, the management's —

(i) Record of operating the insured institution, including those operating practices not reviewed under paragraph (f)(2) of this section;

(ii) Compliance with laws, regulations, directives, orders, and agreements;

(iii) Timely recognition and correction of regulatory violations, unsafe or unsound practices, or other weaknesses identified through the examination or supervisory process;

(iv) Ability to operate the insured institution in changing economic conditions; and

(v) Ability to develop and implement the capital plan.

These factors may be considered with regard to service by any member of management at other insured institutions, commercial banks, or other financial institutions. The Principal Supervisory Agent also may take into account whether management has taken actions solely to qualify for capital forbearance.

(2) In determining whether the insured institution's weak capital condition is the result of imprudent operating practices, the Principal Supervisory Agent shall review the circumstances resulting in the institution's weak capital condition and determine whether they involve imprudent operating practices including, but not limited to:

(i) Practices that were speculative at the time they were undertaken;

(ii) Insider abuse and conflicts of interest;

(iii) The payment of excessive dividends;

(iv) Substandard underwriting of loans and investments;

(v) Unsafe or unsound practices within the meaning of 12 U.S.C. 1464(d)(2), 1730(e);

(vi) Excessive operating expenses; and

(vii) Actions taken solely to qualify for capital forbearance.

(3) Any determinations made pursuant to this paragraph (f) are solely for purposes of determining whether an insured institution qualifies for capital forbearance and are not binding or in any way dispositive of any pending or future supervisory, enforcement, or other legal actions.

(g) Termination of capital forbearance status. (1) The Principal Supervi sory Agent may determine that an institution does not qualify for capital forbearance or no longer qualifies for capital forbearance status, if:

(i) The institution fails to comply with its capital plan;

(ii) Forbearance was granted contingent upon the occurrence of events that do not subsequently occur;

(iii) The institution undergoes a change in control or a material change in management that was not approved by the Principal Supervisory Agent;

(iv) The institution engages in practices inconsistent with achieving its minimum capital requirement;

(v) Information is discovered that was not made available to the Principal Supervisory Agent at the time the institution qualified for capital forbearance and that indicates that forbearance should not have been granted;

(vi) The institution's regulatory capital at the time of requesting forbearance was reported to be at least 0.5 percent, but is later found to have been below 0.5 percent;

(vii) The institution engages in abusive, unsafe or unsound, or other imprudent practices;

(viii) The institution violates an agreement with, or order issued by, the Board or Corporation; or

(ix) The institution fails to submit the reports required by paragraph (e) of this section.

(2) The Principal Supervisory Agent shall terminate a grant of forbearance when an institution is no longer operating in a weak capital condition.

(3) The Principal Supervisory Agent shall notify an insured institution in writing if it no longer qualifies for capital forbearance stating the reasons for the termination. Such termination shall take effect upon receipt of such notification by the insured institution.

(4) Except if termination is contemplated for the reason set forth in paragraph (g)(2) of this section, as an alternative to denying or terminating capital forbearance, the Principal Supervisory Agent may permit the insured institution to revise its plan, and if such revision is approved by the Principal Supervisory Agent, capital

forbearance may be granted or continued.

(5) Any action by the Principal Supervisory Agent to terminate capital forbearance is deemed to be final action of the Board or Corporation.

(h) Status of supervisory, enforcement, and other actions during capital forbearance participation. (1) While an insured institution qualifies for capital forbearance, the Board and the Corporation shall not issue a capital directive pursuant to 12 CFR 563.14-1, institute supervisory or enforcement action to enforce the institution's capital requirement, or take action to terEminate the institution's insurance, or place the insured institution in conservatorship or receivership based on the insured institution's inadequate capital.

(2)

Notwithstanding paragraph (h)(1) of this section, the Board and the Corporation will not forbear from taking any appropriate action #against

(i) The insured institution for matters other than inadequate capital, or (ii) Any individual or entity other than the institution for any matter, * including inadequate capital.

(3) All existing supervisory or enforcement actions remain in effect unless lawfully modified or terminated.

(4) All regulations that address, relate to, or include a reference to regulatory capital or net worth remain in effect as before forbearance was grant♫ ed, unless lawfully modified as applied to a particular institution.

(i) Procedures. (1) An insured institution seeking capital forbearance ♫ must submit a written request to the Principal Supervisory Agent. Except r as provided in paragraph (i)(2) of this section, the request must consist of:

(1) A detailed showing, including docdiumentation, by the insured institution that it is eligible for capital forbearance because it meets the requiretments of paragraphs (c) (1) through $(4) and (f) of this section; and

(ii) A plan meeting the requirements of paragraph (d) of this section.

(2) The written request for capital forbearance need not include a showying that the region or regions in which the insured institution's collateral

value was adversely affected, within the meaning of paragraph (c)(2)(i) of this section, are “economically depressed" unless, within the time frames permitted for requests for additional information under § 571.12(c)(1) of this subchapter, the Principal Supervisory Agent to whom the application was directed, following consultation, where appropriate, with the Principal Supervisory Agent of the Federal Home Loan Bank District in which the region is located, requests such a showing.

(3)(i) Requests for capital forbearance will be processed in accordance with § 571.12 of this subchapter unless within thirty days of the receipt of a properly filed request, the Principal Supervisory Agent notifies an institution that an examination is necessary in conjunction with its request, in which case the request will not be deemed complete until the examination is completed.

(ii) If the request is denied, the Principal Supervisory Agent shall notify the institution in writing and state the reasons for the denial.

(4) Any action by the Principal Supervisory Agent to grant or deny a request for forbearance is deemed to be final action of the Board or Corporation.

[53 FR 361, Jan. 6, 1988]

30-039 0-89-13

tions shall comply with respect to the installation, maintenance, and operation of security devices and procedures to discourage robberies, burglaries, and larcenies and to assist in the identification and apprehension of persons who commit such acts; sets time limits within which insured institutions shall comply with the standards; and provides for the submission of reports with respect to compliance. For the purposes of this part:

(a) The term "Chief Examiner” means the Chief Examiner of the Office of Examinations and Supervision of the Federal Home Loan Bank Board who is responsible for the conduct of such Office's examinations of insured institutions in the District of the Federal Home Loan Bank in which an insured institution is located.

(b) The term "business hours" means the time during which an office is open for the normal transaction of business with the public.

(c) The term "office" includes the principal office of an insured institution and any branch thereof.

(d) The term "branch" includes any branch business quarters, agency, additional office, mobile facility, or any branch place of business located in any State or territory of the United States or in the District of Columbia at which investments in insured accounts are received or payments on loans are received.

(e) The term "teller's station or window" means a location in an office at which the institution's customers routinely conduct transactions with the institution which involves the exchange of funds, including a walkup or drive-in teller's station or window.

§ 563a.2 Designation of security officer.

On or before March 17, 1969 (or within 30 days after the effective date of insurance of accounts, whichever is later), the board of directors of each insured institution shall designate an officer or other employee of the institution who shall be charged, subject to supervision by the institution's board of directors, with responsibility for the installation, maintenance, and operation of security devices and for the development and administration of a security program which equal or

exceed the standards prescribed by this part.

§ 5638.3 Security devices.

(a) Installation, maintenance, and operation of appropriate security devices. Before January 1, 1970 (or within 30 days after the effective date 7 of insurance of accounts, whichever is later), the security officer of each insured institution, under such direc tions as shall be given him by the institution's board of directors, shall survey the need for security devices in each of the institution's offices and shall provide for the installation, maintenance, and operation, in each such office, of

(1) A lighting system for illuminat ing, during the hours of darkness, the area around the vault, if the vault is visible from outside the office;

(2) Tamper-resistant locks on extering or doors and exterior windows des signed to be opened;

(3) An alarm system or other appro- an priate device for promptly notifying en the nearest responsible law enforce ment officers of an attempted or perpetrated robbery or burglary; and

(4) Such other devices as the securi ty officer, after seeking the advice of law enforcement officers, shall deter mine to be appropriate for discourag ing robberies, burglaries, and larcenies D and for assisting in the identification 0 and apprehension of persons who commit such acts.

(b) Considerations relevant to deter mining appropriateness. For the pur pose of paragraph (a)(4) of this secon tion, considerations relevant to deter mining appropriateness include, but are not limited to

(1) The incidence of crime against the particular office and/or against financal institutions in the area in which the office is or will be located;

(2) The amount of currency or other valuables exposed to robbery, burgla ry, or larceny;

(3) The distance of the office from the nearest responsible law enforce ment officers and the time required for such law enforcement officers ordinarily to arrive at the office;

(4) The cost of the security devices;

(5) Other security measures in effect at the office; and

(6) The physical characteristics of the office structure and its surroundings.

(c) Implementation. It is appropriate for offices of insured institutions in areas with a high incidence of crime to install many devices which would not be practicable because of costs for small offices in areas substantially free of crimes against financial institutions. Each institution shall consider the appropriateness of installing, maintaining, and operating security devices which are expected to give a general level of protection at least equivalent to the standards described in Appendix A of this part. In any case in which (on the basis of the factors listed in paragraph (b) of this section or similar ones, the use of other measures, or the decision that technologiE cal change allows the use of other measures judged to give equivalent protection) it is decided not to install, the maintain, and operate devices at least 1 equivalent to these standards, the institution shall preserve in its records a statement of the reasons for such decision.

who shall be responsible for seeing that such devices are inspected, tested, serviced, and kept in good working order; and require such officer or other employee to keep a record of such inspections, testings, and servicings;

(2) Require that each office's currency be kept at a reasonable minimum and provide procedures for safely removing excess currency;

(3) Require that the currency at each teller's station or window be kept at a reasonable minimum and provide procedures for safely removing excess currency and negotiable securities to a locked safe, vault, or other protected place;

(4) Require that the currency at each teller's station or window include "bait" money, i.e., used Federal Reserve notes, the denominations, banks of issue, serial numbers, and series years of which are recorded, verified by a second officer or employee, and kept in a safe place;

(5) Require that all currency and negotiable securities be placed in a vault or safe at the earliest time practicable after business hours, that the vault or safe be locked at the earliest time practicable after business hours, and that the vault or safe be opened at the latest time practicable before business hours;

(6) Provide, where practicable, for designation of a person or persons to open each office and require him or them to inspect the premises, to ascertain that no unauthorized persons are present, and to signal other employees that the premises are safe before permitting them to enter;

(7) Provide for designation of a person or persons who will assure that all security devices are turned on and are operating during the periods in which such devices are intended to be used;

(8) Provide, where practicable, for designation of a person or persons to inspect, after the closing hour, all areas of each office where currency and negotiable securities are normally handled or stored in order to assure that such currency and negotiable securities have been put away, that no unauthorized persons are present in such areas, and that the vault or safe