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Definition of Financial Institution

April 18, 1990

Mr. Jonathan Fiechter
Senior Deputy Director
Supervision-Policy
Office of Thrift Supervision
1700 G Street, N.W.
Washington, D.C. 20552

Dear Mr. Fiechter:

It has come to our attention that the term “financial institution” as it is used in the Government Securities Act of 1986 (“GSA,” 15 U.S.C. 78o-5) and its implementing regulations (17 C.F.R. Chap. IV) has been modified as a result of a definitional redesignation occasioned by the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (“FIRREA,” Pub. L. 101-73, 100 Stat. 183). Specifically, institutions that were formerly insured by the Federal Savings and Loan Insurance Corporation (FSLIC) and that were government securities brokers or dealers under the GSA and its implementing regulations are no longer included within the definition of financial institution set out at section 3(a)(46) of the Securities Exchange Act of 1934 (“Exchange Act,” 15 U.S.C. 78c(a)(46)).

The GSA and its implementing regulations rely upon an Exchange Act definition of financial institution whose only reference to formerly FSLIC-insured thrifts is contained in subsection C of the definition. Subsection C refers to insured institutions as that term is defined in section 401 of the National Housing Act (12 U.S.C. 1724 et seq.). Section 407 of FIRREA abolished Title 4 of the National Housing Act, thereby, voiding the reference made in subsection C of section 3(a)(46) of the Exchange Act that included insured thrifts in the definition of financial institution. Since FIRREA did not amend or replace the deleted reference, the group of entities that were included within subsection C would no longer be considered financial institutions for purposes of the GSA and its implementing regulations.

This negation of a portion of the definition of financial institution would alter the regulatory treatment of all savings associations that were formerly insured by FSLIC and that engaged in government securities activities. Since these entities would no longer fit within the definition of financial institution, the entities that formerly relied upon the exemptions set out at sections 401.3 and 401.4 of the GSA regulations would no longer qualify for such exemptions (including the exemption related to repurchase transactions), would be required to register with the Securities and Exchange Commission (SEC) pursuant to section 15C(a)(1)(A) of the Exchange Act, and would be required to comply with subchapter A of the GSA regulations as those rules apply to non-financial institution government securities brokers and dealers. Additionally, any currently noticed savings association would have to now register with the SEC as a government securities broker or dealer and would be subject to the same regulatory treatment as non-financial institution government securities brokers and dealers.

This unintentional regulatory treatment of savings associations would be contrary to that afforded other financial institutions under the GSA regulations and contrary to the treatment of savings associations as originally implemented by the GSA regulations. Accordingly, this interpretation of the GSA regulations is being issued to state that certain savings associations that engage in government securities activities should be considered financial institutions for the purposes of subchapter A of the regulations.

Any savings association that has given notice of its status as a government securities broker or dealer does not have to refile notice under this interpretation. Any other federally-insured savings association that intends to conduct a business in government securities should file notice of its status as a government securities broker or dealer with the Director of the Office of Thrift Supervision (the appropriate regulatory agency as defined in section 3(a)(34)(G) of the Exchange Act, 15 U.S.C. 78c(a)(34)(G)). Furthermore, savings associations that have qualified or intend to qualify for the exemption granted by sections 401.3 and 401.4 of the regulations (17 C.F.R. 401.3 and 401.4) would continue to qualify since they would still be considered financial institutions.

Accordingly, for the reasons stated above and pursuant to 15 U.S.C. 78o-5(a)(4), the term “financial institution” as it appears in the GSA regulations, is interpreted to include a savings association, as such term is defined in section 3(b) of the Federal Deposit Insurance Act (12 U.S.C. 1813(b)), and whose deposits are insured by the Federal Deposit Insurance Corporation. This interpretation is intended to remain effective until such time as the Exchange Act is amended to include savings associations within the definition of financial institution.

Pursuant to 17 C.F.R. 400.2(c)(7), this letter will be made immediately available to the public.

Sincerely,
Richard L. Gregg
Commissioner