[Title 12 CFR ]
[Code of Federal Regulations (annual edition) - January 1, 2008 Edition]
[From the U.S. Government Printing Office]



[[Page i]]

          

          12


          Parts 1 to 199

                         Revised as of January 1, 2008


          Banks and Banking
          



________________________

          Containing a codification of documents of general 
          applicability and future effect

          As of January 1, 2008
          With Ancillaries
                    Published by
                    Office of the Federal Register
                    National Archives and Records
                    Administration
                    A Special Edition of the Federal Register

[[Page ii]]

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                            Table of Contents



                                                                    Page
  Explanation.................................................       v

  Title 12:
          Chapter I--Comptroller of the Currency, Department 
          of the Treasury                                            3
  Finding Aids:
      Table of CFR Titles and Chapters........................     469
      Alphabetical List of Agencies Appearing in the CFR......     487
      List of CFR Sections Affected...........................     497

[[Page iv]]





                     ----------------------------

                     Cite this Code: CFR
                     To cite the regulations in 
                       this volume use title, 
                       part and section number. 
                       Thus, 12 CFR 1.1 refers to 
                       title 12, part 1, section 
                       1.

                     ----------------------------

[[Page v]]



                               EXPLANATION

    The Code of Federal Regulations is a codification of the general and 
permanent rules published in the Federal Register by the Executive 
departments and agencies of the Federal Government. The Code is divided 
into 50 titles which represent broad areas subject to Federal 
regulation. Each title is divided into chapters which usually bear the 
name of the issuing agency. Each chapter is further subdivided into 
parts covering specific regulatory areas.
    Each volume of the Code is revised at least once each calendar year 
and issued on a quarterly basis approximately as follows:

Title 1 through Title 16.................................as of January 1
Title 17 through Title 27..................................as of April 1
Title 28 through Title 41...................................as of July 1
Title 42 through Title 50................................as of October 1

    The appropriate revision date is printed on the cover of each 
volume.

LEGAL STATUS

    The contents of the Federal Register are required to be judicially 
noticed (44 U.S.C. 1507). The Code of Federal Regulations is prima facie 
evidence of the text of the original documents (44 U.S.C. 1510).

HOW TO USE THE CODE OF FEDERAL REGULATIONS

    The Code of Federal Regulations is kept up to date by the individual 
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    To determine whether a Code volume has been amended since its 
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Register page number of the latest amendment of any given rule.

EFFECTIVE AND EXPIRATION DATES

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OMB CONTROL NUMBERS

    The Paperwork Reduction Act of 1980 (Pub. L. 96-511) requires 
Federal agencies to display an OMB control number with their information 
collection request.

[[Page vi]]

Many agencies have begun publishing numerous OMB control numbers as 
amendments to existing regulations in the CFR. These OMB numbers are 
placed as close as possible to the applicable recordkeeping or reporting 
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OBSOLETE PROVISIONS

    Provisions that become obsolete before the revision date stated on 
the cover of each volume are not carried. Code users may find the text 
of provisions in effect on a given date in the past by using the 
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INCORPORATION BY REFERENCE

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This material, like any other properly issued regulation, has the force 
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    What is a proper incorporation by reference? The Director of the 
Federal Register will approve an incorporation by reference only when 
the requirements of 1 CFR part 51 are met. Some of the elements on which 
approval is based are:
    (a) The incorporation will substantially reduce the volume of 
material published in the Federal Register.
    (b) The matter incorporated is in fact available to the extent 
necessary to afford fairness and uniformity in the administrative 
process.
    (c) The incorporating document is drafted and submitted for 
publication in accordance with 1 CFR part 51.
    Properly approved incorporations by reference in this volume are 
listed in the Finding Aids at the end of this volume.
    What if the material incorporated by reference cannot be found? If 
you have any problem locating or obtaining a copy of material listed in 
the Finding Aids of this volume as an approved incorporation by 
reference, please contact the agency that issued the regulation 
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20408, or call 202-741-6010.

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This index is based on a consolidation of the ``Contents'' entries in 
the daily Federal Register.
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the revision dates of the 50 CFR titles.

[[Page vii]]


REPUBLICATION OF MATERIAL

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    Raymond A. Mosley,
    Director,
    Office of the Federal Register.
    January 1, 2008.







[[Page ix]]



                               THIS TITLE

    Title 12--Banks and Banking is composed of seven volumes. The parts 
in these volumes are arranged in the following order: parts 1-199, 200-
219, 220-299, 300-499, 500-599, part 600-899, and 900-end. The first 
volume containing parts 1-199 is comprised of chapter I--Comptroller of 
the Currency, Department of the Treasury. The second and third volumes 
containing parts 200-299 are comprised of chapter II--Federal Reserve 
System. The fourth volume containing parts 300-499 is comprised of 
chapter III--Federal Deposit Insurance Corporation and chapter IV--
Export-Import Bank of the United States. The fifth volume containing 
parts 500-599 is comprised of chapter V--Office of Thrift Supervision, 
Department of the Treasury. The sixth volume containing parts 600-899 is 
comprised of chapter VI--Farm Credit Administration, chapter VII--
National Credit Union Administration, chapter VIII--Federal Financing 
Bank. The seventh volume containing part 900-end is comprised of chapter 
IX--Federal Housing Finance Board, chapter XI--Federal Financial 
Institutions Examination Council, chapter XIV--Farm Credit System 
Insurance Corporation, chapter XV--Department of the Treasury, chapter 
XVII--Office of Federal Housing Enterprise Oversight, Department of 
Housing and Urban Development and chapter XVIII--Community Development 
Financial Institutions Fund, Department of the Treasury. The contents of 
these volumes represent all of the current regulations codified under 
this title of the CFR as of January 1, 2008.

    For this volume, Jonn V. Lilyea was Chief Editor. The Code of 
Federal Regulations publication program is under the direction of 
Michael L. White, assisted by Ann Worley.


[[Page 1]]



                       TITLE 12--BANKS AND BANKING




                   (This book contains parts 1 to 199)

  --------------------------------------------------------------------
                                                                    Part

chapter i--Comptroller of the Currency, Department of the 
  Treasury..................................................           1

[[Page 3]]



   CHAPTER I--COMPTROLLER OF THE CURRENCY, DEPARTMENT OF THE TREASURY




  --------------------------------------------------------------------
Part                                                                Page
1               Investment securities.......................           5
2               Sales of credit life insurance..............          12
3               Minimum capital ratios; issuance of 
                    directives..............................          13
4               Organization and functions, availability and 
                    release of information, contracting 
                    outreach program, post-employment 
                    restrictions for senior examiners.......         102
5               Rules, policies, and procedures for 
                    corporate activities....................         124
6               Prompt corrective action....................         175
7               Bank activities and operations..............         182
8               Assessment of fees..........................         204
9               Fiduciary activities of national banks......         209
10              Municipal securities dealers................         220
11              Securities Exchange Act disclosure rules....         220
12              Recordkeeping and confirmation requirements 
                    for securities transactions.............         221
13              Government securities sales practices.......         229
14              Consumer protection in sales of insurance...         232
15

[Reserved]

16              Securities offering disclosure rules........         236
18              Disclosure of financial and other 
                    information by national banks...........         242
19              Rules of practice and procedure.............         244
21              Minimum security devices and procedures, 
                    reports of suspicious activities, and 
                    Bank Secrecy Act Compliance Program.....         284
22              Loans in areas having special flood hazards.         288
23              Leasing.....................................         292
24              Community and economic development entities, 
                    community development projects, and 
                    other public welfare investments........         296
25              Community Reinvestment Act and Interstate 
                    Deposit Production regulations..........         306
26              Management official interlocks..............         328

[[Page 4]]

27              Fair housing home loan data system..........         332
28              International banking activities............         343
29

[Reserved]

30              Safety and soundness standards..............         357
31              Extensions of credit to insiders and 
                    transactions with affiliates............         371
32              Lending limits..............................         375
33

[Reserved]

34              Real estate lending and appraisals..........         387
35              Disclosure and reporting of CRA-related 
                    agreements..............................         401
36

[Reserved]

37              Debt cancellation contracts and debt 
                    suspension agreements...................         414
38-39

[Reserved]

40              Privacy of consumer financial information...         418
41              Fair Credit Reporting.......................         436
42-199

[Reserved]

[[Page 5]]



PART 1_INVESTMENT SECURITIES--Table of Contents




Sec.
1.1 Authority, purpose, and scope.
1.2 Definitions.
1.3 Limitations on dealing in, underwriting, and purchase and sale of 
          securities.
1.4 Calculation of limits.
1.5 Safe and sound banking practices; credit information required.
1.6 Convertible securities.
1.7 Securities held in satisfaction of debts previously contracted; 
          holding period; disposal; accounting treatment; non-
          speculative purpose.
1.8 Nonconforming investments.

                             Interpretations

1.100 Indirect general obligations.
1.110 Taxing powers of a State or political subdivision.
1.120 Prerefunded or escrowed bonds and obligations secured by Type I 
          securities.
1.130 Type II securities; guidelines for obligations issued for 
          university and housing purposes.

    Authority: 12 U.S.C. 1 et seq., 24 (Seventh), and 93a.

    Source: 61 FR 63982, Dec. 2, 1996, unless otherwise noted.



Sec. 1.1  Authority, purpose, and scope.

    (a) Authority. This part is issued pursuant to 12 U.S.C. 1 et seq., 
12 U.S.C. 24 (Seventh), and 12 U.S.C. 93a.
    (b) Purpose This part prescribes standards under which national 
banks may purchase, sell, deal in, underwrite, and hold securities, 
consistent with the authority contained in 12 U.S.C. 24 (Seventh) and 
safe and sound banking practices.
    (c) Scope. The standards set forth in this part apply to national 
banks, District of Columbia banks, and federal branches of foreign 
banks. Further, pursuant to 12 U.S.C. 335, State banks that are members 
of the Federal Reserve System are subject to the same limitations and 
conditions that apply to national banks in connection with purchasing, 
selling, dealing in, and underwriting securities and stock. In addition 
to activities authorized under this part, foreign branches of national 
banks are authorized to conduct international activities and invest in 
securities pursuant to 12 CFR part 211.



Sec. 1.2  Definitions.

    (a) Capital and surplus means:
    (1) A bank's Tier 1 and Tier 2 capital calculated under the OCC's 
risk-based capital standards set forth in appendix A to 12 CFR part 3 
(or comparable capital guidelines of the appropriate Federal banking 
agency) as reported in the bank's Consolidated Report of Condition and 
Income filed under 12 U.S.C. 161 (or under 12 U.S.C. 1817 in the case of 
a state member bank); plus
    (2) The balance of a bank's allowance for loan and lease losses not 
included in the bank's Tier 2 capital, for purposes of the calculation 
of risk-based capital described in paragraph (a)(1) of this section, as 
reported in the bank's Consolidated Report of Condition and Income filed 
under 12 U.S.C. 161 (or under 12 U.S.C. 1817 in the case of a state 
member bank).
    (b) General obligation of a State or political subdivision means:
    (1) An obligation supported by the full faith and credit of an 
obligor possessing general powers of taxation, including property 
taxation; or
    (2) An obligation payable from a special fund or by an obligor not 
possessing general powers of taxation, when an obligor possessing 
general powers of taxation, including property taxation, has 
unconditionally promised to make payments into the fund or otherwise 
provide funds to cover all required payments on the obligation.
    (c) Investment company means an investment company, including a 
mutual fund, registered under section 8 of the Investment Company Act of 
1940, 15 U.S.C. 80a-8.
    (d) Investment grade means a security that is rated in one of the 
four highest rating categories by:
    (1) Two or more NRSROs; or
    (2) One NRSRO if the security has been rated by only one NRSRO.
    (e) Investment security means a marketable debt obligation that is 
not predominantly speculative in nature. A security is not predominantly 
speculative in nature if it is rated investment grade. When a security 
is not rated, the security must be the credit equivalent of a security 
rated investment grade.
    (f) Marketable means that the security:

[[Page 6]]

    (1) Is registered under the Securities Act of 1933, 15 U.S.C. 77a et 
seq.;
    (2) Is a municipal revenue bond exempt from registration under the 
Securities Act of 1933, 15 U.S.C. 77c(a)(2);
    (3) Is offered and sold pursuant to Securities and Exchange 
Commission Rule 144A, 17 CFR 230.144A, and rated investment grade or is 
the credit equivalent of investment grade; or
    (4) Can be sold with reasonable promptness at a price that 
corresponds reasonably to its fair value.
    (g) Municipal bonds means obligations of a State or political 
subdivision other than general obligations, and includes limited 
obligation bonds, revenue bonds, and obligations that satisfy the 
requirements of section 142(b)(1) of the Internal Revenue Code of 1986 
issued by or on behalf of any State or political subdivision of a State, 
including any municipal corporate instrumentality of 1 or more States, 
or any public agency or authority of any State or political subdivision 
of a State.
    (h) NRSRO means a nationally recognized statistical rating 
organization.
    (i) Political subdivision means a county, city, town, or other 
municipal corporation, a public authority, and generally any publicly-
owned entity that is an instrumentality of a State or of a municipal 
corporation.
    (j) Type I security means:
    (1) Obligations of the United States;
    (2) Obligations issued, insured, or guaranteed by a department or an 
agency of the United States Government, if the obligation, insurance, or 
guarantee commits the full faith and credit of the United States for the 
repayment of the obligation;
    (3) Obligations issued by a department or agency of the United 
States, or an agency or political subdivision of a State of the United 
States, that represent an interest in a loan or a pool of loans made to 
third parties, if the full faith and credit of the United States has 
been validly pledged for the full and timely payment of interest on, and 
principal of, the loans in the event of non-payment by the third party 
obligor(s);
    (4) General obligations of a State of the United States or any 
political subdivision thereof; and municipal bonds if the national bank 
is well capitalized as defined in 12 CFR 6.4(b)(1);
    (5) Obligations authorized under 12 U.S.C. 24 (Seventh) as 
permissible for a national bank to deal in, underwrite, purchase, and 
sell for the bank's own account, including qualified Canadian government 
obligations; and
    (6) Other securities the OCC determines to be eligible as Type I 
securities under 12 U.S.C. 24 (Seventh).
    (k) Type II security means an investment security that represents:
    (1) Obligations issued by a State, or a political subdivision or 
agency of a State, for housing, university, or dormitory purposes that 
would not satisfy the definition of Type I securities pursuant to 
paragraph (j) of Sec. 1.2;
    (2) Obligations of international and multilateral development banks 
and organizations listed in 12 U.S.C. 24 (Seventh);
    (3) Other obligations listed in 12 U.S.C. 24 (Seventh) as 
permissible for a bank to deal in, underwrite, purchase, and sell for 
the bank's own account, subject to a limitation per obligor of 10 
percent of the bank's capital and surplus; and
    (4) Other securities the OCC determines to be eligible as Type II 
securities under 12 U.S.C. 24 (Seventh).
    (l) Type III security means an investment security that does not 
qualify as a Type I, II, IV, or V security. Examples of Type III 
securities include corporate bonds and municipal bonds that do not 
satisfy the definition of Type I securities pursuant to paragraph (j) of 
Sec. 1.2 or the definition of Type II securities pursuant to paragraph 
(k) of Sec. 1.2.
    (m) Type IV security means:
    (1) A small business-related security as defined in section 
3(a)(53)(A) of the Securities Exchange Act of 1934, 15 U.S.C. 
78c(a)(53)(A), that is rated investment grade or is the credit 
equivalent thereof, that is fully secured by interests in a pool of 
loans to numerous obligors.
    (2) A commercial mortgage-related security that is offered or sold 
pursuant to section 4(5) of the Securities Act of 1933, 15 U.S.C. 
77d(5), that is rated investment grade or is the credit equivalent 
thereof, or a commercial mortgage-related security as described in

[[Page 7]]

section 3(a)(41) of the Securities Exchange Act of 1934, 15 U.S.C. 
78c(a)(41), that is rated investment grade in one of the two highest 
investment grade rating categories, and that represents ownership of a 
promissory note or certificate of interest or participation that is 
directly secured by a first lien on one or more parcels of real estate 
upon which one or more commercial structures are located and that is 
fully secured by interests in a pool of loans to numerous obligors.
    (3) A residential mortgage-related security that is offered and sold 
pursuant to section 4(5) of the Securities Act of 1933, 15 U.S.C. 
77d(5), that is rated investment grade or is the credit equivalent 
thereof, or a residential mortgage-related security as described in 
section 3(a)(41) of the Securities Exchange Act of 1934, 15 U.S.C. 
78c(a)(41)), that is rated investment grade in one of the two highest 
investment grade rating categories, and that does not otherwise qualify 
as a Type I security.
    (n) Type V security means a security that is:
    (1) Rated investment grade;
    (2) Marketable;
    (3) Not a Type IV security; and
    (4) Fully secured by interests in a pool of loans to numerous 
obligors and in which a national bank could invest directly.

[61 FR 63982, Dec. 2, 1996, as amended at 66 FR 34791, July 2, 2001]



Sec. 1.3  Limitations on dealing in, underwriting, and purchase and sale of securities.

    (a) Type I securities. A national bank may deal in, underwrite, 
purchase, and sell Type I securities for its own account. The amount of 
Type I securities that the bank may deal in, underwrite, purchase, and 
sell is not limited to a specified percentage of the bank's capital and 
surplus.
    (b) Type II securities. A national bank may deal in, underwrite, 
purchase, and sell Type II securities for its own account, provided the 
aggregate par value of Type II securities issued by any one obligor held 
by the bank does not exceed 10 percent of the bank's capital and 
surplus. In applying this limitation, a national bank shall take account 
of Type II securities that the bank is legally committed to purchase or 
to sell in addition to the bank's existing holdings.
    (c) Type III securities. A national bank may purchase and sell Type 
III securities for its own account, provided the aggregate par value of 
Type III securities issued by any one obligor held by the bank does not 
exceed 10 percent of the bank's capital and surplus. In applying this 
limitation, a national bank shall take account of Type III securities 
that the bank is legally committed to purchase or to sell in addition to 
the bank's existing holdings.
    (d) Type II and III securities; other investment securities 
limitations. A national bank may not hold Type II and III securities 
issued by any one obligor with an aggregate par value exceeding 10 
percent of the bank's capital and surplus. However, if the proceeds of 
each issue are to be used to acquire and lease real estate and related 
facilities to economically and legally separate industrial tenants, and 
if each issue is payable solely from and secured by a first lien on the 
revenues to be derived from rentals paid by the lessee under net 
noncancellable leases, the bank may apply the 10 percent investment 
limitation separately to each issue of a single obligor.
    (e) Type IV securities--(1) General. A national bank may purchase 
and sell Type IV securities for its own account. Except as described in 
paragraph (e)(2) of this section, the amount of the Type IV securities 
that a bank may purchase and sell is not limited to a specified 
percentage of the bank's capital and surplus.
    (2) Limitation on small business-related securities rated in the 
third and fourth highest rating categories by an NRSRO. A national bank 
may hold small business-related securities, as defined in section 
3(a)(53)(A) of the Securities Exchange Act of 1934, 15 U.S.C. 
78c(a)(53)(A), of any one issuer with an aggregate par value not 
exceeding 25 percent of the bank's capital and surplus if those 
securities are rated investment grade in the third or fourth highest 
investment grade rating categories. In applying this limitation, a

[[Page 8]]

national bank shall take account of securities that the bank is legally 
committed to purchase or to sell in addition to the bank's existing 
holdings. No percentage of capital and surplus limit applies to small 
business related securities rated investment grade in the highest two 
investment grade rating categories.
    (f) Type V securities. A national bank may purchase and sell Type V 
securities for its own account provided that the aggregate par value of 
Type V securities issued by any one issuer held by the bank does not 
exceed 25 percent of the bank's capital and surplus. In applying this 
limitation, a national bank shall take account of Type V securities that 
the bank is legally committed to purchase or to sell in addition to the 
bank's existing holdings.
    (g) Securitization. A national bank may securitize and sell assets 
that it holds, as a part of its banking business. The amount of 
securitized loans and obligations that a bank may sell is not limited to 
a specified percentage of the bank's capital and surplus.
    (h) Investment company shares--(1) General. A national bank may 
purchase and sell for its own account investment company shares provided 
that:
    (i) The portfolio of the investment company consists exclusively of 
assets that the national bank may purchase and sell for its own account 
under this part; and
    (ii) The bank's holdings of investment company shares do not exceed 
the limitations in Sec. 1.4(e).
    (2) Other issuers. The OCC may determine that a national bank may 
invest in an entity that is exempt from registration as an investment 
company under section 3(c)(1) of the Investment Company Act of 1940, 
provided that the portfolio of the entity consists exclusively of assets 
that a national bank may purchase and sell for its own account under 
this part.
    (i) Securities held based on estimates of obligor's performance. (1) 
Notwithstanding Sec. Sec. 1.2(d) and (e), a national bank may treat a 
debt security as an investment security for purposes of this part if the 
bank concludes, on the basis of estimates that the bank reasonably 
believes are reliable, that the obligor will be able to satisfy its 
obligations under that security, and the bank believes that the security 
may be sold with reasonable promptness at a price that corresponds 
reasonably to its fair value.
    (2) The aggregate par value of securities treated as investment 
securities under paragraph (i)(1) of this section may not exceed 5 
percent of the bank's capital and surplus.

[61 FR 63982, Dec. 2, 1996, as amended at 64 FR 60098, Nov. 4, 1999]



Sec. 1.4  Calculation of limits.

    (a) Calculation date. For purposes of determining compliance with 12 
U.S.C. 24 (Seventh) and this part, a bank shall determine its investment 
limitations as of the most recent of the following dates:
    (1) The last day of the preceding calendar quarter; or
    (2) The date on which there is a change in the bank's capital 
category for purposes of 12 U.S.C. 1831o and 12 CFR 6.3.
    (b) Effective date. (1) A bank's investment limit calculated in 
accordance with paragraph (a)(1) of this section will be effective on 
the earlier of the following dates:
    (i) The date on which the bank's Consolidated Report of Condition 
and Income (Call Report) is submitted; or
    (ii) The date on which the bank's Consolidated Report of Condition 
and Income is required to be submitted.
    (2) A bank's investment limit calculated in accordance with 
paragraph (a)(2) of this section will be effective on the date that the 
limit is to be calculated.
    (c) Authority of OCC to require more frequent calculations. If the 
OCC determines for safety and soundness reasons that a bank should 
calculate its investment limits more frequently than required by 
paragraph (a) of this section, the OCC may provide written notice to the 
bank directing the bank to calculate its investment limitations at a 
more frequent interval. The bank shall thereafter calculate its 
investment limits at that interval until further notice.
    (d) Calculation of Type III and Type V securities holdings--(1) 
General. In calculating the amount of its investment in Type III or Type 
V securities issued by

[[Page 9]]

any one obligor, a bank shall aggregate:
    (i) Obligations issued by obligors that are related directly or 
indirectly through common control; and
    (ii) Securities that are credit enhanced by the same entity.
    (2) Aggregation by type. The aggregation requirement in paragraph 
(d)(1) of this section applies separately to the Type III and Type V 
securities held by a bank.
    (e) Limit on investment company holdings--(1) General. In 
calculating the amount of its investment in investment company shares 
under this part, a bank shall use reasonable efforts to calculate and 
combine its pro rata share of a particular security in the portfolio of 
each investment company with the bank's direct holdings of that 
security. The bank's direct holdings of the particular security and the 
bank's pro rata interest in the same security in the investment 
company's portfolio may not, in the aggregate, exceed the investment 
limitation that would apply to that security.
    (2) Alternate limit for diversified investment companies. A national 
bank may elect not to combine its pro rata interest in a particular 
security in an investment company with the bank's direct holdings of 
that security if:
    (i) The investment company's holdings of the securities of any one 
issuer do not exceed 5 percent of its total portfolio; and
    (ii) The bank's total holdings of the investment company's shares do 
not exceed the most stringent investment limitation that would apply to 
any of the securities in the company's portfolio if those securities 
were purchased directly by the bank.



Sec. 1.5  Safe and sound banking practices; credit information required.

    (a) A national bank shall adhere to safe and sound banking practices 
and the specific requirements of this part in conducting the activities 
described in Sec. 1.3. The bank shall consider, as appropriate, the 
interest rate, credit, liquidity, price, foreign exchange, transaction, 
compliance, strategic, and reputation risks presented by a proposed 
activity, and the particular activities undertaken by the bank must be 
appropriate for that bank.
    (b) In conducting these activities, the bank shall determine that 
there is adequate evidence that an obligor possesses resources 
sufficient to provide for all required payments on its obligations, or, 
in the case of securities deemed to be investment securities on the 
basis of reliable estimates of an obligor's performance, that the bank 
reasonably believes that the obligor will be able to satisfy the 
obligation.
    (c) Each bank shall maintain records available for examination 
purposes adequate to demonstrate that it meets the requirements of this 
part. The bank may store the information in any manner that can be 
readily retrieved and reproduced in a readable form.



Sec. 1.6  Convertible securities.

    A national bank may not purchase securities convertible into stock 
at the option of the issuer.



Sec. 1.7  Securities held in satisfaction of debts previously contracted; holding period; disposal; accounting treatment; non-speculative purpose.

    (a) Securities held in satisfaction of debts previously contracted. 
The restrictions and limitations of this part, other than those set 
forth in paragraphs (b),(c), and (d) of this section, do not apply to 
securities acquired:
    (1) Through foreclosure on collateral;
    (2) In good faith by way of compromise of a doubtful claim; or
    (3) To avoid loss in connection with a debt previously contracted.
    (b) Holding period. A national bank holding securities pursuant to 
paragraph (a) of this section may do so for a period not to exceed five 
years from the date that ownership of the securities was originally 
transferred to the bank. The OCC may extend the holding period for up to 
an additional five years if a bank provides a clearly convincing 
demonstration as to why an additional holding period is needed.
    (c) Accounting treatment. A bank shall account for securities held 
pursuant to paragraph (a) of this section in accordance with Generally 
Accepted Accounting Principles.
    (d) Non-speculative purpose. A bank may not hold securities pursuant 
to

[[Page 10]]

paragraph (a) of this section for speculative purposes.



Sec. 1.8  Nonconforming investments.

    (a) A national bank's investment in securities that no longer 
conform to this part but conformed when made will not be deemed in 
violation but instead will be treated as nonconforming if the reason why 
the investment no longer conforms to this part is because:
    (1) The bank's capital declines;
    (2) Issuers, obligors, or credit-enhancers merge;
    (3) Issuers become related directly or indirectly through common 
control;
    (4) The investment securities rules change;
    (5) The security no longer qualifies as an investment security; or
    (6) Other events identified by the OCC occur.
    (b) A bank shall exercise reasonable efforts to bring an investment 
that is nonconforming as a result of events described in paragraph (a) 
of this section into conformity with this part unless to do so would be 
inconsistent with safe and sound banking practices.

                             Interpretations



Sec. 1.100  Indirect general obligations.

    (a) Obligation issued by an obligor not possessing general powers of 
taxation. Pursuant to Sec. 1.2(b), an obligation issued by an obligor 
not possessing general powers of taxation qualifies as a general 
obligation of a State or political subdivision for the purposes of 12 
U.S.C. 24 (Seventh), if a party possessing general powers of taxation 
unconditionally promises to make sufficient funds available for all 
required payments in connection with the obligation.
    (b) Indirect commitment of full faith and credit. The indirect 
commitment of the full faith and credit of a State or political 
subdivision (that possesses general powers of taxation) in support of an 
obligation may be demonstrated by any of the following methods, alone or 
in combination, when the State or political subdivision pledges its full 
faith and credit in support of the obligation.
    (1) Lease/rental agreement. The lease agreement must be valid and 
binding on the State or the political subdivision, and the State or 
political subdivision must unconditionally promise to pay rentals that, 
together with any other available funds, are sufficient for the timely 
payment of interest on, and principal of, the obligation. These lease/
rental agreement may, for instance, provide support for obligations 
financing the acquisition or operation of public projects in the areas 
of education, medical care, transportation, recreation, public 
buildings, and facilities.
    (2) Service/purchase agreement. The agreement must be valid and 
binding on the State or the political subdivision, and the State or 
political subdivision must unconditionally promise in the agreement to 
make payments for services or resources provided through or by the 
issuer of the obligation. These payments, together with any other 
available funds, must be sufficient for the timely payment of interest 
on, and principal of, the obligation. An agreement to purchase municipal 
sewer, water, waste disposal, or electric services may, for instance, 
provide support for obligations financing the construction or 
acquisition of facilities supplying those services.
    (3) Refillable debt service reserve fund. The reserve fund must at 
least equal the amount necessary to meet the annual payment of interest 
on, and principal of, the obligation as required by applicable law. The 
maintenance of a refillable reserve fund may be provided, for instance, 
by statutory direction for an appropriation, or by statutory automatic 
apportionment and payment from the State funds of amounts necessary to 
restore the fund to the required level.
    (4) Other grants or support. A statutory provision or agreement must 
unconditionally commit the State or the political subdivision to provide 
funds which, together with other available funds, are sufficient for the 
timely payment of interest on, and principal of, the obligation. Those 
funds may, for instance, be supplied in the form of annual grants or may 
be advanced whenever the other available revenues are not sufficient for 
the payment of principal and interest.

[[Page 11]]



Sec. 1.110  Taxing powers of a State or political subdivision.

    (a) An obligation is considered supported by the full faith and 
credit of a State or political subdivision possessing general powers of 
taxation when the promise or other commitment of the State or the 
political subdivision will produce funds, which (together with any other 
funds available for the purpose) will be sufficient to provide for all 
required payments on the obligation. In order to evaluate whether a 
commitment of a State or political subdivision is likely to generate 
sufficient funds, a bank shall consider the impact of any possible 
limitations regarding the State's or political subdivision's taxing 
powers, as well as the availability of funds in view of the projected 
revenues and expenditures. Quantitative restrictions on the general 
powers of taxation of the State or political subdivision do not 
necessarily mean that an obligation is not supported by the full faith 
and credit of the State or political subdivision. In such case, the bank 
shall determine the eligibility of obligations by reviewing, on a case-
by-case basis, whether tax revenues available under the limited taxing 
powers are sufficient for the full and timely payment of interest on, 
and principal of, the obligation. The bank shall use current and 
reasonable financial projections in calculating the availability of the 
revenues. An obligation expressly or implicitly dependent upon voter or 
legislative authorization of appropriations may be considered supported 
by the full faith and credit of a State or political subdivision if the 
bank determines, on the basis of past actions by the voters or 
legislative body in similar situations involving similar types of 
projects, that it is reasonably probable that the obligor will obtain 
all necessary appropriations.
    (b) An obligation supported exclusively by excise taxes or license 
fees is not a general obligation for the purposes of 12 U.S.C. 24 
(Seventh). Nevertheless, an obligation that is primarily payable from a 
fund consisting of excise taxes or other pledged revenues qualifies as a 
``general obligation,'' if, in the event of a deficiency of those 
revenues, the obligation is also supported by the general revenues of a 
State or a political subdivision possessing general powers of taxation.



Sec. 1.120  Prerefunded or escrowed bonds and obligations secured by Type I securities.

    (a) An obligation qualifies as a Type I security if it is secured by 
an escrow fund consisting of obligations of the United States or general 
obligations of a State or a political subdivision, and the escrowed 
obligations produce interest earnings sufficient for the full and timely 
payment of interest on, and principal of, the obligation.
    (b) If the interest earnings from the escrowed Type I securities 
alone are not sufficient to guarantee the full repayment of an 
obligation, a promise of a State or a political subdivision possessing 
general powers of taxation to maintain a reserve fund for the timely 
payment of interest on, and principal of, the obligation may further 
support a guarantee of the full repayment of an obligation.
    (c) An obligation issued to refund an indirect general obligation 
may be supported in a number of ways that, in combination, are 
sufficient at all times to support the obligation with the full faith 
and credit of the United States or a State or a political subdivision 
possessing general powers of taxation. During the period following its 
issuance, the proceeds of the refunding obligation may be invested in 
U.S. obligations or municipal general obligations that will produce 
sufficient interest income for payment of principal and interest. Upon 
the retirement of the outstanding indirect general obligation bonds, the 
same indirect commitment, such as a lease agreement or a reserve fund, 
that supported the prior issue, may support the refunding obligation.



Sec. 1.130  Type II securities; guidelines for obligations issued for university and housing purposes.

    (a) Investment quality. An obligation issued for housing, 
university, or dormitory purposes is a Type II security only if it:
    (1) Qualifies as an investment security, as defined in Sec. 1.2(e); 
and
    (2) Is issued for the appropriate purpose and by a qualifying 
issuer.

[[Page 12]]

    (b) Obligation issued for university purposes. (1) An obligation 
issued by a State or political subdivision or agency of a State or 
political subdivision for the purpose of financing the construction or 
improvement of facilities at or used by a university or a degree-
granting college-level institution, or financing loans for studies at 
such institutions, qualifies as a Type II security. Facilities financed 
in this manner may include student buildings, classrooms, university 
utility buildings, cafeterias, stadiums, and university parking lots.
    (2) An obligation that finances the construction or improvement of 
facilities used by a hospital may be eligible as a Type II security, if 
the hospital is a department or a division of a university, or otherwise 
provides a nexus with university purposes, such as an affiliation 
agreement between the university and the hospital, faculty positions of 
the hospital staff, and training of medical students, interns, 
residents, and nurses (e.g., a ``teaching hospital'').
    (c) Obligation issued for housing purposes. An obligation issued for 
housing purposes may qualify as a Type II security if the security 
otherwise meets the criteria for a Type II security.



PART 2_SALES OF CREDIT LIFE INSURANCE--Table of Contents




Sec.
2.1 Authority, purpose, and scope.
2.2 Definitions.
2.3 Distribution of credit life insurance income.
2.4 Bonus and incentive plans.
2.5 Bank compensation.

    Authority: 12 U.S.C. 24 (Seventh), 93a, and 1818(n).

    Source: 61 FR 51781, Oct. 4, 1996, unless otherwise noted.



Sec. 2.1  Authority, purpose, and scope.

    (a) Authority. A national bank may provide credit life insurance to 
loan customers pursuant to 12 U.S.C. 24 (Seventh).
    (b) Purpose. The purpose of this part is to set forth the principles 
and standards that apply to a national bank's provision of credit life 
insurance and the limitations that apply to the receipt of income from 
those sales by certain individuals and entities associated with the 
bank.
    (c) Scope. This part applies to the provision of credit life 
insurance by any national bank employee, officer, director, or principal 
shareholder, and certain entities in which such persons own an interest 
of more than ten percent.



Sec. 2.2  Definitions.

    (a) Bank means a national banking association or a bank located in 
the District of Columbia and subject to the supervision of the 
Comptroller of the Currency.
    (b) Credit life insurance means credit life, health, and accident 
insurance, sometimes referred to as credit life and disability 
insurance, and mortgage life and disability insurance.
    (c) Owning an interest includes:
    (1) Ownership through a spouse or minor child;
    (2) Ownership through a broker, nominee, or other agent; or
    (3) Ownership through any corporation, partnership, association, 
joint venture, or proprietorship, that is controlled by the director, 
officer, employee, or principal shareholder of the bank.
    (d) Officer, director, employee, or principal shareholder includes 
the spouse and minor children of an officer, director, employee, or 
principal shareholder.
    (e) Principal shareholder means any shareholder who directly or 
indirectly owns or controls an interest of more than ten percent of the 
bank's outstanding voting securities.



Sec. 2.3  Distribution of credit life insurance income.

    (a) Distribution of credit life insurance income by a national bank 
must be consistent with the requirements and principles of this section.
    (b) It is an unsafe and unsound practice for any director, officer, 
employee, or principal shareholder of a national bank (including any 
entity in which this person owns an interest of more than ten percent), 
who is involved in the sale of credit life insurance to loan customers 
of the national bank, to

[[Page 13]]

take advantage of that business opportunity for personal profit. 
Recommendations to customers to buy insurance should be based on the 
benefits of the policy, not the commissions received from the sale.
    (c) Except as provided in Sec. Sec. 2.4 and 2.5(b), and paragraph 
(d) of this section, a director, officer, employee, or principal 
shareholder of a national bank, or an entity in which such person owns 
an interest of more than ten percent, may not retain commissions or 
other income from the sale of credit life insurance in connection with 
any loan made by that bank, and income from credit life insurance sales 
to loan customers must be credited to the income accounts of the bank.
    (d) The requirements of paragraph (c) of this section do not apply 
to a director, officer, employee, or principal shareholder if:
    (1) The person is employed by a third party that has contracted with 
the bank on an arm's-length basis to sell financial products on bank 
premises; and
    (2) The person is not involved in the bank's credit decision 
process.



Sec. 2.4  Bonus and incentive plans.

    A bank employee or officer may participate in a bonus or incentive 
plan based on the sale of credit life insurance if payments to the 
employee or officer in any one year do not exceed the greater of:
    (a) Five percent of the recipient's annual salary; or
    (b) Five percent of the average salary of all loan officers 
participating in the plan.



Sec. 2.5  Bank compensation.

    (a) Nothing contained in this part prohibits a bank employee, 
officer, director, or principal shareholder who holds an insurance 
agent's license from agreeing to compensate the bank for the use of its 
premises, employees, or good will. However, the employee, officer, 
director, or principal shareholder shall turn over to the bank as 
compensation all income received from the sale of the credit life 
insurance to the bank's loan customers.
    (b) Income derived from credit life insurance sales to loan 
customers may be credited to an affiliate operating under the Bank 
Holding Company Act of 1956, 12 U.S.C. 1841 et seq., or to a trust for 
the benefit of all shareholders, provided that the bank receives 
reasonable compensation in recognition of the role played by its 
personnel, premises, and good will in credit life insurance sales. 
Reasonable compensation generally means an amount equivalent to at least 
20 percent of the affiliate's net income attributable to the bank's 
credit life insurance sales.



PART 3_MINIMUM CAPITAL RATIOS; ISSUANCE OF DIRECTIVES--Table of Contents




                   Subpart A_Authority and Definitions

Sec.
3.1 Authority.
3.2 Definitions.
3.3 Transitional rules.
3.4 Reservation of authority.

                    Subpart B_Minimum Capital Ratios

3.5 Applicability.
3.6 Minimum capital ratios.
3.7 Plan to achieve minimum capital ratios.
3.8 Reservation of authority.

Subpart C_Establishment of Minimum Capital Ratios for an Individual Bank

3.9 Purpose and scope.
3.10 Applicability.
3.11 Standards for determination of appropriate individual minimum 
          capital ratios.
3.12 Procedures.
3.13 Relation to other actions.

                          Subpart D_Enforcement

3.14 Remedies.

                    Subpart E_Issuance of a Directive

3.15 Purpose and scope.
3.16 Notice of intent to issue a directive.
3.17 Response to notice.
3.18 Decision.
3.19 Issuance of a directive.
3.20 Change in circumstances.
3.21 Relation to other administrative actions.

                             Interpretations

3.100 Capital and surplus.

Appendix A to Part 3--Risk-Based Capital Guidelines
Appendix B to Part 3--Risk-Based Capital Guidelines; Market Risk 
          Adjustment

[[Page 14]]

Appendix C to Part 3--Capital Adequacy Guidelines for [Banks]: Internal-
          Ratings-Based and Advanced Measurement Approaches

    Authority: 12 U.S.C. 93a, 161, 1818, 1828(n), 1828 note, 1831n note, 
1835, 3907, and 3909.

    Source: 50 FR 10216, Mar. 14, 1985, unless otherwise noted.



                   Subpart A_Authority and Definitions



Sec. 3.1  Authority.

    This part is issued under the authority of 12 U.S.C. 1 et seq., 93a, 
161, 1818, 3907 and 3909.

[59 FR 64563, Dec. 15, 1994]



Sec. 3.2  Definitions.

    For the purposes of this part:
    (a) Adjusted total assets means the average total assets figure 
required to be computed for and stated in a bank's most recent quarterly 
Consolidated Report of Condition and Income (Call Report) minus end-of-
quarter intangible assets, deferred tax assets, and credit-enhancing 
interest-only strips, that are deducted from Tier 1 capital, and minus 
nonfinancial equity investments for which a Tier 1 capital deduction is 
required pursuant to section 2(c)(5) of appendix A of this part 3. The 
OCC reserves the right to require a bank to compute and maintain its 
capital ratios on the basis of actual, rather than average, total assets 
when necessary to carry out the purposes of this part.
    (b) Bank means a national banking association or District of 
Columbia Bank.
    (c) Tier 1 capital means Tier 1 capital as determined according to 
section 2 of appendix A of this part, including the deductions described 
therein.
    (d) Tier 2 capital means Tier 2 capital as determined according to 
section 2 of appendix A of this part, including the limitations 
described therein.
    (e) Total capital means Total capital as determined according to 
section 1(25) and section 2 of appendix A of this part, including the 
deductions described therein.

[55 FR 38800, Sept. 21, 1990, as amended at 60 FR 7907, Feb. 10, 1995; 
67 FR 3795, Jan. 25, 2002]



Sec. 3.3  Transitional rules.

    Intangible assets, other than mortgage servicing rights, purchased 
prior to April 15, 1985, and accounted for in accordance with the 
instruction of the OCC, need not be deducted from Tier 1 capital until 
December 31, 1992. However, when combined with other qualifying 
intangible assets, these intangibles may not exceed 25 percent of Tier 1 
capital. After December 31, 1992, only those intangible assets that meet 
the criteria contained in section 2(c)(2) of appendix A will not be 
deducted from Tier 1 capital.

[55 FR 38800, Sept. 21, 1990]



Sec. 3.4  Reservation of authority.

    (a) Deductions from capital. Notwithstanding the definitions of Tier 
1 capital and Tier 2 capital in Sec. 3.2 (c) and (d), the OCC may find 
that a newly developed or modified capital instrument constitutes Tier 1 
capital or Tier 2 capital, and may permit one or more banks to include 
all or a portion of funds obtained through such capital instruments as 
Tier 1 or Tier 2 capital, permanently or on a temporary basis, for the 
purposes of compliance with this part or for other purposes. Similarly, 
the OCC may find that a particular intangible asset, deferred tax asset 
or credit-enhancing interest-only strip need not be deducted from Tier 1 
or Tier 2 capital. Conversely, the OCC may find that a particular 
intangible asset, deferred tax asset, credit-enhancing interest-only 
strip or other Tier 1 or Tier 2 capital component has characteristics or 
terms that diminish its contribution to a bank's ability to absorb 
losses, and may require the deduction from Tier 1 or Tier 2 capital of 
all of the component or of a greater portion of the component than is 
otherwise required.
    (b) Risk weight categories. Notwithstanding the risk categories in 
sections 3 and 4 of appendix A to this part, the OCC will look to the 
substance of the transaction and may find that the assigned risk weight 
for any asset or the credit equivalent amount or credit conversion 
factor for any off-balance sheet item does not appropriately reflect the

[[Page 15]]

risks imposed on a bank and may require another risk weight, credit 
equivalent amount, or credit conversion factor that the OCC deems 
appropriate. Similarly, if no risk weight, credit equivalent amount, or 
credit conversion factor is specifically assigned, the OCC may assign 
any risk weight, credit equivalent amount, or credit conversion factor 
that the OCC deems appropriate. In making its determination, the OCC 
considers risks associated with the asset or off-balance sheet item as 
well as other relevant factors.

[55 FR 38800, Sept. 21, 1990, as amended at 66 FR 59630, Nov. 29, 2001]



                    Subpart B_Minimum Capital Ratios



Sec. 3.5  Applicability.

    This subpart is applicable to all banks unless the Office 
determines, pursuant to the procedures set forth in subpart C, that 
different minimum capital ratios are appropriate for an individual bank 
based upon its particular circumstances, or unless different minimum 
capital ratios have been established or are established for an 
individual bank in a written agreement or a temporary or final order 
pursuant to 12 U.S.C. 1818 (b) or (c), or as a condition for approval of 
an application.



Sec. 3.6  Minimum capital ratios.

    (a) Risk-based capital ratio. All national banks must have and 
maintain the minimum risk-based capital ratio as set forth in appendix A 
(and, for certain banks, in appendix B).
    (b) Total assets leverage ratio. All national banks must have and 
maintain Tier 1 capital in an amount equal to at least 3.0 percent of 
adjusted total assets.
    (c) Additional leverage ratio requirement. An institution operating 
at or near the level in paragraph (b) of this section should have well-
diversified risks, including no undue interest rate risk exposure; 
excellent control systems; good earnings; high asset quality; high 
liquidity; and well managed on-and off-balance sheet activities; and in 
general be considered a strong banking organization, rated composite 1 
under the Uniform Financial Institutions Rating System (CAMELS) rating 
system of banks. For all but the most highly-rated banks meeting the 
conditions set forth in this paragraph (c), the minimum Tier 1 leverage 
ratio is 4 percent. In all cases, banking institutions should hold 
capital commensurate with the level and nature of all risks.

[55 FR 38800, Sept. 21, 1990, as amended at 61 FR 47367, Sept. 6, 1996; 
64 FR 10199, Mar. 2, 1999]



Sec. 3.7  Plan to achieve minimum capital ratios.

    Effective December 31, 1990, any bank having capital ratios less 
than the minimums required under Sec. 3.6 (a) and (b) shall, within 60 
days, submit to the OCC a plan describing the means and schedule by 
which the bank shall achieve the applicable minimum capital ratios. The 
plan may be considered acceptable unless the bank is notified to the 
contrary by the OCC. A bank in compliance with an acceptable plan to 
achieve the applicable minimum capital ratios will not be deemed to be 
in violation of Sec. 3.6.

[55 FR 38800, Sept. 21, 1990]



Sec. 3.8  Reservation of authority.

    When, in the opinion of the Office the circumstances so require, a 
bank may be authorized to have less than the minimum capital ratios in 
Sec. 3.6 during a time period specified by the Office.



Subpart C_Establishment of Minimum Capital Ratios for an Individual Bank



Sec. 3.9  Purpose and scope.

    The rules and procedures specified in this subpart are applicable to 
a proceeding to establish required minimum capital ratios that would 
otherwise be applicable to a bank under Sec. 3.6. The OCC is authorized 
under 12 U.S.C. 3907 (a)(2) to establish such minimum capital 
requirements for a bank as the OCC, in its discretion, deems appropriate 
in light of the particular circumstances at that bank. Proceedings under 
this subpart also may be initiated to require a bank having capital 
ratios above those set forth in Sec. 3.6, or

[[Page 16]]

other legal authority to continue to maintain those higher ratios.

[55 FR 38800, Sept. 21, 1990]



Sec. 3.10  Applicability.

    The OCC may require higher minimum capital ratios for an individual 
bank in view of its circumstances. For example, higher capital ratios 
may be appropriate for:
    (a) A newly chartered bank;
    (b) A bank receiving special supervisory attention;
    (c) A bank that has, or is expected to have, losses resulting in 
capital inadequacy;
    (d) A bank with significant exposure due to the risks from 
concentrations of credit, certain risks arising from nontraditional 
activities, or management's overall inability to monitor and control 
financial and operating risks presented by concentrations of credit and 
nontraditional activities;
    (e) A bank with significant exposure to declines in the economic 
value of its capital due to changes in interest rates;
    (f) A bank with significant exposure due to fiduciary or operational 
risk;
    (g) A bank exposed to a high degree of asset depreciation, or a low 
level of liquid assets in relation to short term liabilities;
    (h) A bank exposed to a high volume or, or particularly severe, 
problem loans;
    (i) A bank that is growing rapidly, either internally or through 
acquisitions; or
    (j) A bank that may be adversely affected by the activities or 
condition of its holding company, affiliate(s), or other persons or 
institutions including chain banking organizations, with which it has 
significant business relationships.

[60 FR 39493, Aug. 2, 1995]



Sec. 3.11  Standards for determination of appropriate individual minimum capital ratios.

    The appropriate minimum capital ratios for an individual bank cannot 
be determined solely through the application of a rigid mathematical 
formula or wholly objective criteria. The decision is necessarily based 
in part on subjective judgment grounded in agency expertise. The factors 
to be considered in the determination will vary in each case and may 
include, for example:
    (a) The conditions or circumstances leading to the Office's 
determination that higher minimum capital ratios are appropriate or 
necessary for the bank;
    (b) The exigency of those circumstances or potential problems;
    (c) The overall condition, management strength, and future prospects 
of the bank and, if applicable, its holding company and/or affiliate(s);
    (d) The bank's liquidity, capital, risk asset and other ratios 
compared to the ratios of its peer group; and
    (e) The views of the bank's directors and senior management.



Sec. 3.12  Procedures.

    (a) Notice. When the OCC determines that minimum capital ratios 
above those set forth in Sec. 3.6 or other legal authority are 
necessary or appropriate for a particular bank, the OCC will notify the 
bank in writing of the proposed minimum capital ratios and the date by 
which they should be reached (if applicable) and will provide an 
explanation of why the ratios proposed are considered necessary or 
appropriate for the bank.
    (b) Response. (1) The bank may respond to any or all of the items in 
the notice. The response should include any matters which the bank would 
have the Office consider in deciding whether individual minimum capital 
ratios should be established for the bank, what those capital ratios 
should be, and, if applicable, when they should be achieved. The 
response must be in writing and delivered to the designated OCC official 
within 30 days after the date on which the bank received the notice. The 
Office may shorten the time period when, in the opinion of the Office, 
the condition of the bank so requires, provided that the bank is 
informed promptly of the new time period, or with the consent of the 
bank. In its discretion, the Office may extend the time period for good 
cause.
    (2) Failure to respond within 30 days or such other time period as 
may be specified by the Office shall constitute

[[Page 17]]

a waiver of any objections to the proposed minimum capital ratios or the 
deadline for their achievement.
    (c) Decision. After the close of the bank's response period, the 
Office will decide, based on a review of the bank's response and other 
information concerning the bank, whether individual minimum capital 
ratios should be established for the bank and, if so, the ratios and the 
date the requirements will become effective. The bank will be notified 
of the decision in writing. The notice will include an explanation of 
the decision, except for a decision not to establish individual minimum 
capital requirements for the bank.
    (d) Submission of plan. The decision may require the bank to develop 
and submit to the Office, within a time period specified, an acceptable 
plan to reach the minimum capital ratios established for the bank by the 
date required.
    (e) Change in circumstances. If, after the Office's decision in 
paragraph (c) of this section, there is a change in the circumstances 
affecting the bank's capital adequacy or its ability to reach the 
required minimum capital ratios by the specified date, either the bank 
or the Office may propose to the other a change in the minimum capital 
ratios for the bank, the date when the minimums must be achieved, or the 
bank's plan (if applicable). The Office may decline to consider 
proposals that are not based on a significant change in circumstances or 
are repetitive or frivolous. Pending a decision on reconsideration, the 
Office's original decision and any plan required under that decision 
shall continue in full force and effect.

[50 FR 10216, Mar. 14, 1985, as amended at 55 FR 38800, Sept. 21, 1990]



Sec. 3.13  Relation to other actions.

    In lieu of, or in addition to, the procedures in this subpart, the 
required minimum capital ratios for a bank may be established or revised 
through a written agreement or cease and desist proceedings under 12 
U.S.C. 1818 (b) or (c) (12 CFR 19.0 through 19.21), or as a condition 
for approval of an application.



                          Subpart D_Enforcement



Sec. 3.14  Remedies.

    A bank that does not have or maintain the minimum capital ratios 
applicable to it, whether required in subpart B of this part, in a 
decision pursuant to subpart C of this part, in a written agreement or 
temporary or final order under 12 U.S.C. 1818 (b) or (c), or in a 
condition for approval of an application, or a bank that has failed to 
submit or comply with an acceptable plan to attain those ratios, will be 
subject to such administrative action or sanctions as the OCC considers 
appropriate. These sanctions may include the issuance of a Directive 
pursuant to subpart E of this part or other enforcement action, 
assessment of civil money penalties, and/or the denial, conditioning, or 
revocation of applications. A national bank's failure to achieve or 
maintain minimum capital ratios in Sec. 3.6 (a) or (b) may also be the 
basis for an action by the Federal Deposit Insurance Corporation to 
terminate federal deposit insurance. See 12 CFR 325.4.

[55 FR 38801, Sept. 21, 1990]



                    Subpart E_Issuance of a Directive



Sec. 3.15  Purpose and scope.

    This subpart is applicable to proceedings by the Office to issue a 
directive under 12 U.S.C. 3907(b)(2). A directive is an order issued to 
a bank that does not have or maintain capital at or above the minimum 
ratios set forth in Sec. 3.6, or established for the bank under subpart 
C, by a written agreement under 12 U.S.C. 1818(b), or as a condition for 
approval of an application. A directive may order the bank to:
    (a) Achieve the minimum capital ratios applicable to it by a 
specified date;
    (b) Adhere to a previously submitted plan to achieve the applicable 
capital ratios;
    (c) Submit and adhere to a plan acceptable to the Office describing 
the means and time schedule by which the bank shall achieve the 
applicable capital ratios;
    (d) Take other action, such as reduction of assets or the rate of 
growth of assets, or restrictions on the payment

[[Page 18]]

of dividends, to achieve the applicable capital ratios; or
    (e) A combination of any of these or similar actions.

A directive issued under this rule, including a plan submitted under a 
directive, is enforceable in the same manner and to the same extent as 
an effective and outstanding cease and desist order which has become 
final as defined in 12 U.S.C. 1818(k). Violation of a directive may 
result in assessment of civil money penalties in accordance with 12 
U.S.C. 3909(d).



Sec. 3.16  Notice of intent to issue a directive.

    The Office will notify a bank in writing of its intention to issue a 
directive. The notice will state:
    (a) Reasons for issuance of the directive; and
    (b) The proposed contents of the directive.



Sec. 3.17  Response to notice.

    (a) A bank may respond to the notice by stating why a directive 
should not be issued and/or by proposing alternative contents for the 
directive. The response should include any matters which the bank would 
have the Office consider in deciding whether to issue a directive and/or 
what the contents of the directive should be. The response may include a 
plan for achieving the minimum capital ratios applicable to the bank. 
The response must be in writing and delivered to the designated OCC 
official within 30 days after the date on which the bank received the 
notice. The Office may shorten the 30-day time period:
    (1) When, in the opinion of the Office, the condition of the bank so 
requires, provided that the bank shall be informed promptly of the new 
time period;
    (2) With the consent of the bank; or
    (3) When the bank already has advised the Office that it cannot or 
will not achieve its applicable minimum capital ratios. In its 
discretion, the Office may extend the time period for good cause.
    (b) Failure to respond within 30 days or such other time period as 
may be specified by the Office shall constitute a waiver of any 
objections to the proposed directive.



Sec. 3.18  Decision.

    After the closing date of the bank's response period, or receipt of 
the bank's response, if earlier, the Office will consider the bank's 
response, and may seek additional information or clarification of the 
response. Thereafter, the Office will determine whether or not to issue 
a directive, and if one is to be issued, whether it should be as 
originally proposed or in modified form.



Sec. 3.19  Issuance of a directive.

    (a) A directive will be served by delivery to the bank. It will 
include or be accompanied by a statement of reasons for its issuance.
    (b) A directive is effective immediately upon its receipt by the 
bank, or upon such later date as may be specified therein, and shall 
remain effective and enforceable until it is stayed, modified, or 
terminated by the Office.



Sec. 3.20  Change in circumstances.

    Upon a change in circumstances, a bank may request the Office to 
reconsider the terms of its directive or may propose changes in the plan 
to achieve the bank's applicable minimum capital ratios. The Office also 
may take such action on its own motion. The Office may decline to 
consider requests or proposals that are not based on a significant 
change in circumstances or are repetitive or frivolous. Pending a 
decision on reconsideration, the directive and plan shall continue in 
full force and effect.



Sec. 3.21  Relation to other administrative actions.

    A directive may be issued in addition to, or in lieu of, any other 
action authorized by law, including cease and desist proceedings, civil 
money penalties, or the conditioning or denial of applications. The 
Office also may, in its discretion, take any action authorized by law, 
in lieu of a directive, in response to a bank's failure to achieve or 
maintain the applicable minimum capital ratios.

[[Page 19]]

                             Interpretations



Sec. 3.100  Capital and surplus.

    For purposes of determining statutory limits that are based on the 
amount of bank's capital and/or surplus, the provisions of this section 
are to be used, rather than the definitions of capital contained in 
Sec. 3.2.
    (a) Capital. The term capital as used in provisions of law relating 
to the capital of national banking associations shall include the amount 
of common stock outstanding and unimpaired plus the amount of perpetual 
preferred stock outstanding and unimpaired.
    (b) Capital Stock. The term capital stock as used in provisions of 
law relating to the capital stock of national banking associations, 
other than 12 U.S.C. 101, 177 and 178, shall have the same meaning as 
the term capital set forth in paragraph (a) of this section.
    (c) Surplus. The term surplus as used in provisions of law relating 
to the surplus of national banking associations means the sum of 
paragraphs (c) (1), (2), (3) and (4) of this section:
    (1) Capital surplus; undivided profits; reserves for contingencies 
and other capital reserves (excluding accrued dividends on perpetual and 
limited life preferred stock); net worth certificates issued pursuant to 
12 U.S.C. 1823(i); minority interests in consolidated subsidiaries; and 
allowances for loan and lease losses; minus intangible assets;
    (2) Mortgage servicing assets;
    (3) Mandatory convertible debt to the extent of 20% of the sum of 
paragraphs (a) and (c) (1) and (2) of this section;
    (4) Other mandatory convertible debt, limited life preferred stock 
and subordinated notes and debentures to the extent set forth in 
paragraph (f)(2) of this section.
    (d) Unimpaired Surplus Fund. The term unimpaired surplus fund as 
used in provisions of law relating to the unimpaired surplus fund of 
national banking associations shall have the same meaning as the term 
surplus set forth in paragraph (c) of this section.
    (e) Definitions. (1) Allowance for loan and lease losses means the 
balance of the valuation reserve on December 31, 1968, plus additions to 
the reserve charged to operations since that date, less losses charged 
against the allowance net of recoveries.
    (2) Capital surplus means the total of those accounts reflecting:
    (i) Amounts paid in in excess of the par or stated value of capital 
stock;
    (ii) Amounts contributed to the bank other than for capital stock;
    (iii) amounts transferred from undivided profits pursuant to 12 
U.S.C. 60; and
    (iv) Other amounts transferred from undivided profits.
    (3) Intangible assets means those purchased assets that are to be 
reported as intangible assets in accordance with the Instructions--
Consolidated Reports of Condition and Income (Call Report).
    (4) Limited Life preferred stock means preferred stock which has a 
maturity or which may be redeemed at the option of the holder.
    (5) Mandatory convertible debt means subordinated debt instruments 
which unqualifiedly require the issuer to exchange either common or 
perpetual preferred stock for such instruments by a date at or before 
the maturity of the instrument. The maturity of these instruments must 
be 12 years or less. In addition, the instrument must meet the 
requirements of paragraphs (f)(1)(i) through (v) of this section for 
subordinated notes and debentures or other requirements published by the 
OCC.
    (6) Minority interest in consolidated subsidiaries means the portion 
of equity capital accounts of all consolidated subsidiaries of the bank 
that is allocated to minority shareholders of such subsidiaries.
    (7) Mortgage servicing assets means the bank-owned rights to service 
for a fee mortgage loans that are owned by others.
    (8) Perpetual preferred stock means preferred stock that does not 
have a stated maturity date and cannot be redeemed at the option of the 
holder.
    (f) Requirements and restrictions: Limited life preferred stock, 
mandatory convertible debt, and other subordinated debt--(1) 
Requirements. Issues of limited life preferred stock and subordinated 
notes and debentures (except mandatory convertible debt) shall have 
original weighted average maturities of at least five years to be 
included in the

[[Page 20]]

definition of surplus. In addition, a subordinated note or debenture 
must also:
    (i) Be subordinated to the claims of depositors;
    (ii) State on the instrument that it is not a deposit and is not 
insured by the FDIC;
    (iii) Be unsecured;
    (iv) Be ineligible as collateral for a loan by the issuing bank;
    (v) Provide that once any scheduled payments of principal begin, all 
scheduled payments shall be made at least annually and the amount repaid 
in each year shall be no less than in the prior year; and
    (vi) Provide that no prepayment (including payment pursuant to an 
acceleration clause or redemption prior to maturity) shall be made 
without prior OCC approval unless the bank remains an eligible bank, as 
defined in 12 CFR 5.3(g), after the prepayment.
    (2) Restrictions. The total amount of mandatory convertible debt not 
included in paragraph (c)(3) of this section, limited life preferred 
stock, and subordinated notes and debentures considered as surplus is 
limited to 50 percent of the sum of paragraphs (a) and (c) (1), (2) and 
(3) of this section.
    (3) Reservation of authority. The OCC expressly reserves the 
authority to waive the requirements and restrictions set forth in 
paragraphs (f) (1) and (2) of this section, in order to allow the 
inclusion of other limited life preferred stock, mandatory convertible 
notes and subordinated notes and debentures in the capital base of any 
national bank for capital adequacy purposes or for purposes of 
determining statutory limits. The OCC further expressly reserves the 
authority to impose more stringent conditions than those set forth in 
paragraphs (f) (1) and (2) of this section to exclude any component of 
Tier 1 or Tier 2 capital, in whole or in part, as part of a national 
bank's capital and surplus for any purpose.
    (g) Transitional rules. (1) Equity commitment notes approved by the 
OCC as capital and issued prior to April 15, 1985, may continue to be 
included in paragraph (c)(3) of this section. All other instruments 
approved by the OCC as capital and issued prior to April 15, 1985, are 
to be included in paragraph (c)(4) of this section.
    (2) Intangible assets (other than mortgage servicing assets) 
purchased prior to April 15, 1985, and accounted for in accordance with 
OCC instructions, may continue to be included as surplus up to 25% of 
the sum of paragraphs (a) and (c)(1) of this section.

(Approved by the Office of Management and Budget under control number 
1557-0166)

[50 FR 10216, Mar. 14, 1985, as amended at 55 FR 38801, Sept. 21, 1990; 
60 FR 39229, Aug. 1, 1995; 61 FR 60363, Nov. 27, 1996; 63 FR 42674, Aug. 
10, 1998]



        Sec. Appendix A to Part 3--Risk-Based Capital Guidelines

    Section 1. Purpose, Applicability of Guidelines, and Definitions.

    (a) Purpose. (1) An important function of the Office of the 
Comptroller of the Currency (OCC) is to evaluate the adequacy of capital 
maintained by each national bank. Such an evaluation involves the 
consideration of numerous factors, including the riskiness of a bank's 
assets and off-balance sheet items. This appendix A implements the OCC's 
risk-based capital guidelines. The risk-based capital ratio derived from 
those guidelines is more systematically sensitive to the credit risk 
associated with various bank activities than is a capital ratio based 
strictly on a bank's total balance sheet assets. A bank's risk-based 
capital ratio is obtained by dividing its capital base (as defined in 
section 2 of this appendix A) by its risk-weighted assets (as calculated 
pursuant to section 3 of this appendix A). These guidelines were created 
within the framework established by the report issued by the Committee 
on Banking Regulations and Supervisory Practices in July 1988. The OCC 
believes that the risk-based capital ratio is a useful tool in 
evaluating the capital adequacy of all national banks, not just those 
that are active in the international banking system.
    (2) The purpose of this appendix A is to explain precisely (i) how a 
national bank's risk-based capital ratio is determined and (ii) how 
these risk-based capital guidelines are applied to national banks. The 
OCC will review these guidelines periodically for possible adjustments 
commensurate with its experience with the risk-based capital ratio and 
with changes in the economy, financial markets and domestic and 
international banking practices.
    (b) Applicability. (1) The risk-based capital ratio derived from 
these guidelines is an important factor in the OCC's evaluation of a 
bank's capital adequacy. However, since this measure addresses only 
credit risk, the 8% minimum ratio should not be viewed as the level to 
be targeted, but rather as a floor.

[[Page 21]]

The final supervisory judgment on a bank's capital adequacy is based on 
an individualized assessment of numerous factors, including those listed 
in 12 CFR 3.10. With respect to the consideration of these factors, the 
OCC will give particular attention to any bank with significant exposure 
to declines in the economic value of its capital due to changes in 
interest rates. As a result, it may differ from the conclusion drawn 
from an isolated comparison of a bank's risk-based capital ration to the 
8% minimum specified in these guidelines. In addition to the standards 
established by these risk-based capital guidelines, all national banks 
must maintain a minimum capital-to-total assets ratio in accordance with 
the provisions of 12 CFR part 3.
    (2) Effective December 31, 1990, these risk-based capital guidelines 
will apply to all national banks. In the interim, banks must maintain 
minimum capital-to-total assets ratios as required by 12 CFR part 3, and 
should begin preparing for the implementation of these risk-based 
capital guidelines. In this regard, each national bank that does not 
currently meet the final minimum ratio established in section 4(b)(1) of 
this appendix A should begin planning for achieving that standard.
    (3) These risk-based capital guidelines will not be applied to 
federal branches and agencies of foreign banks.
    (c) Definitions. For purposes of this appendix A, the following 
definitions apply:
    (1) Adjusted carrying value means, for purposes of section 2(c)(5) 
of this appendix A, the aggregate value that investments are carried on 
the balance sheet of the bank reduced by any unrealized gains on the 
investments that are reflected in such carrying value but excluded from 
the bank's Tier 1 capital and reduced by any associated deferred tax 
liabilities. For example, for investments held as available-for-sale 
(AFS), the adjusted carrying value of the investments would be the 
aggregate carrying value of the investments (as reflected on the 
consolidated balance sheet of the bank) less any unrealized gains on 
those investments that are included in other comprehensive income and 
that are not reflected in Tier 1 capital, and less any associated 
deferred tax liabilities. Unrealized losses on AFS nonfinancial equity 
investments must be deducted from Tier 1 capital in accordance with 
section 1(c)(8) of this appendix A. The treatment of small business 
investment companies that are consolidated for accounting purposes under 
generally accepted accounting principles is discussed in section 
2(c)(5)(ii) of this appendix A. For investments in a nonfinancial 
company that is consolidated for accounting purposes, the bank's 
adjusted carrying value of the investment is determined under the equity 
method of accounting (net of any intangibles associated with the 
investment that are deducted from the bank's Tier 1 capital in 
accordance with section 2(c)(2) of this appendix A). Even though the 
assets of the nonfinancial company are consolidated for accounting 
purposes, these assets (as well as the credit equivalent amounts of the 
company's off-balance sheet items) are excluded from the bank's risk-
weighted assets.
    (2) Allowances for loan and lease losses means the balance of the 
valuation reserve on December 31, 1968, plus additions to the reserve 
charged to operations since that date, less losses charged against the 
allowance net of recoveries.
    (3) Asset-backed commercial paper program means a program that 
primarily issues externally rated commercial paper backed by assets or 
other exposures held in a bankruptcy-remote, special-purpose entity.
    (4) Asset-backed commercial paper sponsor means a bank that:
    (i) Establishes an asset-backed commercial paper program;
    (ii) Approves the sellers permitted to participate in an asset-
backed commercial paper program;
    (iii) Approves the asset pools to be purchased by an asset-backed 
commercial paper program; or
    (iv) Administers the asset-backed commercial paper program by 
monitoring the assets, arranging for debt placement, compiling monthly 
reports, or ensuring compliance with the program documents and with the 
program's credit and investment policy.
    (5) Associated company means any corporation, partnership, business 
trust, joint venture, association or similar organization in which a 
national bank directly or indirectly holds a 20 to 50 percent ownership 
interest.
    (6) Banking and finance subsidiary means any subsidiary of a 
national bank that engages in banking- and finance-related activities.
    (7) Cash items in the process of collection means checks or drafts 
in the process of collection that are drawn on another depository 
institution, including a central bank, and that are payable immediately 
upon presentation in the country in which the reporting bank's office 
that is clearing or collecting the check or draft is located; U.S. 
Government checks that are drawn on the United States Treasury or any 
other U.S. Government or Government-sponsored agency and that are 
payable immediately upon presentation; broker's security drafts and 
commodity or bill-of-lading drafts payable immediately upon presentation 
in the United States or the country in which the reporting bank's office 
that is handling the drafts is located; and unposted debits.
    (8) Central government means the national governing authority of a 
country; it includes the departments, ministries and agencies of the 
central government and the central

[[Page 22]]

bank. The U.S. Central Bank includes the 12 Federal Reserve Banks. The 
definition of central government does not include the following: State, 
provincial, or local governments; commercial enterprises owned by the 
central government, which are entities engaged in activities involving 
trade, commerce, or profit that are generally conducted or performed in 
the private sector of the United States economy; and non-central 
government entities whose obligations are guaranteed by the central 
government.
    (9) Commitment means any arrangement that obligates a national bank 
to: (i) Purchase loans or securities; or (ii) extend credit in the form 
of loans or leases, participations in loans or leases, overdraft 
facilities, revolving credit facilities, home equity lines of credit, 
liquidity facilities, or similar transactions.
    (10) Common stockholders' equity means common stock, common stock 
surplus, undivided profits, capital reserves, and adjustments for the 
cumulative effect of foreign currency translation, less net unrealized 
holding losses on available-for-sale equity securities with readily 
determinable fair values.
    (11) Conditional guarantee means a contingent obligation of the 
United States Government or its agencies, or the central government of 
an OECD country, the validity of which to the beneficiary is dependent 
upon some affirmative action--e.g., servicing requirements--on the part 
of the beneficiary of the guarantee or a third party.
    (12) Deferred tax assets means the tax consequences attributable to 
tax carryforwards and deductible temporary differences. Tax 
carryforwards are deductions or credits that cannot be used for tax 
purposes during the current period, but can be carried forward to reduce 
taxable income or taxes payable in a future period or periods. Temporary 
differences are financial events or transactions that are recognized in 
one period for financial statement purposes, but are recognized in 
another period or periods for income tax purposes. Deductible temporary 
differences are temporary differences that result in a reduction of 
taxable income in a future period or periods.
    (13) Derivative contract means generally a financial contract whose 
value is derived from the values of one or more underlying assets, 
reference rates or indexes of asset values. Derivative contracts include 
interest rate, foreign exchange rate, equity, precious metals and 
commodity contracts, or any other instrument that poses similar credit 
risks.
    (14) Depository institution means a financial institution that 
engages in the business of banking; that is recognized as a bank by the 
bank supervisory or monetary authorities of the country of its 
incorporation and the country of its principal banking operations; that 
receives deposits to a substantial extent in the regular course of 
business; and that has the power to accept demand deposits. In the U.S., 
this definition encompasses all federally insured offices of commercial 
banks, mutual and stock savings banks, savings or building and loan 
associations (stock and mutual), cooperative banks, credit unions, and 
international banking facilities of domestic depository institution. 
Bank holding companies are excluded from this definition. For the 
purposes of assigning risk weights, the differentiation between OECD 
depository institutions and non-OECD depository institutions is based on 
the country of incorporation. Claims on branches and agencies of foreign 
banks located in the United States are to be categorized on the basis of 
the parent bank's country of incorporation.
    (15) Equity investment means, for purposes of section 1(c)(19) and 
section 2(c)(5) of this appendix A, any equity instrument including 
warrants and call options that give the holder the right to purchase an 
equity instrument, any equity feature of a debt instrument (such as a 
warrant or call option), and any debt instrument that is convertible 
into equity. An investment in any other instrument, including 
subordinated debt or other types of debt instruments, may be treated as 
an equity investment if the OCC determines that the instrument is the 
functional equivalent of equity or exposes the bank to essentially the 
same risks as an equity instrument.
    (16) Exchange rate contracts include: Cross-currency interest rate 
swaps; forward foreign exchange rate contracts; currency options 
purchased; and any similar instrument that, in the opinion of the OCC, 
gives rise to similar risks.
    (17) Goodwill means an intangible asset that represents the excess 
of the purchase price over the fair market value of tangible and 
identifiable intangible assets acquired in purchases accounted for under 
the purchase method of accounting.
    (18) Intangible assets include mortgage and non-mortgage servicing 
assets (but exclude any interest only (IO) strips receivable related to 
these mortgage and nonmortgage servicing assets), purchased credit card 
relationships, goodwill, favorable leaseholds, and core deposit value.
    (19) Interest rate contracts include: Single currency interest rate 
swaps; basis swaps; forward rate agreements; interest rate options 
purchased; forward forward deposits accepted; and any similar instrument 
that, in the opinion of the OCC, gives rise to similar risks, including 
when-issued securities.
    (20) Liquidity facility means a legally binding commitment to 
provide liquidity to various types of transactions, structures or 
programs. A liquidity facility that supports asset-backed commercial 
paper, in any amount, by lending to, or purchasing assets

[[Page 23]]

from any structure, program, or conduit constitutes an asset-backed 
commercial paper liquidity facility.
    (21) Multifamily residential property means any residential property 
consisting of five or more dwelling units including apartment buildings, 
condominiums, cooperatives, and other similar structures primarily for 
residential use, but not including hospitals, nursing homes, or other 
similar facilities.
    (22) Nationally recognized statistical rating organization (NRSRO) 
means an entity recognized by the Division of Market Regulation of the 
Securities and Exchange Commission (or any successor Division) 
(Commission or SEC) as a nationally recognized statistical rating 
organization for various purposes, including the Commission's uniform 
net capital requirements for brokers and dealers.
    (23) Nonfinancial equity investment means any equity investment held 
by a bank in a nonfinancial company through a small business investment 
company (SBIC) under section 302(b) of the Small Business Investment Act 
of 1958 (15 U.S.C. 682(b)) or under the portfolio investment provisions 
of Regulation K (12 CFR 211.8(c)(3)). An equity investment made under 
section 302(b) of the Small Business Investment Act of 1958 in a SBIC 
that is not consolidated with the bank is treated as a nonfinancial 
equity investment in the manner provided in section 2(c)(5)(ii)(C) of 
this appendix A. A nonfinancial company is an entity that engages in any 
activity that has not been determined to be permissible for a bank to 
conduct directly or to be financial in nature or incidental to financial 
activities under section 4(k) of the Bank Holding Company Act (12 U.S.C. 
1843(k)).
    (24) The OECD-based group of countries comprises all full members of 
the Organization for Economic Cooperation and Development (OECD) 
regardless of entry date, as well as countries that have concluded 
special lending arrangements with the International Monetary Fund (IMF) 
associated with the IMF's General Arrangements to Borrow,\1\ but 
excludes any country that has rescheduled its external sovereign debt 
within the previous five years. These countries are hereinafter referred 
to as OECD countries. A rescheduling of external sovereign debt 
generally would include any renegotiation of terms arising from a 
country's inability or unwillingness to meet its external debt service 
obligations, but generally would not include renegotiations of debt in 
the normal course of business, such as a renegotiation to allow the 
borrower to take advantage of a decline in interest rates or other 
change in market conditions.
---------------------------------------------------------------------------

    \1\ As of November 1995, the OECD included the following countries: 
Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, 
Greece, Iceland, Ireland, Italy, Japan, Luxembourg, Mexico, the 
Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, 
Turkey, the United Kingdom, and the United States; and Saudi Arabia had 
concluded special lending arrangements with the IMF associated with the 
IMF's General Arrangements to Borrow.
---------------------------------------------------------------------------

    (25) Original maturity means, with respect to a commitment, the 
earliest possible date after a commitment is made on which the 
commitment is scheduled to expire (i.e., it will reach its stated 
maturity and cease to be binding on either party), provided that either:
    (i) The commitment is not subject to extension or renewal and will 
actually expire on its stated expiration date; or
    (ii) If the commitment is subject to extension or renewal beyond its 
stated expiration date, the stated expiration date will be deemed the 
original maturity only if the extension or renewal must be based upon 
terms and conditions independently negotiated in good faith with the 
customer at the time of the extension or renewal and upon a new, bona 
fide credit analysis utilizing current information on financial 
condition and trends.
    (26) Preferred stock includes the following instruments: (i) 
Convertible preferred stock, which means preferred stock that is 
mandatorily convertible into either common or perpetual preferred stock; 
(ii) Intermediate-term preferred stock, which means preferred stock with 
an original maturity of at least five years, but less than 20 years; 
(iii) Long-term preferred stock, which means preferred stock with an 
original maturity of 20 years or more; and (iv) Perpetual preferred 
stock, which means preferred stock without a fixed maturity date that 
cannot be redeemed at the option of the holder, and that has no other 
provisions that will require future redemption of the issue. For 
purposes of these instruments, preferred stock that can be redeemed at 
the option of the holder is deemed to have an original maturity of the 
earliest possible date on which it may be so redeemed.
    (27) Public-sector entities include states, local authorities and 
governmental subdivisions below the central government level in an OECD 
country. In the United States, this definition encompasses a state, 
county, city, town, or other municipal corporation, a public authority, 
and generally any publicly-owned entity that is an instrumentality of a 
state or municipal corporation. This definition does not include 
commercial companies owned by the public sector.\1a\
---------------------------------------------------------------------------

    \1a\ See Definition (5), Central government, for further explanation 
of commercial companies owned by the public sector.

---------------------------------------------------------------------------

[[Page 24]]

    (28) Reciprocal holdings of bank capital instruments means cross-
holdings or other formal or informal arrangements in which two or more 
banking organizations swap, exchange, or otherwise agree to hold each 
other's capital instruments. This definition does not include holdings 
of capital instruments issued by other banking organizations that were 
taken in satisfaction of debts previously contracted, provided that the 
reporting national bank has not held such instruments for more than five 
years or a longer period approved by the OCC.
    (29) Replacement cost means, with respect to interest rate and 
exchange rate contracts, the loss that would be incurred in the event of 
a counterparty default, as measured by the net cost of replacing the 
contract at the current market value. If default would result in a 
theoretical profit, the replacement value is considered to be zero. The 
mark-to-market process should incorporate changes in both interest rates 
and counterparty credit quality.
    (30) Residential properties means houses, condominiums, cooperative 
units, and manufactured homes. This definition does not include boats or 
motor homes, even if used as a primary residence.
    (31) Risk-weighted assets means the sum of total risk-weighted 
balance sheet assets and the total of risk-weighted off-balance sheet 
credit equivalent amounts. Risk-weighted balance sheet and off-balance 
sheet assets are calculated in accordance with section 3 of this 
appendix A.
    (32) State means any one of the several states of the United States 
of America, the District of Columbia, Puerto Rico, and the territories 
and possessions of the United States.
    (33) Subsidiary means any corporation, partnership, business trust, 
joint venture, association or similar organization in which a national 
bank directly or indirectly holds more than a 50% ownership interest. 
This definition does not include ownership interests that were taken in 
satisfaction of debts previously contracted, provided that the reporting 
bank has not held the interest for more than five years or a longer 
period approved by the OCC.
    (34) Total capital means the sum of a national bank's core (Tier 1) 
and qualifying supplementary (Tier 2) capital elements.
    (35) Unconditionally cancelable means, with respect to a commitment-
type lending arrangement, that the bank may, at any time, with or 
without cause, refuse to advance funds or extend credit under the 
facility. In the case of home equity lines of credit, the bank is deemed 
able to unconditionally cancel the commitment if it can, at its option, 
prohibit additional extensions of credit, reduce the line, and terminate 
the commitment to the full extent permitted by relevant Federal law.
    (36) United States Government or its agencies means an 
instrumentality of the U.S. Government whose debt obligations are fully 
and explicitly guaranteed as to the timely payment of principal and 
interest by the full faith and credit of the United States Government.
    (37) United States Government-sponsored agency means an agency 
originally established or chartered to serve public purposes specified 
by the United States Congress, but whose obligations are not explicitly 
guaranteed by the full faith and credit of the United States Government.
    (38) Walkaway clause means a provision in a bilateral netting 
contract that permits a nondefaulting counterparty to make a lower 
payment than it would make otherwise under the bilateral netting 
contract, or no payment at all, to a defaulter or the estate of a 
defaulter, even if the defaulter or the estate of the defaulter is a net 
creditor under the bilateral netting contract.

                    Section 2. Components of Capital.

    A national bank's qualifying capital base consists of two types of 
capital--core (Tier 1) and supplementary (Tier 2).
    (a) Tier 1 Capital. The following elements comprise a national 
bank's Tier 1 capital:
    (1) Common stockholders' equity;
    (2) Noncumulative perpetual preferred stock and related surplus; and 
\2\
---------------------------------------------------------------------------

    \2\ Preferred stock issues where the dividend is reset periodically 
based upon current market conditions and the bank's current credit 
rating, including but not limited to, auction rate, money market or 
remarketable preferred stock, are assigned to Tier 2 capital, regardless 
of whether the dividends are cumulative or noncumulative.
---------------------------------------------------------------------------

    (3) Minority interests in the equity accounts of consolidated 
subsidiaries, except that the following are not included in Tier 1 
capital or total capital:
    (i) Minority interests in a small business investment company or 
investment fund that holds nonfinancial equity investments and minority 
interests in a subsidiary that is engaged in a nonfinancial activities 
and is held under one of the legal authorities listed in section 
1(c)(23) of this appendix A.
    (ii) Minority interests in consolidated asset-backed commercial 
paper programs sponsored by a bank if the consolidated assets are 
excluded from risk-weighted assets pursuant to section 3(a)(5)(i) of 
this appendix A.
    (b) Tier 2 Capital. The following elements comprise a national 
bank's Tier 2 capital:

[[Page 25]]

    (1) Allowance for loan and lease losses, up to a maximum of 1.25% of 
risk-weighted assets,\3\ subject to the transition rules in section 
4(a)(2) of this appendix A;
---------------------------------------------------------------------------

    \3\ The amount of the allowance for loan and lease losses that may 
be included in capital is based on a percentage of risk-weighted assets. 
The gross sum of risk-weighted assets used in this calculation includes 
all risk-weighted assets, with the exception of the assets required to 
be deducted under section 3 in establishing risk-weighted assets (i.e., 
the assets required to be deducted from capital under section 2(c)) of 
this appendix. A banking organization may deduct reserves for loan and 
lease losses in excess of the amount permitted to be included as 
capital, as well as allocated transfer risk reserves and reserves held 
against other real estate owned, from the gross sum of risk-weighted 
assets in computing the denominator of the risk-based capital ratio.
---------------------------------------------------------------------------

    (2) Cumulative perpetual preferred stock, long-term preferred stock, 
convertible preferred stock, and any related surplus, without limit, if 
the issuing national bank has the option to defer payment of dividends 
on these instruments. For long-term preferred stock, the amount that is 
eligible to be included as Tier 2 capital is reduced by 20% of the 
original amount of the instrument (net of redemptions) at the beginning 
of each of the last five years of the life of the instrument;
    (3) Hybrid capital instruments, without limit. Hybrid capital 
instruments are those instruments that combine certain characteristics 
of debt and equity, such as perpetual debt. To be included as Tier 2 
capital, these instruments must meet the following criteria: \4\
---------------------------------------------------------------------------

    \4\ Mandatory convertible debt instruments that meet the 
requirements of 12 CFR 3.100(e)(5), or that have been previously 
approved as capital by the OCC, are treated as qualifying hybrid capital 
instruments.
---------------------------------------------------------------------------

    (i) The instrument must be unsecured, subordinated to the claims of 
depositors and general creditors, and fully paid-up;
    (ii) The instrument must not be redeemable at the option of the 
holder prior to maturity, except with the prior approval of the OCC;
    (iii) The instrument must be available to participate in losses 
while the issuer is operating as a going concern (in this regard, the 
instrument must automatically convert to common stock or perpetual 
preferred stock, if the sum of the retained earnings and capital surplus 
accounts of the issuer shows a negative balance); and
    (iv) The instrument must provide the option for the issuer to defer 
principal and interest payments, if
    (A) The issuer does not report a net profit for the most recent 
combined four quarters, and
    (B) The issuer eliminates cash dividends on its common and preferred 
stock.
    (4) Term subordinated debt instruments, and intermediate-term 
preferred stock and related surplus are included in Tier 2 capital, but 
only to a maximum of 50% of Tier 1 capital as calculated after 
deductions pursuant to section 2(c) of this appendix. To be considered 
capital, term subordinated debt instruments shall meet the requirements 
of Sec. 3.100(f)(1). However, pursuant to 12 CFR 5.47, the OCC may, in 
some cases, require that the subordinated debt be approved by the OCC 
before the subordinated debt may qualify as Tier 2 capital or may 
require prior approval for any prepayment (including payment pursuant to 
an acceleration clause or redemption prior to maturity) of the 
subordinated debt. Also, at the beginning of each of the last five years 
for the life of either type of instrument, the amount that is eligible 
to be included as Tier 2 capital is reduced by 20% of the original 
amount of that instrument (net of redemptions).
    (5) Up to 45 percent of the pretax net unrealized holding gains 
(that is, the excess, if any, of the fair value over historical cost) on 
available-for-sale equity securities with readily determinable fair 
values.\5\ Unrealized gains (losses) on other types of assets, such as 
bank premises and available-for-sale debt securities, are not included 
in Tier 2 capital, but the OCC may take these unrealized gains (losses) 
into account as additional factors when assessing a bank's overall 
capital adequacy.
---------------------------------------------------------------------------

    \5\ The OCC reserves the authority to exclude all or a portion of 
unrealized gains from Tier 2 capital if the OCC determines that the 
equity securities are not prudently valued.
---------------------------------------------------------------------------

    (c) Deductions from Capital. The following items are deducted from 
the appropriate portion of a national bank's capital base when 
calculating its risk-based capital ratio:
    (1) Deductions from Tier 1 Capital. The following items are deducted 
from Tier 1 capital before the Tier 2 portion of the calculation is 
made:
    (i) Goodwill;
    (ii) Other intangible assets, except as provided in section 2(c)(2) 
of this appendix A;
    (iii) Deferred tax assets, except as provided in section 2(c)(3) of 
this appendix A, that are dependent upon future taxable income, which 
exceed the lesser of either:
    (A) The amount of deferred tax assets that the bank could reasonably 
expect to realize within one year of the quarter-end Call Report, based 
on its estimate of future taxable income for that year; or

[[Page 26]]

    (B) 10% of Tier 1 capital, net of goodwill and all intangible assets 
other than purchased credit card relationships, mortgage servicing 
assets and non-mortgage servicing assets; and
    (iv) Credit-enhancing interest-only strips (as defined in section 
4(a)(3) of this appendix A), as provided in section 2(c)(4).
    (v) Nonfinancial equity investments as provided by section 2(c)(5) 
of this appendix A.
    (2) Qualifying intangible assets. Subject to the following 
conditions, mortgage servicing assets, nonmortgage servicing assets \6\ 
and purchased credit card relationships need not be deducted from Tier 1 
capital:
---------------------------------------------------------------------------

    \6\ Intangible assets are defined to exclude IO strips receivable 
related to these mortgage and non-mortgage servicing assets. See section 
1(c)(14) of this appendix A. Consequently, IO strips receivable related 
to mortgage and non-mortgage servicing assets are not required to be 
deducted under section 2(c)(2) of this appendix A. However, credit-
enhancing interest-only strips as defined in section 4(a)(3) are 
deducted from Tier 1 capital in accordance with section 2(c)(4) of this 
appendix A. Any non credit-enhancing IO strips receivable are subject to 
a 100% risk weight under section 3(a)(4) of this appendix A.
---------------------------------------------------------------------------

    (i) The total of all intangible assets that are included in Tier 1 
capital is limited to 100 percent of Tier 1 capital, of which no more 
than 25 percent of Tier 1 capital can consist of purchased credit card 
relationships and non-mortgage servicing assets in the aggregate. 
Calculation of these limitations must be based on Tier 1 capital net of 
goodwill and all other identifiable intangibles, other than purchased 
credit card relationships, mortgage servicing assets and non-mortgage 
servicing assets.
    (ii) Banks must value each intangible asset included in Tier 1 
capital at least quarterly at the lesser of:
    (A) 90 percent of the fair value of each intangible asset, 
determined in accordance with section 2(c)(2)(iii) of this appendix A; 
or
    (B) 100 percent of the remaining unamortized book value.
    (iii) The quarterly determination of the current fair value of the 
intangible asset must include adjustments for any significant changes in 
original valuation assumptions, including changes in prepayment 
estimates.
    (iv) Banks may elect to deduct disallowed servicing assets on a 
basis that is net of any associated deferred tax liability. Deferred tax 
liabilities netted in this manner cannot also be netted against deferred 
tax assets when determining the amount of deferred tax assets that are 
dependent upon future taxable income.
    (3) Deferred tax assets--(i) Net unrealized gains and losses on 
available-for-sale securities. Before calculating the amount of deferred 
tax assets subject to the limit in section 2(c)(1)(iii) of this appendix 
A, a bank may eliminate the deferred tax effects of any net unrealized 
holding gains and losses on available-for-sale debt securities. Banks 
report these net unrealized holding gains and losses in their Call 
Reports as a separate component of equity capital, but exclude them from 
the definition of common stockholders' equity for regulatory capital 
purposes. A bank that adopts a policy to deduct these amounts must apply 
that approach consistently in all future calculations of the amount of 
disallowed deferred tax assets under section 2(c)(1)(iii) of this 
appendix A.
    (ii) Consolidated groups. The amount of deferred tax assets that a 
bank can realize from taxes paid in prior carryback years and from 
reversals of existing taxable temporary differences generally would not 
be deducted from capital. However, for a bank that is a member of a 
consolidated group (for tax purposes), the amount of carryback potential 
a bank may consider in calculating the limit on deferred tax assets 
under section 2(c)(1)(iii) of this appendix A, may not exceed the amount 
that the bank could reasonably expect to have refunded by its parent 
holding company.
    (iii) Nontaxable Purchase Business Combination. In calculating the 
amount of net deferred tax assets under section 2(c)(1)(iii) of this 
appendix A, a deferred tax liability that is specifically associated 
with an intangible asset (other than purchased mortgage servicing rights 
and purchased credit card relationships) due to a nontaxable purchase 
business combination may be netted against that intangible asset. Only 
the net amount of the intangible asset must be deducted from Tier 1 
capital. Deferred tax liabilities netted in this manner cannot also be 
netted against deferred tax assets when determining the amount of net 
deferred tax assets that are dependent upon future taxable income.
    (iv) Estimated future taxable income. Estimated future taxable 
income does not include net operating loss carryforwards to be used 
during that year or the amount of existing temporary differences 
expected to reverse within the year. A bank may use future taxable 
income projections for their closest fiscal year, provided it adjusts 
the projections for any significant changes that occur or that it 
expects to occur. Such projections must include the estimated effect of 
tax planning strategies that the bank expects to implement to realize 
net operating losses or tax credit carryforwards that will otherwise 
expire during the year.
    (4) Credit-enhancing interest-only strips. Credit-enhancing 
interest-only strips, whether purchased or retained, that exceed 25% of 
Tier 1 capital must be deducted from Tier 1 capital. Purchased and 
retained credit-enhancing interest-only strips, on a non-tax

[[Page 27]]

adjusted basis, are included in the total amount that is used for 
purposes of determining whether a bank exceeds its Tier 1 capital.
    (i) The 25% limitation on credit-enhancing interest-only strips will 
be based on Tier 1 capital net of goodwill and all identifiable 
intangibles, other than purchased credit card relationships, mortgage 
servicing assets and non-mortgage servicing assets.
    (ii) Banks must value each credit-enhancing interest-only strip 
included in Tier 1 capital at least quarterly. The quarterly 
determination of the current fair value of the credit-enhancing 
interest-only strip must include adjustments for any significant changes 
in original valuation assumptions, including changes in prepayment 
estimates.
    (iii) Banks may elect to deduct disallowed credit-enhancing 
interest-only strips on a basis that is net of any associated deferred 
tax liability. Deferred tax liabilities netted in this manner cannot 
also be netted against deferred tax assets when determining the amount 
of deferred tax assets that are dependent upon future taxable income.
    (5) Nonfinancial equity investments--(i) General. (A) A bank must 
deduct from its Tier 1 capital the appropriate percentage, as determined 
in accordance with Table A, of the adjusted carrying value of all 
nonfinancial equity investments held by the bank and its subsidiaries.

         Table A--Deduction for Nonfinancial Equity Investments
------------------------------------------------------------------------
 Aggregate adjusted carrying value of all
   nonfinancial equity investments held    Deduction from Tier 1 Capital
  directly or indirectly by banks (as a       (as a percentage of the
 percentage of the Tier 1 capital of the     adjusted carrying value of
                 bank)\1\                         the investment)
------------------------------------------------------------------------
Less than 15 percent.....................  8.0 percent.
Greater than or equal to 15 percent but    12.0 percent.
 less than 25 percent.
Greater than or equal to 25 percent......  25.0 percent.
------------------------------------------------------------------------
\1\ For purposes of calculating the adjusted carrying value of
  nonfinancial equity investments as a percentage of Tier 1 capital,
  Tier 1 capital is defined as the sum of the Tier 1 capital elements
  net of goodwill and net of all identifiable intangible assets other
  than mortgage servicing assets, nonmortgage servicing assets and
  purchased credit card relationships, but prior to the deduction for
  disallowed mortgage servicing assets, disallowed nonmortgage servicing
  assets, disallowed purchased credit card relationships, disallowed
  credit-enhancing interest only strips (both purchased and retained),
  disallowed deferred tax assets, and nonfinancial equity investments.

    (B) Deductions for nonfinancial equity investments must be applied 
on a marginal basis to the portions of the adjusted carrying value of 
nonfinancial equity investments that fall within the specified ranges of 
the bank's Tier 1 capital. For example, if the adjusted carrying value 
of all nonfinancial equity investments held by a bank equals 20 percent 
of the Tier 1 capital of the bank, then the amount of the deduction 
would be 8 percent of the adjusted carrying value of all investments up 
to 15 percent of the bank's Tier 1 capital, and 12 percent of the 
adjusted carrying value of all investments equal to, or in excess of, 15 
percent of the bank's Tier 1 capital.
    (C) The total adjusted carrying value of any nonfinancial equity 
investment that is subject to deduction under section 2(c)(5) of this 
appendix A is excluded from the bank's weighted risk assets for purposes 
of computing the denominator of the bank's risk-based capital ratio. For 
example, if 8 percent of the adjusted carrying value of a nonfinancial 
equity investment is deducted from Tier 1 capital, the entire adjusted 
carrying value of the investment will be excluded from risk-weighted 
assets in calculating the denominator of the risk-based capital ratio.
    (D) Banks engaged in equity investment activities, including those 
banks with a high concentration in nonfinancial equity investments 
(e.g., in excess of 50 percent of Tier 1 capital), will be monitored and 
may be subject to heightened supervision, as appropriate, by the OCC to 
ensure that such banks maintain capital levels that are appropriate in 
light of their equity investment activities, and the OCC may impose a 
higher capital charge in any case where the circumstances, such as the 
level of risk of the particular investment or portfolio of investments, 
the risk management systems of the bank, or other information, indicate 
that a higher minimum capital requirement is appropriate.
    (ii) Small business investment company investments. (A) 
Notwithstanding section 2(c)(5)(i) of this appendix A, no deduction is 
required for nonfinancial equity investments that are made by a bank or 
its subsidiary through a SBIC that is consolidated with the bank, or in 
a SBIC that is not consolidated with the bank, to the extent that such 
investments, in the aggregate, do not exceed 15 percent of the Tier 1 
capital of the bank. Except as provided in paragraph (c)(5)(ii)(B) of 
this section, any nonfinancial equity investment that is held through or 
in a SBIC and not deducted from Tier 1 capital will be assigned to the 
100 percent risk-weight category and included in the bank's consolidated 
risk-weighted assets.
    (B) If a bank has an investment in a SBIC that is consolidated for 
accounting purposes but the SBIC is not wholly owned by the

[[Page 28]]

bank, the adjusted carrying value of the bank's nonfinancial equity 
investments held through the SBIC is equal to the bank's proportionate 
share of the SBIC's adjusted carrying value of its equity investments in 
nonfinancial companies. The remainder of the SBIC's adjusted carrying 
value (i.e., the minority interest holders' proportionate share) is 
excluded from the risk-weighted assets of the bank.
    (C) If a bank has an investment in a SBIC that is not consolidated 
for accounting purposes and has current information that identifies the 
percentage of the SBIC's assets that are equity investments in 
nonfinancial companies, the bank may reduce the adjusted carrying value 
of its investment in the SBIC proportionately to reflect the percentage 
of the adjusted carrying value of the SBIC's assets that are not equity 
investments in nonfinancial companies. The amount by which the adjusted 
carrying value of the bank's investment in the SBIC is reduced under 
this paragraph will be risk weighted at 100 percent and included in the 
bank's risk-weighted assets.
    (D) To the extent the adjusted carrying value of all nonfinancial 
equity investments that the bank holds through a consolidated SBIC or in 
a nonconsolidated SBIC equals or exceeds, in the aggregate, 15 percent 
of the Tier 1 capital of the bank, the appropriate percentage of such 
amounts, as set forth in Table A, must be deducted from the bank's Tier 
1 capital. In addition, the aggregate adjusted carrying value of all 
nonfinancial equity investments held through a consolidated SBIC and in 
a nonconsolidated SBIC (including any nonfinancial equity investments 
for which no deduction is required) must be included in determining, for 
purposes of Table A the total amount of nonfinancial equity investments 
held by the bank in relation to its Tier 1 capital.
    (iii) Nonfinancial equity investments excluded. (A) Notwithstanding 
section 2(c)(5)(i) and (ii) of this appendix A, no deduction from Tier 1 
capital is required for the following:
    (1) Nonfinancial equity investments (or portion of such investments) 
made by the bank prior to March 13, 2000, and continuously held by the 
bank since March 13, 2000.
    (2) Nonfinancial equity investments made on or after March 13, 2000, 
pursuant to a legally binding written commitment that was entered into 
by the bank prior to March 13, 2000, and that required the bank to make 
the investment, if the bank has continuously held the investment since 
the date the investment was acquired.
    (3) Nonfinancial equity investments received by the bank through a 
stock split or stock dividend on a nonfinancial equity investment made 
prior to March 13, 2000, provided that the bank provides no 
consideration for the shares or interests received, and the transaction 
does not materially increase the bank's proportional interest in the 
nonfinancial company.
    (4) Nonfinancial equity investments received by the bank through the 
exercise on or after March 13, 2000, of an option, warrant, or other 
agreement that provides the bank with the right, but not the obligation, 
to acquire equity or make an investment in a nonfinancial company, if 
the option, warrant, or other agreement was acquired by the bank prior 
to March 13, 2000, and the bank provides no consideration for the 
nonfinancial equity investments.
    (B) Any excluded nonfinancial equity investments described in 
section 2(c)(5)(iii)(A) of this appendix A must be included in 
determining the total amount of nonfinancial equity investments held by 
the bank in relation to its Tier 1 capital for purposes of Table A. In 
addition, any excluded nonfinancial equity investments will be risk 
weighted at 100 percent and included in the bank's risk-weighted assets.
    (6) Deductions from total capital. The following items are deducted 
from total capital:
    (i) Investments, both equity and debt, in unconsolidated banking and 
finance subsidiaries that are deemed to be capital of the subsidiary;\7\ 
and
---------------------------------------------------------------------------

    \7\ The OCC may require deduction of investments in other 
subsidiaries and associated companies, on a case-by-case basis.
---------------------------------------------------------------------------

    (ii) Reciprocal holdings of bank capital instruments.

 Section 3. Risk Categories/Weights for On-Balance Sheet Assets and Off-
                           Balance Sheet Items

    The denominator of the risk-based capital ratio, i.e., a national 
bank's risk-weighted assets,\8\ is derived by assigning that bank's 
assets and off-balance sheet items to one of the four risk categories 
detailed in section 3(a) of this appendix A. Each category has a 
specific risk weight. Before an off-balance sheet item is assigned a 
risk weight, it is converted to an on-balance sheet credit equivalent 
amount in accordance with section 3(b) of this appendix A. The risk 
weight assigned to a particular asset or on-balance sheet credit 
equivalent amount determines the percentage of that asset/credit 
equivalent that is included in the denominator of the bank's risk-based 
capital ratio. Any

[[Page 29]]

asset deducted from a bank's capital in computing the numerator of the 
risk-based capital ratio is not included as part of the bank's risk-
weighted assets.
---------------------------------------------------------------------------

    \8\ The OCC reserves the right to require a bank to compute its 
risk-based capital ratio on the basis of average, rather than period-
end, risk-weighted assets when necessary to carry out the purposes of 
these guidelines.
---------------------------------------------------------------------------

    Some of the assets on a bank's balance sheet may represent an 
indirect holding of a pool of assets, e.g., mutual funds, that 
encompasses more than one risk weight within the pool. In those 
situations, the bank may assign the asset to the risk category 
applicable to the highest risk-weighted asset that pool is permitted to 
hold pursuant to its stated investment objectives in the fund's 
prospectus. Alternatively, the bank may assign the asset on a pro rata 
basis to different risk categories according to the investment limits in 
the fund's prospectus. In either case, the minimum risk weight that may 
be assigned to such a pool is 20%. If a bank assigns the asset on a pro 
rata basis, and the sum of the investment limits in the fund's 
prospectus exceeds 100%, the bank must assign the highest pro rata 
amounts of its total investment to the higher risk category. If, in 
order to maintain a necessary degree of liquidity, the fund is permitted 
to hold an insignificant amount of its assets in short-term, highly-
liquid securities of superior credit quality (that do not qualify for a 
preferential risk weight), such securities generally will not be taken 
into account in determining the risk category into which the bank's 
holding in the overall pool should be assigned. The prudent use of 
hedging instruments by a fund to reduce the risk of its assets will not 
increase the risk weighting of the investment in that fund above the 20% 
category. However, if a fund engages in any activities that are deemed 
to be speculative in nature or has any other characteristics that are 
inconsistent with the preferential risk weighting assigned to the fund's 
assets, the bank's investment in the fund will be assigned to the 100% 
risk category. More detail on the treatment of mortgage-backed 
securities is provided in section 3(a)(3)(vi) of this appendix A.
    (a) On-Balance Sheet Assets. The following are the risk categories/
weights for on-balance sheet assets.
    (1) Zero percent risk weight. (i) Cash, including domestic and 
foreign currency owned and held in all offices of a national bank or in 
transit. Any foreign currency held by a national bank should be 
converted into U.S. dollar equivalents.
    (ii) Deposit reserves and other balances at Federal Reserve Banks.
    (iii) Securities issued by, and other direct claims on, the United 
States Government or its agencies, or the central government of an OECD 
country.
    (iv) That portion of assets directly and unconditionally guaranteed 
by the United States Government or its agencies, or the central 
government of an OECD country.\9\
---------------------------------------------------------------------------

    \9\ For the treatment of privately-issued mortgage-backed securities 
where the underlying pool is comprised solely of mortgage-related 
securities issued by GNMA, see infra note 10.
---------------------------------------------------------------------------

    (v) That portion of local currency claims on or unconditionally 
guaranteed by central governments of non-OECD countries, to the extent 
the bank has local currency liabilities in that country. Any amount of 
such claims that exceeds the amount of the bank's local currency 
liabilities is assigned to the 100% risk category of section 3(a)(4) of 
this appendix.
    (vi) Gold bullion held in the bank's own vaults or in another bank's 
vaults on an allocated basis, to the extent it is backed by gold bullion 
liabilities.
    (vii) The book value of paid-in Federal Reserve Bank stock.
    (viii) That portion of assets and off-balance sheet transactions 
\9a\ collateralized by cash or securities issued or directly and 
unconditionally guaranteed by the United States Government or its 
agencies, or the central government of an OECD country, provided that: 
\9b\
---------------------------------------------------------------------------

    \9a\ See footnote 22 in section 3(b)(5)(iii) of this appendix A 
(collateral held against derivative contracts).
    \9b\ Assets and off-balance sheet transactions collateralized by 
securities issued or guaranteed by the United States Government or its 
agencies, or the central government of an OECD country include, but are 
not limited to, securities lending transactions, repurchase agreements, 
collateralized letters of credit, such as reinsurance letters of credit, 
and other similar financial guarantees. Swaps, forwards, futures, and 
options transactions are also eligible, if they meet the collateral 
requirements. However, the OCC may at its discretion require that 
certain collateralized transactions be risk weighted at 20 percent if 
they involve more than a minimal risk.
---------------------------------------------------------------------------

    (A) The bank maintains control over the collateral:
    (1) If the collateral consists of cash, the cash must be held on 
deposit by the bank or by a third-party for the account of the bank;
    (2) If the collateral consists of OECD government securities, then 
the OECD government securities must be held by the bank or by a third-
party acting on behalf of the bank;
    (B) The bank maintains a daily positive margin of collateral fully 
taking into account any change in the market value of the collateral 
held as security;
    (C) Where the bank is acting as a customer's agent in a transaction 
involving the loan or sale of securities that is

[[Page 30]]

collateralized by cash or OECD government securities delivered to the 
bank, any obligation by the bank to indemnify the customer is limited to 
no more than the difference between the market value of the securities 
lent and the market value of the collateral received, and any 
reinvestment risk associated with the collateral is borne by the 
customer; and
    (D) The transaction involves no more than minimal risk.
    (2) 20 percent risk weight. (i) All claims on depository 
institutions incorporated in an OECD country, and all assets backed by 
the full faith and credit of depository institutions incorporated in an 
OECD country. This includes the credit equivalent amount of 
participations in commitments and standby letters of credit sold to 
other depository institutions incorporated in an OECD country, but only 
if the originating bank remains liable to the customer or beneficiary 
for the full amount of the commitment or standby letter of credit. Also 
included in this category are the credit equivalent amounts of risk 
participations in bankers' acceptances conveyed to other depository 
institutions incorporated in an OECD country. However, bank-issued 
securities that qualify as capital of the issuing bank are not included 
in this risk category, but are assigned to the 100% risk category of 
section 3(a)(4) of this appendix A.
    (ii) Claims on, or guaranteed by depository institutions, other than 
the central bank, incorporated in a non-OECD country, with a residual 
maturity of one year or less.
    (iii) Cash items in the process of collection.
    (iv) That portion of assets collateralized by cash or by securities 
issued or directly and unconditionally guaranteed by the United States 
Government or its agencies, or the central government of an OECD 
country, that does not qualify for the zero percent risk-weight 
category.
    (v) That portion of assets conditionally guaranteed by the United 
States Government or its agencies, or the central government of an OECD 
country.
    (vi) Securities issued by, or other direct claims on, United States 
Government-sponsored agencies.
    (vii) That portion of assets guaranteed by United States Government-
sponsored agencies.\10\
---------------------------------------------------------------------------

    \10\ Privately issued mortgage-backed securities, e.g., CMOs and 
REMICs, where the underlying pool is comprised solely of mortgage-
related securities issued by GNMA, FNMA and FHLMC, will be treated as an 
indirect holding of the underlying assets and assigned to the 20% risk 
category of this section 3(a)(2). If the underlying pool is comprised of 
assets which attract different risk weights, e.g., FNMA securities and 
conventional mortgages, the bank should generally assign the security to 
the highest risk category appropriate for any asset in the pool. 
However, on a case-by-case basis, the OCC may allow the bank to assign 
the security proportionately to the various risk categories based on the 
proportion in which the risk categories are represented by the 
composition cash flows of the underlying pool of assets. Before the OCC 
will consider a request to proportionately risk-weight such a security, 
the bank must have current information for the reporting date that 
details the composition and cash flows of the underlying pool of assets. 
Furthermore, before a mortgage-related security will receive a risk 
weight lower than 100%, it must meet the criteria set forth in section 
3(a)(3)(vi) of this appendix A.
---------------------------------------------------------------------------

    (viii) That portion of assets collateralized by the current market 
value of securities issued or guaranteed by United States Government-
sponsored agencies.
    (ix) Claims representing general obligations of any public-sector 
entity in an OECD country, and that portion of any claims guaranteed by 
any such public-sector entity. In the U.S., these obligations must meet 
the requirements of 12 CFR 1.2(b).
    (x) Claims on, or guaranteed by, official multilateral lending 
institutions or regional development institutions in which the United 
States Government is a shareholder or contributing member.\11\
---------------------------------------------------------------------------

    \11\ These institutions include, but are not limited to, the 
International Bank for Reconstruction and Development (World Bank), the 
Inter-American Development Bank, the Asian Development Bank, the African 
Development Bank, the European Investments Bank, the International 
Monetary Fund and the Bank for International Settlements.
---------------------------------------------------------------------------

    (xi) That portion of assets collateralized by the current market 
value of securities issued by official multilateral lending institutions 
or regional development institutions in which the United States 
Government is a shareholder or contributing member.
    (xii) That portion of local currency claims conditionally guaranteed 
by central governments of non-OECD countries, to the extent the bank has 
local currency liabilities in that country. Any amount of such claims 
that exceeds the amount of the bank's local currency liabilities is 
assigned to the 100% risk category of section 3(a)(4) of this appendix.
    (xiii) Claims on, or guaranteed by, a securities firm incorporated 
in an OECD country, that satisfies the following conditions:
    (A) If the securities firm is incorporated in the United States, 
then the firm must be a broker-dealer that is registered with the SEC

[[Page 31]]

and must be in compliance with the SEC's net capital regulation (17 CFR 
240.15c3(1)).
    (B) If the securities firm is incorporated in any other OECD 
country, then the bank must be able to demonstrate that the firm is 
subject to consolidated supervision and regulation, including its 
subsidiaries, comparable to that imposed on depository institutions in 
OECD countries; such regulation must include risk-based capital 
standards comparable to those applied to depository institutions under 
the Basel Capital Accord.\11a\
---------------------------------------------------------------------------

    \11a\ See Accord on International Convergence of Capital Measurement 
and Capital Standards as adopted by the Basle Committee on Banking 
Regulations and Supervisory Practices (renamed as the Basel Committee on 
Banking Supervision), dated July 1988 (amended 1998).
---------------------------------------------------------------------------

    (C) The securities firm, whether incorporated in the United States 
or another OECD country, must also have a long-term credit rating in 
accordance with section 3(a)(2)(xiii)(C)(1) of this appendix A; a parent 
company guarantee in accordance with section 3(a)(2)(xiii)(C)(2) of this 
appendix A; or a collateralized claim in accordance with section 
3(a)(2)(xiii)(C)(3) of this appendix A. Claims representing capital of a 
securities firm must be risk weighted at 100 percent in accordance with 
section 3(a)(4) of this Appendix A.
    (1) Credit rating. The securities firm must have either a long-term 
issuer credit rating or a credit rating on at least one issue of long-
term unsecured debt, from a NRSRO that is in one of the three highest 
investment-grade categories used by the NRSRO. If the securities firm 
has a credit rating from more than one NRSRO, the lowest credit rating 
must be used to determine the credit rating under this paragraph.
    (2) Parent company guarantee. The claim on, or guaranteed by, the 
securities firm must be guaranteed by the firm's parent company, and the 
parent company must have either a long-term issuer credit rating or a 
credit rating on at least one issue of long-term unsecured debt, from a 
NRSRO that is in one of the three highest investment-grade categories 
used by the NRSRO.
    (3) Collateralized claim. The claim on the securities firm must be 
collateralized subject to all of the following requirements:
    (i) The claim must arise from a reverse repurchase/repurchase 
agreement or securities lending/borrowing contract executed using 
standard industry documentation.
    (ii) The collateral must consist of debt or equity securities that 
are liquid and readily marketable.
    (iii) The claim and collateral must be marked-to-market daily.
    (iv) The claim must be subject to daily margin maintenance 
requirements under standard industry documentation.
    (v) The contract from which the claim arises can be liquidated, 
terminated, or accelerated immediately in bankruptcy or similar 
proceedings, and the security or collateral agreement will not be stayed 
or avoided under the applicable law of the relevant jurisdiction. To be 
exempt from the automatic stay in bankruptcy in the United States, the 
claim must arise from a securities contract or a repurchase agreement 
under section 555 or 559, respectively, of the Bankruptcy Code (11 
U.S.C. 555 or 559), a qualified financial contract under section 
11(e)(8) of the Federal Deposit Insurance Act (12 U.S.C. 1821(e)(8)), or 
a netting contract between or among financial institutions under 
sections 401-407 of the Federal Deposit Insurance Corporation 
Improvement Act of 1991 (912 U.S.C. 4407), or the Regulation EE (12 CFR 
part 231).
    (3) 50 percent risk weight. (i) Revenue obligations of any public-
sector entity in an OECD country for which the underlying obligor is the 
public-sector entity, but which are repayable solely from the revenues 
generated by the project financed through the issuance of the 
obligations.
    (ii) The credit equivalent amount of derivative contracts, 
calculated in accordance with section 3(b)(5) of this appendix A, that 
do not qualify for inclusion in a lower risk category.
    (iii) Loans secured by first mortgages on one-to-four family 
residential properties, either owner-occupied or rented, provided that 
such loans are not otherwise 90 days or more past due, or on nonaccrual 
or restructured. It is presumed that such loans will meet prudent 
underwriting standards. If a bank holds a first lien and junior lien on 
a one-to-four family residential property and no other party holds an 
intervening lien, the transaction is treated as a single loan secured by 
a first lien for the purposes of both determining the loan-to-value 
ratio and assigning a risk weight to the transaction. Furthermore, 
residential property loans made for the purpose of construction 
financing are assigned to the 100% risk category of section 3(a)(4) of 
this appendix A; however, these loans may be included in the 50% risk 
category of this section 3(a)(3) of this appendix A if they are subject 
to a legally binding sales contract and satisfy the requirements of 
section 3(a)(3)(iv) of this appendix A.
    (iv) Loans to residential real estate builders for one-to-four 
family residential property construction, if the bank obtains sufficient 
documentation demonstrating that the buyer of the home intends to 
purchase the home (i.e., a legally binding written sales contract) and 
has the ability to obtain a mortgage loan sufficient to purchase the 
home (i.e., a firm written commitment for

[[Page 32]]

permanent financing of the home upon completion), subject to the 
following additional criteria:
    (A) The builder must incur at least the first 10% of the direct 
costs (i.e., actual costs of the land, labor, and material) before any 
drawdown is made under the construction loan and the construction loan 
may not exceed 80% of the sales price of the resold home;
    (B) The individual purchaser has made a substantial ``earnest money 
deposit'' of no less than 3% of the sales price of the home that must be 
subject to forfeiture by the individual purchaser if the sales contract 
is terminated by the individual purchaser; however, the earnest money 
deposit shall not be subject to forfeiture by reason of breach or 
termination of the sales contract on the part of the builder;
    (C) The earnest money deposit must be held in escrow by the bank 
financing the builder or by an independent party in a fiduciary 
capacity; the escrow agreement must provide that in the event of default 
the escrow funds must be used to defray any cost incurred relating to 
any cancellation of the sales contract by the buyer;
    (D) If the individual purchaser terminates the contract or if the 
loan fails to satisfy any other criterion under this section, then the 
bank must immediately recategorize the loan at a 100% risk weight and 
must accurately report the loan in the bank's next quarterly 
Consolidated Reports of Condition and Income (Call Report);
    (E) The individual purchaser must intend that the home will be 
owner-occupied;
    (F) The loan is made by the bank in accordance with prudent 
underwriting standards;
    (G) The loan is not more than 90 days past due, or on nonaccrual; 
and
    (H) The purchaser is an individual(s) and not a partnership, joint 
venture, trust, corporation, or any other entity (including an entity 
acting as a sole proprietorship) that is purchasing one or more of the 
homes for speculative purposes.
    (v) Loans secured by a first mortgage on multifamily residential 
properties: \11b\
---------------------------------------------------------------------------

    \11b\ The portion of multifamily residential property loans that is 
sold subject to a pro rata loss sharing arrangement may be treated by 
the selling bank as sold to the extent that the sales agreement provides 
for the purchaser of the loan to share in any loss incurred on the loan 
on a pro rata basis with the selling bank. The portion of multifamily 
residential property loans sold subject to any loss sharing arrangement 
other than pro rata sharing of the loss shall be accorded the same 
treatment as any other asset sold under an agreement to repurchase or 
sold with recourse under section 4(b) of this appendix A.
---------------------------------------------------------------------------

    (A) The amortization of principal and interest occurs in not more 
than 30 years;
    (B) The minimum original maturity for repayment of principal is not 
less than 7 years;
    (C) All principal and interest payments have been made on a timely 
basis in accordance with the terms of the loan for at least one year 
immediately preceding the risk weighting of the loan in the 50% risk 
weight category, and the loan is not otherwise 90 days or more past due, 
or on nonaccrual status;
    (D) The loan is made in accordance with all applicable requirements 
and prudent underwriting standards;
    (E) If the rate of interest does not change over the term of the 
loan:
    (I) The current loan amount outstanding does not exceed 80% of the 
current value of the property, as measured by either the value of the 
property at origination of the loan (which is the lower of the purchase 
price or the value as determined by the initial appraisal, or if 
appropriate, the initial evaluation) or the most current appraisal, or 
if appropriate, the most current evaluation; and
    (II) In the most recent fiscal year, the ratio of annual net 
operating income generated by the property (before payment of any debt 
service on the loan) to annual debt service on the loan is not less than 
120%;\11c\
---------------------------------------------------------------------------

    \11c\ For the purposes of the debt service requirements in sections 
3(a)(3)(v)(E)(II) and 3(a)(3)(v)(F)(II) of this appendix A, other forms 
of debt service coverage that generate sufficient cash flows to provide 
comparable protection to the institution may be considered for (a) a 
loan secured by cooperative housing or (b) a multifamily residential 
property loan if the purpose of the loan is for the development or 
purchase of multifamily residential property primarily intended to 
provide low- to moderate-income housing, including special operating 
reserve accounts or special operating subsidies provided by federal, 
state, local or private sources. However, the OCC reserves the right, on 
a case-by-case basis, to review the adequacy of any other forms of 
comparable debt service coverage relied on by the bank.
---------------------------------------------------------------------------

    (F) If the rate of interest changes over the term of the loan:
    (I) The current loan amount outstanding does not exceed 75% of the 
current value of the property, as measured by either the value of the 
property at origination of the loan (which is the lower of the purchase 
price or the value as determined by the initial appraisal, or if 
appropriate, the initial evaluation) or the most current appraisal, or 
if appropriate, the most current evaluation; and

[[Page 33]]

    (II) In the most recent fiscal year, the ratio of annual net 
operating income generated by the property (before payment of any debt 
service on the loan) to annual debt service on the loan is not less than 
115%; and
    (G) If the loan was refinanced by the borrower:
    (I) All principal and interest payments on the loan being refinanced 
which were made in the preceding year prior to refinancing shall apply 
in determining the one-year timely payment requirement under paragraph 
(a)(3)(v)(C) of this section; and
    (II) The net operating income generated by the property in the 
preceding year prior to refinancing shall apply in determining the 
applicable debt service requirements under paragraphs (a)(3)(v)(E) and 
(a)(3)(v)(F) of this section.
    (vi) Privately-issued mortgage-backed securities, i.e. those that do 
not carry the guarantee of a government or government-sponsored agency, 
if the privately-issued mortgage-backed securities are at the time the 
mortgage-backed securities are originated fully secured by or otherwise 
represent a sufficiently secure interest in mortgages that qualify for 
the 50% risk weight under paragraphs (a)(3) (iii), (iv) and (v) of this 
section,\12\ provided that they meet the following criteria:
---------------------------------------------------------------------------

    \12\ If all of the underlying mortgages in the pool do not qualify 
for the 50% risk weight, the bank should generally assign the entire 
value of the security to the 100% risk category of section 3(a)(4) of 
this appendix A; however, on a case-by-case basis, the OCC may allow the 
bank to assign only the portion of the security which represents an 
interest in, and the cash flows of, nonqualifying mortgages to the 100% 
risk category, with the remainder being assigned a risk weight of 50%. 
Before the OCC will consider a request to risk weight a mortgage-backed 
security on a proportionate basis, the bank must have current 
information for the reporting date that details the composition and cash 
flows of the underlying pool of mortgages.
---------------------------------------------------------------------------

    (A) The underlying assets must be held by an independent trustee 
that has a first priority, perfected security interest in the underlying 
assets for the benefit of the holders of the security;
    (B) The holder of the security must have an undivided pro rata 
ownership interest in the underlying assets or the trust that issues the 
security must have no liabilities unrelated to the issued securities;
    (C) The trust that issues the security must be structured such that 
the cash flows from the underlying assets fully meet the cash flows 
requirements of the security without undue reliance on any reinvestment 
income; and
    (D) There must not be any material reinvestment risk associated with 
any funds awaiting distribution to the holder of the security.
    (4) 100 percent risk weight. All other assets not specified above, 
\12a\ including:
---------------------------------------------------------------------------

    \12a\ A bank subject to the market risk capital requirements 
pursuant to appendix B of this part 3 may calculate the capital 
requirement for qualifying securities borrowing transactions pursuant to 
section 3(a)(1)(ii) of appendix B of this part 3.
---------------------------------------------------------------------------

    (i) Claims on or guaranteed by depository institutions incorporated 
in a non-OECD country, as well as claims on the central bank of a non-
OECD country, with a residual maturity exceeding one year.
    (ii) All non-local currency claims on non-OECD central governments, 
as well as local currency claims on non-OECD central governments that 
are not included in section 3(a)(1)(v) of this appendix A.
    (iii) Asset-or mortgage backed securities that are externally rated 
are risk weighted in accordance with section 4(d) of this appendix A.
    (iv) All stripped mortgage-backed securities, including interest 
only portions (IOs), principal only portions (POs) and other similar 
instruments, regardless of the issuer or guarantor.
    (v) Obligations issued by any state or any political subdivision 
thereof for the benefit of a private party or enterprise where that 
party or enterprise, rather than the issuing state or political 
subdivision, is responsible for the timely payment of principal and 
interest on the obligation, e.g., industrial development bonds.
    (vi) Claims on commercial enterprises owned by non-OECD and OECD 
central governments.
    (vii) Any investment in an unconsolidated subsidiary that is not 
required to be deducted from total capital pursuant to section 2(c)(3) 
of this appendix A.
    (viii) Instruments issued by depository institutions incorporated in 
OECD and non-OECD countries that qualify as capital of the issuer.
    (ix) Investments in fixed assets, premises, and other real estate 
owned.
    (x) Claims representing capital of a securities firm notwithstanding 
section 3(a)(2)(xiii) of this appendix A.
    (5) Asset-backed commercial paper programs subject to consolidation. 
(i) A bank that qualifies as a primary beneficiary and must consolidate 
an asset-backed commercial paper program as a variable interest entity 
under generally accepted accounting principles may exclude the 
consolidated asset-backed commercial paper program assets from risk-
weighted assets if the bank is the sponsor of the consolidated asset-
backed commercial paper program.

[[Page 34]]

    (ii) If a bank excludes such consolidated asset-backed commercial 
paper program assets from risk-weighted assets, the bank must assess the 
appropriate risk-based capital charge against any risk exposures of the 
bank arising in connection with such asset-backed commercial paper 
program, including direct credit substitutes, recourse obligations, 
residual interests, asset-backed commercial paper liquidity facilities, 
and loans, in accordance with section 3 and section 4 of this appendix 
A.
    (iii) If a bank either is not permitted to exclude consolidated 
asset-backed commercial paper program assets or elects not to exclude 
consolidated asset-backed commercial paper program assets from its risk-
weighted assets, the bank must assess a risk-based capital charge based 
on the appropriate risk weight of the consolidated asset-backed 
commercial paper program assets in accordance with sections 3(a) and 4 
of this appendix A. Any direct credit substitutes and recourse 
obligations (including residual interests and asset-backed commercial 
paper liquidity facilities), and loans that sponsoring banks provide to 
such asset-backed commercial paper programs are not subject to a capital 
charge under this section 4 of this appendix A.
    (iv) If a bank has multiple overlapping exposures (such as a 
program-wide credit enhancement and an asset-backed commercial paper 
liquidity facility) to an asset-backed commercial paper program that is 
not consolidated for risk-based capital purposes, the bank must apply 
the highest capital charge applicable to the exposures but is not 
required to hold capital multiple times for the overlapping exposures 
under section 4 of this appendix A.
    (6) Other variable interest entities subject to consolidation. If a 
bank is required to consolidate the assets of a variable interest entity 
other than an asset-backed commercial paper program under generally 
accepted accounting principles, the bank must assess a risk-based 
capital charge based on the appropriate risk weight of the consolidated 
assets in accordance with sections 3(a) and 4 of this appendix A. Any 
direct credit substitutes and recourse obligations (including residual 
interests), and loans that a bank may provide to such a variable 
interest entity are not subject to any capital charge under section 4 of 
this appendix A.
    (b) Off-Balance Sheet Activities. The risk weight assigned to an 
off-balance sheet item is determined by a two-step process. First, the 
face amount of the off-balance sheet item is multiplied by the 
appropriate credit conversion factor specified in this section. This 
calculation translates the face amount of an off-balance sheet item into 
an on-balance sheet credit equivalent amount. Second, the resulting 
credit equivalent amount is then assigned to the proper risk category 
using the criteria regarding obligors, guarantors, and collateral listed 
in section 3(a) of this appendix A, or external credit rating in 
accordance with section 4(d), if applicable. Collateral and guarantees 
are applied to the face amount of an off-balance sheet item; however, 
with respect to derivative contracts under section 3(b)(5) of this 
appendix A, collateral and guarantees are applied to the credit 
equivalent amounts of such derivative contracts. The following are the 
credit conversion factors and the off-balance sheet items to which they 
apply. However, direct credit substitutes, recourse obligations, and 
securities issued in connection with asset securitizations are treated 
as described in section 4 of this appendix A.
    (1) 100 percent credit conversion factor. (i) [Reserved] \13\
---------------------------------------------------------------------------

    \13\ [Reserved]
---------------------------------------------------------------------------

    (ii) Risk participations purchased in bankers' acceptances;
    (iii) [Reserved] \14\
---------------------------------------------------------------------------

    \14\ [Reserved]
---------------------------------------------------------------------------

    (iv) Contingent obligations with a certain draw down, e.g., legally 
binding agreements to purchase assets as a specified future date.
    (v) Indemnification of customers whose securities the bank has lent 
as agent. If the customer is not indemnified against loss by the bank, 
the transaction is excluded from the risk-based capital calculation.\15\
---------------------------------------------------------------------------

    \15\ When a bank lends its own securities, the transaction is 
treated as a loan. When a bank lends its own securities or, acting as 
agent, agrees to indemnify a customer, the transaction is assigned to 
the risk weight appropriate to the obligor or collateral that is 
delivered to the lending or indemnifying institution or to an 
independent custodian acting on their behalf.
---------------------------------------------------------------------------

    (2) 50 percent credit conversion factor. (i) Transaction-related 
contingencies including, among other things, performance bonds and 
performance-based standby letters of credit related to a particular 
transaction.\16\ To the extent permitted by law or regulation, 
performance-based standby letters of credit include such things as 
arrangements backing subcontractors' and suppliers' performance, labor 
and materials contracts, and construction bids;
---------------------------------------------------------------------------

    \16\ For purposes of this section 3(b)(2)(i), a ``performance-based 
standby letter of credit'' is any letter of credit, or similar 
arrangement, however named or described, which represents an irrevocable 
obligation to the beneficiary on the part of the issuer to make payment 
on account of any default by the account party in the performance of a 
non-financial or commercial obligation. Participations in performance-
based standby letters of credit are treated in accordance with section 4 
of this appendix A.

---------------------------------------------------------------------------

[[Page 35]]

    (ii) Unused portion of commitments with an original maturity 
exceeding one-year; \17\ however, commitments that are asset-backed 
commercial paper liquidity facilities must satisfy the eligibility 
requirements under section 3(b)(6)(ii) of this appendix A;
---------------------------------------------------------------------------

    \17\ Participations in commitments are treated in accordance with 
section 4 of this Appendix A.
---------------------------------------------------------------------------

    (iii) Revolving underwriting facilities, note issuance facilities, 
and similar arrangements pursuant to which the bank's customer can issue 
short-term debt obligations in its own name, but for which the bank has 
a legally binding commitment to either:
    (A) Purchase the obligations the customer is unable to sell by a 
stated date; or
    (B) Advance funds to its customer, if the obligations cannot be 
sold.
    (3) 20 percent credit conversion factor. (i) Trade-related 
contingencies. These are short-term self-liquidating instruments used to 
finance the movement of goods and are collateralized by the underlying 
shipment. A commercial letter of credit is an example of such an 
instrument.
    (4) 10 percent credit conversion factor. Unused portion of asset-
backed commercial paper liquidity facilities with an original maturity 
of one year or less that satisfy the eligibility requirements under 
section 3(b)(6)(ii) of this appendix A.
    (5) Zero percent credit conversion factor. (i) Unused portion of 
commitments with an original maturity of one year or less, but excluding 
any asset-backed commercial paper liquidity facilities;
    (ii) Unused portion of commitments with an original maturity of 
greater than one year, if they are unconditionally cancelable \18\ at 
any time at the option of the bank and the bank has the contractual 
right to make, and in fact does make, either--
---------------------------------------------------------------------------

    \18\ See section 1(c)(26) of appendix A to this part.
---------------------------------------------------------------------------

    (A) A separate credit decision based upon the borrower's current 
financial condition, before each drawing under the lending facility; or
    (B) An annual (or more frequent) credit review based upon the 
borrower's current financial condition to determine whether or not the 
lending facility should be continued; and
    (iii) The unused portion of retail credit card lines or other 
related plans that are unconditionally cancelable by the bank in 
accordance with applicable law.
    (6) Liquidity facility provided to asset-backed commercial paper. 
(i) Noneligible asset-backed commercial paper liquidity facilities 
treated as recourse or direct credit substitute. Unused portion of 
asset-backed commercial paper liquidity facilities that do not meet the 
criteria for an eligible liquidity facility provided to asset-backed 
commercial paper in accordance with section 3(b)(6)(ii) of this appendix 
A must be treated as recourse or as a direct credit substitute, and 
assessed the appropriate risk-based capital charge in accordance with 
section 4 of this appendix A.
    (ii) Eligible asset-backed commercial paper liquidity facility. 
Except as provided in section 3(b)(6)(iii) of this appendix A, in order 
for the unused portion of an asset-backed commercial paper liquidity 
facility to be eligible for either the 50 percent or 10 percent credit 
conversion factors under section 3(b)(2)(ii) or 3(b)(4) of this appendix 
A, the asset-backed commercial paper liquidity facility must satisfy the 
following criteria:
    (A) At the time of draw, the asset-backed commercial paper liquidity 
facility must be subject to an asset quality test that:
    (1) Precludes funding of assets that are 90 days or more past due or 
in default; and
    (2) If the assets that an asset-backed commercial paper liquidity 
facility is required to fund are externally rated securities at the time 
they are transferred into the program, the asset-backed commercial paper 
liquidity facility must be used to fund only securities that are 
externally rated investment grade at the time of funding. If the assets 
are not externally rated at the time they are transferred into the 
program, then they are not subject to this investment grade requirement.
    (B) The asset-backed commercial paper liquidity facility must 
provide that, prior to any draws, the bank's funding obligation is 
reduced to cover only those assets that satisfy the funding criteria 
under the asset quality test as provided in section 3(b)(6)(ii)(A) of 
this appendix A.
    (iii) Exception to eligibility requirements for assets guaranteed by 
the United States Government or its agencies, or the central government 
of an OECD country. Notwithstanding the eligibility requirements for 
asset-backed commercial paper program liquidity facilities in section 
3(b)(6)(ii), the unused portion of an asset-backed commercial paper 
liquidity facility may still qualify for either the 50 percent or 10 
percent credit conversion factors under section 3(b)(2)(ii) or 3(b)(4) 
of this appendix A, if the assets required to be funded by the asset-
back commercial paper liquidity facility are guaranteed, either 
conditionally or unconditionally, by the United States Government or its 
agencies, or the central government of an OECD country.
    (iv) Transition period for asset-backed commercial paper liquidity 
facilities. Notwithstanding the eligibility requirements for asset-
backed commercial paper program liquidity facilities in section 
3(b)(6)(i) of this appendix A, the unused portion of an asset-backed 
commercial paper liquidity will be treated as eligible liquidity 
facilities pursuant to section 3(b)(6)(ii) of this appendix A

[[Page 36]]

regardless of their compliance with the definition of eligible liquidity 
facilities until September 30, 2005. On that date and thereafter, the 
unused portions of asset-backed commercial paper liquidity facilities 
that do not meet the eligibility requirements in section 3(b)(6)(i) of 
this appendix A will be treated as recourse obligations or direct credit 
substitutes.
    (7) Derivative contracts--(i) Calculation of credit equivalent 
amounts. The credit equivalent amount of a derivative contract equals 
the sum of the current credit exposure and the potential future credit 
exposure of the derivative contract. The calculation of credit 
equivalent amounts must be measured in U.S. dollars, regardless of the 
currency or currencies specified in the derivative contract.
    (A) Current credit exposure. The current credit exposure for a 
single derivative contract is determined by the mark-to-market value of 
the derivative contract. If the mark-to-market value is positive, then 
the current credit exposure equals that mark-to-market value. If the 
mark-to-market is zero or negative, then the current credit exposure is 
zero. The current credit exposure for multiple derivative contracts 
executed with a single counterparty and subject to a qualifying 
bilateral netting contract is determined as provided by section 
3(b)(5)(ii)(A) of this appendix A.
    (B) Potential future credit exposure. The potential future credit 
exposure for a single derivative contract, including a derivative 
contract with negative mark-to-market value, is calculated by 
multiplying the notional principal \19\ of the derivative contract by 
one of the credit conversion factors in Table A--Conversion Factor 
Matrix of this appendix A, for the appropriate category.\20\ The 
potential future credit exposure for gold contracts shall be calculated 
using the foreign exchange rate conversion factors. For any derivative 
contract that does not fall within one of the specified categories in 
Table A--Conversion Factor Matrix of this appendix A, the potential 
future credit exposure shall be calculated using the other commodity 
conversion factors. Subject to examiner review, banks should use the 
effective rather than the apparent or stated notional amount in 
calculating the potential future credit exposure. The potential future 
credit exposure for multiple derivatives contracts executed with a 
single counterparty and subject to a qualifying bilateral netting 
contract is determined as provided by section 3(b)(5)(ii)(A) of this 
appendix A.
---------------------------------------------------------------------------

    \19\ For purposes of calculating either the potential future credit 
exposure under section 3(b)(5)(i)(B) of this appendix A or the gross 
potential future credit exposure under section 3(b)(5)(ii)(A)(2) of this 
appendix A for foreign exchange contracts and other similar contracts in 
which the notional principal is equivalent to the cash flows, total 
notional principal is the net receipts to each party falling due on each 
value date in each currency.
    \20\ No potential future credit exposure is calculated for single 
currency interest rate swaps in which payments are made based upon two 
floating indices, so-called floating/floating or basis swaps; the credit 
equivalent amount is measured solely on the basis of the current credit 
exposure.

                                      Table B--Conversion Factor Matrix\1\
----------------------------------------------------------------------------------------------------------------
                                                                Foreign
                                                   Interest     exchange                  Precious      Other
             Remaining maturity \2\                  rate       rate and    Equity\2\      metals     commodity
                                                                  gold
----------------------------------------------------------------------------------------------------------------
One year or less...............................          0.0          1.0          6.0          7.0         10.0
Over one to five years.........................          0.5          5.0          8.0          7.0         12.0
Over five years................................          1.5          7.5         10.0          8.0        15.0
----------------------------------------------------------------------------------------------------------------
\1\ For derivative contracts with multiple exchanges of principal, the conversion factors are multiplied by the
  number of remaining payments in the derivative contract.
\2\ For derivative contracts that automatically reset to zero value following a payment, the remaining maturity
  equals the time until the next payment. However, interest rate contracts with remaining maturities of greater
  than one year shall be subject to a minimum conversion factor of 0.5 percent.

    (ii) Derivative contracts subject to a qualifying bilateral netting 
contract--(A) Netting calculation. The credit equivalent amount for 
multiple derivative contracts executed with a single counterparty and 
subject to a qualifying bilateral netting contract as provided by 
section (3)(b)(5)(ii)(B) of this appendix A is calculated by adding the 
net current credit exposure and the adjusted sum of the potential future 
credit exposure for all derivative contracts subject to the qualifying 
bilateral netting contract.
    (1) Net current credit exposure. The net current credit exposure is 
the net sum of all positive and negative mark-to-market values of the 
individual derivative contracts subject to a qualifying bilateral 
netting contract. If the net sum of the mark-to-market value is 
positive, then the net current credit exposure equals that net sum of 
the mark-to-market value. If the net sum of the mark-to-

[[Page 37]]

market value is zero or negative, then the net current credit exposure 
is zero.
    (2) Adjusted sum of the potential future credit exposure. The 
adjusted sum of the potential future credit exposure is calculated as:

Anet=0.4xAgross+(0.6xNGRxAgross)

Anet is the adjusted sum of the potential future credit 
exposure, Agross is the gross potential future credit 
exposure, and NGR is the net to gross ratio. Agross is the 
sum of the potential future credit exposure (as determined under section 
3(b)(5)(i)(B) of this appendix A) for each individual derivative 
contract subject to the qualifying bilateral netting contract. The NGR 
is the ratio of the net current credit exposure to the gross current 
credit exposure. In calculating the NGR, the gross current credit 
exposure equals the sum of the positive current credit exposures (as 
determined under section 3(b)(5)(i)(A) of this appendix A) of all 
individual derivative contracts subject to the qualifying bilateral 
netting contract.
    (B) Qualifying bilateral netting contract. In determining the 
current credit exposure for multiple derivative contracts executed with 
a single counterparty, a bank may net derivative contracts subject to a 
qualifying bilateral netting contract by offsetting positive and 
negative mark-to-market values, provided that:
    (1) The qualifying bilateral netting contract is in writing.
    (2) The qualifying bilateral netting contract is not subject to a 
walkaway clause.
    (3) The qualifying bilateral netting contract creates a single legal 
obligation for all individual derivative contracts covered by the 
qualifying bilateral netting contract. In effect, the qualifying 
bilateral netting contract must provide that the bank would have a 
single claim or obligation either to receive or to pay only the net 
amount of the sum of the positive and negative mark-to-market values on 
the individual derivative contracts covered by the qualifying bilateral 
netting contract. The single legal obligation for the net amount is 
operative in the event that a counterparty, or a counterparty to whom 
the qualifying bilateral netting contract has been assigned, fails to 
perform due to any of the following events: default, insolvency, 
bankruptcy, or other similar circumstances.
    (4) The bank obtains a written and reasoned legal opinion(s) that 
represents, with a high degree of certainty, that in the event of a 
legal challenge, including one resulting from default, insolvency, 
bankruptcy, or similar circumstances, the relevant court and 
administrative authorities would find the bank's exposure to be the net 
amount under:
    (i) The law of the jurisdiction in which the counterparty is 
chartered or the equivalent location in the case of noncorporate 
entities, and if a branch of the counterparty is involved, then also 
under the law of the jurisdiction in which the branch is located;
    (ii) The law of the jurisdiction that governs the individual 
derivative contracts covered by the bilateral netting contract; and
    (iii) The law of the jurisdiction that governs the qualifying 
bilateral netting contract.
    (5) The bank establishes and maintains procedures to monitor 
possible changes in relevant law and to ensure that the qualifying 
bilateral netting contract continues to satisfy the requirement of this 
section.
    (6) The bank maintains in its files documentation adequate to 
support the netting of a derivative contract.\21\
---------------------------------------------------------------------------

    \21\ By netting individual derivative contracts for the purpose of 
calculating its credit equivalent amount, a bank represents that 
documentation adequate to support the netting of a set of derivative 
contract is in the bank's files and available for inspection by the OCC. 
Upon determination by the OCC that a bank's files are inadequate or that 
a qualifying bilateral netting contract may not be legally enforceable 
in any one of the bodies of law described in section 
3(b)(5)(ii)(B)(3)(i) through (iii) of this appendix A, the underlying 
derivative contracts may not be netted for the purposes of this section.
---------------------------------------------------------------------------

    (iii) Risk weighting. Once the bank determines the credit equivalent 
amount for a derivative contract or a set of derivative contracts 
subject to a qualifying bilateral netting contract, the bank assigns 
that amount to the risk weight category appropriate to the counterparty, 
or, if relevant, the nature of any collateral or guarantee.\22\ However, 
the maximum weight that will be applied to the credit equivalent amount 
of such derivative contract(s) is 50 percent.
---------------------------------------------------------------------------

    \22\ Derivative contracts are an exception to the general rule of 
applying collateral and guarantees to the face value of off-balance 
sheet items. The sufficiency of collateral and guarantees is determined 
on the basis of the credit equivalent amount of derivative contracts. 
However, collateral and guarantees held against a qualifying bilateral 
netting contract is not recognized for capital purposes unless it is 
legally available for all contracts included in the qualifying bilateral 
netting contract.
---------------------------------------------------------------------------

    (iv) Exceptions. The following derivative contracts are not subject 
to the above calculation, and therefore, are not part of the denominator 
of a national bank's risk-based capital ratio:

[[Page 38]]

    (A) An exchange rate contract with an original maturity of 14 
calendar days or less;\23\ and
---------------------------------------------------------------------------

    \23\ Notwithstanding section 3(b)(5)(B) of this appendix A, gold 
contracts do not qualify for this exception.
---------------------------------------------------------------------------

    (B) A derivative contract that is traded on an exchange requiring 
the daily payment of any variations in the market value of the contract.

    Section 4. Recourse, Direct Credit Substitutes and Positions in 
                             Securitizations

    (a) Definitions. For purposes of this section 4 of this appendix A, 
the following definitions apply:
    (1) Credit derivative means a contract that allows one party (the 
protection purchaser) to transfer the credit risk of an asset or off-
balance sheet credit exposure to another party (the protection 
provider). The value of a credit derivative is dependent, at least in 
part, on the credit performance of a ``reference asset.''
    (2) Credit-enhancing interest-only strip means an on-balance sheet 
asset that, in form or in substance:
    (i) Represents the contractual right to receive some or all of the 
interest due on transferred assets; and
    (ii) Exposes the bank to credit risk directly or indirectly 
associated with the transferred assets that exceeds its pro rata claim 
on the assets whether through subordination provisions or other credit 
enhancing techniques.
    (3) Credit-enhancing representations and warranties means 
representations and warranties that are made or assumed in connection 
with a transfer of assets (including loan servicing assets) and that 
obligate a bank to protect investors from losses arising from credit 
risk in the assets transferred or the loans serviced. Credit-enhancing 
representations and warranties include promises to protect a party from 
losses resulting from the default or nonperformance of another party or 
from an insufficiency in the value of the collateral. Credit-enhancing 
representations and warranties do not include:
    (i) Early-default clauses and similar warranties that permit the 
return of, or premium refund clauses covering, 1-4 family residential 
first mortgage loans (as described in section 3(a)(3)(iii) of this 
appendix A) for a period not to exceed 120 days from the date of 
transfer. These warranties may cover only those loans that were 
originated within 1 year of the date of transfer;
    (ii) Premium refund clauses that cover assets guaranteed, in whole 
or in part, by the U.S. Government, a U.S. Government agency, or a U.S. 
Government-sponsored enterprise, provided the premium refund clauses are 
for a period not to exceed 120 days from the date of transfer; or
    (iii) Warranties that permit the return of assets in instances of 
fraud, misrepresentation or incomplete documentation.
    (4) Direct credit substitute means an arrangement in which a bank 
assumes, in form or in substance, credit risk associated with an on- or 
off-balance sheet asset or exposure that was not previously owned by the 
bank (third-party asset) and the risk assumed by the bank exceeds the 
pro rata share of the bank's interest in the third-party asset. If a 
bank has no claim on the third-party asset, then the bank's assumption 
of any credit risk is a direct credit substitute. Direct credit 
substitutes include:
    (i) Financial standby letters of credit that support financial 
claims on a third party that exceed a bank's pro rata share in the 
financial claim;
    (ii) Guarantees, surety arrangements, credit derivatives and similar 
instruments backing financial claims that exceed a bank's pro rata share 
in the financial claim;
    (iii) Purchased subordinated interests that absorb more than their 
pro rata share of losses from the underlying assets;
    (iv) Credit derivative contracts under which the bank assumes more 
than its pro rata share of credit risk on a third-party asset or 
exposure;
    (v) Loans or lines of credit that provide credit enhancement for the 
financial obligations of a third party;
    (vi) Purchased loan servicing assets if the servicer is responsible 
for credit losses or if the servicer makes or assumes credit-enhancing 
representations and warranties with respect to the loans serviced. 
Mortgage servicer case advances that meet the conditions of section 
4(a)(8)(i) and (ii) of this appendix A, are not direct credit 
substitutes;
    (vii) Clean-up calls on third-party assets. Clean-up calls that are 
10% or less of the original pool balance and that are exercisable at the 
option of the bank are not direct credit substitutes; and
    (viii) Unused portion of noneligible asset-backed commercial paper 
liquidity facilities.
    (5) Externally rated means that an instrument or obligation has 
received a credit rating from at least one nationally recognized 
statistical rating organization.
    (6) Face amount means the notional principal, or face value, amount 
of an off-balance sheet item; the amortized cost of an asset not held 
for trading purposes; and the fair value of a trading asset.
    (7) Financial asset means cash or other monetary instrument, 
evidence of debt, evidence of an ownership interest in an entity, or a 
contract that conveys a right to receive or exchange cash or another 
financial instrument from another party.
    (8) Financial standby letter of credit means a letter of credit or 
similar arrangement that represents an irrevocable obligation to a 
third-party beneficiary:

[[Page 39]]

    (i) To repay money borrowed by, or advanced to, or for the account 
of, a second party (the account party); or
    (ii) To make payment on behalf of the account party, in the event 
that the account party fails to fulfill its obligation to the 
beneficiary.
    (9) Mortgage servicer cash advance means funds that a residential 
mortgage servicer advances to ensure an uninterrupted flow of payments, 
including advances made to cover foreclosure costs or other expenses to 
facilitate the timely collection of the loan. A mortgage servicer cash 
advance is not a recourse obligation or a direct credit substitute if:
    (i) The servicer is entitled to full reimbursement and this right is 
not subordinated to other claims on the cash flows from the underlying 
asset pool; or
    (ii) For any one loan, the servicer's obligation to make 
nonreimbursable advances is contractually limited to an insignificant 
amount of the outstanding principal amount of that loan.
    (10) Nationally recognized statistical rating organization (NRSRO) 
means an entity recognized by the Division of Market Regulation of the 
Securities and Exchange Commission (or any successor Division) 
(Commission) as a nationally recognized statistical rating organization 
for various purposes, including the Commission's uniform net capital 
requirements for brokers and dealers.
    (11) Recourse means a bank's retention, in form or in substance, of 
any credit risk directly or indirectly associated with an asset it has 
sold that exceeds a pro rata share of that bank's claim on the asset. If 
a bank has no claim on a sold asset, then the retention of any credit 
risk is recourse. A recourse obligation typically arises when a bank 
transfers assets and retains an explicit obligation to repurchase assets 
or to absorb losses due to a default on the payment of principal or 
interest or any other deficiency in the performance of the underlying 
obligor or some other party. Recourse may also exist implicitly if a 
bank provides credit enhancement beyond any contractual obligation to 
support assets it has sold. The following are examples of recourse 
arrangements:
    (i) Credit-enhancing representations and warranties made on 
transferred assets;
    (ii) Loan servicing assets retained pursuant to an agreement under 
which the bank will be responsible for losses associated with the loans 
serviced. Mortgage servicer cash advances that meet the conditions of 
section 4(a)(9)(i) and (ii) of this appendix A, are not recourse 
arrangements;
    (iii) Retained subordinated interests that absorb more than their 
pro rata share of losses from the underlying assets;
    (iv) Assets sold under an agreement to repurchase, if the assets are 
not already included on the balance sheet;
    (v) Loan strips sold without contractual recourse where the maturity 
of the transferred portion of the loan is shorter than the maturity of 
the commitment under which the loan is drawn;
    (vi) Credit derivatives issued that absorb more than the bank's pro 
rata share of losses from the transferred assets;
    (vii) Clean-up calls. Clean-up calls that are 10% or less of the 
original pool balance and that are exercisable at the option of the bank 
are not recourse arrangements; and
    (viii) Noneligible asset-backed commercial paper liquidity 
facilities.
    (12) Residual interest means any on-balance sheet asset that 
represents an interest (including a beneficial interest) created by a 
transfer that qualifies as a sale (in accordance with generally accepted 
accounting principles) of financial assets, whether through a 
securitization or otherwise, and that exposes a bank to any credit risk 
directly or indirectly associated with the transferred asset that 
exceeds a pro rata share of that bank's claim on the asset, whether 
through subordination provisions or other credit enhancement techniques. 
Residual interests generally include credit-enhancing interest-only 
strips, spread accounts, cash collateral accounts, retained subordinated 
interests (and other forms of overcollateralization) and similar assets 
that function as a credit enhancement. Residual interests further 
include those exposures that, in substance, cause the bank to retain the 
credit risk of an asset or exposure that had qualified as a residual 
interest before it was sold. Residual interests generally do not include 
interests purchased from a third party.
    (13) Risk participation means a participation in which the 
originating party remains liable to the beneficiary for the full amount 
of an obligation (e.g. a direct credit substitute) notwithstanding that 
another party has acquired a participation in that obligation.
    (14) Securitization means the pooling and repackaging by a special 
purpose entity of assets or other credit exposures that can be sold to 
investors. Securitization includes transactions that create stratified 
credit risk positions whose performance is dependent upon an underlying 
pool of credit exposures, including loans and commitments.
    (15) Structured finance program means a program where receivable 
interests and asset-backed securities issued by multiple participants 
are purchased by a special purpose entity that repackages those 
exposures into securities that can be sold to investors. Structured 
finance programs allocate credit risks, generally, between the 
participants and credit enhancement provided to the program.
    (16) Traded position means a position retained, assumed or issued in 
connection with a securitization that is externally rated, where there 
is a reasonable expectation that,

[[Page 40]]

in the near future, the rating will be relied upon by:
    (i) Unaffiliated investors to purchase the position; or
    (ii) An unaffiliated third party to enter into a transaction 
involving the position, such as a purchase, loan or repurchase 
agreement.
    (b) Credit equivalent amounts and risk weights of recourse 
obligations and direct credit substitutes--(1) Credit-equivalent amount. 
Except as otherwise provided, the credit-equivalent amount for a 
recourse obligation or direct credit substitute is the full amount of 
the credit-enhanced assets for which the bank directly or indirectly 
retains or assumes credit risk multiplied by a 100% conversion factor.
    (2) Risk-weight factor. To determine the bank's risk-weighted assets 
for off-balance sheet recourse obligations and direct credit 
substitutes, the credit equivalent amount is assigned to the risk 
category appropriate to the obligor in the underlying transaction, after 
considering any associated guarantees or collateral. For a direct credit 
substitute that is an on-balance sheet asset (e.g., a purchased 
subordinated security), a bank must calculate risk-weighted assets using 
the amount of the direct credit substitute and the full amount of the 
assets it supports, i.e., all the more senior positions in the 
structure.
    (c) Credit equivalent amount and risk weight of participations in, 
and syndications of, direct credit substitutes. The credit equivalent 
amount for a participation interest in, or syndication of, a direct 
credit substitute is calculated and risk weighted as follows:
    (1) In the case of a direct credit substitute in which a bank has 
conveyed a risk participation, the full amount of the assets that are 
supported by the direct credit substitute is converted to a credit 
equivalent amount using a 100% conversion factor. The pro rata share of 
the credit equivalent amount that has been conveyed through a risk 
participation is then assigned to whichever risk-weight category is 
lower: the risk-weight category appropriate to the obligor in the 
underlying transaction, after considering any associated guarantees or 
collateral, or the risk-weight category appropriate to the party 
acquiring the participation. The pro rata share of the credit equivalent 
amount that has not been participated out is assigned to the risk-weight 
category appropriate to the obligor after considering any associated 
guarantees or collateral.
    (2) In the case of a direct credit substitute in which the bank has 
acquired a risk participation, the acquiring bank's pro rata share of 
the direct credit substitute is multiplied by the full amount of the 
assets that are supported by the direct credit substitute and converted 
using a 100% credit conversion factor. The resulting credit equivalent 
amount is then assigned to the risk-weight category appropriate to the 
obligor in the underlying transaction, after considering any associated 
guarantees or collateral.
    (3) In the case of a direct credit substitute that takes the form of 
a syndication where each bank or participating entity is obligated only 
for its pro rata share of the risk and there is no recourse to the 
originating entity, each bank's credit equivalent amount will be 
calculated by multiplying only its pro rata share of the assets 
supported by the direct credit substitute by a 100% conversion factor. 
The resulting credit equivalent amount is then assigned to the risk-
weight category appropriate to the obligor in the underlying 
transaction, after considering any associated guarantees or collateral.
    (d) Externally rated positions: credit-equivalent amounts and risk 
weights.--(1) Traded positions. With respect to a recourse obligation, 
direct credit substitute, residual interest (other than a credit-
enhancing interest-only strip) or asset- or mortgage-backed security 
that is a ``traded position'' and that has received an external rating 
on a long-term position that is one grade below investment grade or 
better or a short-term position that is investment grade, the bank may 
multiply the face amount of the position by the appropriate risk weight, 
determined in accordance with Tables C or D of this Appendix A.\24\ If a 
traded position receives more than one external rating, the lowest 
single rating will apply.
---------------------------------------------------------------------------

    \24\ Stripped mortgage-backed securities or other similar 
instruments, such as interest-only or principal-only strips, that are 
not credit enhancing must be assigned to the 100% risk category.

                                 Table C
------------------------------------------------------------------------
                                                            Risk weight
     Long-term rating category            Examples         (In percent)
------------------------------------------------------------------------
Highest or second highest           AAA, AA.............              20
 investment grade.
Third highest investment grade....  A...................              50
Lowest investment grade...........  BBB.................             100
One category below investment       BB..................             200
 grade.
------------------------------------------------------------------------


[[Page 41]]


                                 Table D
------------------------------------------------------------------------
                                                            Risk weight
    Short-term rating category            Examples         (In percent)
------------------------------------------------------------------------
Highest investment grade..........  A-1, P-1............              20
Second highest investment grade...  A-2, P-2............              50
Lowest investment grade...........  A-3, P-3............             100
------------------------------------------------------------------------

    (2) Non-traded positions. A recourse obligation, direct credit 
substitute, residual interest (but not a credit-enhancing interest-only 
strip) or asset- or mortgage-backed security extended in connection with 
a securitization that is not a ``traded position'' may be assigned a 
risk weight in accordance with section 4(d)(1) of this appendix A if:
    (i) It has been externally rated by more than one NRSRO;
    (ii) It has received an external rating on a long-term position that 
is one category below investment grade or better or a short-term 
position that is investment grade by all NRSROs providing a rating;
    (iii) The ratings are publicly available; and
    (iv) The ratings are based on the same criteria used to rate traded 
positions.

If the ratings are different, the lowest rating will determine the risk 
category to which the recourse obligation, residual interest or direct 
credit substitute will be assigned.
    (e) Senior positions not externally rated. For a recourse 
obligation, direct credit substitute, residual interest or asset- or 
mortgage-backed security that is not externally rated but is senior or 
preferred in all features to a traded position (including 
collateralization and maturity), a bank may apply a risk weight to the 
face amount of the senior position in accordance with section 4(d)(1) of 
this appendix A, based upon the traded position, subject to any current 
or prospective supervisory guidance and the bank satisfying the OCC that 
this treatment is appropriate. This section will apply only if the 
traded position provides substantive credit support to the unrated 
position until the unrated position matures.
    (f) Residual Interests--(1) Concentration limit on credit-enhancing 
interest-only strips. In addition to the capital requirement provided by 
section 4(f)(2) of this appendix A, a bank must deduct from Tier 1 
capital all credit-enhancing interest-only strips in excess of 25 
percent of Tier 1 capital in accordance with section 2(c)(2)(iv) of this 
appendix A.
    (2) Credit-enhancing interest-only strip capital requirement. After 
applying the concentration limit to credit-enhancing interest-only 
strips in accordance with section (f)(1), a bank must maintain risk-
based capital for a credit-enhancing interest-only strip equal to the 
remaining amount of the credit-enhancing interest-only strip (net of any 
existing associated deferred tax liability), even if the amount of risk-
based capital required to be maintained exceeds the full risk-based 
capital requirement for the assets transferred. Transactions that, in 
substance, result in the retention of credit risk associated with a 
transferred credit-enhancing interest-only strip will be treated as if 
the credit-enhancing interest-only strip was retained by the bank and 
not transferred.
    (3) Other residual interests capital requirement. Except as provided 
in sections (d) or (e) of this section, a bank must maintain risk-based 
capital for a residual interest (excluding a credit-enhancing interest-
only strip) equal to the face amount of the residual interest that is 
retained on the balance sheet (net of any existing associated deferred 
tax liability), even if the amount of risk-based capital required to be 
maintained exceeds the full risk-based capital requirement for the 
assets transferred. Transactions that, in substance, result in the 
retention of credit risk associated with a transferred residual interest 
will be treated as if the residual interest was retained by the bank and 
not transferred.
    (4) Residual interests and other recourse obligations. Where the 
aggregate capital requirement for residual interests (including credit-
enhancing interest-only strips) and recourse obligations arising from 
the same transfer of assets exceed the full risk-based capital 
requirement for those assets, a bank must maintain risk-based capital 
equal to the greater of the risk-based capital requirement for the 
residual interest as calculated under sections 4(f)(1) through (3) of 
this appendix A or the full risk-based capital requirement for the 
assets transferred.
    (g) Positions that are not rated by an NRSRO. A position (but not a 
residual interest) extended in connection with a securitization and that 
is not rated by an NRSRO may be risk-weighted based on the bank's 
determination of the credit rating of the position, as specified in 
Table E of this appendix A, multiplied by the face amount of the 
position. In order to qualify for this treatment, the bank's system for 
determining the credit rating of the position must meet one of the three 
alternative standards set out in section 4(g)(1)through (3) of this 
appendix A.

[[Page 42]]



                                 Table E
------------------------------------------------------------------------
                                                            Risk weight
          Rating category                 Examples         (In percent)
------------------------------------------------------------------------
Investment grade..................  BBB, or better......             100
One category below investment       BB..................             200
 grade.
------------------------------------------------------------------------

    (1) Internal risk rating used for asset-backed programs. A direct 
credit substitute (but not a purchased credit-enhancing interest-only 
strip) is assumed by a bank in connection with an asset-backed 
commercial paper program sponsored by the bank and the bank is able to 
demonstrate to the satisfaction of the OCC, prior to relying upon its 
use, that the bank's internal credit risk rating system is adequate. 
Adequate internal credit risk rating systems usually contain the 
following criteria:
    (i) The internal credit risk system is an integral part of the 
bank's risk management system that explicitly incorporates the full 
range of risks arising from a bank's participation in securitization 
activities;
    (ii) Internal credit ratings are linked to measurable outcomes, such 
as the probability that the position will experience any loss, the 
position's expected loss given default, and the degree of variance in 
losses given default on that position;
    (iii) The bank's internal credit risk system must separately 
consider the risk associated with the underlying loans or borrowers, and 
the risk associated with the structure of a particular securitization 
transaction;
    (iv) The bank's internal credit risk system must identify gradations 
of risk among ``pass'' assets and other risk positions;
    (v) The bank must have clear, explicit criteria that are used to 
classify assets into each internal risk grade, including subjective 
factors;
    (vi) The bank must have independent credit risk management or loan 
review personnel assigning or reviewing the credit risk ratings;
    (vii) An internal audit procedure should periodically verify that 
internal risk ratings are assigned in accordance with the bank's 
established criteria.
    (viii) The bank must monitor the performance of the internal credit 
risk ratings assigned to nonrated, nontraded direct credit substitutes 
over time to determine the appropriateness of the initial credit risk 
rating assignment and adjust individual credit risk ratings, or the 
overall internal credit risk ratings system, as needed; and
    (ix) The internal credit risk system must make credit risk rating 
assumptions that are consistent with, or more conservative than, the 
credit risk rating assumptions and methodologies of NRSROs.
    (2) Program Ratings. A direct credit substitute or recourse 
obligation (but not a residual interest) is assumed or retained by a 
bank in connection with a structured finance program and a NRSRO has 
reviewed the terms of the program and stated a rating for positions 
associated with the program. If the program has options for different 
combinations of assets, standards, internal credit enhancements and 
other relevant factors, and the NRSRO specifies ranges of rating 
categories to them, the bank may apply the rating category applicable to 
the option that corresponds to the bank's position. In order to rely on 
a program rating, the bank must demonstrate to the OCC's satisfaction 
that the credit risk rating assigned to the program meets the same 
standards generally used by NRSROs for rating traded positions. The bank 
must also demonstrate to the OCC's satisfaction that the criteria 
underlying the NRSRO's assignment of ratings for the program are 
satisfied for the particular position. If a bank participates in a 
securitization sponsored by another party, the OCC may authorize the 
bank to use this approach based on a program rating obtained by the 
sponsor of the program.
    (3) Computer Program. The bank is using an acceptable credit 
assessment computer program to determine the rating of a direct credit 
substitute or recourse obligation (but not a residual interest) extended 
in connection with a structured finance program. A NRSRO must have 
developed the computer program and the bank must demonstrate to the 
OCC's satisfaction that ratings under the program correspond credibly 
and reliably with the rating of traded positions.
    (h) Limitations on risk-based capital requirements--(1) Low-level 
exposure rule. If the maximum contractual exposure to loss retained or 
assumed by a bank is less than the effective risk-based capital 
requirement, as determined in accordance with section 4(b) of this 
appendix A, for the asset supported by the bank's position, the risk 
based capital required under this appendix A is limited to the bank's 
contractual exposure, less any recourse liability account established in 
accordance with generally accepted accounting principles. This 
limitation does not apply when a bank provides credit enhancement beyond 
any contractual obligation to support assets that it has sold.
    (2) Related on-balance sheet assets. If an asset is included in the 
calculation of the risk-based capital requirement under this section 4 
of this appendix A and also appears as an asset on a bank's balance 
sheet, the

[[Page 43]]

asset is risk-weighted only under this section 4 of this appendix A, 
except in the case of loan servicing assets and similar arrangements 
with embedded recourse obligations or direct credit substitutes. In that 
case, both the on-balance sheet servicing assets and the related 
recourse obligations or direct credit substitutes must both be 
separately risk weighted and incorporated into the risk-based capital 
calculation.
    (i) Alternative Capital Calculation for Small Business Obligations--
(1) Definitions. For purposes of this section 4(i):
    (i) Qualified bank means a bank that:
    (A) Is well capitalized as defined in 12 CFR 6.4 without applying 
the capital treatment described in this section 4(i), or
    (B) Is adequately capitalized as defined in 12 CFR 6.4 without 
applying the capital treatment described in this section 4(i) and has 
received written permission from the appropriate district office of the 
OCC to apply the capital treatment described in this section 4(i).
    (ii) Recourse has the meaning given to such term under generally 
accepted accounting principles.
    (iii) Small business means a business that meets the criteria for a 
small business concern established by the Small Business Administration 
in 13 CFR part 121 pursuant to 15 U.S.C. 632.
    (2) Capital and reserve requirements. Notwithstanding the risk-based 
capital treatment outlined in section 2(c)(4) and any other subsection 
(other than subsection (i)) of this section 4, with respect to a 
transfer of a small business loan or a lease of personal property with 
recourse that is a sale under generally accepted accounting principles, 
a qualified bank may elect to apply the following treatment:
    (i) The bank establishes and maintains a non-capital reserve under 
generally accepted accounting principles sufficient to meet the 
reasonable estimated liability of the bank under the recourse 
arrangement; and
    (ii) For purposes of calculating the bank's risk-based capital 
ratio, the bank includes only the face amount of its recourse in its 
risk-weighted assets.
    (3) Limit on aggregate amount of recourse. The total outstanding 
amount of recourse retained by a qualified bank with respect to 
transfers of small business loans and leases of personal property and 
included in the risk-weighted assets of the bank as described in section 
4(i)(2) of this appendix A may not exceed 15 percent of the bank's total 
capital after adjustments and deductions, unless the OCC specifies a 
greater amount by order.
    (4) Bank that ceases to be qualified or that exceeds aggregate 
limit. If a bank ceases to be a qualified bank or exceeds the aggregate 
limit in section 4(i)(3) of this appendix A, the bank may continue to 
apply the capital treatment described in section 4(i)(2) of this 
appendix A to transfers of small business loans and leases of personal 
property that occurred when the bank was qualified and did not exceed 
the limit.
    (5) Prompt Corrective Action not affected. (i) A bank shall compute 
its capital without regard to this section 4(i) for purposes of prompt 
corrective action (12 U.S.C. 1831o and 12 CFR part 6) unless the bank is 
an adequately or well capitalized bank (without applying the capital 
treatment described in this section 4(i)) and, after applying the 
capital treatment described in this section 4(i), the bank would be well 
capitalized.
    (ii) A bank shall compute its capital without regard to this section 
4(i) for purposes of 12 U.S.C. 1831o(g) regardless of the bank's capital 
level.

     Section 5. Implementation, Transition Rules, and Target Ratios

    (a) December 31, 1990 to December 30, 1992. During this time period:
    (1) All national banks are expected to maintain a minimum ratio of 
total capital (after deductions) to risk-weighted assets of 7.25%.
    (i) Fifty percent of this 7.25% must be made up of Tier 1 capital; 
however, up to 10% of Tier 1 capital can be comprised of Tier 2 capital 
elements, before any deductions for goodwill. The amount of Tier 2 
elements included in Tier 1 will not be subject to the sublimits on the 
amount of such elements in Tier 2 capital, with the exception of the 
allowance for loan and lease losses.
    (ii) Goodwill that national banks have been allowed to count as 
capital as a result of the transition rules contained in 12 CFR 3.3 is 
grandfathered until December 31, 1992, but will be deducted from Tier 1 
capital after that date.
    (2) The allowance for loan and lease losses can be included in total 
capital up to a maximum of 1.5% of a bank's risk-weighted assets, 
including the portion that can be borrowed to make up Tier 1.
    (3) Tier 2 capital elements that are not used as part of Tier 1 
capital will qualify as part of a national bank's total capital base up 
to a maximum of 100% of the bank's Tier 1 capital.
    (4) In addition to the standards established by these risk-based 
capital guidelines, all national banks must maintain a minimum capital-
to-total assets ratio in accordance with the provisions of 12 CFR part 
3.
    (b) On December 31, 1992. (1) All national banks are expected to 
maintain a minimum ratio of total capital (after deductions) to risk-
weighted assets of 8.0%.
    (2) Tier 2 capital elements qualify as part of a national bank's 
total capital base up to a maximum of 100% of that bank's Tier 1 
capital.

[[Page 44]]

    (3) In addition to the standards established by these risk-based 
capital guidelines, all national banks must maintain a minimum capital-
to-total assets ratio in accordance with the provisions of 12 CFR part 
3.

[54 FR 4177, Jan. 27, 1989]

    Editorial Note: For Federal Register citations affecting Appendix A 
to part 3 of title 12, see the List of CFR Sections Affected, which 
appears in the Finding Aids section of the printed volume and on GPO 
Access.



 Sec. Appendix B to Part 3--Risk-Based Capital Guidelines; Market Risk 
                               Adjustment

      Section 1. Purpose, Applicability, Scope, and Effective Date

    (a) Purpose. The purpose of this appendix is to ensure that banks 
with significant exposure to market risk maintain adequate capital to 
support that exposure.\1\ This appendix supplements and adjusts the 
risk-based capital ratio calculations under appendix A of this part with 
respect to those banks.
---------------------------------------------------------------------------

    \1\ This appendix is based on a framework developed jointly by 
supervisory authorities from the countries represented on the Basle 
Committee on Banking Supervision and endorsed by the Group of Ten 
Central Bank Governors. The framework is described in a Basle Committee 
paper entitled ``Amendment to the Capital Accord to Incorporate Market 
Risk,'' January 1996.
---------------------------------------------------------------------------

    (b) Applicability. (1) This appendix applies to any national bank 
whose trading activity \2\ (on a worldwide consolidated basis) equals:
---------------------------------------------------------------------------

    \2\ Trading activity means the gross sum of trading assets and 
liabilities as reported in the bank's most recent quarterly Consolidated 
Report of Condition and Income (Call Report).
---------------------------------------------------------------------------

    (i) 10 percent or more of total assets; \3\ or
---------------------------------------------------------------------------

    \3\ Total assets means quarter-end total assets as reported in the 
bank's most recent Call Report.
---------------------------------------------------------------------------

    (ii) $1 billion or more.
    (2) The OCC may apply this appendix to any national bank if the OCC 
deems it necessary or appropriate for safe and sound banking practices.
    (3) The OCC may exclude a national bank otherwise meeting the 
criteria of paragraph (b)(1) of this section from coverage under this 
appendix if it determines the bank meets such criteria as a consequence 
of accounting, operational, or similar considerations, and the OCC deems 
it consistent with safe and sound banking practices.
    (c) Scope. The capital requirements of this appendix support market 
risk associated with a bank's covered positions.
    (d) Effective date. This appendix is effective as of January 1, 
1997. Compliance is not mandatory until January 1, 1998. Subject to 
supervisory approval, a bank may opt to comply with this appendix as 
early as January 1, 1997.\4\
---------------------------------------------------------------------------

    \4\ A bank that voluntarily complies with the final rule prior to 
January 1, 1998, must comply with all of its provisions.
---------------------------------------------------------------------------

                         Section 2. Definitions

    For purposes of this appendix, the following definitions apply:
    (a) Covered positions means all positions in a bank's trading 
account, and all foreign exchange \5\ and commodity positions, whether 
or not in the trading account.\6\ Positions include on-balance-sheet 
assets and liabilities and off-balance-sheet items. Securities subject 
to repurchase and lending agreements are included as if they are still 
owned by the lender. Asset backed commercial paper liquidity facilities, 
in form or in substance, in a bank's trading account are excluded from 
covered positions, and instead, are subject to the risk-based capital 
requirements as provided in appendix A of this part.
---------------------------------------------------------------------------

    \5\ Subject to supervisory review, a bank may exclude structural 
positions in foreign currencies from its covered positions.
    \6\ The term trading account is defined in the instructions to the 
Call Report.
---------------------------------------------------------------------------

    (b) Market risk means the risk of loss resulting from movements in 
market prices. Market risk consists of general market risk and specific 
risk components.
    (1) General market risk means changes in the market value of covered 
positions resulting from broad market movements, such as changes in the 
general level of interest rates, equity prices, foreign exchange rates, 
or commodity prices.
    (2) Specific risk means changes in the market value of specific 
positions due to factors other than broad market movements and includes 
default and event risk as well as idiosyncratic variations.
    (c) Tier 1 and Tier 2 capital are the same as defined in appendix A 
of this part.
    (d) Tier 3 capital is subordinated debt that is unsecured; is fully 
paid up; has an original maturity of at least two years; is not 
redeemable before maturity without prior approval by the OCC; includes a 
lock-in clause precluding payment of either interest or principal (even 
at maturity) if the payment would cause the issuing bank's risk-based 
capital ratio to fall or remain below the minimum required under 
appendix A of this part; and does not contain and is not covered by any 
covenants, terms, or restrictions that are inconsistent with safe and 
sound banking practices.
    (e) Value-at-risk (VAR) means the estimate of the maximum amount 
that the value of

[[Page 45]]

covered positions could decline during a fixed holding period within a 
stated confidence level, measured in accordance with section 4 of this 
appendix.

   Section 3. Adjustments to the Risk-Based Capital Ratio Calculations

    (a) Risk-based capital ratio denominator. A bank subject to this 
appendix shall calculate its risk-based capital ratio denominator as 
follows:
    (1) Adjusted risk-weighted assets. (i) Covered positions. Calculate 
adjusted risk-weighted assets, which equal risk-weighted assets (as 
determined in accordance with appendix A of this part), excluding the 
risk-weighted amount of all covered positions (except foreign exchange 
positions outside the trading account and over-the-counter derivatives 
positions).\7\
---------------------------------------------------------------------------

    \7\ Foreign exchange position outside the trading account and all 
over-the-counter derivative positions, whether or not in the trading 
account, must be included in adjusted risk-weighted assets as determined 
in appendix A of this part 3.
---------------------------------------------------------------------------

    (ii) Securities borrowing transactions. In calculating adjusted 
risk-weighted assets, a bank also may exclude a receivable that results 
from the bank's posting of cash collateral in a securities borrowing 
transaction to the extent that the receivable is collateralized by the 
market value of the borrowed securities and subject to the following 
conditions:
    (A) The borrowed securities must be includable in the trading 
account and must be liquid and readily marketable;
    (B) The borrowed securities must be marked to market daily;
    (C) The receivable must be subject to a daily margining requirement; 
and
    (D) (1) The transaction is a securities contract for the purposes of 
section 555 of the Bankruptcy Code (11 U.S.C. 555), a qualified 
financial contract for the purposes of section 11(e)(8) of the Federal 
Deposit Insurance Act (12 U.S.C. 1821(e)(8)), or a netting contract 
between or among financial institutions for the purposes of sections 
401-407 of the Federal Deposit Insurance Corporation Improvement Act of 
1991 (12 U.S.C. 4401-4407), or the Board's Regulation EE (12 CFR Part 
231); or
    (2) If the transaction does not meet the criteria set forth in 
paragraph (a)(1)(ii)(D)(1) of this section, then either:
    (i) The bank has conducted sufficient legal review to reach a well-
founded conclusion that:
    (A) The securities borrowing agreement executed in connection with 
the transaction provides the bank the right to accelerate, terminate, 
and close-out on a net basis all transactions under the agreement and to 
liquidate or set off collateral promptly upon an event of counterparty 
default, including in a bankruptcy, insolvency, or other similar 
proceeding of the counterparty; and
    (B) Under applicable law of the relevant jurisdiction, its rights 
under the agreement are legal, valid, binding, and enforceable and any 
exercise of rights under the agreement will not be stayed or avoided; or
    (ii) The transaction is either overnight or unconditionally 
cancelable at any time by the bank, and the bank has conducted 
sufficient legal review to reach a well-founded conclusion that:
    (A) The securities borrowing agreement executed in connection with 
the transaction provides the bank the right to accelerate, terminate, 
and close-out on a net basis all transactions under the agreement and to 
liquidate or set off collateral promptly upon an event of counterparty 
default; and
    (B) Under the law governing the agreement, its rights under the 
agreement are legal, valid, binding, and enforceable.
    (2) Measure for market risk. Calculate the measure for market risk, 
which equals the sum of the VAR-based capital charge, the specific risk 
add-on (if any), and the capital charge for de minimis exposure (if 
any).
    (i) VAR-based capital charge. The VAR-based capital charge equals 
the higher of:
    (A) The previous day's VAR measure; or
    (B) The average of the daily VAR measures for each of the preceding 
60 business days multiplied by three, except as provided in section 4(e) 
of this appendix;
    (ii) Specific risk add-on. The specific risk add-on is calculated in 
accordance with section 5 of this appendix; and
    (iii) Capital charge for de minimis exposure. The capital charge for 
de minimis exposure is calculated in accordance with section 4(a) of 
this appendix.
    (3) Market risk equivalent assets. Calculate market risk equivalent 
assets by multiplying the measure for market risk (as calculated in 
paragraph (a)(2) of this section) by 12.5.
    (4) Denominator calculation. Add market risk equivalent assets (as 
calculated in paragraph (a)(3) of this section) to adjusted risk-
weighted assets (as calculated in paragraph (a)(1) of this section). The 
resulting sum is the bank's risk-based capital ratio denominator.
    (b) Risk-based capital ratio numerator. A bank subject to this 
appendix shall calculate its risk-based capital ratio numerator by 
allocating capital as follows:
    (1) Credit risk allocation. Allocate Tier 1 and Tier 2 capital equal 
to 8.0 percent of adjusted risk-weighted assets (as calculated in 
paragraph (a)(1) of this section).\8\
---------------------------------------------------------------------------

    \8\ A bank may not allocate Tier 3 capital to support credit risk 
(as calculated under appendix A).

---------------------------------------------------------------------------

[[Page 46]]

    (2) Market risk allocation. Allocate Tier 1, Tier 2, and Tier 3 
capital equal to the measure for market risk as calculated in paragraph 
(a)(2) of this section. The sum of Tier 2 and Tier 3 capital allocated 
for market risk must not exceed 250 percent of Tier 1 capital allocated 
for market risk. (This requirement means that Tier 1 capital allocated 
in this paragraph (b)(2) must equal at least 28.6 percent of the measure 
for market risk.)
    (3) Restrictions. (i) The sum of Tier 2 capital (both allocated and 
excess) and Tier 3 capital (allocated in paragraph (b)(2) of this 
section) may not exceed 100 percent of Tier 1 capital (both allocated 
and excess).\9\
---------------------------------------------------------------------------

    \9\ Excess Tier 1 capital means Tier 1 capital that has not been 
allocated in paragraphs (b)(1) and (b)(2) of this section. Excess Tier 2 
capital means Tier 2 capital that has not been allocated in paragraph 
(b)(1) and (b)(2) of this section, subject to the restrictions in 
paragraph (b)(3) of this section.
---------------------------------------------------------------------------

    (ii) Term subordinated debt (and intermediate-term preferred stock 
and related surplus) included in Tier 2 capital (both allocated and 
excess) may not exceed 50 percent of Tier 1 capital (both allocated and 
excess).
    (4) Numerator calculation. Add Tier 1 capital (both allocated and 
excess), Tier 2 capital (both allocated and excess), and Tier 3 capital 
(allocated under paragraph (b)(2) of this section). The resulting sum is 
the bank's risk-based capital ratio numerator.

                       Section 4. Internal Models

    (a) General. For risk-based capital purposes, a bank subject to this 
appendix must use its internal model to measure its daily VAR, in 
accordance with the requirements of this section.\10\ The OCC may permit 
a bank to use alternative techniques to measure the market risk of de 
minimis exposures so long as the techniques adequately measure 
associated market risk.
---------------------------------------------------------------------------

    \10\ A bank's internal model may use any generally accepted 
measurement techniques, such as variance-covariance models, historical 
simulations, or Monte Carlo simulations. However, the level of 
sophistication and accuracy of a bank's internal model must be 
commensurate with the nature and size of its covered positions. A bank 
that modifies its existing modeling procedures to comply with the 
requirements of this appendix for risk-based capital purposes should, 
nonetheless, continue to use the internal model it considers most 
appropriate in evaluating risks for other purposes.
---------------------------------------------------------------------------

    (b) Qualitative requirements. A bank subject to this appendix must 
have a risk management system that meets the following minimum 
qualitative requirements:
    (1) The bank must have a risk control unit that reports directly to 
senior management and is independent from business trading units.
    (2) The bank's internal risk measurement model must be integrated 
into the daily management process.
    (3) The bank's policies and procedures must identify, and the bank 
must conduct, appropriate stress tests and backtests.\11\ The bank's 
policies and procedures must identify the procedures to follow in 
response to the results of such tests.
---------------------------------------------------------------------------

    \11\ Stress tests provide information about the impact of adverse 
market events on a bank's covered positions. Backtests provide 
information about the accuracy of an internal model by comparing a 
bank's daily VAR measures to its corresponding daily trading profits and 
losses.
---------------------------------------------------------------------------

    (4) The bank must conduct independent reviews of its risk 
measurement and risk management systems at least annually.
    (c) Market risk factors. The bank's internal model must use risk 
factors sufficient to measure the market risk inherent in all covered 
positions. The risk factors must address interest rate risk,\12\ equity 
price risk, foreign exchange rate risk, and commodity price risk.
---------------------------------------------------------------------------

    \12\ For material exposures in the major currencies and markets, 
modeling techniques must capture spread risk and must incorporate enough 
segments of the yield curve--at least six--to capture differences in 
volatility and less than perfect correlation of rates along the yield 
curve.
---------------------------------------------------------------------------

    (d) Quantitative requirements. For regulatory capital purposes, VAR 
measures must meet the following quantitative requirements:
    (1) The VAR measures must be calculated on a daily basis using a 99 
percent, one-tailed confidence level with a price shock equivalent to a 
ten-business day movement in rates and prices. In order to calculate VAR 
measures based on a ten-day price shock, the bank may either calculate 
ten-day figures directly or convert VAR figures based on holding periods 
other than ten days to the equivalent of a ten-day holding period (for 
instance, by multiplying a one-day VAR measure by the square root of 
ten).
    (2) The VAR measures must be based on an historical observation 
period (or effective observation period for a bank using a weighting 
scheme or other similar method) of at least one year. The bank must 
update data sets at least once every three months or more frequently as 
market conditions warrant.
    (3) The VAR measures must include the risks arising from the non-
linear price characteristics of options positions and the sensitivity of 
the market value of the positions to changes in the volatility of the 
underlying

[[Page 47]]

rates or prices. A bank with a large or complex options portfolio must 
measure the volatility of options positions by different maturities.
    (4) The VAR measures may incorporate empirical correlations within 
and across risk categories, provided that the bank's process for 
measuring correlations is sound. In the event that the VAR measures do 
not incorporate empirical correlations across risk categories, then the 
bank must add the separate VAR measures for the four major risk 
categories to determine its aggregate VAR measure.
    (e) Backtesting. (1) Beginning one year after a bank starts to 
comply with this appendix, a bank must conduct backtesting by comparing 
each of its most recent 250 business days' actual net trading profit or 
loss \13\ with the corresponding daily VAR measures generated for 
internal risk measurement purposes and calibrated to a one-day holding 
period and a 99 percent, one-tailed confidence level.
---------------------------------------------------------------------------

    \13\ Actual net trading profits and losses typically include such 
things as realized and unrealized gains and losses on portfolio 
positions as well as fee income and commissions associated with trading 
activities.
---------------------------------------------------------------------------

    (2) Once each quarter, the bank must identify the number of 
exceptions, that is, the number of business days for which the magnitude 
of the actual daily net trading loss, if any, exceeds the corresponding 
daily VAR measure.
    (3) A bank must use the multiplication factor indicated in Table 1 
of this appendix in determining its capital charge for market risk under 
section 3(a)(2)(i)(B) of this appendix until it obtains the next 
quarter's backtesting results, unless the OCC determines that a 
different adjustment or other action is appropriate.

     Table 1--Multiplication Factor Based on Results of Backtesting
------------------------------------------------------------------------
                                                          Multiplication
                  Number of exceptions                        factor
------------------------------------------------------------------------
4 or fewer..............................................          3.00
5.......................................................          3.40
6.......................................................          3.50
7.......................................................          3.65
8.......................................................          3.75
9.......................................................          3.85
10 or more..............................................          4.00
------------------------------------------------------------------------

                        Section 5. Specific Risk

    (a) Specific risk surcharge. For purposes of section 3(a)(2)(ii) of 
this appendix, a bank shall calculate its specific risk surcharge as 
follows:
    (1) Internal models that incorporate specific risk. (i) No specific 
risk surcharge required for qualifying internal models. A bank that 
incorporates specific risk in its internal model has no specific risk 
surcharge for purposes of section 3(a)(2)(ii) of this appendix if the 
bank demonstrates to the OCC that its internal model adequately measures 
all aspects of specific risk, including default and event risk, of 
covered debt and equity positions. In evaluating a bank's internal model 
the OCC will take into account the extent to which the internal model:
    (A) Explains the historical price variation in the trading 
portfolio; and
    (B) Captures concentrations.
    (ii) Specific risk surcharge for modeled specific risk that fails to 
adequately measure default or event risk. A bank that incorporates 
specific risk in its internal model but fails to demonstrate that its 
internal model adequately measures all aspects of specific risk, 
including default and event risk, as provided by this section 5(a)(1), 
must calculate its specific risk surcharge in accordance with one of the 
following methods:
    (A) If the bank's internal model separates the VAR measure into a 
specific risk portion and a general market risk portion, then the 
specific risk surcharge equals the previous day's specific risk portion.
    (B) If the bank's internal model does not separate the VAR measure 
into a specific risk portion and a general market risk portion, then the 
specific risk surcharge equals the sum of the previous day's VAR measure 
for subportfolios of covered debt and equity positions.
    (2) Specific risk surcharge for specific risk not modeled. If a bank 
does not model specific risk in accordance with section 5(a)(1) of this 
appendix, then the bank shall calculate its specific risk surcharge 
using the standard specific risk capital charge in accordance with 
section 5(c) of this appendix.
    (b) Covered debt and equity positions. If a model includes the 
specific risk of covered debt positions but not covered equity positions 
(or vice versa), then the bank may reduce its specific risk charge for 
the included positions under section 5(a)(1)(ii) of this appendix. The 
specific risk charge for the positions not included equals the standard 
specific risk capital charge under paragraph (c) of this section.
    (c) Standard specific risk capital charge. The standard specific 
risk capital charge equals the sum of the components for covered debt 
and equity positions as follows:
    (1) Covered debt positions. (i) For purposes of this section 5, 
covered debt positions means fixed-rate or floating-rate debt 
instruments located in the trading account and instruments located in 
the trading account with values that react primarily to changes in 
interest rates, including certain non-convertible preferred stock, 
convertible bonds, and instruments subject to repurchase and lending 
agreements. Also included are derivatives (including written and 
purchased

[[Page 48]]

options) for which the underlying instrument is a covered debt 
instrument that is subject to a non-zero specific risk capital charge.
    (A) For covered debt positions that are derivatives, a bank must 
risk-weight (as described in paragraph (c)(1)(iii) of this section) the 
market value of the effective notional amount of the underlying debt 
instrument or index portfolio. Swaps must be included as the notional 
position in the underlying debt instrument or index portfolio, with a 
receiving side treated as a long position and a paying side treated as a 
short position; and
    (B) For covered debt positions that are options, whether long or 
short, a bank must risk-weight (as described in paragraph (c)(1)(iii) of 
this section) the market value of the effective notional amount of the 
underlying debt instrument or index multiplied by the option's delta.
    (ii) A bank may net long and short covered debt positions (including 
derivatives) in identical debt issues or indices.
    (iii) A bank must multiply the absolute value of the current market 
value of each net long or short covered debt position by the appropriate 
specific risk weighting factor indicated in Table 2 of this appendix. 
The specific risk capital charge component for covered debt positions is 
the sum of the weighted values.

   Table 2--Specific Risk Weighting Factors for Covered Debt Positions
------------------------------------------------------------------------
                                                               Weighting
                                         Remaining maturity      factor
              Category                     (contractual)          (in
                                                                percent)
------------------------------------------------------------------------
Government \1\......................  N/A....................       0.00
Qualifying \2\......................  6 months or less.......       0.25
                                      Over 6 months to 24           1.00
                                       months.
                                      Over 24 months.........       1.60
Other \3\...........................  N/A....................      8.00
------------------------------------------------------------------------
\1\ The ``government'' category includes all debt instruments of central
  governments of OECD countries (as defined in appendix A of this part)
  including bonds, Treasury bills, and other short-term instruments, as
  well as local currency instruments of non-OECD central governments to
  the extent the bank has liabilities booked in that currency.
\2\ The ``qualifying'' category includes debt instruments of U.S.
  government-sponsored agencies (as defined in appendix A of this part),
  general obligation debt instruments issued by states and other
  political subdivisions of OECD countries, multilateral development
  banks (as defined in appendix A of this part), and debt instruments
  issued by U.S. depository institutions or OECD-banks (as defined in
  appendix A of this part) that do not qualify as capital of the issuing
  institution. This category also includes other debt instruments,
  including corporate debt and revenue instruments issued by states and
  other political subdivisions of OECD countries, that are: (1) Rated
  investment grade by at least two nationally recognized credit rating
  services; (2) rated investment grade by one nationally recognized
  credit rating agency and not rated less than investment grade by any
  other credit rating agency; or (3) unrated, but deemed to be of
  comparable investment quality by the reporting bank and the issuer has
  instruments listed on a recognized stock exchange, subject to review
  by the OCC.
\3\ The ``other'' category includes debt instruments that are not
  included in the government or qualifying categories.

    (2) Covered equity positions. (i) For purposes of this section 5, 
covered equity positions means equity instruments located in the trading 
account and instruments located in the trading account with values that 
react primarily to changes in equity prices, including voting or non-
voting common stock, certain convertible bonds, and commitments to buy 
or sell equity instruments. Also included are derivatives (including 
written and purchased options) for which the underlying is a covered 
equity position.
    (A) For covered equity positions that are derivatives, a bank must 
risk weight (as described in paragraph (c)(2)(iii) of this section) the 
market value of the effective notional amount of the underlying equity 
instrument or equity portfolio. Swaps must be included as the notional 
position in the underlying equity instrument or index portfolio, with a 
receiving side treated as a long position and a paying side treated as a 
short position; and
    (B) For covered equity positions that are options, whether long or 
short, a bank must risk weight (as described in paragraph (c)(2)(iii) of 
this section) the market value of the effective notional amount of the 
underlying equity instrument or index multiplied by the option's delta.
    (ii) A bank may net long and short covered equity positions 
(including derivatives) in identical equity issues or equity indices in 
the same market.\14\
---------------------------------------------------------------------------

    \14\ A bank may also net positions in depository receipts against an 
opposite position in the underlying equity or identical equity in 
different markets, provided that the bank includes the costs of 
conversion.
---------------------------------------------------------------------------

    (iii)(A) A bank must multiply the absolute value of the current 
market value of each net long or short covered equity position by a risk 
weighting factor of 8.0 percent, or by 4.0 percent if the equity is held 
in a portfolio that is both liquid and well-diversified.\15\ For covered 
equity positions that are index contracts comprising a well-diversified 
portfolio of equity instruments, the net long or short position is 
multiplied by a risk weighting factor of 2.0 percent.
---------------------------------------------------------------------------

    \15\ A portfolio is liquid and well-diversified if: (1) It is 
characterized by a limited sensitivity to price changes of any single 
equity issue or closely related group of equity issues held in the 
portfolio; (2) the volatility of the portfolio's value is not dominated 
by the volatility of any individual equity issue or by equity issues 
from any single industry or economic sector; (3) it contains a large 
number of individual equity positions, with no single position 
representing a substantial portion of the portfolio's total market 
value; and (4) it consists mainly of issues traded on organized 
exchanges or in well-established over-the-counter markets.

---------------------------------------------------------------------------

[[Page 49]]

    (B) For covered equity positions from the following futures-related 
arbitrage strategies, a bank may apply a 2.0 percent risk weighting 
factor to one side (long or short) of each position with the opposite 
side exempt from charge:
    (1) Long and short positions in exactly the same index at different 
dates or in different market centers; or
    (2) Long and short positions in index contracts at the same date in 
different but similar indices.
    (C) For futures contracts on broadly-based indices that are matched 
by offsetting positions in a basket of stocks comprising the index, a 
bank may apply a 2.0 percent risk weighting factor to the futures and 
stock basket positions (long and short), provided that such trades are 
deliberately entered into and separately controlled, and that the basket 
of stocks comprises at least 90 percent of the capitalization of the 
index.
    (iv) The specific risk capital charge component for covered equity 
positions is the sum of the weighted values.

                   Section 6. Reservation of Authority

    The OCC reserves the authority to modify the application of any of 
the provisions in this appendix to any bank, upon reasonable 
justification.

[61 FR 47367, Sept. 6, 1996, as amended at 62 FR 68067, Dec. 30, 1997; 
65 FR 75858, Dec. 5, 2000; 69 FR 44916, July 28, 2004; 71 FR 8936, Feb. 
22, 2006]



  Sec. Appendix C to Part 3--Capital Adequacy Guidelines for [Banks]: 
       Internal-Ratings-Based and Advanced Measurement Approaches

    Effective Date Notes: 1. At 72 FR 69429, Dec. 7, 2007, Part 3 was 
amended by adding Appendix C, effective Apr. 1, 2008. For the 
convenience of the user, the added text is set forth as follows:



  Sec. Appendix C to Part 3--Capital Adequacy Guidelines for [Banks]: 
       Internal-Ratings-Based and Advanced Measurement Approaches

Part I General Provisions
    Section 1 Purpose, Applicability, Reservation of Authority, and 
Principle of Conservatism
    Section 2 Definitions
    Section 3 Minimum Risk-Based Capital Requirements
Part II Qualifying Capital
    Section 11 Additional Deductions
    Section 12 Deductions and Limitations Not Required
    Section 13 Eligible Credit Reserves
Part III Qualification
    Section 21 Qualification Process
    Section 22 Qualification Requirements
    Section 23 Ongoing Qualification
    Section 24 Merger and Acquisition Transitional Arrangements
Part IV Risk-Weighted Assets for General Credit Risk
    Section 31 Mechanics for Calculating Total Wholesale and Retail 
Risk-Weighted Assets
    Section 32 Counterparty Credit Risk of Repo-Style Transactions, 
Eligible Margin Loans, and OTC Derivative Contracts
    Section 33 Guarantees and Credit Derivatives: PD Substitution and 
LGD Adjustment Approaches
    Section 34 Guarantees and Credit Derivatives: Double Default 
Treatment
    Section 35 Risk-Based Capital Requirement for Unsettled Transactions
Part V Risk-Weighted Assets for Securitization Exposures
    Section 41 Operational Criteria for Recognizing the Transfer of Risk
    Section 42 Risk-Based Capital Requirement for Securitization 
Exposures
    Section 43 Ratings-Based Approach (RBA)
    Section 44 Internal Assessment Approach (IAA)
    Section 45 Supervisory Formula Approach (SFA)
    Section 46 Recognition of Credit Risk Mitigants for Securitization 
Exposures
    Section 47 Risk-Based Capital Requirement for Early Amortization 
Provisions
Part VI Risk-Weighted Assets for Equity Exposures
    Section 51 Introduction and Exposure Measurement
    Section 52 Simple Risk Weight Approach (SRWA)
    Section 53 Internal Models Approach (IMA)
    Section 54 Equity Exposures to Investment Funds
    Section 55 Equity Derivative Contracts
Part VII Risk-Weighted Assets for Operational Risk
    Section 61 Qualification Requirements for Incorporation of 
Operational Risk Mitigants
    Section 62 Mechanics of Risk-Weighted Asset Calculation
Part VIII Disclosure
    Section 71 Disclosure Requirements

                       Part I. General Provisions

    Section 1. Purpose, Applicability, Reservation of Authority, and 
                        Principle of Conservatism

    (a) Purpose. This appendix establishes:
    (1) Minimum qualifying criteria for [banks] using [bank]-specific 
internal risk measurement and management processes for calculating risk-
based capital requirements;
    (2) Methodologies for such [banks] to calculate their risk-based 
capital requirements; and

[[Page 50]]

    (3) Public disclosure requirements for such [banks].
    (b) Applicability. (1) This appendix applies to a [bank] that:
    (i) Has consolidated total assets, as reported on the most recent 
year-end Consolidated Report of Condition and Income (Call Report) or 
Thrift Financial Report (TFR), equal to $250 billion or more;
    (ii) Has consolidated total on-balance sheet foreign exposure at the 
most recent year-end equal to $10 billion or more (where total on-
balance sheet foreign exposure equals total cross-border claims less 
claims with head office or guarantor located in another country plus 
redistributed guaranteed amounts to the country of head office or 
guarantor plus local country claims on local residents plus revaluation 
gains on foreign exchange and derivative products, calculated in 
accordance with the Federal Financial Institutions Examination Council 
(FFIEC) 009 Country Exposure Report);
    (iii) Is a subsidiary of a depository institution that uses 12 CFR 
part 3, Appendix C, 12 CFR part 208, Appendix F, 12 CFR part 325, 
Appendix D, or 12 CFR part 567, Appendix C, to calculate its risk-based 
capital requirements; or
    (iv) Is a subsidiary of a bank holding company that uses 12 CFR part 
225, Appendix G, to calculate its risk-based capital requirements.
    (2) Any [bank] may elect to use this appendix to calculate its risk-
based capital requirements.
    (3) A [bank] that is subject to this appendix must use this appendix 
unless the [AGENCY] determines in writing that application of this 
appendix is not appropriate in light of the [bank]'s asset size, level 
of complexity, risk profile, or scope of operations. In making a 
determination under this paragraph, the [AGENCY] will apply notice and 
response procedures in the same manner and to the same extent as the 
notice and response procedures in 12 CFR 3.12 (for national banks), 12 
CFR 263.202 (for bank holding companies and state member banks), 12 CFR 
325.6(c) (for state nonmember banks), and 12 CFR 567.3(d) (for savings 
associations).
    (c) Reservation of authority--(1) Additional capital in the 
aggregate. The [AGENCY] may require a [bank] to hold an amount of 
capital greater than otherwise required under this appendix if the 
[AGENCY] determines that the [bank]'s risk-based capital requirement 
under this appendix is not commensurate with the [bank]'s credit, 
market, operational, or other risks. In making a determination under 
this paragraph, the [AGENCY] will apply notice and response procedures 
in the same manner and to the same extent as the notice and response 
procedures in 12 CFR 3.12 (for national banks), 12 CFR 263.202 (for bank 
holding companies and state member banks), 12 CFR 325.6(c) (for state 
nonmember banks), and 12 CFR 567.3(d) (for savings associations).
    (2) Specific risk-weighted asset amounts. (i) If the [AGENCY] 
determines that the risk-weighted asset amount calculated under this 
appendix by the [bank] for one or more exposures is not commensurate 
with the risks associated with those exposures, the [AGENCY] may require 
the [bank] to assign a different risk-weighted asset amount to the 
exposures, to assign different risk parameters to the exposures (if the 
exposures are wholesale or retail exposures), or to use different model 
assumptions for the exposures (if relevant), all as specified by the 
[AGENCY].
    (ii) If the [AGENCY] determines that the risk-weighted asset amount 
for operational risk produced by the [bank] under this appendix is not 
commensurate with the operational risks of the [bank], the [AGENCY] may 
require the [bank] to assign a different risk-weighted asset amount for 
operational risk, to change elements of its operational risk analytical 
framework, including distributional and dependence assumptions, or to 
make other changes to the [bank]'s operational risk management 
processes, data and assessment systems, or quantification systems, all 
as specified by the [AGENCY].
    (3) Other supervisory authority. Nothing in this appendix limits the 
authority of the [AGENCY] under any other provision of law or regulation 
to take supervisory or enforcement action, including action to address 
unsafe or unsound practices or conditions, deficient capital levels, or 
violations of law.
    (d) Principle of conservatism. Notwithstanding the requirements of 
this appendix, a [bank] may choose not to apply a provision of this 
appendix to one or more exposures, provided that:
    (1) The [bank] can demonstrate on an ongoing basis to the 
satisfaction of the [AGENCY] that not applying the provision would, in 
all circumstances, unambiguously generate a risk-based capital 
requirement for each such exposure greater than that which would 
otherwise be required under this appendix;
    (2) The [bank] appropriately manages the risk of each such exposure;
    (3) The [bank] notifies the [AGENCY] in writing prior to applying 
this principle to each such exposure; and
    (4) The exposures to which the [bank] applies this principle are 
not, in the aggregate, material to the [bank].

                         Section 2. Definitions

    Advanced internal ratings-based (IRB) systems means a [bank]'s 
internal risk rating and segmentation system; risk parameter 
quantification system; data management and maintenance system; and 
control, oversight, and validation system for credit risk of wholesale 
and retail exposures.

[[Page 51]]

    Advanced systems means a [bank]'s advanced IRB systems, operational 
risk management processes, operational risk data and assessment systems, 
operational risk quantification systems, and, to the extent the [bank] 
uses the following systems, the internal models methodology, double 
default excessive correlation detection process, IMA for equity 
exposures, and IAA for securitization exposures to ABCP programs.
    Affiliate with respect to a company means any company that controls, 
is controlled by, or is under common control with, the company.
    Applicable external rating means:
    (1) With respect to an exposure that has multiple external ratings 
assigned by NRSROs, the lowest solicited external rating assigned to the 
exposure by any NRSRO; and
    (2) With respect to an exposure that has a single external rating 
assigned by an NRSRO, the external rating assigned to the exposure by 
the NRSRO.
    Applicable inferred rating means:
    (1) With respect to an exposure that has multiple inferred ratings, 
the lowest inferred rating based on a solicited external rating; and
    (2) With respect to an exposure that has a single inferred rating, 
the inferred rating.
    Asset-backed commercial paper (ABCP) program means a program that 
primarily issues commercial paper that:
    (1) Has an external rating; and
    (2) Is backed by underlying exposures held in a bankruptcy-remote 
SPE.
    Asset-backed commercial paper (ABCP) program sponsor means a [bank] 
that:
    (1) Establishes an ABCP program;
    (2) Approves the sellers permitted to participate in an ABCP 
program;
    (3) Approves the exposures to be purchased by an ABCP program; or
    (4) Administers the ABCP program by monitoring the underlying 
exposures, underwriting or otherwise arranging for the placement of debt 
or other obligations issued by the program, compiling monthly reports, 
or ensuring compliance with the program documents and with the program's 
credit and investment policy.
    Backtesting means the comparison of a [bank]'s internal estimates 
with actual outcomes during a sample period not used in model 
development. In this context, backtesting is one form of out-of-sample 
testing.
    Bank holding company is defined in section 2 of the Bank Holding 
Company Act (12 U.S.C. 1841).
    Benchmarking means the comparison of a [bank]'s internal estimates 
with relevant internal and external data or with estimates based on 
other estimation techniques.
    Business environment and internal control factors means the 
indicators of a [bank]'s operational risk profile that reflect a current 
and forward-looking assessment of the [bank]'s underlying business risk 
factors and internal control environment.
    Carrying value means, with respect to an asset, the value of the 
asset on the balance sheet of the [bank], determined in accordance with 
GAAP.
    Clean-up call means a contractual provision that permits an 
originating [bank] or servicer to call securitization exposures before 
their stated maturity or call date. See also eligible clean-up call.
    Commodity derivative contract means a commodity-linked swap, 
purchased commodity-linked option, forward commodity-linked contract, or 
any other instrument linked to commodities that gives rise to similar 
counterparty credit risks.
    Company means a corporation, partnership, limited liability company, 
depository institution, business trust, special purpose entity, 
association, or similar organization.
    Control. A person or company controls a company if it:
    (1) Owns, controls, or holds with power to vote 25 percent or more 
of a class of voting securities of the company; or
    (2) Consolidates the company for financial reporting purposes.
    Controlled early amortization provision means an early amortization 
provision that meets all the following conditions:
    (1) The originating [bank] has appropriate policies and procedures 
to ensure that it has sufficient capital and liquidity available in the 
event of an early amortization;
    (2) Throughout the duration of the securitization (including the 
early amortization period), there is the same pro rata sharing of 
interest, principal, expenses, losses, fees, recoveries, and other cash 
flows from the underlying exposures based on the originating [bank]'s 
and the investors' relative shares of the underlying exposures 
outstanding measured on a consistent monthly basis;
    (3) The amortization period is sufficient for at least 90 percent of 
the total underlying exposures outstanding at the beginning of the early 
amortization period to be repaid or recognized as in default; and
    (4) The schedule for repayment of investor principal is not more 
rapid than would be allowed by straight-line amortization over an 18-
month period.
    Credit derivative means a financial contract executed under standard 
industry credit derivative documentation that allows one party (the 
protection purchaser) to transfer the credit risk of one or more 
exposures (reference exposure) to another party (the protection 
provider). See also eligible credit derivative.
    Credit-enhancing interest-only strip (CEIO) means an on-balance 
sheet asset that, in form or in substance:

[[Page 52]]

    (1) Represents a contractual right to receive some or all of the 
interest and no more than a minimal amount of principal due on the 
underlying exposures of a securitization; and
    (2) Exposes the holder to credit risk directly or indirectly 
associated with the underlying exposures that exceeds a pro rata share 
of the holder's claim on the underlying exposures, whether through 
subordination provisions or other credit-enhancement techniques.
    Credit-enhancing representations and warranties means 
representations and warranties that are made or assumed in connection 
with a transfer of underlying exposures (including loan servicing 
assets) and that obligate a [bank] to protect another party from losses 
arising from the credit risk of the underlying exposures. Credit-
enhancing representations and warranties include provisions to protect a 
party from losses resulting from the default or nonperformance of the 
obligors of the underlying exposures or from an insufficiency in the 
value of the collateral backing the underlying exposures. Credit-
enhancing representations and warranties do not include:
    (1) Early default clauses and similar warranties that permit the 
return of, or premium refund clauses that cover, first-lien residential 
mortgage exposures for a period not to exceed 120 days from the date of 
transfer, provided that the date of transfer is within one year of 
origination of the residential mortgage exposure;
    (2) Premium refund clauses that cover underlying exposures 
guaranteed, in whole or in part, by the U.S. government, a U.S. 
government agency, or a U.S. government sponsored enterprise, provided 
that the clauses are for a period not to exceed 120 days from the date 
of transfer; or
    (3) Warranties that permit the return of underlying exposures in 
instances of misrepresentation, fraud, or incomplete documentation.
    Credit risk mitigant means collateral, a credit derivative, or a 
guarantee.
    Credit-risk-weighted assets means 1.06 multiplied by the sum of:
    (1) Total wholesale and retail risk-weighted assets;
    (2) Risk-weighted assets for securitization exposures; and
    (3) Risk-weighted assets for equity exposures.
    Current exposure means, with respect to a netting set, the larger of 
zero or the market value of a transaction or portfolio of transactions 
within the netting set that would be lost upon default of the 
counterparty, assuming no recovery on the value of the transactions. 
Current exposure is also called replacement cost.
    Default--(1) Retail. (i) A retail exposure of a [bank] is in default 
if:
    (A) The exposure is 180 days past due, in the case of a residential 
mortgage exposure or revolving exposure;
    (B) The exposure is 120 days past due, in the case of all other 
retail exposures; or
    (C) The [bank] has taken a full or partial charge-off, write-down of 
principal, or material negative fair value adjustment of principal on 
the exposure for credit-related reasons.
    (ii) Notwithstanding paragraph (1)(i) of this definition, for a 
retail exposure held by a non-U.S. subsidiary of the [bank] that is 
subject to an internal ratings-based approach to capital adequacy 
consistent with the Basel Committee on Banking Supervision's 
``International Convergence of Capital Measurement and Capital 
Standards: A Revised Framework'' in a non-U.S. jurisdiction, the [bank] 
may elect to use the definition of default that is used in that 
jurisdiction, provided that the [bank] has obtained prior approval from 
the [AGENCY] to use the definition of default in that jurisdiction.
    (iii) A retail exposure in default remains in default until the 
[bank] has reasonable assurance of repayment and performance for all 
contractual principal and interest payments on the exposure.
    (2) Wholesale. (i) A [bank]'s wholesale obligor is in default if:
    (A) The [bank] determines that the obligor is unlikely to pay its 
credit obligations to the [bank] in full, without recourse by the [bank] 
to actions such as realizing collateral (if held); or
    (B) The obligor is past due more than 90 days on any material credit 
obligation(s) to the [bank].\1\
---------------------------------------------------------------------------

    \1\ Overdrafts are past due once the obligor has breached an advised 
limit or been advised of a limit smaller than the current outstanding 
balance.
---------------------------------------------------------------------------

    (ii) An obligor in default remains in default until the [bank] has 
reasonable assurance of repayment and performance for all contractual 
principal and interest payments on all exposures of the [bank] to the 
obligor (other than exposures that have been fully written-down or 
charged-off).
    Dependence means a measure of the association among operational 
losses across and within units of measure.
    Depository institution is defined in section 3 of the Federal 
Deposit Insurance Act (12 U.S.C. 1813).
    Derivative contract means a financial contract whose value is 
derived from the values of one or more underlying assets, reference 
rates, or indices of asset values or reference rates. Derivative 
contracts include interest rate derivative contracts, exchange rate 
derivative contracts, equity derivative contracts, commodity derivative 
contracts, credit derivatives, and any other instrument

[[Page 53]]

that poses similar counterparty credit risks. Derivative contracts also 
include unsettled securities, commodities, and foreign exchange 
transactions with a contractual settlement or delivery lag that is 
longer than the lesser of the market standard for the particular 
instrument or five business days.
    Early amortization provision means a provision in the documentation 
governing a securitization that, when triggered, causes investors in the 
securitization exposures to be repaid before the original stated 
maturity of the securitization exposures, unless the provision:
    (1) Is triggered solely by events not directly related to the 
performance of the underlying exposures or the originating [bank] (such 
as material changes in tax laws or regulations); or
    (2) Leaves investors fully exposed to future draws by obligors on 
the underlying exposures even after the provision is triggered.
    Economic downturn conditions means, with respect to an exposure held 
by the [bank], those conditions in which the aggregate default rates for 
that exposure's wholesale or retail exposure subcategory (or subdivision 
of such subcategory selected by the [bank]) in the exposure's national 
jurisdiction (or subdivision of such jurisdiction selected by the 
[bank]) are significantly higher than average.
    Effective maturity (M) of a wholesale exposure means:
    (1) For wholesale exposures other than repo-style transactions, 
eligible margin loans, and OTC derivative contracts described in 
paragraph (2) or (3) of this definition:
    (i) The weighted-average remaining maturity (measured in years, 
whole or fractional) of the expected contractual cash flows from the 
exposure, using the undiscounted amounts of the cash flows as weights; 
or
    (ii) The nominal remaining maturity (measured in years, whole or 
fractional) of the exposure.
    (2) For repo-style transactions, eligible margin loans, and OTC 
derivative contracts subject to a qualifying master netting agreement 
for which the [bank] does not apply the internal models approach in 
paragraph (d) of section 32 of this appendix, the weighted-average 
remaining maturity (measured in years, whole or fractional) of the 
individual transactions subject to the qualifying master netting 
agreement, with the weight of each individual transaction set equal to 
the notional amount of the transaction.
    (3) For repo-style transactions, eligible margin loans, and OTC 
derivative contracts for which the [bank] applies the internal models 
approach in paragraph (d) of section 32 of this appendix, the value 
determined in paragraph (d)(4) of section 32 of this appendix.
    Effective notional amount means, for an eligible guarantee or 
eligible credit derivative, the lesser of the contractual notional 
amount of the credit risk mitigant and the EAD of the hedged exposure, 
multiplied by the percentage coverage of the credit risk mitigant. For 
example, the effective notional amount of an eligible guarantee that 
covers, on a pro rata basis, 40 percent of any losses on a $100 bond 
would be $40.
    Eligible clean-up call means a clean-up call that:
    (1) Is exercisable solely at the discretion of the originating 
[bank] or servicer;
    (2) Is not structured to avoid allocating losses to securitization 
exposures held by investors or otherwise structured to provide credit 
enhancement to the securitization; and
    (3) (i) For a traditional securitization, is only exercisable when 
10 percent or less of the principal amount of the underlying exposures 
or securitization exposures (determined as of the inception of the 
securitization) is outstanding; or
    (ii) For a synthetic securitization, is only exercisable when 10 
percent or less of the principal amount of the reference portfolio of 
underlying exposures (determined as of the inception of the 
securitization) is outstanding.
    Eligible credit derivative means a credit derivative in the form of 
a credit default swap, n\th\-to-default swap, total return swap, or any 
other form of credit derivative approved by the [AGENCY], provided that:
    (1) The contract meets the requirements of an eligible guarantee and 
has been confirmed by the protection purchaser and the protection 
provider;
    (2) Any assignment of the contract has been confirmed by all 
relevant parties;
    (3) If the credit derivative is a credit default swap or n\th\-to-
default swap, the contract includes the following credit events:
    (i) Failure to pay any amount due under the terms of the reference 
exposure, subject to any applicable minimal payment threshold that is 
consistent with standard market practice and with a grace period that is 
closely in line with the grace period of the reference exposure; and
    (ii) Bankruptcy, insolvency, or inability of the obligor on the 
reference exposure to pay its debts, or its failure or admission in 
writing of its inability generally to pay its debts as they become due, 
and similar events;
    (4) The terms and conditions dictating the manner in which the 
contract is to be settled are incorporated into the contract;
    (5) If the contract allows for cash settlement, the contract 
incorporates a robust valuation process to estimate loss reliably and 
specifies a reasonable period for obtaining post-credit event valuations 
of the reference exposure;

[[Page 54]]

    (6) If the contract requires the protection purchaser to transfer an 
exposure to the protection provider at settlement, the terms of at least 
one of the exposures that is permitted to be transferred under the 
contract provides that any required consent to transfer may not be 
unreasonably withheld;
    (7) If the credit derivative is a credit default swap or n\th\-to-
default swap, the contract clearly identifies the parties responsible 
for determining whether a credit event has occurred, specifies that this 
determination is not the sole responsibility of the protection provider, 
and gives the protection purchaser the right to notify the protection 
provider of the occurrence of a credit event; and
    (8) If the credit derivative is a total return swap and the [bank] 
records net payments received on the swap as net income, the [bank] 
records offsetting deterioration in the value of the hedged exposure 
(either through reductions in fair value or by an addition to reserves).
    Eligible credit reserves means all general allowances that have been 
established through a charge against earnings to absorb credit losses 
associated with on- or off-balance sheet wholesale and retail exposures, 
including the allowance for loan and lease losses (ALLL) associated with 
such exposures but excluding allocated transfer risk reserves 
established pursuant to 12 U.S.C. 3904 and other specific reserves 
created against recognized losses.
    Eligible double default guarantor, with respect to a guarantee or 
credit derivative obtained by a [bank], means:
    (1) U.S.-based entities. A depository institution, a bank holding 
company, a savings and loan holding company (as defined in 12 U.S.C. 
1467a) provided all or substantially all of the holding company's 
activities are permissible for a financial holding company under 12 
U.S.C. 1843(k), a securities broker or dealer registered with the SEC 
under the Securities Exchange Act of 1934 (15 U.S.C. 78o et seq.), or an 
insurance company in the business of providing credit protection (such 
as a monoline bond insurer or re-insurer) that is subject to supervision 
by a State insurance regulator, if:
    (i) At the time the guarantor issued the guarantee or credit 
derivative or at any time thereafter, the [bank] assigned a PD to the 
guarantor's rating grade that was equal to or lower than the PD 
associated with a long-term external rating in the third-highest 
investment-grade rating category; and
    (ii) The [bank] currently assigns a PD to the guarantor's rating 
grade that is equal to or lower than the PD associated with a long-term 
external rating in the lowest investment-grade rating category; or
    (2) Non-U.S.-based entities. A foreign bank (as defined in Sec. 
211.2 of the Federal Reserve Board's Regulation K (12 CFR 211.2)), a 
non-U.S.-based securities firm, or a non-U.S.-based insurance company in 
the business of providing credit protection, if:
    (i) The [bank] demonstrates that the guarantor is subject to 
consolidated supervision and regulation comparable to that imposed on 
U.S. depository institutions, securities broker-dealers, or insurance 
companies (as the case may be), or has issued and outstanding an 
unsecured long-term debt security without credit enhancement that has a 
long-term applicable external rating of at least investment grade;
    (ii) At the time the guarantor issued the guarantee or credit 
derivative or at any time thereafter, the [bank] assigned a PD to the 
guarantor's rating grade that was equal to or lower than the PD 
associated with a long-term external rating in the third-highest 
investment-grade rating category; and
    (iii) The [bank] currently assigns a PD to the guarantor's rating 
grade that is equal to or lower than the PD associated with a long-term 
external rating in the lowest investment-grade rating category.
    Eligible guarantee means a guarantee that:
    (1) Is written and unconditional;
    (2) Covers all or a pro rata portion of all contractual payments of 
the obligor on the reference exposure;
    (3) Gives the beneficiary a direct claim against the protection 
provider;
    (4) Is not unilaterally cancelable by the protection provider for 
reasons other than the breach of the contract by the beneficiary;
    (5) Is legally enforceable against the protection provider in a 
jurisdiction where the protection provider has sufficient assets against 
which a judgment may be attached and enforced;
    (6) Requires the protection provider to make payment to the 
beneficiary on the occurrence of a default (as defined in the guarantee) 
of the obligor on the reference exposure in a timely manner without the 
beneficiary first having to take legal actions to pursue the obligor for 
payment;
    (7) Does not increase the beneficiary's cost of credit protection on 
the guarantee in response to deterioration in the credit quality of the 
reference exposure; and
    (8) Is not provided by an affiliate of the [bank], unless the 
affiliate is an insured depository institution, bank, securities broker 
or dealer, or insurance company that:
    (i) Does not control the [bank]; and
    (ii) Is subject to consolidated supervision and regulation 
comparable to that imposed on U.S. depository institutions, securities 
broker-dealers, or insurance companies (as the case may be).
    Eligible margin loan means an extension of credit where:
    (1) The extension of credit is collateralized exclusively by liquid 
and readily marketable

[[Page 55]]

debt or equity securities, gold, or conforming residential mortgages;
    (2) The collateral is marked to market daily, and the transaction is 
subject to daily margin maintenance requirements;
    (3) The extension of credit is conducted under an agreement that 
provides the [bank] the right to accelerate and terminate the extension 
of credit and to liquidate or set off collateral promptly upon an event 
of default (including upon an event of bankruptcy, insolvency, or 
similar proceeding) of the counterparty, provided that, in any such 
case, any exercise of rights under the agreement will not be stayed or 
avoided under applicable law in the relevant jurisdictions; \2\ and
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    \2\ This requirement is met where all transactions under the 
agreement are (i) executed under U.S. law and (ii) constitute 
``securities contracts'' under section 555 of the Bankruptcy Code (11 
U.S.C. 555), qualified financial contracts under section 11(e)(8) of the 
Federal Deposit Insurance Act (12 U.S.C. 1821(e)(8)), or netting 
contracts between or among financial institutions under sections 401-407 
of the Federal Deposit Insurance Corporation Improvement Act of 1991 (12 
U.S.C. 4401-4407) or the Federal Reserve Board's Regulation EE (12 CFR 
part 231).
---------------------------------------------------------------------------

    (4) The [bank] has conducted sufficient legal review to conclude 
with a well-founded basis (and maintains sufficient written 
documentation of that legal review) that the agreement meets the 
requirements of paragraph (3) of this definition and is legal, valid, 
binding, and enforceable under applicable law in the relevant 
jurisdictions.
    Eligible operational risk offsets means amounts, not to exceed 
expected operational loss, that:
    (1) Are generated by internal business practices to absorb highly 
predictable and reasonably stable operational losses, including reserves 
calculated consistent with GAAP; and
    (2) Are available to cover expected operational losses with a high 
degree of certainty over a one-year horizon.
    Eligible purchased wholesale exposure means a purchased wholesale 
exposure that:
    (1) The [bank] or securitization SPE purchased from an unaffiliated 
seller and did not directly or indirectly originate;
    (2) Was generated on an arm's-length basis between the seller and 
the obligor (intercompany accounts receivable and receivables subject to 
contra-accounts between firms that buy and sell to each other do not 
satisfy this criterion);
    (3) Provides the [bank] or securitization SPE with a claim on all 
proceeds from the exposure or a pro rata interest in the proceeds from 
the exposure;
    (4) Has an M of less than one year; and
    (5) When consolidated by obligor, does not represent a concentrated 
exposure relative to the portfolio of purchased wholesale exposures.
    Eligible securitization guarantor means:
    (1) A sovereign entity, the Bank for International Settlements, the 
International Monetary Fund, the European Central Bank, the European 
Commission, a Federal Home Loan Bank, Federal Agricultural Mortgage 
Corporation (Farmer Mac), a multilateral development bank, a depository 
institution, a bank holding company, a savings and loan holding company 
(as defined in 12 U.S.C. 1467a) provided all or substantially all of the 
holding company's activities are permissible for a financial holding 
company under 12 U.S.C. 1843(k), a foreign bank (as defined in Sec. 
211.2 of the Federal Reserve Board's Regulation K (12 CFR 211.2)), or a 
securities firm;
    (2) Any other entity (other than a securitization SPE) that has 
issued and outstanding an unsecured long-term debt security without 
credit enhancement that has a long-term applicable external rating in 
one of the three highest investment-grade rating categories; or
    (3) Any other entity (other than a securitization SPE) that has a PD 
assigned by the [bank] that is lower than or equal to the PD associated 
with a long-term external rating in the third highest investment-grade 
rating category.
    Eligible servicer cash advance facility means a servicer cash 
advance facility in which:
    (1) The servicer is entitled to full reimbursement of advances, 
except that a servicer may be obligated to make non-reimbursable 
advances for a particular underlying exposure if any such advance is 
contractually limited to an insignificant amount of the outstanding 
principal balance of that exposure;
    (2) The servicer's right to reimbursement is senior in right of 
payment to all other claims on the cash flows from the underlying 
exposures of the securitization; and
    (3) The servicer has no legal obligation to, and does not, make 
advances to the securitization if the servicer concludes the advances 
are unlikely to be repaid.
    Equity derivative contract means an equity-linked swap, purchased 
equity-linked option, forward equity-linked contract, or any other 
instrument linked to equities that gives rise to similar counterparty 
credit risks.
    Equity exposure means:
    (1) A security or instrument (whether voting or non-voting) that 
represents a direct or indirect ownership interest in, and is a residual 
claim on, the assets and income of a company, unless:
    (i) The issuing company is consolidated with the [bank] under GAAP;
    (ii) The [bank] is required to deduct the ownership interest from 
tier 1 or tier 2 capital under this appendix;

[[Page 56]]

    (iii) The ownership interest incorporates a payment or other similar 
obligation on the part of the issuing company (such as an obligation to 
make periodic payments); or
    (iv) The ownership interest is a securitization exposure;
    (2) A security or instrument that is mandatorily convertible into a 
security or instrument described in paragraph (1) of this definition;
    (3) An option or warrant that is exercisable for a security or 
instrument described in paragraph (1) of this definition; or
    (4) Any other security or instrument (other than a securitization 
exposure) to the extent the return on the security or instrument is 
based on the performance of a security or instrument described in 
paragraph (1) of this definition.
    Excess spread for a period means:
    (1) Gross finance charge collections and other income received by a 
securitization SPE (including market interchange fees) over a period 
minus interest paid to the holders of the securitization exposures, 
servicing fees, charge-offs, and other senior trust or similar expenses 
of the SPE over the period; divided by
    (2) The principal balance of the underlying exposures at the end of 
the period.
    Exchange rate derivative contract means a cross-currency interest 
rate swap, forward foreign-exchange contract, currency option purchased, 
or any other instrument linked to exchange rates that gives rise to 
similar counterparty credit risks.
    Excluded mortgage exposure means any one-to four-family residential 
pre-sold construction loan for a residence for which the purchase 
contract is cancelled that would receive a 100 percent risk weight under 
section 618(a)(2) of the Resolution Trust Corporation Refinancing, 
Restructuring, and Improvement Act and under 12 CFR part 3, Appendix A, 
section 3(a)(3)(iii) (for national banks), 12 CFR part 208, Appendix A, 
section III.C.3. (for state member banks), 12 CFR part 225, Appendix A, 
section III.C.3. (for bank holding companies), 12 CFR part 325, Appendix 
A, section II.C.a. (for state nonmember banks), or 12 CFR 567.1 
(definition of ``qualifying residential construction loan'') and 12 CFR 
567.6(a)(1)(iv) (for savings associations).
    Expected credit loss (ECL) means:
    (1) For a wholesale exposure to a non-defaulted obligor or segment 
of non-defaulted retail exposures that is carried at fair value with 
gains and losses flowing through earnings or that is classified as held-
for-sale and is carried at the lower of cost or fair value with losses 
flowing through earnings, zero.
    (2) For all other wholesale exposures to non-defaulted obligors or 
segments of non-defaulted retail exposures, the product of PD times LGD 
times EAD for the exposure or segment.
    (3) For a wholesale exposure to a defaulted obligor or segment of 
defaulted retail exposures, the [bank]'s impairment estimate for 
allowance purposes for the exposure or segment.
    (4) Total ECL is the sum of expected credit losses for all wholesale 
and retail exposures other than exposures for which the [bank] has 
applied the double default treatment in section 34 of this appendix.
    Expected exposure (EE) means the expected value of the probability 
distribution of non-negative credit risk exposures to a counterparty at 
any specified future date before the maturity date of the longest term 
transaction in the netting set. Any negative market values in the 
probability distribution of market values to a counterparty at a 
specified future date are set to zero to convert the probability 
distribution of market values to the probability distribution of credit 
risk exposures.
    Expected operational loss (EOL) means the expected value of the 
distribution of potential aggregate operational losses, as generated by 
the [bank]'s operational risk quantification system using a one-year 
horizon.
    Expected positive exposure (EPE) means the weighted average over 
time of expected (non-negative) exposures to a counterparty where the 
weights are the proportion of the time interval that an individual 
expected exposure represents. When calculating risk-based capital 
requirements, the average is taken over a one-year horizon.
    Exposure at default (EAD). (1) For the on-balance sheet component of 
a wholesale exposure or segment of retail exposures (other than an OTC 
derivative contract, or a repo-style transaction or eligible margin loan 
for which the [bank] determines EAD under section 32 of this appendix), 
EAD means:
    (i) If the exposure or segment is a security classified as 
available-for-sale, the [bank]'s carrying value (including net accrued 
but unpaid interest and fees) for the exposure or segment less any 
allocated transfer risk reserve for the exposure or segment, less any 
unrealized gains on the exposure or segment, and plus any unrealized 
losses on the exposure or segment; or
    (ii) If the exposure or segment is not a security classified as 
available-for-sale, the [bank]'s carrying value (including net accrued 
but unpaid interest and fees) for the exposure or segment less any 
allocated transfer risk reserve for the exposure or segment.
    (2) For the off-balance sheet component of a wholesale exposure or 
segment of retail exposures (other than an OTC derivative contract, or a 
repo-style transaction or eligible margin loan for which the [bank] 
determines EAD under section 32 of this appendix) in the form of a loan 
commitment, line of credit, trade-related letter of credit, or 
transaction-related contingency, EAD means the [bank]'s

[[Page 57]]

best estimate of net additions to the outstanding amount owed the 
[bank], including estimated future additional draws of principal and 
accrued but unpaid interest and fees, that are likely to occur over a 
one-year horizon assuming the wholesale exposure or the retail exposures 
in the segment were to go into default. This estimate of net additions 
must reflect what would be expected during economic downturn conditions. 
Trade-related letters of credit are short-term, self-liquidating 
instruments that are used to finance the movement of goods and are 
collateralized by the underlying goods. Transaction-related 
contingencies relate to a particular transaction and include, among 
other things, performance bonds and performance-based letters of credit.
    (3) For the off-balance sheet component of a wholesale exposure or 
segment of retail exposures (other than an OTC derivative contract, or a 
repo-style transaction or eligible margin loan for which the [bank] 
determines EAD under section 32 of this appendix) in the form of 
anything other than a loan commitment, line of credit, trade-related 
letter of credit, or transaction-related contingency, EAD means the 
notional amount of the exposure or segment.
    (4) EAD for OTC derivative contracts is calculated as described in 
section 32 of this appendix. A [bank] also may determine EAD for repo-
style transactions and eligible margin loans as described in section 32 
of this appendix.
    (5) For wholesale or retail exposures in which only the drawn 
balance has been securitized, the [bank] must reflect its share of the 
exposures' undrawn balances in EAD. Undrawn balances of revolving 
exposures for which the drawn balances have been securitized must be 
allocated between the seller's and investors' interests on a pro rata 
basis, based on the proportions of the seller's and investors' shares of 
the securitized drawn balances.
    Exposure category means any of the wholesale, retail, 
securitization, or equity exposure categories.
    External operational loss event data means, with respect to a 
[bank], gross operational loss amounts, dates, recoveries, and relevant 
causal information for operational loss events occurring at 
organizations other than the [bank].
    External rating means a credit rating that is assigned by an NRSRO 
to an exposure, provided:
    (1) The credit rating fully reflects the entire amount of credit 
risk with regard to all payments owed to the holder of the exposure. If 
a holder is owed principal and interest on an exposure, the credit 
rating must fully reflect the credit risk associated with timely 
repayment of principal and interest. If a holder is owed only principal 
on an exposure, the credit rating must fully reflect only the credit 
risk associated with timely repayment of principal; and
    (2) The credit rating is published in an accessible form and is or 
will be included in the transition matrices made publicly available by 
the NRSRO that summarize the historical performance of positions rated 
by the NRSRO.
    Financial collateral means collateral:
    (1) In the form of:
    (i) Cash on deposit with the [bank] (including cash held for the 
[bank] by a third-party custodian or trustee);
    (ii) Gold bullion;
    (iii) Long-term debt securities that have an applicable external 
rating of one category below investment grade or higher;
    (iv) Short-term debt instruments that have an applicable external 
rating of at least investment grade;
    (v) Equity securities that are publicly traded;
    (vi) Convertible bonds that are publicly traded;
    (vii) Money market mutual fund shares and other mutual fund shares 
if a price for the shares is publicly quoted daily; or
    (viii) Conforming residential mortgages; and
    (2) In which the [bank] has a perfected, first priority security 
interest or, outside of the United States, the legal equivalent thereof 
(with the exception of cash on deposit and notwithstanding the prior 
security interest of any custodial agent).
    GAAP means generally accepted accounting principles as used in the 
United States.
    Gain-on-sale means an increase in the equity capital (as reported on 
Schedule RC of the Call Report, Schedule HC of the FR Y-9C Report, or 
Schedule SC of the Thrift Financial Report) of a [bank] that results 
from a securitization (other than an increase in equity capital that 
results from the [bank]'s receipt of cash in connection with the 
securitization).
    Guarantee means a financial guarantee, letter of credit, insurance, 
or other similar financial instrument (other than a credit derivative) 
that allows one party (beneficiary) to transfer the credit risk of one 
or more specific exposures (reference exposure) to another party 
(protection provider). See also eligible guarantee.
    High volatility commercial real estate (HVCRE) exposure means a 
credit facility that finances or has financed the acquisition, 
development, or construction (ADC) of real property, unless the facility 
finances:
    (1) One- to four-family residential properties; or
    (2) Commercial real estate projects in which:
    (i) The loan-to-value ratio is less than or equal to the applicable 
maximum supervisory loan-to-value ratio in the [AGENCY]'s real estate 
lending standards at 12 CFR part

[[Page 58]]

34, Subpart D (OCC); 12 CFR part 208, Appendix C (Board); 12 CFR part 
365, Subpart D (FDIC); and 12 CFR 560.100-560.101 (OTS);
    (ii) The borrower has contributed capital to the project in the form 
of cash or unencumbered readily marketable assets (or has paid 
development expenses out-of-pocket) of at least 15 percent of the real 
estate's appraised ``as completed'' value; and
    (iii) The borrower contributed the amount of capital required by 
paragraph (2)(ii) of this definition before the [bank] advances funds 
under the credit facility, and the capital contributed by the borrower, 
or internally generated by the project, is contractually required to 
remain in the project throughout the life of the project. The life of a 
project concludes only when the credit facility is converted to 
permanent financing or is sold or paid in full. Permanent financing may 
be provided by the [bank] that provided the ADC facility as long as the 
permanent financing is subject to the [bank]'s underwriting criteria for 
long-term mortgage loans.
    Inferred rating. A securitization exposure has an inferred rating 
equal to the external rating referenced in paragraph (2)(i) of this 
definition if:
    (1) The securitization exposure does not have an external rating; 
and
    (2) Another securitization exposure issued by the same issuer and 
secured by the same underlying exposures:
    (i) Has an external rating;
    (ii) Is subordinated in all respects to the unrated securitization 
exposure;
    (iii) Does not benefit from any credit enhancement that is not 
available to the unrated securitization exposure; and
    (iv) Has an effective remaining maturity that is equal to or longer 
than that of the unrated securitization exposure.
    Interest rate derivative contract means a single-currency interest 
rate swap, basis swap, forward rate agreement, purchased interest rate 
option, when-issued securities, or any other instrument linked to 
interest rates that gives rise to similar counterparty credit risks.
    Internal operational loss event data means, with respect to a 
[bank], gross operational loss amounts, dates, recoveries, and relevant 
causal information for operational loss events occurring at the [bank].
    Investing [bank] means, with respect to a securitization, a [bank] 
that assumes the credit risk of a securitization exposure (other than an 
originating [bank] of the securitization). In the typical synthetic 
securitization, the investing [bank] sells credit protection on a pool 
of underlying exposures to the originating [bank].
    Investment fund means a company:
    (1) All or substantially all of the assets of which are financial 
assets; and
    (2) That has no material liabilities.
    Investors' interest EAD means, with respect to a securitization, the 
EAD of the underlying exposures multiplied by the ratio of:
    (1) The total amount of securitization exposures issued by the 
securitization SPE to investors; divided by
    (2) The outstanding principal amount of underlying exposures.
    Loss given default (LGD) means:
    (1) For a wholesale exposure, the greatest of:
    (i) Zero;
    (ii) The [bank]'s empirically based best estimate of the long-run 
default-weighted average economic loss, per dollar of EAD, the [bank] 
would expect to incur if the obligor (or a typical obligor in the loss 
severity grade assigned by the [bank] to the exposure) were to default 
within a one-year horizon over a mix of economic conditions, including 
economic downturn conditions; or
    (iii) The [bank]'s empirically based best estimate of the economic 
loss, per dollar of EAD, the [bank] would expect to incur if the obligor 
(or a typical obligor in the loss severity grade assigned by the [bank] 
to the exposure) were to default within a one-year horizon during 
economic downturn conditions.
    (2) For a segment of retail exposures, the greatest of:
    (i) Zero;
    (ii) The [bank]'s empirically based best estimate of the long-run 
default-weighted average economic loss, per dollar of EAD, the [bank] 
would expect to incur if the exposures in the segment were to default 
within a one-year horizon over a mix of economic conditions, including 
economic downturn conditions; or
    (iii) The [bank]'s empirically based best estimate of the economic 
loss, per dollar of EAD, the [bank] would expect to incur if the 
exposures in the segment were to default within a one-year horizon 
during economic downturn conditions.
    (3) The economic loss on an exposure in the event of default is all 
material credit-related losses on the exposure (including accrued but 
unpaid interest or fees, losses on the sale of collateral, direct 
workout costs, and an appropriate allocation of indirect workout costs). 
Where positive or negative cash flows on a wholesale exposure to a 
defaulted obligor or a defaulted retail exposure (including proceeds 
from the sale of collateral, workout costs, additional extensions of 
credit to facilitate repayment of the exposure, and draw-downs of unused 
credit lines) occur after the date of default, the economic loss must 
reflect the net present value of cash flows as of the default date using 
a discount rate appropriate to the risk of the defaulted exposure.
    Main index means the Standard & Poor's 500 Index, the FTSE All-World 
Index, and any other index for which the [bank] can demonstrate to the 
satisfaction of the

[[Page 59]]

[AGENCY] that the equities represented in the index have comparable 
liquidity, depth of market, and size of bid-ask spreads as equities in 
the Standard & Poor's 500 Index and FTSE All-World Index.
    Multilateral development bank means the International Bank for 
Reconstruction and Development, the International Finance Corporation, 
the Inter-American Development Bank, the Asian Development Bank, the 
African Development Bank, the European Bank for Reconstruction and 
Development, the European Investment Bank, the European Investment Fund, 
the Nordic Investment Bank, the Caribbean Development Bank, the Islamic 
Development Bank, the Council of Europe Development Bank, and any other 
multilateral lending institution or regional development bank in which 
the U.S. government is a shareholder or contributing member or which the 
[AGENCY] determines poses comparable credit risk.
    Nationally recognized statistical rating organization (NRSRO) means 
an entity registered with the SEC as a nationally recognized statistical 
rating organization under section 15E of the Securities Exchange Act of 
1934 (15 U.S.C. 78o-7).
    Netting set means a group of transactions with a single counterparty 
that are subject to a qualifying master netting agreement or qualifying 
cross-product master netting agreement. For purposes of the internal 
models methodology in paragraph (d) of section 32 of this appendix, each 
transaction that is not subject to such a master netting agreement is 
its own netting set.
    N\th\-to-default credit derivative means a credit derivative that 
provides credit protection only for the n\th\-defaulting reference 
exposure in a group of reference exposures.
    Obligor means the legal entity or natural person contractually 
obligated on a wholesale exposure, except that a [bank] may treat the 
following exposures as having separate obligors:
    (1) Exposures to the same legal entity or natural person denominated 
in different currencies;
    (2) (i) An income-producing real estate exposure for which all or 
substantially all of the repayment of the exposure is reliant on the 
cash flows of the real estate serving as collateral for the exposure; 
the [bank], in economic substance, does not have recourse to the 
borrower beyond the real estate collateral; and no cross-default or 
cross-acceleration clauses are in place other than clauses obtained 
solely out of an abundance of caution; and
    (ii) Other credit exposures to the same legal entity or natural 
person; and
    (3) (i) A wholesale exposure authorized under section 364 of the 
U.S. Bankruptcy Code (11 U.S.C. 364) to a legal entity or natural person 
who is a debtor-in-possession for purposes of Chapter 11 of the 
Bankruptcy Code; and
    (ii) Other credit exposures to the same legal entity or natural 
person.
    Operational loss means a loss (excluding insurance or tax effects) 
resulting from an operational loss event. Operational loss includes all 
expenses associated with an operational loss event except for 
opportunity costs, forgone revenue, and costs related to risk management 
and control enhancements implemented to prevent future operational 
losses.
    Operational loss event means an event that results in loss and is 
associated with any of the following seven operational loss event type 
categories:
    (1) Internal fraud, which means the operational loss event type 
category that comprises operational losses resulting from an act 
involving at least one internal party of a type intended to defraud, 
misappropriate property, or circumvent regulations, the law, or company 
policy, excluding diversity- and discrimination-type events.
    (2) External fraud, which means the operational loss event type 
category that comprises operational losses resulting from an act by a 
third party of a type intended to defraud, misappropriate property, or 
circumvent the law. Retail credit card losses arising from non-
contractual, third-party initiated fraud (for example, identity theft) 
are external fraud operational losses. All other third-party initiated 
credit losses are to be treated as credit risk losses.
    (3) Employment practices and workplace safety, which means the 
operational loss event type category that comprises operational losses 
resulting from an act inconsistent with employment, health, or safety 
laws or agreements, payment of personal injury claims, or payment 
arising from diversity- and discrimination-type events.
    (4) Clients, products, and business practices, which means the 
operational loss event type category that comprises operational losses 
resulting from the nature or design of a product or from an 
unintentional or negligent failure to meet a professional obligation to 
specific clients (including fiduciary and suitability requirements).
    (5) Damage to physical assets, which means the operational loss 
event type category that comprises operational losses resulting from the 
loss of or damage to physical assets from natural disaster or other 
events.
    (6) Business disruption and system failures, which means the 
operational loss event type category that comprises operational losses 
resulting from disruption of business or system failures.
    (7) Execution, delivery, and process management, which means the 
operational loss

[[Page 60]]

event type category that comprises operational losses resulting from 
failed transaction processing or process management or losses arising 
from relations with trade counterparties and vendors.
    Operational risk means the risk of loss resulting from inadequate or 
failed internal processes, people, and systems or from external events 
(including legal risk but excluding strategic and reputational risk).
    Operational risk exposure means the 99.9\th\ percentile of the 
distribution of potential aggregate operational losses, as generated by 
the [bank]'s operational risk quantification system over a one-year 
horizon (and not incorporating eligible operational risk offsets or 
qualifying operational risk mitigants).
    Originating [bank], with respect to a securitization, means a [bank] 
that:
    (1) Directly or indirectly originated or securitized the underlying 
exposures included in the securitization; or
    (2) Serves as an ABCP program sponsor to the securitization.
    Other retail exposure means an exposure (other than a securitization 
exposure, an equity exposure, a residential mortgage exposure, an 
excluded mortgage exposure, a qualifying revolving exposure, or the 
residual value portion of a lease exposure) that is managed as part of a 
segment of exposures with homogeneous risk characteristics, not on an 
individual-exposure basis, and is either:
    (1) An exposure to an individual for non-business purposes; or
    (2) An exposure to an individual or company for business purposes if 
the [bank]'s consolidated business credit exposure to the individual or 
company is $1 million or less.
    Over-the-counter (OTC) derivative contract means a derivative 
contract that is not traded on an exchange that requires the daily 
receipt and payment of cash-variation margin.
    Probability of default (PD) means:
    (1) For a wholesale exposure to a non-defaulted obligor, the 
[bank]'s empirically based best estimate of the long-run average one-
year default rate for the rating grade assigned by the [bank] to the 
obligor, capturing the average default experience for obligors in the 
rating grade over a mix of economic conditions (including economic 
downturn conditions) sufficient to provide a reasonable estimate of the 
average one-year default rate over the economic cycle for the rating 
grade.
    (2) For a segment of non-defaulted retail exposures, the [bank]'s 
empirically based best estimate of the long-run average one-year default 
rate for the exposures in the segment, capturing the average default 
experience for exposures in the segment over a mix of economic 
conditions (including economic downturn conditions) sufficient to 
provide a reasonable estimate of the average one-year default rate over 
the economic cycle for the segment and adjusted upward as appropriate 
for segments for which seasoning effects are material. For purposes of 
this definition, a segment for which seasoning effects are material is a 
segment where there is a material relationship between the time since 
origination of exposures within the segment and the [bank]'s best 
estimate of the long-run average one-year default rate for the exposures 
in the segment.
    (3) For a wholesale exposure to a defaulted obligor or segment of 
defaulted retail exposures, 100 percent.
    Protection amount (P) means, with respect to an exposure hedged by 
an eligible guarantee or eligible credit derivative, the effective 
notional amount of the guarantee or credit derivative, reduced to 
reflect any currency mismatch, maturity mismatch, or lack of 
restructuring coverage (as provided in section 33 of this appendix).
    Publicly traded means traded on:
    (1) Any exchange registered with the SEC as a national securities 
exchange under section 6 of the Securities Exchange Act of 1934 (15 
U.S.C. 78f); or
    (2) Any non-U.S.-based securities exchange that:
    (i) Is registered with, or approved by, a national securities 
regulatory authority; and
    (ii) Provides a liquid, two-way market for the instrument in 
question, meaning that there are enough independent bona fide offers to 
buy and sell so that a sales price reasonably related to the last sales 
price or current bona fide competitive bid and offer quotations can be 
determined promptly and a trade can be settled at such a price within 
five business days.
    Qualifying central counterparty means a counterparty (for example, a 
clearinghouse) that:
    (1) Facilitates trades between counterparties in one or more 
financial markets by either guaranteeing trades or novating contracts;
    (2) Requires all participants in its arrangements to be fully 
collateralized on a daily basis; and
    (3) The [bank] demonstrates to the satisfaction of the [AGENCY] is 
in sound financial condition and is subject to effective oversight by a 
national supervisory authority.
    Qualifying cross-product master netting agreement means a qualifying 
master netting agreement that provides for termination and close-out 
netting across multiple types of financial transactions or qualifying 
master netting agreements in the event of a counterparty's default, 
provided that:
    (1) The underlying financial transactions are OTC derivative 
contracts, eligible margin loans, or repo-style transactions; and
    (2) The [bank] obtains a written legal opinion verifying the 
validity and enforceability

[[Page 61]]

of the agreement under applicable law of the relevant jurisdictions if 
the counterparty fails to perform upon an event of default, including 
upon an event of bankruptcy, insolvency, or similar proceeding.
    Qualifying master netting agreement means any written, legally 
enforceable bilateral agreement, provided that:
    (1) The agreement creates a single legal obligation for all 
individual transactions covered by the agreement upon an event of 
default, including bankruptcy, insolvency, or similar proceeding, of the 
counterparty;
    (2) The agreement provides the [bank] the right to accelerate, 
terminate, and close-out on a net basis all transactions under the 
agreement and to liquidate or set off collateral promptly upon an event 
of default, including upon an event of bankruptcy, insolvency, or 
similar proceeding, of the counterparty, provided that, in any such 
case, any exercise of rights under the agreement will not be stayed or 
avoided under applicable law in the relevant jurisdictions;
    (3) The [bank] has conducted sufficient legal review to conclude 
with a well-founded basis (and maintains sufficient written 
documentation of that legal review) that:
    (i) The agreement meets the requirements of paragraph (2) of this 
definition; and
    (ii) In the event of a legal challenge (including one resulting from 
default or from bankruptcy, insolvency, or similar proceeding) the 
relevant court and administrative authorities would find the agreement 
to be legal, valid, binding, and enforceable under the law of the 
relevant jurisdictions;
    (4) The [bank] establishes and maintains procedures to monitor 
possible changes in relevant law and to ensure that the agreement 
continues to satisfy the requirements of this definition; and
    (5) The agreement does not contain a walkaway clause (that is, a 
provision that permits a non-defaulting counterparty to make a lower 
payment than it would make otherwise under the agreement, or no payment 
at all, to a defaulter or the estate of a defaulter, even if the 
defaulter or the estate of the defaulter is a net creditor under the 
agreement).
    Qualifying revolving exposure (QRE) means an exposure (other than a 
securitization exposure or equity exposure) to an individual that is 
managed as part of a segment of exposures with homogeneous risk 
characteristics, not on an individual-exposure basis, and:
    (1) Is revolving (that is, the amount outstanding fluctuates, 
determined largely by the borrower's decision to borrow and repay, up to 
a pre-established maximum amount);
    (2) Is unsecured and unconditionally cancelable by the [bank] to the 
fullest extent permitted by Federal law; and
    (3) Has a maximum exposure amount (drawn plus undrawn) of up to 
$100,000.
    Repo-style transaction means a repurchase or reverse repurchase 
transaction, or a securities borrowing or securities lending 
transaction, including a transaction in which the [bank] acts as agent 
for a customer and indemnifies the customer against loss, provided that:
    (1) The transaction is based solely on liquid and readily marketable 
securities, cash, gold, or conforming residential mortgages;
    (2) The transaction is marked-to-market daily and subject to daily 
margin maintenance requirements;
    (3)(i) The transaction is a ``securities contract'' or ``repurchase 
agreement'' under section 555 or 559, respectively, of the Bankruptcy 
Code (11 U.S.C. 555 or 559), a qualified financial contract under 
section 11(e)(8) of the Federal Deposit Insurance Act (12 U.S.C. 
1821(e)(8)), or a netting contract between or among financial 
institutions under sections 401-407 of the Federal Deposit Insurance 
Corporation Improvement Act of 1991 (12 U.S.C. 4401-4407) or the Federal 
Reserve Board's Regulation EE (12 CFR part 231); or
    (ii) If the transaction does not meet the criteria set forth in 
paragraph (3)(i) of this definition, then either:
    (A) The transaction is executed under an agreement that provides the 
[bank] the right to accelerate, terminate, and close-out the transaction 
on a net basis and to liquidate or set off collateral promptly upon an 
event of default (including upon an event of bankruptcy, insolvency, or 
similar proceeding) of the counterparty, provided that, in any such 
case, any exercise of rights under the agreement will not be stayed or 
avoided under applicable law in the relevant jurisdictions; or
    (B) The transaction is:
    (1) Either overnight or unconditionally cancelable at any time by 
the [bank]; and
    (2) Executed under an agreement that provides the [bank] the right 
to accelerate, terminate, and close-out the transaction on a net basis 
and to liquidate or set off collateral promptly upon an event of 
counterparty default; and
    (4) The [bank] has conducted sufficient legal review to conclude 
with a well-founded basis (and maintains sufficient written 
documentation of that legal review) that the agreement meets the 
requirements of paragraph (3) of this definition and is legal, valid, 
binding, and enforceable under applicable law in the relevant 
jurisdictions.
    Residential mortgage exposure means an exposure (other than a 
securitization exposure, equity exposure, or excluded mortgage exposure) 
that is managed as part of a segment of exposures with homogeneous risk 
characteristics, not on an individual-exposure basis, and is:
    (1) An exposure that is primarily secured by a first or subsequent 
lien on one- to four-family residential property; or

[[Page 62]]

    (2) An exposure with an original and outstanding amount of $1 
million or less that is primarily secured by a first or subsequent lien 
on residential property that is not one to four family.
    Retail exposure means a residential mortgage exposure, a qualifying 
revolving exposure, or an other retail exposure.
    Retail exposure subcategory means the residential mortgage exposure, 
qualifying revolving exposure, or other retail exposure subcategory.
    Risk parameter means a variable used in determining risk-based 
capital requirements for wholesale and retail exposures, specifically 
probability of default (PD), loss given default (LGD), exposure at 
default (EAD), or effective maturity (M).
    Scenario analysis means a systematic process of obtaining expert 
opinions from business managers and risk management experts to derive 
reasoned assessments of the likelihood and loss impact of plausible 
high-severity operational losses. Scenario analysis may include the 
well-reasoned evaluation and use of external operational loss event 
data, adjusted as appropriate to ensure relevance to a [bank]'s 
operational risk profile and control structure.
    SEC means the U.S. Securities and Exchange Commission.
    Securitization means a traditional securitization or a synthetic 
securitization.
    Securitization exposure means an on-balance sheet or off-balance 
sheet credit exposure that arises from a traditional or synthetic 
securitization (including credit-enhancing representations and 
warranties).
    Securitization special purpose entity (securitization SPE) means a 
corporation, trust, or other entity organized for the specific purpose 
of holding underlying exposures of a securitization, the activities of 
which are limited to those appropriate to accomplish this purpose, and 
the structure of which is intended to isolate the underlying exposures 
held by the entity from the credit risk of the seller of the underlying 
exposures to the entity.
    Senior securitization exposure means a securitization exposure that 
has a first priority claim on the cash flows from the underlying 
exposures. When determining whether a securitization exposure has a 
first priority claim on the cash flows from the underlying exposures, a 
[bank] is not required to consider amounts due under interest rate or 
currency derivative contracts, fees due, or other similar payments. Both 
the most senior commercial paper issued by an ABCP program and a 
liquidity facility that supports the ABCP program may be senior 
securitization exposures if the liquidity facility provider's right to 
reimbursement of the drawn amounts is senior to all claims on the cash 
flows from the underlying exposures except amounts due under interest 
rate or currency derivative contracts, fees due, or other similar 
payments.
    Servicer cash advance facility means a facility under which the 
servicer of the underlying exposures of a securitization may advance 
cash to ensure an uninterrupted flow of payments to investors in the 
securitization, including advances made to cover foreclosure costs or 
other expenses to facilitate the timely collection of the underlying 
exposures. See also eligible servicer cash advance facility.
    Sovereign entity means a central government (including the U.S. 
government) or an agency, department, ministry, or central bank of a 
central government.
    Sovereign exposure means:
    (1) A direct exposure to a sovereign entity; or
    (2) An exposure directly and unconditionally backed by the full 
faith and credit of a sovereign entity.
    Subsidiary means, with respect to a company, a company controlled by 
that company.
    Synthetic securitization means a transaction in which:
    (1) All or a portion of the credit risk of one or more underlying 
exposures is transferred to one or more third parties through the use of 
one or more credit derivatives or guarantees (other than a guarantee 
that transfers only the credit risk of an individual retail exposure);
    (2) The credit risk associated with the underlying exposures has 
been separated into at least two tranches reflecting different levels of 
seniority;
    (3) Performance of the securitization exposures depends upon the 
performance of the underlying exposures; and
    (4) All or substantially all of the underlying exposures are 
financial exposures (such as loans, commitments, credit derivatives, 
guarantees, receivables, asset-backed securities, mortgage-backed 
securities, other debt securities, or equity securities).
    Tier 1 capital is defined in [the general risk-based capital rules], 
as modified in part II of this appendix.
    Tier 2 capital is defined in [the general risk-based capital rules], 
as modified in part II of this appendix.
    Total qualifying capital means the sum of tier 1 capital and tier 2 
capital, after all deductions required in this appendix.
    Total risk-weighted assets means:
    (1) The sum of:
    (i) Credit risk-weighted assets; and
    (ii) Risk-weighted assets for operational risk; minus
    (2) Excess eligible credit reserves not included in tier 2 capital.
    Total wholesale and retail risk-weighted assets means the sum of 
risk-weighted assets for wholesale exposures to non-defaulted obligors 
and segments of non-defaulted retail

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exposures; risk-weighted assets for wholesale exposures to defaulted 
obligors and segments of defaulted retail exposures; risk-weighted 
assets for assets not defined by an exposure category; and risk-weighted 
assets for non-material portfolios of exposures (all as determined in 
section 31 of this appendix) and risk-weighted assets for unsettled 
transactions (as determined in section 35 of this appendix) minus the 
amounts deducted from capital pursuant to [the general risk-based 
capital rules] (excluding those deductions reversed in section 12 of 
this appendix).
    Traditional securitization means a transaction in which:
    (1) All or a portion of the credit risk of one or more underlying 
exposures is transferred to one or more third parties other than through 
the use of credit derivatives or guarantees;
    (2) The credit risk associated with the underlying exposures has 
been separated into at least two tranches reflecting different levels of 
seniority;
    (3) Performance of the securitization exposures depends upon the 
performance of the underlying exposures;
    (4) All or substantially all of the underlying exposures are 
financial exposures (such as loans, commitments, credit derivatives, 
guarantees, receivables, asset-backed securities, mortgage-backed 
securities, other debt securities, or equity securities);
    (5) The underlying exposures are not owned by an operating company;
    (6) The underlying exposures are not owned by a small business 
investment company described in section 302 of the Small Business 
Investment Act of 1958 (15 U.S.C. 682); and
    (7) The underlying exposures are not owned by a firm an investment 
in which qualifies as a community development investment under 12 U.S.C. 
24(Eleventh).
    (8) The [AGENCY] may determine that a transaction in which the 
underlying exposures are owned by an investment firm that exercises 
substantially unfettered control over the size and composition of its 
assets, liabilities, and off-balance sheet exposures is not a 
traditional securitization based on the transaction's leverage, risk 
profile, or economic substance.
    (9) The [AGENCY] may deem a transaction that meets the definition of 
a traditional securitization, notwithstanding paragraph (5), (6), or (7) 
of this definition, to be a traditional securitization based on the 
transaction's leverage, risk profile, or economic substance.
    Tranche means all securitization exposures associated with a 
securitization that have the same seniority level.
    Underlying exposures means one or more exposures that have been 
securitized in a securitization transaction.
    Unexpected operational loss (UOL) means the difference between the 
[bank]'s operational risk exposure and the [bank]'s expected operational 
loss.
    Unit of measure means the level (for example, organizational unit or 
operational loss event type) at which the [bank]'s operational risk 
quantification system generates a separate distribution of potential 
operational losses.
    Value-at-Risk (VaR) means the estimate of the maximum amount that 
the value of one or more exposures could decline due to market price or 
rate movements during a fixed holding period within a stated confidence 
interval.
    Wholesale exposure means a credit exposure to a company, natural 
person, sovereign entity, or governmental entity (other than a 
securitization exposure, retail exposure, excluded mortgage exposure, or 
equity exposure). Examples of a wholesale exposure include:
    (1) A non-tranched guarantee issued by a [bank] on behalf of a 
company;
    (2) A repo-style transaction entered into by a [bank] with a company 
and any other transaction in which a [bank] posts collateral to a 
company and faces counterparty credit risk;
    (3) An exposure that a [bank] treats as a covered position under 
[the market risk rule] for which there is a counterparty credit risk 
capital requirement;
    (4) A sale of corporate loans by a [bank] to a third party in which 
the [bank] retains full recourse;
    (5) An OTC derivative contract entered into by a [bank] with a 
company;
    (6) An exposure to an individual that is not managed by a [bank] as 
part of a segment of exposures with homogeneous risk characteristics; 
and
    (7) A commercial lease.
    Wholesale exposure subcategory means the HVCRE or non-HVCRE 
wholesale exposure subcategory.

           Section 3. Minimum Risk-Based Capital Requirements

    (a) Except as modified by paragraph (c) of this section or by 
section 23 of this appendix, each [bank] must meet a minimum ratio of:
    (1) Total qualifying capital to total risk-weighted assets of 8.0 
percent; and
    (2) Tier 1 capital to total risk-weighted assets of 4.0 percent.
    (b) Each [bank] must hold capital commensurate with the level and 
nature of all risks to which the [bank] is exposed.
    (c) When a [bank] subject to [the market risk rule] calculates its 
risk-based capital requirements under this appendix, the [bank] must 
also refer to [the market risk rule] for supplemental rules to calculate 
risk-based capital requirements adjusted for market risk.

[[Page 64]]

                       Part II. Qualifying Capital

                    Section 11. Additional Deductions

    (a) General. A [bank] that uses this appendix must make the same 
deductions from its tier 1 capital and tier 2 capital required in [the 
general risk-based capital rules], except that:
    (1) A [bank] is not required to deduct certain equity investments 
and CEIOs (as provided in section 12 of this appendix); and
    (2) A [bank] also must make the deductions from capital required by 
paragraphs (b) and (c) of this section.
    (b) Deductions from tier 1 capital. A [bank] must deduct from tier 1 
capital any gain-on-sale associated with a securitization exposure as 
provided in paragraph (a) of section 41 and paragraphs (a)(1), (c), 
(g)(1), and (h)(1) of section 42 of this appendix.
    (c) Deductions from tier 1 and tier 2 capital. A [bank] must deduct 
the exposures specified in paragraphs (c)(1) through (c)(7) in this 
section 50 percent from tier 1 capital and 50 percent from tier 2 
capital. If the amount deductible from tier 2 capital exceeds the 
[bank]'s actual tier 2 capital, however, the [bank] must deduct the 
excess from tier 1 capital.
    (1) Credit-enhancing interest-only strips (CEIOs). In accordance 
with paragraphs (a)(1) and (c) of section 42 of this appendix, any CEIO 
that does not constitute gain-on-sale.
    (2) Non-qualifying securitization exposures. In accordance with 
paragraphs (a)(4) and (c) of section 42 of this appendix, any 
securitization exposure that does not qualify for the Ratings-Based 
Approach, the Internal Assessment Approach, or the Supervisory Formula 
Approach under sections 43, 44, and 45 of this appendix, respectively.
    (3) Securitizations of non-IRB exposures. In accordance with 
paragraphs (c) and (g)(4) of section 42 of this appendix, certain 
exposures to a securitization any underlying exposure of which is not a 
wholesale exposure, retail exposure, securitization exposure, or equity 
exposure.
    (4) Low-rated securitization exposures. In accordance with section 
43 and paragraph (c) of section 42 of this appendix, any securitization 
exposure that qualifies for and must be deducted under the Ratings-Based 
Approach.
    (5) High-risk securitization exposures subject to the Supervisory 
Formula Approach. In accordance with paragraphs (b) and (c) of section 
45 of this appendix and paragraph (c) of section 42 of this appendix, 
certain high-risk securitization exposures (or portions thereof) that 
qualify for the Supervisory Formula Approach.
    (6) Eligible credit reserves shortfall. In accordance with paragraph 
(a)(1) of section 13 of this appendix, any eligible credit reserves 
shortfall.
    (7) Certain failed capital markets transactions. In accordance with 
paragraph (e)(3) of section 35 of this appendix, the [bank]'s exposure 
on certain failed capital markets transactions.

           Section 12. Deductions and Limitations Not Required

    (a) Deduction of CEIOs. A [bank] is not required to make the 
deductions from capital for CEIOs in 12 CFR part 3, Appendix A, section 
2(c) (for national banks), 12 CFR part 208, Appendix A, section 
II.B.1.e. (for state member banks), 12 CFR part 225, Appendix A, section 
II.B.1.e. (for bank holding companies), 12 CFR part 325, Appendix A, 
section II.B.5. (for state nonmember banks), and 12 CFR 567.5(a)(2)(iii) 
and 567.12(e) (for savings associations).
    (b) Deduction of certain equity investments. A [bank] is not 
required to make the deductions from capital for nonfinancial equity 
investments in 12 CFR part 3, Appendix A, section 2(c) (for national 
banks), 12 CFR part 208, Appendix A, section II.B.5. (for state member 
banks), 12 CFR part 225, Appendix A, section II.B.5. (for bank holding 
companies), and 12 CFR part 325, Appendix A, section II.B. (for state 
nonmember banks).

                  Section 13. Eligible Credit Reserves

    (a) Comparison of eligible credit reserves to expected credit 
losses--(1) Shortfall of eligible credit reserves. If a [bank]'s 
eligible credit reserves are less than the [bank]'s total expected 
credit losses, the [bank] must deduct the shortfall amount 50 percent 
from tier 1 capital and 50 percent from tier 2 capital. If the amount 
deductible from tier 2 capital exceeds the [bank]'s actual tier 2 
capital, the [bank] must deduct the excess amount from tier 1 capital.
    (2) Excess eligible credit reserves. If a [bank]'s eligible credit 
reserves exceed the [bank]'s total expected credit losses, the [bank] 
may include the excess amount in tier 2 capital to the extent that the 
excess amount does not exceed 0.6 percent of the [bank]'s credit-risk-
weighted assets.
    (b) Treatment of allowance for loan and lease losses. Regardless of 
any provision in [the general risk-based capital rules], the ALLL is 
included in tier 2 capital only to the extent provided in paragraph 
(a)(2) of this section and in section 24 of this appendix.

                         Part III. Qualification

                    Section 21. Qualification Process

    (a) Timing. (1) A [bank] that is described in paragraph (b)(1) of 
section 1 of this appendix must adopt a written implementation plan no 
later than six months after the later of April 1, 2008, or the date the 
[bank] meets a criterion in that section. The implementation plan must 
incorporate an explicit first

[[Page 65]]

floor period start date no later than 36 months after the later of April 
1, 2008, or the date the [bank] meets at least one criterion under 
paragraph (b)(1) of section 1 of this appendix. The [AGENCY] may extend 
the first floor period start date.
    (2) A [bank] that elects to be subject to this appendix under 
paragraph (b)(2) of section 1 of this appendix must adopt a written 
implementation plan.
    (b) Implementation plan. (1) The [bank]'s implementation plan must 
address in detail how the [bank] complies, or plans to comply, with the 
qualification requirements in section 22 of this appendix. The [bank] 
also must maintain a comprehensive and sound planning and governance 
process to oversee the implementation efforts described in the plan. At 
a minimum, the plan must:
    (i) Comprehensively address the qualification requirements in 
section 22 of this appendix for the [bank] and each consolidated 
subsidiary (U.S. and foreign-based) of the [bank] with respect to all 
portfolios and exposures of the [bank] and each of its consolidated 
subsidiaries;
    (ii) Justify and support any proposed temporary or permanent 
exclusion of business lines, portfolios, or exposures from application 
of the advanced approaches in this appendix (which business lines, 
portfolios, and exposures must be, in the aggregate, immaterial to the 
[bank]);
    (iii) Include the [bank]'s self-assessment of:
    (A) The [bank]'s current status in meeting the qualification 
requirements in section 22 of this appendix; and
    (B) The consistency of the [bank]'s current practices with the 
[AGENCY]'s supervisory guidance on the qualification requirements;
    (iv) Based on the [bank]'s self-assessment, identify and describe 
the areas in which the [bank] proposes to undertake additional work to 
comply with the qualification requirements in section 22 of this 
appendix or to improve the consistency of the [bank]'s current practices 
with the [AGENCY]'s supervisory guidance on the qualification 
requirements (gap analysis);
    (v) Describe what specific actions the [bank] will take to address 
the areas identified in the gap analysis required by paragraph 
(b)(1)(iv) of this section;
    (vi) Identify objective, measurable milestones, including delivery 
dates and a date when the [bank]'s implementation of the methodologies 
described in this appendix will be fully operational;
    (vii) Describe resources that have been budgeted and are available 
to implement the plan; and
    (viii) Receive approval of the [bank]'s board of directors.
    (2) The [bank] must submit the implementation plan, together with a 
copy of the minutes of the board of directors' approval, to the [AGENCY] 
at least 60 days before the [bank] proposes to begin its parallel run, 
unless the [AGENCY] waives prior notice.
    (c) Parallel run. Before determining its risk-based capital 
requirements under this appendix and following adoption of the 
implementation plan, the [bank] must conduct a satisfactory parallel 
run. A satisfactory parallel run is a period of no less than four 
consecutive calendar quarters during which the [bank] complies with the 
qualification requirements in section 22 of this appendix to the 
satisfaction of the [AGENCY]. During the parallel run, the [bank] must 
report to the [AGENCY] on a calendar quarterly basis its risk-based 
capital ratios using [the general risk-based capital rules] and the 
risk-based capital requirements described in this appendix. During this 
period, the [bank] is subject to [the general risk-based capital rules].
    (d) Approval to calculate risk-based capital requirements under this 
appendix. The [AGENCY] will notify the [bank] of the date that the 
[bank] may begin its first floor period if the [AGENCY] determines that:
    (1) The [bank] fully complies with all the qualification 
requirements in section 22 of this appendix;
    (2) The [bank] has conducted a satisfactory parallel run under 
paragraph (c) of this section; and
    (3) The [bank] has an adequate process to ensure ongoing compliance 
with the qualification requirements in section 22 of this appendix.
    (e) Transitional floor periods. Following a satisfactory parallel 
run, a [bank] is subject to three transitional floor periods.
    (1) Risk-based capital ratios during the transitional floor 
periods--(i) Tier 1 risk-based capital ratio. During a [bank]'s 
transitional floor periods, the [bank]'s tier 1 risk-based capital ratio 
is equal to the lower of:
    (A) The [bank]'s floor-adjusted tier 1 risk-based capital ratio; or
    (B) The [bank]'s advanced approaches tier 1 risk-based capital 
ratio.
    (ii) Total risk-based capital ratio. During a [bank]'s transitional 
floor periods, the [bank]'s total risk-based capital ratio is equal to 
the lower of:
    (A) The [bank]'s floor-adjusted total risk-based capital ratio; or
    (B) The [bank]'s advanced approaches total risk-based capital ratio.
    (2) Floor-adjusted risk-based capital ratios. (i) A [bank]'s floor-
adjusted tier 1 risk-based capital ratio during a transitional floor 
period is equal to the [bank]'s tier 1 capital as calculated under [the 
general risk-based capital rules], divided by the product of:
    (A) The [bank]'s total risk-weighted assets as calculated under [the 
general risk-based capital rules]; and
    (B) The appropriate transitional floor percentage in Table 1.

[[Page 66]]

    (ii) A [bank]'s floor-adjusted total risk-based capital ratio during 
a transitional floor period is equal to the sum of the [bank]'s tier 1 
and tier 2 capital as calculated under [the general risk-based capital 
rules], divided by the product of:
    (A) The [bank]'s total risk-weighted assets as calculated under [the 
general risk-based capital rules]; and
    (B) The appropriate transitional floor percentage in Table 1.
    (iii) A [bank] that meets the criteria in paragraph (b)(1) or (b)(2) 
of section 1 of this appendix as of April 1, 2008, must use [the general 
risk-based capital rules] during the parallel run and as the basis for 
its transitional floors.

                      Table 1.--Transitional Floors
------------------------------------------------------------------------
                                                 Transitional floor
         Transitional floor period                   percentage
------------------------------------------------------------------------
First floor period........................  95 percent.
Second floor period.......................  90 percent.
Third floor period........................  85 percent.
------------------------------------------------------------------------

    (3) Advanced approaches risk-based capital ratios. (i) A [bank]'s 
advanced approaches tier 1 risk-based capital ratio equals the [bank]'s 
tier 1 risk-based capital ratio as calculated under this appendix (other 
than this section on transitional floor periods).
    (ii) A [bank]'s advanced approaches total risk-based capital ratio 
equals the [bank]'s total risk-based capital ratio as calculated under 
this appendix (other than this section on transitional floor periods).
    (4) Reporting. During the transitional floor periods, a [bank] must 
report to the [AGENCY] on a calendar quarterly basis both floor-adjusted 
risk-based capital ratios and both advanced approaches risk-based 
capital ratios.
    (5) Exiting a transitional floor period. A [bank] may not exit a 
transitional floor period until the [bank] has spent a minimum of four 
consecutive calendar quarters in the period and the [AGENCY] has 
determined that the [bank] may exit the floor period. The [AGENCY]'s 
determination will be based on an assessment of the [bank]'s ongoing 
compliance with the qualification requirements in section 22 of this 
appendix.
    (6) Interagency study. After the end of the second transition year 
(2010), the Federal banking agencies will publish a study that evaluates 
the advanced approaches to determine if there are any material 
deficiencies. For any primary Federal supervisor to authorize any 
institution to exit the third transitional floor period, the study must 
determine that there are no such material deficiencies that cannot be 
addressed by then-existing tools, or, if such deficiencies are found, 
they are first remedied by changes to this appendix. Notwithstanding the 
preceding sentence, a primary Federal supervisor that disagrees with the 
finding of material deficiency may not authorize any institution under 
its jurisdiction to exit the third transitional floor period unless it 
provides a public report explaining its reasoning.

                 Section 22. Qualification Requirements

    (a) Process and systems requirements. (1) A [bank] must have a 
rigorous process for assessing its overall capital adequacy in relation 
to its risk profile and a comprehensive strategy for maintaining an 
appropriate level of capital.
    (2) The systems and processes used by a [bank] for risk-based 
capital purposes under this appendix must be consistent with the 
[bank]'s internal risk management processes and management information 
reporting systems.
    (3) Each [bank] must have an appropriate infrastructure with risk 
measurement and management processes that meet the qualification 
requirements of this section and are appropriate given the [bank]'s size 
and level of complexity. Regardless of whether the systems and models 
that generate the risk parameters necessary for calculating a [bank]'s 
risk-based capital requirements are located at any affiliate of the 
[bank], the [bank] itself must ensure that the risk parameters and 
reference data used to determine its risk-based capital requirements are 
representative of its own credit risk and operational risk exposures.
    (b) Risk rating and segmentation systems for wholesale and retail 
exposures. (1) A [bank] must have an internal risk rating and 
segmentation system that accurately and reliably differentiates among 
degrees of credit risk for the [bank]'s wholesale and retail exposures.
    (2) For wholesale exposures:
    (i) A [bank] must have an internal risk rating system that 
accurately and reliably assigns each obligor to a single rating grade 
(reflecting the obligor's likelihood of default). A [bank] may elect, 
however, not to assign to a rating grade an obligor to whom the [bank] 
extends credit based solely on the financial strength of a guarantor, 
provided that all of the [bank]'s exposures to the obligor are fully 
covered by eligible guarantees, the [bank] applies the PD substitution 
approach in paragraph (c)(1) of section 33 of this appendix to all 
exposures to that obligor, and the [bank] immediately assigns the 
obligor to a rating grade if a guarantee can no longer be recognized 
under this appendix. The [bank]'s wholesale obligor rating system must 
have at least seven discrete rating grades for non-defaulted obligors 
and at least one rating grade for defaulted obligors.
    (ii) Unless the [bank] has chosen to directly assign LGD estimates 
to each wholesale exposure, the [bank] must have an internal risk rating 
system that accurately and reliably assigns each wholesale exposure to a

[[Page 67]]

loss severity rating grade (reflecting the [bank]'s estimate of the LGD 
of the exposure). A [bank] employing loss severity rating grades must 
have a sufficiently granular loss severity grading system to avoid 
grouping together exposures with widely ranging LGDs.
    (3) For retail exposures, a [bank] must have an internal system that 
groups retail exposures into the appropriate retail exposure 
subcategory, groups the retail exposures in each retail exposure 
subcategory into separate segments with homogeneous risk 
characteristics, and assigns accurate and reliable PD and LGD estimates 
for each segment on a consistent basis. The [bank]'s system must 
identify and group in separate segments by subcategories exposures 
identified in paragraphs (c)(2)(ii) and (iii) of section 31 of this 
appendix.
    (4) The [bank]'s internal risk rating policy for wholesale exposures 
must describe the [bank]'s rating philosophy (that is, must describe how 
wholesale obligor rating assignments are affected by the [bank]'s choice 
of the range of economic, business, and industry conditions that are 
considered in the obligor rating process).
    (5) The [bank]'s internal risk rating system for wholesale exposures 
must provide for the review and update (as appropriate) of each obligor 
rating and (if applicable) each loss severity rating whenever the [bank] 
receives new material information, but no less frequently than annually. 
The [bank]'s retail exposure segmentation system must provide for the 
review and update (as appropriate) of assignments of retail exposures to 
segments whenever the [bank] receives new material information, but 
generally no less frequently than quarterly.
    (c) Quantification of risk parameters for wholesale and retail 
exposures. (1) The [bank] must have a comprehensive risk parameter 
quantification process that produces accurate, timely, and reliable 
estimates of the risk parameters for the [bank]'s wholesale and retail 
exposures.
    (2) Data used to estimate the risk parameters must be relevant to 
the [bank]'s actual wholesale and retail exposures, and of sufficient 
quality to support the determination of risk-based capital requirements 
for the exposures.
    (3) The [bank]'s risk parameter quantification process must produce 
appropriately conservative risk parameter estimates where the [bank] has 
limited relevant data, and any adjustments that are part of the 
quantification process must not result in a pattern of bias toward lower 
risk parameter estimates.
    (4) The [bank]'s risk parameter estimation process should not rely 
on the possibility of U.S. government financial assistance, except for 
the financial assistance that the U.S. government has a legally binding 
commitment to provide.
    (5) Where the [bank]'s quantifications of LGD directly or indirectly 
incorporate estimates of the effectiveness of its credit risk management 
practices in reducing its exposure to troubled obligors prior to 
default, the [bank] must support such estimates with empirical analysis 
showing that the estimates are consistent with its historical experience 
in dealing with such exposures during economic downturn conditions.
    (6) PD estimates for wholesale obligors and retail segments must be 
based on at least five years of default data. LGD estimates for 
wholesale exposures must be based on at least seven years of loss 
severity data, and LGD estimates for retail segments must be based on at 
least five years of loss severity data. EAD estimates for wholesale 
exposures must be based on at least seven years of exposure amount data, 
and EAD estimates for retail segments must be based on at least five 
years of exposure amount data.
    (7) Default, loss severity, and exposure amount data must include 
periods of economic downturn conditions, or the [bank] must adjust its 
estimates of risk parameters to compensate for the lack of data from 
periods of economic downturn conditions.
    (8) The [bank]'s PD, LGD, and EAD estimates must be based on the 
definition of default in this appendix.
    (9) The [bank] must review and update (as appropriate) its risk 
parameters and its risk parameter quantification process at least 
annually.
    (10) The [bank] must at least annually conduct a comprehensive 
review and analysis of reference data to determine relevance of 
reference data to the [bank]'s exposures, quality of reference data to 
support PD, LGD, and EAD estimates, and consistency of reference data to 
the definition of default contained in this appendix.
    (d) Counterparty credit risk model. A [bank] must obtain the prior 
written approval of the [AGENCY] under section 32 of this appendix to 
use the internal models methodology for counterparty credit risk.
    (e) Double default treatment. A [bank] must obtain the prior written 
approval of the [AGENCY] under section 34 of this appendix to use the 
double default treatment.
    (f) Securitization exposures. A [bank] must obtain the prior written 
approval of the [AGENCY] under section 44 of this appendix to use the 
Internal Assessment Approach for securitization exposures to ABCP 
programs.
    (g) Equity exposures model. A [bank] must obtain the prior written 
approval of the [AGENCY] under section 53 of this appendix to use the 
Internal Models Approach for equity exposures.
    (h) Operational risk--(1) Operational risk management processes. A 
[bank] must:

[[Page 68]]

    (i) Have an operational risk management function that:
    (A) Is independent of business line management; and
    (B) Is responsible for designing, implementing, and overseeing the 
[bank]'s operational risk data and assessment systems, operational risk 
quantification systems, and related processes;
    (ii) Have and document a process (which must capture business 
environment and internal control factors affecting the [bank]'s 
operational risk profile) to identify, measure, monitor, and control 
operational risk in [bank] products, activities, processes, and systems; 
and
    (iii) Report operational risk exposures, operational loss events, 
and other relevant operational risk information to business unit 
management, senior management, and the board of directors (or a 
designated committee of the board).
    (2) Operational risk data and assessment systems. A [bank] must have 
operational risk data and assessment systems that capture operational 
risks to which the [bank] is exposed. The [bank]'s operational risk data 
and assessment systems must:
    (i) Be structured in a manner consistent with the [bank]'s current 
business activities, risk profile, technological processes, and risk 
management processes; and
    (ii) Include credible, transparent, systematic, and verifiable 
processes that incorporate the following elements on an ongoing basis:
    (A) Internal operational loss event data. The [bank] must have a 
systematic process for capturing and using internal operational loss 
event data in its operational risk data and assessment systems.
    (1) The [bank]'s operational risk data and assessment systems must 
include a historical observation period of at least five years for 
internal operational loss event data (or such shorter period approved by 
the [AGENCY] to address transitional situations, such as integrating a 
new business line).
    (2) The [bank] must be able to map its internal operational loss 
event data into the seven operational loss event type categories.
    (3) The [bank] may refrain from collecting internal operational loss 
event data for individual operational losses below established dollar 
threshold amounts if the [bank] can demonstrate to the satisfaction of 
the [AGENCY] that the thresholds are reasonable, do not exclude 
important internal operational loss event data, and permit the [bank] to 
capture substantially all the dollar value of the [bank]'s operational 
losses.
    (B) External operational loss event data. The [bank] must have a 
systematic process for determining its methodologies for incorporating 
external operational loss event data into its operational risk data and 
assessment systems.
    (C) Scenario analysis. The [bank] must have a systematic process for 
determining its methodologies for incorporating scenario analysis into 
its operational risk data and assessment systems.
    (D) Business environment and internal control factors. The [bank] 
must incorporate business environment and internal control factors into 
its operational risk data and assessment systems. The [bank] must also 
periodically compare the results of its prior business environment and 
internal control factor assessments against its actual operational 
losses incurred in the intervening period.
    (3) Operational risk quantification systems. (i) The [bank]'s 
operational risk quantification systems:
    (A) Must generate estimates of the [bank]'s operational risk 
exposure using its operational risk data and assessment systems;
    (B) Must employ a unit of measure that is appropriate for the 
[bank]'s range of business activities and the variety of operational 
loss events to which it is exposed, and that does not combine business 
activities or operational loss events with demonstrably different risk 
profiles within the same loss distribution;
    (C) Must include a credible, transparent, systematic, and verifiable 
approach for weighting each of the four elements, described in paragraph 
(h)(2)(ii) of this section, that a [bank] is required to incorporate 
into its operational risk data and assessment systems;
    (D) May use internal estimates of dependence among operational 
losses across and within units of measure if the [bank] can demonstrate 
to the satisfaction of the [AGENCY] that its process for estimating 
dependence is sound, robust to a variety of scenarios, and implemented 
with integrity, and allows for the uncertainty surrounding the 
estimates. If the [bank] has not made such a demonstration, it must sum 
operational risk exposure estimates across units of measure to calculate 
its total operational risk exposure; and
    (E) Must be reviewed and updated (as appropriate) whenever the 
[bank] becomes aware of information that may have a material effect on 
the [bank]'s estimate of operational risk exposure, but the review and 
update must occur no less frequently than annually.
    (ii) With the prior written approval of the [AGENCY], a [bank] may 
generate an estimate of its operational risk exposure using an 
alternative approach to that specified in paragraph (h)(3)(i) of this 
section. A [bank] proposing to use such an alternative operational risk 
quantification system must submit a proposal to the [AGENCY]. In 
determining whether to approve a [bank]'s proposal to use an alternative 
operational risk

[[Page 69]]

quantification system, the [AGENCY] will consider the following 
principles:
    (A) Use of the alternative operational risk quantification system 
will be allowed only on an exception basis, considering the size, 
complexity, and risk profile of the [bank];
    (B) The [bank] must demonstrate that its estimate of its operational 
risk exposure generated under the alternative operational risk 
quantification system is appropriate and can be supported empirically; 
and
    (C) A [bank] must not use an allocation of operational risk capital 
requirements that includes entities other than depository institutions 
or the benefits of diversification across entities.
    (i) Data management and maintenance. (1) A [bank] must have data 
management and maintenance systems that adequately support all aspects 
of its advanced systems and the timely and accurate reporting of risk-
based capital requirements.
    (2) A [bank] must retain data using an electronic format that allows 
timely retrieval of data for analysis, validation, reporting, and 
disclosure purposes.
    (3) A [bank] must retain sufficient data elements related to key 
risk drivers to permit adequate monitoring, validation, and refinement 
of its advanced systems.
    (j) Control, oversight, and validation mechanisms. (1) The [bank]'s 
senior management must ensure that all components of the [bank]'s 
advanced systems function effectively and comply with the qualification 
requirements in this section.
    (2) The [bank]'s board of directors (or a designated committee of 
the board) must at least annually review the effectiveness of, and 
approve, the [bank]'s advanced systems.
    (3) A [bank] must have an effective system of controls and oversight 
that:
    (i) Ensures ongoing compliance with the qualification requirements 
in this section;
    (ii) Maintains the integrity, reliability, and accuracy of the 
[bank]'s advanced systems; and
    (iii) Includes adequate governance and project management processes.
    (4) The [bank] must validate, on an ongoing basis, its advanced 
systems. The [bank]'s validation process must be independent of the 
advanced systems' development, implementation, and operation, or the 
validation process must be subjected to an independent review of its 
adequacy and effectiveness. Validation must include:
    (i) An evaluation of the conceptual soundness of (including 
developmental evidence supporting) the advanced systems;
    (ii) An ongoing monitoring process that includes verification of 
processes and benchmarking; and
    (iii) An outcomes analysis process that includes back-testing.
    (5) The [bank] must have an internal audit function independent of 
business-line management that at least annually assesses the 
effectiveness of the controls supporting the [bank]'s advanced systems 
and reports its findings to the [bank]'s board of directors (or a 
committee thereof).
    (6) The [bank] must periodically stress test its advanced systems. 
The stress testing must include a consideration of how economic cycles, 
especially downturns, affect risk-based capital requirements (including 
migration across rating grades and segments and the credit risk 
mitigation benefits of double default treatment).
    (k) Documentation. The [bank] must adequately document all material 
aspects of its advanced systems.

                    Section 23. Ongoing Qualification

    (a) Changes to advanced systems. A [bank] must meet all the 
qualification requirements in section 22 of this appendix on an ongoing 
basis. A [bank] must notify the [AGENCY] when the [bank] makes any 
change to an advanced system that would result in a material change in 
the [bank]'s risk-weighted asset amount for an exposure type, or when 
the [bank] makes any significant change to its modeling assumptions.
    (b) Failure to comply with qualification requirements. (1) If the 
[AGENCY] determines that a [bank] that uses this appendix and has 
conducted a satisfactory parallel run fails to comply with the 
qualification requirements in section 22 of this appendix, the [AGENCY] 
will notify the [bank] in writing of the [bank]'s failure to comply.
    (2) The [bank] must establish and submit a plan satisfactory to the 
[AGENCY] to return to compliance with the qualification requirements.
    (3) In addition, if the [AGENCY] determines that the [bank]'s risk-
based capital requirements are not commensurate with the [bank]'s 
credit, market, operational, or other risks, the [AGENCY] may require 
such a [bank] to calculate its risk-based capital requirements:
    (i) Under [the general risk-based capital rules]; or
    (ii) Under this appendix with any modifications provided by the 
[AGENCY].

      Section 24. Merger and Acquisition Transitional Arrangements

    (a) Mergers and acquisitions of companies without advanced systems. 
If a [bank] merges with or acquires a company that does not calculate 
its risk-based capital requirements using advanced systems, the [bank] 
may use [the general risk-based capital rules] to determine the risk-
weighted asset amounts for, and deductions from capital associated with, 
the merged or acquired company's exposures for up to 24 months after the 
calendar quarter during which the merger or acquisition consummates. The 
[AGENCY] may extend

[[Page 70]]

this transition period for up to an additional 12 months. Within 90 days 
of consummating the merger or acquisition, the [bank] must submit to the 
[AGENCY] an implementation plan for using its advanced systems for the 
acquired company. During the period when [the general risk-based capital 
rules] apply to the merged or acquired company, any ALLL, net of 
allocated transfer risk reserves established pursuant to 12 U.S.C. 3904, 
associated with the merged or acquired company's exposures may be 
included in the acquiring [bank]'s tier 2 capital up to 1.25 percent of 
the acquired company's risk-weighted assets. All general allowances of 
the merged or acquired company must be excluded from the [bank]'s 
eligible credit reserves. In addition, the risk-weighted assets of the 
merged or acquired company are not included in the [bank]'s credit-risk-
weighted assets but are included in total risk-weighted assets. If a 
[bank] relies on this paragraph, the [bank] must disclose publicly the 
amounts of risk-weighted assets and qualifying capital calculated under 
this appendix for the acquiring [bank] and under [the general risk-based 
capital rules] for the acquired company.
    (b) Mergers and acquisitions of companies with advanced systems--(1) 
If a [bank] merges with or acquires a company that calculates its risk-
based capital requirements using advanced systems, the [bank] may use 
the acquired company's advanced systems to determine the risk-weighted 
asset amounts for, and deductions from capital associated with, the 
merged or acquired company's exposures for up to 24 months after the 
calendar quarter during which the acquisition or merger consummates. The 
[AGENCY] may extend this transition period for up to an additional 12 
months. Within 90 days of consummating the merger or acquisition, the 
[bank] must submit to the [AGENCY] an implementation plan for using its 
advanced systems for the merged or acquired company.
    (2) If the acquiring [bank] is not subject to the advanced 
approaches in this appendix at the time of acquisition or merger, during 
the period when [the general risk-based capital rules] apply to the 
acquiring [bank], the ALLL associated with the exposures of the merged 
or acquired company may not be directly included in tier 2 capital. 
Rather, any excess eligible credit reserves associated with the merged 
or acquired company's exposures may be included in the [bank]'s tier 2 
capital up to 0.6 percent of the credit-risk-weighted assets associated 
with those exposures.

          Part IV. Risk-Weighted Assets for General Credit Risk

 Section 31. Mechanics for Calculating Total Wholesale and Retail Risk-
                             Weighted Assets

    (a) Overview. A [bank] must calculate its total wholesale and retail 
risk-weighted asset amount in four distinct phases:
    (1) Phase 1--categorization of exposures;
    (2) Phase 2--assignment of wholesale obligors and exposures to 
rating grades and segmentation of retail exposures;
    (3) Phase 3--assignment of risk parameters to wholesale exposures 
and segments of retail exposures; and
    (4) Phase 4--calculation of risk-weighted asset amounts.
    (b) Phase 1--Categorization. The [bank] must determine which of its 
exposures are wholesale exposures, retail exposures, securitization 
exposures, or equity exposures. The [bank] must categorize each retail 
exposure as a residential mortgage exposure, a QRE, or an other retail 
exposure. The [bank] must identify which wholesale exposures are HVCRE 
exposures, sovereign exposures, OTC derivative contracts, repo-style 
transactions, eligible margin loans, eligible purchased wholesale 
exposures, unsettled transactions to which section 35 of this appendix 
applies, and eligible guarantees or eligible credit derivatives that are 
used as credit risk mitigants. The [bank] must identify any on-balance 
sheet asset that does not meet the definition of a wholesale, retail, 
equity, or securitization exposure, as well as any non-material 
portfolio of exposures described in paragraph (e)(4) of this section.
    (c) Phase 2--Assignment of wholesale obligors and exposures to 
rating grades and retail exposures to segments--(1) Assignment of 
wholesale obligors and exposures to rating grades.
    (i) The [bank] must assign each obligor of a wholesale exposure to a 
single obligor rating grade and must assign each wholesale exposure to 
which it does not directly assign an LGD estimate to a loss severity 
rating grade.
    (ii) The [bank] must identify which of its wholesale obligors are in 
default.
    (2) Segmentation of retail exposures. (i) The [bank] must group the 
retail exposures in each retail subcategory into segments that have 
homogeneous risk characteristics.
    (ii) The [bank] must identify which of its retail exposures are in 
default. The [bank] must segment defaulted retail exposures separately 
from non-defaulted retail exposures.
    (iii) If the [bank] determines the EAD for eligible margin loans 
using the approach in paragraph (b) of section 32 of this appendix, the 
[bank] must identify which of its retail exposures are eligible margin 
loans for which the [bank] uses this EAD approach and must segment such 
eligible margin loans separately from other retail exposures.

[[Page 71]]

    (3) Eligible purchased wholesale exposures. A [bank] may group its 
eligible purchased wholesale exposures into segments that have 
homogeneous risk characteristics. A [bank] must use the wholesale 
exposure formula in Table 2 in this section to determine the risk-based 
capital requirement for each segment of eligible purchased wholesale 
exposures.
    (d) Phase 3--Assignment of risk parameters to wholesale exposures 
and segments of retail exposures--(1) Quantification process. Subject to 
the limitations in this paragraph (d), the [bank] must:
    (i) Associate a PD with each wholesale obligor rating grade;
    (ii) Associate an LGD with each wholesale loss severity rating grade 
or assign an LGD to each wholesale exposure;
    (iii) Assign an EAD and M to each wholesale exposure; and
    (iv) Assign a PD, LGD, and EAD to each segment of retail exposures.
    (2) Floor on PD assignment. The PD for each wholesale obligor or 
retail segment may not be less than 0.03 percent, except for exposures 
to or directly and unconditionally guaranteed by a sovereign entity, the 
Bank for International Settlements, the International Monetary Fund, the 
European Commission, the European Central Bank, or a multilateral 
development bank, to which the [bank] assigns a rating grade associated 
with a PD of less than 0.03 percent.
    (3) Floor on LGD estimation. The LGD for each segment of residential 
mortgage exposures (other than segments of residential mortgage 
exposures for which all or substantially all of the principal of each 
exposure is directly and unconditionally guaranteed by the full faith 
and credit of a sovereign entity) may not be less than 10 percent.
    (4) Eligible purchased wholesale exposures. A [bank] must assign a 
PD, LGD, EAD, and M to each segment of eligible purchased wholesale 
exposures. If the [bank] can estimate ECL (but not PD or LGD) for a 
segment of eligible purchased wholesale exposures, the [bank] must 
assume that the LGD of the segment equals 100 percent and that the PD of 
the segment equals ECL divided by EAD. The estimated ECL must be 
calculated for the exposures without regard to any assumption of 
recourse or guarantees from the seller or other parties.
    (5) Credit risk mitigation--credit derivatives, guarantees, and 
collateral. (i) A [bank] may take into account the risk reducing effects 
of eligible guarantees and eligible credit derivatives in support of a 
wholesale exposure by applying the PD substitution or LGD adjustment 
treatment to the exposure as provided in section 33 of this appendix or, 
if applicable, applying double default treatment to the exposure as 
provided in section 34 of this appendix. A [bank] may decide separately 
for each wholesale exposure that qualifies for the double default 
treatment under section 34 of this appendix whether to apply the double 
default treatment or to use the PD substitution or LGD adjustment 
treatment without recognizing double default effects.
    (ii) A [bank] may take into account the risk reducing effects of 
guarantees and credit derivatives in support of retail exposures in a 
segment when quantifying the PD and LGD of the segment.
    (iii) Except as provided in paragraph (d)(6) of this section, a 
[bank] may take into account the risk reducing effects of collateral in 
support of a wholesale exposure when quantifying the LGD of the exposure 
and may take into account the risk reducing effects of collateral in 
support of retail exposures when quantifying the PD and LGD of the 
segment.
    (6) EAD for OTC derivative contracts, repo-style transactions, and 
eligible margin loans. (i) A [bank] must calculate its EAD for an OTC 
derivative contract as provided in paragraphs (c) and (d) of section 32 
of this appendix. A [bank] may take into account the risk-reducing 
effects of financial collateral in support of a repo-style transaction 
or eligible margin loan and of any collateral in support of a repo-style 
transaction that is included in the [bank]'s VaR-based measure under 
[the market risk rule] through an adjustment to EAD as provided in 
paragraphs (b) and (d) of section 32 of this appendix. A [bank] that 
takes collateral into account through such an adjustment to EAD under 
section 32 of this appendix may not reflect such collateral in LGD.
    (ii) A [bank] may attribute an EAD of zero to:
    (A) Derivative contracts that are publicly traded on an exchange 
that requires the daily receipt and payment of cash-variation margin;
    (B) Derivative contracts and repo-style transactions that are 
outstanding with a qualifying central counterparty (but not for those 
transactions that a qualifying central counterparty has rejected); and
    (C) Credit risk exposures to a qualifying central counterparty in 
the form of clearing deposits and posted collateral that arise from 
transactions described in paragraph (d)(6)(ii)(B) of this section.
    (7) Effective maturity. An exposure's M must be no greater than five 
years and no less than one year, except that an exposure's M must be no 
less than one day if the exposure has an original maturity of less than 
one year and is not part of a [bank]'s ongoing financing of the obligor. 
An exposure is not part of a [bank]'s ongoing financing of the obligor 
if the [bank]:
    (i) Has a legal and practical ability not to renew or roll over the 
exposure in the event of credit deterioration of the obligor;

[[Page 72]]

    (ii) Makes an independent credit decision at the inception of the 
exposure and at every renewal or roll over; and
    (iii) Has no substantial commercial incentive to continue its credit 
relationship with the obligor in the event of credit deterioration of 
the obligor.
    (e) Phase 4--Calculation of risk-weighted assets--(1) Non-defaulted 
exposures. (i) A [bank] must calculate the dollar risk-based capital 
requirement for each of its wholesale exposures to a non-defaulted 
obligor (except eligible guarantees and eligible credit derivatives that 
hedge another wholesale exposure and exposures to which the [bank] 
applies the double default treatment in section 34 of this appendix) and 
segments of non-defaulted retail exposures by inserting the assigned 
risk parameters for the wholesale obligor and exposure or retail segment 
into the appropriate risk-based capital formula specified in Table 2 and 
multiplying the output of the formula (K) by the EAD of the exposure or 
segment. Alternatively, a [bank] may apply a 300 percent risk weight to 
the EAD of an eligible margin loan if the [bank] is not able to meet the 
agencies'' requirements for estimation of PD and LGD for the margin 
loan.
[GRAPHIC] [TIFF OMITTED] TR07DE07.005


[[Page 73]]


    (ii) The sum of all the dollar risk-based capital requirements for 
each wholesale exposure to a non-defaulted obligor and segment of non-
defaulted retail exposures calculated in paragraph (e)(1)(i) of this 
section and in paragraph (e) of section 34 of this appendix equals the 
total dollar risk-based capital requirement for those exposures and 
segments.
    (iii) The aggregate risk-weighted asset amount for wholesale 
exposures to non-defaulted obligors and segments of non-defaulted retail 
exposures equals the total dollar risk-based capital requirement 
calculated in paragraph (e)(1)(ii) of this section multiplied by 12.5.
    (2) Wholesale exposures to defaulted obligors and segments of 
defaulted retail exposures. (i) The dollar risk-based capital 
requirement for each wholesale exposure to a defaulted obligor equals 
0.08 multiplied by the EAD of the exposure.
    (ii) The dollar risk-based capital requirement for a segment of 
defaulted retail exposures equals 0.08 multiplied by the EAD of the 
segment.
    (iii) The sum of all the dollar risk-based capital requirements for 
each wholesale exposure to a defaulted obligor calculated in paragraph 
(e)(2)(i) of this section plus the dollar risk-based capital 
requirements for each segment of defaulted retail exposures calculated 
in paragraph (e)(2)(ii) of this section equals the total dollar risk-
based capital requirement for those exposures and segments.
    (iv) The aggregate risk-weighted asset amount for wholesale 
exposures to defaulted obligors and segments of defaulted retail 
exposures equals the total dollar risk-based capital requirement 
calculated in paragraph (e)(2)(iii) of this section multiplied by 12.5.
    (3) Assets not included in a defined exposure category. (i) A [bank] 
may assign a risk-weighted asset amount of zero to cash owned and held 
in all offices of the [bank] or in transit and for gold bullion held in 
the [bank]'s own vaults, or held in another [bank]'s vaults on an 
allocated basis, to the extent the gold bullion assets are offset by 
gold bullion liabilities.
    (ii) The risk-weighted asset amount for the residual value of a 
retail lease exposure equals such residual value.
    (iii) The risk-weighted asset amount for any other on-balance-sheet 
asset that does not meet the definition of a wholesale, retail, 
securitization, or equity exposure equals the carrying value of the 
asset.
    (4) Non-material portfolios of exposures. The risk-weighted asset 
amount of a portfolio of exposures for which the [bank] has demonstrated 
to the [AGENCY]'s satisfaction that the portfolio (when combined with 
all other portfolios of exposures that the [bank] seeks to treat under 
this paragraph) is not material to the [bank] is the sum of the carrying 
values of on-balance sheet exposures plus the notional amounts of off-
balance sheet exposures in the portfolio. For purposes of this paragraph 
(e)(4), the notional amount of an OTC derivative contract that is not a 
credit derivative is the EAD of the derivative as calculated in section 
32 of this appendix.

    Section 32. Counterparty Credit Risk of Repo-Style Transactions, 
           Eligible Margin Loans, and OTC Derivative Contracts

    (a) In General. (1) This section describes two methodologies--a 
collateral haircut approach and an internal models methodology--that a 
[bank] may use instead of an LGD estimation methodology to recognize the 
benefits of financial collateral in mitigating the counterparty credit 
risk of repo-style transactions, eligible margin loans, collateralized 
OTC derivative contracts, and single product netting sets of such 
transactions and to recognize the benefits of any collateral in 
mitigating the counterparty credit risk of repo-style transactions that 
are included in a [bank]'s VaR-based measure under [the market risk 
rule]. A third methodology, the simple VaR methodology, is available for 
single product netting sets of repo-style transactions and eligible 
margin loans.
    (2) This section also describes the methodology for calculating EAD 
for an OTC derivative contract or a set of OTC derivative contracts 
subject to a qualifying master netting agreement. A [bank] also may use 
the internal models methodology to estimate EAD for qualifying cross-
product master netting agreements.
    (3) A [bank] may only use the standard supervisory haircut approach 
with a minimum 10-business-day holding period to recognize in EAD the 
benefits of conforming residential mortgage collateral that secures 
repo-style transactions (other than repo-style transactions included in 
the [bank]'s VaR-based measure under [the market risk rule]), eligible 
margin loans, and OTC derivative contracts.
    (4) A [bank] may use any combination of the three methodologies for 
collateral recognition; however, it must use the same methodology for 
similar exposures.
    (b) EAD for eligible margin loans and repo-style transactions--(1) 
General. A [bank] may recognize the credit risk mitigation benefits of 
financial collateral that secures an eligible margin loan, repo-style 
transaction, or single-product netting set of such transactions by 
factoring the collateral into its LGD estimates for the exposure. 
Alternatively, a [bank] may estimate an unsecured LGD for the exposure, 
as well as for any repo-style transaction that is included in the 
[bank]'s VaR-based measure under [the market risk rule], and determine 
the EAD of the exposure using:

[[Page 74]]

    (i) The collateral haircut approach described in paragraph (b)(2) of 
this section;
    (ii) For netting sets only, the simple VaR methodology described in 
paragraph (b)(3) of this section; or
    (iii) The internal models methodology described in paragraph (d) of 
this section.
    (2) Collateral haircut approach--(i) EAD equation. A [bank] may 
determine EAD for an eligible margin loan, repo-style transaction, or 
netting set by setting EAD equal to max {0, [([Sigma]E-[Sigma]C) + 
[Sigma](Es x Hs) + [Sigma](Efx x Hfx)]{time} , where:
    (A) [Sigma]E equals the value of the exposure (the sum of the 
current market values of all instruments, gold, and cash the [bank] has 
lent, sold subject to repurchase, or posted as collateral to the 
counterparty under the transaction (or netting set));
    (B) [Sigma]C equals the value of the collateral (the sum of the 
current market values of all instruments, gold, and cash the [bank] has 
borrowed, purchased subject to resale, or taken as collateral from the 
counterparty under the transaction (or netting set));
    (C) Es equals the absolute value of the net position in a given 
instrument or in gold (where the net position in a given instrument or 
in gold equals the sum of the current market values of the instrument or 
gold the [bank] has lent, sold subject to repurchase, or posted as 
collateral to the counterparty minus the sum of the current market 
values of that same instrument or gold the [bank] has borrowed, 
purchased subject to resale, or taken as collateral from the 
counterparty);
    (D) Hs equals the market price volatility haircut appropriate to the 
instrument or gold referenced in Es;
    (E) Efx equals the absolute value of the net position of instruments 
and cash in a currency that is different from the settlement currency 
(where the net position in a given currency equals the sum of the 
current market values of any instruments or cash in the currency the 
[bank] has lent, sold subject to repurchase, or posted as collateral to 
the counterparty minus the sum of the current market values of any 
instruments or cash in the currency the [bank] has borrowed, purchased 
subject to resale, or taken as collateral from the counterparty); and
    (F) Hfx equals the haircut appropriate to the mismatch between the 
currency referenced in Efx and the settlement currency.
    (ii) Standard supervisory haircuts. (A) Under the standard 
supervisory haircuts approach:
    (1) A [bank] must use the haircuts for market price volatility (Hs) 
in Table 3, as adjusted in certain circumstances as provided in 
paragraph (b)(2)(ii)(A)(3) and (4) of this section;

                       Table 3.--Standard Supervisory Market Price Volatility Haircuts \1\
----------------------------------------------------------------------------------------------------------------
                                                                              Issuers exempt
 Applicable external rating grade    Residual maturity for debt securities   from the 3 basis    Other issuers
   category for debt securities                                                point floor
----------------------------------------------------------------------------------------------------------------
Two highest investment-grade        <= 1 year.............................              0.005               0.01
 rating categories for long-term    1 year, <= 5 years.........               0.02               0.04
 ratings/highest investment-grade    5 years...................               0.04               0.08
 rating category for short-term
 ratings.
----------------------------------------------------------------------------------------------------------------
Two lowest investment-grade rating  <= 1 year.............................               0.01               0.02
 categories for both short- and      1 year, <= 5 years........               0.03               0.06
 long-term ratings.                  5 years...................               0.06               0.12
----------------------------------------------------------------------------------------------------------------
One rating category below           All...................................               0.15               0.25
 investment grade.
----------------------------------------------------------------------------------------------------------------
Main index equities (including convertible bonds) and gold.....0.15.......
----------------------------------------------------------------------------------------------------------------
Other publicly traded equities (including convertible bonds), c0.25rming
 residential mortgages, and nonfinancial collateral.
----------------------------------------------------------------------------------------------------------------
Mutual funds.........................Highest haircut applicable to any security in which the
                                                         fund can invest.
----------------------------------------------------------------------------------------------------------------
Cash on deposit with the [bank] (including a certificate of depo0it issued
 by the [bank]).
----------------------------------------------------------------------------------------------------------------
\1\ The market price volatility haircuts in Table 3 are based on a ten-business-day holding period.

    (2) For currency mismatches, a [bank] must use a haircut for foreign 
exchange rate volatility (Hfx) of 8 percent, as adjusted in certain 
circumstances as provided in paragraph (b)(2)(ii)(A)(3) and (4) of this 
section.
    (3) For repo-style transactions, a [bank] may multiply the 
supervisory haircuts provided in paragraphs (b)(2)(ii)(A)(1) and (2) of 
this section by the square root of \1/2\ (which equals 0.707107).
    (4) A [bank] must adjust the supervisory haircuts upward on the 
basis of a holding period longer than ten business days (for eligible 
margin loans) or five business days (for repo-style transactions) where 
and as appropriate to take into account the illiquidity of an 
instrument.

[[Page 75]]

    (iii) Own internal estimates for haircuts. With the prior written 
approval of the [AGENCY], a [bank] may calculate haircuts (Hs and Hfx) 
using its own internal estimates of the volatilities of market prices 
and foreign exchange rates.
    (A) To receive [AGENCY] approval to use its own internal estimates, 
a [bank] must satisfy the following minimum quantitative standards:
    (1) A [bank] must use a 99th percentile one-tailed confidence 
interval.
    (2) The minimum holding period for a repo-style transaction is five 
business days and for an eligible margin loan is ten business days. When 
a [bank] calculates an own-estimates haircut on a TN-day 
holding period, which is different from the minimum holding period for 
the transaction type, the applicable haircut (HM) is 
calculated using the following square root of time formula:
[GRAPHIC] [TIFF OMITTED] TR07DE07.014

(i) TM equals 5 for repo-style transactions and 10 for 
          eligible margin loans;
(ii) TN equals the holding period used by the [bank] to 
          derive HN; and
(iii) HN equals the haircut based on the holding period 
          TN.
    (3) A [bank] must adjust holding periods upwards where and as 
appropriate to take into account the illiquidity of an instrument.
    (4) The historical observation period must be at least one year.
    (5) A [bank] must update its data sets and recompute haircuts no 
less frequently than quarterly and must also reassess data sets and 
haircuts whenever market prices change materially.
    (B) With respect to debt securities that have an applicable external 
rating of investment grade, a [bank] may calculate haircuts for 
categories of securities. For a category of securities, the [bank] must 
calculate the haircut on the basis of internal volatility estimates for 
securities in that category that are representative of the securities in 
that category that the [bank] has lent, sold subject to repurchase, 
posted as collateral, borrowed, purchased subject to resale, or taken as 
collateral. In determining relevant categories, the [bank] must at a 
minimum take into account:
    (1) The type of issuer of the security;
    (2) The applicable external rating of the security;
    (3) The maturity of the security; and
    (4) The interest rate sensitivity of the security.
    (C) With respect to debt securities that have an applicable external 
rating of below investment grade and equity securities, a [bank] must 
calculate a separate haircut for each individual security.
    (D) Where an exposure or collateral (whether in the form of cash or 
securities) is denominated in a currency that differs from the 
settlement currency, the [bank] must calculate a separate currency 
mismatch haircut for its net position in each mismatched currency based 
on estimated volatilities of foreign exchange rates between the 
mismatched currency and the settlement currency.
    (E) A [bank]'s own estimates of market price and foreign exchange 
rate volatilities may not take into account the correlations among 
securities and foreign exchange rates on either the exposure or 
collateral side of a transaction (or netting set) or the correlations 
among securities and foreign exchange rates between the exposure and 
collateral sides of the transaction (or netting set).
    (3) Simple VaR methodology. With the prior written approval of the 
[AGENCY], a [bank] may estimate EAD for a netting set using a VaR model 
that meets the requirements in paragraph (b)(3)(iii) of this section. In 
such event, the [bank] must set EAD equal to max {0, [([Sigma]E--
[Sigma]C) + PFE]{time} , where:
    (i) [Sigma]E equals the value of the exposure (the sum of the 
current market values of all instruments, gold, and cash the [bank] has 
lent, sold subject to repurchase, or posted as collateral to the 
counterparty under the netting set);
    (ii) [Sigma]C equals the value of the collateral (the sum of the 
current market values of all instruments, gold, and cash the [bank] has 
borrowed, purchased subject to resale, or taken as collateral from the 
counterparty under the netting set); and
    (iii) PFE (potential future exposure) equals the [bank]'s 
empirically based best estimate of the 99th percentile, one-tailed 
confidence interval for an increase in the value of ([Sigma]E--[Sigma]C) 
over a five-business-day holding period for repo-style transactions or 
over a ten-business-day holding period for eligible margin loans using a 
minimum one-year historical observation period of price data 
representing the instruments that the [bank] has lent, sold subject to 
repurchase, posted as collateral, borrowed, purchased subject to resale, 
or taken as collateral. The [bank] must validate its VaR model, 
including by establishing and maintaining a rigorous and regular back-
testing regime.
    (c) EAD for OTC derivative contracts. (1) A [bank] must determine 
the EAD for an OTC derivative contract that is not subject to a 
qualifying master netting agreement using the current exposure 
methodology in paragraph (c)(5) of this section or using the internal 
models methodology described in paragraph (d) of this section.
    (2) A [bank] must determine the EAD for multiple OTC derivative 
contracts that are

[[Page 76]]

subject to a qualifying master netting agreement using the current 
exposure methodology in paragraph (c)(6) of this section or using the 
internal models methodology described in paragraph (d) of this section.
    (3) Counterparty credit risk for credit derivatives. Notwithstanding 
the above, (i) A [bank] that purchases a credit derivative that is 
recognized under section 33 or 34 of this appendix as a credit risk 
mitigant for an exposure that is not a covered position under [the 
market risk rule] need not compute a separate counterparty credit risk 
capital requirement under this section so long as the [bank] does so 
consistently for all such credit derivatives and either includes all or 
excludes all such credit derivatives that are subject to a master 
netting agreement from any measure used to determine counterparty credit 
risk exposure to all relevant counterparties for risk-based capital 
purposes.
    (ii) A [bank] that is the protection provider in a credit derivative 
must treat the credit derivative as a wholesale exposure to the 
reference obligor and need not compute a counterparty credit risk 
capital requirement for the credit derivative under this section, so 
long as it does so consistently for all such credit derivatives and 
either includes all or excludes all such credit derivatives that are 
subject to a master netting agreement from any measure used to determine 
counterparty credit risk exposure to all relevant counterparties for 
risk-based capital purposes (unless the [bank] is treating the credit 
derivative as a covered position under [the market risk rule], in which 
case the [bank] must compute a supplemental counterparty credit risk 
capital requirement under this section).
    (4) Counterparty credit risk for equity derivatives. A [bank] must 
treat an equity derivative contract as an equity exposure and compute a 
risk-weighted asset amount for the equity derivative contract under part 
VI (unless the [bank] is treating the contract as a covered position 
under [the market risk rule]). In addition, if the [bank] is treating 
the contract as a covered position under [the market risk rule] and in 
certain other cases described in section 55 of this appendix, the [bank] 
must also calculate a risk-based capital requirement for the 
counterparty credit risk of an equity derivative contract under this 
part.
    (5) Single OTC derivative contract. Except as modified by paragraph 
(c)(7) of this section, the EAD for a single OTC derivative contract 
that is not subject to a qualifying master netting agreement is equal to 
the sum of the [bank]'s current credit exposure and potential future 
credit exposure (PFE) on the derivative contract.
    (i) Current credit exposure. The current credit exposure for a 
single OTC derivative contract is the greater of the mark-to-market 
value of the derivative contract or zero.
    (ii) PFE. The PFE for a single OTC derivative contract, including an 
OTC derivative contract with a negative mark-to-market value, is 
calculated by multiplying the notional principal amount of the 
derivative contract by the appropriate conversion factor in Table 4. For 
purposes of calculating either the PFE under this paragraph or the gross 
PFE under paragraph (c)(6) of this section for exchange rate contracts 
and other similar contracts in which the notional principal amount is 
equivalent to the cash flows, notional principal amount is the net 
receipts to each party falling due on each value date in each currency. 
For any OTC derivative contract that does not fall within one of the 
specified categories in Table 4, the PFE must be calculated using the 
``other'' conversion factors. A [bank] must use an OTC derivative 
contract's effective notional principal amount (that is, its apparent or 
stated notional principal amount multiplied by any multiplier in the OTC 
derivative contract) rather than its apparent or stated notional 
principal amount in calculating PFE. PFE of the protection provider of a 
credit derivative is capped at the net present value of the amount of 
unpaid premiums.

[[Page 77]]



                                           Table 4.--Conversion Factor Matrix for OTC Derivative Contracts \1\
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                              Credit       Credit (non-
                                                              Foreign      (investment-     investment-                      Precious
         Remaining maturity \2\            Interest rate   exchange rate       grade           grade          Equity      metals (except       Other
                                                             and gold        reference       reference                         gold)
                                                                            obligor)\3\      obligor)
--------------------------------------------------------------------------------------------------------------------------------------------------------
One year or less........................           0.00            0.01             0.05            0.10            0.06            0.07            0.10
Over one to five years..................           0.005           0.05             0.05            0.10            0.08            0.07            0.12
Over five years.........................           0.015           0.075            0.05            0.10            0.10            0.08           0.15
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ For an OTC derivative contract with multiple exchanges of principal, the conversion factor is multiplied by the number of remaining payments in the
  derivative contract.
\2\ For an OTC derivative contract that is structured such that on specified dates any outstanding exposure is settled and the terms are reset so that
  the market value of the contract is zero, the remaining maturity equals the time until the next reset date. For an interest rate derivative contract
  with a remaining maturity of greater than one year that meets these criteria, the minimum conversion factor is 0.005.
\3\ A [bank] must use the column labeled ``Credit (investment-grade reference obligor)'' for a credit derivative whose reference obligor has an
  outstanding unsecured long-term debt security without credit enhancement that has a long-term applicable external rating of at least investment grade.
  A [bank] must use the column labeled ``Credit (non-investment-grade reference obligor)'' for all other credit derivatives.


[[Page 78]]

    (6) Multiple OTC derivative contracts subject to a qualifying master 
netting agreement. Except as modified by paragraph (c)(7) of this 
section, the EAD for multiple OTC derivative contracts subject to a 
qualifying master netting agreement is equal to the sum of the net 
current credit exposure and the adjusted sum of the PFE exposure for all 
OTC derivative contracts subject to the qualifying master netting 
agreement.
    (i) Net current credit exposure. The net current credit exposure is 
the greater of:
    (A) The net sum of all positive and negative mark-to-market values 
of the individual OTC derivative contracts subject to the qualifying 
master netting agreement; or
    (B) zero.
    (ii) Adjusted sum of the PFE. The adjusted sum of the PFE, Anet, is 
calculated as Anet = (0.4xAgross)+(0.6xNGRxAgross), where:
    (A) Agross = the gross PFE (that is, the sum of the PFE amounts (as 
determined under paragraph (c)(5)(ii) of this section) for each 
individual OTC derivative contract subject to the qualifying master 
netting agreement); and
    (B) NGR = the net to gross ratio (that is, the ratio of the net 
current credit exposure to the gross current credit exposure). In 
calculating the NGR, the gross current credit exposure equals the sum of 
the positive current credit exposures (as determined under paragraph 
(c)(5)(i) of this section) of all individual OTC derivative contracts 
subject to the qualifying master netting agreement.
    (7) Collateralized OTC derivative contracts. A [bank] may recognize 
the credit risk mitigation benefits of financial collateral that secures 
an OTC derivative contract or single-product netting set of OTC 
derivatives by factoring the collateral into its LGD estimates for the 
contract or netting set. Alternatively, a [bank] may recognize the 
credit risk mitigation benefits of financial collateral that secures 
such a contract or netting set that is marked to market on a daily basis 
and subject to a daily margin maintenance requirement by estimating an 
unsecured LGD for the contract or netting set and adjusting the EAD 
calculated under paragraph (c)(5) or (c)(6) of this section using the 
collateral haircut approach in paragraph (b)(2) of this section. The 
[bank] must substitute the EAD calculated under paragraph (c)(5) or 
(c)(6) of this section for [Sigma]E in the equation in paragraph 
(b)(2)(i) of this section and must use a ten-business-day minimum 
holding period (TM = 10).
    (d) Internal models methodology. (1) With prior written approval 
from the [AGENCY], a [bank] may use the internal models methodology in 
this paragraph (d) to determine EAD for counterparty credit risk for OTC 
derivative contracts (collateralized or uncollateralized) and single-
product netting sets thereof, for eligible margin loans and single-
product netting sets thereof, and for repo-style transactions and 
single-product netting sets thereof. A [bank] that uses the internal 
models methodology for a particular transaction type (OTC derivative 
contracts, eligible margin loans, or repo-style transactions) must use 
the internal models methodology for all transactions of that transaction 
type. A [bank] may choose to use the internal models methodology for one 
or two of these three types of exposures and not the other types. A 
[bank] may also use the internal models methodology for OTC derivative 
contracts, eligible margin loans, and repo-style transactions subject to 
a qualifying cross-product netting agreement if:
    (i) The [bank] effectively integrates the risk mitigating effects of 
cross-product netting into its risk management and other information 
technology systems; and
    (ii) The [bank] obtains the prior written approval of the [AGENCY]. 
A [bank] that uses the internal models methodology for a transaction 
type must receive approval from the [AGENCY] to cease using the 
methodology for that transaction type or to make a material change to 
its internal model.
    (2) Under the internal models methodology, a [bank] uses an internal 
model to estimate the expected exposure (EE) for a netting set and then 
calculates EAD based on that EE.
    (i) The [bank] must use its internal model's probability 
distribution for changes in the market value of a netting set that are 
attributable to changes in market variables to determine EE.
    (ii) Under the internal models methodology, EAD = [alpha] x 
effective EPE, or, subject to [AGENCY] approval as provided in paragraph 
(d)(7), a more conservative measure of EAD.
[GRAPHIC] [TIFF OMITTED] TR07DE07.026

(that is, effective EPE is the time-weighted average of effective EE 
where the weights are the proportion that an individual effective EE 
represents in a one-year time interval) where:
    (1) Effective EEtk = max (Effective EEtk-1, 
EEtk) (that is, for a specific datetk, effective 
EE is the greater of EE at that date or the effective EE at the previous 
date); and
    (2) tk represents the kth future time period in the model 
and there are n time periods represented in the model over the first 
year; and
    (B) [alpha] = 1.4 except as provided in paragraph (d)(6), or when 
the [AGENCY] has determined that the [bank] must set [alpha] higher 
based on the [bank]'s specific characteristics of counterparty credit 
risk.
    (iii) A [bank] may include financial collateral currently posted by 
the counterparty as

[[Page 79]]

collateral (but may not include other forms of collateral) when 
calculating EE.
    (iv) If a [bank] hedges some or all of the counterparty credit risk 
associated with a netting set using an eligible credit derivative, the 
[bank] may take the reduction in exposure to the counterparty into 
account when estimating EE. If the [bank] recognizes this reduction in 
exposure to the counterparty in its estimate of EE, it must also use its 
internal model to estimate a separate EAD for the [bank]'s exposure to 
the protection provider of the credit derivative.
    (3) To obtain [AGENCY] approval to calculate the distributions of 
exposures upon which the EAD calculation is based, the [bank] must 
demonstrate to the satisfaction of the [AGENCY] that it has been using 
for at least one year an internal model that broadly meets the following 
minimum standards, with which the [bank] must maintain compliance:
    (i) The model must have the systems capability to estimate the 
expected exposure to the counterparty on a daily basis (but is not 
expected to estimate or report expected exposure on a daily basis).
    (ii) The model must estimate expected exposure at enough future 
dates to reflect accurately all the future cash flows of contracts in 
the netting set.
    (iii) The model must account for the possible non-normality of the 
exposure distribution, where appropriate.
    (iv) The [bank] must measure, monitor, and control current 
counterparty exposure and the exposure to the counterparty over the 
whole life of all contracts in the netting set.
    (v) The [bank] must be able to measure and manage current exposures 
gross and net of collateral held, where appropriate. The [bank] must 
estimate expected exposures for OTC derivative contracts both with and 
without the effect of collateral agreements.
    (vi) The [bank] must have procedures to identify, monitor, and 
control specific wrong-way risk throughout the life of an exposure. 
Wrong-way risk in this context is the risk that future exposure to a 
counterparty will be high when the counterparty's probability of default 
is also high.
    (vii) The model must use current market data to compute current 
exposures. When estimating model parameters based on historical data, at 
least three years of historical data that cover a wide range of economic 
conditions must be used and must be updated quarterly or more frequently 
if market conditions warrant. The [bank] should consider using model 
parameters based on forward-looking measures, where appropriate.
    (viii) A [bank] must subject its internal model to an initial 
validation and annual model review process. The model review should 
consider whether the inputs and risk factors, as well as the model 
outputs, are appropriate.
    (4) Maturity. (i) If the remaining maturity of the exposure or the 
longest-dated contract in the netting set is greater than one year, the 
[bank] must set M for the exposure or netting set equal to the lower of 
five years or M(EPE),\3\ where:
---------------------------------------------------------------------------

    \3\ Alternatively, a [bank] that uses an internal model to calculate 
a one-sided credit valuation adjustment may use the effective credit 
duration estimated by the model as M(EPE) in place of the formula in 
paragraph (d)(4).
[GRAPHIC] [TIFF OMITTED] TR07DE07.015

    (B) dfk is the risk-free discount factor for future time 
period tk; and
    (C) [Delta]tk = tk-tk-1.
    (ii) If the remaining maturity of the exposure or the longest-dated 
contract in the netting set is one year or less, the [bank] must set M 
for the exposure or netting set equal to one year, except as provided in 
paragraph (d)(7) of section 31 of this appendix.
    (5) Collateral agreements. A [bank] may capture the effect on EAD of 
a collateral agreement that requires receipt of collateral when exposure 
to the counterparty increases but may not capture the effect on EAD of a 
collateral agreement that requires receipt of collateral when 
counterparty credit quality deteriorates. For this purpose, a collateral 
agreement means a legal contract that specifies the time when, and 
circumstances under which, the counterparty is required to pledge 
collateral to the [bank] for a single financial contract or for all 
financial contracts in a

[[Page 80]]

netting set and confers upon the [bank] a perfected, first priority 
security interest (notwithstanding the prior security interest of any 
custodial agent), or the legal equivalent thereof, in the collateral 
posted by the counterparty under the agreement. This security interest 
must provide the [bank] with a right to close out the financial 
positions and liquidate the collateral upon an event of default of, or 
failure to perform by, the counterparty under the collateral agreement. 
A contract would not satisfy this requirement if the [bank]'s exercise 
of rights under the agreement may be stayed or avoided under applicable 
law in the relevant jurisdictions. Two methods are available to capture 
the effect of a collateral agreement:
    (i) With prior written approval from the [AGENCY], a [bank] may 
include the effect of a collateral agreement within its internal model 
used to calculate EAD. The [bank] may set EAD equal to the expected 
exposure at the end of the margin period of risk. The margin period of 
risk means, with respect to a netting set subject to a collateral 
agreement, the time period from the most recent exchange of collateral 
with a counterparty until the next required exchange of collateral plus 
the period of time required to sell and realize the proceeds of the 
least liquid collateral that can be delivered under the terms of the 
collateral agreement and, where applicable, the period of time required 
to re-hedge the resulting market risk, upon the default of the 
counterparty. The minimum margin period of risk is five business days 
for repo-style transactions and ten business days for other transactions 
when liquid financial collateral is posted under a daily margin 
maintenance requirement. This period should be extended to cover any 
additional time between margin calls; any potential closeout 
difficulties; any delays in selling collateral, particularly if the 
collateral is illiquid; and any impediments to prompt re-hedging of any 
market risk.
    (ii) A [bank] that can model EPE without collateral agreements but 
cannot achieve the higher level of modeling sophistication to model EPE 
with collateral agreements can set effective EPE for a collateralized 
netting set equal to the lesser of:
    (A) The threshold, defined as the exposure amount at which the 
counterparty is required to post collateral under the collateral 
agreement, if the threshold is positive, plus an add-on that reflects 
the potential increase in exposure of the netting set over the margin 
period of risk. The add-on is computed as the expected increase in the 
netting set's exposure beginning from current exposure of zero over the 
margin period of risk. The margin period of risk must be at least five 
business days for netting sets consisting only of repo-style 
transactions subject to daily re-margining and daily marking-to-market, 
and ten business days for all other netting sets; or
    (B) Effective EPE without a collateral agreement.
    (6) Own estimate of alpha. With prior written approval of the 
[AGENCY], a [bank] may calculate alpha as the ratio of economic capital 
from a full simulation of counterparty exposure across counterparties 
that incorporates a joint simulation of market and credit risk factors 
(numerator) and economic capital based on EPE (denominator), subject to 
a floor of 1.2. For purposes of this calculation, economic capital is 
the unexpected losses for all counterparty credit risks measured at a 
99.9 percent confidence level over a one-year horizon. To receive 
approval, the [bank] must meet the following minimum standards to the 
satisfaction of the [AGENCY]:
    (i) The [bank]'s own estimate of alpha must capture in the numerator 
the effects of:
    (A) The material sources of stochastic dependency of distributions 
of market values of transactions or portfolios of transactions across 
counterparties;
    (B) Volatilities and correlations of market risk factors used in the 
joint simulation, which must be related to the credit risk factor used 
in the simulation to reflect potential increases in volatility or 
correlation in an economic downturn, where appropriate; and
    (C) The granularity of exposures (that is, the effect of a 
concentration in the proportion of each counterparty's exposure that is 
driven by a particular risk factor).
    (ii) The [bank] must assess the potential model uncertainty in its 
estimates of alpha.
    (iii) The [bank] must calculate the numerator and denominator of 
alpha in a consistent fashion with respect to modeling methodology, 
parameter specifications, and portfolio composition.
    (iv) The [bank] must review and adjust as appropriate its estimates 
of the numerator and denominator of alpha on at least a quarterly basis 
and more frequently when the composition of the portfolio varies over 
time.
    (7) Other measures of counterparty exposure. With prior written 
approval of the [AGENCY], a [bank] may set EAD equal to a measure of 
counterparty credit risk exposure, such as peak EAD, that is more 
conservative than an alpha of 1.4 (or higher under the terms of 
paragraph (d)(2)(ii)(B) of this section) times EPE for every 
counterparty whose EAD will be measured under the alternative measure of 
counterparty exposure. The [bank] must demonstrate the conservatism of 
the measure of counterparty credit risk exposure used for EAD. For 
material portfolios of new OTC derivative products, the [bank] may 
assume that the current exposure methodology in paragraphs (c)(5) and 
(c)(6) of this section meets the conservatism

[[Page 81]]

requirement of this paragraph for a period not to exceed 180 days. For 
immaterial portfolios of OTC derivative contracts, the [bank] generally 
may assume that the current exposure methodology in paragraphs (c)(5) 
and (c)(6) of this section meets the conservatism requirement of this 
paragraph.

 Section 33. Guarantees and Credit Derivatives: PD Substitution and LGD 
                          Adjustment Approaches

    (a) Scope. (1) This section applies to wholesale exposures for 
which:
    (i) Credit risk is fully covered by an eligible guarantee or 
eligible credit derivative; or
    (ii) Credit risk is covered on a pro rata basis (that is, on a basis 
in which the [bank] and the protection provider share losses 
proportionately) by an eligible guarantee or eligible credit derivative.
    (2) Wholesale exposures on which there is a tranching of credit risk 
(reflecting at least two different levels of seniority) are 
securitization exposures subject to the securitization framework in part 
V.
    (3) A [bank] may elect to recognize the credit risk mitigation 
benefits of an eligible guarantee or eligible credit derivative covering 
an exposure described in paragraph (a)(1) of this section by using the 
PD substitution approach or the LGD adjustment approach in paragraph (c) 
of this section or, if the transaction qualifies, using the double 
default treatment in section 34 of this appendix. A [bank]'s PD and LGD 
for the hedged exposure may not be lower than the PD and LGD floors 
described in paragraphs (d)(2) and (d)(3) of section 31 of this 
appendix.
    (4) If multiple eligible guarantees or eligible credit derivatives 
cover a single exposure described in paragraph (a)(1) of this section, a 
[bank] may treat the hedged exposure as multiple separate exposures each 
covered by a single eligible guarantee or eligible credit derivative and 
may calculate a separate risk-based capital requirement for each 
separate exposure as described in paragraph (a)(3) of this section.
    (5) If a single eligible guarantee or eligible credit derivative 
covers multiple hedged wholesale exposures described in paragraph (a)(1) 
of this section, a [bank] must treat each hedged exposure as covered by 
a separate eligible guarantee or eligible credit derivative and must 
calculate a separate risk-based capital requirement for each exposure as 
described in paragraph (a)(3) of this section.
    (6) A [bank] must use the same risk parameters for calculating ECL 
as it uses for calculating the risk-based capital requirement for the 
exposure.
    (b) Rules of recognition. (1) A [bank] may only recognize the credit 
risk mitigation benefits of eligible guarantees and eligible credit 
derivatives.
    (2) A [bank] may only recognize the credit risk mitigation benefits 
of an eligible credit derivative to hedge an exposure that is different 
from the credit derivative's reference exposure used for determining the 
derivative's cash settlement value, deliverable obligation, or 
occurrence of a credit event if:
    (i) The reference exposure ranks pari passu (that is, equally) with 
or is junior to the hedged exposure; and
    (ii) The reference exposure and the hedged exposure are exposures to 
the same legal entity, and legally enforceable cross-default or cross-
acceleration clauses are in place to assure payments under the credit 
derivative are triggered when the obligor fails to pay under the terms 
of the hedged exposure.
    (c) Risk parameters for hedged exposures--(1) PD substitution 
approach--(i) Full coverage. If an eligible guarantee or eligible credit 
derivative meets the conditions in paragraphs (a) and (b) of this 
section and the protection amount (P) of the guarantee or credit 
derivative is greater than or equal to the EAD of the hedged exposure, a 
[bank] may recognize the guarantee or credit derivative in determining 
the [bank]'s risk-based capital requirement for the hedged exposure by 
substituting the PD associated with the rating grade of the protection 
provider for the PD associated with the rating grade of the obligor in 
the risk-based capital formula applicable to the guarantee or credit 
derivative in Table 2 and using the appropriate LGD as described in 
paragraph (c)(1)(iii) of this section. If the [bank] determines that 
full substitution of the protection provider's PD leads to an 
inappropriate degree of risk mitigation, the [bank] may substitute a 
higher PD than that of the protection provider.
    (ii) Partial coverage. If an eligible guarantee or eligible credit 
derivative meets the conditions in paragraphs (a) and (b) of this 
section and the protection amount (P) of the guarantee or credit 
derivative is less than the EAD of the hedged exposure, the [bank] must 
treat the hedged exposure as two separate exposures (protected and 
unprotected) in order to recognize the credit risk mitigation benefit of 
the guarantee or credit derivative.
    (A) The [bank] must calculate its risk-based capital requirement for 
the protected exposure under section 31 of this appendix, where PD is 
the protection provider's PD, LGD is determined under paragraph 
(c)(1)(iii) of this section, and EAD is P. If the [bank] determines that 
full substitution leads to an inappropriate degree of risk mitigation, 
the [bank] may use a higher PD than that of the protection provider.
    (B) The [bank] must calculate its risk-based capital requirement for 
the unprotected exposure under section 31 of this appendix, where PD is 
the obligor's PD, LGD is the hedged exposure's LGD (not adjusted to 
reflect the guarantee or credit derivative),

[[Page 82]]

and EAD is the EAD of the original hedged exposure minus P.
    (C) The treatment in this paragraph (c)(1)(ii) is applicable when 
the credit risk of a wholesale exposure is covered on a partial pro rata 
basis or when an adjustment is made to the effective notional amount of 
the guarantee or credit derivative under paragraph (d), (e), or (f) of 
this section.
    (iii) LGD of hedged exposures. The LGD of a hedged exposure under 
the PD substitution approach is equal to:
    (A) The lower of the LGD of the hedged exposure (not adjusted to 
reflect the guarantee or credit derivative) and the LGD of the guarantee 
or credit derivative, if the guarantee or credit derivative provides the 
[bank] with the option to receive immediate payout upon triggering the 
protection; or
    (B) The LGD of the guarantee or credit derivative, if the guarantee 
or credit derivative does not provide the [bank] with the option to 
receive immediate payout upon triggering the protection.
    (2) LGD adjustment approach--(i) Full coverage. If an eligible 
guarantee or eligible credit derivative meets the conditions in 
paragraphs (a) and (b) of this section and the protection amount (P) of 
the guarantee or credit derivative is greater than or equal to the EAD 
of the hedged exposure, the [bank]'s risk-based capital requirement for 
the hedged exposure is the greater of:
    (A) The risk-based capital requirement for the exposure as 
calculated under section 31 of this appendix, with the LGD of the 
exposure adjusted to reflect the guarantee or credit derivative; or
    (B) The risk-based capital requirement for a direct exposure to the 
protection provider as calculated under section 31 of this appendix, 
using the PD for the protection provider, the LGD for the guarantee or 
credit derivative, and an EAD equal to the EAD of the hedged exposure.
    (ii) Partial coverage. If an eligible guarantee or eligible credit 
derivative meets the conditions in paragraphs (a) and (b) of this 
section and the protection amount (P) of the guarantee or credit 
derivative is less than the EAD of the hedged exposure, the [bank] must 
treat the hedged exposure as two separate exposures (protected and 
unprotected) in order to recognize the credit risk mitigation benefit of 
the guarantee or credit derivative.
    (A) The [bank]'s risk-based capital requirement for the protected 
exposure would be the greater of:
    (1) The risk-based capital requirement for the protected exposure as 
calculated under section 31 of this appendix, with the LGD of the 
exposure adjusted to reflect the guarantee or credit derivative and EAD 
set equal to P; or
    (2) The risk-based capital requirement for a direct exposure to the 
guarantor as calculated under section 31 of this appendix, using the PD 
for the protection provider, the LGD for the guarantee or credit 
derivative, and an EAD set equal to P.
    (B) The [bank] must calculate its risk-based capital requirement for 
the unprotected exposure under section 31 of this appendix, where PD is 
the obligor's PD, LGD is the hedged exposure's LGD (not adjusted to 
reflect the guarantee or credit derivative), and EAD is the EAD of the 
original hedged exposure minus P.
    (3) M of hedged exposures. The M of the hedged exposure is the same 
as the M of the exposure if it were unhedged.
    (d) Maturity mismatch. (1) A [bank] that recognizes an eligible 
guarantee or eligible credit derivative in determining its risk-based 
capital requirement for a hedged exposure must adjust the effective 
notional amount of the credit risk mitigant to reflect any maturity 
mismatch between the hedged exposure and the credit risk mitigant.
    (2) A maturity mismatch occurs when the residual maturity of a 
credit risk mitigant is less than that of the hedged exposure(s).
    (3) The residual maturity of a hedged exposure is the longest 
possible remaining time before the obligor is scheduled to fulfill its 
obligation on the exposure. If a credit risk mitigant has embedded 
options that may reduce its term, the [bank] (protection purchaser) must 
use the shortest possible residual maturity for the credit risk 
mitigant. If a call is at the discretion of the protection provider, the 
residual maturity of the credit risk mitigant is at the first call date. 
If the call is at the discretion of the [bank] (protection purchaser), 
but the terms of the arrangement at origination of the credit risk 
mitigant contain a positive incentive for the [bank] to call the 
transaction before contractual maturity, the remaining time to the first 
call date is the residual maturity of the credit risk mitigant. For 
example, where there is a step-up in cost in conjunction with a call 
feature or where the effective cost of protection increases over time 
even if credit quality remains the same or improves, the residual 
maturity of the credit risk mitigant will be the remaining time to the 
first call.
    (4) A credit risk mitigant with a maturity mismatch may be 
recognized only if its original maturity is greater than or equal to one 
year and its residual maturity is greater than three months.
    (5) When a maturity mismatch exists, the [bank] must apply the 
following adjustment to the effective notional amount of the credit risk 
mitigant: Pm = E x (t - 0.25)/(T - 0.25), where:
    (i) Pm = effective notional amount of the credit risk mitigant, 
adjusted for maturity mismatch;
    (ii) E = effective notional amount of the credit risk mitigant;

[[Page 83]]

    (iii) t = the lesser of T or the residual maturity of the credit 
risk mitigant, expressed in years; and
    (iv) T = the lesser of five or the residual maturity of the hedged 
exposure, expressed in years.
    (e) Credit derivatives without restructuring as a credit event. If a 
[bank] recognizes an eligible credit derivative that does not include as 
a credit event a restructuring of the hedged exposure involving 
forgiveness or postponement of principal, interest, or fees that results 
in a credit loss event (that is, a charge-off, specific provision, or 
other similar debit to the profit and loss account), the [bank] must 
apply the following adjustment to the effective notional amount of the 
credit derivative: Pr = Pm x 0.60, where:
    (1) Pr = effective notional amount of the credit risk mitigant, 
adjusted for lack of restructuring event (and maturity mismatch, if 
applicable); and
    (2) Pm = effective notional amount of the credit risk mitigant 
adjusted for maturity mismatch (if applicable).
    (f) Currency mismatch. (1) If a [bank] recognizes an eligible 
guarantee or eligible credit derivative that is denominated in a 
currency different from that in which the hedged exposure is 
denominated, the [bank] must apply the following formula to the 
effective notional amount of the guarantee or credit derivative: Pc = Pr 
x (1 - HFX), where:
    (i) Pc = effective notional amount of the credit risk mitigant, 
adjusted for currency mismatch (and maturity mismatch and lack of 
restructuring event, if applicable);
    (ii) Pr = effective notional amount of the credit risk mitigant 
(adjusted for maturity mismatch and lack of restructuring event, if 
applicable); and
    (iii) HFX = haircut appropriate for the currency mismatch 
between the credit risk mitigant and the hedged exposure.
    (2) A [bank] must set HFX equal to 8 percent unless it 
qualifies for the use of and uses its own internal estimates of foreign 
exchange volatility based on a ten-business-day holding period and daily 
marking-to-market and remargining. A [bank] qualifies for the use of its 
own internal estimates of foreign exchange volatility if it qualifies 
for:
    (i) The own-estimates haircuts in paragraph (b)(2)(iii) of section 
32 of this appendix;
    (ii) The simple VaR methodology in paragraph (b)(3) of section 32 of 
this appendix; or
    (iii) The internal models methodology in paragraph (d) of section 32 
of this appendix.
    (3) A [bank] must adjust HFX calculated in paragraph 
(f)(2) of this section upward if the [bank] revalues the guarantee or 
credit derivative less frequently than once every ten business days 
using the square root of time formula provided in paragraph 
(b)(2)(iii)(A)(2) of section 32 of this appendix.

 Section 34. Guarantees and Credit Derivatives: Double Default Treatment

    (a) Eligibility and operational criteria for double default 
treatment. A [bank] may recognize the credit risk mitigation benefits of 
a guarantee or credit derivative covering an exposure described in 
paragraph (a)(1) of section 33 of this appendix by applying the double 
default treatment in this section if all the following criteria are 
satisfied.
    (1) The hedged exposure is fully covered or covered on a pro rata 
basis by:
    (i) An eligible guarantee issued by an eligible double default 
guarantor; or
    (ii) An eligible credit derivative that meets the requirements of 
paragraph (b)(2) of section 33 of this appendix and is issued by an 
eligible double default guarantor.
    (2) The guarantee or credit derivative is:
    (i) An uncollateralized guarantee or uncollateralized credit 
derivative (for example, a credit default swap) that provides protection 
with respect to a single reference obligor; or
    (ii) An nth-to-default credit derivative (subject to the 
requirements of paragraph (m) of section 42 of this appendix).
    (3) The hedged exposure is a wholesale exposure (other than a 
sovereign exposure).
    (4) The obligor of the hedged exposure is not:
    (i) An eligible double default guarantor or an affiliate of an 
eligible double default guarantor; or
    (ii) An affiliate of the guarantor.
    (5) The [bank] does not recognize any credit risk mitigation 
benefits of the guarantee or credit derivative for the hedged exposure 
other than through application of the double default treatment as 
provided in this section.
    (6) The [bank] has implemented a process (which has received the 
prior, written approval of the [AGENCY]) to detect excessive correlation 
between the creditworthiness of the obligor of the hedged exposure and 
the protection provider. If excessive correlation is present, the [bank] 
may not use the double default treatment for the hedged exposure.
    (b) Full coverage. If the transaction meets the criteria in 
paragraph (a) of this section and the protection amount (P) of the 
guarantee or credit derivative is at least equal to the EAD of the 
hedged exposure, the [bank] may determine its risk-weighted asset amount 
for the hedged exposure under paragraph (e) of this section.
    (c) Partial coverage. If the transaction meets the criteria in 
paragraph (a) of this section and the protection amount (P) of the 
guarantee or credit derivative is less than the EAD of the hedged 
exposure, the [bank] must treat the hedged exposure as two separate 
exposures (protected and unprotected)

[[Page 84]]

in order to recognize double default treatment on the protected portion 
of the exposure.
    (1) For the protected exposure, the [bank] must set EAD equal to P 
and calculate its risk-weighted asset amount as provided in paragraph 
(e) of this section.
    (2) For the unprotected exposure, the [bank] must set EAD equal to 
the EAD of the original exposure minus P and then calculate its risk-
weighted asset amount as provided in section 31 of this appendix.
    (d) Mismatches. For any hedged exposure to which a [bank] applies 
double default treatment, the [bank] must make applicable adjustments to 
the protection amount as required in paragraphs (d), (e), and (f) of 
section 33 of this appendix.
    (e) The double default dollar risk-based capital requirement. The 
dollar risk-based capital requirement for a hedged exposure to which a 
[bank] has applied double default treatment is KDD multiplied 
by the EAD of the exposure. KDD is calculated according to 
the following formula: KDD = Ko x (0.15 + 160 x 
PDg),

Where:

(1)
[GRAPHIC] [TIFF OMITTED] TR07DE07.016

(2) PDg = PD of the protection provider.
(3) PDo = PD of the obligor of the hedged exposure.
(4) LGDg = (i) The lower of the LGD of the hedged exposure 
          (not adjusted to reflect the guarantee or credit derivative) 
          and the LGD of the guarantee or credit derivative, if the 
          guarantee or credit derivative provides the [bank] with the 
          option to receive immediate payout on triggering the 
          protection; or
(ii) The LGD of the guarantee or credit derivative, if the guarantee or 
          credit derivative does not provide the [bank] with the option 
          to receive immediate payout on triggering the protection.
(5) [rho]OS (asset value correlation of the obligor) is 
          calculated according to the appropriate formula for (R) 
          provided in Table 2 in section 31 of this appendix, with PD 
          equal to PDo.
(6) b (maturity adjustment coefficient) is calculated according to the 
          formula for b provided in Table 2 in section 31 of this 
          appendix, with PD equal to the lesser of PDo and 
          PDg.
(7) M (maturity) is the effective maturity of the guarantee or credit 
          derivative, which may not be less than one year or greater 
          than five years.

  Section 35. Risk-Based Capital Requirement for Unsettled Transactions

    (a) Definitions. For purposes of this section:
    (1) Delivery-versus-payment (DvP) transaction means a securities or 
commodities transaction in which the buyer is obligated to make payment 
only if the seller has made delivery of the securities or commodities 
and the seller is obligated to deliver the securities or commodities 
only if the buyer has made payment.
    (2) Payment-versus-payment (PvP) transaction means a foreign 
exchange transaction in which each counterparty is obligated to make a 
final transfer of one or more currencies only if the other counterparty 
has made a final transfer of one or more currencies.
    (3) Normal settlement period. A transaction has a normal settlement 
period if the contractual settlement period for the transaction is equal 
to or less than the market standard for the instrument underlying the 
transaction and equal to or less than five business days.
    (4) Positive current exposure. The positive current exposure of a 
[bank] for a transaction is the difference between the transaction value 
at the agreed settlement price and the current market price of the 
transaction, if the difference results in a credit exposure of the 
[bank] to the counterparty.
    (b) Scope. This section applies to all transactions involving 
securities, foreign exchange instruments, and commodities that have a 
risk of delayed settlement or delivery. This section does not apply to:
    (1) Transactions accepted by a qualifying central counterparty that 
are subject to daily marking-to-market and daily receipt and payment of 
variation margin;
    (2) Repo-style transactions, including unsettled repo-style 
transactions (which are addressed in sections 31 and 32 of this 
appendix);
    (3) One-way cash payments on OTC derivative contracts (which are 
addressed in sections 31 and 32 of this appendix); or
    (4) Transactions with a contractual settlement period that is longer 
than the normal settlement period (which are treated as OTC derivative 
contracts and addressed in sections 31 and 32 of this appendix).

[[Page 85]]

    (c) System-wide failures. In the case of a system-wide failure of a 
settlement or clearing system, the [AGENCY] may waive risk-based capital 
requirements for unsettled and failed transactions until the situation 
is rectified.
    (d) Delivery-versus-payment (DvP) and payment-versus-payment (PvP) 
transactions. A [bank] must hold risk-based capital against any DvP or 
PvP transaction with a normal settlement period if the [bank]'s 
counterparty has not made delivery or payment within five business days 
after the settlement date. The [bank] must determine its risk-weighted 
asset amount for such a transaction by multiplying the positive current 
exposure of the transaction for the [bank] by the appropriate risk 
weight in Table 5.

      Table 5.--Risk Weights for Unsettled DvP and PvP Transactions
------------------------------------------------------------------------
                                                       Risk weight to be
Number of business days after contractual settlement      applied to
                        date                           positive current
                                                      exposure (percent)
------------------------------------------------------------------------
From 5 to 15........................................               100
From 16 to 30.......................................               625
From 31 to 45.......................................               937.5
46 or more..........................................             1,250
------------------------------------------------------------------------

    (e) Non-DvP/non-PvP (non-delivery-versus-payment/non-payment-versus-
payment) transactions. (1) A [bank] must hold risk-based capital against 
any non-DvP/non-PvP transaction with a normal settlement period if the 
[bank] has delivered cash, securities, commodities, or currencies to its 
counterparty but has not received its corresponding deliverables by the 
end of the same business day. The [bank] must continue to hold risk-
based capital against the transaction until the [bank] has received its 
corresponding deliverables.
    (2) From the business day after the [bank] has made its delivery 
until five business days after the counterparty delivery is due, the 
[bank] must calculate its risk-based capital requirement for the 
transaction by treating the current market value of the deliverables 
owed to the [bank] as a wholesale exposure.
    (i) A [bank] may assign an obligor rating to a counterparty for 
which it is not otherwise required under this appendix to assign an 
obligor rating on the basis of the applicable external rating of any 
outstanding unsecured long-term debt security without credit enhancement 
issued by the counterparty.
    (ii) A [bank] may use a 45 percent LGD for the transaction rather 
than estimating LGD for the transaction provided the [bank] uses the 45 
percent LGD for all transactions described in paragraphs (e)(1) and 
(e)(2) of this section.
    (iii) A [bank] may use a 100 percent risk weight for the transaction 
provided the [bank] uses this risk weight for all transactions described 
in paragraphs (e)(1) and (e)(2) of this section.
    (3) If the [bank] has not received its deliverables by the fifth 
business day after the counterparty delivery was due, the [bank] must 
deduct the current market value of the deliverables owed to the [bank] 
50 percent from tier 1 capital and 50 percent from tier 2 capital.
    (f) Total risk-weighted assets for unsettled transactions. Total 
risk-weighted assets for unsettled transactions is the sum of the risk-
weighted asset amounts of all DvP, PvP, and non-DvP/non-PvP 
transactions.

        Part V. Risk-Weighted Assets for Securitization Exposures

  Section 41. Operational Criteria for Recognizing the Transfer of Risk

    (a) Operational criteria for traditional securitizations. A [bank] 
that transfers exposures it has originated or purchased to a 
securitization SPE or other third party in connection with a traditional 
securitization may exclude the exposures from the calculation of its 
risk-weighted assets only if each of the conditions in this paragraph 
(a) is satisfied. A [bank] that meets these conditions must hold risk-
based capital against any securitization exposures it retains in 
connection with the securitization. A [bank] that fails to meet these 
conditions must hold risk-based capital against the transferred 
exposures as if they had not been securitized and must deduct from tier 
1 capital any after-tax gain-on-sale resulting from the transaction. The 
conditions are:
    (1) The transfer is considered a sale under GAAP;
    (2) The [bank] has transferred to third parties credit risk 
associated with the underlying exposures; and
    (3) Any clean-up calls relating to the securitization are eligible 
clean-up calls.
    (b) Operational criteria for synthetic securitizations. For 
synthetic securitizations, a [bank] may recognize for risk-based capital 
purposes the use of a credit risk mitigant to hedge underlying exposures 
only if each of the conditions in this paragraph (b) is satisfied. A 
[bank] that fails to meet these conditions must hold risk-based capital 
against the underlying exposures as if they had not been synthetically 
securitized. The conditions are:
    (1) The credit risk mitigant is financial collateral, an eligible 
credit derivative from an eligible securitization guarantor or an 
eligible guarantee from an eligible securitization guarantor;
    (2) The [bank] transfers credit risk associated with the underlying 
exposures to third parties, and the terms and conditions in the credit 
risk mitigants employed do not include provisions that:

[[Page 86]]

    (i) Allow for the termination of the credit protection due to 
deterioration in the credit quality of the underlying exposures;
    (ii) Require the [bank] to alter or replace the underlying exposures 
to improve the credit quality of the pool of underlying exposures;
    (iii) Increase the [bank]'s cost of credit protection in response to 
deterioration in the credit quality of the underlying exposures;
    (iv) Increase the yield payable to parties other than the [bank] in 
response to a deterioration in the credit quality of the underlying 
exposures; or
    (v) Provide for increases in a retained first loss position or 
credit enhancement provided by the [bank] after the inception of the 
securitization;
    (3) The [bank] obtains a well-reasoned opinion from legal counsel 
that confirms the enforceability of the credit risk mitigant in all 
relevant jurisdictions; and
    (4) Any clean-up calls relating to the securitization are eligible 
clean-up calls.

 Section 42. Risk-Based Capital Requirement for Securitization Exposures

    (a) Hierarchy of approaches. Except as provided elsewhere in this 
section:
    (1) A [bank] must deduct from tier 1 capital any after-tax gain-on-
sale resulting from a securitization and must deduct from total capital 
in accordance with paragraph (c) of this section the portion of any CEIO 
that does not constitute gain-on-sale.
    (2) If a securitization exposure does not require deduction under 
paragraph (a)(1) of this section and qualifies for the Ratings-Based 
Approach in section 43 of this appendix, a [bank] must apply the 
Ratings-Based Approach to the exposure.
    (3) If a securitization exposure does not require deduction under 
paragraph (a)(1) of this section and does not qualify for the Ratings-
Based Approach, the [bank] may either apply the Internal Assessment 
Approach in section 44 of this appendix to the exposure (if the [bank], 
the exposure, and the relevant ABCP program qualify for the Internal 
Assessment Approach) or the Supervisory Formula Approach in section 45 
of this appendix to the exposure (if the [bank] and the exposure qualify 
for the Supervisory Formula Approach).
    (4) If a securitization exposure does not require deduction under 
paragraph (a)(1) of this section and does not qualify for the Ratings-
Based Approach, the Internal Assessment Approach, or the Supervisory 
Formula Approach, the [bank] must deduct the exposure from total capital 
in accordance with paragraph (c) of this section.
    (5) If a securitization exposure is an OTC derivative contract 
(other than a credit derivative) that has a first priority claim on the 
cash flows from the underlying exposures (notwithstanding amounts due 
under interest rate or currency derivative contracts, fees due, or other 
similar payments), with approval of the [AGENCY], a [bank] may choose to 
set the risk-weighted asset amount of the exposure equal to the amount 
of the exposure as determined in paragraph (e) of this section rather 
than apply the hierarchy of approaches described in paragraphs (a) (1) 
through (4) of this section.
    (b) Total risk-weighted assets for securitization exposures. A 
[bank]'s total risk-weighted assets for securitization exposures is 
equal to the sum of its risk-weighted assets calculated using the 
Ratings-Based Approach in section 43 of this appendix, the Internal 
Assessment Approach in section 44 of this appendix, and the Supervisory 
Formula Approach in section 45 of this appendix, and its risk-weighted 
assets amount for early amortization provisions calculated in section 47 
of this appendix.
    (c) Deductions. (1) If a [bank] must deduct a securitization 
exposure from total capital, the [bank] must take the deduction 50 
percent from tier 1 capital and 50 percent from tier 2 capital. If the 
amount deductible from tier 2 capital exceeds the [bank]'s tier 2 
capital, the [bank] must deduct the excess from tier 1 capital.
    (2) A [bank] may calculate any deduction from tier 1 capital and 
tier 2 capital for a securitization exposure net of any deferred tax 
liabilities associated with the securitization exposure.
    (d) Maximum risk-based capital requirement. Regardless of any other 
provisions of this part, unless one or more underlying exposures does 
not meet the definition of a wholesale, retail, securitization, or 
equity exposure, the total risk-based capital requirement for all 
securitization exposures held by a single [bank] associated with a 
single securitization (including any risk-based capital requirements 
that relate to an early amortization provision of the securitization but 
excluding any risk-based capital requirements that relate to the 
[bank]'s gain-on-sale or CEIOs associated with the securitization) may 
not exceed the sum of:
    (1) The [bank]'s total risk-based capital requirement for the 
underlying exposures as if the [bank] directly held the underlying 
exposures; and
    (2) The total ECL of the underlying exposures.
    (e) Amount of a securitization exposure. (1) The amount of an on-
balance sheet securitization exposure that is not a repo-style 
transaction, eligible margin loan, or OTC derivative contract (other 
than a credit derivative) is:
    (i) The [bank]'s carrying value minus any unrealized gains and plus 
any unrealized losses on the exposure, if the exposure is a security 
classified as available-for-sale; or

[[Page 87]]

    (ii) The [bank]'s carrying value, if the exposure is not a security 
classified as available-for-sale.
    (2) The amount of an off-balance sheet securitization exposure that 
is not an OTC derivative contract (other than a credit derivative) is 
the notional amount of the exposure. For an off-balance-sheet 
securitization exposure to an ABCP program, such as a liquidity 
facility, the notional amount may be reduced to the maximum potential 
amount that the [bank] could be required to fund given the ABCP 
program's current underlying assets (calculated without regard to the 
current credit quality of those assets).
    (3) The amount of a securitization exposure that is a repo-style 
transaction, eligible margin loan, or OTC derivative contract (other 
than a credit derivative) is the EAD of the exposure as calculated in 
section 32 of this appendix.
    (f) Overlapping exposures. If a [bank] has multiple securitization 
exposures that provide duplicative coverage of the underlying exposures 
of a securitization (such as when a [bank] provides a program-wide 
credit enhancement and multiple pool-specific liquidity facilities to an 
ABCP program), the [bank] is not required to hold duplicative risk-based 
capital against the overlapping position. Instead, the [bank] may apply 
to the overlapping position the applicable risk-based capital treatment 
that results in the highest risk-based capital requirement.
    (g) Securitizations of non-IRB exposures. If a [bank] has a 
securitization exposure where any underlying exposure is not a wholesale 
exposure, retail exposure, securitization exposure, or equity exposure, 
the [bank] must:
    (1) If the [bank] is an originating [bank], deduct from tier 1 
capital any after-tax gain-on-sale resulting from the securitization and 
deduct from total capital in accordance with paragraph (c) of this 
section the portion of any CEIO that does not constitute gain-on-sale;
    (2) If the securitization exposure does not require deduction under 
paragraph (g)(1), apply the RBA in section 43 of this appendix to the 
securitization exposure if the exposure qualifies for the RBA;
    (3) If the securitization exposure does not require deduction under 
paragraph (g)(1) and does not qualify for the RBA, apply the IAA in 
section 44 of this appendix to the exposure (if the [bank], the 
exposure, and the relevant ABCP program qualify for the IAA); and
    (4) If the securitization exposure does not require deduction under 
paragraph (g)(1) and does not qualify for the RBA or the IAA, deduct the 
exposure from total capital in accordance with paragraph (c) of this 
section.
    (h) Implicit support. If a [bank] provides support to a 
securitization in excess of the [bank]'s contractual obligation to 
provide credit support to the securitization (implicit support):
    (1) The [bank] must hold regulatory capital against all of the 
underlying exposures associated with the securitization as if the 
exposures had not been securitized and must deduct from tier 1 capital 
any after-tax gain-on-sale resulting from the securitization; and
    (2) The [bank] must disclose publicly:
    (i) That it has provided implicit support to the securitization; and
    (ii) The regulatory capital impact to the [bank] of providing such 
implicit support.
    (i) Eligible servicer cash advance facilities. Regardless of any 
other provisions of this part, a [bank] is not required to hold risk-
based capital against the undrawn portion of an eligible servicer cash 
advance facility.
    (j) Interest-only mortgage-backed securities. Regardless of any 
other provisions of this part, the risk weight for a non-credit-
enhancing interest-only mortgage-backed security may not be less than 
100 percent.
    (k) Small-business loans and leases on personal property transferred 
with recourse. (1) Regardless of any other provisions of this appendix, 
a [bank] that has transferred small-business loans and leases on 
personal property (small-business obligations) with recourse must 
include in risk-weighted assets only the contractual amount of retained 
recourse if all the following conditions are met:
    (i) The transaction is a sale under GAAP.
    (ii) The [bank] establishes and maintains, pursuant to GAAP, a non-
capital reserve sufficient to meet the [bank]'s reasonably estimated 
liability under the recourse arrangement.
    (iii) The loans and leases are to businesses that meet the criteria 
for a small-business concern established by the Small Business 
Administration under section 3(a) of the Small Business Act (15 U.S.C. 
632).
    (iv) The [bank] is well capitalized, as defined in the [AGENCY]'s 
prompt corrective action regulation--12 CFR part 6 (for national banks), 
12 CFR part 208, subpart D (for state member banks or bank holding 
companies), 12 CFR part 325, subpart B (for state nonmember banks), and 
12 CFR part 565 (for savings associations). For purposes of determining 
whether a [bank] is well capitalized for purposes of this paragraph, the 
[bank]'s capital ratios must be calculated without regard to the capital 
treatment for transfers of small-business obligations with recourse 
specified in paragraph (k)(1) of this section.
    (2) The total outstanding amount of recourse retained by a [bank] on 
transfers of small-business obligations receiving the capital treatment 
specified in paragraph (k)(1) of this section cannot exceed 15 percent 
of the [bank]'s total qualifying capital.
    (3) If a [bank] ceases to be well capitalized or exceeds the 15 
percent capital limitation, the preferential capital treatment specified

[[Page 88]]

in paragraph (k)(1) of this section will continue to apply to any 
transfers of small-business obligations with recourse that occurred 
during the time that the [bank] was well capitalized and did not exceed 
the capital limit.
    (4) The risk-based capital ratios of the [bank] must be calculated 
without regard to the capital treatment for transfers of small-business 
obligations with recourse specified in paragraph (k)(1) of this section 
as provided in 12 CFR part 3, Appendix A (for national banks), 12 CFR 
part 208, Appendix A (for state member banks), 12 CFR part 225, Appendix 
A (for bank holding companies), 12 CFR part 325, Appendix A (for state 
nonmember banks), and 12 CFR 567.6(b)(5)(v) (for savings associations).
    (l) Consolidated ABCP programs. (1) A [bank] that qualifies as a 
primary beneficiary and must consolidate an ABCP program as a variable 
interest entity under GAAP may exclude the consolidated ABCP program 
assets from risk-weighted assets if the [bank] is the sponsor of the 
ABCP program. If a [bank] excludes such consolidated ABCP program assets 
from risk-weighted assets, the [bank] must hold risk-based capital 
against any securitization exposures of the [bank] to the ABCP program 
in accordance with this part.
    (2) If a [bank] either is not permitted, or elects not, to exclude 
consolidated ABCP program assets from its risk-weighted assets, the 
[bank] must hold risk-based capital against the consolidated ABCP 
program assets in accordance with this appendix but is not required to 
hold risk-based capital against any securitization exposures of the 
[bank] to the ABCP program.
    (m) N th-to-default credit derivatives--(1) First-to-default credit 
derivatives--(i) Protection purchaser. A [bank] that obtains credit 
protection on a group of underlying exposures through a first-to-default 
credit derivative must determine its risk-based capital requirement for 
the underlying exposures as if the [bank] synthetically securitized the 
underlying exposure with the lowest risk-based capital requirement and 
had obtained no credit risk mitigant on the other underlying exposures.
    (ii) Protection provider. A [bank] that provides credit protection 
on a group of underlying exposures through a first-to-default credit 
derivative must determine its risk-weighted asset amount for the 
derivative by applying the RBA in section 43 of this appendix (if the 
derivative qualifies for the RBA) or, if the derivative does not qualify 
for the RBA, by setting its risk-weighted asset amount for the 
derivative equal to the product of:
    (A) The protection amount of the derivative;
    (B) 12.5; and
    (C) The sum of the risk-based capital requirements of the individual 
underlying exposures, up to a maximum of 100 percent.
    (2) Second-or-subsequent-to-default credit derivatives--(i) 
Protection purchaser. (A) A [bank] that obtains credit protection on a 
group of underlying exposures through a n\th\-to-default credit 
derivative (other than a first-to-default credit derivative) may 
recognize the credit risk mitigation benefits of the derivative only if:
    (1) The [bank] also has obtained credit protection on the same 
underlying exposures in the form of first-through-(n-1)-to-default 
credit derivatives; or
    (2) If n-1 of the underlying exposures have already defaulted.
    (B) If a [bank] satisfies the requirements of paragraph (m)(2)(i)(A) 
of this section, the [bank] must determine its risk-based capital 
requirement for the underlying exposures as if the [bank] had only 
synthetically securitized the underlying exposure with the 
nth lowest risk-based capital requirement and had obtained no 
credit risk mitigant on the other underlying exposures.
    (ii) Protection provider. A [bank] that provides credit protection 
on a group of underlying exposures through a nth-to-default 
credit derivative (other than a first-to-default credit derivative) must 
determine its risk-weighted asset amount for the derivative by applying 
the RBA in section 43 of this appendix (if the derivative qualifies for 
the RBA) or, if the derivative does not qualify for the RBA, by setting 
its risk-weighted asset amount for the derivative equal to the product 
of:
    (A) The protection amount of the derivative;
    (B) 12.5; and
    (C) The sum of the risk-based capital requirements of the individual 
underlying exposures (excluding the n-1 underlying exposures with the 
lowest risk-based capital requirements), up to a maximum of 100 percent.

                Section 43. Ratings-Based Approach (RBA)

    (a) Eligibility requirements for use of the RBA--(1) Originating 
[bank]. An originating [bank] must use the RBA to calculate its risk-
based capital requirement for a securitization exposure if the exposure 
has two or more external ratings or inferred ratings (and may not use 
the RBA if the exposure has fewer than two external ratings or inferred 
ratings).
    (2) Investing [bank]. An investing [bank] must use the RBA to 
calculate its risk-based capital requirement for a securitization 
exposure if the exposure has one or more external or inferred ratings 
(and may not use the RBA if the exposure has no external or inferred 
rating).
    (b) Ratings-based approach. (1) A [bank] must determine the risk-
weighted asset

[[Page 89]]

amount for a securitization exposure by multiplying the amount of the 
exposure (as defined in paragraph (e) of section 42 of this appendix) by 
the appropriate risk weight provided in Table 6 and Table 7.
    (2) A [bank] must apply the risk weights in Table 6 when the 
securitization exposure's applicable external or applicable inferred 
rating represents a long-term credit rating, and must apply the risk 
weights in Table 7 when the securitization exposure's applicable 
external or applicable inferred rating represents a short-term credit 
rating.
    (i) A [bank] must apply the risk weights in column 1 of Table 6 or 
Table 7 to the securitization exposure if:
    (A) N (as calculated under paragraph (e)(6) of section 45 of this 
appendix) is six or more (for purposes of this section only, if the 
notional number of underlying exposures is 25 or more or if all of the 
underlying exposures are retail exposures, a [bank] may assume that N is 
six or more unless the [bank] knows or has reason to know that N is less 
than six); and
    (B) The securitization exposure is a senior securitization exposure.
    (ii) A [bank] must apply the risk weights in column 3 of Table 6 or 
Table 7 to the securitization exposure if N is less than six, regardless 
of the seniority of the securitization exposure.
    (iii) Otherwise, a [bank] must apply the risk weights in column 2 of 
Table 6 or Table 7.

                        Table 6.--Long-Term Credit Rating Risk Weights Under RBA and IAA
----------------------------------------------------------------------------------------------------------------
                                                        Column 1        Column 2        Column 3
                                                    -----------------------------------------------    Applicable
                                                      Risk weights    Risk weights    Risk weights    external or
       Applicable external or inferred rating          for senior    for non-senior        for          inferred
           (Illustrative rating example)             securitization  securitization  securitization      rating
                                                        exposures       exposures       exposures    (Illustrative
                                                        backed by       backed by    backed by non-      rating
                                                     granular pools  granular pools  granular pools     example)
--------------------------------------------------------------------------------------------------- ---------------
Highest investment grade (for example, AAA)........              7%             12%             20%
Second highest investment grade (for example, AA)..              8%             15%             25%
Third-highest investment grade--positive                        10%             18%             35%
 designation (for example, A+).....................
Third-highest investment grade (for example, A)....             12%             20%
Third-highest investment grade--negative                        20%             35%
 designation (for example, A-).....................
                                                                    --------------------------------------------
Lowest investment grade--positive designation (for              35%                50%
 example, BBB+)....................................
Lowest investment grade (for example, BBB).........             60%                75%
                                                    ------------------------------------------------------------
Lowest investment grade--negative designation (for
 example, BBB-)....................................                       100%
One category below investment grade--positive
 designation (for example, BB+)....................                       250%
One category below investment grade (for example,
 BB)...............................................                       425%
One category below investment grade--negative
 designation (for example, BB-)....................                       650%
More than one category below investment grade......     Deduction from tier 1 and tier 2 capital.
----------------------------------------------------------------------------------------------------------------


                        Table 7.--Short-Term Credit Rating Risk Weights Under RBA and IAA
----------------------------------------------------------------------------------------------------------------
                                                        Column 1        Column 2        Column 3
                                                    -----------------------------------------------    Applicable
                                                      Risk weights    Risk weights    Risk weights    external or
       Applicable external or inferred rating          for senior    for non-senior        for          inferred
           (Illustrative rating example)             securitization  securitization  securitization      rating
                                                        exposures       exposures       exposures    (Illustrative
                                                        backed by       backed by    backed by non-      rating
                                                     granular pools  granular pools  granular pools     example)
--------------------------------------------------------------------------------------------------- ---------------
Highest investment grade (for example, A1).........              7%             12%             20%
Second highest investment grade (for example, A2)..             12%             20%             35%
Third highest investment grade (for example, A3)...             60%             75%             75%
All other ratings..................................     Deduction from tier 1 and tier 2 capital.
----------------------------------------------------------------------------------------------------------------

             Section 44. Internal Assessment Approach (IAA)

    (a) Eligibility requirements. A [bank] may apply the IAA to 
calculate the risk-weighted asset amount for a securitization exposure 
that the [bank] has to an ABCP program (such as a liquidity facility or 
credit enhancement) if the [bank], the ABCP program, and the exposure 
qualify for use of the IAA.
    (1) [Bank] qualification criteria. A [bank] qualifies for use of the 
IAA if the [bank] has received the prior written approval of the 
[AGENCY]. To receive such approval, the

[[Page 90]]

[bank] must demonstrate to the [AGENCY]'s satisfaction that the [bank]'s 
internal assessment process meets the following criteria:
    (i) The [bank]'s internal credit assessments of securitization 
exposures must be based on publicly available rating criteria used by an 
NRSRO.
    (ii) The [bank]'s internal credit assessments of securitization 
exposures used for risk-based capital purposes must be consistent with 
those used in the [bank]'s internal risk management process, management 
information reporting systems, and capital adequacy assessment process.
    (iii) The [bank]'s internal credit assessment process must have 
sufficient granularity to identify gradations of risk. Each of the 
[bank]'s internal credit assessment categories must correspond to an 
external rating of an NRSRO.
    (iv) The [bank]'s internal credit assessment process, particularly 
the stress test factors for determining credit enhancement requirements, 
must be at least as conservative as the most conservative of the 
publicly available rating criteria of the NRSROs that have provided 
external ratings to the commercial paper issued by the ABCP program.
    (A) Where the commercial paper issued by an ABCP program has an 
external rating from two or more NRSROs and the different NRSROs'' 
benchmark stress factors require different levels of credit enhancement 
to achieve the same external rating equivalent, the [bank] must apply 
the NRSRO stress factor that requires the highest level of credit 
enhancement.
    (B) If any NRSRO that provides an external rating to the ABCP 
program's commercial paper changes its methodology (including stress 
factors), the [bank] must evaluate whether to revise its internal 
assessment process.
    (v) The [bank] must have an effective system of controls and 
oversight that ensures compliance with these operational requirements 
and maintains the integrity and accuracy of the internal credit 
assessments. The [bank] must have an internal audit function independent 
from the ABCP program business line and internal credit assessment 
process that assesses at least annually whether the controls over the 
internal credit assessment process function as intended.
    (vi) The [bank] must review and update each internal credit 
assessment whenever new material information is available, but no less 
frequently than annually.
    (vii) The [bank] must validate its internal credit assessment 
process on an ongoing basis and at least annually.
    (2) ABCP-program qualification criteria. An ABCP program qualifies 
for use of the IAA if all commercial paper issued by the ABCP program 
has an external rating.
    (3) Exposure qualification criteria. A securitization exposure 
qualifies for use of the IAA if the exposure meets the following 
criteria:
    (i) The [bank] initially rated the exposure at least the equivalent 
of investment grade.
    (ii) The ABCP program has robust credit and investment guidelines 
(that is, underwriting standards) for the exposures underlying the 
securitization exposure.
    (iii) The ABCP program performs a detailed credit analysis of the 
sellers of the exposures underlying the securitization exposure.
    (iv) The ABCP program's underwriting policy for the exposures 
underlying the securitization exposure establishes minimum asset 
eligibility criteria that include the prohibition of the purchase of 
assets that are significantly past due or of assets that are defaulted 
(that is, assets that have been charged off or written down by the 
seller prior to being placed into the ABCP program or assets that would 
be charged off or written down under the program's governing contracts), 
as well as limitations on concentration to individual obligors or 
geographic areas and the tenor of the assets to be purchased.
    (v) The aggregate estimate of loss on the exposures underlying the 
securitization exposure considers all sources of potential risk, such as 
credit and dilution risk.
    (vi) Where relevant, the ABCP program incorporates structural 
features into each purchase of exposures underlying the securitization 
exposure to mitigate potential credit deterioration of the underlying 
exposures. Such features may include wind-down triggers specific to a 
pool of underlying exposures.
    (b) Mechanics. A [bank] that elects to use the IAA to calculate the 
risk-based capital requirement for any securitization exposure must use 
the IAA to calculate the risk-based capital requirements for all 
securitization exposures that qualify for the IAA approach. Under the 
IAA, a [bank] must map its internal assessment of such a securitization 
exposure to an equivalent external rating from an NRSRO. Under the IAA, 
a [bank] must determine the risk-weighted asset amount for such a 
securitization exposure by multiplying the amount of the exposure (as 
defined in paragraph (e) of section 42 of this appendix) by the 
appropriate risk weight in Table 6 and Table 7 in paragraph (b) of 
section 43 of this appendix.

             Section 45. Supervisory Formula Approach (SFA)

    (a) Eligibility requirements. A [bank] may use the SFA to determine 
its risk-based capital requirement for a securitization exposure only if 
the [bank] can calculate on an ongoing basis each of the SFA parameters 
in paragraph (e) of this section.

[[Page 91]]

    (b) Mechanics. Under the SFA, a securitization exposure incurs a 
deduction from total capital (as described in paragraph (c) of section 
42 of this appendix) and/or an SFA risk-based capital requirement, as 
determined in paragraph (c) of this section. The risk-weighted asset 
amount for the securitization exposure equals the SFA risk-based capital 
requirement for the exposure multiplied by 12.5.
    (c) The SFA risk-based capital requirement. (1) If KIRB 
is greater than or equal to L + T, the entire exposure must be deducted 
from total capital.
    (2) If KIRB is less than or equal to L, the exposure's 
SFA risk-based capital requirement is UE multiplied by TP multiplied by 
the greater of:
    (i) 0.0056 * T; or
    (ii) S[L + T] - S[L].
    (3) If KIRB is greater than L and less than L + T, the 
[bank] must deduct from total capital an amount equal to 
UE*TP*(KIRB - L), and the exposure's SFA risk-based capital 
requirement is UE multiplied by TP multiplied by the greater of:
    (i) 0.0056 * (T - (KIRB - L)); or
    (ii) S[L + T] - S[KIRB].
    (d) The supervisory formula:

[[Page 92]]

[GRAPHIC] [TIFF OMITTED] TR07DE07.017

    (11) In these expressions, [beta][Y; a, b] refers to the cumulative 
beta distribution with parameters a and b evaluated at Y. In the case 
where N = 1 and EWALGD = 100 percent, S[Y] in formula (1) must be 
calculated with K[Y] set equal to the product of KIRB and Y, 
and d set equal to 1 - KIRB.
    (e) SFA parameters--(1) Amount of the underlying exposures (UE). UE 
is the EAD of any underlying exposures that are wholesale and retail 
exposures (including the amount of any funded spread accounts, cash 
collateral accounts, and other similar funded credit enhancements) plus 
the amount of any underlying exposures that are securitization exposures 
(as defined in paragraph (e) of section 42 of this appendix) plus the 
adjusted carrying value of any underlying exposures that are equity 
exposures (as defined in paragraph (b) of section 51 of this appendix).
    (2) Tranche percentage (TP). TP is the ratio of the amount of the 
[bank]'s securitization

[[Page 93]]

exposure to the amount of the tranche that contains the securitization 
exposure.
    (3) Capital requirement on underlying exposures (KIRB). (i) 
KIRB is the ratio of:
    (A) The sum of the risk-based capital requirements for the 
underlying exposures plus the expected credit losses of the underlying 
exposures (as determined under this appendix as if the underlying 
exposures were directly held by the [bank]); to
    (B) UE.
    (ii) The calculation of KIRB must reflect the effects of 
any credit risk mitigant applied to the underlying exposures (either to 
an individual underlying exposure, to a group of underlying exposures, 
or to the entire pool of underlying exposures).
    (iii) All assets related to the securitization are treated as 
underlying exposures, including assets in a reserve account (such as a 
cash collateral account).
    (4) Credit enhancement level (L). (i) L is the ratio of:
    (A) The amount of all securitization exposures subordinated to the 
tranche that contains the [bank]'s securitization exposure; to
    (B) UE.
    (ii) A [bank] must determine L before considering the effects of any 
tranche-specific credit enhancements.
    (iii) Any gain-on-sale or CEIO associated with the securitization 
may not be included in L.
    (iv) Any reserve account funded by accumulated cash flows from the 
underlying exposures that is subordinated to the tranche that contains 
the [bank]'s securitization exposure may be included in the numerator 
and denominator of L to the extent cash has accumulated in the account. 
Unfunded reserve accounts (that is, reserve accounts that are to be 
funded from future cash flows from the underlying exposures) may not be 
included in the calculation of L.
    (v) In some cases, the purchase price of receivables will reflect a 
discount that provides credit enhancement (for example, first loss 
protection) for all or certain tranches of the securitization. When this 
arises, L should be calculated inclusive of this discount if the 
discount provides credit enhancement for the securitization exposure.
    (5) Thickness of tranche (T). T is the ratio of:
    (i) The amount of the tranche that contains the [bank]'s 
securitization exposure; to
    (ii) UE.
    (6) Effective number of exposures (N). (i) Unless the [bank] elects 
to use the formula provided in paragraph (f) of this section,
[GRAPHIC] [TIFF OMITTED] TR07DE07.018

where EADi represents the EAD associated with the ith 
instrument in the pool of underlying exposures.
    (ii) Multiple exposures to one obligor must be treated as a single 
underlying exposure.
    (iii) In the case of a re-securitization (that is, a securitization 
in which some or all of the underlying exposures are themselves 
securitization exposures), the [bank] must treat each underlying 
exposure as a single underlying exposure and must not look through to 
the originally securitized underlying exposures.
    (7) Exposure-weighted average loss given default (EWALGD). EWALGD is 
calculated as:
[GRAPHIC] [TIFF OMITTED] TR07DE07.019

where LGDi represents the average LGD associated with all 
exposures to the ith obligor. In the case of a re-securitization, an LGD 
of 100 percent must be assumed for the underlying exposures that are 
themselves securitization exposures.
    (f) Simplified method for computing N and EWALGD. (1) If all 
underlying exposures of a securitization are retail exposures, a [bank] 
may apply the SFA using the following simplifications:
    (i) h = 0; and
    (ii) v = 0.
    (2) Under the conditions in paragraphs (f)(3) and (f)(4) of this 
section, a [bank] may employ a simplified method for calculating N and 
EWALGD.
    (3) If C1 is no more than 0.03, a [bank] may set EWALGD = 
0.50 if none of the underlying exposures is a securitization exposure or 
EWALGD = 1 if one or more of the underlying exposures is a 
securitization exposure, and may set N equal to the following amount:
[GRAPHIC] [TIFF OMITTED] TR07DE07.020


[[Page 94]]


where:
    (i) Cm is the ratio of the sum of the amounts of the `m' 
largest underlying exposures to UE; and
    (ii) The level of m is to be selected by the [bank].

    (4) Alternatively, if only C1 is available and 
C1 is no more than 0.03, the [bank] may set EWALGD = 0.50 if 
none of the underlying exposures is a securitization exposure or EWALGD 
= 1 if one or more of the underlying exposures is a securitization 
exposure and may set N = 1/C1.

  Section 46. Recognition of Credit Risk Mitigants for Securitization 
                                Exposures

    (a) General. An originating [bank] that has obtained a credit risk 
mitigant to hedge its securitization exposure to a synthetic or 
traditional securitization that satisfies the operational criteria in 
section 41 of this appendix may recognize the credit risk mitigant, but 
only as provided in this section. An investing [bank] that has obtained 
a credit risk mitigant to hedge a securitization exposure may recognize 
the credit risk mitigant, but only as provided in this section. A [bank] 
that has used the RBA in section 43 of this appendix or the IAA in 
section 44 of this appendix to calculate its risk-based capital 
requirement for a securitization exposure whose external or inferred 
rating (or equivalent internal rating under the IAA) reflects the 
benefits of a credit risk mitigant provided to the associated 
securitization or that supports some or all of the underlying exposures 
may not use the credit risk mitigation rules in this section to further 
reduce its risk-based capital requirement for the exposure to reflect 
that credit risk mitigant.
    (b) Collateral--(1) Rules of recognition. A [bank] may recognize 
financial collateral in determining the [bank]'s risk-based capital 
requirement for a securitization exposure (other than a repo-style 
transaction, an eligible margin loan, or an OTC derivative contract for 
which the [bank] has reflected collateral in its determination of 
exposure amount under section 32 of this appendix) as follows. The 
[bank]'s risk-based capital requirement for the collateralized 
securitization exposure is equal to the risk-based capital requirement 
for the securitization exposure as calculated under the RBA in section 
43 of this appendix or under the SFA in section 45 of this appendix 
multiplied by the ratio of adjusted exposure amount (SE*) to original 
exposure amount (SE), where:
    (i) SE* = max {0, [SE--C x (1-Hs-Hfx)]{time} ;
    (ii) SE = the amount of the securitization exposure calculated under 
paragraph (e) of section 42 of this appendix;
    (iii) C = the current market value of the collateral;
    (iv) Hs = the haircut appropriate to the collateral type; and
    (v) Hfx = the haircut appropriate for any currency mismatch between 
the collateral and the exposure.
    (2) Mixed collateral. Where the collateral is a basket of different 
asset types or a basket of assets denominated in different currencies, 
the haircut on the basket will be
[GRAPHIC] [TIFF OMITTED] TR07DE07.023

where ai is the current market value of the asset in the 
basket divided by the current market value of all assets in the basket 
and Hi is the haircut applicable to that asset.
    (3) Standard supervisory haircuts. Unless a [bank] qualifies for use 
of and uses own-estimates haircuts in paragraph (b)(4) of this section:
    (i) A [bank] must use the collateral type haircuts (Hs) in Table 3;
    (ii) A [bank] must use a currency mismatch haircut (Hfx) of 8 
percent if the exposure and the collateral are denominated in different 
currencies;
    (iii) A [bank] must multiply the supervisory haircuts obtained in 
paragraphs (b)(3)(i) and (ii) by the square root of 6.5 (which equals 
2.549510); and
    (iv) A [bank] must adjust the supervisory haircuts upward on the 
basis of a holding period longer than 65 business days where and as 
appropriate to take into account the illiquidity of the collateral.
    (4) Own estimates for haircuts. With the prior written approval of 
the [AGENCY], a [bank] may calculate haircuts using its own internal 
estimates of market price volatility and foreign exchange volatility, 
subject to paragraph (b)(2)(iii) of section 32 of this appendix. The 
minimum holding period (TM) for securitization exposures is 65 business 
days.
    (c) Guarantees and credit derivatives--(1) Limitations on 
recognition. A [bank] may only recognize an eligible guarantee or 
eligible credit derivative provided by an eligible securitization 
guarantor in determining the [bank]'s risk-based capital requirement for 
a securitization exposure.
    (2) ECL for securitization exposures. When a [bank] recognizes an 
eligible guarantee or eligible credit derivative provided by an eligible 
securitization guarantor in determining the [bank]'s risk-based capital 
requirement for a securitization exposure, the [bank] must also:
    (i) Calculate ECL for the protected portion of the exposure using 
the same risk parameters that it uses for calculating the risk-weighted 
asset amount of the exposure as described in paragraph (c)(3) of this 
section; and
    (ii) Add the exposure's ECL to the [bank]'s total ECL.

[[Page 95]]

    (3) Rules of recognition. A [bank] may recognize an eligible 
guarantee or eligible credit derivative provided by an eligible 
securitization guarantor in determining the [bank]'s risk-based capital 
requirement for the securitization exposure as follows:
    (i) Full coverage. If the protection amount of the eligible 
guarantee or eligible credit derivative equals or exceeds the amount of 
the securitization exposure, the [bank] may set the risk-weighted asset 
amount for the securitization exposure equal to the risk-weighted asset 
amount for a direct exposure to the eligible securitization guarantor 
(as determined in the wholesale risk weight function described in 
section 31 of this appendix), using the [bank]'s PD for the guarantor, 
the [bank]'s LGD for the guarantee or credit derivative, and an EAD 
equal to the amount of the securitization exposure (as determined in 
paragraph (e) of section 42 of this appendix).
    (ii) Partial coverage. If the protection amount of the eligible 
guarantee or eligible credit derivative is less than the amount of the 
securitization exposure, the [bank] may set the risk-weighted asset 
amount for the securitization exposure equal to the sum of:
    (A) Covered portion. The risk-weighted asset amount for a direct 
exposure to the eligible securitization guarantor (as determined in the 
wholesale risk weight function described in section 31 of this 
appendix), using the [bank]'s PD for the guarantor, the [bank]'s LGD for 
the guarantee or credit derivative, and an EAD equal to the protection 
amount of the credit risk mitigant; and
    (B) Uncovered portion. (1) 1.0 minus the ratio of the protection 
amount of the eligible guarantee or eligible credit derivative to the 
amount of the securitization exposure); multiplied by
    (2) The risk-weighted asset amount for the securitization exposure 
without the credit risk mitigant (as determined in sections 42-45 of 
this appendix).
    (4) Mismatches. The [bank] must make applicable adjustments to the 
protection amount as required in paragraphs (d), (e), and (f) of section 
33 of this appendix for any hedged securitization exposure and any more 
senior securitization exposure that benefits from the hedge. In the 
context of a synthetic securitization, when an eligible guarantee or 
eligible credit derivative covers multiple hedged exposures that have 
different residual maturities, the [bank] must use the longest residual 
maturity of any of the hedged exposures as the residual maturity of all 
the hedged exposures.

   Section 47. Risk-Based Capital Requirement for Early Amortization 
                               Provisions

    (a) General. (1) An originating [bank] must hold risk-based capital 
against the sum of the originating [bank]'s interest and the investors' 
interest in a securitization that:
    (i) Includes one or more underlying exposures in which the borrower 
is permitted to vary the drawn amount within an agreed limit under a 
line of credit; and
    (ii) Contains an early amortization provision.
    (2) For securitizations described in paragraph (a)(1) of this 
section, an originating [bank] must calculate the risk-based capital 
requirement for the originating [bank]'s interest under sections 42-45 
of this appendix, and the risk-based capital requirement for the 
investors' interest under paragraph (b) of this section.
    (b) Risk-weighted asset amount for investors' interest. The 
originating [bank]'s risk-weighted asset amount for the investors' 
interest in the securitization is equal to the product of the following 
5 quantities:
    (1) The investors' interest EAD;
    (2) The appropriate conversion factor in paragraph (c) of this 
section;
    (3) KIRB (as defined in paragraph (e)(3) of section 45 of 
this appendix);
    (4) 12.5; and
    (5) The proportion of the underlying exposures in which the borrower 
is permitted to vary the drawn amount within an agreed limit under a 
line of credit.
    (c) Conversion factor. (1) (i) Except as provided in paragraph 
(c)(2) of this section, to calculate the appropriate conversion factor, 
a [bank] must use Table 8 for a securitization that contains a 
controlled early amortization provision and must use Table 9 for a 
securitization that contains a non-controlled early amortization 
provision. In circumstances where a securitization contains a mix of 
retail and nonretail exposures or a mix of committed and uncommitted 
exposures, a [bank] may take a pro rata approach to determining the 
conversion factor for the securitization's early amortization provision. 
If a pro rata approach is not feasible, a [bank] must treat the mixed 
securitization as a securitization of nonretail exposures if a single 
underlying exposure is a nonretail exposure and must treat the mixed 
securitization as a securitization of committed exposures if a single 
underlying exposure is a committed exposure.
    (ii) To find the appropriate conversion factor in the tables, a 
[bank] must divide the three-month average annualized excess spread of 
the securitization by the excess spread trapping point in the 
securitization structure. In securitizations that do not require excess 
spread to be trapped, or that specify trapping points based primarily on 
performance measures other than the three-month average annualized 
excess spread, the excess spread trapping point is 4.5 percent.

[[Page 96]]



           Table 8.--Controlled Early Amortization Provisions
------------------------------------------------------------------------
                                       Uncommitted          Committed
------------------------------------------------------------------------
Retail Credit Lines............  Three-month average     90% CF
                                  annualized excess
                                  spread Conversion
                                  Factor (CF).
                                 133.33% of trapping
                                  point or more, 0% CF.
                                 less than 133.33% to
                                  100% of trapping
                                  point, 1% CF.
                                 less than 100% to 75%
                                  of trapping point, 2%
                                  CF.
                                 less than 75% to 50%
                                  of trapping point,
                                  10% CF.
                                 less than 50% to 25%
                                  of trapping point,
                                  20% CF.
                                 less than 25% of
                                  trapping point, 40%
                                  CF.
Non-retail Credit Lines........  90% CF................  90% CF
------------------------------------------------------------------------


         Table 9.--Non-Controlled Early Amortization Provisions
------------------------------------------------------------------------
                                       Uncommitted          Committed
------------------------------------------------------------------------
Retail Credit Lines............  Three-month average     100% CF
                                  annualized excess
                                  spread Conversion
                                  Factor (CF).
                                 133.33% of trapping
                                  point or more, 0% CF.
                                 less than 133.33% to
                                  100% of trapping
                                  point, 5% CF.
                                 less than 100% to 75%
                                  of trapping point,
                                  15% CF.
                                 less than 75% to 50%
                                  of trapping point,
                                  50% CF.
                                 less than 50% of
                                  trapping point, 100%
                                  CF.
Non-retail Credit Lines........  100% CF...............  100% CF
------------------------------------------------------------------------

    (2) For a securitization for which all or substantially all of the 
underlying exposures are residential mortgage exposures, a [bank] may 
calculate the appropriate conversion factor using paragraph (c)(1) of 
this section or may use a conversion factor of 10 percent. If the [bank] 
chooses to use a conversion factor of 10 percent, it must use that 
conversion factor for all securitizations for which all or substantially 
all of the underlying exposures are residential mortgage exposures.

           Part VI. Risk-Weighted Assets for Equity Exposures

            Section 51. Introduction and Exposure Measurement

    (a) General. To calculate its risk-weighted asset amounts for equity 
exposures that are not equity exposures to investment funds, a [bank] 
may apply either the Simple Risk Weight Approach (SRWA) in section 52 of 
this appendix or, if it qualifies to do so, the Internal Models Approach 
(IMA) in section 53 of this appendix. A [bank] must use the look-through 
approaches in section 54 of this appendix to calculate its risk-weighted 
asset amounts for equity exposures to investment funds.
    (b) Adjusted carrying value. For purposes of this part, the adjusted 
carrying value of an equity exposure is:
    (1) For the on-balance sheet component of an equity exposure, the 
[bank]'s carrying value of the exposure reduced by any unrealized gains 
on the exposure that are reflected in such carrying value but excluded 
from the [bank]'s tier 1 and tier 2 capital; and
    (2) For the off-balance sheet component of an equity exposure, the 
effective notional principal amount of the exposure, the size of which 
is equivalent to a hypothetical on-balance sheet position in the 
underlying equity instrument that would evidence the same change in fair 
value (measured in dollars) for a given small change in the price of the 
underlying equity instrument, minus the adjusted carrying value of the 
on-balance sheet component of the exposure as calculated in paragraph 
(b)(1) of this section. For unfunded equity commitments that are 
unconditional, the effective notional principal amount is the notional 
amount of the commitment. For unfunded equity commitments that are 
conditional, the effective notional principal amount is the [bank]'s 
best estimate of the amount that would be funded under economic downturn 
conditions.

             Section 52. Simple Risk Weight Approach (SRWA)

    (a) General. Under the SRWA, a [bank]'s aggregate risk-weighted 
asset amount for its equity exposures is equal to the sum of the risk-
weighted asset amounts for each of the [bank]'s individual equity 
exposures (other than equity exposures to an investment fund) as 
determined in this section and the risk-weighted asset amounts for each 
of the [bank]'s individual equity exposures to an investment fund as 
determined in section 54 of this appendix.
    (b) SRWA computation for individual equity exposures. A [bank] must 
determine the risk-weighted asset amount for an individual equity 
exposure (other than an equity exposure to an investment fund) by 
multiplying the adjusted carrying value of the equity exposure or the 
effective portion and ineffective

[[Page 97]]

portion of a hedge pair (as defined in paragraph (c) of this section) by 
the lowest applicable risk weight in this paragraph (b).
    (1) 0 percent risk weight equity exposures. An equity exposure to an 
entity whose credit exposures are exempt from the 0.03 percent PD floor 
in paragraph (d)(2) of section 31 of this appendix is assigned a 0 
percent risk weight.
    (2) 20 percent risk weight equity exposures. An equity exposure to a 
Federal Home Loan Bank or Farmer Mac is assigned a 20 percent risk 
weight.
    (3) 100 percent risk weight equity exposures. The following equity 
exposures are assigned a 100 percent risk weight:
    (i) Community development equity exposures. An equity exposure that 
qualifies as a community development investment under 12 U.S.C. 24 
(Eleventh), excluding equity exposures to an unconsolidated small 
business investment company and equity exposures held through a 
consolidated small business investment company described in section 302 
of the Small Business Investment Act of 1958 (15 U.S.C. 682).
    (ii) Effective portion of hedge pairs. The effective portion of a 
hedge pair.
    (iii) Non-significant equity exposures. Equity exposures, excluding 
exposures to an investment firm that would meet the definition of a 
traditional securitization were it not for the [AGENCY]'s application of 
paragraph (8) of that definition and has greater than immaterial 
leverage, to the extent that the aggregate adjusted carrying value of 
the exposures does not exceed 10 percent of the [bank]'s tier 1 capital 
plus tier 2 capital.
    (A) To compute the aggregate adjusted carrying value of a [bank]'s 
equity exposures for purposes of this paragraph (b)(3)(iii), the [bank] 
may exclude equity exposures described in paragraphs (b)(1), (b)(2), 
(b)(3)(i), and (b)(3)(ii) of this section, the equity exposure in a 
hedge pair with the smaller adjusted carrying value, and a proportion of 
each equity exposure to an investment fund equal to the proportion of 
the assets of the investment fund that are not equity exposures or that 
meet the criterion of paragraph (b)(3)(i) of this section. If a [bank] 
does not know the actual holdings of the investment fund, the [bank] may 
calculate the proportion of the assets of the fund that are not equity 
exposures based on the terms of the prospectus, partnership agreement, 
or similar contract that defines the fund's permissible investments. If 
the sum of the investment limits for all exposure classes within the 
fund exceeds 100 percent, the [bank] must assume for purposes of this 
paragraph (b)(3)(iii) that the investment fund invests to the maximum 
extent possible in equity exposures.
    (B) When determining which of a [bank]'s equity exposures qualify 
for a 100 percent risk weight under this paragraph, a [bank] first must 
include equity exposures to unconsolidated small business investment 
companies or held through consolidated small business investment 
companies described in section 302 of the Small Business Investment Act 
of 1958 (15 U.S.C. 682), then must include publicly traded equity 
exposures (including those held indirectly through investment funds), 
and then must include non-publicly traded equity exposures (including 
those held indirectly through investment funds).
    (4) 300 percent risk weight equity exposures. A publicly traded 
equity exposure (other than an equity exposure described in paragraph 
(b)(6) of this section and including the ineffective portion of a hedge 
pair) is assigned a 300 percent risk weight.
    (5) 400 percent risk weight equity exposures. An equity exposure 
(other than an equity exposure described in paragraph (b)(6) of this 
section) that is not publicly traded is assigned a 400 percent risk 
weight.
    (6) 600 percent risk weight equity exposures. An equity exposure to 
an investment firm that:
    (i) Would meet the definition of a traditional securitization were 
it not for the [AGENCY]'s application of paragraph (8) of that 
definition; and
    (ii) Has greater than immaterial leverage is assigned a 600 percent 
risk weight.
    (c) Hedge transactions--(1) Hedge pair. A hedge pair is two equity 
exposures that form an effective hedge so long as each equity exposure 
is publicly traded or has a return that is primarily based on a publicly 
traded equity exposure.
    (2) Effective hedge. Two equity exposures form an effective hedge if 
the exposures either have the same remaining maturity or each has a 
remaining maturity of at least three months; the hedge relationship is 
formally documented in a prospective manner (that is, before the [bank] 
acquires at least one of the equity exposures); the documentation 
specifies the measure of effectiveness (E) the [bank] will use for the 
hedge relationship throughout the life of the transaction; and the hedge 
relationship has an E greater than or equal to 0.8. A [bank] must 
measure E at least quarterly and must use one of three alternative 
measures of E:
    (i) Under the dollar-offset method of measuring effectiveness, the 
[bank] must determine the ratio of value change (RVC). The RVC is the 
ratio of the cumulative sum of the periodic changes in value of one 
equity exposure to the cumulative sum of the periodic changes in the 
value of the other equity exposure. If RVC is positive, the hedge is not 
effective and E equals 0. If RVC is negative and greater than or equal 
to -1 (that is, between zero and -1), then E equals the absolute value 
of RVC. If RVC is negative and less than -1, then E equals 2 plus RVC.
    (ii) Under the variability-reduction method of measuring 
effectiveness:

[[Page 98]]

[GRAPHIC] [TIFF OMITTED] TR07DE07.021

(A) Xt = At - Bt;
(B) At = the value at time t of one exposure in a hedge pair; 
          and
(C) Bt = the value at time t of the other exposure in a hedge 
          pair.
    (iii) Under the regression method of measuring effectiveness, E 
equals the coefficient of determination of a regression in which the 
change in value of one exposure in a hedge pair is the dependent 
variable and the change in value of the other exposure in a hedge pair 
is the independent variable. However, if the estimated regression 
coefficient is positive, then the value of E is zero.
    (3) The effective portion of a hedge pair is E multiplied by the 
greater of the adjusted carrying values of the equity exposures forming 
a hedge pair.
    (4) The ineffective portion of a hedge pair is (1-E) multiplied by 
the greater of the adjusted carrying values of the equity exposures 
forming a hedge pair.

               Section 53. Internal Models Approach (IMA)

    (a) General. A [bank] may calculate its risk-weighted asset amount 
for equity exposures using the IMA by modeling publicly traded and non-
publicly traded equity exposures (in accordance with paragraph (c) of 
this section) or by modeling only publicly traded equity exposures (in 
accordance with paragraph (d) of this section).
    (b) Qualifying criteria. To qualify to use the IMA to calculate 
risk-based capital requirements for equity exposures, a [bank] must 
receive prior written approval from the [AGENCY]. To receive such 
approval, the [bank] must demonstrate to the [AGENCY]'s satisfaction 
that the [bank] meets the following criteria:
    (1) The [bank] must have one or more models that:
    (i) Assess the potential decline in value of its modeled equity 
exposures;
    (ii) Are commensurate with the size, complexity, and composition of 
the [bank]'s modeled equity exposures; and
    (iii) Adequately capture both general market risk and idiosyncratic 
risk.
    (2) The [bank]'s model must produce an estimate of potential losses 
for its modeled equity exposures that is no less than the estimate of 
potential losses produced by a VaR methodology employing a 99.0 percent, 
one-tailed confidence interval of the distribution of quarterly returns 
for a benchmark portfolio of equity exposures comparable to the [bank]'s 
modeled equity exposures using a long-term sample period.
    (3) The number of risk factors and exposures in the sample and the 
data period used for quantification in the [bank]'s model and 
benchmarking exercise must be sufficient to provide confidence in the 
accuracy and robustness of the [bank]'s estimates.
    (4) The [bank]'s model and benchmarking process must incorporate 
data that are relevant in representing the risk profile of the [bank]'s 
modeled equity exposures, and must include data from at least one equity 
market cycle containing adverse market movements relevant to the risk 
profile of the [bank]'s modeled equity exposures. In addition, the 
[bank]'s benchmarking exercise must be based on daily market prices for 
the benchmark portfolio. If the [bank]'s model uses a scenario 
methodology, the [bank] must demonstrate that the model produces a 
conservative estimate of potential losses on the [bank]'s modeled equity 
exposures over a relevant long-term market cycle. If the [bank] employs 
risk factor models, the [bank] must demonstrate through empirical 
analysis the appropriateness of the risk factors used.
    (5) The [bank] must be able to demonstrate, using theoretical 
arguments and empirical evidence, that any proxies used in the modeling 
process are comparable to the [bank]'s modeled equity exposures and that 
the [bank] has made appropriate adjustments for differences. The [bank] 
must derive any proxies for its modeled equity exposures and benchmark 
portfolio using historical market data that are relevant to the [bank]'s 
modeled equity exposures and benchmark portfolio (or, where not, must 
use appropriately adjusted data), and such proxies must be robust 
estimates of the risk of the [bank]'s modeled equity exposures.
    (c) Risk-weighted assets calculation for a [bank] modeling publicly 
traded and non-publicly traded equity exposures. If a [bank] models 
publicly traded and non-publicly traded equity exposures, the [bank]'s 
aggregate risk-weighted asset amount for its equity exposures is equal 
to the sum of:
    (1) The risk-weighted asset amount of each equity exposure that 
qualifies for a 0 percent, 20 percent, or 100 percent risk weight under 
paragraphs (b)(1) through (b)(3)(i) of section 52 (as determined under 
section 52 of this appendix) and each equity exposure to

[[Page 99]]

an investment fund (as determined under section 54 of this appendix); 
and
    (2) The greater of:
    (i) The estimate of potential losses on the [bank]'s equity 
exposures (other than equity exposures referenced in paragraph (c)(1) of 
this section) generated by the [bank]'s internal equity exposure model 
multiplied by 12.5; or
    (ii) The sum of:
    (A) 200 percent multiplied by the aggregate adjusted carrying value 
of the [bank]'s publicly traded equity exposures that do not belong to a 
hedge pair, do not qualify for a 0 percent, 20 percent, or 100 percent 
risk weight under paragraphs (b)(1) through (b)(3)(i) of section 52 of 
this appendix, and are not equity exposures to an investment fund;
    (B) 200 percent multiplied by the aggregate ineffective portion of 
all hedge pairs; and
    (C) 300 percent multiplied by the aggregate adjusted carrying value 
of the [bank]'s equity exposures that are not publicly traded, do not 
qualify for a 0 percent, 20 percent, or 100 percent risk weight under 
paragraphs (b)(1) through (b)(3)(i) of section 52 of this appendix, and 
are not equity exposures to an investment fund.
    (d) Risk-weighted assets calculation for a [bank] using the IMA only 
for publicly traded equity exposures. If a [bank] models only publicly 
traded equity exposures, the [bank]'s aggregate risk-weighted asset 
amount for its equity exposures is equal to the sum of:
    (1) The risk-weighted asset amount of each equity exposure that 
qualifies for a 0 percent, 20 percent, or 100 percent risk weight under 
paragraphs (b)(1) through (b)(3)(i) of section 52 (as determined under 
section 52 of this appendix), each equity exposure that qualifies for a 
400 percent risk weight under paragraph (b)(5) of section 52 or a 600 
percent risk weight under paragraph (b)(6) of section 52 (as determined 
under section 52 of this appendix), and each equity exposure to an 
investment fund (as determined under section 54 of this appendix); and
    (2) The greater of:
    (i) The estimate of potential losses on the [bank]'s equity 
exposures (other than equity exposures referenced in paragraph (d)(1) of 
this section) generated by the [bank]'s internal equity exposure model 
multiplied by 12.5; or
    (ii) The sum of:
    (A) 200 percent multiplied by the aggregate adjusted carrying value 
of the [bank]'s publicly traded equity exposures that do not belong to a 
hedge pair, do not qualify for a 0 percent, 20 percent, or 100 percent 
risk weight under paragraphs (b)(1) through (b)(3)(i) of section 52 of 
this appendix, and are not equity exposures to an investment fund; and
    (B) 200 percent multiplied by the aggregate ineffective portion of 
all hedge pairs.

            Section 54. Equity Exposures to Investment Funds

    (a) Available approaches. (1) Unless the exposure meets the 
requirements for a community development equity exposure in paragraph 
(b)(3)(i) of section 52 of this appendix, a [bank] must determine the 
risk-weighted asset amount of an equity exposure to an investment fund 
under the Full Look-Through Approach in paragraph (b) of this section, 
the Simple Modified Look-Through Approach in paragraph (c) of this 
section, the Alternative Modified Look-Through Approach in paragraph (d) 
of this section, or, if the investment fund qualifies for the Money 
Market Fund Approach, the Money Market Fund Approach in paragraph (e) of 
this section.
    (2) The risk-weighted asset amount of an equity exposure to an 
investment fund that meets the requirements for a community development 
equity exposure in paragraph (b)(3)(i) of section 52 of this appendix is 
its adjusted carrying value.
    (3) If an equity exposure to an investment fund is part of a hedge 
pair and the [bank] does not use the Full Look-Through Approach, the 
[bank] may use the ineffective portion of the hedge pair as determined 
under paragraph (c) of section 52 of this appendix as the adjusted 
carrying value for the equity exposure to the investment fund. The risk-
weighted asset amount of the effective portion of the hedge pair is 
equal to its adjusted carrying value.
    (b) Full Look-Through Approach. A [bank] that is able to calculate a 
risk-weighted asset amount for its proportional ownership share of each 
exposure held by the investment fund (as calculated under this appendix 
as if the proportional ownership share of each exposure were held 
directly by the [bank]) may either:
    (1) Set the risk-weighted asset amount of the [bank]'s exposure to 
the fund equal to the product of:
    (i) The aggregate risk-weighted asset amounts of the exposures held 
by the fund as if they were held directly by the [bank]; and
    (ii) The [bank]'s proportional ownership share of the fund; or
    (2) Include the [bank]'s proportional ownership share of each 
exposure held by the fund in the [bank]'s IMA.
    (c) Simple Modified Look-Through Approach. Under this approach, the 
risk-weighted asset amount for a [bank]'s equity exposure to an 
investment fund equals the adjusted carrying value of the equity 
exposure multiplied by the highest risk weight in Table 10 that applies 
to any exposure the fund is permitted to hold under its prospectus, 
partnership agreement, or similar contract that defines the fund's 
permissible investments (excluding derivative contracts that are used 
for hedging rather than speculative purposes

[[Page 100]]

and that do not constitute a material portion of the fund's exposures).

   Table 10.--Modified Look-Through Approaches for Equity Exposures to
                            Investment Funds
------------------------------------------------------------------------
               Risk weight                         Exposure class
------------------------------------------------------------------------
0 percent................................  Sovereign exposures with a
                                            long-term applicable
                                            external rating in the
                                            highest investment-grade
                                            rating category and
                                            sovereign exposures of the
                                            United States.
20 percent...............................  Non-sovereign exposures with
                                            a long-term applicable
                                            external rating in the
                                            highest or second-highest
                                            investment-grade rating
                                            category; exposures with a
                                            short-term applicable
                                            external rating in the
                                            highest investment-grade
                                            rating category; and
                                            exposures to, or guaranteed
                                            by, depository institutions,
                                            foreign banks (as defined in
                                            12 CFR 211.2), or securities
                                            firms subject to
                                            consolidated supervision and
                                            regulation comparable to
                                            that imposed on U.S.
                                            securities broker-dealers
                                            that are repo-style
                                            transactions or bankers'
                                            acceptances.
50 percent...............................  Exposures with a long-term
                                            applicable external rating
                                            in the third-highest
                                            investment-grade rating
                                            category or a short-term
                                            applicable external rating
                                            in the second-highest
                                            investment-grade rating
                                            category.
100 percent..............................  Exposures with a long-term or
                                            short-term applicable
                                            external rating in the
                                            lowest investment-grade
                                            rating category.
200 percent..............................  Exposures with a long-term
                                            applicable external rating
                                            one rating category below
                                            investment grade.
300 percent..............................  Publicly traded equity
                                            exposures.
400 percent..............................  Non-publicly traded equity
                                            exposures; exposures with a
                                            long-term applicable
                                            external rating two rating
                                            categories or more below
                                            investment grade; and
                                            exposures without an
                                            external rating (excluding
                                            publicly traded equity
                                            exposures).
1,250 percent............................  OTC derivative contracts and
                                            exposures that must be
                                            deducted from regulatory
                                            capital or receive a risk
                                            weight greater than 400
                                            percent under this appendix.
------------------------------------------------------------------------

    (d) Alternative Modified Look-Through Approach. Under this approach, 
a [bank] may assign the adjusted carrying value of an equity exposure to 
an investment fund on a pro rata basis to different risk weight 
categories in Table 10 based on the investment limits in the fund's 
prospectus, partnership agreement, or similar contract that defines the 
fund's permissible investments. The risk-weighted asset amount for the 
[bank]'s equity exposure to the investment fund equals the sum of each 
portion of the adjusted carrying value assigned to an exposure class 
multiplied by the applicable risk weight. If the sum of the investment 
limits for exposure classes within the fund exceeds 100 percent, the 
[bank] must assume that the fund invests to the maximum extent permitted 
under its investment limits in the exposure class with the highest risk 
weight under Table 10, and continues to make investments in order of the 
exposure class with the next highest risk weight under Table 10 until 
the maximum total investment level is reached. If more than one exposure 
class applies to an exposure, the [bank] must use the highest applicable 
risk weight. A [bank] may exclude derivative contracts held by the fund 
that are used for hedging rather than for speculative purposes and do 
not constitute a material portion of the fund's exposures.
    (e) Money Market Fund Approach. The risk-weighted asset amount for a 
[bank]'s equity exposure to an investment fund that is a money market 
fund subject to 17 CFR 270.2a-7 and that has an applicable external 
rating in the highest investment-grade rating category equals the 
adjusted carrying value of the equity exposure multiplied by 7 percent.

                 Section 55. Equity Derivative Contracts

    Under the IMA, in addition to holding risk-based capital against an 
equity derivative contract under this part, a [bank] must hold risk-
based capital against the counterparty credit risk in the equity 
derivative contract by also treating the equity derivative contract as a 
wholesale exposure and computing a supplemental risk-weighted asset 
amount for the contract under part IV. Under the SRWA, a [bank] may 
choose not to hold risk-based capital against the counterparty credit 
risk of equity derivative contracts, as long as it does so for all such 
contracts. Where the equity derivative contracts are subject to a 
qualified master netting agreement, a [bank] using the SRWA must either 
include all or exclude all of the contracts from any measure used to 
determine counterparty credit risk exposure.

           Part VII. Risk-Weighted Assets for Operational Risk

Section 61. Qualification Requirements for Incorporation of Operational 
                             Risk Mitigants

    (a) Qualification to use operational risk mitigants. A [bank] may 
adjust its estimate of operational risk exposure to reflect qualifying 
operational risk mitigants if:
    (1) The [bank]'s operational risk quantification system is able to 
generate an estimate of the [bank]'s operational risk exposure (which 
does not incorporate qualifying

[[Page 101]]

operational risk mitigants) and an estimate of the [bank]'s operational 
risk exposure adjusted to incorporate qualifying operational risk 
mitigants; and
    (2) The [bank]'s methodology for incorporating the effects of 
insurance, if the [bank] uses insurance as an operational risk mitigant, 
captures through appropriate discounts to the amount of risk mitigation:
    (i) The residual term of the policy, where less than one year;
    (ii) The cancellation terms of the policy, where less than one year;
    (iii) The policy's timeliness of payment;
    (iv) The uncertainty of payment by the provider of the policy; and
    (v) Mismatches in coverage between the policy and the hedged 
operational loss event.
    (b) Qualifying operational risk mitigants. Qualifying operational 
risk mitigants are:
    (1) Insurance that:
    (i) Is provided by an unaffiliated company that has a claims payment 
ability that is rated in one of the three highest rating categories by a 
NRSRO;
    (ii) Has an initial term of at least one year and a residual term of 
more than 90 days;
    (iii) Has a minimum notice period for cancellation by the provider 
of 90 days;
    (iv) Has no exclusions or limitations based upon regulatory action 
or for the receiver or liquidator of a failed depository institution; 
and
    (v) Is explicitly mapped to a potential operational loss event; and
    (2) Operational risk mitigants other than insurance for which the 
[AGENCY] has given prior written approval. In evaluating an operational 
risk mitigant other than insurance, the [AGENCY] will consider whether 
the operational risk mitigant covers potential operational losses in a 
manner equivalent to holding regulatory capital.

        Section 62. Mechanics of Risk-Weighted Asset Calculation

    (a) If a [bank] does not qualify to use or does not have qualifying 
operational risk mitigants, the [bank]'s dollar risk-based capital 
requirement for operational risk is its operational risk exposure minus 
eligible operational risk offsets (if any).
    (b) If a [bank] qualifies to use operational risk mitigants and has 
qualifying operational risk mitigants, the [bank]'s dollar risk-based 
capital requirement for operational risk is the greater of:
    (1) The [bank]'s operational risk exposure adjusted for qualifying 
operational risk mitigants minus eligible operational risk offsets (if 
any); or
    (2) 0.8 multiplied by the difference between:
    (i) The [bank]'s operational risk exposure; and
    (ii) Eligible operational risk offsets (if any).
    (c) The [bank]'s risk-weighted asset amount for operational risk 
equals the [bank]'s dollar risk-based capital requirement for 
operational risk determined under paragraph (a) or (b) of this section 
multiplied by 12.5.

                          Part VIII. Disclosure

                   Section 71. Disclosure Requirements

    (a) Each [bank] must publicly disclose each quarter its total and 
tier 1 risk-based capital ratios and their components (that is, tier 1 
capital, tier 2 capital, total qualifying capital, and total risk-
weighted assets).\4\
---------------------------------------------------------------------------

    \4\ Other public disclosure requirements continue to apply--for 
example, Federal securities law and regulatory reporting requirements.
---------------------------------------------------------------------------

    [Disclosure paragraph (b)]
    [Disclosure paragraph (c)]

                                * * * * *

    2.At 72 FR 69429 and 69430, Dec. 7, 2007, Part 3 was amended by 
amending Appendix C, effective Apr. 1, 2008. For the convenience of the 
user, the revised text is set forth as follows:



  Sec. Appendix C to Part 3--Capital Adequacy Guidelines for [Banks]: 
       Internal-Ratings-Based and Advanced Measurement Approaches

    a. Remove ``[AGENCY]'' and add ``OCC'' in its place wherever it 
appears.
    b. Remove ``[bank]'' and add ``bank'' in its place wherever it 
appears, remove ``[banks]'' and add ``banks'' in its place wherever it 
appears, remove ``[Banks]'' and add ``Banks'' in its place wherever it 
appears, and remove ``[Bank]'' and add ``Bank'' in its place wherever it 
appears.
    c. Remove ``[Appendix-- to Part --]'' and add ``Appendix C to Part 
3'' in its place wherever it appears.
    d. Remove ``[the general risk-based capital rules]'' and add ``12 
CFR part 3, Appendix A'' in its place wherever it appears.
    e. Remove ``[the market risk rule]'' and add ``12 CFR part 3, 
Appendix B'' in its place wherever it appears.
    f. In section 1, revise paragraph (b)(1)(i), the last sentence in 
paragraph (b)(3), and the last sentence in paragraph (c)(1) to read as 
follows:

    Section 1. Purpose, Applicability, Reservation of Authority, and 
                        Principle of Conservatism

                                * * * * *

    (b) Applicability. (1) * * *

[[Page 102]]

    (i) Has consolidated assets, as reported on the most recent year-end 
Consolidated Report of Condition and Income (Call Report) equal to $250 
billion or more; * * *
    (3) * * * In making a determination under this paragraph, the OCC 
will apply notice and response procedures in the same manner and to the 
same extent as the notice and response procedures in 12 CFR 3.12.
    (c) Reservation of authority--(1) * * * In making a determination 
under this paragraph, the OCC will apply notice and response procedures 
in the same manner and to the same extent as the notice and response 
procedures in 12 CFR 3.12.

                                * * * * *

    g. In section 2, revise the definition of excluded mortgage 
exposure, the definition of gain-on-sale, and paragraph (2)(i) of the 
definition of high volatility commercial real estate (HVCRE) exposure to 
read as follows:

                         Section 2. Definitions

                                * * * * *

    Excluded mortgage exposure means any one- to four-family residential 
pre-sold construction loan for a residence for which the purchase 
contract is cancelled that would receive a 100 percent risk weight under 
section 618(a)(2) of the Resolution Trust Corporation Refinancing, 
Restructuring, and Improvement Act and under and 12 CFR part 3, Appendix 
A, section 3(a)(3)(iii).

                                * * * * *

    Gain-on-sale means an increase in the equity capital (as reported on 
Schedule RC of the Call Report) of a bank that results from a 
securitization (other than an increase in equity capital that results 
from the bank's receipt of cash in connection with the securitization).

                                * * * * *

    High volatility commercial real estate (HVCRE) exposure * * *
    (2) * * *
    (i) The loan-to-value ratio is less than or equal to the applicable 
maximum supervisory loan-to-value ratio in the OCC's real estate lending 
standards at 12 CFR part 34, Subpart D;

                                * * * * *

    h. Revise section 12 to read as follows:

           Section 12. Deductions and Limitations Not Required

    (a) Deduction of CEIOs. A bank is not required to make the 
deductions from capital for CEIOs in 12 CFR part 3, Appendix A, section 
2(c).
    (b) Deduction of certain equity investments. A bank is not required 
to make the deductions from capital for nonfinancial equity investments 
in 12 CFR part 3, Appendix A, section 2(c).

                                * * * * *

    i. Revise the first sentence of paragraph (k)(1)(iv) and paragraph 
(k)(4) of section 42 to read as follows:

 Section 42. Risk-Based Capital Requirement for Securitization Exposures

                                * * * * *

    (k) * * *
    (1) * * *
    (iv) The bank is well capitalized, as defined in the OCC's prompt 
corrective action regulation at 12 CFR part 6. * * *

                                * * * * *

    (4) The risk-based capital ratios of the bank must be calculated 
without regard to the capital treatment for transfers of small-business 
obligations with recourse specified in paragraph (k)(1) of this section 
as provided in 12 CFR part 3, Appendix A.

                                * * * * *

    j. Remove ``[Disclosure paragraph (b)]'' and add in its place ``(b) 
A bank must comply with paragraph (b) of section 71 of appendix G to the 
Federal Reserve Board's Regulation Y (12 CFR part 225, appendix G) 
unless it is a consolidated subsidiary of a bank holding company or 
depository institution that is subject to these requirements.''
    k. Remove ``[Disclosure paragraph (c)].''



PART 4_ORGANIZATION AND FUNCTIONS, AVAILABILITY AND RELEASE OF INFORMATION, CONTRACTING OUTREACH PROGRAM, POST-EMPLOYMENT RESTRICTIONS FOR SENIOR EXAMINERS--Table of Contents




                  Subpart A_Organization and Functions

Sec.
4.1 Purpose.
4.2 Office of the Comptroller of the Currency.
4.3 Comptroller of the Currency.
4.4 Washington office.
4.5 District and field offices.
4.6 Frequency of examination of national banks.

[[Page 103]]

4.7 Frequency of examination of Federal agencies and branches.

 Subpart B_Availability of Information Under the Freedom of Information 
                                   Act

4.11 Purpose and scope.
4.12 Information available under the FOIA.
4.13 Publication in the Federal Register.
4.14 Public inspection and copying.
4.15 Specific requests for records.
4.16 Predisclosure notice for confidential commercial information.
4.17 Fees for services.

             Subpart C_Release of Non-Public OCC Information

4.31 Purpose and scope.
4.32 Definitions.
4.33 Requirements for a request of records or testimony.
4.34 Where to submit a request.
4.35 Consideration of requests.
4.36 Disclosure of non-public OCC information.
4.37 Persons and entities with access to OCC information; prohibition on 
          dissemination.
4.38 Restrictions on dissemination of released information.
4.39 Notification of parties and procedures for sharing and using OCC 
          records in litigation.
4.40 Fees for services.

Appendix A to Subpart C--Model Stipulation for Protective Order and 
          Model Protective Order

  Subpart D_Minority-, Women-, and Individuals With Disabilities-Owned 
    Business Contracting Outreach Program; Contracting for Goods and 
                                Services

4.61 Purpose.
4.62 Definitions.
4.63 Policy.
4.64 Promotion.
4.65 Certification.
4.66 Oversight and monitoring.

Subpart E_One-Year Restrictions on Post-Employment Activities of Senior 
                                Examiners

4.72 Scope and purpose.
4.73 Definitions.
4.74 One-year post-employment restrictions.
4.75 Effective date; waivers.
4.76 Penalties.

    Authority: 12 U.S.C. 93a. Subpart A also issued under 5 U.S.C. 552; 
Subpart B also issued under 5 U.S.C. 552; E.O. 12600 (3 CFR 1987 Comp., 
p. 235). Subpart C also issued under 5 U.S.C. 301, 552; 12 U.S.C. 161, 
481, 482, 484(a), 1442, 1817(a)(3), 1818(u) and (v), 1820(d)(6), 
1820(k), 1821(c), 1821(o), 1821(t), 1831m, 1831p-1, 1831o, 1867, 1951 et 
seq., 2601 et seq., 2801 et seq., 2901 et seq., 3101 et seq., 3401 et 
seq.; 15 U.S.C. 77uu(b), 78q(c)(3); 18 U.S.C. 641, 1905, 1906; 29 U.S.C. 
1204; 31 U.S.C. 9701; 42 U.S.C. 3601; 44 U.S.C. 3506, 3510. Subpart D 
also issued under 12 U.S.C. 1833e.

    Source: 60 FR 57322, Nov. 15, 1995, unless otherwise noted.



                  Subpart A_Organization and Functions



Sec. 4.1  Purpose.

    This subpart describes the organization and functions of the Office 
of the Comptroller of the Currency (OCC), and provides the OCC's 
principal addresses.



Sec. 4.2  Office of the Comptroller of the Currency.

    The OCC supervises and regulates national banks and Federal branches 
and agencies of foreign banks by examining these institutions to 
determine compliance with applicable laws and regulations; approving or 
denying applications for new charters or for changes in corporate or 
banking structure; approving or denying activities; taking supervisory 
or enforcement actions; appointing receivers and conservators; and 
issuing rules and regulations applicable to these institutions, their 
subsidiaries, and affiliates.



Sec. 4.3  Comptroller of the Currency.

    The Comptroller of the Currency (Comptroller), as head of the OCC, 
is responsible for all OCC programs and functions. The Comptroller is 
appointed by the President, by and with the advice and consent of the 
Senate, for a term of five years. The Comptroller serves as a member of 
the board of the Federal Deposit Insurance Corporation, a member of the 
Federal Financial Institutions Examination Council, and a member of the 
board of the Neighborhood Reinvestment Corporation. The Comptroller is 
advised and assisted by OCC staff, who perform the duties and functions 
that the Comptroller directs.



Sec. 4.4  Washington office.

    The Washington office of the OCC is the main office and headquarters 
of the OCC. The Washington office directs OCC policy, oversees OCC 
operations,

[[Page 104]]

and is responsible for the direct supervision of certain national banks, 
including the largest national banks (through its Multinational Banking 
Department) and other national banks requiring special supervision. The 
Washington office is located at 250 E Street, SW, Washington, DC 20219.



Sec. 4.5  District and field offices.

    (a) District offices. Each district office of the OCC is responsible 
for the direct supervision of the national banks and Federal branches 
and agencies of foreign banks in its district, with the exception of the 
national banks supervised by the Washington office. The six district 
offices cover the United States, Puerto Rico, the Virgin Islands, Guam, 
and the Northern Mariana Islands. The office address and the 
geographical composition of each district follows:

------------------------------------------------------------------------
                                                        Geographical
         District               Office address          composition
------------------------------------------------------------------------
Northeastern..............  Office of the          Connecticut,
                             Comptroller of the     Delaware, District
                             Currency, 1114         of Columbia, Maine,
                             Avenue of the          Maryland,
                             Americas, Suite        Massachusetts, New
                             3900, New York, NY     Hampshire, New
                             10036.                 Jersey, New York,
                                                    Pennsylvania, Puerto
                                                    Rico, Rhode Island,
                                                    Vermont, Virgin
                                                    Islands
Southeastern..............  Office of the          Alabama, Florida,
                             Comptroller of the     Georgia,
                             Currency, Marquis      Mississippi, North
                             One Tower, Suite       Carolina, South
                             600, 245 Peachtree     Carolina, Tennessee,
                             Center Ave., NE,       Virginia, West
                             Atlanta, GA 30303.     Virginia
Central...................  Office of the          Illinois, Indiana,
                             Comptroller of the     Kentucky, Michigan,
                             Currency, One          Ohio, Wisconsin
                             Financial Place,
                             Suite 2700, 440
                             South LaSalle
                             Street, Chicago, IL
                             60605.
Midwestern................  Office of the          Iowa, Kansas,
                             Comptroller of the     Minnesota, Missouri,
                             Currency, 2345 Grand   Nebraska, North
                             Ave., Suite 700,       Dakota, South Dakota
                             Kansas City, MO
                             64108.
Southwestern..............  Office of the          Arkansas, Louisiana,
                             Comptroller of the     New Mexico,
                             Currency, 1600         Oklahoma, Texas.
                             Lincoln Plaza, 500
                             N. Akard Street,
                             Dallas, TX 75201.
Western...................  Office of the          Alaska, Arizona,
                             Comptroller of the     California,
                             Currency, 50 Fremont   Colorado, Guam,
                             Street, Suite 3900,    Hawaii, Idaho,
                             San Francisco, CA      Montana, Nevada,
                             94105.                 Northern Mariana
                                                    Islands, Oregon,
                                                    Washington, Wyoming,
                                                    Utah.
------------------------------------------------------------------------

    (b) Field offices and duty stations. Field offices and duty stations 
support the bank supervisory responsibilities of the district offices.



Sec. 4.6  Frequency of examination of national banks.

    (a) General. The OCC examines national banks pursuant to authority 
conferred by 12 U.S.C. 481 and the requirements of 12 U.S.C. 1820(d). 
The OCC is required to conduct a full-scope, on-site examination of 
every national bank at least once during each 12-month period.
    (b) 18-month rule for certain small institutions. The OCC may 
conduct a full-scope, on-site examination of a national bank at least 
once during each 18-month period, rather than each 12-month period as 
provided in paragraph (a) of this section, if the following conditions 
are satisfied:
    (1) The bank has total assets of less than $500 million;
    (2) The bank is well capitalized as defined in part 6 of this 
chapter;
    (3) At the most recent examination, the OCC:
    (i) Assigned the bank a rating of 1 or 2 for management as part of 
the bank's rating under the Uniform Financial Institutions Rating 
System; and
    (ii) Assigned the bank a composite rating of 1 or 2 under the 
Uniform Financial Institutions Rating System;
    (4) The bank currently is not subject to a formal enforcement 
proceeding or order by the FDIC, OCC or the Federal Reserve System; and
    (5) No person acquired control of the bank during the preceding 12-
month period in which a full-scope, on-site examination would have been 
required but for this section.
    (c) Authority to conduct more frequent examinations. This section 
does not

[[Page 105]]

limit the authority of the OCC to examine any national bank as 
frequently as the agency deems necessary.

[63 FR 16380, Apr. 2, 1998, as amended at 72 FR 17802, Apr. 10, 2007]



Sec. 4.7  Frequency of examination of Federal agencies and branches.

    (a) General. The OCC examines Federal agencies and Federal branches 
(as these entities are defined in Sec. 28.11 (h) and (i), respectively, 
of this chapter) pursuant to the authority conferred by 12 U.S.C. 
3105(c)(1)(C). Except as noted in paragraph (b) of this section, the OCC 
will conduct a full-scope, on-site examination of every Federal branch 
and agency at least once during each 12-month period.
    (b) 18-month rule for certain small institutions--(1) Mandatory 
standards. The OCC may conduct a full-scope, on-site examination at 
least once during each 18-month period, rather than each 12-month period 
as provided in paragraph (a) of this section, if the Federal branch or 
agency:
    (i) Has total assets of less than $500 million;
    (ii) Has received a composite ROCA supervisory rating (which rates 
risk management, operational controls, compliance, and asset quality) of 
1 or 2 at its most recent examination;
    (iii) Satisfies the requirements of either the following paragraph 
(b)(1)(iii) (A) or (B):
    (A) The foreign bank's most recently reported capital adequacy 
position consists of, or is equivalent to, Tier 1 and total risk-based 
capital ratios of at least 6 percent and 10 percent, respectively, on a 
consolidated basis; or
    (B) The branch or agency has maintained on a daily basis, over the 
past three quarters, eligible assets in an amount not less than 108 
percent of the preceding quarter's average third party liabilities 
(determined consistent with applicable federal and state law), and 
sufficient liquidity is currently available to meet its obligations to 
third parties;
    (iv) Is not subject to a formal enforcement action or order by the 
Federal Reserve Board, the Federal Deposit Insurance Corporation, or the 
OCC; and
    (v) Has not experienced a change in control during the preceding 12-
month period in which a full-scope, on-site examination would have been 
required but for this section.
    (2) Discretionary standards. In determining whether a Federal branch 
or agency that meets the standards of paragraph (b)(1) of this section 
should not be eligible for an 18-month examination cycle pursuant to 
this paragraph (b), the OCC may consider additional factors, including 
whether:
    (i) Any of the individual components of the ROCA rating of the 
Federal branch or agency is rated ``3'' or worse;
    (ii) The results of any off-site supervision indicate a 
deterioration in the condition of the Federal branch or agency;
    (iii) The size, relative importance, and role of a particular office 
when reviewed in the context of the foreign bank's entire U.S. 
operations otherwise necessitate an annual examination; and
    (iv) The condition of the foreign bank gives rise to such a need.
    (c) Authority to conduct more frequent examinations. Nothing in 
paragraph (a) or (b) of this section limits the authority of the OCC to 
examine any Federal branch or agency as frequently as the OCC deems 
necessary.

[63 FR 46120, Aug. 28, 1998, as amended at 64 FR 56952, Oct. 22, 1999; 
72 FR 17802, Apr. 10, 2007]



 Subpart B_Availability of Information Under the Freedom of Information 
                                   Act



Sec. 4.11  Purpose and scope.

    (a) Purpose. This subpart sets forth the standards, policies, and 
procedures that the OCC applies in administering the Freedom of 
Information Act (FOIA) (5 U.S.C. 552) to facilitate the OCC's 
interaction with the banking industry and the public.
    (b) Scope. (1) This subpart describes the information that the FOIA 
requires the OCC to disclose to the public (Sec. 4.12), and the three 
methods by which the OCC discloses that information under the FOIA 
(Sec. Sec. 4.13, 4.14, and 4.15).
    (2) This subpart also sets forth predisclosure notice procedures 
that

[[Page 106]]

the OCC follows, in accordance with Executive Order 12600 (3 CFR, 1987 
Comp., p. 235), when the OCC receives a request under Sec. 4.15 for 
disclosure of records that arguably are exempt from disclosure as 
confidential commercial information (Sec. 4.16). Finally, this subpart 
describes the fees that the OCC assesses for the services it renders in 
providing information under the FOIA (Sec. 4.17).
    (3) This subpart does not apply to a request for records pursuant to 
the Privacy Act (5 U.S.C. 552a). A person requesting records from the 
OCC pursuant to the Privacy Act should refer to 31 CFR part 1, subpart 
C, and appendix J of subpart C.



Sec. 4.12  Information available under the FOIA.

    (a) General. In accordance with the FOIA, OCC records are available 
to the public, except the exempt records described in paragraph (b) of 
this section.
    (b) Exemptions from availability. The following records, or portions 
thereof, are exempt from disclosure under the FOIA:
    (1) A record that is specifically authorized, under criteria 
established by an Executive order, to be kept secret in the interest of 
national defense or foreign policy, and that is properly classified 
pursuant to that Executive order;
    (2) A record relating solely to the internal personnel rules and 
practices of an agency;
    (3) A record specifically exempted from disclosure by statute (other 
than 5 U.S.C. 552b), provided that the statute requires that the matters 
be withheld from the public in such a manner as to leave no discretion 
on the issue, establishes particular criteria for withholding, or refers 
to particular types of matters to be withheld;
    (4) A record that is privileged or contains trade secrets, or 
commercial or financial information, furnished in confidence, that 
relates to the business, personal, or financial affairs of any person 
(see Sec. 4.16 for notice requirements regarding disclosure of 
confidential commercial information);
    (5) An intra-agency or interagency memorandum or letter not 
routinely available by law to a private party in litigation, including 
memoranda, reports, and other documents prepared by OCC employees, and 
records of deliberations and discussions at meetings of OCC employees;
    (6) A personnel, medical, or similar record, including a financial 
record, or any portion thereof, where disclosure would constitute a 
clearly unwarranted invasion of personal privacy;
    (7) A record or information compiled for law enforcement purposes, 
but only to the extent that the OCC reasonably believes that producing 
the record or information may:
    (i) Interfere with enforcement proceedings;
    (ii) Deprive a person of the right to a fair trial or an impartial 
adjudication;
    (iii) Constitute an unwarranted invasion of personal privacy;
    (iv) Disclose the identity of a confidential source, including a 
State, local, or foreign agency or authority, or any private institution 
that furnished information on a confidential basis;
    (v) Disclose information furnished by a confidential source, in the 
case of a record or information compiled by a criminal law enforcement 
authority in the course of a criminal investigation, or by an agency 
conducting a lawful national security intelligence investigation;
    (vi) Disclose techniques and procedures for law enforcement 
investigations or prosecutions, or disclose guidelines for law 
enforcement investigations or prosecutions if such disclosure reasonably 
could be expected to risk circumvention of the law; or
    (vii) Endanger the life or physical safety of any individual;
    (8) A record contained in or related to an examination, operating, 
or condition report prepared by, on behalf of, or for the use of the OCC 
or any other agency responsible for regulating or supervising financial 
institutions; and
    (9) A record containing or relating to geological and geophysical 
information and data, including maps, concerning wells.
    (c) Discretionary disclosure of exempt records. Even if a record is 
exempt under paragraph (b) of this section, the OCC may elect, on a 
case-by-case basis, not to apply the exemption to the requested record. 
The OCC's election not

[[Page 107]]

to apply an exemption to a requested record has no precedential 
significance as to the application or nonapplication of the exemption to 
any other requested record, regardless of who requests the record or 
when the OCC receives the request. The OCC will provide predisclosure 
notice to submitters of confidential commercial information in 
accordance with Sec. 4.16.
    (d) Segregability. The OCC provides copies of reasonably segregable 
portions of a record to any person properly requesting the record 
pursuant to Sec. 4.15, after redacting any portion that is exempt under 
paragraph (b) of this section.



Sec. 4.13  Publication in the Federal Register.

    The OCC publishes certain documents in the Federal Register for the 
guidance of the public, including the following:
    (a) Proposed and final rules; and
    (b) Certain notices and policy statements of concern to the general 
public.



Sec. 4.14  Public inspection and copying.

    (a) Available information. Subject to the exemptions listed in Sec. 
4.12(b), the OCC makes the following information readily available for 
public inspection and copying:
    (1) Any final order, agreement, or other enforceable document issued 
in the adjudication of an OCC enforcement case, including a final order 
published pursuant to 12 U.S.C. 1818(u);
    (2) Any final opinion issued in the adjudication of an OCC 
enforcement case;
    (3) Any statement of general policy or interpretation of general 
applicability not published in the Federal Register;
    (4) Any administrative staff manual or instruction to staff that may 
affect a member of the public as such;
    (5) A current index identifying the information referred to in 
paragraphs (a)(1) through (a)(4) of this section issued, adopted, or 
promulgated after July 4, 1967;
    (6) A list of available OCC publications;
    (7) A list of forms available from the OCC, and specific forms and 
instructions; \1\
---------------------------------------------------------------------------

    \1\ Some forms and instructions that national banks use, such as the 
Consolidated Report of Condition and Income (FFIEC 031-034), are not 
available from the OCC. The OCC will provide information on where 
persons may obtain these forms and instructions upon request.
---------------------------------------------------------------------------

    (8) Any public Community Reinvestment Act performance evaluation;
    (9) Any public securities-related filing required under part 11 or 
16 of this chapter;
    (10) Any public comment letter regarding a proposed rule; and
    (11) The public file (as defined in 12 CFR 5.9) with respect to a 
pending application described in part 5 of this chapter.
    (b) Redaction of identifying details. To the extent necessary to 
prevent an invasion of personal privacy, the OCC may redact identifying 
details from any information described in paragraph (a) of this section 
before making the information available for public inspection and 
copying.
    (c) Addresses. The information described in paragraphs (a)(1) 
through (a)(10) of this section is available from the Disclosure 
Officer, Communications Division, Office of the Comptroller of the 
Currency, 250 E Street, SW, Washington, DC 20219. The information 
described in paragraph (a)(11) of this section is available from the 
Licensing Manager at the appropriate district office at the address 
listed in Sec. 4.5(a), or in the case of banks supervised by the 
Multinational Banking Department, from the Licensing Manager, 
Multinational Banking, Office of the Comptroller of the Currency, 250 E 
Street, SW, Washington, DC 20219.



Sec. 4.15  Specific requests for records.

    (a) Available information. Subject to the exemptions described in 
Sec. 4.12(b), any OCC record is available to any person upon specific 
request in accordance with this section.
    (b) Where to submit request or appeal--(1) General. Except as 
provided in paragraph (b)(2) of this section, a person requesting a 
record or filing an administrative appeal under this section must submit 
the request or appeal to the

[[Page 108]]

Disclosure Officer, Communications Division, Office of the Comptroller 
of the Currency, 250 E Street, SW, Washington, DC 20219.
    (2) Exceptions--(i) Records at the Federal Deposit Insurance 
Corporation. A person requesting any of the following records, other 
than blank forms (see Sec. 4.14(a)(7)), must submit the request to the 
Disclosure Group, Federal Deposit Insurance Corporation, 550-17th 
Street, NW, Washington, DC 20429, (800) 945-2186:
    (A) Consolidated Report of Condition and Income (FFIEC 031, 032, 
033, 034);
    (B) Annual Report of Trust Assets (FFIEC 001);
    (C) Uniform Bank Performance Report; and
    (D) Special Report.
    (ii) Records of another agency. When the OCC receives a request for 
records in its possession that another Federal agency either generated 
or provided to the OCC, the OCC promptly informs the requester and 
immediately forwards the request to that agency for processing in 
accordance with that agency's regulations.
    (c) Request for records--(1) Content of request for records. A 
person requesting records under this section must state, in writing:
    (i) The requester's full name, address, and telephone number;
    (ii) A reasonable description of the records sought (including 
sufficient detail to enable OCC employees who are familiar with the 
subject matter of the request to locate the records with a reasonable 
amount of effort);
    (iii) A statement agreeing to pay all fees that the OCC assesses 
under Sec. 4.17;
    (iv) A description of how the requester intends to use the records, 
if a requester seeks placement in a lower fee category (i.e., a fee 
category other than ``commercial use requester'') under Sec. 4.17; and
    (v) Whether the requester prefers the OCC to deliver a copy of the 
records or to allow the requester to inspect the records at the 
appropriate OCC office.
    (2) Initial determination. The OCC's Director of Communications or 
that person's delegate initially determines whether to grant a request 
for OCC records.
    (3) If request is granted. If the OCC grants a request for records, 
in whole or in part, the OCC promptly discloses the records in one of 
two ways, depending on the requester's stated preference:
    (i) The OCC may deliver a copy of the records to the requester. If 
the OCC delivers a copy of the records to the requester, the OCC 
duplicates the records at reasonable and proper times that do not 
interfere with their use by the OCC or preclude other persons from 
making inspections; or
    (ii) The OCC may allow the requester to inspect the records at 
reasonable and proper times that do not interfere with their use by the 
OCC or preclude other persons from making inspections. If the OCC allows 
the requester to inspect the records, the OCC may place a reasonable 
limit on the number of records that a person may inspect during a day.
    (4) If request is denied. If the OCC denies a request for records, 
in whole or in part, the OCC notifies the requester by mail. The 
notification is dated and contains a brief statement of the reasons for 
the denial, sets forth the name and title or position of the official 
making the decision, and advises the requester of the right to an 
administrative appeal in accordance with paragraph (d) of this section.
    (d) Administrative appeal of a denial--(1) Procedure. A requester 
must submit an administrative appeal of denial of a request for records 
in writing within 35 days of the date of the initial determination. The 
appeal must include the circumstances and arguments supporting 
disclosure of the requested records.
    (2) Appellate determination. The Comptroller or the Comptroller's 
delegate determines whether to grant an appeal of a denial of a request 
for OCC records.
    (3) If appeal is granted. If the OCC grants an appeal, in whole or 
in part, the OCC treats the request as if it were originally granted, in 
whole or in part, by the OCC in accordance with paragraph (c)(3) of this 
section.
    (4) If appeal is denied. If the OCC denies an appeal, in whole or in 
part, the OCC notifies the requester by mail. The notification contains 
a brief statement of the reasons for the denial, sets forth

[[Page 109]]

the name and title or position of the official making the decision, and 
advises the requester of the right to judicial review of the denial 
under 5 U.S.C. 552(a)(4)(B).
    (e) Judicial review--(1) General. If the OCC denies an appeal 
pursuant to paragraph (d) of this section, or if the OCC fails to make a 
determination within the time limits specified in paragraph (f) of this 
section, the requester may commence an action to compel disclosure of 
records, pursuant to 5 U.S.C. 552(a)(4)(B), in the United States 
district court in:
    (i) The district where the requester resides;
    (ii) The district where the requester's principal place of business 
is located;
    (iii) The district where the records are located; or
    (iv) The District of Columbia.
    (2) Service of process. In commencing an action described in 
paragraph (e)(1) of this section, the requester, in addition to 
complying with the Federal Rules of Civil Procedure (28 U.S.C. appendix) 
for service upon the United States or agencies thereof, must serve 
process on the Chief Counsel or the Chief Counsel's delegate at the 
following location: Office of the Comptroller of the Currency, 250 E 
Street, SW, Washington, DC 20219.
    (f) Time limits--(1) Request. The OCC makes an initial determination 
to grant or deny a request for records within 10 business days after the 
date of receipt of the request, as described in paragraph (g) of this 
section, except as stated in paragraph (f)(3) of this section.
    (2) Appeal. The OCC makes a determination to grant or deny an 
administrative appeal within 20 business days after the date of receipt 
of the appeal, as described in paragraph (g) of this section, except as 
stated in paragraph (f)(3) of this section.
    (3) Extension of time. The time limits set forth in paragraphs 
(f)(1) and (2) of this section may be extended as follows:
    (i) In unusual circumstances. The OCC may extend the time limits in 
unusual circumstances for a maximum of 10 business days. If the OCC 
extends the time limits, the OCC provides written notice to the person 
making the request or appeal, containing the reason for the extension 
and the date on which the OCC expects to make a determination. Unusual 
circumstances exist when the OCC requires additional time to:
    (A) Search for and collect the requested records from field 
facilities or other buildings that are separate from the office 
processing the request or appeal;
    (B) Search for, collect, and appropriately examine a voluminous 
amount of requested records;
    (C) Consult with another agency that has a substantial interest in 
the determination of the request; or
    (D) Allow two or more components of the OCC that have substantial 
interest in the determination of the request to consult with each other;
    (ii) By agreement. A requester may agree to extend the time limits 
for any amount of time; or
    (iii) By judicial action. If a requester commences an action 
pursuant to paragraph (e) of this section for failure to comply with the 
time limits set forth in this paragraph (f), a court with jurisdiction 
may, pursuant to 5 U.S.C. 552(a)(6)(C), allow the OCC additional time to 
complete the review of the records requested.
    (g) Date of receipt of request or appeal. The date of receipt of a 
request for records or an appeal is the date that OCC Communications 
Division receives a request that satisfies the requirements of paragraph 
(c)(1) or (d)(1) of this section, except as provided in Sec. 4.17(d).



Sec. 4.16  Predisclosure notice for confidential commercial information.

    (a) Definitions. For purposes of this section, the following 
definitions apply:
    (1) Confidential commercial information means records that arguably 
contain material exempt from release under Exemption 4 of the FOIA (5 
U.S.C. 552(b)(4); Sec. 4.12(b)(4)), because disclosure reasonably could 
cause substantial competitive harm to the submitter.
    (2) Submitter means any person or entity that provides confidential 
commercial information to the OCC. This term includes corporations, 
State governments, foreign governments, and

[[Page 110]]

banks and their employees, officers, directors, and principal 
shareholders.
    (b) Notice to submitter--(1) When provided. In accordance with 
Executive Order 12600 (3 CFR, 1987 Comp., p. 235), when the OCC receives 
a request under Sec. 4.15(c) or, where appropriate, an appeal under 
Sec. 4.15(d) for disclosure of confidential commercial information, the 
OCC provides a submitter with prompt written notice of the receipt of 
that request (except as provided in paragraph (b)(2) of this section) in 
the following circumstances:
    (i) With respect to confidential commercial information submitted to 
the OCC prior to January 1, 1988, if:
    (A) The records are less than 10 years old and the submitter 
designated the information as confidential commercial information;
    (B) The OCC reasonably believes that disclosure of the information 
may cause substantial competitive harm to the submitter; or
    (C) The information is subject to a prior express OCC commitment of 
confidentiality; and
    (ii) With respect to confidential commercial information submitted 
to the OCC on or after January 1, 1988, if:
    (A) The submitter in good faith designated the information as 
confidential commercial information;
    (B) The OCC designated the class of information to which the 
requested information belongs as confidential commercial information; or
    (C) The OCC reasonably believes that disclosure of the information 
may cause substantial competitive harm to the submitter.
    (2) Exceptions. The OCC generally does not provide notice under 
paragraph (b)(1) of this section if the OCC determines that:
    (i) It will not disclose the information;
    (ii) The information already has been disclosed officially to the 
public;
    (iii) The OCC is required by law (other than 5 U.S.C. 552) to 
disclose the information;
    (iv) The OCC acquired the information in the course of a lawful 
investigation of a possible violation of criminal law;
    (v) The submitter had an opportunity to designate the requested 
information as confidential commercial information at the time of 
submission of the information or a reasonable time thereafter and did 
not do so, unless the OCC has substantial reason to believe that 
disclosure of the information would result in competitive harm; or
    (vi) The OCC determines that the submitter's designation under 
paragraph (b)(1)(ii)(A) of this section is frivolous; in such case, 
however, the OCC will provide the submitter with written notice of any 
final administrative determination to disclose the information at least 
10 business days prior to the date that the OCC intends to disclose the 
information.
    (3) Content of notice. The OCC either describes in the notice the 
exact nature of the confidential commercial information requested or 
includes with the notice copies of the records or portions of records 
containing that information.
    (4) Expiration of notice period. The OCC provides notice under this 
paragraph (b) with respect to information that the submitter designated 
under paragraph (b)(1)(ii)(A) of this section only for a period of 10 
years after the date of the submitter's designation, unless the 
submitter requests and justifies to the OCC's satisfaction a specific 
notice period of greater duration.
    (5) Certification of confidentiality. If possible, the submitter 
should support the claim of confidentiality with a statement or 
certification that the requested information is confidential commercial 
information that the submitter has not disclosed to the public. This 
statement should be prepared by an officer or authorized representative 
if the submitter is a corporation or other entity.
    (c) Notice to requester. If the OCC provides notice to a submitter 
under paragraph (b) of this section, the OCC notifies the person 
requesting confidential commercial information (requester) that it has 
provided notice to the submitter. The OCC also advises the requester 
that if there is a delay in its decision whether to grant or deny access 
to the information sought, the delay may be considered a denial of 
access to the information, and that the requester may proceed with an 
administrative appeal or seek judicial review. However, the requester 
may agree to a

[[Page 111]]

voluntary extension of time to allow the OCC to review the submitter's 
objection to disclosure (see Sec. 4.15(f)(3)(ii)).
    (d) Opportunity to object to disclosure. Within 10 days after 
receiving notice under paragraph (b) of this section, the submitter may 
provide the OCC with a detailed statement of objection to disclosure of 
the information. That statement must specify the grounds for withholding 
any of the information under any exemption of the FOIA. Any statement 
that the submitter provides under this paragraph (d) may be subject to 
disclosure under the FOIA.
    (e) Notice of intent to disclose. The OCC considers carefully a 
submitter's objection and specific grounds for nondisclosure prior to 
determining whether to disclose the requested information. If the OCC 
decides to disclose information over the objection of the submitter, the 
OCC provides to the submitter, with a copy to the requester, a written 
notice that includes:
    (1) A statement of the OCC's reasons for not sustaining the 
submitter's objections to disclosure;
    (2) A description of the information to be disclosed;
    (3) The anticipated disclosure date, which is not less than 10 
business days after the OCC mails the written notice required under this 
paragraph (e); and
    (4) A statement that the submitter must notify the OCC immediately 
if the submitter intends to seek injunctive relief.
    (f) Notice of requester's lawsuit. Whenever the OCC receives service 
of process indicating that a requester has brought suit seeking to 
compel the OCC to disclose information covered by paragraph (b)(1) of 
this section, the OCC promptly notifies the submitter.



Sec. 4.17  Fees for services.

    (a) Definitions. For purposes of this section, the following 
definitions apply:
    (1) Actual costs means those expenditures that the OCC incurs in 
providing services (including searching for, reviewing, and duplicating 
records) in response to a request for records under Sec. 4.15.
    (2) Search means the process of locating a record in response to a 
request, including page-by-page or line-by-line identification of 
material within a record. The OCC may perform a search manually or by 
electronic means.
    (3) Review means the process of examining a record located in 
response to a request to determine which portions of that record should 
be released. It also includes processing a record for disclosure.
    (4) Duplication means the process of copying a record in response to 
a request. A copy may take the form of a paper copy, microform, 
audiovisual materials, or machine readable material (e.g., magnetic tape 
or disk), among others.
    (5) Commercial use requester means a person who seeks records for a 
use or purpose that furthers the commercial, trade, or profit interests 
of the requester or the person on whose behalf the request is made.
    (6) Educational institution requester means a person who seeks 
records on behalf of a public or private educational institution, 
including a preschool, an elementary or secondary school, an institution 
of undergraduate or graduate higher education, an institution of 
professional education, or an institution of vocational education that 
operates a program of scholarly research.
    (7) Noncommercial scientific institution requester means a person 
who is not a ``commercial use requester,'' as that term is defined in 
paragraph (a)(5) of this section, and who seeks records on behalf of an 
institution operated solely for the purpose of conducting scientific 
research, the results of which are not intended to promote any 
particular product or industry.
    (8) Requester who is a representative of the news media means a 
person who seeks records for the purpose of gathering news (i.e., 
information about current events or of current interest to the public) 
on behalf of, or a free-lance journalist who reasonably expects to have 
his or her work product published or broadcast by, an entity organized 
and operated to publish or broadcast news to the public.
    (b) Fees--(1) General. The hourly and per page rate that the OCC 
generally charges requesters is set forth in the ``Notice of Comptroller 
of the Currency Fees'' (Notice) described in 12 CFR 8.8.

[[Page 112]]

Any interested person may request a copy of the Notice from the OCC by 
mail or may obtain a copy at the location described in Sec. 4.14(c). 
The OCC may contract with a commercial service to search for, duplicate, 
or disseminate records, provided that the OCC determines that the fee 
assessed upon a requester is no greater than if the OCC performed the 
tasks itself. The OCC does not contract out responsibilities that the 
FOIA provides that the OCC alone may discharge, such as determining the 
applicability of an exemption or whether to waive or reduce a fee.
    (2) Fee categories. The OCC assesses a fee based on the fee category 
in which the OCC places the requester. If the request states how the 
requester intends to use the requested records (see Sec. 
4.15(c)(1)(iv)), the OCC may place the requester in a lower fee 
category; otherwise, the OCC categorizes the requester as a ``commercial 
use requester.'' If the OCC reasonably doubts the requester's stated 
intended use, or if that use is not clear from the request, the OCC may 
place the requester in the ``commercial use'' category or may seek 
additional clarification. The fee categories are as follows:
    (i) Commercial use requesters. The OCC assesses a fee for a 
requester in this category for the actual cost of search, review, and 
duplication. A requester in this category does not receive any free 
search, review, or duplication services.
    (ii) Educational institution requesters, noncommercial scientific 
institution requesters, and requesters who are representatives of the 
news media. The OCC assesses a fee for a requester in this category for 
the actual cost of duplication. A requester in this category receives 
100 free pages.
    (iii) All other requesters. The OCC assesses a fee for a requester 
who does not fit into either of the above categories for the actual cost 
of search and duplication. A requester in this category receives 100 
free pages and two hours of free search time.
    (3) Special services. The OCC may, in its discretion, accommodate a 
request for special services. The OCC may recover the actual cost of 
providing any special services.
    (4) Waiving or reducing a fee. The OCC may waive or reduce a fee 
under this section whenever, in its opinion, disclosure of records is in 
the public interest because the disclosure:
    (i) Is likely to contribute significantly to public understanding of 
the operations or activities of the government; and
    (ii) Is not primarily in the commercial interest of the requester.
    (5) Fee for unsuccessful search. The OCC may assess a fee for time 
spent searching for records, even if the OCC does not locate the records 
requested.
    (c) Payment of fees--(1) General. The OCC generally assesses a fee 
when it delivers the records in response to the request, if any. A 
requester must send payment within 30 calendar days of the billing date 
to the Communications Division, Office of the Comptroller of the 
Currency, 250 E Street, SW., Washington, DC 20219.
    (2) Fee likely to exceed $25. If the OCC estimates that a fee is 
likely to exceed $25, the OCC notifies the requester of the estimated 
fee, unless the requester has indicated in advance a willingness to pay 
a fee as high as the estimated fee. If so notified by the OCC, the 
requester may confer with OCC employees to revise the request to reflect 
a lower fee.
    (3) Fee likely to exceed $250. If the OCC estimates that a fee is 
likely to exceed $250, the OCC notifies the requester of the estimated 
fee. In this circumstance, the OCC may require, as a condition to 
processing the request, that the requester:
    (i) Provide satisfactory assurance of full payment, if the requester 
has a history of prompt payment; or
    (ii) Pay the estimated fee in full, if the requester does not have a 
history of prompt payment.
    (4) Failure to pay a fee. If the requester fails to pay a fee within 
30 days of the date of the billing, the OCC may require, as a condition 
to processing any further request, that the requester pay any unpaid 
fee, plus interest (as provided in paragraph (c)(5) of this section), 
and any estimated fee in full for that further request.

[[Page 113]]

    (5) Interest on unpaid fee. The OCC may assess interest charges on 
an unpaid fee beginning on the 31st day following the billing date. The 
OCC charges interest at the rate prescribed in 31 U.S.C. 3717.
    (d) Tolling of time limits. Under the circumstances described in 
paragraphs (c) (2), (3), and (4) of this section, the time limits set 
forth in Sec. 4.15(f) (i.e., 10 business days from the receipt of a 
request for records and 20 business days from the receipt of an 
administrative appeal, plus any permissible extension) begin only after 
the OCC receives a revised request under paragraph (c)(2) of this 
section, an assurance of payment under paragraph (c)(3)(i) of this 
section, or the required payments under paragraph (c)(3)(i) or (c)(4) of 
this section.
    (e) Aggregating requests. When the OCC reasonably believes that a 
requester or group of requesters is attempting to break a request into a 
series of requests for the purpose of evading the assessment of a fee, 
the OCC may aggregate the requests and assess a fee accordingly.



             Subpart C_Release of Non-Public OCC Information



Sec. 4.31  Purpose and scope.

    (a) Purpose. The purposes of this subpart are to:
    (1) Afford an orderly mechanism for the OCC to process expeditiously 
requests for non-public OCC information; to address the release of non-
public OCC information without a request; and, when appropriate, for the 
OCC to assert evidentiary privileges in litigation;
    (2) Recognize the public's interest in obtaining access to relevant 
and necessary information and the countervailing public interest of 
maintaining the effectiveness of the OCC supervisory process and 
appropriate confidentiality of OCC supervisory information;
    (3) Ensure that the OCC's information is used in a manner that 
supports the public interest and the interests of the OCC;
    (4) Ensure that OCC resources are used in the most efficient manner 
consistent with the OCC's statutory mission;
    (5) Minimize burden on national banks, the public, and the OCC;
    (6) Limit the expenditure of government resources for private 
purposes; and
    (7) Maintain the OCC's impartiality among private litigants.
    (b) Scope. (1) This subpart applies to requests for, and 
dissemination of, non-public OCC information, including requests for 
records or testimony arising out of civil lawsuits and administrative 
proceedings to which the OCC is not a party and the release of non-
public OCC information without a specific request. Lawsuits and 
administrative proceedings to which the OCC is not a party include 
proceedings in which a Federal agency is a party in opposition to the 
private requester.
    (2) This subpart does not apply to:
    (i) A request for a record or testimony in a proceeding in which the 
OCC is a party; or
    (ii) A request for a record that is required to be disclosed under 
the Freedom of Information Act (FOIA) (5 U.S.C. 552), as described in 
Sec. 4.12.
    (3) A request for a record or testimony made by the Board of 
Governors of the Federal Reserve System, the Federal Deposit Insurance 
Corporation, a government agency of the United States or a foreign 
government, a state agency with authority to investigate violations of 
criminal law, or a state bank regulatory agency is governed solely by 
Sec. 4.37(c).

[60 FR 57322, Nov. 15, 1995, as amended at 63 FR 62929, Nov. 10, 1998; 
64 FR 29216, June 1, 1999]



Sec. 4.32  Definitions.

    (a) Complete request means a request containing sufficient 
information to allow the OCC to make an informed decision.
    (b) Non-public OCC information. Non-public OCC information:
    (1) Means information that the OCC is not required to release under 
the FOIA (5 U.S.C. 552) or that the OCC has not yet published or made 
available pursuant to 12 U.S.C. 1818(u) and includes:
    (i) A record created or obtained by the OCC in connection with the 
OCC's

[[Page 114]]

performance of its responsibilities, such as a record concerning 
supervision, licensing, regulation, and examination of a national bank, 
a bank holding company, or an affiliate;
    (ii) A record compiled by the OCC in connection with the OCC's 
enforcement responsibilities;
    (iii) A report of examination, supervisory correspondence, an 
investigatory file compiled by the OCC in connection with an 
investigation, and any internal agency memorandum, whether the 
information is in the possession of the OCC or some other individual or 
entity;
    (iv) Confidential OCC information obtained by a third party or 
otherwise incorporated in the records of a third party, including 
another government agency;
    (v) Testimony from, or an interview with, a current or former OCC 
employee, officer, or agent concerning information acquired by that 
person in the course of his or her performance of official duties with 
the OCC or due to that person's official status at the OCC;
    (vi) Confidential information relating to operating and no longer 
operating national banks as well as their subsidiaries and their 
affiliates; and
    (vii) A Suspicious Activity Report filed by the OCC, a national 
bank, or a Federal branch or agency of a foreign bank licensed or 
chartered by the OCC under 12 CFR 21.11; and
    (2) Is the property of the Comptroller. A report of examination is 
loaned to the bank or holding company for its confidential use only.
    (c) Relevant means could contribute substantially to the resolution 
of one or more specifically identified issues in the case.
    (d) Show a compelling need means, in support of a request for 
testimony, demonstrate with as much detail as is necessary under the 
circumstances, that the requested information is relevant and that the 
relevant material contained in the testimony is not available from any 
other source. Sources, without limitation, include the books and records 
of other persons or entities and non-public OCC records that have been, 
or might be, released.
    (e) Supervised entity includes a national bank, a subsidiary of a 
national bank, a Federal branch or agency of a foreign bank licensed by 
the OCC as defined under 12 CFR 28.11(h) and (i), or any other entity 
supervised by the OCC.
    (f) Testimony means an interview or sworn testimony on the record.

[60 FR 57322, Nov. 15, 1995, as amended at 63 FR 62929, Nov. 10, 1998; 
64 FR 29216, June 1, 1999]



Sec. 4.33  Requirements for a request of records or testimony.

    (a) Generally--(1) Form of request. A person seeking non-public OCC 
information must submit a request in writing to the OCC. The requester 
must explain, in as detailed a description as is necessary under the 
circumstances, the bases for the request and how the requested non-
public OCC information relates to the issues in the lawsuit or matter.
    (2) Expedited request. A requester seeking a response in less than 
60 days must explain why the request was not submitted earlier and why 
the OCC should expedite the request.
    (3) Request arising from adversarial matters. Where the requested 
information is to be used in connection with an adversarial matter:
    (i) The OCC generally will require that the lawsuit or 
administrative action has been filed before it will consider the 
request;
    (ii) The request must include:
    (A) A copy of the complaint or other pleading setting forth the 
assertions in the case;
    (B) The caption and docket number of the case;
    (C) The name, address, and phone number of counsel to each party in 
the case; and
    (D) A description of any prior judicial decisions or pending motions 
in the case that may bear on the asserted relevance of the requested 
information;
    (iii) The request must also:
    (A) Show that the information is relevant to the purpose for which 
it is sought;
    (B) Show that other evidence reasonably suited to the requester's 
needs is not available from any other source;

[[Page 115]]

    (C) Show that the need for the information outweighs the public 
interest considerations in maintaining the confidentiality of the OCC 
information and outweighs the burden on the OCC to produce the 
information;
    (D) Explain how the issues in the case and the status of the case 
warrant that the OCC allow disclosure; and
    (E) Identify any other issue that may bear on the question of waiver 
of privilege by the OCC.
    (b) Request for records. If the request is for a record, the 
requester must adequately describe the record or records sought by type 
and date.
    (c) Request for testimony--(1) Generally. A requester seeking 
testimony:
    (i) Must show a compelling need for the requested information; and
    (ii) Should request OCC testimony with sufficient time to obtain the 
testimony in deposition form.
    (2) Trial or hearing testimony. A requester seeking testimony at a 
trial or hearing must show that a deposition would not suffice.



Sec. 4.34  Where to submit a request.

    (a) A request for non-public OCC information. A person requesting 
information under this subpart, requesting authentication of a record 
under Sec. 4.39(d), or submitting a notification of the issuance of a 
subpoena or compulsory process under Sec. 4.37, shall send the request 
or notification to: Office of the Comptroller of the Currency, 250 E 
Street, SW, Washington, DC 20219, Attention: Director, Litigation 
Division.
    (b) Combined requests for non-public and other OCC information. A 
person requesting public OCC information and non-public OCC information 
under this subpart may submit a combined request for both to the address 
in paragraph (a) of this section. If a requester decides to submit a 
combined request under this section, the OCC will process the combined 
request under this subpart and not under subpart B of this part (FOIA).
    (c) Request by government agencies. A request made pursuant to Sec. 
4.37(c) must be submitted:
    (1) In a civil action, to the Director of the OCC's Litigation 
Division at the Washington office; or
    (2) In a criminal action, to the appropriate district counsel or the 
Director of the OCC's Enforcement and Compliance Division at the 
Washington office.

[60 FR 57322, Nov. 15, 1995, as amended at 64 FR 29216, June 1, 1999]



Sec. 4.35  Consideration of requests.

    (a) In general--(1) OCC discretion. The OCC decides whether to 
release non-public OCC information based on its weighing of all 
appropriate factors including the requestor's fulfilling of the 
requirements enumerated in Sec. 4.33. Each decision is at the sole 
discretion of the Comptroller or the Comptroller's delegate and is a 
final agency decision. OCC action on a request for non-public OCC 
information exhausts administrative remedies for discovery of the 
information.
    (2) Bases for denial. The OCC may deny a request for non-public OCC 
information for reasons that include the following:
    (i) The requester was unsuccessful in showing that the information 
is relevant to the pending matter;
    (ii) The requester seeks testimony and the requestor did not show a 
compelling need for the information;
    (iii) The request arises from an adversarial matter and other 
evidence reasonably suited to the requester's need is available from 
another source;
    (iv) A lawsuit or administrative action has not yet been filed and 
the request was made in connection with potential litigation; or
    (v) The production of the information would be contrary to the 
public interest or unduly burdensome to the OCC.
    (3) Additional information. A requester must submit a complete 
request. The OCC may require the requester to provide additional 
information to complete a request. Consistent with the purposes stated 
in Sec. 4.31, the OCC may inquire into the circumstances of any case 
underlying the request and rely on sources of information other than the 
requester, including other parties.
    (4) Time required by the OCC to respond. The OCC generally will 
process requests in the order in which they are received. The OCC will 
notify the requester in writing of the final decision. Absent exigent or 
unusual circumstances, the OCC will respond to a

[[Page 116]]

request within 60 days from the date that the OCC receives a request 
that it deems a complete request. Consistent with Sec. 4.33(a)(2), the 
OCC weighs a request to respond to provide information in less than 60 
days against the unfairness to other requesters whose pending requests 
may be delayed and the burden imposed on the OCC by the expedited 
processing.
    (5) Notice to subject national banks. Following receipt of a request 
for non-public OCC information, the OCC generally notifies the national 
bank that is the subject of the requested information, unless the OCC, 
in its discretion, determines that to do so would advantage or prejudice 
any of the parties in the matter at issue.
    (b) Testimony. (1) The OCC generally will not authorize a current 
OCC employee to provide expert or opinion evidence for a private party.
    (2) The OCC may restrict the scope of any authorized testimony and 
may act to ensure that the scope of testimony given by the OCC employee 
adheres to the scope authorized by the OCC.
    (3) Once a request for testimony has been submitted, and before the 
requested testimony occurs, a party to the relevant case, who did not 
join in the request and who wishes to question the witness beyond the 
scope of testimony sought by the request, shall timely submit the 
party's own request for OCC information pursuant to this subpart.
    (4) The OCC may offer the requester the employee's written 
declaration in lieu of testimony.
    (c) Release of non-public OCC information by others. In appropriate 
cases, the OCC may respond to a request for information by authorizing a 
party to the case who is in possession of non-public OCC information to 
release the information to the requester. An OCC authorization to 
release records does not preclude the party in possession from asserting 
its own privilege, arguing that the records are not relevant, or 
asserting any other argument for which it has standing to protect the 
records from release.



Sec. 4.36  Disclosure of non-public OCC information.

    (a) Discretionary disclosure of non-public OCC information. The OCC 
may make non-public OCC information available to a supervised entity and 
to other persons, that in the sole discretion of the Comptroller may be 
necessary or appropriate, without a request for records or testimony.
    (b) OCC policy. It is the OCC's policy regarding non-public OCC 
information that such information is confidential and privileged. 
Accordingly, the OCC will not normally disclose this information to 
third parties.
    (c) Conditions and limitations. The OCC may impose any conditions or 
limitations on disclosures under this section, including the 
restrictions on dissemination contained in Sec. 4.38, that it 
determines are necessary to effect the purposes of this section.
    (d) Unauthorized disclosures prohibited. All non-public OCC 
information remains the property of the OCC. No supervised entity, 
government agency, person, or other party to whom the information is 
made available, or any officer, director, employee, or agent thereof, 
may disclose non-public OCC information without the prior written 
permission of the OCC, except in published statistical material that 
does not disclose, either directly or when used in conjunction with 
other publicly available information, the affairs of any individual, 
corporation, or other entity. Except as authorized by the OCC, no person 
obtaining access to non-public OCC information under this section may 
make a copy of the information and no person may remove non-public OCC 
information from the premises of the institution, agency, or other party 
in authorized possession of the information.

[63 FR 62929, Nov. 10, 1998, as amended at 64 FR 29216, June 1, 1999]



Sec. 4.37  Persons and entities with access to OCC information; prohibition on dissemination.

    (a) Current and former OCC employees or agents--(1) Generally. 
Except as authorized by this subpart or otherwise by the OCC, no current 
or former OCC employee or agent may, in any manner, disclose or permit 
the disclosure of

[[Page 117]]

any non-public OCC information to anyone other than an employee or agent 
of the Comptroller for use in the performance of OCC duties.
    (2) Duty of person served. Any current or former OCC employee or 
agent subpoenaed or otherwise requested to provide information covered 
by this subpart must immediately notify the OCC as provided in this 
paragraph. The OCC may intervene, attempt to have the compulsory process 
withdrawn, and register appropriate objections when a current or former 
OCC employee or agent receives a subpoena and the subpoena requires the 
current or former employee or agent to appear or produce OCC 
information. If necessary, the current or former employee or agent must 
appear as required and respectfully decline to produce the information 
sought, citing this subpart as authority and United States ex rel. Touhy 
v. Ragen, 340 U.S. 462 (1951). The current or former OCC employee or 
agent must immediately notify the OCC if subpoenaed or otherwise asked 
for non-public OCC information:
    (i) In a civil action, by notifying the Director of the OCC's 
Litigation Division at the Washington office; or
    (ii) In a criminal action, by notifying the appropriate district 
counsel for current and former district employees or agents; or the 
Director of the OCC's Enforcement and Compliance Division at the 
Washington office, for current and former Washington employees or 
agents.
    (b) Non-OCC employees or entities--(1) Generally. (i) Without OCC 
approval, no person, national bank, or other entity, including one in 
lawful possession of non-public OCC information under paragraph (b)(2) 
of this section, may disclose information covered by this subpart in any 
manner, except:
    (A) After the requester has sought the information from the OCC 
pursuant to the procedures set forth in this subpart; and
    (B) As ordered by a Federal court in a judicial proceeding in which 
the OCC has had the opportunity to appear and oppose discovery.
    (ii) Any person who discloses or uses non-public OCC information 
except as expressly permitted by the Comptroller of the Currency or as 
ordered by a Federal court, under paragraph (b)(1)(i) of this section, 
may be subject to the penalties provided in 18 U.S.C. 641.
    (2) Exception for national banks. When necessary or appropriate for 
bank business purposes, a national bank or holding company, or any 
director, officer, or employee thereof, may disclose non-public OCC 
information, including information contained in, or related to, OCC 
reports of examination, to a person or organization officially connected 
with the bank as officer, director, employee, attorney, auditor, or 
independent auditor. A national bank or holding company or a director, 
officer, or employee thereof may also release non-public OCC information 
to a consultant under this paragraph if the consultant is under a 
written contract to provide services to the bank and the consultant has 
a written agreement with the bank in which the consultant:
    (i) States its awareness of, and agreement to abide by, the 
prohibition on the dissemination of non-public OCC information contained 
in paragraph (b)(1) of this section; and
    (ii) Agrees not to use the non-public OCC information for any 
purpose other than as provided under its contract to provide services to 
the bank.
    (3) Duty of person or entity served. Any person, national bank, or 
other entity served with a request, subpoena, order, motion to compel, 
or other judicial or administrative process to provide non-public OCC 
information shall:
    (i) Immediately notify the Director of the OCC's Litigation Division 
at the Washington, DC office and inform the Director of all relevant 
facts, including the documents and information requested, so that the 
OCC may intervene in the judicial or administrative action if 
appropriate;
    (ii) Inform the requester of the substance of these rules and, in 
particular, of the obligation to follow the request procedures in 
Sec. Sec. 4.33 and 4.34; and
    (iii) At the appropriate time, inform the court or tribunal that 
issued the process of the substance of these rules.
    (4) Actions of the OCC following notice of service. Following 
receipt of notice pursuant to paragraph (b)(3) of this section, the OCC 
may direct the requester to comply with Sec. Sec. 4.33 and 4.34, 
intervene in the judicial or administrative

[[Page 118]]

action, attempt to have the compulsory process withdrawn, or register 
other appropriate objections.
    (5) Return of records. The OCC may require any person in possession 
of OCC records to return the records to the OCC.
    (c) Disclosure to government agencies. When not prohibited by law, 
the Comptroller may make available to the Board of Governors of the 
Federal Reserve System, the Federal Deposit Insurance Corporation, and, 
in the Comptroller's sole discretion, to certain other government 
agencies of the United States and foreign governments, state agencies 
with authority to investigate violations of criminal law, and state bank 
regulatory agencies, a copy of a report of examination, testimony, or 
other non-public OCC information for their use, when necessary, in the 
performance of their official duties. All non-public OCC information 
made available pursuant to this paragraph is OCC property, and the OCC 
may condition its use on appropriate confidentiality protections, 
including the mechanisms identified in Sec. 4.37.
    (d) Intention of OCC not to waive rights. The possession by any of 
the entities or individuals described in paragraphs (a), (b), and (c) of 
this section of non-public OCC information does not constitute a waiver 
by the OCC of its right to control, or impose limitations on, the 
subsequent use and dissemination of the information.

[60 FR 57322, Nov. 15, 1995. Redesignated and amended at 63 FR 62929, 
Nov. 10, 1998; 64 FR 29217, June 1, 1999]



Sec. 4.38  Restrictions on dissemination of released information.

    (a) Records. The OCC may condition a decision to release non-public 
OCC information on entry of a protective order by the court or 
administrative tribunal presiding in the particular case or, in non-
adversarial matters, on a written agreement of confidentiality. In a 
case in which a protective order has already been entered, the OCC may 
condition approval for release of non-public OCC information upon the 
inclusion of additional or amended provisions in the protective order. 
The OCC may authorize a party who obtained records for use in one case 
to provide them to another party in another case.
    (b) Testimony. The OCC may condition its authorization of deposition 
testimony on an agreement of the parties to appropriate limitations, 
such as an agreement to keep the transcript of the testimony under seal 
or to make the transcript available only to the parties, the court, and 
the jury. Upon request or on its own initiative, the OCC may allow use 
of a transcript in other litigation. The OCC may require the requester, 
at the requester's expense, to furnish the OCC with a copy of the 
transcript. The OCC employee whose deposition was transcribed does not 
waive his or her right to review the transcript and to note errors.

[60 FR 57322, Nov. 15, 1995. Redesignated at 63 FR 62929, Nov. 10, 1998]



Sec. 4.39  Notification of parties and procedures for sharing and using OCC records in litigation.

    (a) Responsibility of litigants to notify parties of a request for 
testimony. Upon submitting a request to the OCC for the testimony of an 
OCC employee or former employee, the requester shall notify all other 
parties to the case that a request has been submitted.
    (b) Responsibility of litigants to share released records. The 
requester shall promptly notify other parties to a case of the release 
of non-public OCC information obtained pursuant to this subpart, and, 
upon entry of a protective order, shall provide copies of OCC 
information, including OCC information obtained pursuant to Sec. 4.15, 
to the other parties.
    (c) Retrieval and destruction of released records. At the conclusion 
of an action:
    (1) The requester shall retrieve any non-public OCC information from 
the court's file as soon as the court no longer requires the 
information;
    (2) Each party shall destroy the non-public OCC information covered 
by the protective order; and
    (3) Each party shall certify to the OCC that the non-public OCC 
information covered by the protective order has been destroyed.
    (d) Authentication for use as evidence. Upon request, the OCC 
authenticates released records to facilitate their use as evidence. 
Requesters who require

[[Page 119]]

authenticated records or certificates of nonexistence of records should, 
as early as possible, request certificates from the OCC's Litigation 
Division pursuant to Sec. 4.34(a).

[60 FR 57322, Nov. 15, 1995. Redesignated at 63 FR 62929, Nov. 10, 1998]



Sec. 4.40  Fees for services.

    (a) Fees for records search, copying, and certification. The 
requester shall pay a fee to the OCC, or to a commercial copier under 
contract to the OCC, for any records search, copying, or certification 
in accordance with the standards specified in Sec. 4.17. The OCC may 
require a requester to remit payment prior to providing the requested 
information.
    (b) Witness fees and mileage. A person whose request for testimony 
of a current OCC employee is approved shall, upon completion of the 
testimonial appearance, tender promptly to the OCC payment for the 
witness fees and mileage. The litigant shall compute these amounts in 
accordance with 28 U.S.C. 1821. A litigant whose request for testimony 
of a former OCC employee is approved shall tender promptly to the 
witness any witness fees or mileage due in accordance with 28 U.S.C. 
1821.

[60 FR 57322, Nov. 15, 1995. Redesignated at 63 FR 62929, Nov. 10, 1998]



Sec. Appendix A to Subpart C of Part 4--Model Stipulation for Protective 
                    Order and Model Protective Order

                          I. Model Stipulation

                              CASE CAPTION

                 Model Stipulation for Protective Order

    Whereas, counsel for ------------ have applied to the Comptroller of 
the Currency (hereinafter ``Comptroller'') pursuant to 12 CFR Part 4, 
Subpart C, for permission to have made available, in connection with the 
captioned action, certain records; and
    Whereas, such records are deemed by the Comptroller to be 
confidential and privileged, pursuant to 12 U.S.C. 481; 5 U.S.C. 
552(b)(8); 18 U.S.C. 641, 1906; and 12 CFR 4.12, and Part 4, Subpart C; 
and
    Whereas, following consideration by the Comptroller of the 
application of the above described party, the Comptroller has determined 
that the particular circumstances of the captioned action warrant making 
certain possibly relevant records as denoted in Appendix ``A'' to this 
Stipulation [records to be specified by type and date] available to the 
parties in this action, provided that appropriate protection of their 
confidentiality can be secured;
    Therefore, it is hereby stipulated by and between the parties 
hereto, through their respective attorneys that they will be bound by 
the following protective order which may be entered by the Court without 
further notice.
    Dated this ------------ day of --------------, 19----.

________________________________________________________________________
Attorney for Plaintiff

________________________________________________________________________
Attorney for Defendant

                       II. Model Protective Order

                              CASE CAPTION

                         Model Protective Order

    Whereas, counsel for ------------ have applied to the Comptroller of 
the Currency (hereinafter Comptroller'') pursuant to 12 CFR Part 4, 
Subpart C, for permission to have made available, in connection with the 
captioned action, certain records; and
    Whereas, such records are deemed by the Comptroller to be 
confidential and privileged, pursuant to 12 U.S.C. 481; 5 U.S.C. 
552(b)(8); 18 U.S.C. 641, 1906; and 12 CFR 4.12, and Part 4, Subpart C;
    Whereas, following consideration by the Comptroller of the 
application of the above described party, the Comptroller has determined 
that the particular circumstances of the captioned action warrant making 
certain possibly relevant records available to the parties in this 
action, provided that appropriate protection of their confidentiality 
can be secured;
    Now, Therefore, it is Ordered That:
    1. The records, as denoted in Appendix ``A'' to the Stipulation for 
this Protective Order, upon being furnished [or released for use] by the 
Comptroller, shall be disclosed only to the parties to this action, 
their counsel, and the court [and the jury].
    2. The parties to this action and their counsel shall keep such 
records and any information contained in such records confidential and 
shall in no way divulge the same to any person or entity, except to such 
experts, consultants and non-party witnesses to whom the records and 
their contents shall be disclosed, solely for the purpose of properly 
preparing for and trying the action.
    3. No person to whom information and records covered by this Order 
are disclosed shall make any copies or otherwise use such information or 
records or their contents for any purpose whatsoever, except in 
connection with this action.

[[Page 120]]

    4. Any party or other person who wishes to use the information or 
records or their contents in any other action shall make a separate 
application to the Comptroller pursuant to 12 CFR Part 4, Subpart C.
    5. Should any records covered by this Order be filed with the Court 
or utilized as exhibits at depositions in the captioned action, or 
should information or records or their contents covered by this Order be 
disclosed in the transcripts of depositions or the trial in the 
captioned action, such records, exhibits and transcripts shall be filed 
in sealed envelopes or other sealed containers marked with the title of 
this action, identifying each document and article therein and bearing a 
statement substantially in the following form:

                              CONFIDENTIAL

    Pursuant to the Order of the Court dated ------------ this envelope 
containing the above-identified papers filed by (the name of the party) 
is not to be opened nor the contents thereof displayed or revealed 
except to the parties to this action or their counsel or by further 
Order of the Court.
    6. FOR JURY TRIAL: Any party offering any of the records into 
evidence shall offer only those pages, or portions thereof, that are 
relevant and material to the issues to be decided in the action and 
shall block out any portion of any page that contains information not 
relevant or material. Furthermore, the name of any person or entity 
contained on any page of the records who is not a party to this action, 
or whose name is not otherwise relevant or material to the action, shall 
be blocked out prior to the admission of such page into evidence. Any 
disagreement regarding what portion of any page that should be blocked 
out in this manner shall be resolved by the Court in camera, and the 
Court shall decide its admissibility into evidence.
    7. At the conclusion of this action, all parties shall certify to 
the Comptroller that the records covered by this Order have been 
destroyed. Furthermore, counsel for ------------, pursuant to 12 CFR 
4.39(c), shall retrieve any records covered by this Order that may have 
been filed with the Court.

    So Ordered:

________________________________________________________________________
Judge

    Date

[60 FR 57322, Nov. 15, 1995, as amended at 64 FR 29217, June 1, 1999]



 Subpart D_Minority- , Women- , and Individuals With Disabilities-Owned 
    Business Contracting Outreach Program; Contracting for Goods and 
                                Services



Sec. 4.61  Purpose.

    Pursuant to the Financial Institutions Reform, Recovery, and 
Enforcement Act of 1989, Sec. 1216(c), Pub. L. 101-73, 103 Stat. 183, 
529 (12 U.S.C. 1833e(c)) and consistent with the Rehabilitation Act of 
1973, as amended (29 U.S.C. 701 et seq.), this subpart establishes the 
OCC Minority- , Women- , and Individuals with Disabilities-Owned 
Business Contracting Outreach Program (Outreach Program). The Outreach 
Program is intended to ensure that firms owned and operated by 
minorities, women, and individuals with disabilities have the 
opportunity to participate, to the maximum extent possible, in all 
contracting activities of the OCC.



Sec. 4.62  Definitions.

    (a) Minority- and/or women-owned (small and large) businesses and 
entities owned by minorities and women (MWOB) means firms at least 51 
percent unconditionally-owned by one or more members of a minority group 
or by one or more women who are citizens of the United States. In the 
case of publicly-owned companies, at least 51 percent of each class of 
voting stock must be unconditionally-owned by one or more members of a 
minority group or by one or more women who are citizens of the United 
States. In the case of a partnership, at least 51 percent of the 
partnership interest must be unconditionally-owned by one or more 
members of a minority group or by one or more women who are citizens of 
the United States. Additionally, for the foregoing cases, the management 
and daily business operations must be controlled by one or more such 
individuals.
    (b) Minority means any African American, Native American (i.e., 
American Indian, Eskimo, Aleut and Native Hawaiian), Hispanic American, 
Asian-Pacific American, or Subcontinent-Asian American.

[[Page 121]]

    (c) Individual with disabilities-owned (small and large) businesses 
and entities owned by individuals with disabilities (IDOB) means firms 
at least 51 percent unconditionally-owned by one or more members who are 
individuals with disabilities and citizens of the United States. In the 
case of publicly-owned companies, at least 51 percent of each class of 
voting stock must be unconditionally-owned by one or more members who 
are individuals with disabilities and who are citizens of the United 
States. In the case of a partnership, at least 51 percent of the 
partnership interest must be unconditionally-owned by one or more 
members who are individuals with disabilities and citizens of the United 
States. Additionally, for the foregoing cases, the management and daily 
business operations must be controlled by one or more such individuals.
    (d) Individual with disabilities means any person who has a physical 
or mental impairment that substantially limits one or more of such 
person's major life activities, has a record of such an impairment, or 
is regarded as having such an impairment. For purposes of this part, it 
does not include an individual who is currently engaging in the illegal 
use of drugs nor an individual who has a currently contagious disease or 
infection and who, by reason of such disease or infection, would 
constitute a direct threat to the health or safety of other individuals 
or who, by reason of the currently contagious disease or infection, is 
unable to perform the duties of the job as defined by the IDOB.
    (e) Unconditional ownership means ownership that is not subject to 
conditions or similar arrangements which cause the benefits of the 
Outreach Program to accrue to persons other than the participating MWOB 
or IDOB.



Sec. 4.63  Policy.

    The OCC's policy is to ensure that MWOBs and IDOBs have the 
opportunity to participate, to the maximum extent possible, in contracts 
awarded by the OCC. The OCC awards contracts consistent with the 
principles of full and open competition and best value acquisition, and 
with the concept of contracting for agency needs at the lowest 
practicable cost. The OCC ensures that MWOBs and IDOBs have the 
opportunity to participate fully in all contracting activities that the 
OCC enters into for goods and services, whether generated by the 
headquarters office in Washington, DC, or any other office of the OCC. 
Contracting opportunities may include small purchase awards, contracts 
above the small purchase threshold, and delivery orders issued against 
other governmental agency contracts.



Sec. 4.64  Promotion.

    (a) Scope. The OCC, under the direction of the Deputy Comptroller 
for Resource Management, engages in promotion and outreach activities 
designed to identify MWOBs and IDOBs capable of providing goods and 
services needed by the OCC, to facilitate interaction between the OCC 
and the MWOBs and IDOBs community, and to indicate the OCC's commitment 
to doing business with that community. The Outreach Program is designed 
to facilitate OCC's participation in business promotion events sponsored 
by other government agencies and attended by minorities, women and 
individuals with disabilities. Once the OCC has identified a prospective 
participant, it will assist the minority- or women-owned business or 
individual with disabilities-owned business in understanding the OCC's 
needs and contracting process.
    (b) Outreach activities. OCC's Outreach Program includes the 
following:
    (1) Obtaining various lists and directories of MWOBs and IDOBs 
maintained by government agencies;
    (2) Contacting appropriate firms for participation in the OCC's 
Outreach Program;
    (3) Participating in business promotion events comprised of or 
attended by MWOBs and IDOBs to explain OCC contracting opportunities and 
to obtain names of potential MWOBs and IDOBs;
    (4) Ensuring that the OCC contracting staff understands and actively 
promotes this Outreach Program; and
    (5) Registering MWOBs and IDOBs in the Department of the Treasury's 
database to facilitate their participation in the competitive 
procurement process for OCC contracts. This database is

[[Page 122]]

used by OCC procurement staff to identify firms to be solicited for OCC 
procurements.



Sec. 4.65  Certification.

    (a) Objective. To preserve the integrity and foster the Outreach 
Program's objectives, each prospective MWOB or IDOB must demonstrate 
that it meets the ownership and control requirements for participation 
in the Outreach Program.
    (b) MWOB. A prospective MWOB may demonstrate its eligibility for 
participation in the Outreach Program by:
    (1) Submitting a valid MWOB certification received from another 
government agency whose definition of MWOB is substantially similar to 
that specified in Sec. 4.62(a);
    (2) Self-certifying MWOB ownership status by filing with the OCC a 
completed and signed certification form as prescribed by the Federal 
Acquisition Regulation, 48 CFR 53.301-129; or
    (3) Submitting a valid MWOB certification received from the Small 
Business Administration.
    (c) IDOB. A prospective IDOB may demonstrate its eligibility for 
participation in the Outreach Program by:
    (1) Submitting a valid IDOB certification received from another 
government agency whose definition of IDOB is substantially similar to 
that specified in Sec. 4.62(c); or
    (2) Self-certifying IDOB ownership status by filing with the OCC a 
completed and signed certification as prescribed in the Federal 
Acquisition Regulation, 48 CFR 53.301-129, and adding an additional 
certifying statement to read as follows:

    I certify that I am an individual with disabilities as defined in 12 
CFR 4.62(d), and that my firm, (Name of Firm) qualifies as an individual 
with disabilities-owned business as defined in 12 CFR 4.62(c).



Sec. 4.66  Oversight and monitoring.

    The Deputy Comptroller for Resource Management shall appoint an 
Outreach Program Manager, who shall appoint an Outreach Program 
Specialist. The Outreach Program Manager is primarily responsible for 
program advocacy, oversight and monitoring.



Subpart E_One-Year Restrictions on Post-Employment Activities of Senior 
                                Examiners

    Source: 70 FR 69637, Nov. 17, 2005, unless otherwise noted.



Sec. 4.72  Scope and purpose.

    This subpart describes those OCC examiners who are subject to the 
post-employment restrictions set forth in section 10(k) of the Federal 
Deposit Insurance Act (FDI Act) (12 U.S.C. 1820(k)) and implements those 
restrictions for officers and employees of the OCC.



Sec. 4.73  Definitions.

    For purposes of this subpart:
    Bank holding company means any company that controls a bank (as 
provided in section 2 of the Bank Holding Company Act of 1956 (12 U.S.C. 
1841 et seq.)).
    Consultant. For purposes of this subpart, a consultant for a 
national bank, bank holding company, or other company shall include only 
an individual who works directly on matters for, or on behalf of, such 
bank, bank holding company, or other company.
    Control has the meaning given in section 2 of the Bank Holding 
Company Act (12 U.S.C. 1841(a)). For purposes of this subpart, a foreign 
bank shall be deemed to control any branch or agency of the foreign 
bank.
    Depository institution has the meaning given in section 3 of the FDI 
Act (12 U.S.C. 1813(c)). For purposes of this subpart, a depository 
institution includes an uninsured branch or agency of a foreign bank, if 
such branch or agency is located in any State.
    Federal Reserve means the Board of Governors of the Federal Reserve 
System and the Federal Reserve Banks.
    Foreign bank means any foreign bank or company described in section 
8(a) of the International Banking Act of 1978 (12 U.S.C. 3106(a)).
    Insured depository institution has the meaning given in section 3 of 
the FDI Act (12 U.S.C. 1813(c)(2)).
    National bank means a national banking association or a Federal 
branch or agency of a foreign bank.

[[Page 123]]

    Senior examiner. For purposes of this subpart, an officer or 
employee of the OCC is considered to be the ``senior examiner'' for a 
particular national bank if--
    (1) The officer or employee has been authorized by the OCC to 
conduct examinations on behalf of the OCC;
    (2) The officer or employee has been assigned continuing, broad, and 
lead responsibility for examining the national bank; and
    (3) The officer's or employee's responsibilities for examining the 
national bank--
    (i) Represent a substantial portion of the officer's or employee's 
assigned responsibilities; and
    (ii) Require the officer or employee to interact routinely with 
officers or employees of the national bank or its affiliates.



Sec. 4.74  One-year post-employment restrictions.

    An officer or employee of the OCC who serves as the senior examiner 
of a national bank for two or more months during the last twelve months 
of such individual's employment with the OCC may not, within one year 
after leaving the employment of the OCC, knowingly accept compensation 
as an employee, officer, director or consultant from the national bank, 
or any company (including a bank holding company) that controls the 
national bank.



Sec. 4.75  Effective date; waivers.

    The post-employment restrictions set forth in section 10(k) of the 
FDI Act and Sec. 4.74 do not apply to any officer or employee of the 
OCC, or any former officer or employee of the OCC, if--
    (a) The individual ceased to be an officer or employee of the OCC 
before December 17, 2005; or
    (b) The Comptroller of the Currency certifies, in writing and on a 
case-by-case basis, that granting the individual a waiver of the 
restrictions would not affect the integrity of the OCC's supervisory 
program.



Sec. 4.76  Penalties.

    (a) Penalties under section 10(k) of FDI Act. If a senior examiner 
of a national bank, after leaving the employment of the OCC, accepts 
compensation as an employee, officer, director, or consultant from that 
bank, or any company (including a bank holding company) that controls 
that bank, then the examiner shall, in accordance with section 10(k)(6) 
of the FDI Act, be subject to one of the following penalties--
    (1) An order--
    (i) Removing the individual from office or prohibiting the 
individual from further participation in the affairs of the relevant 
national bank, bank holding company, or other company that controls such 
institution for a period of up to five years; and
    (ii) Prohibiting the individual from participating in the affairs of 
any insured depository institution for a period of up to five years; or
    (2) A civil monetary penalty of not more than $250,000.
    (b) Enforcement by appropriate Federal banking agency. Violations of 
Sec. 4.74 shall be administered or enforced by the appropriate Federal 
banking agency for the depository institution or depository institution 
holding company that provided compensation to the former senior 
examiner. For purposes of this paragraph, the appropriate Federal 
banking agency for a company that is not a depository institution or 
depository institution holding company shall be the Federal banking 
agency that formerly employed the senior examiner.
    (c) Scope of prohibition orders. Any senior examiner who is subject 
to an order issued under paragraph (a) of this section shall, as 
required by 12 U.S.C. 1820(k)(6)(B), be subject to paragraphs (6) and 
(7) of section 8(e) of the FDI Act (12 U.S.C. 1818(e)(6)-(7)) in the 
same manner and to the same extent as a person subject to an order 
issued under section 8(e).
    (d) Procedures. The procedures applicable to actions under paragraph 
(a) of this section are provided in section 10(k)(6) of the FDI Act (12 
U.S.C. 1820(k)(6)) and in 12 CFR part 19.
    (e) Remedies not exclusive. The OCC may seek both of the penalties 
described in paragraph (a) of this section. In addition, a senior 
examiner who accepts compensation as described in Sec. 4.74 may be 
subject to other administrative, civil or criminal remedies or penalties 
as provided in law.

[[Page 124]]



PART 5_RULES, POLICIES, AND PROCEDURES FOR CORPORATE ACTIVITIES--Table of Contents




Sec.
5.1 Scope.

                Subpart A_Rules of General Applicability

5.2 Rules of general applicability.
5.3 Definitions.
5.4 Filing required.
5.5 Fees.
5.6 [Reserved]
5.7 Investigations.
5.8 Public notice.
5.9 Public availability.
5.10 Comments.
5.11 Hearings and other meetings.
5.12 Computation of time.
5.13 Decisions.

                      Subpart B_Initial Activities

5.20 Organizing a bank.
5.24 Conversion.
5.26 Fiduciary powers.

                    Subpart C_Expansion of Activities

5.30 Establishment, acquisition, and relocation of a branch.
5.32 Expedited procedures for certain reorganizations.
5.33 Business combinations.
5.34 Operating subsidiaries.
5.35 Bank service companies.
5.36 Other equity investments.
5.37 Investment in bank premises.
5.39 Financial subsidiaries.

          Subpart D_Other Changes in Activities and Operations

5.40 Change in location of main office.
5.42 Corporate title.
5.46 Changes in permanent capital.
5.47 Subordinated debt as capital.
5.48 Voluntary liquidation.
5.50 Change in bank control; reporting of stock loans.
5.51 Changes in directors and senior executive officers.
5.52 Change of address.
5.53 Change in asset composition.

                     Subpart E_Payment of Dividends

5.60 Authority, scope, and exceptions to rules of general applicability.
5.61 Definitions.
5.62 Date of declaration of dividend.
5.63 Capital limitation under 12 U.S.C. 56.
5.64 Earnings limitation under 12 U.S.C. 60.
5.65 Restrictions on undercapitalized institutions.
5.66 Dividends payable in property other than cash.
5.67 Fractional shares.

                 Subpart F_Federal Branches and Agencies

5.70 Federal branches and agencies.

    Authority: 12 U.S.C. 1 et seq., 93a, 215a-2, 215a-3, 481, and 
section 5136A of the Revised Statutes (12 U.S.C. 24a).

    Source: 61 FR 60363, Nov. 27, 1996, unless otherwise noted.



Sec. 5.1  Scope.

    This part establishes rules, policies and procedures of the Office 
of the Comptroller of the Currency (OCC) for corporate activities and 
transactions involving national banks. It contains information on rules 
of general and specific applicability, where and how to file, and 
requirements and policies applicable to filings. This part also 
establishes the corporate filing procedures for Federal branches and 
agencies of foreign banks.



                Subpart A_Rules of General Applicability



Sec. 5.2  Rules of general applicability.

    (a) General. The rules in this subpart apply to all sections in this 
part unless otherwise stated.
    (b) Exceptions. The OCC may adopt materially different procedures 
for a particular filing, or class of filings, in exceptional 
circumstances or for unusual transactions, after providing notice of the 
change to the applicant and to any other party that the OCC determines 
should receive notice.
    (c) Additional information. The ``Comptroller's Licensing Manual'' 
(Manual) provides additional guidance, including policies, procedures, 
and sample forms. The Manual is available on the OCC's Internet Web page 
at http://www.occ.treas.gov. Printed copies are available for a fee from 
Publications, Communications Division, Comptroller of the Currency, 250 
E Street, SW., Washington, DC 20219-0001.
    (d) Electronic filing. The OCC may permit electronic filing for any 
class of filings. The Manual identifies filings that may be made 
electronically and

[[Page 125]]

describes the procedures that the OCC requires in those cases.

[61 FR 60363, Nov. 27, 1996, as amended at 68 FR 17892, Apr. 14, 2003]



Sec. 5.3  Definitions.

    (a) Applicant means a person or entity that submits a notice or 
application to the OCC under this part.
    (b) Application means a submission requesting OCC approval to engage 
in various corporate activities and transactions.
    (c) Appropriate district office means:
    (1) The Licensing Department for all national bank subsidiaries of 
those holding companies assigned to the Washington, DC, licensing unit;
    (2) The appropriate OCC district office for all national bank 
subsidiaries of certain holding companies assigned to a district office 
licensing unit;
    (3) The OCC's district office where the national bank's supervisory 
office is located for all other banks; or
    (4) The licensing unit in the Northeastern District Office for 
Federal branches and agencies of foreign banks.
    (d) Capital and surplus means:
    (1) A bank's Tier 1 and Tier 2 capital calculated under the OCC's 
risk-based capital standards set forth in Appendix A to 12 CFR part 3 as 
reported in the bank's Consolidated Report of Condition and Income filed 
under 12 U.S.C. 161; plus
    (2) The balance of a bank's allowance for loan and lease losses not 
included in the bank's Tier 2 capital, for purposes of the calculation 
of risk-based capital described in paragraph (d)(1) of this section, as 
reported in the bank's Consolidated Report of Condition and Income filed 
under 12 U.S.C. 161.
    (e) Central city means the city or cities identified as central 
cities by the Director of the Office of Management and Budget.
    (f) Depository institution means any bank or savings association.
    (g) Eligible bank means a national bank that:
    (1) Is well capitalized as defined in 12 CFR 6.4(b)(1);
    (2) Has a composite rating of 1 or 2 under the Uniform Financial 
Institutions Rating System (CAMELS);
    (3) Has a Community Reinvestment Act (CRA), 12 U.S.C. 2901 et seq., 
rating of ``Outstanding'' or ``Satisfactory''; and
    (4) Is not subject to a cease and desist order, consent order, 
formal written agreement, or Prompt Corrective Action directive (see 12 
CFR part 6, subpart B) or, if subject to any such order, agreement, or 
directive, is informed in writing by the OCC that the bank may be 
treated as an ``eligible bank'' for purposes of this part.
    (h) Eligible depository institution means a state bank or a Federal 
or state savings association that meets the criteria for an ``eligible 
bank'' under Sec. 5.3(g) and is FDIC-insured.
    (i) Filing means an application or notice submitted to the OCC under 
this part.
    (j) National bank means any national banking association and any 
bank or trust company located in the District of Columbia operating 
under the OCC's supervision.
    (k) Notice means a submission notifying the OCC that a national bank 
intends to engage in or has commenced certain corporate activities or 
transactions.
    (l) Short-distance relocation means moving the premises of a branch 
or main office within a:
    (1) One thousand foot-radius of the site if the branch is located 
within a central city of an MSA;
    (2) One-mile radius of the site if the branch is not located within 
a central city, but is located within an MSA; or
    (3) Two-mile radius of the site if the branch is not located within 
an MSA.

[61 FR 60363, Nov. 27, 1996, as amended at 64 FR 60098, Nov. 4, 1999; 68 
FR 70698, Dec. 19, 2003]



Sec. 5.4  Filing required.

    (a) Filing. A depository institution shall file an application or 
notice with the OCC to engage in corporate activities and transactions 
as described in this part.
    (b) Availability of forms. Individual sample forms and instructions 
for filings are available in the Manual and from each district office.
    (c) Other applications accepted. At the request of the applicant, 
the OCC may accept an application form or other filing submitted to 
another Federal agency that covers the proposed action or

[[Page 126]]

transaction and contains substantially the same information as required 
by the OCC. The OCC may also require the applicant to submit 
supplemental information.
    (d) Where to file. An applicant should address a filing or other 
submission under this part to the attention of the Licensing Manager at 
the appropriate district office. However, the OCC may advise an 
applicant through a pre-filing communication to send the filing or 
submission directly to the Bank Organization and Structure Department or 
elsewhere as otherwise directed by the OCC. Relevant addresses are 
listed in the Manual.
    (e) Incorporation of other material. An applicant may incorporate 
any material contained in any other application or filing filed with the 
OCC or other Federal agency by reference, provided that the material is 
attached to the application and is current and responsive to the 
information requested by the OCC. The filing must clearly indicate that 
the information is so incorporated and include a cross-reference to the 
information incorporated.



Sec. 5.5  Fees.

    An applicant shall submit the appropriate filing fee, if any, in 
connection with its filing. An applicant shall pay the fee by check 
payable to the Comptroller of the Currency or by other means acceptable 
to the OCC. The OCC publishes a fee schedule annually in the ``Notice of 
Comptroller of the Currency fees,'' described in 12 CFR 8.8. The OCC 
generally does not refund the filing fees.



Sec. 5.6  [Reserved]



Sec. 5.7  Investigations.

    (a) Authority. The OCC may examine or investigate and evaluate facts 
related to a filing to the extent necessary to reach an informed 
decision.
    (b) Fees. The OCC may assess fees for investigations or examinations 
conducted under paragraph (a) of this section. The OCC publishes the 
rates, described in 12 CFR 8.6, annually in the ``Notice of Comptroller 
of the Currency fees.''



Sec. 5.8  Public notice.

    (a) General. An applicant shall publish a public notice of its 
filing in a newspaper of general circulation in the community in which 
the applicant proposes to engage in business, on the date of filing, or 
as soon as practicable before or after the date of filing.
    (b) Contents of the public notice. The public notice shall state 
that a filing is being made, the date of the filing, the name of the 
applicant, the subject matter of the filing, that the public may submit 
comments to the OCC, the address of the appropriate office(s) where 
comments should be sent, the closing date of the public comment period, 
and any other information that the OCC requires.
    (c) Confirmation of public notice. The applicant shall mail or 
otherwise deliver a statement containing the date of publication, the 
name and address of the newspaper that published the public notice, a 
copy of the public notice, and any other information that the OCC 
requires, to the appropriate district office promptly following 
publication.
    (d) Multiple transactions. The OCC may consider more than one 
transaction, or a series of transactions, to be a single filing for 
purposes of the publication requirements of this section. When filing a 
single public notice for multiple transactions, the applicant shall 
explain in the notice how the transactions are related.
    (e) Joint public notices accepted. Upon the request of an applicant 
for a transaction subject to the OCC's public notice requirements and 
public notice required by another Federal agency, the OCC may accept 
publication of a single joint notice containing the information required 
by both the OCC and the other Federal agency, provided that the notice 
states that comments must be submitted to both the OCC and, if 
applicable, the other Federal agency.
    (f) Public notice by the OCC. In addition to the foregoing, the OCC 
may require or give public notice and request comment on any filing and 
in any manner the OCC determines appropriate for the particular filing.

[[Page 127]]



Sec. 5.9  Public availability.

    (a) General. The OCC provides a copy of the public file to any 
person who requests it. A requestor should submit a request for the 
public file concerning a pending application to the appropriate district 
office. A requestor should submit a request for the public file 
concerning a decided or closed application to the Disclosure Officer, 
Communications Division, at the address listed in the Manual. Requests 
should be in writing. The OCC may impose a fee in accordance with 12 CFR 
4.17 and with the rates the OCC publishes annually in the ``Notice of 
Comptroller of the Currency Fees'' described in 12 CFR 8.8.
    (b) Public file. A public file consists of the portions of the 
filing, supporting data, supplementary information, and information 
submitted by interested persons, to the extent that those documents have 
not been afforded confidential treatment. Applicants and other 
interested persons may request that confidential treatment be afforded 
information submitted to the OCC pursuant to paragraph (c) of this 
section.
    (c) Confidential treatment. The applicant or an interested person 
submitting information may request that specific information be treated 
as confidential under the Freedom of Information Act, 5 U.S.C. 552 (see 
12 CFR 4.12(b)). A submitter should draft its request for confidential 
treatment narrowly to extend only to those portions of a document it 
considers to be confidential. If a submitter requests confidential 
treatment for information that the OCC does not consider to be 
confidential, the OCC may include that information in the public file 
after providing notice to the submitter. Moreover, at its own 
initiative, the OCC may determine that certain information should be 
treated as confidential and withhold that information from the public 
file. A person requesting information withheld from the public file 
should submit the request to the Disclosure Officer, Communications 
Division, under the procedures described in 12 CFR part 4, subpart B. 
That request may be subject to the predisclosure notice procedures of 12 
CFR 4.16.



Sec. 5.10  Comments.

    (a) Submission of comments. During the comment period, any person 
may submit written comments on a filing to the appropriate district 
office.
    (b) Comment period--(1) General. Unless otherwise stated, the 
comment period is 30 days after publication of the public notice 
required by Sec. 5.8(a).
    (2) Extension. The OCC may extend the comment period if:
    (i) The applicant fails to file all required publicly available 
information on a timely basis to permit review by interested persons or 
makes a request for confidential treatment not granted by the OCC that 
delays the public availability of that information;
    (ii) Any person requesting an extension of time satisfactorily 
demonstrates to the OCC that additional time is necessary to develop 
factual information that the OCC determines is necessary to consider the 
application; or
    (iii) The OCC determines that other extenuating circumstances exist.
    (3) Applicant response. The OCC may give the applicant an 
opportunity to respond to comments received.



Sec. 5.11  Hearings and other meetings.

    (a) Hearing requests. Prior to the end of the comment period, any 
person may submit to the appropriate district office a written request 
for a hearing on a filing. The request must describe the nature of the 
issues or facts to be presented and the reasons why written submissions 
would be insufficient to make an adequate presentation of those issues 
or facts to the OCC. A person requesting a hearing shall simultaneously 
submit a copy of the request to the applicant.
    (b) Action on a hearing request. The OCC may grant or deny a request 
for a hearing and may limit the issues to those it deems relevant or 
material. The OCC generally grants a hearing request only if the OCC 
determines that written submissions would be insufficient or that a 
hearing would otherwise benefit the decisionmaking process. The OCC also 
may order a hearing if it concludes that a hearing would be in the 
public interest.
    (c) Denial of a hearing request. If the OCC denies a hearing 
request, it shall

[[Page 128]]

notify the person requesting the hearing of the reason for the denial.
    (d) OCC procedures prior to the hearing--(1) Notice of Hearing. The 
OCC issues a Notice of Hearing if it grants a request for a hearing or 
orders a hearing because it is in the public interest. The OCC sends a 
copy of the Notice of Hearing to the applicant, to the person requesting 
the hearing, and anyone else requesting a copy. The Notice of Hearing 
states the subject and date of the filing, the time and place of the 
hearing, and the issues to be addressed.
    (2) Presiding officer. The OCC appoints a presiding officer to 
conduct the hearing. The presiding officer is responsible for all 
procedural questions not governed by this section.
    (e) Participation in the hearing. Any person who wishes to appear 
(participant) shall notify the appropriate district office of his or her 
intent to participate in the hearing within ten days from the date the 
OCC issues the Notice of Hearing. At least five days before the hearing, 
each participant shall submit to the appropriate district office, the 
applicant, and any other person the OCC requires, the names of 
witnesses, and one copy of each exhibit the participant intends to 
present.
    (f) Transcripts. The OCC arranges for a hearing transcript. The 
person requesting the hearing generally bears the cost of one copy of 
the transcript for his or her use.
    (g) Conduct of the hearing--(1) Presentations. Subject to the 
rulings of the presiding officer, the applicant and participants may 
make opening statements and present witnesses, material, and data.
    (2) Information submitted. A person presenting documentary material 
shall furnish one copy to the OCC, and one copy to the applicant and 
each participant.
    (3) Laws not applicable to hearings. The Administrative Procedure 
Act (5 U.S.C. 551 et seq.), the Federal Rules of Evidence (28 U.S.C. 
Appendix), the Federal Rules of Civil Procedure (28 U.S.C. Rule 1 et 
seq.), and the OCC's Rules of Practice and Procedure (12 CFR part 19) do 
not apply to hearings under this section.
    (h) Closing the hearing record. At the applicant's or participant's 
request, the OCC may keep the hearing record open for up to 14 days 
following the OCC's receipt of the transcript. The OCC resumes 
processing the filing after the record closes.
    (i) Other meetings--(1) Public meetings. The OCC may arrange for a 
public meeting in connection with an application, either upon receipt of 
a written request for such a meeting which is made during the comment 
period, or upon the OCC's own initiative. Public meetings will be 
arranged and presided over by a presiding officer.
    (2) Private meetings. The OCC may arrange a meeting with an 
applicant or other interested parties to an application, or with an 
applicant and other interested parties to an application, to clarify and 
narrow the issues and to facilitate the resolution of the issues.

[61 FR 60363, Nov. 27, 1996, as amended at 64 FR 60098, Nov. 4, 1999]



Sec. 5.12  Computation of time.

    In computing the period of days, the OCC includes the day of the act 
(e.g., the date an application is received by the OCC) from which the 
period begins to run and the last day of the period, regardless of 
whether it is a Saturday, Sunday, or legal holiday.



Sec. 5.13  Decisions.

    (a) General. The OCC may approve, conditionally approve, or deny a 
filing after appropriate review and consideration of the record. In 
deciding an application under this part, the OCC may consider the 
activities, resources, or condition of an affiliate of the applicant 
that may reasonably reflect on or affect the applicant.
    (1) Conditional approval. The OCC may impose conditions on any 
approval, including to address a significant supervisory, CRA (if 
applicable), or compliance concern, if the OCC determines that the 
conditions are necessary or appropriate to ensure that approval is 
consistent with relevant statutory and regulatory standards and OCC 
policies thereunder and safe and sound banking practices.
    (2) Expedited review. The OCC grants eligible banks expedited review 
within a specified time after filing or commencement of the public 
comment period, including any extension of the

[[Page 129]]

comment period granted pursuant to Sec. 5.10, as described in 
applicable sections of this part.
    (i) The OCC may extend the expedited review process for a filing 
subject to the CRA up to an additional 10 days if a comment contains 
specific assertions concerning a bank's CRA performance that, if true, 
would indicate a reasonable possibility that:
    (A) A bank's CRA rating would be less than satisfactory, 
institution-wide, or, where applicable, in a state or multistate MSA; or
    (B) A bank's CRA performance would be less than satisfactory in an 
MSA, or in the non-MSA portion of a state, in which it seeks to expand 
through approval of an application for a deposit facility as defined in 
12 U.S.C. 2902(3).
    (ii) The OCC will remove a filing from expedited review procedures, 
if the OCC concludes that the filing, or an adverse comment regarding 
the filing, presents a significant supervisory, CRA (if applicable), or 
compliance concern, or raises a significant legal or policy issue, 
requiring additional OCC review. The OCC will provide the applicant with 
a written explanation if it decides not to process an application from 
an eligible bank under expedited review pursuant to this paragraph 
(a)(2)(ii). For purposes of this section, a significant CRA concern 
exists if the OCC concludes that:
    (A) A bank's CRA rating is less than satisfactory, institution-wide, 
or, where applicable, in a state or multistate MSA; or
    (B) A bank's CRA performance is less than satisfactory in an MSA, or 
in the non-MSA portion of a state, in which it seeks to expand through 
approval of an application for a deposit facility as defined in 12 
U.S.C. 2902(3).
    (iii) Adverse comments that the OCC determines do not raise a 
significant supervisory, CRA (if applicable), or compliance concern, or 
a significant legal or policy issue, or are frivolous, filed primarily 
as a means of delaying action on the filing, or that raise a CRA concern 
that the OCC determines has been satisfactorily resolved, do not affect 
the OCC's decision under paragraphs (a)(2)(i) or (a)(2)(ii) of this 
section. The OCC considers a CRA concern to have been satisfactorily 
resolved if the OCC previously reviewed (e.g., in an examination or an 
application) a concern presenting substantially the same issue in 
substantially the same assessment area during substantially the same 
time, and the OCC determines that the concern would not warrant denial 
or imposition of a condition on approval of the application.
    (iv) If a bank files an application for any activity or transaction 
that is dependent upon the approval of another application under this 
part, or if requests for approval for more than one activity or 
transaction are combined in a single application under applicable 
sections of this part, none of the subject applications may be deemed 
approved upon expiration of the applicable time periods, unless all of 
the applications are subject to expedited review procedures and the 
longest of the time periods expires without the OCC issuing a decision 
or notifying the bank that the filings are not eligible for expedited 
review under the standards in paragraph (a)(2)(ii) of this section.
    (b) Denial. The OCC may deny a filing if:
    (1) A significant supervisory, CRA (if applicable), or compliance 
concern exists with respect to the applicant;
    (2) Approval of the filing is inconsistent with applicable law, 
regulation, or OCC policy thereunder; or
    (3) The applicant fails to provide information requested by the OCC 
that is necessary for the OCC to make an informed decision.
    (c) Required information and abandonment of filing. A filing must 
contain information required by the applicable section set forth in this 
part. To the extent necessary to evaluate an application, the OCC may 
require an applicant to provide additional information. The OCC may deem 
a filing abandoned if information required or requested by the OCC in 
connection with the filing is not furnished within the time period 
specified by the OCC.
    (d) Notification of final disposition. The OCC notifies the 
applicant, and any person who makes a written request, of the final 
disposition of a filing, including confirmation of an expedited review 
under this part. If the OCC denies

[[Page 130]]

a filing, the OCC notifies the applicant in writing of the reasons for 
the denial.
    (e) Publication of decision. The OCC will issue a public decision 
when a decision represents a new or changed policy or presents issues of 
general interest to the public or the banking industry. In rendering its 
decisions, the OCC may elect not to disclose information that the OCC 
deems to be private or confidential.
    (f) Appeal. An applicant may file an appeal of an OCC decision with 
the Deputy Comptroller for Bank Organization and Structure or with the 
Ombudsman. Relevant addresses and telephone numbers are located in the 
Manual.
    (g) Extension of time. When the OCC approves or conditionally 
approves a filing, the OCC generally gives the applicant a specified 
period of time to commence that new or expanded activity. The OCC does 
not generally grant an extension of the time specified to commence a new 
or expanded corporate activity approved under this part, unless the OCC 
determines that the delay is beyond the applicant's control.
    (h) Nullifying a decision--(1) Material misrepresentation or 
omission. An applicant shall certify that any filing or supporting 
material submitted to the OCC contains no material misrepresentations or 
omissions. The OCC may review and verify any information filed in 
connection with a notice or an application. If the OCC discovers a 
material misrepresentation or omission after the OCC has rendered a 
decision on the filing, the OCC may nullify its decision. Any person 
responsible for any material misrepresentation or omission in a filing 
or supporting materials may be subject to enforcement action and other 
penalties, including criminal penalties provided in 18 U.S.C. 1001.
    (2) Other nullifications. The OCC may nullify any decision on a 
filing that is:
    (i) Contrary to law, regulation, or OCC policy thereunder; or
    (ii) Granted due to clerical or administrative error, or a material 
mistake of law or fact.



                      Subpart B_Initial Activities



Sec. 5.20  Organizing a bank.

    (a) Authority. 12 U.S.C. 21, 22, 24(Seventh), 26, 27, 92a, 93a, 
1814(b), 1816, and 2903.
    (b) Licensing requirements. Any person desiring to establish a 
national bank shall submit an application and obtain prior OCC approval.
    (c) Scope. This section describes the procedures and requirements 
governing OCC review and approval of an application to establish a 
national bank, including a national bank with a special purpose. 
Information regarding an application to establish an interim national 
bank solely to facilitate a business combination is set forth in Sec. 
5.33.
    (d) Definitions. For purposes of this section:
    (1) Bankers' bank means a bank owned exclusively (except to the 
extent directors' qualifying shares are required by law) by other 
depository institutions or depository institution holding companies (as 
that term is defined in section 3 of the Federal Deposit Insurance Act, 
12 U.S.C. 1813), the activities of which are limited by its articles of 
association exclusively to providing services to or for other depository 
institutions, their holding companies, and the officers, directors, and 
employees of such institutions and companies, and to providing 
correspondent banking services at the request of other depository 
institutions or their holding companies.
    (2) Control means control as used in section 2 of the Bank Holding 
Company Act, 12 U.S.C. 1841(a)(2).
    (3) Final approval means the OCC action issuing a charter 
certificate and authorizing a national bank to open for business.
    (4) Holding company means any company that controls or proposes to 
control a national bank whether or not the company is a bank holding 
company under section 2 of the Bank Holding Company Act, 12 U.S.C. 
1841(a)(1).
    (5) Lead depository institution means the largest depository 
institution controlled by a bank holding company based on a comparison 
of the average

[[Page 131]]

total assets controlled by each depository institution as reported in 
its Consolidated Report of Condition and Income required to be filed for 
the immediately preceding four calendar quarters.
    (6) Organizing group means five or more persons acting on their own 
behalf, or serving as representatives of a sponsoring holding company, 
who apply to the OCC for a national bank charter.
    (7) Preliminary approval means a decision by the OCC permitting an 
organizing group to go forward with the organization of the proposed 
national bank. A preliminary approval generally is subject to certain 
conditions that an applicant must satisfy before the OCC will grant 
final approval.
    (e) Statutory requirements--(1) General. The OCC charters a national 
bank under the authority of the National Bank Act of 1864, as amended, 
12 U.S.C. 1 et seq. The bank may be a special purpose bank that limits 
its activities to fiduciary activities or to any other activities within 
the business of banking. A special purpose bank that conducts activities 
other than fiduciary activities must conduct at least one of the 
following three core banking functions: receiving deposits; paying 
checks; or lending money. The name of a proposed bank must include the 
word ``national.'' In determining whether to approve an application to 
establish a national bank, the OCC verifies that the proposed national 
bank has complied with the following requirements of the National Bank 
Act. A national bank shall:
    (i) Draft and file articles of association with the OCC;
    (ii) Draft and file an organization certificate containing specified 
information with the OCC;
    (iii) Ensure that all capital stock is paid in; and
    (iv) Have at least five elected directors.
    (2) Community Reinvestment Act. Twelve CFR part 25 requires the OCC 
to take into account a proposed insured national bank's description of 
how it will meet its CRA objectives.
    (f) Policy--(1) General. The marketplace is normally the best 
regulator of economic activity, and competition within the marketplace 
promotes efficiency and better customer service. Accordingly, it is the 
OCC's policy to approve proposals to establish national banks, including 
minority-owned institutions, that have a reasonable chance of success 
and that will be operated in a safe and sound manner. It is not the 
OCC's policy to ensure that a proposal to establish a national bank is 
without risk to the organizers or to protect existing institutions from 
healthy competition from a new national bank.
    (2) Policy considerations. (i) In evaluating an application to 
establish a national bank, the OCC considers whether the proposed bank:
    (A) Has organizers who are familiar with national banking laws and 
regulations;
    (B) Has competent management, including a board of directors, with 
ability and experience relevant to the types of services to be provided;
    (C) Has capital that is sufficient to support the projected volume 
and type of business;
    (D) Can reasonably be expected to achieve and maintain 
profitability; and
    (E) Will be operated in a safe and sound manner.
    (ii) The OCC may also consider additional factors listed in section 
6 of the Federal Deposit Insurance Act, 12 U.S.C. 1816, including the 
risk to the Federal deposit insurance fund, and whether the proposed 
bank's corporate powers are consistent with the purposes of the Federal 
Deposit Insurance Act and the National Bank Act.
    (3) OCC evaluation. The OCC evaluates a proposed national bank's 
organizing group and its business plan or operating plan together. The 
OCC's judgment concerning one may affect the evaluation of the other. An 
organizing group and its business plan or operating plan must be 
stronger in markets where economic conditions are marginal or 
competition is intense.
    (g) Organizing group--(1) General. Strong organizing groups 
generally include diverse business and financial interests and community 
involvement. An organizing group must have the experience, competence, 
willingness, and ability to be active in directing the proposed national 
bank's affairs in a

[[Page 132]]

safe and sound manner. The bank's initial board of directors generally 
is comprised of many, if not all, of the organizers. The business plan 
or operating plan and other information supplied in the application must 
demonstrate an organizing group's collective ability to establish and 
operate a successful bank in the economic and competitive conditions of 
the market to be served. Each organizer should be knowledgeable about 
the business plan or business plan or operating plan. A poor business 
plan or operating plan reflects adversely on the organizing group's 
ability, and the OCC generally denies applications with poor business 
plans or operating plans.
    (2) Management selection. The initial board of directors must select 
competent senior executive officers before the OCC grants final 
approval. Early selection of executive officers, especially the chief 
executive officer, contributes favorably to the preparation and review 
of a business plan or operating plan that is accurate, complete, and 
appropriate for the type of bank proposed and its market, and reflects 
favorably upon an application. As a condition of the charter approval, 
the OCC retains the right to object to and preclude the hiring of any 
officer, or the appointment or election of any director, for a two-year 
period from the date the bank commences business.
    (3) Financial resources. (i) Each organizer must have a history of 
responsibility, personal honesty, and integrity. Personal wealth is not 
a prerequisite to become an organizer or director of a national bank. 
However, directors' stock purchases, individually and in the aggregate, 
should reflect a financial commitment to the success of the national 
bank that is reasonable in relation to their individual and collective 
financial strength. A director should not have to depend on bank 
dividends, fees, or other compensation to satisfy financial obligations.
    (ii) Because directors are often the primary source of additional 
capital for a bank not affiliated with a holding company, it is 
desirable that an organizer who is also proposed as a director of the 
national bank be able to supply or have a realistic plan to enable the 
bank to obtain capital when needed.
    (iii) Any financial or other business arrangement, direct or 
indirect, between the organizing group or other insider and the proposed 
national bank must be on nonpreferential terms.
    (4) Organizational expenses. (i) Organizers are expected to 
contribute time and expertise to the organization of the bank. 
Organizers should not bill excessive charges to the bank for 
professional and consulting services or unduly rely upon these fees as a 
source of income.
    (ii) A proposed national bank shall not pay any fee that is 
contingent upon an OCC decision. Such action generally is grounds for 
denial of the application or withdrawal of preliminary approval. 
Organizational expenses for denied applications are the sole 
responsibility of the organizing group.
    (5) Sponsor's experience and support. A sponsor must be financially 
able to support the new bank's operations and to provide or locate 
capital when needed. The OCC primarily considers the financial and 
managerial resources of the sponsor and the sponsor's record of 
performance, rather than the financial and managerial resources of the 
organizing group, if an organizing group is sponsored by:
    (i) An existing holding company;
    (ii) Individuals currently affiliated with other depository 
institutions; or
    (iii) Individuals who, in the OCC's view, are otherwise collectively 
experienced in banking and have demonstrated the ability to work 
together effectively.
    (h) Business plan or Operating plan--(1) General. (i) Organizers of 
a proposed national bank shall submit a business plan or operating plan 
that adequately addresses the statutory and policy considerations set 
forth in paragraphs (e) and (f)(2) of this section. The plan must 
reflect sound banking principles and demonstrate realistic assessments 
of risk in light of economic and competitive conditions in the market to 
be served.
    (ii) The OCC may offset deficiencies in one factor by strengths in 
one or more other factors. However, deficiencies in some factors, such 
as unrealistic earnings prospects, may have a negative influence on the 
evaluation of other factors, such as capital adequacy,

[[Page 133]]

or may be serious enough by themselves to result in denial. The OCC 
considers inadequacies in a business plan or operating plan to reflect 
negatively on the organizing group's ability to operate a successful 
bank.
    (2) Earnings prospects. The organizing group shall submit pro forma 
balance sheets and income statements as part of the business plan or 
operating plan. The OCC reviews all projections for reasonableness of 
assumptions and consistency with the business plan or operating plan.
    (3) Management. (i) The organizing group shall include in the 
business plan or operating plan information sufficient to permit the OCC 
to evaluate the overall management ability of the organizing group. If 
the organizing group has limited banking experience or community 
involvement, the senior executive officers must be able to compensate 
for such deficiencies.
    (ii) The organizing group may not hire an officer or elect or 
appoint a director if the OCC objects to that person at any time prior 
to the date the bank commences business.
    (4) Capital. A proposed bank must have sufficient initial capital, 
net of any organizational expenses that will be charged to the bank's 
capital after it begins operations, to support the bank's projected 
volume and type of business.
    (5) Community service. (i) The business plan or operating plan must 
indicate the organizing group's knowledge of and plans for serving the 
community. The organizing group shall evaluate the banking needs of the 
community, including its consumer, business, nonprofit, and government 
sectors. The business plan or operating plan must demonstrate how the 
proposed bank responds to those needs consistent with the safe and sound 
operation of the bank. The provisions of this paragraph may not apply to 
an application to organize a bank for a special purpose.
    (ii) As part of its business plan or operating plan, the organizing 
group shall submit a statement that demonstrates its plans to achieve 
CRA objectives.
    (iii) Because community support is important to the long-term 
success of a bank, the organizing group shall include plans for 
attracting and maintaining community support.
    (6) Safety and soundness. The business plan or operating plan must 
demonstrate that the organizing group (and the sponsoring company, if 
any), is aware of, and understands, national banking laws and 
regulations, and safe and sound banking operations and practices. The 
OCC will deny an application that does not meet these safety and 
soundness requirements.
    (7) Fiduciary services. The business plan or operating plan must 
indicate if the proposed bank intends to offer fiduciary services. The 
information required by Sec. 5.26 shall be filed with the charter 
application. A separate application is not required.
    (i) Procedures--(1) Prefiling meeting. The OCC normally requires a 
prefiling meeting with the organizers of a proposed national bank before 
the organizers file an application. Organizers should be familiar with 
the OCC's chartering policy and procedural requirements in the Manual 
before the prefiling meeting. The prefiling meeting normally is held in 
the district office where the application will be filed but may be held 
at another location at the request of the applicant.
    (2) Business plan or operating plan. An organizing group shall file 
a business plan or operating plan that addresses the subjects discussed 
in paragraph (h) of this section.
    (3) Spokesperson. The organizing group shall designate a 
spokesperson to represent the organizing group in all contacts with the 
OCC. The spokesperson shall be an organizer and proposed director of the 
new bank, except a representative of the sponsor or sponsors may serve 
as spokesperson if an application is sponsored by an existing holding 
company, individuals currently affiliated with other depository 
institutions, or individuals who, in the OCC's view, are otherwise 
collectively experienced in banking and have demonstrated the ability to 
work together effectively.
    (4) Decision notification. The OCC notifies the spokesperson and 
other interested persons in writing of its decision on an application.

[[Page 134]]

    (5) Post-decision activities. (i) Before the OCC grants final 
approval, a proposed national bank must be established as a legal 
entity. A national bank becomes a legal entity after it has filed its 
organization certificate and articles of association with the OCC as 
required by law. In addition, the organizing group shall elect a board 
of directors. The proposed bank may not conduct the business of banking 
until the OCC grants final approval.
    (ii) For all capital obtained through a public offering a proposed 
national bank shall use an offering circular that complies with the 
OCC's securities offering regulations, 12 CFR part 16.
    (iii) A national bank in organization shall raise its capital before 
it commences business. Preliminary approval expires if a national bank 
in organization does not raise the required capital within 12 months 
from the date the OCC grants preliminary approval. Approval expires if 
the national bank does not commence business within 18 months from the 
date the OCC grants preliminary approval.
    (j) Expedited review. An application to establish a full-service 
national bank that is sponsored by a bank holding company whose lead 
depository institution is an eligible bank or eligible depository 
institution is deemed preliminarily approved by the OCC as of the 15th 
day after the close of the public comment period or the 45th day after 
the filing is received by the OCC, whichever is later, unless the OCC:
    (1) Notifies the applicant prior to that date that the filing is not 
eligible for expedited review, or the expedited review process is 
extended, under Sec. 5.13(a)(2); or
    (2) Notifies the applicant prior to that date that the OCC has 
determined that the proposed bank will offer banking services that are 
materially different than those offered by the lead depository 
institution.
    (k) National bankers' banks--(1) Activities and customers. In 
addition to the other requirements of this section, when an organizing 
group seeks to organize a national bankers' bank, the organizing group 
shall list in the application the anticipated activities and customers 
or clients of the proposed national bankers' bank.
    (2) Waiver of requirements. At the organizing group's request, the 
OCC may waive requirements that are applicable to national banks in 
general if those requirements are inappropriate for a national bankers' 
bank and would impede its ability to provide desired services to its 
market. An applicant must submit a request for a waiver with the 
application and must support the request with adequate justification and 
legal analysis. A national bankers' bank that is already in operation 
may also request a waiver. The OCC cannot waive statutory provisions 
that specifically apply to national bankers' banks pursuant to 12 U.S.C. 
27(b)(1).
    (3) Investments. A national bank may invest up to ten percent of its 
capital and surplus in a bankers' bank and may own five percent or less 
of any class of a bankers' bank's voting securities.
    (l) Special purpose banks. An applicant for a national bank charter 
that will limit its activities to fiduciary activities, credit card 
operations, or another special purpose shall adhere to established 
charter procedures with modifications appropriate for the circumstances 
as determined by the OCC. An applicant for a national bank charter that 
will have a community development focus shall also adhere to established 
charter procedures with modifications appropriate for the circumstances 
as determined by the OCC. In addition to the other requirements in this 
section, a bank limited to fiduciary activities, credit card operations, 
or another special purpose may not conduct that business until the OCC 
grants final approval for the bank to commence operations. A national 
bank that seeks to invest in a bank with a community development focus 
must comply with applicable requirements of 12 CFR part 24.

[61 FR 60363, Nov. 27, 1996, as amended at 68 FR 70129, Dec. 17, 2003; 
69 FR 50297, Aug. 16, 2004]



Sec. 5.24  Conversion.

    (a) Authority. 12 U.S.C. 35, 93a, 214a, 214b, 214c, and 2903.

[[Page 135]]

    (b) Licensing requirements. A state bank (including a ``state bank'' 
as defined in 12 U.S.C. 214(a)) or a Federal savings association shall 
submit an application and obtain prior OCC approval to convert to a 
national bank charter. A national bank shall give notice to the OCC 
before converting to a state bank (including a ``state bank'' as defined 
in 12 U.S.C. 214(a)) or Federal savings association.
    (c) Scope. This section describes procedures and standards governing 
OCC review and approval of an application by a state bank or Federal 
savings association to convert to a national bank charter. This section 
also describes notice procedures for a national bank seeking to convert 
to a state bank or Federal savings association.
    (d) Conversion of a state bank or Federal savings association to a 
national bank--(1) Policy. Consistent with the OCC's chartering policy, 
it is OCC policy to allow conversion to a national bank charter by 
another financial institution that can operate safely and soundly as a 
national bank in compliance with applicable laws, regulations, and 
policies. The OCC may deny an application by any state bank (including a 
``state bank'' as defined in 12 U.S.C. 214(a)) and any Federal savings 
association to convert to a national bank charter on the basis of the 
standards for denial set forth in Sec. 5.13(b), or when conversion 
would permit the applicant to escape supervisory action by its current 
regulator.
    (2) Procedures. (i) Prefiling communications. The applicant should 
consult with the appropriate district office prior to filing if it 
anticipates that its application will raise unusual or complex issues. 
If a prefiling meeting is appropriate, it will normally be held in the 
district office where the application will be filed, but may be held at 
another location at the request of the applicant.
    (ii) A state bank (including a state bank as defined in 12 U.S.C. 
214(a)) or Federal savings association shall submit its application to 
convert to a national bank to the appropriate district office. The 
application must:
    (A) Be signed by the president or other duly authorized officer;
    (B) Identify each branch that the resulting bank expects to operate 
after conversion;
    (C) Include the institution's most recent audited financial 
statements (if any);
    (D) Include the latest report of condition and report of income (the 
most recent daily statement of condition will suffice if the institution 
does not file these reports);
    (E) Unless otherwise advised by the OCC in a prefiling 
communication, include an opinion of counsel that, in the case of a 
state bank, the conversion is not in contravention of applicable state 
law, or in the case of a Federal savings association, the conversion is 
not in contravention of applicable Federal law;
    (F) State whether the institution wishes to exercise fiduciary 
powers after the conversion;
    (G) Identify all subsidiaries that will be retained following the 
conversion, and provide the information and analysis of the 
subsidiaries' activities that would be required if the converting bank 
or savings association were a national bank establishing each subsidiary 
pursuant to Sec. Sec. 5.34 or 5.39; and
    (H) Identify any nonconforming assets (including nonconforming 
subsidiaries) and nonconforming activities that the institution engages 
in, and describe the plans to retain or divest those assets.
    (iii) The OCC may permit a national bank to retain such 
nonconforming assets of a state bank, subject to conditions and an OCC 
determination of the carrying value of the retained assets, pursuant to 
12 U.S.C. 35.
    (iv) Approval for an institution to convert to a national bank 
expires if the conversion has not occurred within six months of the 
OCC's preliminary approval of the application.
    (v) When the OCC determines that the applicant has satisfied all 
statutory and regulatory requirements, including those set forth in 12 
U.S.C. 35, and any other conditions, the OCC issues a charter 
certificate. The certificate provides that the institution is authorized 
to begin conducting business as a national bank as of a specified date.

[[Page 136]]

    (3) Exceptions to rules of general applicability. Sections 5.8, 
5.10, and 5.11 do not apply to this section. However, if the OCC 
concludes that an application presents significant and novel policy, 
supervisory, or legal issues, the OCC may determine that any or all 
parts of Sec. Sec. 5.8, 5.10, and 5.11 apply.
    (4) Expedited review. An application by an eligible depository 
institution to convert to a national bank charter is deemed approved by 
the OCC as of the 30th day after the filing is received by the OCC, 
unless the OCC notifies the applicant prior to that date that the filing 
is not eligible for expedited review under Sec. 5.13(a)(2).
    (e) Conversion of a national bank to a state bank--(1) Procedure. A 
national bank may convert to a state bank, in accordance with 12 U.S.C. 
214c, without prior OCC approval. Termination of the national bank's 
status as a national bank occurs upon the bank's completion of the 
requirements of 12 U.S.C. 214a, and upon the appropriate district 
office's receipt of the bank's national bank charter (or copy) in 
connection with the consummation of the transaction.
    (2) Notice of intent. A national bank that desires to convert to a 
state bank shall submit to the appropriate district office a notice of 
its intent to convert. The national bank shall file this notice when it 
first submits a request to convert to the appropriate state authorities. 
The appropriate district office then provides instructions to the 
national bank for terminating its status as a national bank.
    (3) Exceptions to the rules of general applicability. Sections 5.5 
through 5.8, and 5.10 through 5.13, do not apply to the conversion of a 
national bank to a state bank.
    (f) Conversion of a national bank to a Federal savings association. 
A national bank may convert to a Federal savings association without 
prior OCC approval. The requirements and procedures set forth in 
paragraph (e) of this section and 12 U.S.C. 214a and 12 U.S.C. 214c 
apply to a conversion to a Federal savings association, except as 
follows:
    (1) In paragraph (e) of this section references to ``appropriate 
state authorities'' mean ``appropriate Federal authorities''; and
    (2) References in 12 U.S.C. 214c to the ``law of the State in which 
the national banking association is located'' and ``any State 
authority'' mean ``laws and regulations governing Federal savings 
associations'' and ``Office of Thrift Supervision,'' respectively.

[61 FR 60363, Nov. 27, 1996, as amended at 65 FR 12910, Mar. 10, 2000]



Sec. 5.26  Fiduciary powers.

    (a) Authority. 12 U.S.C. 92a.
    (b) Licensing requirements. A national bank must submit an 
application and obtain prior approval from, or in certain circumstances 
file a notice with, the OCC in order to exercise fiduciary powers. No 
approval or notice is required in the following circumstances:
    (1) Where two or more national banks consolidate or merge, and any 
of the banks has, prior to the consolidation or merger, received OCC 
approval to exercise fiduciary powers and that approval is in force at 
the time of the consolidation or merger, the resulting bank may exercise 
fiduciary powers in the same manner and to the same extent as the 
national bank to which approval was originally granted; and
    (2) Where a national bank with prior OCC approval to exercise 
fiduciary powers is the resulting bank in a merger or consolidation with 
a state bank.
    (c) Scope. This section sets forth the procedures governing OCC 
review and approval of an application, and in certain cases the filing 
of a notice, by a national bank to exercise fiduciary powers. A national 
bank's fiduciary activities are subject to the provisions of 12 CFR part 
9.
    (d) Policy. The exercise of fiduciary powers is primarily a 
management decision of the national bank. The OCC generally permits a 
national bank to exercise fiduciary powers if the bank is operating in a 
satisfactory manner, the proposed activities comply with applicable 
statutes and regulations, and the bank retains qualified fiduciary 
management.
    (e) Procedure--(1) General. The following institutions must obtain 
approval from the OCC in order to offer fiduciary services to the 
public:
    (i) A national bank without fiduciary powers;

[[Page 137]]

    (ii) A national bank without fiduciary powers that desires to 
exercise fiduciary powers after merging with a state bank or savings 
association with fiduciary powers; and
    (iii) A national bank that results from the conversion of a state 
bank or a state or Federal savings association that was exercising 
fiduciary powers prior to the conversion.
    (2) Application. (i) Except as provided in paragraph (e)(2)(ii) of 
this section, a national bank that desires to exercise fiduciary powers 
shall submit to the OCC an application requesting approval. The 
application must contain:
    (A) A statement requesting full or limited powers (specifying which 
powers);
    (B) An opinion of counsel that the proposed activities do not 
violate applicable Federal or state law, including citations to 
applicable law;
    (C) A statement that the capital and surplus of the national bank is 
not less than the capital and surplus required by state law of state 
banks, trust companies, and other corporations exercising comparable 
fiduciary powers;
    (D) Sufficient biographical information on proposed trust management 
personnel to enable the OCC to assess their qualifications; and
    (E) A description of the locations where the bank will conduct 
fiduciary activities.
    (ii) If approval to exercise fiduciary powers is desired in 
connection with any other transaction subject to an application under 
this part, the applicant covered under paragraph (e)(1)(ii) or 
(e)(1)(iii) of this section may include a request for approval of 
fiduciary powers, including the information required by paragraph 
(e)(2)(i) of this section, as part of its other application. The OCC 
does not require a separate application requesting approval to exercise 
fiduciary powers under these circumstances.
    (3) Expedited review. (i) An application by an eligible bank to 
exercise fiduciary powers is deemed approved by the OCC as of the 30th 
day after the application is received by the OCC, unless the OCC 
notifies the bank prior to that date that the filing is not eligible for 
expedited review under Sec. 5.13(a)(2).
    (ii) An eligible bank applying for fiduciary powers may omit the 
opinion of counsel required by paragraph (e)(2)(i)(B) of this section 
unless such opinion is specifically requested by the OCC.
    (4) Permit. Approval of an application under this section 
constitutes a permit under 12 U.S.C. 92a to conduct the fiduciary powers 
requested in the application.
    (5) Notice of fiduciary activities in additional states. No further 
application under this section is required when a national bank with 
existing OCC approval to exercise fiduciary powers plans to engage in 
any of the activities specified in Sec. 9.7(d) of this chapter or to 
conduct activities ancillary to its fiduciary business, in a state in 
addition to the state described in the application for fiduciary powers 
that the OCC has approved. Instead, unless the bank provides notice 
through other means (such as a merger application), the bank shall 
provide written notice to the OCC no later than ten days after it begins 
to engage in any of the activities specified in Sec. 9.7(d) of this 
chapter in the new state. The written notice must identify the new state 
or states involved, identify the fiduciary activities to be conducted, 
and describe the extent to which the activities differ materially from 
the fiduciary activities that the bank was previously authorized to 
conduct. No notice is required if the bank is conducting only activities 
ancillary to its fiduciary business through a trust representative 
office or otherwise.
    (6) Exceptions to rules of general applicability. Sections 5.8, 
5.10, and 5.11 do not apply to this section. However, if the OCC 
concludes that an application presents significant and novel policy, 
supervisory, or legal issues, the OCC may determine that any or all 
parts of Sec. Sec. 5.8, 5.10, and 5.11 apply.
    (7) Expiration of approval. Approval expires if a national bank does 
not commence fiduciary activities within 18 months from the date of 
approval.

[61 FR 60363, Nov. 27, 1996, as amended at 66 FR 34797, July 2, 2001]

[[Page 138]]



                    Subpart C_Expansion of Activities



Sec. 5.30  Establishment, acquisition, and relocation of a branch.

    (a) Authority. 12 U.S.C. 1-42, and 2901-2907.
    (b) Licensing requirements. A national bank shall submit an 
application and obtain prior OCC approval in order to establish or 
relocate a branch.
    (c) Scope. This section describes the procedures and standards 
governing OCC review and approval of a national bank's application to 
establish a new branch or to relocate a branch. The standards of this 
section and, as applicable, 12 U.S.C. 36(b), but not the procedures set 
forth in this section, apply to a branch established as a result of a 
business combination approved under Sec. 5.33. A branch established 
through a business combination is subject only to the procedures set 
forth in Sec. 5.33.
    (d) Definitions--(1) Branch includes any branch bank, branch office, 
branch agency, additional office, or any branch place of business 
established by a national bank in the United States or its territories 
at which deposits are received, checks paid, or money lent. A branch 
does not include an automated teller machine (ATM) or a remote service 
unit.
    (i) A branch established by a national bank includes a mobile 
facility, temporary facility, drop box or a seasonal agency, as 
described in 12 U.S.C. 36(c).
    (ii) A facility otherwise described in this paragraph (d)(1) is not 
a branch if:
    (A) The bank establishing the facility does not permit members of 
the public to have physical access to the facility for purposes of 
making deposits, paying checks, or borrowing money (e.g., an office 
established by the bank that receives deposits only through the mail); 
or
    (B) It is located at the site of, or is an extension of, an approved 
main or branch office of the national bank. The OCC determines whether a 
facility is an extension of an existing main or branch office on a case-
by-case basis.
    (2) Home state means the state in which the national bank's main 
office is located.
    (3) Messenger service has the meaning set forth in 12 CFR 7.1012.
    (4) Mobile branch is a branch, other than a messenger service 
branch, that does not have a single, permanent site, and includes a 
vehicle that travels to various public locations to enable customers to 
conduct their banking business. A mobile branch may provide services at 
various regularly scheduled locations or it may be open at irregular 
times and locations such as at county fairs, sporting events, or school 
registration periods. A branch license is needed for each mobile unit.
    (5) Temporary branch means a branch that is located at a fixed site 
and which, from the time of its opening, is scheduled to, and will, 
permanently close no later than a certain date (not longer than one year 
after the branch is first opened) specified in the branch application 
and the public notice.
    (e) Policy. In determining whether to approve an application to 
establish or relocate a branch, the OCC is guided by the following 
principles:
    (1) Maintaining a sound banking system;
    (2) Encouraging a national bank to help meet the credit needs of its 
entire community;
    (3) Relying on the marketplace as generally the best regulator of 
economic activity; and
    (4) Encouraging healthy competition to promote efficiency and better 
service to customers.
    (f) Procedures--(1) General. Except as provided in paragraph (f)(2) 
of this section, each national bank proposing to establish a branch 
shall submit to the appropriate district office a separate application 
for each proposed branch.
    (2) Messenger services. A national bank may request approval, 
through a single application, for multiple messenger services to serve 
the same general geographic area. (See 12 CFR 7.1012). Unless otherwise 
required by law, the bank need not list the specific locations to be 
served.
    (3) Jointly established branches. If a national bank proposes to 
establish a branch jointly with one or more national banks or depository 
institutions, only one of the national banks must submit a branch 
application. The national bank submitting the application may act as 
agent for all national banks in the group of depository institutions

[[Page 139]]

proposing to share the branch. The application must include the name and 
main office address of each national bank in the group.
    (4) Authorization. The OCC authorizes operation of the branch when 
all requirements and conditions for opening are satisfied.
    (5) Expedited review. An application submitted by an eligible bank 
to establish or relocate a branch is deemed approved by the OCC as of 
the 15th day after the close of the applicable public comment period, or 
the 45th day after the filing is received by the OCC, whichever is 
later, unless the OCC notifies the bank prior to that date that the 
filing is not eligible for expedited review, or the expedited review 
process is extended, under Sec. 5.13(a)(2). An application to establish 
or relocate more than one branch is deemed approved by the OCC as of the 
15th day after the close of the last public comment period.
    (g) Interstate branches. A national bank that seeks to establish and 
operate a de novo branch in any state other than the bank's home state 
or a state in which the bank already has a branch shall satisfy the 
standards and requirements of 12 U.S.C. 36(g).
    (h) Exceptions to rules of general applicability. (1) A national 
bank filing an application for a mobile branch or messenger service 
branch shall publish a public notice, as described in Sec. 5.8, in the 
communities in which the bank proposes to engage in business.
    (2) The comment period on an application to engage in a short-
distance branch relocation is 15 days.
    (3) The OCC may waive or reduce the public notice and comment 
period, as appropriate, with respect to an application to establish a 
branch to restore banking services to a community affected by a disaster 
or to temporarily replace banking facilities where, because of an 
emergency, the bank cannot provide services or must curtail banking 
services.
    (4) The OCC may waive or reduce the public notice and comment 
period, as appropriate, for an application by a national bank with a CRA 
rating of Satisfactory or better to establish a temporary branch which, 
if it were established by a state bank to operate in the manner 
proposed, would be permissible under state law without state approval.
    (i) Expiration of approval. Approval expires if a branch has not 
commenced business within 18 months after the date of approval.
    (j) Branch closings. A national bank shall comply with the 
requirements of 12 U.S.C. 1831r-1 with respect to procedures for branch 
closings.



Sec. 5.32  Expedited procedures for certain reorganizations.

    (a) Authority. 12 U.S.C. 93a and 215a-2.
    (b) Scope. This section prescribes the procedures for OCC review and 
approval of a national bank's reorganization to become a subsidiary of a 
bank holding company or a company that will, upon consummation of such 
reorganization, become a bank holding company. For purposes of this 
section, a ``bank holding company'' means any company that owns or 
controls a national bank, or will own or control one as a result of the 
reorganization.
    (c) Licensing requirements. A national bank shall submit an 
application to, and obtain approval from, the OCC prior to participating 
in a reorganization described in paragraph (b) of this section.
    (d) Procedures--(1) General. An application filed in accordance with 
this section shall be deemed approved on the 30th day after the OCC 
receives the application, unless the OCC notifies the bank otherwise. 
Approval is subject to the condition that the bank provide the OCC with 
60 days' prior notice of any significant deviation from the bank's 
business plan or any significant deviation from the proposed changes to 
the bank's business plan described in the bank's plan of reorganization.
    (2) Reorganization plan. The application must include a 
reorganization plan that:
    (i) Specifies the manner in which the reorganization shall be 
carried out;
    (ii) Is approved by a majority of the entire board of directors of 
the national bank;
    (iii) Specifies:
    (A) The amount and type of consideration that the bank holding 
company will provide to the shareholders of the reorganizing bank for 
their shares of stock of the bank;

[[Page 140]]

    (B) The date as of which the rights of each shareholder to 
participate in that exchange will be determined; and
    (C) The manner in which the exchange will be carried out;
    (iv) Is submitted to the shareholders of the reorganizing bank at a 
meeting to be held at the call of the directors in accordance with the 
procedures prescribed in connection with a merger of a national bank 
under section 3 of the National Bank Consolidation and Merger Act, 12 
U.S.C. 215a(a)(2); and
    (v) Describes any changes to the bank's business plan resulting from 
the reorganization.
    (3) Financial and managerial resources and future prospects. In 
reviewing an application under this section, the OCC will consider the 
impact of the proposed affiliation on the financial and managerial 
resources and future prospects of the national bank.
    (e) Rights of dissenting shareholders. Any shareholder of a bank who 
has voted against an approved reorganization at the meeting referred to 
in paragraph (d)(2)(iv) of this section, or who has given notice of 
dissent in writing to the presiding officer at or prior to that meeting, 
is entitled to receive the value of his or her shares by providing a 
written request to the bank within 30 days after the consummation of the 
reorganization, as provided by section 3 of the National Bank 
Consolidation and Merger Act, 12 U.S.C. 215a(b) and (c), for the merger 
of a national bank.
    (f) Approval under the Bank Holding Company Act. This section does 
not affect the applicability of the Bank Holding Company Act of 1956. 
Applicants shall indicate in their application the status of any 
application required to be filed with the Board of Governors of the 
Federal Reserve System.
    (g) Expiration of approval. Approval expires if a national bank has 
not completed the reorganization within one year of the date of 
approval.
    (h) Adequacy of disclosure. (1) An applicant shall inform 
shareholders of all material aspects of a reorganization and comply with 
applicable requirements of the Federal securities laws, including the 
OCC's securities regulations at 12 CFR part 11.
    (2) Any applicant not subject to the registration provisions of the 
Securities Exchange Act of 1934 shall submit the proxy materials or 
information statements it uses in connection with the reorganization to 
the appropriate district office no later than when the materials are 
sent to the shareholders.

[68 FR 70129, Dec. 17, 2003]



Sec. 5.33  Business combinations.

    (a) Authority. 12 U.S.C. 24(Seventh), 93a, 181, 214a, 214b, 215, 
215a, 215a-1, 215a-3, 215c, 1815(d)(3), 1828(c), 1831u, and 2903.
    (b) Scope. This section sets forth the provisions governing business 
combinations and the standards for:
    (1) OCC review and approval of an application for a business 
combination between a national bank and another depository institution 
resulting in a national bank or between a national bank and one of its 
nonbank affiliates; and
    (2) Requirements of notices and other procedures for national banks 
involved in other combinations with depository institutions.
    (c) Licensing requirements. A national bank shall submit an 
application and obtain prior OCC approval for a business combination 
between the national bank and another depository institution when the 
resulting institution is a national bank. A national bank shall give 
notice to the OCC prior to engaging in a combination where the resulting 
institution will not be a national bank. A national bank shall submit an 
application and obtain prior OCC approval for any merger between the 
national bank and one or more of its nonbank affiliates.
    (d) Definitions--(1) Bank means any national bank or any state bank.
    (2) Business combination means any merger or consolidation between a 
national bank and one or more depository institutions in which the 
resulting institution is a national bank, the acquisition by a national 
bank of all, or substantially all, of the assets of another depository 
institution, the assumption by a national bank of deposit liabilities of 
another depository institution, or a merger between a national bank and 
one or more of its nonbank affiliates.
    (3) Business reorganization means either:

[[Page 141]]

    (i) A business combination between eligible banks, or between an 
eligible bank and an eligible depository institution, that are 
controlled by the same holding company or that will be controlled by the 
same holding company prior to the combination; or
    (ii) A business combination between an eligible bank and an interim 
bank chartered in a transaction in which a person or group of persons 
exchanges its shares of the eligible bank for shares of a newly formed 
holding company and receives after the transaction substantially the 
same proportional share interest in the holding company as it held in 
the eligible bank (except for changes in interests resulting from the 
exercise of dissenters' rights), and the reorganization involves no 
other transactions involving the bank.
    (4) Company means a corporation, limited liability company, 
partnership, business trust, association, or similar organization.
    (5) For business combinations under Sec. 5.33(g)(4) and (5), a 
company or shareholder is deemed to control another company if:
    (i) Such company or shareholder, directly or indirectly, or acting 
through one or more other persons owns, controls, or has power to vote 
25 percent or more of any class of voting securities of the other 
company, or
    (ii) Such company or shareholder controls in any manner the election 
of a majority of the directors or trustees of the other company. No 
company shall be deemed to own or control another company by virtue of 
its ownership or control of shares in a fiduciary capacity.
    (6) Home state means, with respect to a national bank, the state in 
which the main office of the bank is located and, with respect to a 
state bank, the state by which the bank is chartered.
    (7) Interim bank means a national bank that does not operate 
independently but exists solely as a vehicle to accomplish a business 
combination.
    (8) Nonbank affiliate of a national bank means any company (other 
than a bank or Federal savings association) that controls, is controlled 
by, or is under common control with the national bank.
    (e) Policy--(1) Factors. The OCC considers the following factors in 
evaluating an application for a business combination:
    (i) Competition. (A) The OCC considers the effect of a proposed 
business combination on competition. The applicant shall provide a 
competitive analysis of the transaction, including a definition of the 
relevant geographic market or markets. An applicant may refer to the 
Manual for procedures to expedite its competitive analysis.
    (B) The OCC will deny an application for a business combination if 
the combination would result in a monopoly or would be in furtherance of 
any combination or conspiracy to monopolize or attempt to monopolize the 
business of banking in any part of the United States. The OCC also will 
deny any proposed business combination whose effect in any section of 
the United States may be substantially to lessen competition, or tend to 
create a monopoly, or which in any other manner would be in restraint of 
trade, unless the probable effects of the transaction in meeting the 
convenience and needs of the community clearly outweigh the 
anticompetitive effects of the transaction. For purposes of weighing 
against anticompetitive effects, a business combination may have 
favorable effects in meeting the convenience and needs of the community 
if the depository institution being acquired has limited long-term 
prospects, or if the resulting national bank will provide significantly 
improved, additional, or less costly services to the community.
    (ii) Financial and managerial resources and future prospects. The 
OCC considers the financial and managerial resources and future 
prospects of the existing or proposed institutions.
    (iii) Convenience and needs of community. The OCC considers the 
probable effects of the business combination on the convenience and 
needs of the community served. The applicant shall describe these 
effects in its application, including any planned office closings or 
reductions in services following the business combination and the likely 
impact on the community. The OCC also considers additional relevant 
factors, including the resulting national

[[Page 142]]

bank's ability and plans to provide expanded or less costly services to 
the community.
    (iv) Community reinvestment. The OCC considers the performance of 
the applicant and the other depository institutions involved in the 
business combination in helping to meet the credit needs of the relevant 
communities, including low- and moderate-income neighborhoods, 
consistent with safe and sound banking practices.
    (v) Money laundering. The OCC considers the effectiveness of any 
insured depository institution involved in the business combination in 
combating money laundering activities, including in overseas branches.
    (2) Acquisition and retention of branches. An applicant shall 
disclose the location of any branch it will acquire and retain in a 
business combination. The OCC considers the acquisition and retention of 
a branch under the standards set out in Sec. 5.30, but it does not 
require a separate application under Sec. 5.30.
    (3) Subsidiaries. (i) An applicant must identify any subsidiary to 
be acquired in a business combination and state the activities of each 
subsidiary. The OCC does not require a separate application under Sec. 
5.34 or a separate notice under Sec. 5.39.
    (ii) An applicant proposing to acquire, through a business 
combination, a subsidiary of any entity other than a national bank must 
provide the same information and analysis of the subsidiary's activities 
that would be required if the applicant were establishing the subsidiary 
pursuant to Sec. Sec. 5.34 or 5.39.
    (4) Interim bank--(i) Application. An applicant for a business 
combination that plans to use an interim bank to accomplish the 
transaction shall file an application to organize an interim bank as 
part of the application for the related business combination.
    (ii) Conditional approval. The OCC grants conditional approval to 
form an interim bank when it acknowledges receipt of the application for 
the related business combination.
    (iii) Corporate status. An interim bank becomes a legal entity and 
may enter into legally valid agreements when it has filed, and the OCC 
has accepted, the interim bank's duly executed articles of association 
and organization certificate. OCC acceptance occurs:
    (A) On the date the OCC advises the interim bank that its articles 
of association and organization certificate are acceptable; or
    (B) On the date the interim bank files articles of association and 
an organization certificate that conform to the form for those documents 
provided by the OCC in the Manual.
    (iv) Other corporate procedures. An applicant should consult the 
Manual to determine what other information is necessary to complete the 
chartering of the interim bank as a national bank.
    (5) Nonconforming assets. An applicant shall identify any 
nonconforming activities and assets, including nonconforming 
subsidiaries, of other institutions involved in the business 
combination, that will not be disposed of or discontinued prior to 
consummation of the transaction. The OCC generally requires a national 
bank to divest or conform nonconforming assets, or discontinue 
nonconforming activities, within a reasonable time following the 
business combination.
    (6) Fiduciary powers. An applicant shall state whether the resulting 
bank intends to exercise fiduciary powers pursuant to Sec. 5.26(b) (1) 
or (2).
    (7) Expiration of approval. Approval of a business combination, and 
conditional approval to form an interim bank charter, if applicable, 
expires if the business combination is not consummated within one year 
after the date of OCC approval.
    (8) Adequacy of disclosure. (i) An applicant shall inform 
shareholders of all material aspects of a business combination and shall 
comply with any applicable requirements of the Federal securities laws 
and securities regulations of the OCC. Accordingly, an applicant shall 
ensure that all proxy and information statements prepared in connection 
with a business combination do not contain any untrue or misleading 
statement of a material fact, or omit to state a material fact necessary 
in order to make the statements made, in the light of the circumstances 
under which they were made, not misleading.

[[Page 143]]

    (ii) A national bank applicant with one or more classes of 
securities subject to the registration provisions of section 12 (b) or 
(g) of the Securities Exchange Act of 1934, 15 U.S.C. 78l(b) or 78l(g), 
shall file preliminary proxy material or information statements for 
review with the Director, Securities and Corporate Practices Division, 
OCC, Washington, DC 20219, and with the appropriate district office. Any 
other applicant shall submit the proxy materials or information 
statements it uses in connection with the combination to the appropriate 
district office no later than when the materials are sent to the 
shareholders.
    (f) Exceptions to rules of general applicability--(1) National bank 
applicant. Section 5.8 (a) through (c) does not apply to a national bank 
applicant that is subject to specific statutory notice requirements for 
a business combination. A national bank applicant shall follow, as 
applicable, the public notice requirements contained in 12 U.S.C. 
1828(c)(3) (business combinations), 12 U.S.C. 215(a) (consolidation 
under a national bank charter), 12 U.S.C. 215a(a)(2) (merger under a 
national bank charter), paragraph (g)(2) of this section (merger or 
consolidation with a Federal savings association resulting in a national 
bank), paragraph (g)(4) of this section (merger with a nonbank affiliate 
under a national bank charter), and paragraph (g)(5) of this section 
(merger with nonbank affiliate not under national bank charter). 
Sections 5.10 and 5.11 do not apply to mergers of a national bank with 
its nonbank affiliate. However, if the OCC concludes that an application 
presents significant and novel policy, supervisory, or legal issues, the 
OCC may determine that some or all provisions in Sec. Sec. 5.10 and 
5.11 apply.
    (2) Interim bank. Sections 5.8, 5.10, and 5.11 do not apply to an 
application to organize an interim bank. However, if the OCC concludes 
that an application presents significant and novel policy, supervisory, 
or legal issues, the OCC may determine that any or all parts of 
Sec. Sec. 5.8, 5.10, and 5.11 apply. The OCC treats an application to 
organize an interim bank as part of the related application to engage in 
a business combination and does not require a separate public notice and 
public comment process.
    (3) State bank or Federal savings association as resulting 
institution. Sections 5.2 and 5.5 through 5.13 do not apply to 
transactions covered by paragraph (g)(3) of this section.
    (g) Approval procedures and treatment of dissenting shareholders in 
consolidations and mergers--(1) Consolidations and mergers with other 
national banks and state banks as defined in 12 U.S.C. 215b(1) resulting 
in a national bank. A national bank entering into a consolidation or 
merger authorized pursuant to 12 U.S.C. 215 or 215a, respectively, is 
subject to the approval procedures and requirements with respect to 
treatment of dissenting shareholders set forth in those provisions.
    (2) Consolidations and mergers with Federal savings associations 
under 12 U.S.C. 215c resulting in a national bank. (i) With the approval 
of the OCC, any national bank and any Federal savings association may 
consolidate or merge with a national bank as the resulting institution 
by complying with the following procedures:
    (A) A national bank entering into the consolidation or merger shall 
follow the procedures of 12 U.S.C. 215 or 215a, respectively, as if the 
Federal savings association were a state or national bank.
    (B) A Federal savings association entering into the consolidation or 
merger also shall follow the procedures of 12 U.S.C. 215 or 215a, 
respectively, as if the Federal savings association were a state bank or 
national bank, except where the laws or regulations governing Federal 
savings associations specifically provide otherwise.
    (ii) The OCC may conduct an appraisal or reappraisal of dissenters' 
shares of stock in a national bank involved in a consolidation or merger 
with a Federal savings association if all parties agree that the 
determination is final and binding on each party.
    (3) Merger or consolidation of a national bank resulting in a state 
bank as defined in 12 U.S.C. 214(a) or a Federal savings association--
(i) Policy. Prior OCC approval is not required for the merger or 
consolidation of a national

[[Page 144]]

bank with a state bank or Federal savings association when the resulting 
institution will be a state bank or Federal savings association. 
Termination of a national bank's status as a national banking 
association is automatic upon completion of the requirements of 12 
U.S.C. 214a, in accordance with 12 U.S.C. 214c, in the case of a merger 
or consolidation when the resulting institution is a state bank, or 
paragraph (g)(3)(iii) of this section, in the case of a merger or 
consolidation when the resulting institution is a Federal savings 
association, and consummation of the transaction.
    (ii) Procedures. A national bank desiring to merge or consolidate 
with a state bank or a Federal savings association when the resulting 
institution will be a state bank or Federal savings association shall 
submit a notice to the appropriate district office advising of its 
intention. The national bank shall submit this notice at the time the 
application to merge or consolidate is filed with the responsible agency 
under the Bank Merger Act, 12 U.S.C. 1828(c). The OCC then provides 
instructions to the national bank for terminating its status as a 
national bank, including requiring the bank to provide the appropriate 
district office with the bank's charter (or a copy) in connection with 
the consummation of the transaction.
    (iii) Special procedures for merger or consolidation into a Federal 
savings association. (A) With the exception of the procedures in 
paragraph (g)(3)(iii)(B) of this section, a national bank entering into 
a merger or consolidation with a Federal savings association when the 
resulting institution will be a Federal savings association shall comply 
with the requirements of 12 U.S.C. 214a and 12 U.S.C. 214c as if the 
Federal savings association were a state bank. However, for these 
purposes the references in 12 U.S.C. 214c to ``law of the State in which 
such national banking association is located'' and ``any State 
authority'' mean ``laws and regulations governing Federal savings 
associations'' and ``Office of Thrift Supervision,'' respectively.
    (B) National bank shareholders who dissent from a plan to merge or 
consolidate may receive in cash the value of their national bank shares 
if they comply with the requirements of 12 U.S.C. 214a as if the Federal 
savings association were a state bank. The OCC conducts an appraisal or 
reappraisal of the value of the national bank shares held by dissenting 
shareholders only if all parties agree that the determination will be 
final and binding. The parties shall also agree on how the total 
expenses of the OCC in making the appraisal will be divided among the 
parties and paid to the OCC. The plan of merger or consolidation must 
provide, consistent with the requirements of the Office of Thrift 
Supervision, the manner of disposing of the shares of the resulting 
Federal savings association not taken by the dissenting shareholders of 
the national bank.
    (4) Mergers of a national bank with its nonbank affiliates under 12 
U.S.C. 215a-3 resulting in a national bank. (i) With the approval of the 
OCC, a national bank may merge with one or more of its nonbank 
affiliates, with the national bank as the resulting institution, in 
accordance with the provisions of this paragraph, provided that the law 
of the state or other jurisdiction under which the nonbank affiliate is 
organized allows the nonbank affiliate to engage in such mergers. The 
transaction is also subject to approval by the FDIC under the Bank 
Merger Act, 12 U.S.C. 1828(c). In determining whether to approve the 
merger, the OCC shall consider the purpose of the transaction, its 
impact on the safety and soundness of the bank, and any effect on the 
bank's customers, and may deny the merger if it would have a negative 
effect in any such respect.
    (ii) A national bank entering into the merger shall follow the 
procedures of 12 U.S.C. 215a as if the nonbank affiliate were a state 
bank, except as otherwise provided herein.
    (iii) A nonbank affiliate entering into the merger shall follow the 
procedures for such mergers set out in the law of the state or other 
jurisdiction under which the nonbank affiliate is organized.
    (iv) The rights of dissenting shareholders and appraisal of 
dissenters' shares of stock in the nonbank affiliate entering into the 
merger shall be determined in the manner prescribed by the law of the 
state or other jurisdiction

[[Page 145]]

under which the nonbank affiliate is organized.
    (v) The corporate existence of each institution participating in the 
merger shall be continued in the resulting national bank, and all the 
rights, franchises, property, appointments, liabilities, and other 
interests of the participating institutions shall be transferred to the 
resulting national bank, as set forth in 12 U.S.C. 215a(a), (e), and (f) 
in the same manner and to the same extent as in a merger between a 
national bank and a state bank under 12 U.S.C. 215a(a), as if the 
nonbank affiliate were a state bank.
    (5) Mergers of an uninsured national bank with its nonbank 
affiliates under 12 U.S.C. 215a-3 resulting in a nonbank affiliate. (i) 
With the approval of the OCC, a national bank that is not an insured 
bank as defined in 12 U.S.C. 1813(h) may merge with one or more of its 
nonbank affiliates, with the nonbank affiliate as the resulting entity, 
in accordance with the provisions of this paragraph, provided that the 
law of the state or other jurisdiction under which the nonbank affiliate 
is organized allows the nonbank affiliate to engage in such mergers. In 
determining whether to approve the merger, the OCC shall consider the 
purpose of the transaction, its impact on the safety and soundness of 
the bank, and any effect on the bank's customers, and may deny the 
merger if it would have a negative effect in any such respect.
    (ii) A national bank entering into the merger shall follow the 
procedures of 12 U.S.C. 214a, as if the nonbank affiliate were a state 
bank, except as otherwise provided in this section.
    (iii) A nonbank affiliate entering into the merger shall follow the 
procedures for such mergers set out in the law of the state or other 
jurisdiction under which the nonbank affiliate is organized.
    (iv) (A) National bank shareholders who dissent from an approved 
plan to merge may receive in cash the value of their national bank 
shares if they comply with the requirements of 12 U.S.C. 214a as if the 
nonbank affiliate were a state bank. The OCC may conduct an appraisal or 
reappraisal of dissenters' shares of stock in a national bank involved 
in the merger if all parties agree that the determination is final and 
binding on each party and agree on how the total expenses of the OCC in 
making the appraisal will be divided among the parties and paid to the 
OCC.
    (B) The rights of dissenting shareholders and appraisal of 
dissenters' shares of stock in the nonbank affiliate involved in the 
merger shall be determined in the manner prescribed by the law of the 
state or other jurisdiction under which the nonbank affiliate is 
organized.
    (v) The corporate existence of each entity participating in the 
merger shall be continued in the resulting nonbank affiliate, and all 
the rights, franchises, property, appointments, liabilities, and other 
interests of the participating national bank shall be transferred to the 
resulting nonbank affiliate as set forth in 12 U.S.C. 214b, in the same 
manner and to the same extent as in a merger between a national bank and 
a state bank under 12 U.S.C. 214a, as if the nonbank affiliate were a 
state bank.
    (h) Interstate combinations. A business combination between banks 
under the authority of 12 U.S.C. 1831u(a)(1) must satisfy the standards 
and requirements and comply with the procedures of 12 U.S.C. 1831u and 
the procedures of 12 U.S.C. 215 and 215a as applicable. For purposes of 
this section, the acquisition of a branch without the acquisition of all 
or substantially all of the assets of a bank is treated as the 
acquisition of a bank whose home state is the state in which the branch 
is located.
    (i) Expedited review for business reorganizations and streamlined 
applications. A filing that qualifies as a business reorganization as 
defined in paragraph (d)(2) of this section, or a filing that qualifies 
as a streamlined application as described in paragraph (j) of this 
section, is deemed approved by the OCC as of the 45th day after the 
application is received by the OCC, or the 15th day after the close of 
the comment period, whichever is later, unless the OCC notifies the 
applicant that the filing is not eligible for expedited review, or the 
expedited review process is extended, under Sec. 5.13(a)(2). An 
application under

[[Page 146]]

this paragraph must contain all necessary information for the OCC to 
determine if it qualifies as a business reorganization or streamlined 
application.
    (j) Streamlined applications. (1) An applicant may qualify for a 
streamlined business combination application in the following 
situations:
    (i) At least one party to the transaction is an eligible bank, and 
all other parties to the transaction are eligible banks or eligible 
depository institutions, the resulting national bank will be well 
capitalized immediately following consummation of the transaction, and 
the total assets of the target institution are no more than 50 percent 
of the total assets of the acquiring bank, as reported in each 
institution's Consolidated Report of Condition and Income filed for the 
quarter immediately preceding the filing of the application;
    (ii) The acquiring bank is an eligible bank, the target bank is not 
an eligible bank or an eligible depository institution, the resulting 
national bank will be well capitalized immediately following 
consummation of the transaction, and the applicants in a prefiling 
communication request and obtain approval from the appropriate district 
office to use the streamlined application;
    (iii) The acquiring bank is an eligible bank, the target bank is not 
an eligible bank or an eligible depository institution, the resulting 
bank will be well capitalized immediately following consummation of the 
transaction, and the total assets acquired do not exceed 10 percent of 
the total assets of the acquiring national bank, as reported in each 
institution's Consolidated Report of Condition and Income filed for the 
quarter immediately preceding the filing of the application; or
    (iv) In the case of a transaction under paragraph (g)(4) of this 
section, the acquiring bank is an eligible bank, the resulting national 
bank will be well capitalized immediately following consummation of the 
transaction, the applicants in a prefiling communication request and 
obtain approval from the appropriate district office to use the 
streamlined application, and the total assets acquired do not exceed 10 
percent of the total assets of the acquiring national bank, as reported 
in the bank's Consolidated Report of Condition and Income filed for the 
quarter immediately preceding the filing of the application.
    (2) When a business combination qualifies for a streamlined 
application, the applicant should consult the Manual to determine the 
abbreviated application information required by the OCC. The OCC 
encourages prefiling communications between the applicants and the 
appropriate district office before filing under paragraph (j) of this 
section.

[61 FR 60363, Nov. 27, 1996, as amended at 64 FR 60098, Nov. 4, 1999; 65 
FR 12911, Mar. 10, 2000; 68 FR 70129, Dec. 17, 2003]



Sec. 5.34  Operating subsidiaries.

    (a) Authority. 12 U.S.C. 24 (Seventh), 24a, 93a, 3101 et seq.
    (b) Licensing requirements. A national bank must file a notice or 
application as prescribed in this section to acquire or establish an 
operating subsidiary, or to commence a new activity in an existing 
operating subsidiary.
    (c) Scope. This section sets forth authorized activities and 
application or notice procedures for national banks engaging in 
activities through an operating subsidiary. The procedures in this 
section do not apply to financial subsidiaries authorized under Sec. 
5.39. Unless provided otherwise, this section applies to a Federal 
branch or agency that acquires, establishes, or maintains any subsidiary 
that a national bank is authorized to acquire or establish under this 
section in the same manner and to the same extent as if the Federal 
branch or agency were a national bank, except that the ownership 
interest required in paragraphs (e)(2) and (e)(5)(i)(B) of this section 
shall apply to the parent foreign bank of the Federal branch or agency 
and not to the Federal branch or agency.
    (d) Definitions. For purposes of this Sec. 5.34:
    (1) Authorized product means a product that would be defined as 
insurance under section 302(c) of the Gramm-Leach-Bliley Act (Public Law 
106-102, 113 Stat. 1338, 1407) (GLBA) (15 U.S.C. 6712) that, as of 
January 1, 1999, the OCC had determined in writing that

[[Page 147]]

national banks may provide as principal or national banks were in fact 
lawfully providing the product as principal, and as of that date no 
court of relevant jurisdiction had, by final judgment, overturned a 
determination by the OCC that national banks may provide the product as 
principal. An authorized product does not include title insurance, or an 
annuity contract the income of which is subject to treatment under 
section 72 of the Internal Revenue Code of 1986 (26 U.S.C. 72).
    (2) Well capitalized means the capital level described in 12 CFR 
6.4(b)(1) or, in the case of a Federal branch or agency, the capital 
level described in 12 CFR 4.7(b)(1)(iii).
    (3) Well managed means, unless otherwise determined in writing by 
the OCC:
    (i) In the case of a national bank:
    (A) The national bank has received a composite rating of 1 or 2 
under the Uniform Financial Institutions Rating System in connection 
with its most recent examination; or
    (B) In the case of any national bank that has not been examined, the 
existence and use of managerial resources that the OCC determines are 
satisfactory.
    (ii) In the case of a Federal branch or agency:
    (A) The Federal branch or agency has received a composite ROCA 
supervisory rating (which rates risk management, operational controls, 
compliance, and asset quality) of 1 or 2 at its most recent examination; 
or
    (B) In the case of a Federal branch or agency that has not been 
examined, the existence and use of managerial resources that the OCC 
determines are satisfactory.
    (e) Standards and requirements--(1) Authorized activities. A 
national bank may conduct in an operating subsidiary activities that are 
permissible for a national bank to engage in directly either as part of, 
or incidental to, the business of banking, as determined by the OCC, or 
otherwise under other statutory authority, including:
    (i) Providing authorized products as principal; and
    (ii) Providing title insurance as principal if the national bank or 
subsidiary thereof was actively and lawfully underwriting title 
insurance before November 12, 1999, and no affiliate of the national 
bank (other than a subsidiary) provides insurance as principal. A 
subsidiary may not provide title insurance as principal if the state had 
in effect before November 12, 1999, a law which prohibits any person 
from underwriting title insurance with respect to real property in that 
state.
    (2) Qualifying subsidiaries. An operating subsidiary in which a 
national bank may invest includes a corporation, limited liability 
company, or similar entity if the parent bank owns more than 50 percent 
of the voting (or similar type of controlling) interest of the operating 
subsidiary; or the parent bank otherwise controls the operating 
subsidiary and no other party controls more than 50 percent of the 
voting (or similar type of controlling) interest of the operating 
subsidiary. However, the following subsidiaries are not operating 
subsidiaries subject to this section:
    (i) A subsidiary in which the bank's investment is made pursuant to 
specific authorization in a statute or OCC regulation (e.g., a bank 
service company under 12 U.S.C. 1861 et seq. or a financial subsidiary 
under section 5136A of the Revised Statutes (12 U.S.C. 24a)); and
    (ii) A subsidiary in which the bank has acquired, in good faith, 
shares through foreclosure on collateral, by way of compromise of a 
doubtful claim, or to avoid a loss in connection with a debt previously 
contracted.
    (3) Examination and supervision. An operating subsidiary conducts 
activities authorized under this section pursuant to the same 
authorization, terms and conditions that apply to the conduct of such 
activities by its parent national bank. If, upon examination, the OCC 
determines that the operating subsidiary is operating in violation of 
law, regulation, or written condition, or in an unsafe or unsound manner 
or otherwise threatens the safety or soundness of the bank, the OCC will 
direct the bank or operating subsidiary to take appropriate remedial 
action, which may include requiring the bank to divest or liquidate the 
operating subsidiary, or discontinue specified activities. OCC authority 
under this paragraph is subject to the limitations

[[Page 148]]

and requirements of section 45 of the Federal Deposit Insurance Act (12 
U.S.C. 1831v) and section 115 of the Gramm-Leach-Bliley Act (12 U.S.C. 
1820a).
    (4) Consolidation of figures--(i) National banks. Pertinent book 
figures of the parent national bank and its operating subsidiary shall 
be combined for the purpose of applying statutory or regulatory 
limitations when combination is needed to effect the intent of the 
statute or regulation, e.g., for purposes of 12 U.S.C. 56, 60, 84, and 
371d.
    (ii) Federal branch or agencies. Transactions conducted by all of a 
foreign bank's Federal branches and agencies and State branches and 
agencies, and their operating subsidiaries, shall be combined for the 
purpose of applying any limitation or restriction as provided in 12 CFR 
28.14.
    (5) Procedures--(i) Application required. (A) Except as provided in 
paragraph (e)(5)(iv) or (e)(5)(vi) of this section, a national bank that 
intends to acquire or establish an operating subsidiary, or to perform a 
new activity in an existing operating subsidiary, must first submit an 
application to, and receive approval from, the OCC. The application must 
include a complete description of the bank's investment in the 
subsidiary, the proposed activities of the subsidiary, the 
organizational structure and management of the subsidiary, the relations 
between the bank and the subsidiary, and other information necessary to 
adequately describe the proposal. To the extent the application relates 
to the initial affiliation of the bank with a company engaged in 
insurance activities, the bank should describe the type of insurance 
activity that the company is engaged in and has present plans to 
conduct. The bank must also list for each state the lines of business 
for which the company holds, or will hold, an insurance license, 
indicating the state where the company holds a resident license or 
charter, as applicable. The application must state whether the operating 
subsidiary will conduct any activity at a location other than the main 
office or a previously approved branch of the bank. The OCC may require 
the applicant to submit a legal analysis if the proposal is novel, 
unusually complex, or raises substantial unresolved legal issues. In 
these cases, the OCC encourages applicants to have a pre-filing meeting 
with the OCC.
    (B) A national bank must file an application and obtain prior 
approval before acquiring or establishing an operating subsidiary, or 
performing a new activity in an existing operating subsidiary, if the 
bank controls the subsidiary but owns 50 percent or less of the voting 
(or similar type of controlling) interest of the subsidiary. These 
applications are not subject to the filing exemption in paragraph 
(e)(5)(vi) of this section and are not eligible for the notice 
procedures in paragraph (e)(5)(iv) of this section.
    (ii) Exceptions to rules of general applicability. Sections 5.8, 
5.10, and 5.11 do not apply to this section. However, if the OCC 
concludes that an application presents significant and novel policy, 
supervisory, or legal issues, the OCC may determine that some or all 
provisions in Sec. Sec. 5.8, 5.10, and 5.11 apply.
    (iii) OCC review and approval. The OCC reviews a national bank's 
application to determine whether the proposed activities are legally 
permissible and to ensure that the proposal is consistent with safe and 
sound banking practices and OCC policy and does not endanger the safety 
or soundness of the parent national bank. As part of this process, the 
OCC may request additional information and analysis from the applicant.
    (iv) Notice process for certain activities. A national bank that is 
``well capitalized'' and ``well managed'' may acquire or establish an 
operating subsidiary, or perform a new activity in an existing operating 
subsidiary, by providing the appropriate district office written notice 
within 10 days after acquiring or establishing the subsidiary, or 
commencing the activity, if the activity is listed in paragraph 
(e)(5)(v) of this section. The written notice must include a complete 
description of the bank's investment in the subsidiary and of the 
activity conducted and a representation and undertaking that the 
activity will be conducted in accordance with OCC policies contained in 
guidance issued by the OCC regarding the activity. To the extent the 
notice relates to the initial affiliation of the bank with

[[Page 149]]

a company engaged in insurance activities, the bank should describe the 
type of insurance activity that the company is engaged in and has 
present plans to conduct. The bank must also list for each state the 
lines of business for which the company holds, or will hold, an 
insurance license, indicating the state where the company holds a 
resident license or charter, as applicable. Any bank receiving approval 
under this paragraph is deemed to have agreed that the subsidiary will 
conduct the activity in a manner consistent with published OCC guidance.
    (v) Activities eligible for notice. The following activities qualify 
for the notice procedures, provided the activity is conducted pursuant 
to the same terms and conditions as would be applicable if the activity 
were conducted directly by a national bank:
    (A) Holding and managing assets acquired by the parent bank, 
including investment assets and property acquired by the bank through 
foreclosure or otherwise in good faith to compromise a doubtful claim, 
or in the ordinary course of collecting a debt previously contracted;
    (B) Providing services to or for the bank or its affiliates, 
including accounting, auditing, appraising, advertising and public 
relations, and financial advice and consulting;
    (C) Making loans or other extensions of credit, and selling money 
orders, savings bonds, and travelers checks;
    (D) Purchasing, selling, servicing, or warehousing loans or other 
extensions of credit, or interests therein;
    (E) Providing courier services between financial institutions;
    (F) Providing management consulting, operational advice, and 
services for other financial institutions;
    (G) Providing check guaranty, verification and payment services;
    (H) Providing data processing, data warehousing and data 
transmission products, services, and related activities and facilities, 
including associated equipment and technology, for the bank or its 
affiliates;
    (I) Acting as investment adviser (including an adviser with 
investment discretion) or financial adviser or counselor to governmental 
entities or instrumentalities, businesses, or individuals, including 
advising registered investment companies and mortgage or real estate 
investment trusts, furnishing economic forecasts or other economic 
information, providing investment advice related to futures and options 
on futures, and providing consumer financial counseling;
    (J) Providing tax planning and preparation services;
    (K) Providing financial and transactional advice and assistance, 
including advice and assistance for customers in structuring, arranging, 
and executing mergers and acquisitions, divestitures, joint ventures, 
leveraged buyouts, swaps, foreign exchange, derivative transactions, 
coin and bullion, and capital restructurings;
    (L) Underwriting and reinsuring credit related insurance to the 
extent permitted under section 302 of the GLBA (15 U.S.C. 6712);
    (M) Leasing of personal property and acting as an agent or adviser 
in leases for others;
    (N) Providing securities brokerage or acting as a futures commission 
merchant, and providing related credit and other related services;
    (O) Underwriting and dealing, including making a market, in bank 
permissible securities and purchasing and selling as principal, asset 
backed obligations;
    (P) Acting as an insurance agent or broker, including title 
insurance to the extent permitted under section 303 of the GLBA (15 
U.S.C. 6713);
    (Q) Reinsuring mortgage insurance on loans originated, purchased, or 
serviced by the bank, its subsidiaries, or its affiliates, provided that 
if the subsidiary enters into a quota share agreement, the subsidiary 
assumes less than 50 percent of the aggregate insured risk covered by 
the quota share agreement. A ``quota share agreement'' is an agreement 
under which the reinsurer is liable to the primary insurance underwriter 
for an agreed upon percentage of every claim arising out of the covered 
book of business ceded by the primary insurance underwriter to the 
reinsurer;

[[Page 150]]

    (R) Acting as a finder pursuant to 12 CFR 7.1002 to the extent 
permitted by published OCC precedent; \1\
---------------------------------------------------------------------------

    \1\ See, e.g., the OCC's monthly publication ``Interpretations and 
Actions.'' Beginning with the May 1996 issue, the OCC's Web site 
provides access to electronic versions of ``Interpretations and 
Actions'' (www.occ.treas.gov).
---------------------------------------------------------------------------

    (S) Offering correspondent services to the extent permitted by 
published OCC precedent;
    (T) Acting as agent or broker in the sale of fixed or variable 
annuities;
    (U) Offering debt cancellation or debt suspension agreements;
    (V) Providing real estate settlement, closing, escrow, and related 
services; and real estate appraisal services for the subsidiary, parent 
bank, or other financial institutions;
    (W) Acting as a transfer or fiscal agent;
    (X) Acting as a digital certification authority to the extent 
permitted by published OCC precedent, subject to the terms and 
conditions contained in that precedent; and
    (Y) Providing or selling public transportation tickets, event and 
attraction tickets, gift certificates, prepaid phone cards, promotional 
and advertising material, postage stamps, and Electronic Benefits 
Transfer (EBT) script, and similar media, to the extent permitted by 
published OCC precedent, subject to the terms and conditions contained 
in that precedent.
    (vi) No application or notice required. A national bank may acquire 
or establish an operating subsidiary without filing an application or 
providing notice to the OCC, if the bank is adequately capitalized or 
well capitalized and the:
    (A) Activities of the new subsidiary are limited to those activities 
previously reported by the bank in connection with the establishment or 
acquisition of a prior operating subsidiary;
    (B) Activities in which the new subsidiary will engage continue to 
be legally permissible for the subsidiary; and
    (C) Activities of the new subsidiary will be conducted in accordance 
with any conditions imposed by the OCC in approving the conduct of these 
activities for any prior operating subsidiary of the bank.
    (vii) Fiduciary powers. If an operating subsidiary proposes to 
exercise investment discretion on behalf of customers or provide 
investment advice for a fee, the national bank must have prior OCC 
approval to exercise fiduciary powers pursuant to Sec. 5.26.
    (6) Annual Report on Operating Subsidiaries--(i) Filing requirement. 
Each national bank shall prepare and file with the OCC an Annual Report 
on Operating Subsidiaries containing the information set forth in 
paragraph (e)(6)(ii) of this section for each of its operating 
subsidiaries that:
    (A) Is not functionally regulated within the meaning of section 
5(c)(5) of the Bank Holding Company Act of 1956, as amended (12 U.S.C. 
1844(c)(5)); and
    (B) Does business directly with consumers in the United States. For 
purposes of paragraph (e)(6) of this section, an operating subsidiary, 
or any subsidiary thereof, does business directly with consumers if, in 
the ordinary course of its business, it provides products or services to 
individuals to be used primarily for personal, family, or household 
purposes.
    (ii) Information required. The Annual Report on Operating 
Subsidiaries must contain the following information for each covered 
operating subsidiary listed:
    (A) The name and charter number of the parent national bank;
    (B) The name (include any ``dba'' (doing business as), abbreviated 
names, or trade names used to identify the operating subsidiary when it 
does business directly with consumers), mailing address (include the 
street address or post office box, city, state, and zip code), e-mail 
address (if any), and telephone number of the operating subsidiary;
    (C) The principal place of business of the operating subsidiary, if 
different from the address provided pursuant to paragraph (e)(6)(ii)(B) 
of this section; and
    (D) The lines of business in which the operating subsidiary is doing 
business directly with consumers by designating the appropriate code 
contained in appendix B (NAICS Activity Codes for Commonly Reported 
Activities) to the

[[Page 151]]

Instructions for Preparation of Report of Changes in Organizational 
Structure, Form FR Y-10, a copy of which is set forth on the OCC's Web 
site at http://www.occ.gov. If the operating subsidiary is engaged in an 
activity not set forth in this list, a national bank shall report the 
code 0000 and provide a brief description of the activity.
    (iii) Filing time frames and availability of information. Each 
national bank's Annual Report on Operating Subsidiaries shall contain 
information current as of December 31st for the year prior to the year 
the report is filed. The national bank shall submit its first Annual 
Report on Operating Subsidiaries (for information as of December 31, 
2004) to the OCC on or before January 31, 2005, and on or before January 
31st each year thereafter. The national bank may submit the Annual 
Report on Operating Subsidiaries electronically or in another format 
prescribed by the OCC. The OCC will make available to the public the 
information contained in the Annual Report on Operating Subsidiaries on 
its Web site at http://www.occ.gov.

[65 FR 12911, Mar. 10, 2000, as amended at 66 FR 49097, Sept. 26, 2001; 
66 FR 62914, Dec. 4, 2001; 68 FR 70131, Dec. 17, 2003; 69 FR 64481, Nov. 
5, 2004]



Sec. 5.35  Bank service companies.

    (a) Authority. 12 U.S.C. 93a and 1861-1867.
    (b) Licensing requirements. Except where otherwise provided, a 
national bank shall submit a notice and obtain prior OCC approval to 
invest in the equity of a bank service company or to perform new 
activities in an existing bank service company.
    (c) Scope. This section describes the procedures and requirements 
regarding OCC review and approval of a notice to invest in a bank 
service company.
    (d) Definitions--(1) Bank service company means a corporation or 
limited liability company organized to provide services authorized by 
the Bank Service Company Act, 12 U.S.C. 1861 et seq., all of whose 
capital stock is owned by one or more insured banks in the case of a 
corporation, or all of the members of which are one or more insured 
banks in the case of a limited liability company.
    (2) Limited liability company means any non-corporate company, 
partnership, trust, or similar business entity organized under the law 
of a State (as defined in section 3 of the Federal Deposit Insurance 
Act) which provides that a member or manager of such company is not 
personally liable for a debt, obligation, or liability of the company 
solely by reason of being, or acting as, a member or manager of such 
company.
    (3) Depository institution, for purposes of this section, means an 
insured bank, a financial institution subject to examination by the 
Office of Thrift Supervision, or the National Credit Union 
Administration Board, or a financial institution whose accounts or 
deposits are insured or guaranteed under state law and eligible to be 
insured by the Federal Deposit Insurance Corporation or the National 
Credit Union Administration Board.
    (4) Invest includes making any advance of funds to a bank service 
company, whether by the purchase of stock, the making of a loan, or 
otherwise, except a payment for rent earned, goods sold and delivered, 
or services rendered before the payment was made.
    (5) Principal investor means the insured bank that has the largest 
amount invested in the equity of a bank service company. In any case 
where two or more insured banks have equal amounts invested, the bank 
service company shall designate one of the banks as its principal 
investor.
    (e) Standards and requirements. A national bank may invest in a bank 
service company that conducts activities described in paragraphs (f)(3) 
and (f)(4) of this section, and activities (other than taking deposits) 
permissible for the national bank and other state and national bank 
shareholders or members in the bank service company.
    (f) Procedures--(1) OCC notice and approval required. Except as 
provided in paragraphs (f)(2) and (f)(4) of this section, a national 
bank that intends to make an investment in a bank service company, or to 
perform new activities in an existing bank service company, must submit 
a notice to and receive prior approval from the OCC. The OCC approves or 
denies a proposed investment within 60 days after the filing is

[[Page 152]]

received by the OCC, unless the OCC notifies the bank prior to that date 
that the filing presents a significant supervisory or compliance 
concern, or raises a significant legal or policy issue. The notice must 
include the information required by paragraph (g) of this section.
    (2) Notice process only for certain activities. A national bank that 
is ``well capitalized'' and ``well managed'' as defined in Sec. 5.34(d) 
may invest in a bank service company, or perform a new activity in an 
existing bank service company, by providing the appropriate district 
office written notice within 10 days after the investment, if the bank 
service company engages only in the activities listed in Sec. 
5.34(e)(5)(v). No prior OCC approval is required. The written notice 
must include a complete description of the bank's investment in the bank 
service company and of the activity conducted and a representation and 
undertaking that the activity will be conducted in accordance with OCC 
guidance. To the extent the notice relates to the initial affiliation of 
the bank with a company engaged in insurance activities, the bank should 
describe the type of insurance activity that the company is engaged in 
and has present plans to conduct. The bank must also list for each state 
the lines of business for which the company holds, or will hold, an 
insurance license, indicating the state where the company holds a 
resident license or charter, as applicable. Any bank receiving approval 
under this paragraph is deemed to have agreed that the bank service 
company will conduct the activity in a manner consistent with the 
published OCC guidance.
    (3) Investments requiring no approval. A national bank does not need 
OCC approval to invest in a bank service company, or to perform a new 
activity in an existing bank service company, if the bank service 
company will provide the following services only for depository 
institutions: check and deposit posting and sorting; computation and 
posting of interest and other credits and charges; preparation and 
mailing of checks, statements, notices, and similar items; or any other 
clerical, bookkeeping, accounting, statistical, or similar function.
    (4) Federal Reserve approval. A national bank also may, with the 
approval of the Board of Governors of the Federal Reserve System 
(Federal Reserve Board), invest in the equity of a bank service company 
that provides any other service (except deposit taking) that the Federal 
Reserve Board has determined, by regulation, to be permissible for a 
bank holding company under 12 U.S.C. 1843(c)(8).
    (5) Exceptions to rules of general applicability. Sections 5.8, 
5.10, and 5.11 do not apply to a request for approval to invest in a 
bank service corporation. However, if the OCC concludes that an 
application presents significant and novel policy, supervisory, or legal 
issues, the OCC may determine that any or all parts of Sec. Sec. 5.8, 
5.10, and 5.11 apply.
    (g) Required information. A notice required under paragraph (f)(1), 
of this section must contain the following:
    (1) The name and location of the bank service company;
    (2) A complete description of the activities the bank service 
company will conduct. To the extent the notice relates to the initial 
affiliation of the bank with a company engaged in insurance activities, 
the bank should describe the type of insurance activity that the company 
is engaged in and has present plans to conduct. The bank must also list 
for each state the lines of business for which the company holds, or 
will hold, an insurance license, indicating the state where the company 
holds a resident license or charter, as applicable;
    (3) Information demonstrating that the bank will comply with the 
investment limitations of paragraph (i) of this section;
    (4) Information demonstrating that the bank service company and all 
banks investing in the bank service company are located in the same 
state, unless the Federal Reserve Board has approved an exception to 
this requirement under the authority of 12 U.S.C. 1864(b); and
    (5) Information demonstrating that the bank service company will 
conduct these activities only at locations in a state where the 
investing bank could be authorized to perform the activities directly.

[[Page 153]]

    (h) Examination and supervision. Each bank service company in which 
a national bank is the principal investor is subject to examination and 
supervision by the OCC in the same manner and to the same extent as that 
national bank. OCC authority under this paragraph is subject to the 
limitations and requirements of section 45 of the Federal Deposit 
Insurance Act (12 U.S.C. 1831v) and section 115 of the Gramm-Leach-
Bliley Act (12 U.S.C. 1820a).
    (i) Investment and other limitations--(1) Investment limitations. A 
bank may not invest more than ten percent of its capital and surplus in 
a bank service company. In addition, the bank's total investments in all 
bank service companies may not exceed five percent of the bank's total 
assets.
    (2) Other limitations. Except as provided in paragraph (f)(4) of 
this section, a bank service company shall only conduct activities that 
the national bank could conduct directly. If the bank service company 
has both national and state bank shareholders or members, the activities 
conducted must also be permissible for the state bank shareholders or 
members.

[61 FR 60363, Nov. 27, 1996, as amended at 64 FR 60098, Nov. 4, 1999; 65 
FR 12913, Mar. 10, 2000]



Sec. 5.36  Other equity investments.

    (a) Authority. 12 U.S.C. 1 et seq., 24(Seventh), and 93a.
    (b) Scope. National banks are permitted to make various types of 
equity investments pursuant to 12 U.S.C. 24(Seventh) and other statutes. 
These investments are in addition to those subject to Sec. Sec. 5.34, 
5.35, and 5.37. This section describes the procedure governing the 
filing of the notice that the OCC requires in connection with certain of 
these investments. Other investments authorized under this section may 
be reviewed on a case-by-case basis by the OCC.
    (c) Definitions. For purposes of this Sec. 5.36:
    (1) Enterprise means any corporation, limited liability company, 
partnership, trust, or similar business entity.
    (2) Well capitalized means the capital level described in 12 CFR 
6.4(b)(1).
    (3) Well managed has the meaning set forth in Sec. 5.34(d)(3).
    (d) Procedure. (1) A national bank must provide the appropriate 
district office with written notice within ten days after making an 
equity investment in the following:
    (i) An agricultural credit corporation;
    (ii) A savings association eligible to be acquired under section 13 
of the Federal Deposit Insurance Act (12 U.S.C. 1823); and
    (iii) Any other equity investment that may be authorized by statute 
after February 12, 1990, if not covered by other applicable OCC 
regulation.
    (2) The written notice required by paragraph (c)(1) of this section 
must include a description, and the amount, of the bank's investment.
    (3) The OCC reserves the right to require additional information as 
necessary.
    (e) Non-controlling investments. A national bank may make a non-
controlling investment, directly or through its operating subsidiary, in 
an enterprise that engages in the activities described in paragraph 
(e)(2) of this section by filing a written notice. The written notice 
must be filed with the appropriate district office no later than 10 days 
after making the investment and must:
    (1) Describe the structure of the investment and the activity or 
activities conducted by the enterprise in which the bank is investing. 
To the extent the notice relates to the initial affiliation of the bank 
with a company engaged in insurance activities, the bank should describe 
the type of insurance activity that the company is engaged in and has 
present plans to conduct. The bank must also list for each state the 
lines of business for which the company holds, or will hold, an 
insurance license, indicating the state where the company holds a 
resident license or charter, as applicable;
    (2) State which paragraphs of Sec. 5.34(e)(5)(v) describe the 
activity or activities, or state that, and describe how, the activity is 
substantively the same as that contained in published OCC precedent 
approving a non-controlling investment by a national bank or its 
operating subsidiary, state that

[[Page 154]]

the activity will be conducted in accordance with the same terms and 
conditions applicable to the activity covered by the precedent, and 
provide the citation to the applicable precedent;
    (3) Certify that the bank is well managed and well capitalized at 
the time of the investment;
    (4) Describe how the bank has the ability to prevent the enterprise 
from engaging in activities that are not set forth in Sec. 
5.34(e)(5)(v) or not contained in published OCC precedent approving a 
non-controlling investment by a national bank or its operating 
subsidiary, or how the bank otherwise has the ability to withdraw its 
investment;
    (5) Certify that the bank will account for its investment under this 
section under the equity or cost method of accounting;
    (6) Describe how the investment is convenient and useful to the bank 
in carrying out its business and not a mere passive investment unrelated 
to the bank's banking business;
    (7) Certify that the bank's loss exposure is limited, as a legal and 
accounting matter, and the bank does not have open-ended liability for 
the obligations of the enterprise; and
    (8) Certify that the enterprise in which the bank is investing 
agrees to be subject to OCC supervision and examination, subject to the 
limitations and requirements of section 45 of the Federal Deposit 
Insurance Act (12 U.S.C. 1831v) and section 115 of the Gramm-Leach-
Bliley Act (12 U.S.C. 1820a).
    (f) Non-controlling investments by Federal branches. A Federal 
branch that satisfies the well capitalized and well managed standards in 
12 CFR 4.7(b)(1)(iii) and Sec. 5.34(d)(3)(ii) may make a non-
controlling investment in accordance with paragraph (e) of this section 
in the same manner and subject to the same conditions and requirements 
as a national bank, and subject to any additional requirements that may 
apply under 12 CFR 28.10(c).
    (g) Exceptions to rules of general applicability. Sections 5.8, 5.9, 
5.10, and 5.11 of this part do not apply to filings for other equity 
investments.

[61 FR 60363, Nov. 27, 1996, as amended at 65 FR 12913, Mar. 10, 2000; 
65 FR 41560, July 6, 2000; 68 FR 70698, Dec. 19, 2003]



Sec. 5.37  Investment in bank premises.

    (a) Authority. 12 U.S.C. 29, 93a, and 371d.
    (b) Scope. This section sets forth the procedures governing OCC 
review and approval of applications by national banks to invest in bank 
premises or in certain bank premises related investments, loans, or 
indebtedness, as described in paragraph (d)(1)(i) of this section.
    (c) Definition--Bank premises for purposes of this section includes 
the following:
    (1) Premises that are owned and occupied (or to be occupied, if 
under construction) by the bank, its branches, or its consolidated 
subsidiaries;
    (2) Capitalized leases and leasehold improvements, vaults, and fixed 
machinery and equipment;
    (3) Remodeling costs to existing premises;
    (4) Real estate acquired and intended, in good faith, for use in 
future expansion; or
    (5) Parking facilities that are used by customers or employees of 
the bank, its branches, and its consolidated subsidiaries.
    (d) Procedure--(1) Application. (i) A national bank shall submit an 
application to the appropriate supervisory office to invest in bank 
premises, or in the stock, bonds, debentures, or other such obligations 
of any corporation holding the premises of the bank, or to make loans to 
or upon the security of the stock of such corporation, if the aggregate 
of all such investments and loans, together with the indebtedness 
incurred by any such corporation that is an affiliate of the bank, as 
defined in 12 U.S.C. 221a, will exceed the amount of the capital stock 
of the bank.
    (ii) The application must include:
    (A) A description of the bank's present investment in bank premises;
    (B) The investment in bank premises that the bank intends to make, 
and the business reason for making the investment; and
    (C) The amount by which the bank's aggregate investment will exceed 
the amount of the bank's capital stock.

[[Page 155]]

    (2) Approval. An application for national bank investment in bank 
premises or in certain bank premises' related investments, loans or 
indebtedness, as described in paragraph (d)(1)(i) of this section, is 
deemed approved as of the 30th day after the filing is received by the 
OCC, unless the OCC notifies the bank prior to that date that the filing 
presents a significant supervisory, or compliance concern, or raises a 
significant legal or policy issue. An approval for a specified amount 
under this section remains valid up to that amount until the OCC 
notifies the bank otherwise.
    (3) Notice process. Notwithstanding paragraph (d)(1)(i) of this 
section, a bank that is rated 1 or 2 under the Uniform Financial 
Institutions Rating System (CAMELS) may make an aggregate investment in 
bank premises up to 150 percent of the bank's capital and surplus 
without the OCC's prior approval, provided that the bank is well 
capitalized as defined in 12 CFR part 6 and will continue to be well 
capitalized after the investment or loan is made. However, the bank 
shall notify the appropriate supervisory office in writing of the 
investment within 30 days after the investment or loan is made. The 
written notice must include a description of the bank's investment.
    (4) Exceptions to rules of general applicability. Sections 5.8, 
5.10, and 5.11 do not apply to this section. However, if the OCC 
concludes that an application presents significant and novel policy, 
supervisory, or legal issues, the OCC may determine that any or all 
parts of Sec. Sec. 5.8, 5.10, and 5.11 apply.

[61 FR 60363, Nov. 27, 1996, as amended at 64 FR 60098, Nov. 4, 1999]



Sec. 5.39  Financial subsidiaries.

    (a) Authority. 12 U.S.C. 93a and section 121 of Public Law 106-102, 
113 Stat. 1338, 1373.
    (b) Approval requirements. A national bank must file a notice as 
prescribed in this section prior to acquiring a financial subsidiary or 
engaging in activities authorized pursuant to section 5136A(a)(2)(A)(i) 
of the Revised Statutes (12 U.S.C. 24a) through a financial subsidiary. 
When a financial subsidiary proposes to conduct a new activity permitted 
under Sec. 5.34, the bank shall follow the procedures in Sec. 
5.34(e)(5) instead of paragraph (i) of this section.
    (c) Scope. This section sets forth authorized activities, approval 
procedures, and, where applicable, conditions for national banks 
engaging in activities through a financial subsidiary.
    (d) Definitions. For purposes of this Sec. 5.39:
    (1) Affiliate has the meaning set forth in section 2 of the Bank 
Holding Company Act of 1956 (12 U.S.C. 1841), except that the term 
``affiliate'' for purposes of paragraph (h)(5) of this section shall 
have the meaning set forth in sections 23A or 23B of the Federal Reserve 
Act (12 U.S.C. 371c and 371c-1), as applicable.
    (2) Appropriate Federal banking agency has the meaning set forth in 
section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813).
    (3) Company has the meaning set forth in section 2 of the Bank 
Holding Company Act of 1956 (12 U.S.C. 1841), and includes a limited 
liability company (LLC).
    (4) Control has the meaning set forth in section 2 of the Bank 
Holding Company Act of 1956 (12 U.S.C. 1841).
    (5) Eligible debt means unsecured long-term debt that is:
    (i) Not supported by any form of credit enhancement, including a 
guaranty or standby letter of credit; and
    (ii) Not held in whole or in any significant part by any affiliate, 
officer, director, principal shareholder, or employee of the bank or any 
other person acting on behalf of or with funds from the bank or an 
affiliate of the bank.
    (6) Financial subsidiary means any company that is controlled by one 
or more insured depository institutions, other than a subsidiary that:
    (i) Engages solely in activities that national banks may engage in 
directly and that are conducted subject to the same terms and conditions 
that govern the conduct of these activities by national banks; or
    (ii) A national bank is specifically authorized to control by the 
express terms of a Federal statute (other than section 5136A of the 
Revised Statutes), and not by implication or interpretation, such as by 
section 25 of the Federal Reserve Act (12 U.S.C. 601-604a),

[[Page 156]]

section 25A of the Federal Reserve Act (12 U.S.C. 611-631), or the Bank 
Service Company Act (12 U.S.C. 1861 et seq.)
    (7) Insured depository institution has the meaning set forth in 
section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813).
    (8) Long term debt means any debt obligation with an initial 
maturity of 360 days or more.
    (9) Subsidiary has the meaning set forth in section 2 of the Bank 
Holding Company Act of 1956 (12 U.S.C. 1841).
    (10) Tangible equity has the meaning set forth in 12 CFR 6.2(g).
    (11) Well capitalized with respect to a depository institution means 
the capital level designated as ``well capitalized'' by the 
institution's appropriate Federal banking agency pursuant to section 38 
of the Federal Deposit Insurance Act (12 U.S.C. 1831o).
    (12) Well managed means:
    (i) Unless otherwise determined in writing by the appropriate 
Federal banking agency, the institution has received a composite rating 
of 1 or 2 under the Uniform Financial Institutions Rating System (or an 
equivalent rating under an equivalent rating system) in connection with 
the most recent examination or subsequent review of the depository 
institution and, at least a rating of 2 for management, if such a rating 
is given; or
    (ii) In the case of any depository institution that has not been 
examined by its appropriate Federal banking agency, the existence and 
use of managerial resources that the appropriate Federal banking agency 
determines are satisfactory.
    (e) Authorized activities. A financial subsidiary may engage only in 
the following activities:
    (1) Activities that are financial in nature and activities 
incidental to a financial activity, authorized pursuant to 
5136A(a)(2)(A)(i) of the Revised Statutes (12 U.S.C. 24a) (to the extent 
not otherwise permitted under paragraph (e)(2) of this section), 
including:
    (i) Lending, exchanging, transferring, investing for others, or 
safeguarding money or securities;
    (ii) Engaging as agent or broker in any state for purposes of 
insuring, guaranteeing, or indemnifying against loss, harm, damage, 
illness, disability, death, defects in title, or providing annuities as 
agent or broker;
    (iii) Providing financial, investment, or economic advisory 
services, including advising an investment company as defined in section 
3 of the Investment Company Act (15 U.S.C. 80a-3);
    (iv) Issuing or selling instruments representing interests in pools 
of assets permissible for a bank to hold directly;
    (v) Underwriting, dealing in, or making a market in securities;
    (vi) Engaging in any activity that the Board of Governors of the 
Federal Reserve System has determined, by order or regulation in effect 
on November 12, 1999, to be so closely related to banking or managing or 
controlling banks as to be a proper incident thereto (subject to the 
same terms and conditions contained in the order or regulation, unless 
the order or regulation is modified by the Board of Governors of the 
Federal Reserve System);
    (vii) Engaging, in the United States, in any activity that a bank 
holding company may engage in outside the United States and the Board of 
Governors of the Federal Reserve System has determined, under 
regulations prescribed or interpretations issued pursuant to section 
4(c)(13) of the Bank Holding Company Act of 1956 (12 U.S.C. 1843(c)(13)) 
as in effect on November 11, 1999, to be usual in connection with the 
transaction of banking or other financial operations abroad; and
    (viii) Activities that the Secretary of the Treasury in consultation 
with the Board of Governors of the Federal Reserve System, as provided 
in section 5136A of the Revised Statutes, determines to be financial in 
nature or incidental to a financial activity; and
    (2) Activities that may be conducted by an operating subsidiary 
pursuant to Sec. 5.34.
    (f) Impermissible activities. A financial subsidiary may not engage 
as principal in the following activities:
    (1) Insuring, guaranteeing, or indemnifying against loss, harm, 
damage, illness, disability or death, or defects in title (except to the 
extent permitted under sections 302 or 303(c) of the Gramm-Leach-Bliley 
Act (GLBA)), 113 Stat. 1407-1409, (15 U.S.C. 6712 or 15 U.S.C. 6713) or 
providing or issuing annuities the income of which is subject

[[Page 157]]

to tax treatment under section 72 of the Internal Revenue Code (26 
U.S.C. 72);
    (2) Real estate development or real estate investment, unless 
otherwise expressly authorized by law; and
    (3) Activities authorized for bank holding companies by section 
4(k)(4)(H) or (I) (12 U.S.C. 1843) of the Bank Holding Company Act, 
except activities authorized under section 4(k)(4)(H) that may be 
permitted in accordance with section 122 of the GLBA, 113 Stat. 1381.
    (g) Qualifications. A national bank may, directly or indirectly, 
control a financial subsidiary or hold an interest in a financial 
subsidiary only if:
    (1) The national bank and each depository institution affiliate of 
the national bank are well capitalized and well managed;
    (2) The aggregate consolidated total assets of all financial 
subsidiaries of the national bank do not exceed the lesser of 45 percent 
of the consolidated total assets of the parent bank or $50 billion (or 
such greater amount as is determined according to an indexing mechanism 
jointly established by regulation by the Secretary of the Treasury and 
the Board of Governors of the Federal Reserve System); and
    (3) If the national bank is one of the 100 largest insured banks, 
determined on the basis of the bank's consolidated total assets at the 
end of the calendar year, the bank has at least one issue of outstanding 
eligible debt that is currently rated in one of the three highest 
investment grade rating categories by a nationally recognized 
statistical rating organization. If the national bank is one of the 
second 50 largest insured banks, it may either satisfy this requirement 
or satisfy alternative criteria the Secretary of the Treasury and the 
Board of Governors of the Federal Reserve System establish jointly by 
regulation. This paragraph (g)(3) does not apply if the financial 
subsidiary is engaged solely in activities in an agency capacity.
    (h) Safeguards. The following safeguards apply to a national bank 
that establishes or maintains a financial subsidiary:
    (1) For purposes of determining regulatory capital:
    (i) The national bank must deduct the aggregate amount of its 
outstanding equity investment, including retained earnings, in its 
financial subsidiaries from its total assets and tangible equity and 
deduct such investment from its total risk-based capital (this deduction 
shall be made equally from Tier 1 and Tier 2 capital); and
    (ii) The national bank may not consolidate the assets and 
liabilities of a financial subsidiary with those of the bank;
    (2) Any published financial statement of the national bank shall, in 
addition to providing information prepared in accordance with generally 
accepted accounting principles, separately present financial information 
for the bank in the manner provided in paragraph (h)(1) of this section;
    (3) The national bank must have reasonable policies and procedures 
to preserve the separate corporate identity and limited liability of the 
bank and the financial subsidiaries of the bank;
    (4) The national bank must have procedures for identifying and 
managing financial and operational risks within the bank and the 
financial subsidiary that adequately protect the national bank from such 
risks;
    (5) Sections 23A and 23B of the Federal Reserve Act (12 U.S.C. 371c 
and 371c-1) apply to transactions involving a financial subsidiary in 
the following manner:
    (i) A financial subsidiary shall be deemed to be an affiliate of the 
bank and shall not be deemed to be a subsidiary of the bank;
    (ii) The restrictions contained in section 23A(a)(1)(A) of the 
Federal Reserve Act shall not apply with respect to covered transactions 
between a bank and any individual financial subsidiary of the bank;
    (iii) The bank's investment in the financial subsidiary shall not 
include retained earnings of the financial subsidiary;
    (iv) Any purchase of, or investment in, the securities of a 
financial subsidiary of a bank by an affiliate of the bank will be 
considered to be a purchase of or investment in such securities by the 
bank; and

[[Page 158]]

    (v) Any extension of credit by an affiliate of a bank to a financial 
subsidiary of the bank may be considered an extension of credit by the 
bank to the financial subsidiary if the Board of Governors of the 
Federal Reserve System determines that such treatment is necessary or 
appropriate to prevent evasions of the Federal Reserve Act and the GLBA.
    (6) A financial subsidiary shall be deemed a subsidiary of a bank 
holding company and not a subsidiary of the bank for purposes of the 
anti-tying prohibitions set forth in 12 U.S.C. 1971 et seq.
    (i) Procedures to engage in activities through a financial 
subsidiary. A national bank that intends, directly or indirectly, to 
acquire control of, or hold an interest in, a financial subsidiary, or 
to commence a new activity in an existing financial subsidiary, must 
obtain OCC approval through the procedures set forth in paragraph (i)(1) 
or (i)(2) of this section.
    (1) Certification with subsequent notice. (i) At any time, a 
national bank may file a ``Financial Subsidiary Certification'' with the 
appropriate district office listing the bank's depository institution 
affiliates and certifying that the bank and each of those affiliates is 
well capitalized and well managed.
    (ii) Thereafter, at such time as the bank seeks OCC approval to 
acquire control of, or hold an interest in, a new financial subsidiary, 
or commence a new activity authorized under section 5136A(a)(2)(A)(i) of 
the Revised Statutes (12 U.S.C. 24a) in an existing subsidiary, the bank 
may file a written notice with the appropriate district office at the 
time of acquiring control of, or holding an interest in, a financial 
subsidiary, or commencing such activity in an existing subsidiary. The 
written notice must be labeled ``Financial Subsidiary Notice'' and must:
    (A) State that the bank's Certification remains valid;
    (B) Describe the activity or activities conducted by the financial 
subsidiary. To the extent the notice relates to the initial affiliation 
of the bank with a company engaged in insurance activities, the bank 
should describe the type of insurance activity that the company is 
engaged in and has present plans to conduct. The bank must also list for 
each state the lines of business for which the company holds, or will 
hold, an insurance license, indicating the state where the company holds 
a resident license or charter, as applicable;
    (C) Cite the specific authority permitting the activity to be 
conducted by the financial subsidiary. (Where the authority relied on is 
an agency order or interpretation under section 4(c)(8) or 4(c)(13), 
respectively, of the Bank Holding Company Act of 1956, a copy of the 
order or interpretation should be attached);
    (D) Certify that the bank will be well capitalized after making 
adjustments required by paragraph (h)(1) of this section;
    (E) Demonstrate the aggregate consolidated total assets of all 
financial subsidiaries of the national bank do not exceed the lesser of 
45 percent of the bank's consolidated total assets or $50 billion (or 
the increased level established by the indexing mechanism); and
    (F) If applicable, certify that the bank meets the eligible debt 
requirement in paragraph (g)(3) of this section.
    (2) Combined certification and notice. A national bank may file a 
combined certification and notice with the appropriate district office 
at least five business days prior to acquiring control of, or holding an 
interest in, a financial subsidiary, or commencing a new activity 
authorized pursuant to section 5136A(a)(2)(A)(i) of the Revised Statutes 
in an existing subsidiary. The written notice must be labeled 
``Financial Subsidiary Certification and Notice'' and must:
    (i) List the bank's depository institution affiliates and certify 
that the bank and each depository institution affiliate of the bank is 
well capitalized and well managed;
    (ii) Describe the activity or activities to be conducted in the 
financial subsidiary. To the extent the notice relates to the initial 
affiliation of the bank with a company engaged in insurance activities, 
the bank should describe the type of insurance activity that the company 
is engaged in and has present plans to conduct. The bank must also list 
for each state the lines of business for which the company

[[Page 159]]

holds, or will hold, an insurance license, indicating the state where 
the company holds a resident license or charter, as applicable;
    (iii) Cite the specific authority permitting the activity to be 
conducted by the financial subsidiary. (Where the authority relied on is 
an agency order or interpretation under section 4(c)(8) or 4(c)(13), 
respectively, of the Bank Holding Company Act of 1956, a copy of the 
order or interpretation should be attached);
    (iv) Certify that the bank will remain well capitalized after making 
the adjustments required by paragraph (h)(1) of this section;
    (v) Demonstrate the aggregate consolidated total assets of all 
financial subsidiaries of the national bank do not exceed the lesser of 
45% of the bank's consolidated total assets or $50 billion (or the 
increased level established by the indexing mechanism); and
    (vi) If applicable, certify that the bank meets the eligible debt 
requirement in paragraph (g)(3) of this section.
    (3) Exceptions to rules of general applicability. Sections 5.8, 
5.10, 5.11, and 5.13 do not apply to activities authorized under this 
section.
    (4) Community Reinvestment Act (CRA). A national bank may not apply 
under this paragraph (i) to commence a new activity authorized under 
section 5136A(a)(2)(A)(i) of the Revised Statutes (12 U.S.C. 24a), or 
directly or indirectly acquire control of a company engaged in any such 
activity, if the bank or any of its insured depository institution 
affiliates received a CRA rating of less than ``satisfactory record of 
meeting community credit needs'' on its most recent CRA examination 
prior to when the bank would file a notice under this section.
    (j) Failure to continue to meet certain qualification requirements--
(1) Qualifications and safeguards. A national bank, or, as applicable, 
its affiliated depository institutions, must continue to satisfy the 
qualification requirements set forth in paragraphs (g)(1) and (2) of 
this section and the safeguards in paragraphs (h)(1), (2), (3) and (4) 
of this section following its acquisition of control of, or an interest 
in, a financial subsidiary. A national bank that fails to continue to 
satisfy these requirements will be subject to the following procedures 
and requirements:
    (i) The OCC shall give notice to the national bank and, in the case 
of an affiliated depository institution to that depository institution's 
appropriate Federal banking agency, promptly upon determining that the 
national bank, or, as applicable, its affiliated depository institution, 
does not continue to meet the requirements in paragraph (g)(1) or (2) of 
this section or the safeguards in paragraph (h)(1), (2), (3), or (4) of 
this section. The bank shall be deemed to have received such notice 
three business days after mailing of the letter by the OCC;
    (ii) Not later than 45 days after receipt of the notice under 
paragraph (j)(1)(i) of this section, or any additional time as the OCC 
may permit, the national bank shall execute an agreement with the OCC to 
comply with the requirements in paragraphs (g)(1) and (2) and (h)(1), 
(2), (3), and (4) of this section;
    (iii) The OCC may impose limitations on the conduct or activities of 
the national bank or any subsidiary of the national bank as the OCC 
determines appropriate under the circumstances and consistent with the 
purposes of section 5136A of the Revised Statutes; and
    (iv) The OCC may require a national bank to divest control of a 
financial subsidiary if the national bank does not correct the 
conditions giving rise to the notice within 180 days after receipt of 
the notice provided under paragraph (j)(1)(i) of this section.
    (2) Eligible debt rating requirement. A national bank that does not 
continue to meet the qualification requirement set forth in paragraph 
(g)(3) of this section, applicable where the bank's financial subsidiary 
is engaged in activities other than solely in an agency capacity, may 
not directly or through a subsidiary, purchase or acquire any additional 
equity capital of any such financial subsidiary until the bank meets the 
requirement in paragraph (g)(3) of this section. For purposes of this 
paragraph (j)(2), the term ``equity capital'' includes, in addition to 
any equity investment, any debt instrument issued

[[Page 160]]

by the financial subsidiary if the instrument qualifies as capital of 
the subsidiary under federal or state law, regulation, or interpretation 
applicable to the subsidiary.
    (k) Examination and supervision. A financial subsidiary is subject 
to examination and supervision by the OCC, subject to the limitations 
and requirements of section 45 of the Federal Deposit Insurance Act (12 
U.S.C. 1831v) and section 115 of the GLBA (12 U.S.C. 1820a).

[65 FR 12914, Mar. 10, 2000]



          Subpart D_Other Changes in Activities and Operations



Sec. 5.40  Change in location of main office.

    (a) Authority 12 U.S.C. 30, 93a, and 2901 through 2907.
    (b) Licensing requirements. A national bank shall give prior notice 
to the OCC to relocate its main office within city, town, or village 
limits to an authorized branch location. A national bank shall submit an 
application and obtain prior OCC approval to relocate its main office to 
any other location in the city, town, or village, or within 30 miles of 
the limits of the city, town, or village in which the main office of the 
bank is located.
    (c) Scope. This section describes OCC procedures and approval 
standards for an application or a notice by a national bank to change 
the location of its main office.
    (d) Procedure--(1) Main office relocation to an authorized branch 
location within city, town, or village limits. A national bank may 
change the location of its main office to an authorized branch location 
(approved or existing branch site) within the limits of the same city, 
town, or village. The national bank shall submit a notice to the 
appropriate district office before the relocation. The notice must 
include the new address of the main office and the effective date of the 
relocation.
    (2) To any other location. To relocate its main office to any other 
location, a national bank shall file an application to relocate with the 
appropriate district office. If relocating the main office outside the 
limits of its city, town, or village, a national bank shall also:
    (i) Obtain the approval of shareholders owning two-thirds of the 
voting stock of the bank; and
    (ii) Amend its articles of association.
    (3) Establishment of a branch at site of former main office. A 
national bank desiring to establish a branch at its former main office 
location shall obtain OCC approval pursuant to the standards of Sec. 
5.30.
    (4) Expedited review. A main office relocation application submitted 
by an eligible bank under paragraph (d)(2) of this section is deemed 
approved by the OCC as of the 15th day after the close of the public 
comment period or the 45th day after the filing is received by the OCC, 
whichever is later, unless the OCC notifies the bank prior to that time 
that the filing is not eligible for expedited review, or the expedited 
review period is extended, under Sec. 5.13(a)(2).
    (5) Exceptions to rules of general applicability. (i) Sections 5.8, 
5.9, 5.10, and 5.11 do not apply to a main office relocation to an 
authorized branch location within the limits of the city, town, or 
village as described in paragraph (d)(1) of this section. However, if 
the OCC concludes that the notice under paragraph (d)(1) of this section 
presents a significant and novel policy, supervisory, or legal issue, 
the OCC may determine that any or all parts of Sec. Sec. 5.8, 5.9, 
5.10, and 5.11 apply.
    (ii) The comment period on any application filed under paragraph 
(d)(2) of this section to engage in a short-distance relocation of a 
main office is 15 days.
    (e) Expiration of approval. Approval expires if the national bank 
has not opened its main office at the relocated site within 18 months of 
the date of approval.



Sec. 5.42  Corporate title.

    (a) Authority. 12 U.S.C. 21a, 30, and 93a.
    (b) Scope. This section describes the method by which a national 
bank may change its corporate title.
    (c) Standards. A national bank may change its corporate title 
provided that

[[Page 161]]

the new title includes the word ``national'' and complies with other 
applicable Federal laws, including 18 U.S.C. 709, regarding false 
advertising and the misuse of names to indicate a Federal agency, and 
any applicable OCC guidance.
    (d) Procedures--(1) Notice process. A national bank shall promptly 
notify the appropriate district office if it changes its corporate 
title. The notice must contain the old and new titles and the effective 
date of the change.
    (2) Amendment to articles of association. A national bank whose 
corporate title is specified in its articles of association shall amend 
its articles, in accordance with the procedures of 12 U.S.C. 21a, to 
change its title.
    (3) Exceptions to rules of general applicability. Sections 5.8, 5.9, 
5.10, 5.11, and 5.13(a) do not apply to a national bank's change of 
corporate title. However, if the OCC concludes that the application 
presents a significant and novel policy, supervisory, or legal issue, 
the OCC may determine that any or all parts of Sec. Sec. 5.8, 5.9, 
5.10, 5.11, and 5.13(a) apply.



Sec. 5.46  Changes in permanent capital.

    (a) Authority. 12 U.S.C. 21a, 51, 51a, 51b, 51b-1, 52, 56, 57, 59, 
60, and 93a.
    (b) Licensing requirements. A national bank shall submit an 
application and obtain OCC approval to decrease its permanent capital. 
Generally, a national bank need only submit a notice to increase its 
permanent capital, although, in certain circumstances, a national bank 
shall be required to submit an application and obtain OCC approval.
    (c) Scope. This section describes procedures and standards relating 
to a transaction resulting in a change in a national bank's permanent 
capital.
    (d) Exceptions to rules of general applicability. Sections 5.8, 
5.10, and 5.11 do not apply to changes in a national bank's permanent 
capital.
    (e) Definitions. For the purposes of this section the following 
definitions apply:
    (1) Capital plan means a plan describing the manner and schedule by 
which a national bank will attain specified capital levels or ratios, 
including a plan to achieve minimum capital ratios filed with the 
appropriate district office under 12 CFR 3.7 and a capital restoration 
plan filed with the OCC under 12 U.S.C. 1831o and 12 CFR 6.5.
    (2) Capital stock means the total amount of common stock and 
preferred stock.
    (3) Capital surplus means the total of:
    (i) The amount paid in on capital stock in excess of the par or 
stated value;
    (ii) Direct capital contributions representing the amounts paid in 
to the national bank other than for capital stock;
    (iii) The amount transferred from undivided profits required by 12 
U.S.C. 60; and
    (iv) The amount transferred from undivided profits reflecting stock 
dividends.
    (4) Permanent capital means the sum of capital stock and capital 
surplus.
    (f) Policy. In determining whether to approve a proposed change to a 
national bank's permanent capital, the OCC considers whether the change 
is:
    (1) Consistent with law, regulation, and OCC policy thereunder;
    (2) Provides an adequate capital structure; and
    (3) If appropriate, complies with the bank's capital plan.
    (g) Increases in permanent capital--(1) Prior approval--(i) 
Criteria. A national bank need not obtain prior OCC approval to increase 
its permanent capital unless the bank is:
    (A) Required to receive OCC approval pursuant to letter, order, 
directive, written agreement or otherwise;
    (B) Selling common or preferred stock for consideration other than 
cash; or
    (C) Receiving a material noncash contribution to capital surplus.
    (ii) Application and letter of notification. A national bank that 
proposes to increase its permanent capital and that must receive OCC 
approval under paragraph (g)(1)(i) of this section shall file an 
application under paragraph (i)(1) of this section and a letter of 
notification under paragraph (i)(3) of this section. A national bank not 
required to obtain prior approval under paragraph (g)(1)(i)

[[Page 162]]

of this section for an increase in capital shall file only the letter of 
notification under paragraph (i)(3) of this section.
    (2) Preferred stock. Notwithstanding paragraph (g)(1)(i) of this 
section, in the case of a sale of preferred stock, the national bank 
shall also submit provisions in the articles of association concerning 
preferred stock dividends, voting and conversion rights, retirement of 
the stock, and rights to exercise control over management to the 
appropriate district office prior to the sale of the preferred stock. 
The provisions will be deemed approved by the OCC within 30 days of its 
receipt, unless the OCC notifies the applicant otherwise, including a 
statement of the reason for the delay.
    (h) Decreases in permanent capital. A national bank shall submit an 
application and obtain prior approval under paragraph (i)(1) or (i)(2) 
of this section for any reduction of its permanent capital.
    (i) Procedures--(1) Prior approval. A national bank proposing to 
make a change in its permanent capital that requires prior OCC approval 
under paragraphs (g) or (h) of this section shall submit an application 
to the appropriate district office. The application must:
    (i) Describe the type and amount of the proposed change in permanent 
capital and explain the reason for the change;
    (ii) In the case of a reduction in capital, provide a schedule 
detailing the present and proposed capital structure;
    (iii) In the case of a material noncash contribution to capital, 
provide a description of the method of valuing the contribution; and
    (iv) State if the bank is subject to a capital plan with the OCC and 
how the proposed change would conform to a capital plan or if a capital 
plan is otherwise required in connection with the proposed change in 
permanent capital.
    (2) Expedited review. An eligible bank's application is deemed 
approved by the OCC 30 days after the date the OCC receives the 
application described in paragraph (i)(1) of this section, unless the 
OCC notifies the bank prior to that date that the application is not 
eligible for expedited review under Sec. 5.13(a)(2). A bank seeking to 
decrease its capital may request OCC approval for up to four consecutive 
quarters. An eligible bank may decrease its capital pursuant to such a 
plan only if the bank maintains its eligible bank status before and 
after each decrease in its capital.
    (3) Letter of notification. After a bank completes an increase in 
capital it shall submit a letter of notification to the appropriate 
district office in order to obtain a certification from the OCC. The 
proposed change is deemed approved by the OCC and certified seven days 
after the date on which the OCC receives the letter of notification. The 
letter of notification must be acknowledged before a notary public by 
the bank's president, vice president, or cashier and contain:
    (i) A description of the transaction, unless already provided 
pursuant to paragraph (i)(1) of this section;
    (ii) The amount, including the par value of the stock, and effective 
date of the increase;
    (iii) A certification that the funds have been paid in, if 
applicable;
    (iv) A certified copy of the amendment to the articles of 
association, if required; and
    (v) A statement that the bank has complied with all laws, 
regulations and conditions imposed by the OCC.
    (4) Notice process. A national bank that decreases its capital in 
accordance with paragraphs (i)(1) or (i)(2) of this section shall notify 
the appropriate district office following the completion of the 
transaction.
    (5) Expiration of approval. Approval expires if a national bank has 
not completed its change in permanent capital within one year of the 
date of approval.
    (j) Offers and sales of stock. A national bank shall comply with the 
Securities Offering Disclosure Rules in 12 CFR part 16 for offers and 
sales of common and preferred stock.
    (k) Shareholder approval. A national bank shall obtain the necessary 
shareholder approval required by statute for any change in its permanent 
capital.



Sec. 5.47  Subordinated debt as capital.

    (a) Authority. 12 U.S.C. 93a.
    (b) Licensing requirements. A national bank does not need prior OCC 
approval

[[Page 163]]

to issue subordinated debt, or to prepay subordinated debt (including 
payment pursuant to an acceleration clause or redemption prior to 
maturity) provided the bank remains an eligible bank after the 
transaction, unless the OCC has previously notified the bank that prior 
approval is required, or unless prior approval is required by law. No 
prior approval is required for the bank to count the subordinated debt 
as Tier 2 or Tier 3 capital. However, a bank issuing subordinated debt 
shall notify the OCC after issuance if the debt is to be counted as Tier 
2 or Tier 3 capital.
    (c) Scope. This section sets forth the procedures for OCC review and 
approval of an application to issue or prepay subordinated debt.
    (d) Definitions--(1) Capital plan means a plan describing the means 
and schedule by which a national bank will attain specified capital 
levels or ratios, including a plan to achieve minimum capital ratios 
filed with the appropriate district office under 12 CFR 3.7 and a 
capital restoration plan filed with the OCC under 12 U.S.C. 1831o and 12 
CFR 6.5.
    (2) Tier 2 capital has the same meaning as set forth in 12 CFR 
3.2(d).
    (3) Tier 3 capital has the same meaning as set forth in 12 CFR part 
3, appendix B, section 2(d).
    (e) Qualification as regulatory capital. (1) A national bank's 
subordinated debt qualifies as Tier 2 capital if the subordinated debt 
meets the requirements in 12 CFR part 3, appendix A, section 2(b)(4), 
and complies with the ``OCC Guidelines for Subordinated Debt'' in the 
Manual.
    (2) A national bank's subordinated debt qualifies as Tier 3 capital 
if the subordinated debt meets the requirements in 12 CFR part 3, 
section 2(d) of Appendix B.
    (3) If the OCC notifies a national bank that it must obtain OCC 
approval before issuing subordinated debt, the subordinated debt will 
not qualify as Tier 2 or Tier 3 capital until the bank obtains OCC 
approval for its inclusion in capital.
    (f) Prior approval procedure--(1) Application. A national bank 
required to obtain OCC approval before issuing or prepaying subordinated 
debt shall submit an application to the appropriate district office. The 
application must include:
    (i) A description of the terms and amount of the proposed issuance 
or prepayment;
    (ii) A statement of whether the bank is subject to a capital plan or 
required to file a capital plan with the OCC and, if so, how the 
proposed change conforms to the capital plan;
    (iii) A copy of the proposed subordinated note format and note 
agreement; and
    (iv) A statement of whether the subordinated debt issue complies 
with all laws, regulations, and the ``OCC Guidelines for Subordinated 
Debt'' in the Manual.
    (2) Approval--(i) General. The application is deemed approved by the 
OCC as of the 30th day after the filing is received by the OCC, unless 
the OCC notifies the bank prior to that date that the filing presents a 
significant supervisory, or compliance concern, or raises a significant 
legal or policy issue.
    (ii) Tier 2 and Tier 3 capital. When the OCC notifies the bank that 
the OCC approves the bank's application to issue or prepay the 
subordinated debt, it also notifies the bank whether the subordinated 
debt qualifies as Tier 2 or Tier 3 capital.
    (iii) Expiration of approval. Approval expires if a national bank 
does not complete the sale of the subordinated debt within one year of 
approval.
    (g) Notice procedure. If a national bank is not required to obtain 
approval before issuing subordinated debt, the bank shall notify the 
appropriate district office in writing within ten days after issuing 
subordinated debt that is to be counted as Tier 2 or Tier 3 capital. The 
notice must include:
    (1) The terms of the issuance;
    (2) The amount and date of receipt of funds;
    (3) A copy of the final subordinated note format and note agreement; 
and
    (4) A statement that the issue complies with all laws, regulations, 
and the ``OCC Guidelines for Subordinated Debt Instruments'' in the 
Manual.
    (h) Exceptions to rules of general applicability. Sections 5.8, 
5.10, and 5.11 do

[[Page 164]]

not apply to the issuance of subordinated debt.
    (i) Issuance of subordinated debt. A national bank shall comply with 
the Securities Offering Disclosure Rules in 12 CFR part 16 when issuing 
subordinated debt even if the bank is not required to obtain prior 
approval to issue subordinated debt.



Sec. 5.48  Voluntary liquidation.

    (a) Authority. 12 U.S.C. 93a, 181, and 182.
    (b) Licensing requirements. A national bank considering going into 
voluntary liquidation shall notify the OCC. The bank shall also file a 
notice with the OCC once a liquidation plan is definite.
    (c) Exceptions to rules of general applicability. Sections 5.8, 
5.10, and 5.11 do not apply to a voluntary liquidation. However, if the 
OCC concludes that the notice presents significant and novel policy, 
supervisory or legal issues, the OCC may determine that any or all parts 
of Sec. Sec. 5.8, 5.10, and 5.11 apply.
    (d) Standards. A national bank may liquidate in accordance with the 
terms of 12 U.S.C. 181 and 182.
    (e) Procedure--(1) Notice of voluntary liquidation. When the 
shareholders of a solvent national bank have voted to voluntarily 
liquidate, the bank shall file a notice with the appropriate district 
office and publish public notice in accordance with 12 U.S.C. 182.
    (2) Report of condition. The liquidating bank shall submit reports 
of the condition of its commercial, trust, and other departments to the 
appropriate district office by filing the quarterly Consolidated Reports 
of Condition and Income (Call Reports).
    (3) Report of progress. The liquidating agent or committee shall 
submit a ``Report of Progress of Liquidation'' annually to the 
appropriate district office until the liquidation is complete.
    (f) Expedited liquidations in connection with acquisitions--(1) 
General. When an acquiring depository institution in a business 
combination purchases all the assets, and assumes all the liabilities, 
including contingent liabilities, of a target national bank, the 
acquiring depository institution may dissolve the target national bank 
immediately after the combination. However, if any liabilities will 
remain in the target national bank, then the standard liquidation 
procedures apply.
    (2) Procedure. After its shareholders have voted to liquidate and 
the national bank has notified the appropriate district office of its 
plans, the bank may surrender its charter and dissolve immediately, if:
    (i) The acquiring depository institution certifies to the OCC that 
it has purchased all the assets and assumed all the liabilities, 
including contingent liabilities, of the national bank in liquidation; 
and
    (ii) The acquiring depository institution and the national bank in 
liquidation have published notice that the bank will dissolve after the 
purchase and assumption to the acquiror. This is included in the notice 
and publication for the purchase and assumption required under the Bank 
Merger Act, 12 U.S.C. 1828(c).
    (g) National bank as acquiror. If another national bank plans to 
acquire a national bank in liquidation through merger or through the 
purchase of the assets and the assumption of the liabilities of the bank 
in liquidation, the acquiring bank shall comply with the Bank Merger 
Act, 12 U.S.C. 1828(c), and Sec. 5.33.



Sec. 5.50  Change in bank control; reporting of stock loans.

    (a) Authority. 12 U.S.C. 93a and 1817(j).
    (b) Licensing requirements. Any person seeking to acquire control of 
a national bank shall provide 60 days prior written notice of a change 
in control to the OCC, except where otherwise provided in this section.
    (c) Scope--(1) General. This section describes the procedures and 
standards governing OCC review of notices for a change in control of a 
national bank and reports of stock loans.
    (2) Exempt transactions. The following transactions are not subject 
to the requirements of this section:
    (i) The acquisition of additional shares of a national bank by a 
person who:
    (A) Has, continuously since March 9, 1979, (or since that 
institution commenced business, if later) held power to vote 25 percent 
or more of the voting securities of that bank; or

[[Page 165]]

    (B) Under paragraph (f)(2)(ii) of this section, would be presumed to 
have controlled that bank continuously since March 9, 1979, if the 
transaction will not result in that person's direct or indirect 
ownership or power to vote 25 percent or more of any class of voting 
securities of the national bank; or, in other cases, where the OCC 
determines that the person has controlled the bank continuously since 
March 9, 1979;
    (ii) Unless the OCC otherwise provides in writing, the acquisition 
of additional shares of a national bank by a person who has lawfully 
acquired and maintained continuous control of the bank under paragraph 
(f) of this section after complying with the procedures and filing the 
notice required by this section;
    (iii) A transaction subject to approval under section 3 of the Bank 
Holding Company Act, 12 U.S.C. 1842, section 18 of Federal Deposit 
Insurance Act, 12 U.S.C. 1828, or section 10 of the Home Owners' Loan 
Act, 12 U.S.C. 1467a;
    (iv) Any transaction described in section 2(a)(5) or 3(a) (A) or (B) 
of the Bank Holding Company Act, 12 U.S.C. 1841(a)(5) and 1842(a) (A) 
and (B), by a person described in those provisions;
    (v) A customary one-time proxy solicitation or receipt of pro rata 
stock dividends; and
    (vi) The acquisition of shares of a foreign bank that has a 
Federally licensed branch in the United States. This exemption does not 
extend to the reports and information required under paragraph (h) of 
this section.
    (3) Prior notice exemption. The following transactions are not 
subject to the prior notice requirements of this section but are 
otherwise subject to this section, including filing a notice and paying 
the appropriate filing fee, within 90 calendar days after the 
transaction occurs:
    (i) The acquisition of control as a result of acquisition of voting 
shares of a national bank through testate or intestate succession;
    (ii) The acquisition of control as a result of acquisition of voting 
shares of a national bank as a bona fide gift;
    (iii) The acquisition of voting shares of a national bank resulting 
from a redemption of voting securities;
    (iv) The acquisition of control of a national bank as a result of 
actions by third parties (including the sale of securities) that are not 
within the control of the acquiror; and
    (v) The acquisition of control as a result of the acquisition of 
voting shares of a national bank in satisfaction of a debt previously 
contracted in good faith.
    (A) ``Good faith'' means that a person must either make or acquire a 
loan secured by voting securities of a national bank in advance of any 
known default. A person who purchases a previously defaulted loan 
secured by voting securities of a national bank may not rely on this 
paragraph (c)(3)(v) to foreclose on that loan, seize or purchase the 
underlying collateral, and acquire control of the national bank without 
complying with the prior notice requirements of this section.
    (B) To ensure compliance with this section, the acquiror of a 
defaulted loan secured by a controlling amount of a national bank's 
voting securities shall file a notice prior to the time the loan is 
acquired unless the acquiror can demonstrate to the satisfaction of the 
OCC that the voting securities are not the anticipated source of 
repayment for the loan.
    (d) Definitions. As used in this section:
    (1) Acquisition includes a purchase, assignment, transfer, or pledge 
of voting securities, or an increase in percentage ownership of a 
national bank resulting from a redemption of voting securities.
    (2) Acting in concert means:
    (i) Knowing participation in a joint activity or parallel action 
towards a common goal of acquiring control whether or not pursuant to an 
express agreement; or
    (ii) A combination or pooling of voting or other interests in the 
securities of an issuer for a common purpose pursuant to any contract, 
understanding, relationship, agreement, or other arrangement, whether 
written or otherwise.

[[Page 166]]

    (3) Control means the power, directly or indirectly, to direct the 
management or policies of a national bank or to vote 25 percent or more 
of any class of voting securities of a national bank.
    (4) Notice means a filing by a person in accordance with paragraph 
(f) of this section.
    (5) Person means an individual or a corporation, partnership, trust, 
association, joint venture, pool, syndicate, sole proprietorship, 
unincorporated organization, or any other form of entity, and includes 
voting trusts and voting agreements and any group of persons acting in 
concert.
    (6) Voting securities means:
    (i) Shares of common or preferred stock, or similar interests, if 
the shares or interests, by statute, charter, or in any manner, allow 
the holder to vote for or select directors (or persons exercising 
similar functions) of the issuing national bank, or to vote on or to 
direct the conduct of the operations or other significant policies of 
the issuing national bank. However, preferred stock or similar interests 
are not voting securities if:
    (A) Any voting rights associated with the shares or interests are 
limited solely to voting rights customarily provided by statute 
regarding matters that would significantly affect the rights or 
preference of the security or other interest. This includes the issuance 
of additional amounts of classes of senior securities, the modification 
of the terms of the security or interest, the dissolution of the issuing 
national bank, or the payment of dividends by the issuing national bank 
when preferred dividends are in arrears;
    (B) The shares or interests are a passive investment or financing 
device and do not otherwise provide the holder with control over the 
issuing national bank; and
    (C) The shares or interests do not allow the holder by statute, 
charter, or in any manner, to select or to vote for the selection of 
directors (or persons exercising similar functions) of the issuing 
national bank.
    (ii) Securities, other instruments, or similar interests that are 
immediately convertible, at the option of the owner or holder thereof, 
into voting securities.
    (e) Policy--(1) General. The OCC seeks to enhance and maintain 
public confidence in the banking system by preventing a change in 
control of a national bank that could have serious adverse effects on a 
bank's financial stability or management resources, the interests of the 
bank's customers, the Federal deposit insurance fund, or competition.
    (2) Acquisitions subject to the Bank Holding Company Act. (i) If 
corporations, partnerships, certain trusts, associations, and similar 
organizations, that are not already bank holding companies, are not 
required to secure prior Federal Reserve Board approval to acquire 
control of a bank under section 3 of the Bank Holding Company Act, 12 
U.S.C. 1842, they are subject to the notice requirements of this 
section.
    (ii) Certain transactions, including foreclosures by depository 
institutions and other institutional lenders, fiduciary acquisitions by 
depository institutions, and increases of majority holdings by bank 
holding companies, are described in sections 2(a)(5)(D) and 3(a) (A) and 
(B) of the Bank Holding Company Act, 12 U.S.C. 1841(a)(5)(D) and 12 
U.S.C. 1842(a) (A) and (B), but do not require the Federal Reserve 
Board's prior approval. For purposes of this section, they are 
considered subject to section 3 of the Bank Holding Company Act, 12 
U.S.C 1842, and do not require either a prior or subsequent notice to 
the OCC under this section.
    (3) Assessing financial condition. In assessing the financial 
condition of the acquiring person, the OCC weighs any debt servicing 
requirements in light of the acquiring person's overall financial 
strength; the institution's earnings performance, asset condition, 
capital adequacy, and future prospects; and the likelihood of the 
acquiring party making unreasonable demands on the resources of the 
institution.
    (f) Procedures--(1) Exceptions to rules of general applicability. 
Sections 5.8(a), 5.9, 5.10, 5.11, and 5.13(a) through (f) do not apply 
to filings under this section.
    (2) Who must file. (i) Any person seeking to acquire the power, 
directly or indirectly, to direct the management or policies, or to vote 
25 percent or more

[[Page 167]]

of a class of voting securities of a national bank, shall file a notice 
with the OCC 60 days prior to the proposed acquisition, unless the 
acquisition is exempt under paragraph (c)(2) of this section.
    (ii) The OCC presumes, unless rebutted, that an acquisition or other 
disposition of voting securities through which any person proposes to 
acquire ownership of, or the power to vote, ten percent or more of a 
class of voting securities of a national bank is an acquisition by a 
person of the power to direct the bank's management or policies if:
    (A) The securities to be acquired or voted are subject to the 
registration requirements of section 12 of the Securities Exchange Act 
of 1934, 15 U.S.C. 78l; or
    (B) Immediately after the transaction no other person will own or 
have the power to vote a greater proportion of that class of voting 
securities.
    (iii) Other transactions resulting in a person's control of less 
than 25 percent of a class of voting securities of a national bank are 
not deemed by the OCC to result in control for purposes of this section.
    (iv) If two or more persons, not acting in concert, each propose to 
acquire simultaneously equal percentages of ten percent or more of a 
class of a national bank's voting securities, and either the 
acquisitions are of a class of securities subject to the registration 
requirements of section 12 of the Securities Exchange Act of 1934, 15 
U.S.C. 78l, or immediately after the transaction no other shareholder of 
the national bank would own or have the power to vote a greater 
percentage of the class, each of the acquiring persons shall either file 
a notice or rebut the presumption of control.
    (v) An acquiring person may seek to rebut the presumption 
established in paragraph (f)(2)(ii) of this section by presenting 
relevant information in writing to the appropriate district office. The 
OCC shall respond in writing to any person that seeks to rebut the 
presumption of control. No rebuttal filing is effective unless the OCC 
indicates in writing that the information submitted has been found to be 
sufficient to rebut the presumption of control.
    (3) Filings. (i) The OCC does not accept a notice of a change in 
control unless it is technically complete, i.e., the information 
provided is responsive to every item listed in the notice form and is 
accompanied by the appropriate fee.
    (A) The notice must contain personal and biographical information, 
detailed financial information, details of the proposed change in 
control, information on any structural or managerial changes 
contemplated for the institution, and other relevant information 
required by the OCC. The OCC may waive any of the informational 
requirements of the notice if the OCC determines that it is in the 
public interest.
    (B) When the acquiring person is an individual, or group of 
individuals acting in concert, the requirement to provide personal 
financial data may be satisfied with a current statement of assets and 
liabilities and an income summary, together with a statement of any 
material changes since the date of the statement or summary. However, 
the OCC may require additional information, if appropriate.
    (ii) The OCC has 60 days from the date it declares the notice to be 
technically complete to review the notice.
    (A) When the OCC declares a notice technically complete, the 
appropriate district office sends a letter of acknowledgment to the 
applicant indicating the technically complete date.
    (B) As set forth in paragraph (g) of this section, the applicant 
shall publish an announcement within 10 days of filing the notice with 
the OCC. The publication of the announcement triggers a 20-day public 
comment period. The OCC may waive or shorten the public comment period 
if an emergency exists. The OCC also may shorten the comment period for 
other good cause. The OCC may act on a proposed change in control prior 
to the expiration of the public comment period if the OCC makes a 
written determination that an emergency exists.
    (C) An applicant shall notify the OCC immediately of any material 
changes in a notice submitted to the OCC, including changes in financial 
or other

[[Page 168]]

conditions, that may affect the OCC's decision on the filing.
    (iii) Within the 60-day period, the OCC may inform the applicant 
that the acquisition has been disapproved, has not been disapproved, or 
that the OCC will extend the 60-day review period. The applicant may 
request a hearing by the OCC within 10 days of receipt of a disapproval 
(see 12 CFR part 19, subpart H, for hearing initiation procedures). 
Following final agency action under 12 CFR part 19, further review by 
the courts is available.
    (4) Disapproval of notice. The OCC may disapprove a notice if it 
finds that any of the following factors exist:
    (i) The proposed acquisition of control would result in a monopoly 
or would be in furtherance of any combination or conspiracy to 
monopolize or to attempt to monopolize the business of banking in any 
part of the United States;
    (ii) The effect of the proposed acquisition of control in any 
section of the country may be substantially to lessen competition or to 
tend to create a monopoly or the proposed acquisition of control would 
in any other manner be in restraint of trade, and the anticompetitive 
effects of the proposed acquisition of control are not clearly 
outweighed in the public interest by the probable effect of the 
transaction in meeting the convenience and needs of the community to be 
served;
    (iii) The financial condition of any acquiring person is such as 
might jeopardize the financial stability of the bank or prejudice the 
interests of the depositors of the bank;
    (iv) The competence, experience, or integrity of any acquiring 
person, or of any of the proposed management personnel, indicates that 
it would not be in the interest of the depositors of the bank, or in the 
interest of the public, to permit that person to control the bank;
    (v) An acquiring person neglects, fails, or refuses to furnish the 
OCC all the information it requires; or
    (vi) The OCC determines that the proposed transaction would result 
in an adverse effect on the Bank Insurance Fund or the Savings 
Association Insurance Fund.
    (5) Disapproval notification. If the OCC disapproves a notice, it 
mails a written notification to the proposed acquiring person within 
three days after the decision containing a statement of the basis for 
disapproval.
    (g) Disclosure--(1) Announcement. The applicant shall publish an 
announcement in a newspaper of general circulation in the community 
where the affected national bank is located within ten days of filing. 
The OCC may authorize a delayed announcement if an immediate 
announcement would not be in the public interest.
    (i) In addition to the information required by Sec. 5.8(b), the 
announcement must include the name of the national bank named in the 
notice and the comment period (i.e., 20 days from the date of the 
announcement). The announcement also must state that the public portion 
of the notice is available upon request.
    (ii) Notwithstanding any other provisions of this paragraph (g), if 
the OCC determines in writing that an emergency exists and that the 
announcement requirements of this paragraph (g) would seriously threaten 
the safety and soundness of the national bank to be acquired, including 
situations where the OCC must act immediately in order to prevent the 
probable failure of a national bank, the OCC may waive or shorten the 
publication requirement.
    (2) Release of information. (i) Upon the request of any person, the 
OCC releases the information provided in the public portion of the 
notice and makes it available for public inspection and copying as soon 
as possible after a notice has been filed. In certain circumstances the 
OCC may determine that the release of the information would not be in 
the public interest. In addition, the OCC makes a public announcement of 
a technically complete notice, the disposition of the notice, and the 
consummation date of the transaction, if applicable, in the OCC's 
``Weekly Bulletin.''
    (ii) The OCC handles requests for the non-public portion of the 
notice as requests under the Freedom of Information Act, 5 U.S.C. 552, 
and other applicable law.
    (h) Reporting of stock loans--(1) Requirements. (i) Any foreign 
bank, or any

[[Page 169]]

affiliate thereof, shall file a consolidated report with the appropriate 
district office of the national bank if the foreign bank or any 
affiliate thereof, has credit outstanding to any person or group of 
persons that, in the aggregate, is secured, directly or indirectly, by 
25 percent or more of any class of voting securities of the same 
national bank.
    (ii) The foreign bank, or any affiliate thereof, shall also file a 
copy of the report with its appropriate district office if that office 
is different from the national bank's appropriate district office. If 
the foreign bank, or any affiliate thereof, is not supervised by the 
OCC, it shall file a copy of the report filed with the OCC with its 
appropriate Federal banking agency.
    (iii) Any shares of the national bank held by the foreign bank, or 
any affiliate thereof, as principal must be included in the calculation 
of the number of shares in which the foreign bank or any affiliate 
thereof has a security interest for purposes of paragraph (h)(1)(i) of 
this section.
    (2) Definitions. For purposes of this paragraph (h):
    (i) Foreign bank and affiliate have the same meanings as in section 
1 of the International Banking Act of 1978, 12 U.S.C. 3101.
    (ii) Credit outstanding includes any loan or extension of credit; 
the issuance of a guarantee, acceptance, or letter of credit, including 
an endorsement or standby letter of credit; and any other type of 
transaction that extends credit or financing to a person or group of 
persons.
    (iii) Group of persons includes any number of persons that a foreign 
bank, or an affiliate thereof, has reason to believe:
    (A) Are acting together, in concert, or with one another to acquire 
or control shares of the same insured national bank, including an 
acquisition of shares of the same national bank at approximately the 
same time under substantially the same terms; or
    (B) Have made, or propose to make, a joint filing under 15 U.S.C. 
78m regarding ownership of the shares of the same depository 
institution.
    (3) Exceptions. Compliance with paragraph (h)(1) of this section is 
not required if:
    (i) The person or group of persons referred to in paragraph (h)(1) 
of this section has disclosed the amount borrowed and the security 
interest therein to the appropriate district office in connection with a 
notice filed under this section or any other application filed with the 
appropriate district office as a substitute for a notice under this 
section, such as for a national bank charter; or
    (ii) The transaction involves a person or group of persons that has 
been the owner or owners of record of the stock for a period of one year 
or more or, if the transaction involves stock issued by a newly 
chartered bank, before the bank's opening.
    (4) Report requirements. (i) The consolidated report must indicate 
the number and percentage of shares securing each applicable extension 
of credit, the identity of the borrower, and the number of shares held 
as principal by the foreign bank and any affiliate thereof.
    (ii) The foreign bank and all affiliates thereof shall file the 
consolidated report in writing within 30 days of the date on which the 
foreign bank or affiliate thereof first believes that the security for 
any outstanding credit consists of 25 percent or more of any class of 
voting securities of a national bank.
    (5) Other reporting requirements. A foreign bank or any affiliate 
thereof, supervised by the OCC and required to report credit outstanding 
secured by the shares of a depository institution to another Federal 
banking agency also shall file a copy of the report with its appropriate 
district office.



Sec. 5.51  Changes in directors and senior executive officers.

    (a) Authority. 12 U.S.C. 1831i.
    (b) Scope. This section describes the circumstances when a national 
bank must notify the OCC of a change in its directors and senior 
executive officers, and the OCC's authority to disapprove those notices.
    (c) Definitions--(1) Director means a person who serves on the board 
of directors of a national bank except:
    (i) A director of a foreign bank that operates a Federal branch; and

[[Page 170]]

    (ii) An advisory director who does not have the authority to vote on 
matters before the board of directors and provides solely general policy 
advice to the board of directors.
    (2) National bank, as defined in Sec. 5.3(j), includes a Federal 
branch for purposes of this section only.
    (3) Senior executive officer means the chief executive officer, 
chief operating officer, chief financial officer, chief lending officer, 
chief investment officer, and any other individual the OCC identifies to 
the national bank who exercises significant influence over, or 
participates in, major policy making decisions of the bank without 
regard to title, salary, or compensation. The term also includes 
employees of entities retained by a national bank to perform such 
functions in lieu of directly hiring the individuals, and, with respect 
to a Federal branch operated by a foreign bank, the individual 
functioning as the chief managing official of the Federal branch.
    (4) Technically complete notice means a notice that provides all the 
information requested in paragraph (e)(2) of this section, including 
complete explanations where material issues arise regarding the 
competence, experience, character, or integrity of proposed directors or 
senior executive officers, and any additional information that the OCC 
may request following a determination that the original submission of 
the notice was not technically complete.
    (5) Technically complete notice date means the date on which the OCC 
has received a technically complete notice.
    (6) Troubled condition means a national bank that:
    (i) Has a composite rating of 4 or 5 under the Uniform Financial 
Institutions Rating System (CAMELS);
    (ii) Is subject to a cease and desist order, a consent order, or a 
formal written agreement, unless otherwise informed in writing by the 
OCC; or
    (iii) Is informed in writing by the OCC that as a result of an 
examination it has been designated in ``troubled condition'' for 
purposes of this section.
    (d) Prior notice. A national bank shall provide written notice to 
the OCC at least 90 days before adding or replacing any member of its 
board of directors, employing any person as a senior executive officer 
of the national bank, or changing the responsibilities of any senior 
executive officer so that the person would assume a different executive 
officer position, if:
    (1) The national bank is not in compliance with minimum capital 
requirements applicable to such institution, as prescribed in 12 CFR 
part 3, or is otherwise in troubled condition; or
    (2) The OCC determines, in connection with the review by the agency 
of the plan required under section 38 of the Federal Deposit Insurance 
Act, 12 USC 1831o, or otherwise, that such prior notice is appropriate.
    (e) Procedures--(1) Filing notice. A national bank shall file a 
notice with its appropriate supervisory office. When a national bank 
files a notice, the individual to whom the filing pertains shall attest 
to the validity of the information pertaining to that individual. The 
90-day review period begins on the technically complete notice date.
    (2) Content of notice. A notice must contain the identity, personal 
history, business background, and experience of each person whose 
designation as a director or senior executive officer is subject to this 
section. The notice must include:
    (i) A description of his or her material business activities and 
affiliations during the five years preceding the date of the notice;
    (ii) A description of any material pending legal or administrative 
proceedings to which he or she is a party;
    (iii) Any criminal indictment or conviction by a state or Federal 
court; and
    (iv) Legible fingerprints of the person, except that fingerprints 
are not required for any person who, within the three years immediately 
preceding the date of the present notice, has been subject to a notice 
filed with the OCC pursuant to section 32 of the FDIA, 12 U.S.C. 1831i, 
or this section and has previously submitted fingerprints.
    (3) Requests for additional information. Following receipt of a 
technically complete notice, the OCC may request additional information, 
in writing where feasible, and may specify a time period during which 
the information must be provided.

[[Page 171]]

    (4) Notice of disapproval. The OCC may disapprove an individual 
proposed as a member of the board of directors or as a senior executive 
officer if the OCC determines on the basis of the individual's 
competence, experience, character, or integrity that it would not be in 
the best interests of the depositors of the national bank or the public 
to permit the individual to be employed by, or associated with, the 
national bank. The OCC sends a notice of disapproval to both the 
national bank and the disapproved individual stating the basis for 
disapproval.
    (5) Notice of intent not to disapprove. An individual proposed as a 
member of the board of directors or as a senior executive officer may 
begin service before the expiration of the review period if the OCC 
notifies the national bank that the OCC does not disapprove the proposed 
director or senior executive officer.
    (6) Waiver of prior notice. (i) A national bank may send a letter to 
the appropriate supervisory office requesting a waiver of the prior 
notice requirement. The OCC may waive the prior notice requirement but 
not the filing required under this section. The OCC may grant a waiver 
if it finds that delay could harm the national bank or the public 
interest, or that other extraordinary circumstances justify waiving the 
prior notice requirement. The length of any waiver depends on the 
circumstances in each case. If the OCC grants a waiver, the national 
bank shall file the required notice within the time period specified in 
the waiver, and the proposed individual may assume the position on an 
interim basis until the individual and the national bank receive a 
notice of disapproval or, if an appeal has been filed, until a notice of 
disapproval has been upheld on appeal as set forth in paragraph (f) of 
this section. If the required notice is not filed within the time period 
specified in the waiver, the proposed individual shall resign his or her 
position. Thereafter, the individual may assume the position on a 
permanent basis only after the national bank receives a notice of intent 
not to disapprove, after the review period elapses, or after a notice of 
disapproval has been overturned on appeal as set forth in paragraph (f) 
of this section. A waiver does not affect the OCC's authority to issue a 
notice of disapproval within 30 days of the expiration of such waiver.
    (ii) In the case of the election at a meeting of the shareholders of 
a new director not proposed by management, a waiver is granted 
automatically and the elected individual may begin service as a 
director. However, under these circumstances, the national bank shall 
file the required notice with the appropriate supervisory office as soon 
as practical, but not later than seven days from the date the individual 
is notified of the election. The individual's continued service is 
subject to the conditions specified in paragraph (e)(6)(i) of this 
section.
    (7) Commencement of service. An individual proposed as a member of 
the board of directors or as a senior executive officer may assume the 
office following the end of the review period, which begins on the 
technically complete notice date, unless:
    (i) The OCC issues a notice of disapproval during the review period; 
or
    (ii) The national bank does not provide additional information 
within the time period required by the OCC pursuant to paragraph (e)(3) 
of this section and the OCC deems the notice to be abandoned pursuant to 
Sec. 5.13(c).
    (8) Exceptions to rules of general applicability. Sections 5.8, 
5.10, 5.11, and 5.13 (a) through (f) do not apply to a notice for a 
change in directors and senior executive officers.
    (f) Appeal--(1) If the national bank, the proposed individual, or 
both, disagree with a disapproval, they may seek review by appealing the 
disapproval to the Comptroller, or an authorized delegate, within 15 
days of the receipt of the notice of disapproval. The national bank or 
the individual may appeal on the grounds that the reasons for 
disapproval are contrary to fact or insufficient to justify disapproval. 
The appellant shall submit all documents and written arguments that the 
appellant wishes to be considered in support of the appeal.
    (2) The Comptroller, or an authorized delegate, may designate an 
appellate official who was not previously involved in the decision 
leading to the appeal at issue. The Comptroller, an

[[Page 172]]

authorized delegate, or the appellate official considers all information 
submitted with the original notice, the material before the OCC official 
who made the initial decision, and any information submitted by the 
appellant at the time of the appeal.
    (3) The Comptroller, an authorized delegate, or the appellate 
official shall independently determine whether the reasons given for the 
disapproval are contrary to fact or insufficient to justify the 
disapproval. If either is determined to be the case, the Comptroller, an 
authorized delegate, or the appellate official may reverse the 
disapproval.
    (4) Upon completion of the review, the Comptroller, an authorized 
delegate, or the appellate official shall notify the appellant in 
writing of the decision. If the original decision is reversed, the 
individual may assume the position in the bank for which he or she was 
proposed.

[61 FR 60363, Nov. 27, 1996, as amended at 64 FR 60098, Nov. 4, 1999]



Sec. 5.52  Change of address.

    (a) Authority. 12 U.S.C. 93a, 161, and 481.
    (b) Scope. This section describes the obligation of a national bank 
to notify the OCC of any change in its address. However, no notice is 
required if the change in address results from a transaction approved 
under this part.
    (c) Notice process. Any national bank with a change in the address 
of its main office or in its post office box shall send a written notice 
to the appropriate district office.
    (d) Exceptions to rules of general applicability. Sections 5.8, 5.9, 
5.10, 5.11, and 5.13 do not apply to changes in a national bank's 
address.



Sec. 5.53  Change in asset composition.

    (a) Authority. 12 U.S.C. 93a, 1818.
    (b) Scope. This section requires a national bank to obtain the 
approval of the OCC before changing the composition of all, or 
substantially all, of its assets through sales or other dispositions, 
or, having sold or disposed of all, or substantially all, of its assets, 
through subsequent purchases or other acquisitions or other expansions 
of its operations. This section does not apply to a change in 
composition of all, or substantially all, of a bank's assets that the 
bank undertakes in response to direction from the OCC (e.g., in an 
enforcement action pursuant to 12 U.S.C. 1818) or as part of a voluntary 
liquidation pursuant to 12 U.S.C. 181 and 182 and 12 CFR 5.48, if the 
liquidating bank has stipulated in its notice of liquidation to the OCC 
that its liquidation will be completed, the bank dissolved and its 
charter returned to the OCC within one year of the date it filed this 
notice, unless the OCC extends the time period. This section does not 
apply to changes in asset composition that occur as a result of a bank's 
ordinary and ongoing business of originating and securitizing loans.
    (c) Approval requirement. (1) A national bank must file an 
application and obtain the prior written approval of the OCC before 
changing the composition of all, or substantially all, of its assets (i) 
through sales or other dispositions, or, (ii) having sold or disposed of 
all or substantially all of its assets, through subsequent purchases or 
other acquisitions or other expansions of its operations.
    (2) In determining whether to approve an application under paragraph 
(c)(1) of this section, the OCC will consider the purpose of the 
transaction, its impact on the safety and soundness of the bank, and any 
effect on the bank's customers. The OCC may deny the application if the 
transaction would have a negative effect in any of these respects. The 
OCC's review of any change in asset composition through purchase or 
other acquisition or other expansions of its operations under paragraph 
(c)(1)(ii) of this section will include, in addition to the foregoing 
factors, the factors governing the organization of a bank under Sec. 
5.20.
    (d) Exceptions to Rules of General Applicability. Sections 5.8, 
5.10, and 5.11 do not apply with respect to applications filed pursuant 
to this section. However, if the OCC concludes that an application 
presents significant or novel policy, supervisory, or legal issues, the 
OCC may determine that some or all of the provisions of Sec. Sec. 5.8, 
5.10, and 5.11 apply.

[69 FR 50297, Aug. 16, 2004]

[[Page 173]]



                     Subpart E_Payment of Dividends



Sec. 5.60  Authority, scope, and exceptions to rules of general applicability.

    (a) Authority. 12 U.S.C. 56, 60, and 93a.
    (b) Scope. Except as otherwise provided, the restrictions in this 
subpart apply to the declaration and payment of all dividends by a 
national bank, including dividends paid in property. However, the 
provisions contained in Sec. 5.64 do not apply to dividends paid in 
stock of the bank.
    (c) Exceptions to the rules of general applicability. Sections 5.8, 
5.10, and 5.11 do not apply to this subpart.



Sec. 5.61  Definitions.

    For the purposes of subpart E, the following definitions apply:
    (a) Capital stock, capital surplus, and permanent capital have the 
same meaning as set forth in Sec. 5.46.
    (b) Retained net income means the net income of a specified period 
less the total amount of all dividends declared in that period.



Sec. 5.62  Date of declaration of dividend.

    A national bank shall use the date a dividend is declared for the 
purposes of determining compliance with this subpart.



Sec. 5.63  Capital limitation under 12 U.S.C. 56.

    (a) General limitation. Except as provided by 12 U.S.C. 59 and Sec. 
5.46, a national bank may not withdraw, or permit to be withdrawn, 
either in the form of a dividend or otherwise, any portion of its 
permanent capital. Further, a national bank may not declare a dividend 
in excess of undivided profits.
    (b) Preferred stock. The provisions of 12 U.S.C. 56 do not apply to 
dividends on preferred stock. However, if the undivided profits of the 
national bank are not sufficient to cover a proposed dividend on 
preferred stock, the proposed dividend constitutes a reduction in 
capital subject to 12 U.S.C. 59 and Sec. 5.46.



Sec. 5.64  Earnings limitation under 12 U.S.C. 60.

    (a) Transfers to capital surplus. Subject to the restrictions in 12 
U.S.C. 56 and this subpart, the directors of a national bank may declare 
and pay dividends as frequently and of such amount of undivided profits 
as they judge prudent. However, a national bank may not declare a 
dividend unless capital surplus equals or exceeds the capital stock of 
the bank, except:
    (1) In the case of an annual dividend, the bank may declare a 
dividend if the bank transfers 10 percent of its net income for the 
preceding four quarters to capital surplus; or
    (2) In the case of a quarterly or semiannual dividend, or any other 
special dividend, the bank may declare a dividend if the bank transfers 
10 percent of its net income for the preceding two quarters to capital 
surplus.
    (b) Earnings limitation. For purposes of 12 U.S.C. 60, a national 
bank may not declare a dividend if the total amount of all dividends 
(common and preferred), including the proposed dividend, declared by the 
national bank in any calendar year exceeds the total of the national 
bank's retained net income of that year to date, combined with its 
retained net income of the preceding two years, unless the dividend is 
approved by the OCC. A national bank shall submit a request for OCC 
approval of a dividend under 12 U.S.C. 60 to the appropriate supervisory 
office.
    (c) Surplus surplus. Any amount in capital surplus in excess of 
capital stock required by 12 U.S.C. 60(a) (referred to as ``surplus 
surplus'') may be transferred to undivided profits and available as 
dividends, provided:
    (1) The bank can demonstrate that the surplus came from earnings of 
prior periods, excluding the effect of any stock dividend; and
    (2) The board of directors of the bank approves the transfer of the 
surplus surplus from capital surplus to undivided profits.

[61 FR 60363, Nov. 27, 1996, as amended at 64 FR 60098, Nov. 4, 1999]



Sec. 5.65  Restrictions on undercapitalized institutions.

    Notwithstanding any other provision in this subpart, a national bank 
may not declare or pay any dividend if, after making the dividend, the 
national bank would be ``undercapitalized'' as defined in 12 CFR part 6.

[[Page 174]]



Sec. 5.66  Dividends payable in property other than cash.

    In addition to cash dividends, directors of a national bank may 
declare dividends payable in property, with the approval of the OCC. 
Even though the property distributed has been previously charged down or 
written off entirely, the dividend is equivalent to a cash dividend in 
an amount equal to the actual current value of the property. Before the 
dividend is declared, the bank should show the excess of the actual 
value over book value on the books of the national bank as a recovery, 
and the dividend should then be declared in the amount of the full book 
value (equivalent to the actual current value) of the property being 
distributed.



Sec. 5.67  Fractional shares.

    To avoid complicated recordkeeping in connection with fractional 
shares, a national bank issuing additional stock by stock dividend, upon 
consolidation or merger, or otherwise, may adopt arrangements such as 
the following to preclude the issuance of fractional shares. The bank 
may:
    (a) Issue scripts or warrants for trading;
    (b) Make reasonable arrangements to provide those to whom fractional 
shares would otherwise be issued an opportunity to realize at a fair 
price upon the fraction not being issued through its sale, or the 
purchase of the additional fraction required for a full share, if there 
is an established and active market in the national bank's stock;
    (c) Remit the cash equivalent of the fraction not being issued to 
those to whom fractional shares would otherwise be issued. The cash 
equivalent is based on the market value of the stock, if there is an 
established and active market in the national bank's stock. In the 
absence of such a market, the cash equivalent is based on a reliable and 
disinterested determination as to the fair market value of the stock if 
such stock is available; or
    (d) Sell full shares representing all the fractions at public 
auction, or to the highest bidder after having solicited and received 
sealed bids from at least three licensed stock brokers. The national 
bank shall distribute the proceeds of the sale pro rata to shareholders 
who otherwise would be entitled to the fractional shares.



                 Subpart F_Federal Branches and Agencies



Sec. 5.70  Federal branches and agencies.

    (a) Authority. 12 U.S.C. 93a and 3101 et seq.
    (b) Scope. This subpart describes the filing requirements for 
corporate activities and transactions involving Federal branches and 
agencies of foreign banks. Substantive rules and policies for specific 
applications are contained in 12 CFR part 28.
    (c) Definitions. For purposes of this subpart:
    (1) To establish a Federal branch or agency means to:
    (i) Open and conduct business through an initial or additional 
Federal branch or agency;
    (ii) Acquire directly, through merger, consolidation, or similar 
transaction with another foreign bank, the operations of a Federal 
branch or agency that is open and conducting business;
    (iii) Acquire a Federal branch or agency through the acquisition of 
a foreign bank subsidiary that will cease to operate in the same 
corporate form following the acquisition;
    (iv) Convert a state branch or state agency operated by a foreign 
bank, or a commercial lending company controlled by a foreign bank, into 
a Federal branch or agency;
    (v) Relocate a Federal branch or agency within a state or from one 
state to another; or
    (vi) Convert a Federal agency or a limited Federal branch into a 
Federal branch.
    (2) Federal branch includes a limited Federal branch unless 
otherwise provided.
    (d) Filing requirements--(1) General. Unless otherwise provided in 
12 CFR part 28, a Federal branch or agency shall comply with the 
applicable requirements of this part.
    (2) Applications. A foreign bank shall submit an application and 
obtain prior approval from the OCC before it:
    (i) Establishes a Federal branch or agency; or

[[Page 175]]

    (ii) Exercises fiduciary powers at a Federal branch. A foreign bank 
may submit an application to exercise fiduciary powers at the time of 
filing an application for a Federal branch license or at any subsequent 
date.

[61 FR 60363, Nov. 27, 1996, as amended at 68 FR 70698, Dec. 19, 2003]



PART 6_PROMPT CORRECTIVE ACTION--Table of Contents




                      Subpart A_Capital Categories

Sec.
6.1 Authority, purpose, scope, and other supervisory authority.
6.2 Definitions.
6.3 Notice of capital category.
6.4 Capital measures and capital category definitions.
6.5 Capital restoration plans.
6.6 Mandatory and discretionary supervisory actions under section 38.

          Subpart B_Directives To Take Prompt Corrective Action

6.20 Scope.
6.21 Notice of intent to issue a directive.
6.22 Response to notice.
6.23 Decision and issuance of a prompt corrective action directive.
6.24 Request for modification or rescission of directive.
6.25 Enforcement of directive.

    Authority: 12 U.S.C. 93a, 1831o.

    Source: 57 FR 44891, Sept. 29, 1992, unless otherwise noted.



                      Subpart A_Capital Categories



Sec. 6.1  Authority, purpose, scope, and other supervisory authority.

    (a) Authority. This part is issued by the Office of the Comptroller 
of the Currency (OCC) pursuant to section 38 (section 38) of the Federal 
Deposit Insurance Act (FDI Act) as added by section 131 of the Federal 
Deposit Insurance Corporation Improvement Act of 1991 (Pub. L. 102-242, 
105 Stat. 2236 (1991)) (12 U.S.C. 1831o).
    (b) Purpose. Section 38 of the FDI Act establishes a framework of 
supervisory actions for insured depository institutions that are not 
adequately capitalized. The principal purpose of this subpart is to 
define, for insured national banks, the capital measures and capital 
levels, and for insured federal branches, comparable asset-based 
measures and levels, that are used for determining the supervisory 
actions authorized under section 38 of the FDI Act. This part 6 also 
establishes procedures for submission and review of capital restoration 
plans and for issuance and review of directives and orders pursuant to 
section 38.
    (c) Scope. This subpart implements the provisions of section 38 of 
the FDI Act as they apply to insured national banks and insured federal 
branches. Certain of these provisions also apply to officers, directors 
and employees of these insured institutions. Other provisions apply to 
any company that controls an insured national bank or insured federal 
branch and to the affiliates of an insured national bank or insured 
federal branch.
    (d) Other supervisory authority. Neither section 38 nor this part in 
any way limits the authority of the OCC under any other provision of law 
to take supervisory actions to address unsafe or unsound practices, 
deficient capital levels, violations of law, unsafe or unsound 
conditions, or other practices. Action under section 38 of the FDI Act 
and this part may be taken independently of, in conjunction with, or in 
addition to any other enforcement action available to the OCC, including 
issuance of cease and desist orders, capital directives, approval or 
denial of applications or notices, assessment of civil money penalties, 
or any other actions authorized by law.
    (e) Disclosure of capital categories. The assignment of an insured 
national bank or insured federal branch under this subpart within a 
particular capital category is for purposes of implementing and applying 
the provisions of section 38. Unless permitted by the OCC or otherwise 
required by law, no bank may state in any advertisement or promotional 
material its capital category under this subpart or that the OCC or any 
other federal banking agency has assigned the bank to a particular 
capital category.



Sec. 6.2  Definitions.

    For purposes of section 38 and this part, the definitions related to 
capital in part 3 of this chapter shall apply. In addition, except as 
modified in this

[[Page 176]]

section or unless the context otherwise requires, the terms used in this 
subpart have the same meanings as set forth in section 38 and section 3 
of the FDI Act.
    (a) Bank means all insured national banks and all insured federal 
branches, except where otherwise provided in this subpart.
    (b)(1) Control has the same meaning assigned to it in section 2 of 
the Bank Holding Company Act (12 U.S.C. 1841), and the term controlled 
shall be construed consistently with the term control.
    (2) Exclusion for fiduciary ownership. No insured depository 
institution or company controls another insured depository institution 
or company by virtue of its ownership or control of shares in a 
fiduciary capacity. Shares shall not be deemed to have been acquired in 
a fiduciary capacity if the acquiring insured depository institution or 
company has sole discretionary authority to exercise voting rights with 
respect thereto.
    (3) Exclusion for debts previously contracted. No insured depository 
institution or company controls another insured depository institution 
or company by virtue of its ownership or control of shares acquired in 
securing or collecting a debt previously contracted in good faith, until 
two years after the date of acquisition. The two-year period may be 
extended at the discretion of the appropriate federal banking agency for 
up to three one-year periods.
    (c) Controlling person means any person having control of an insured 
depository institution and any company controlled by that person.
    (d) Leverage ratio means the ratio of Tier 1 capital to adjusted 
total assets, as calculated in accordance with the OCC's Minimum Capital 
Ratios in part 3 of this chapter.
    (e) Management fee means any payment of money or provision of any 
other thing of value to a company or individual for the provision of 
management services or advice to the bank or related overhead expenses, 
including payments related to supervisory, executive, managerial, or 
policymaking functions, other than compensation to an individual in the 
individual's capacity as an officer or employee of the bank.
    (f) Risk-weighted assets means total risk weighted assets, as 
calculated in accordance with the OCC's Minimum Capital Ratios in part 3 
of this chapter.
    (g) Tangible equity means the amount of Tier 1 capital elements in 
the OCC's Risk-Based Capital Guidelines (appendix A to part 3 of this 
chapter) plus the amount of outstanding cumulative perpetual preferred 
stock (including related surplus) minus all intangible assets except 
mortgage servicing assets to the extent permitted in Tier 1 capital 
under section 2(c)(2) in appendix A to part 3 of this chapter.
    (h) Tier 1 capital means the amount of Tier 1 capital as defined in 
the OCC's Minimum Capital Ratios in part 3 of this chapter.
    (i) Tier 1 risk-based capital ratio means the ratio of Tier 1 
capital to risk weighted assets, as calculated in accordance with the 
OCC's Minimum Capital Ratios in part 3 of this chapter.
    (j) Total assets means quarterly average total assets as reported in 
a bank's Consolidated Reports of Condition and Income (Call Report), 
minus intangible assets as provided in the definition of tangible 
equity. The OCC reserves the right to require a bank to compute and 
maintain its capital ratios on the basis of actual, rather than average, 
total assets when computing tangible equity.
    (k) Total risk-based capital ratio means the ratio of qualifying 
total capital to risk-weighted assets, as calculated in accordance with 
the OCC's Minimum Capital Ratios in part 3 of this chapter.

[57 FR 44891, Sept. 29, 1992, as amended at 60 FR 39229, Aug. 1, 1995; 
63 FR 42674, Aug. 10, 1998]



Sec. 6.3  Notice of capital category.

    (a) Effective date of determination of capital category. A bank 
shall be deemed to be within a given capital category for purposes of 
section 38 of the FDI Act and this part as of the date the bank is 
notified of, or is deemed to have notice of, its capital category 
pursuant to paragraph (b) of this section.
    (b) Notice of capital category. A bank shall be deemed to have been 
notified of its capital levels and its capital category as of the most 
recent date:

[[Page 177]]

    (1) A Consolidated Report of Condition and Income (Call Report) is 
required to be filed with the OCC;
    (2) A final report of examination is delivered to the bank; or
    (3) Written notice is provided by the OCC to the bank of its capital 
category for purposes of section 38 of the FDI Act and this part or that 
the bank's capital category has changed as provided in paragraph (c) of 
this section or Sec. 6.1 of this subpart and subpart M of part 19 of 
this chapter.
    (c) Adjustments to reported capital levels and capital category--(1) 
Notice of adjustment by bank. A bank shall provide the OCC with written 
notice that an adjustment to the bank's capital category may have 
occurred no later than 15 calendar days following the date that any 
material event has occurred that would cause the bank to be placed in a 
lower capital category from the category assigned to the bank for 
purposes of section 38 and this part on the basis of the bank's most 
recent Call Report or report of examination.
    (2) Determination to change capital category. After receiving notice 
pursuant to paragraph (c)(1) of this section, the OCC shall determine 
whether to change the capital category of the bank and shall notify the 
bank of the OCC's determination.



Sec. 6.4  Capital measures and capital category definitions.

    (a) Capital measures. For purposes of section 38 and this part, the 
relevant capital measures shall be:
    (1) The total risk-based capital ratio;
    (2) The Tier 1 risk-based capital ratio;
    (3) The leverage ratio.
    (b) Capital categories. For purposes of the provisions of section 38 
and this part, a bank shall be deemed to be:
    (1) Well capitalized if the bank:
    (i) Has a total risk-based capital ratio of 10.0 percent or greater; 
and
    (ii) Has a Tier 1 risk-based capital ratio of 6.0 percent or 
greater; and
    (iii) Has a leverage ratio of 5.0 percent or greater; and
    (iv) Is not subject to any written agreement, order or capital 
directive, or prompt corrective action directive issued by the OCC 
pursuant to section 8 of the FDI Act, the International Lending 
Supervision Act of 1983 (12 U.S.C. 3907), or section 38 of the FDI Act, 
or any regulation thereunder, to meet and maintain a specific capital 
level for any capital measure.
    (2) Adequately capitalized if the bank:
    (i) Has a total risk-based capital ratio of 8.0 percent or greater; 
and
    (ii) Has a Tier 1 risk-based capital ratio of 4.0 percent or 
greater; and
    (iii) Has:
    (A) A leverage ratio of 4.0 percent or greater; or
    (B) A leverage ratio of 3.0 percent or greater if the bank is rated 
1 in the most recent examination of the bank; and
    (iv) Does not meet the definition of a well capitalized bank.
    (3) Undercapitalized if the bank:
    (i) Has a total risk-based capital ratio that is less than 8.0 
percent; or
    (ii) Has a Tier 1 risk-based capital ratio that is less than 4.0 
percent; or
    (iii) (A) Except as provided in paragraph (b)(3)(iii) (B) of this 
section, has a leverage ratio that is less than 4.0 percent; or
    (B) If the bank is rated 1 in the most recent examination of the 
bank, has a leverage ratio that is less than 3.0 percent.
    (4) Significantly undercapitalized if the bank has:
    (i) A total risk-based capital ratio that is less than 6.0 percent; 
or
    (ii) A Tier 1 risk-based capital ratio that is less than 3.0 
percent; or
    (iii) A leverage ratio that is less than 3.0 percent.
    (5) Critically undercapitalized if the bank has a ratio of tangible 
equity to total assets that is equal to or less than 2.0 percent.
    (c) Capital categories for insured federal branches. For purposes of 
the provisions of section 38 of the FDI Act and this part, an insured 
federal branch shall be deemed to be:
    (1) Well capitalized if the insured federal branch:
    (i) Maintains the pledge of assets required under 12 CFR 347.210; 
and
    (ii) Maintains the eligible assets prescribed under 12 CFR 347.211 
at 108 percent or more of the preceding quarter's average book value of 
the insured branch's third-party liabilities; and

[[Page 178]]

    (iii) Has not received written notification from:
    (A) The OCC to increase its capital equivalency deposit pursuant to 
Sec. 28.6(a) of this chapter, or to comply with asset maintenance 
requirements pursuant to Sec. 28.9 of this chapter; or
    (B) The FDIC to pledge additional assets pursuant to 12 CFR 346.19 
or to maintain a higher ratio of eligible assets pursuant to 12 CFR 
346.20.
    (2) Adequately Capitalized if the insured federal branch:
    (i) Maintains the pledge of assets prescribed under 12 CFR 346.19; 
and
    (ii) Maintains the eligible assets prescribed under 12 CFR 346.20 at 
106 percent or more of the preceding quarter's average book value of the 
insured branch's third-party liabilities; and
    (iii) Does not meet the definition of a well capitalized insured 
federal branch.
    (3) Undercapitalized if the insured federal branch:
    (i) Fails to maintain the pledge of assets required under 12 CFR 
346.19; or
    (ii) Fails to maintain the eligible assets prescribed under 12 CFR 
346.20 at 106 percent or more of the preceding quarter's average book 
value of the insured branch's third-party liabilities.
    (4) Significantly undercapitalized if it fails to maintain the 
eligible assets prescribed under 12 CFR 346.20 at 104 percent or more of 
the preceding quarter's average book value of the insured federal 
branch's third-party liabilities.
    (5) Critically undercapitalized if it fails to maintain the eligible 
assets prescribed under 12 CFR 346.20 at 102 percent or more of the 
preceding quarter's average book value of the insured federal branch's 
third-party liabilities.
    (d) Reclassification based on supervisory criteria other than 
capital. The OCC may reclassify a well capitalized bank as adequately 
capitalized and may require an adequately capitalized or an 
undercapitalized bank to comply with certain mandatory or discretionary 
supervisory actions as if the bank were in the next lower capital 
category (except that the OCC may not reclassify a significantly 
undercapitalized bank as critically undercapitalized) (each of these 
actions are hereinafter referred to generally as reclassifications) in 
the following circumstances:
    (1) Unsafe or unsound condition. The OCC has determined, after 
notice and opportunity for hearing pursuant to subpart M of part 19 of 
this chapter, that the bank is in unsafe or unsound condition; or
    (2) Unsafe or unsound practice. The OCC has determined, after notice 
and opportunity for hearing pursuant to subpart M of part 19 of this 
chapter, that in the most recent examination of the bank, the bank 
received, and has not corrected a less-than-satisfactory rating for any 
of the categories of asset quality, management, earnings, or liquidity.

[57 FR 44891, Sept. 29, 1992, as amended at 68 FR 70131, Dec. 17, 2003]



Sec. 6.5  Capital restoration plans.

    (a) Schedule for filing plan--(1) In general. A bank shall file a 
written capital restoration plan with the OCC within 45 days of the date 
that the bank receives notice or is deemed to have notice that the bank 
is undercapitalized, significantly undercapitalized, or critically 
undercapitalized, unless the OCC notifies the bank in writing that the 
plan is to be filed within a different period. An adequately capitalized 
bank that has been required pursuant to Sec. 6.4 and subpart M of part 
19 of this chapter to comply with supervisory actions as if the bank 
were undercapitalized is not required to submit a capital restoration 
plan solely by virtue of the reclassification.
    (2) Additional capital restoration plans. Notwithstanding paragraph 
(a)(1) of this section, a bank that has already submitted and is 
operating under a capital restoration plan approved under section 38 and 
this subpart is not required to submit an additional capital restoration 
plan based on a revised calculation of its capital measures or a 
reclassification of the institution under Sec. 6.4 and subpart M of 
part 19 of this chapter unless the OCC notifies the bank that it must 
submit a new or revised capital plan. A bank that is notified that it 
must submit a new or revised capital restoration plan shall file the 
plan in writing with the OCC within 45 days of receiving such notice, 
unless the OCC notifies the bank in writing that the plan must be filed 
within a different period.

[[Page 179]]

    (b) Contents of plan. All financial data submitted in connection 
with a capital restoration plan shall be prepared in accordance with the 
instructions provided on the Call Report, unless the OCC instructs 
otherwise. The capital restoration plan shall include all of the 
information required to be filed under section 38(e)(2) of the FDI Act. 
A bank that is required to submit a capital restoration plan as the 
result of a reclassification of the bank, pursuant to Sec. 6.4 and 
subpart M of part 19 of this chapter, shall include a description of the 
steps the bank will take to correct the unsafe or unsound condition or 
practice. No plan shall be accepted unless it includes any performance 
guarantee described in section 38(e)(2)(C) of that Act by each company 
that controls the bank.
    (c) Review of capital restoration plans. Within 60 days after 
receiving a capital restoration plan under this subpart, the OCC shall 
provide written notice to the bank of whether the plan has been 
approved. The OCC may extend the time within which notice regarding 
approval of a plan shall be provided.
    (d) Disapproval of capital restoration plan. If a capital 
restoration plan is not approved by the OCC, the bank shall submit a 
revised capital restoration plan within the time specified by the OCC. 
Upon receiving notice that its capital restoration plan has not been 
approved, any undercapitalized bank (as defined in Sec. 6.4) shall be 
subject to all of the provisions of section 38 and this part applicable 
to significantly undercapitalized institutions. These provisions shall 
be applicable until such time as a new or revised capital restoration 
plan submitted by the bank has been approved by the OCC.
    (e) Failure to submit a capital restoration plan. A bank that is 
undercapitalized (as defined in Sec. 6.4) and that fails to submit a 
written capital restoration plan within the period provided in this 
section shall, upon the expiration of that period, be subject to all of 
the provisions of section 38 and this part applicable to significantly 
undercapitalized banks.
    (f) Failure to implement a capital restoration plan. Any 
undercapitalized bank that fails, in any material respect, to implement 
a capital restoration plan shall be subject to all of the provisions of 
section 38 and this part applicable to significantly undercapitalized 
banks.
    (g) Amendment of capital restoration plan. A bank that has submitted 
an approved capital restoration plan may, after prior written notice to 
and approval by the OCC, amend the plan to reflect a change in 
circumstance. Until such time as a proposed amendment has been approved, 
the bank shall implement the capital restoration plan as approved prior 
to the proposed amendment.
    (h) Notice to FDIC. Within 45 days of the effective date of OCC 
approval of a capital restoration plan, or any amendment to a capital 
restoration plan, the OCC shall provide a copy of the plan or amendment 
to the Federal Deposit Insurance Corporation.
    (i) Performance guarantee by companies that control a bank--(1) 
Limitation on liability--(i) Amount limitation. The aggregate liability 
under the guarantee provided under section 38 and this subpart for all 
companies that control a specific bank that is required to submit a 
capital restoration plan under this subpart shall be limited to the 
lesser of:
    (A) An amount equal to 5.0 percent of the bank's total assets at the 
time the bank was notified or deemed to have notice that the bank was 
undercapitalized; or
    (B) The amount necessary to restore the relevant capital measures of 
the bank to the levels required for the bank to be classified as 
adequately capitalized, as those capital measures and levels are defined 
at the time that the bank initially fails to comply with a capital 
restoration plan under this subpart.
    (ii) Limit on duration. The guarantee and limit of liability under 
section 38 and this subpart shall expire after the OCC notifies the bank 
that it has remained adequately capitalized for each of four consecutive 
calendar quarters. The expiration or fulfillment by a company of a 
guarantee of a capital restoration plan shall not limit the liability of 
the company under any guarantee required or provided in connection with 
any capital restoration plan

[[Page 180]]

filed by the same bank after expiration of the first guarantee.
    (iii) Collection on guarantee. Each company that controls a given 
bank shall be jointly and severally liable for the guarantee for such 
bank as required under section 38 and this subpart, and the OCC may 
require payment of the full amount of that guarantee from any or all of 
the companies issuing the guarantee.
    (2) Failure to provide guarantee. In the event that a bank that is 
controlled by any company submits a capital restoration plan that does 
not contain the guarantee required under section 38(e)(2) of the FDI 
Act, the bank shall, upon submission of the plan, be subject to the 
provisions of section 38 and this part that are applicable to banks that 
have not submitted an acceptable capital restoration plan.
    (3) Failure to perform guarantee. Failure by any company that 
controls a bank to perform fully its guarantee of any capital plan shall 
constitute a material failure to implement the plan for purposes of 
section 38(f) of the FDI Act. Upon such failure, the bank shall be 
subject to the provisions of section 38 and this part that are 
applicable to banks that have failed in a material respect to implement 
a capital restoration plan.
    (j) Enforcement of capital restoration plan. The failure of a bank 
to implement, in any material respect, a capital restoration plan 
required under section 38 and this section shall subject the bank to the 
assessment of civil money penalties pursuant to section 8(i)(2)(A) of 
the FDI Act.



Sec. 6.6  Mandatory and discretionary supervisory actions under section 38.

    (a) Mandatory supervisory actions--(1) Provisions applicable to all 
banks. All banks are subject to the restrictions contained in section 
38(d) of the FDI Act on payment of capital distributions and management 
fees.
    (2) Provisions applicable to undercapitalized, significantly 
undercapitalized, and critically undercapitalized banks. Immediately 
upon receiving notice or being deemed to have notice, as provided in 
Sec. 6.3, that the bank is undercapitalized, significantly 
undercapitalized, or critically undercapitalized, the bank shall become 
subject to the provisions of section 38 of the FDI Act--
    (i) Restricting payment of capital distributions and management fees 
(section 38(d));
    (ii) Requiring that the OCC monitor the condition of the bank 
(section 38(e)(1));
    (iii) Requiring submission of a capital restoration plan within the 
schedule established in this subpart (section 38(e)(2));
    (iv) Restricting the growth of the bank's assets (section 38(e)(3)); 
and
    (v) Requiring prior approval of certain expansion proposals (section 
38(e)(4)).
    (3) Additional provisions applicable to significantly 
undercapitalized, and critically undercapitalized banks. In addition to 
the provisions of section 38 of the FDI Act described in paragraph 
(a)(2) of this section, immediately upon receiving notice or being 
deemed to have notice, as provided in this subpart, that the bank is 
significantly undercapitalized, or critically undercapitalized or that 
the bank is subject to the provisions applicable to institutions that 
are significantly undercapitalized because it has failed to submit or 
implement, in any material respect, an acceptable capital restoration 
plan, the bank shall become subject to the provisions of section 38 of 
the FDI Act that restrict compensation paid to senior executive officers 
of the institution (section 38(f)(4)).
    (4) Additional provisions applicable to critically undercapitalized 
banks. In addition to the provisions of section 38 of the FDI Act 
described in paragraphs (a) (2) and (3) of this section, immediately 
upon receiving notice or being deemed to have notice, as provided in 
Sec. 6.3, that the bank is critically undercapitalized, the bank shall 
become subject to the provisions of section 38 of the FDI Act--
    (i) Restricting the activities of the bank (section 38(h)(1)); and
    (ii) Restricting payments on subordinated debt of the bank (section 
38(h)(2)).
    (b) Discretionary supervisory actions. In taking any action under 
section 38 that is within the OCC's discretion to take in connection 
with a bank that is

[[Page 181]]

deemed to be undercapitalized, significantly undercapitalized, or 
critically undercapitalized, or has been reclassified as 
undercapitalized or significantly undercapitalized; an officer or 
director of such bank; or a company that controls such bank, the OCC 
shall follow the procedures for issuing directives under subpart B of 
this part and subpart N of part 19 of this chapter, unless otherwise 
provided in section 38 or this part.



          Subpart B_Directives To Take Prompt Corrective Action



Sec. 6.20  Scope.

    The rules and procedures set forth in this subpart apply to insured 
national banks, insured federal branches and senior executive officers 
and directors of banks that are subject to the provisions of section 38 
of the Federal Deposit Insurance Act (section 38) and subpart A of this 
part.



Sec. 6.21  Notice of intent to issue a directive.

    (a) Notice of intent to issue a directive--(1) In general. The OCC 
shall provide an undercapitalized, significantly undercapitalized, or 
critically undercapitalized bank prior written notice of the OCC's 
intention to issue a directive requiring such bank or company to take 
actions or to follow proscriptions described in section 38 that are 
within the OCC's discretion to require or impose under section 38 of the 
FDI Act, including section 38 (e)(5), (f)(2), (f)(3), or (f)(5). The 
bank shall have such time to respond to a proposed directive as provided 
under Sec. 6.22.
    (2) Immediate issuance of final directive. If the OCC finds it 
necessary in order to carry out the purposes of section 38 of the FDI 
Act, the OCC may, without providing the notice prescribed in paragraph 
(a)(1) of this section, issue a directive requiring a bank immediately 
to take actions or to follow proscriptions described in section 38 that 
are within the OCC's discretion to require or impose under section 38 of 
the FDI Act, including section 38 (e)(5), (f)(2), (f)(3), or (f)(5). A 
bank that is subject to such an immediately effective directive may 
submit a written appeal of the directive to the OCC. Such an appeal must 
be received by the OCC within 14 calendar days of the issuance of the 
directive, unless the OCC permits a longer period. The OCC shall 
consider any such appeal, if filed in a timely matter, within 60 days of 
receiving the appeal. During such period of review, the directive shall 
remain in effect unless the OCC, in its sole discretion, stays the 
effectiveness of the directive.
    (b) Contents of notice. A notice of intention to issue a directive 
shall include:
    (1) A statement of the bank's capital measures and capital levels;
    (2) A description of the restrictions, prohibitions or affirmative 
actions that the OCC proposes to impose or require;
    (3) The proposed date when such restrictions or prohibitions would 
be effective or the proposed date for completion of such affirmative 
actions; and
    (4) The date by which the bank subject to the directive may file 
with the OCC a written response to the notice.



Sec. 6.22  Response to notice.

    (a) Time for response. A bank may file a written response to a 
notice of intent to issue a directive within the time period set by the 
OCC. The date shall be at least 14 calendar days from the date of the 
notice unless the OCC determines that a shorter period is appropriate in 
light of the financial condition of the bank or other relevant 
circumstances.
    (b) Content of response. The response should include:
    (1) An explanation why the action proposed by the OCC is not an 
appropriate exercise of discretion under section 38;
    (2) Any recommended modification of the proposed directive; and
    (3) Any other relevant information, mitigating circumstances, 
documentation, or other evidence in support of the position of the bank 
regarding the proposed directive.
    (c) Failure to file response. Failure by a bank to file with the 
OCC, within the specified time period, a written response to a proposed 
directive shall constitute a waiver of the opportunity to respond and 
shall constitute consent to the issuance of the directive.

[[Page 182]]



Sec. 6.23  Decision and issuance of a prompt corrective action directive.

    (a) OCC consideration of response. After considering the response, 
the OCC may:
    (1) Issue the directive as proposed or in modified form;
    (2) Determine not to issue the directive and so notify the bank; or
    (3) Seek additional information or clarification of the response 
from the bank, or any other relevant source.
    (b) [Reserved]



Sec. 6.24  Request for modification or rescission of directive.

    Any bank that is subject to a directive under this subpart may, upon 
a change in circumstances, request in writing that the OCC reconsider 
the terms of the directive, and may propose that the directive be 
rescinded or modified. Unless otherwise ordered by the OCC, the 
directive shall continue in place while such request is pending before 
the OCC.



Sec. 6.25  Enforcement of directive.

    (a) Judicial remedies. Whenever a bank fails to comply with a 
directive issued under section 38, the OCC may seek enforcement of the 
directive in the appropriate United States district court pursuant to 
section 8(i)(1) of the FDI Act.
    (b) Administrative remedies. Pursuant to section 8(i)(2)(A) of the 
FDI Act, the OCC may assess a civil money penalty against any bank that 
violates or otherwise fails to comply with any final directive issued 
under section 38 and against any institution-affiliated party who 
participates in such violation or noncompliance.
    (c) Other enforcement action. In addition to the actions described 
in paragraphs (a) and (b) of this section, the OCC may seek enforcement 
of the provisions of section 38 or this part through any other judicial 
or administrative proceeding authorized by law.



PART 7_BANK ACTIVITIES AND OPERATIONS--Table of Contents




                          Subpart A_Bank Powers

Sec.
7.1000 National bank ownership of property.
7.1001 National bank acting as general insurance agent.
7.1002 National bank acting as finder.
7.1003 Money lent at banking offices or at other than banking offices.
7.1004 Loans originating at other than banking offices.
7.1005 Credit decisions at other than banking offices.
7.1006 Loan agreement providing for a share in profits, income, or 
          earnings or for stock warrants.
7.1007 Acceptances.
7.1008 Preparing income tax returns for customers or public.
7.1009 National bank holding collateral stock as nominee.
7.1010 Postal service by national bank.
7.1011 National bank acting as payroll issuer.
7.1012 Messenger service.
7.1014 Sale of money orders at nonbanking outlets.
7.1015 Receipt of stock from a small business investment company.
7.1016 Independent undertakings to pay against documents.
7.1017 National bank as guarantor or surety on indemnity bond.
7.1018 Automatic payment plan account.
7.1020 Purchase of open accounts.
7.1021 National bank participation in financial literacy programs.

                      Subpart B_Corporate Practices

7.2000 Corporate governance procedures.
7.2001 Notice of shareholders' meetings.
7.2002 Director or attorney as proxy.
7.2003 Annual meeting for election of directors.
7.2004 Honorary directors or advisory boards.
7.2005 Ownership of stock necessary to qualify as director.
7.2006 Cumulative voting in election of directors.
7.2007 Filling vacancies and increasing board of directors other than by 
          shareholder action.
7.2008 Oath of directors.
7.2009 Quorum of the board of directors; proxies not permissible.
7.2010 Directors' responsibilities.
7.2011 Compensation plans.
7.2012 President as director; chief executive officer.
7.2013 Fidelity bonds covering officers and employees.
7.2014 Indemnification of institution-affiliated parties.
7.2015 Cashier.
7.2016 Restricting transfer of stock and record dates.
7.2017 Facsimile signatures on bank stock certificates.
7.2018 Lost stock certificates.

[[Page 183]]

7.2019 Loans secured by a bank's own shares.
7.2020 Acquisition and holding of shares as treasury stock.
7.2021 Preemptive rights.
7.2022 Voting trusts.
7.2023 Reverse stock splits.
7.2024 Staggered terms for national bank directors and size of bank 
          board.

                        Subpart C_Bank Operations

7.3000 Bank hours and closings.
7.3001 Sharing space and employees.

                          Subpart D_Preemption

7.4000 Visitorial powers.
7.4001 Charging interest at rates permitted competing institutions; 
          charging interest to corporate borrowers.
7.4002 National bank charges.
7.4003 Establishment and operation of a remote service unit by a 
          national bank.
7.4004 Establishment and operation of a deposit production office by a 
          national bank.
7.4005 Combination of loan production office, deposit production office, 
          and remote service unit.
7.4006 Applicability of State law to national bank operating 
          subsidiaries.
7.4007 Deposit-taking.
7.4008 Lending.
7.4009 Applicability of state law to national bank operations.

                     Subpart E_Electronic Activities

7.5000 Scope.
7.5001 Electronic activities that are part of, or incidental to, the 
          business of banking.
7.5002 Furnishing of products and services by electronic means and 
          facilities.
7.5003 Composite authority to engage in electronic activities.
7.5004 Sale of excess electronic capacity and by-products.
7.5005 National bank acting as digital certification authority.
7.5006 Data processing.
7.5007 Correspondent services.
7.5008 Location of national bank conducting electronic activities.
7.5009 Location under 12 U.S.C. 85 of national banks operating 
          exclusively through the Internet.
7.5010 Shared electronic space.

    Authority: 12 U.S.C. 1 et seq., 71, 71a, 92, 92a, 93, 93a, 481, 484, 
and 1818.

    Source: 61 FR 4862, Feb. 9, 1996, unless otherwise noted.



                          Subpart A_Bank Powers



Sec. 7.1000  National bank ownership of property.

    (a) Investment in real estate necessary for the transaction of 
business--(1) General. Under 12 U.S.C. 29(First), a national bank may 
invest in real estate that is necessary for the transaction of its 
business.
    (2) Type of real estate. For purposes of 12 U.S.C. 29(First), this 
real estate includes:
    (i) Premises that are owned and occupied (or to be occupied, if 
under construction) by the bank, its branches, or its consolidated 
subsidiaries;
    (ii) Real estate acquired and intended, in good faith, for use in 
future expansion;
    (iii) Parking facilities that are used by customers or employees of 
the bank, its branches, and its consolidated subsidiaries;
    (iv) Residential property for the use of bank officers or employees 
who are:
    (A) Located in remote areas where suitable housing at a reasonable 
price is not readily available; or
    (B) Temporarily assigned to a foreign country, including foreign 
nationals temporarily assigned to the United States; and
    (v) Property for the use of bank officers, employees, or customers, 
or for the temporary lodging of such persons in areas where suitable 
commercial lodging is not readily available, provided that the purchase 
and operation of the property qualifies as a deductible business expense 
for Federal tax purposes.
    (3) Permissible means of holding. A national bank may acquire and 
hold real estate under this paragraph (a) by any reasonable and prudent 
means, including ownership in fee, a leasehold estate, or in an interest 
in a cooperative. The bank may hold this real estate directly or through 
one or more subsidiaries. The bank may organize a bank premises 
subsidiary as a corporation, partnership, or similar entity (e.g., a 
limited liability company).
    (b) Fixed assets. A national bank may own fixed assets necessary for 
the transaction of its business, such as fixtures, furniture, and data 
processing equipment.

[[Page 184]]

    (c) Investment in bank premises--(1) Investment limitation; 
approval. 12 U.S.C. 371d governs when OCC approval is required for 
national bank investment in bank premises. A bank may seek approval from 
the OCC in accordance with the procedures set forth in 12 CFR 5.37.
    (2) Option to purchase. An unexercised option to purchase bank 
premises or stock in a corporation holding bank premises is not an 
investment in bank premises. A national bank must receive OCC approval 
to exercise the option if the price of the option and the bank's other 
investments in bank premises exceed the amount of the bank's capital 
stock.
    (d) Other real property--(1) Lease financing of public facilities. A 
national bank may purchase or construct a municipal building, school 
building, or other similar public facility and, as holder of legal 
title, lease the facility to a municipality or other public authority 
having resources sufficient to make all rental payments as they become 
due. The lease agreement must provide that the lessee will become the 
owner of the building or facility upon the expiration of the lease.
    (2) Purchase of employee's residence. To facilitate the efficient 
use of bank personnel, a national bank may purchase the residence of an 
employee who has been transferred to another area in order to spare the 
employee a loss in the prevailing real estate market. The bank must 
arrange for early divestment of title to such property.

[61 FR 4862, Feb. 9, 1996, as amended at 61 FR 60387, Nov. 27, 1996]



Sec. 7.1001  National bank acting as general insurance agent.

    Pursuant to 12 U.S.C. 92, a national bank may act as an agent for 
any fire, life, or other insurance company in any place the population 
of which does not exceed 5,000 inhabitants. This provision is applicable 
to any office of a national bank when the office is located in a 
community having a population of less than 5,000, even though the 
principal office of such bank is located in a community whose population 
exceeds 5,000.



Sec. 7.1002  National bank acting as finder.

    (a) General. It is part of the business of banking under 12 U.S.C. 
24(Seventh) for a national bank to act as a finder, bringing together 
interested parties to a transaction.
    (b) Permissible finder activities. A national bank that acts as a 
finder may identify potential parties, make inquiries as to interest, 
introduce or arrange contacts or meetings of interested parties, act as 
an intermediary between interested parties, and otherwise bring parties 
together for a transaction that the parties themselves negotiate and 
consummate. The following list provides examples of permissible finder 
activities. This list is illustrative and not exclusive; the OCC may 
determine that other activities are permissible pursuant to a national 
bank's authority to act as a finder.
    (1) Communicating information about providers of products and 
services, and proposed offering prices and terms to potential markets 
for these products and services;
    (2) Communicating to the seller an offer to purchase or a request 
for information, including forwarding completed applications, 
application fees, and requests for information to third-party providers;
    (3) Arranging for third-party providers to offer reduced rates to 
those customers referred by the bank;
    (4) Providing administrative, clerical, and record keeping functions 
related to the bank's finder activity, including retaining copies of 
documents, instructing and assisting individuals in the completion of 
documents, scheduling sales calls on behalf of sellers, and conducting 
market research to identify potential new customers for retailers;
    (5) Conveying between interested parties expressions of interest, 
bids, offers, orders, and confirmations relating to a transaction;
    (6) Conveying other types of information between potential buyers, 
sellers, and other interested parties; and
    (7) Establishing rules of general applicability governing the use 
and operation of the finder service, including rules that:

[[Page 185]]

    (i) Govern the submission of bids and offers by buyers, sellers, and 
other interested parties that use the finder service and the 
circumstances under which the finder service will pair bids and offers 
submitted by buyers, sellers, and other interested parties; and
    (ii) Govern the manner in which buyers, sellers, and other 
interested parties may bind themselves to the terms of a specific 
transaction.
    (c) Limitation. The authority to act as a finder does not enable a 
national bank to engage in brokerage activities that have not been found 
to be permissible for national banks.
    (d) Advertisement and fee. Unless otherwise prohibited by Federal 
law, a national bank may advertise the availability of, and accept a fee 
for, the services provided pursuant to this section.

[67 FR 35004, May 17, 2002]



Sec. 7.1003  Money lent at banking offices or at other than banking offices.

    (a) General. For purposes of what constitutes a branch within the 
meaning of 12 U.S.C. 36(j) and 12 CFR 5.30, ``money'' is deemed to be 
``lent'' only at the place, if any, where the borrower in-person 
receives loan proceeds directly from bank funds:
    (1) From the lending bank or its operating subsidiary; or
    (2) At a facility that is established by the lending bank or its 
operating subsidiary.
    (b) Receipt of bank funds representing loan proceeds. Loan proceeds 
directly from bank funds may be received by a borrower in person at a 
place that is not the bank's main office and is not licensed as a branch 
without violating 12 U.S.C. 36, 12 U.S.C. 81 and 12 CFR 5.30, provided 
that a third party is used to deliver the funds and the place is not 
established by the lending bank or its operating subsidiary. A third 
party includes a person who satisfies the requirements of Sec. 
7.1012(c)(2), or one who customarily delivers loan proceeds directly 
from bank funds under accepted industry practice, such as an attorney or 
escrow agent at a real estate closing.



Sec. 7.1004  Loans originating at other than banking offices.

    (a) General. A national bank may use the services of, and compensate 
persons not employed by, the bank for originating loans.
    (b) Approval. An employee or agent of a national bank or of its 
operating subsidiary may originate a loan at a site other than the main 
office or a branch office of the bank. This action does not violate 12 
U.S.C. 36 and 12 U.S.C. 81 if the loan is approved and made at the main 
office or a branch office of the bank or at an office of the operating 
subsidiary located on the premises of, or contiguous to, the main office 
or branch office of the bank.



Sec. 7.1005  Credit decisions at other than banking offices.

    A national bank and its operating subsidiary may make a credit 
decision regarding a loan application at a site other than the main 
office or a branch office of the bank without violating 12 U.S.C. 36 and 
12 U.S.C. 81, provided that ``money'' is not deemed to be ``lent'' at 
those other sites within the meaning of Sec. 7.1003.



Sec. 7.1006  Loan agreement providing for a share in profits, income, or earnings or for stock warrants.

    A national bank may take as consideration for a loan a share in the 
profit, income, or earnings from a business enterprise of a borrower. A 
national bank also may take as consideration for a loan a stock warrant 
issued by a business enterprise of a borrower, provided that the bank 
does not exercise the warrant. The share or stock warrant may be taken 
in addition to, or in lieu of, interest. The borrower's obligation to 
repay principal, however, may not be conditioned upon the value of the 
profit, income, or earnings of the business enterprise or upon the value 
of the warrant received.



Sec. 7.1007  Acceptances.

    A national bank is not limited in the character of acceptances it 
may make in financing credit transactions. Bankers' acceptances may be 
used for such purpose, since the making of acceptances is an essential 
part of banking authorized by 12 U.S.C. 24.

[[Page 186]]



Sec. 7.1008  Preparing income tax returns for customers or public.

    A national bank may assist its customers in preparing their tax 
returns, either gratuitously or for a fee.

[68 FR 70131, Dec. 17, 2003]



Sec. 7.1009  National bank holding collateral stock as nominee.

    A national bank that accepts stock as collateral for a loan may have 
such stock transferred to the bank's name as nominee.



Sec. 7.1010  Postal service by national bank.

    (a) General. A national bank may maintain and operate a postal 
substation on banking premises and receive income from it. The services 
performed by the substation are those permitted under applicable rules 
of the United States Postal Service and may include meter stamping of 
letters and packages, and the sale of related insurance. The bank may 
advertise, develop, and extend the services of the substation for the 
purpose of attracting customers to the bank.
    (b) Postal regulations. A national bank operating a postal 
substation shall do so in accordance with the rules and regulations of 
the United States Postal Service. The national bank shall keep the books 
and records of the substation separate from those of other banking 
operations. Under 39 U.S.C. 404 and any regulations issued pursuant 
thereto, the United States Postal Service may inspect the books and 
records of the substation.



Sec. 7.1011  National bank acting as payroll issuer.

    A national bank may disburse to an employee of a customer payroll 
funds deposited with the bank by that customer. The bank may disburse 
those funds by direct payment to the employee, by crediting an account 
in the employee's name at the disbursing bank, or by forwarding funds to 
another institution in which an employee maintains an account.



Sec. 7.1012  Messenger service.

    (a) Definition. For purposes of this section, a ``messenger 
service'' means any service, such as a courier service or armored car 
service, used by a national bank and its customers to pick up from, and 
deliver to, specific customers at locations such as their homes or 
offices, items relating to transactions between the bank and those 
customers.
    (b) Pick-up and delivery of items constituting nonbranching 
activities. Pursuant to 12 U.S.C. 24 (Seventh), a national bank may 
establish and operate a messenger service, or use, with its customers, a 
third party messenger service. The bank may use the messenger service to 
transport items relevant to the bank's transactions with its customers 
without regard to the branching limitations set forth in 12 U.S.C. 36, 
provided the service does not engage in branching functions within the 
meaning of 12 U.S.C. 36(j). In establishing or using such a facility, 
the national bank may establish terms, conditions, and limitations 
consistent with this section and appropriate to assure compliance with 
safe and sound banking practices.
    (c) Pick-up and delivery of items constituting branching functions 
by a messenger service established by a third party. (1) Pursuant to 12 
U.S.C. 24 (Seventh), a national bank and its customers may use a 
messenger service to pick up from, and deliver to customers items that 
relate to branching functions within the meaning of 12 U.S.C. 36, 
provided the messenger service is established and operated by a third 
party. In using such a facility, a national bank may establish terms, 
conditions, and limitations, consistent with this section and 
appropriate to assure compliance with safe and sound banking practices.
    (2) The OCC reviews whether a messenger service is established by a 
third party on a case-by-case basis, considering all of the 
circumstances. However, a messenger service is clearly established by a 
third party if:
    (i) A party other than the national bank owns or rents the messenger 
service and its facilities and employs the persons who provide the 
service;
    (ii)(A) The messenger service retains the discretion to determine in 
its own business judgment which customers and geographic areas it will 
serve; or

[[Page 187]]

    (B) If the messenger service and the bank are under common ownership 
or control, the messenger service actually provides its services to the 
general public, including other depository institutions, and retains the 
discretion to determine in its own business judgment which customers and 
geographic areas it will serve;
    (iii) The messenger service maintains ultimate responsibility for 
scheduling, movement, and routing;
    (iv) The messenger service does not operate under the name of the 
bank, and the bank and the messenger service do not advertise, or 
otherwise represent, that the bank itself is providing the service, 
although the bank may advertise that its customers may use one or more 
third party messenger services to transact business with the bank;
    (v) The messenger service assumes responsibility for the items 
during transit and for maintaining adequate insurance covering thefts, 
employee fidelity, and other in-transit losses; and
    (vi) The messenger service acts as the agent for the customer when 
the items are in transit. The bank deems items intended for deposit to 
be deposited when credited to the customer's account at the bank's main 
office, one of its branches, or another permissible facility, such as a 
back office facility that is not a branch. The bank deems items 
representing withdrawals to be paid when the items are given to the 
messenger service.
    (3) A national bank may defray all or part of the costs incurred by 
a customer in transporting items through a messenger service. Payment of 
those costs may only cover expenses associated with each transaction 
involving the customer and the messenger service. The national bank may 
impose terms, conditions, and limitations that it deems appropriate with 
respect to the payment of such costs.
    (d) Pickup and delivery of items pertaining to branching activities 
where the messenger service is established by the national bank. A 
national bank may establish and operate a messenger service to transport 
items relevant to the bank's transactions with its customers if such 
transactions constitute one or more branching functions within the 
meaning of 12 U.S.C. 36(j), provided the bank receives approval to 
establish a branch pursuant to 12 CFR 5.30.

[61 FR 4862, Feb. 9, 1996, as amended at 64 FR 60098, Nov. 4, 1999]



Sec. 7.1014  Sale of money orders at nonbanking outlets.

    A national bank may designate bonded agents to sell the bank's money 
orders at nonbanking outlets. The responsibility of both the bank and 
its agent should be defined in a written agreement setting forth the 
duties of both parties and providing for remuneration of the agent. The 
bank's agents need not report on sales and transmit funds from the 
nonbanking outlets more frequently than at the end of the third business 
day following receipt of the funds.



Sec. 7.1015  Receipt of stock from a small business investment company.

    A national bank may purchase the stock of a small business 
investment company (SBIC) (see 15 U.S.C. 682(b)), and may receive the 
benefits of such stock ownership (e.g., stock dividends). The receipt 
and retention of a dividend by a national bank from an SBIC in the form 
of stock of a corporate borrower of the SBIC is not a purchase of stock 
within the meaning of 12 U.S.C. 24 (Seventh).



Sec. 7.1016  Independent undertakings to pay against documents.

    (a) General authority. A national bank may issue and commit to issue 
letters of credit and other independent undertakings within the scope of 
the applicable laws or rules of practice recognized by law.\1\ Under 
such letters of credit

[[Page 188]]

and other independent undertakings, the bank's obligation to honor 
depends upon the presentation of specified documents and not upon 
nondocumentary conditions or resolution of questions of fact or law at 
issue between the applicant and the beneficiary. A national bank may 
also confirm or otherwise undertake to honor or purchase specified 
documents upon their presentation under another person's independent 
undertaking within the scope of such laws or rules.
---------------------------------------------------------------------------

    \1\ Examples of such laws or rules of practice include: The 
applicable version of Article 5 of the Uniform Commercial Code (UCC) 
(1962, as amended 1990) or revised Article 5 of the UCC (as amended 
1995) (available from West Publishing Co., 1/800/328-4880); the Uniform 
Customs and Practice for Documentary Credits (International Chamber of 
Commerce (ICC) Publication No. 500) (available from ICC Publishing, 
Inc., 212/206-1150; http://www.iccwbo.org); the International Standby 
Practices (ISP98) (ICC Publication No. 590) (available from the 
Institute of International Banking Law & Practice, 301/869-9840; http://
www.iiblp.org); the United Nations Convention on Independent Guarantees 
and Stand-by Letters of Credit (adopted by the U.N. General Assembly in 
1995 and signed by the U.S. in 1997) (available from the U.N. Commission 
on International Trade Law, 212/963-5353); and the Uniform Rules for 
Bank-to-Bank Reimbursements Under Documentary Credits (ICC Publication 
No. 525) (available from ICC Publishing, Inc., 212/206-1150; http://
www.iccwbo.org); as any of the foregoing may be amended from time to 
time.
---------------------------------------------------------------------------

    (b) Safety and soundness considerations--(1) Terms. As a matter of 
safe and sound banking practice, banks that issue independent 
undertakings should not be exposed to undue risk. At a minimum, banks 
should consider the following:
    (i) The independent character of the undertaking should be apparent 
from its terms (such as terms that subject it to laws or rules providing 
for its independent character);
    (ii) The undertaking should be limited in amount;
    (iii) The undertaking should:
    (A) Be limited in duration; or
    (B) Permit the bank to terminate the undertaking either on a 
periodic basis (consistent with the bank's ability to make any necessary 
credit assessments) or at will upon either notice or payment to the 
beneficiary; or
    (C) Entitle the bank to cash collateral from the applicant on demand 
(with a right to accelerate the applicant's obligations, as 
appropriate); and
    (iv) The bank either should be fully collateralized or have a post-
honor right of reimbursement from the applicant or from another issuer 
of an independent undertaking. Alternatively, if the bank's undertaking 
is to purchase documents of title, securities, or other valuable 
documents, the bank should obtain a first priority right to realize on 
the documents if the bank is not otherwise to be reimbursed.
    (2) Additional considerations in special circumstances. Certain 
undertakings require particular protections against credit, operational, 
and market risk:
    (i) In the event that the undertaking is to honor by delivery of an 
item of value other than money, the bank should ensure that market 
fluctuations that affect the value of the item will not cause the bank 
to assume undue market risk;
    (ii) In the event that the undertaking provides for automatic 
renewal, the terms for renewal should be consistent with the bank's 
ability to make any necessary credit assessments prior to renewal;
    (iii) In the event that a bank issues an undertaking for its own 
account, the underlying transaction for which it is issued must be 
within the bank's authority and comply with any safety and soundness 
requirements applicable to that transaction.
    (3) Operational expertise. The bank should possess operational 
expertise that is commensurate with the sophistication of its 
independent undertaking activities.
    (4) Documentation. The bank must accurately reflect the bank's 
undertakings in its records, including any acceptance or deferred 
payment or other absolute obligation arising out of its contingent 
undertaking.
    (c) Coverage. An independent undertaking within the meaning of this 
section is not subject to the provisions of Sec. 7.1017.

[61 FR 4862, Feb. 9, 1996, as amended at 64 FR 60099, Nov. 4, 1999; 68 
FR 70131, Dec. 17, 2003]



Sec. 7.1017  National bank as guarantor or surety on indemnity bond.

    A national bank may lend its credit, bind itself as a surety to 
indemnify another, or otherwise become a guarantor (including, pursuant 
to 12 CFR 28.4, guaranteeing the deposits and other liabilities of its 
Edge corporations and Agreement corporations and of its corporate 
instrumentalities in foreign countries), if:
    (a) The bank has a substantial interest in the performance of the 
transaction involved (for example, a bank, as fiduciary, has a 
sufficient interest in

[[Page 189]]

the faithful performance by a cofiduciary of its duties to act as surety 
on the bond of such cofiduciary); or
    (b) The transaction is for the benefit of a customer and the bank 
obtains from the customer a segregated deposit that is sufficient in 
amount to cover the bank's total potential liability. A segregated 
deposit under this section includes collateral:
    (1) In which the bank has perfected its security interest (for 
example, if the collateral is a printed security, the bank must have 
obtained physical control of the security, and, if the collateral is a 
book entry security, the bank must have properly recorded its security 
interest); and
    (2) That has a market value, at the close of each business day, 
equal to the bank's total potential liability and is composed of:
    (i) Cash;
    (ii) Obligations of the United States or its agencies;
    (iii) Obligations fully guaranteed by the United States or its 
agencies as to principal and interest; or
    (iv) Notes, drafts, or bills of exchange or bankers' acceptances 
that are eligible for rediscount or purchase by a Federal Reserve Bank; 
or
    (3) That has a market value, at the close of each business day, 
equal to 110 percent of the bank's total potential liability and is 
composed of obligations of a State or political subdivision of a State.

[61 FR 4862, Feb. 9, 1996, as amended at 64 FR 60099, Nov. 4, 1999]



Sec. 7.1018  Automatic payment plan account.

    A national bank may, for the benefit and convenience of its savings 
depositors, adopt an automatic payment plan under which a savings 
account will earn dividends at the current rate paid on regular savings 
accounts. The depositor, upon reaching a previously designated age, 
receives his or her accumulated savings and earned interest in 
installments of equal amounts over a specified period.



Sec. 7.1020  Purchase of open accounts.

    (a) General. The purchase of open accounts is a part of the business 
of banking and within the power of a national bank.
    (b) Export transactions. A national bank may purchase open accounts 
in connection with export transactions; the accounts should be protected 
by insurance such as that provided by the Foreign Credit Insurance 
Association and the Export-Import Bank.



Sec. 7.1021  National bank participation in financial literacy programs.

    A national bank may participate in a financial literacy program on 
the premises of, or at a facility used by, a school. The school premises 
or facility will not be considered a branch of the bank if:
    (a) The bank does not establish and operate the school premises or 
facility on which the financial literacy program is conducted; and
    (b) The principal purpose of the financial literacy program is 
educational. For example, a program is educational if it is designed to 
teach students the principles of personal economics or the benefits of 
saving for the future, and is not designed for the purpose of profit-
making.

[66 FR 34791, July 2, 2001]



                      Subpart B_Corporate Practices



Sec. 7.2000  Corporate governance procedures.

    (a) General. A national bank proposing to engage in a corporate 
governance procedure shall comply with applicable Federal banking 
statutes and regulations, and safe and sound banking practices.
    (b) Other sources of guidance. To the extent not inconsistent with 
applicable Federal banking statutes or regulations, or bank safety and 
soundness, a national bank may elect to follow the corporate governance 
procedures of the law of the state in which the main office of the bank 
is located, the law of the state in which the holding company of the 
bank is incorporated, the Delaware General Corporation Law, Del. Code 
Ann. tit. 8 (1991, as amended 1994, and as amended thereafter), or the 
Model Business Corporation Act (1984, as amended 1994, and as amended 
thereafter). A national bank shall designate in its bylaws the body of 
law selected

[[Page 190]]

for its corporate governance procedures.
    (c) No-objection procedures. The OCC also considers requests for its 
staff's position on the ability of a national bank to engage in a 
particular corporate governance procedure in accordance with the no-
objection procedures set forth in Banking Circular 205 or any 
subsequently published agency procedures.\2\ Requests should demonstrate 
how the proposed practice is not inconsistent with applicable Federal 
statutes or regulations, and is consistent with safe and sound banking 
practices.
---------------------------------------------------------------------------

    \2\ Available upon request from the OCC Communications Division, 250 
E Street, SW., Washington, DC 20219, (202) 874-4700.
---------------------------------------------------------------------------



Sec. 7.2001  Notice of shareholders' meetings.

    A national bank must mail shareholders notice of the time, place, 
and purpose of all shareholders' meetings at least 10 days prior to the 
meeting by first class mail, unless the OCC determines that an emergency 
circumstance exists. Where a national bank is a wholly-owned subsidiary, 
the sole shareholder is permitted to waive notice of the shareholder's 
meeting. The articles of association, bylaws, or law applicable to a 
national bank may require a longer period of notice.



Sec. 7.2002  Director or attorney as proxy.

    Any person or group of persons, except the bank's officers, clerks, 
tellers, or bookkeepers, may be designated to act as proxy. The bank's 
directors or attorneys may act as proxy if they are not also employed as 
an officer, clerk, teller or bookkeeper of the bank.



Sec. 7.2003  Annual meeting for election of directors.

    When the day fixed for the regular annual meeting of the 
shareholders falls on a legal holiday in the state in which the bank is 
located, the shareholders' meeting shall be held, and the directors 
elected, on the next following banking day.



Sec. 7.2004  Honorary directors or advisory boards.

    A national bank may appoint honorary or advisory members of a board 
of directors to act in advisory capacities without voting power or power 
of final decision in matters concerning the business of the bank. Any 
listing of honorary or advisory directors must distinguish between them 
and the bank's board of directors or indicate their advisory status.



Sec. 7.2005  Ownership of stock necessary to qualify as director.

    (a) General. A national bank director must own a qualifying equity 
interest in a national bank or a company that has control of a national 
bank. The director must own the qualifying equity interest in his or her 
own right and meet a certain minimum threshold ownership.
    (b) Qualifying equity interest--(1) Minimum required equity 
interest. For purposes of this section, a qualifying equity interest 
includes common or preferred stock of the bank or of a company that 
controls the bank that has not less than an aggregate par value of 
$1,000, an aggregate shareholders' equity of $1,000, or an aggregate 
fair market value of $1,000.
    (i) The value of the common or preferred stock held by a national 
bank director is valued as of the date purchased or the date on which 
the individual became a director, whichever value is greater.
    (ii) In the case of a company that owns more than one national bank, 
a director may use his or her equity interest in the controlling company 
to satisfy, in whole or in part, the equity interest requirement for any 
or all of the controlled national banks.
    (iii) Upon request, the OCC may consider whether other interests in 
a company controlling a national bank constitute an interest equivalent 
to $1,000 par value of national bank stock.
    (2) Joint ownership and tenancy in common. Shares held jointly or as 
a tenant in common are qualifying shares held by a director in his or 
her own right only to the extent of the aggregate value of the shares 
which the director

[[Page 191]]

would be entitled to receive on dissolution of the joint tenancy or 
tenancy in common.
    (3) Shares in a living trust. Shares deposited by a person in a 
living trust (inter vivos trust) as to which the person is a trustee and 
retains an absolute power of revocation are shares owned by the person 
in his or her own right.
    (4) Other arrangements--(i) Shares held through retirement plans and 
similar arrangements. A director may hold his or her qualifying interest 
through a profit-sharing plan, individual retirement account, retirement 
plan, or similar arrangement, if the director retains beneficial 
ownership and legal control over the shares.
    (ii) Shares held subject to buyback agreements. A director may 
acquire and hold his or her qualifying interest pursuant to a stock 
repurchase or buyback agreement with a transferring shareholder under 
which the director purchases the qualifying shares subject to an 
agreement that the transferring shareholder will repurchase the shares 
when, for any reason, the director ceases to serve in that capacity. The 
agreement may give the transferring shareholder a right of first refusal 
to repurchase the qualifying shares if the director seeks to transfer 
ownership of the shares to a third person.
    (iii) Assignment of right to dividends or distributions. A director 
may assign the right to receive all dividends or distributions on his or 
her qualifying shares to another, including a transferring shareholder, 
if the director retains beneficial ownership and legal control over the 
shares.
    (iv) Execution of proxy. A director may execute a revocable or 
irrevocable proxy authorizing another, including a transferring 
shareholder, to vote his or her qualifying shares, provided the director 
retains beneficial ownership and legal control over the shares.
    (c) Non-qualifying ownership. The following are not shares held by a 
director in his or her own right:
    (1) Shares pledged by the holder to secure a loan. However, all or 
part of the funds used to purchase the required qualifying equity 
interest may be borrowed from any party, including the bank or its 
affiliates;
    (2) Shares purchased subject to an absolute option vested in the 
seller to repurchase the shares within a specified period; and
    (3) Shares deposited in a voting trust where the depositor 
surrenders:
    (i) Legal ownership (depositor ceases to be registered owner of the 
stock);
    (ii) Power to vote the stock or to direct how it shall be voted; or
    (iii) Power to transfer legal title to the stock.

[61 FR 4862, Feb. 9, 1996, as amended at 64 FR 60099, Nov. 4, 1999]



Sec. 7.2006  Cumulative voting in election of directors.

    When electing directors, a shareholder shall have as many votes as 
the number of directors to be elected multiplied by the number of the 
shareholder's shares. The shareholder may cast all these votes for one 
candidate, or distribute the votes among as many candidates as the 
shareholder chooses. If, after the first ballot, subsequent ballots are 
necessary to elect directors, a shareholder may not vote shares that he 
or she has already fully cumulated and voted in favor of a successful 
candidate.



Sec. 7.2007  Filling vacancies and increasing board of directors other than by shareholder action.

    (a) Increasing board of directors. If authorized by the bank's 
articles of association, between shareholder meetings a majority of the 
board of directors may increase the number of the bank's directors 
within the limits specified in 12 U.S.C. 71a. The board of directors may 
increase the number of directors only by up to two directors, when the 
number of directors last elected by shareholders was 15 or fewer, and by 
up to four directors, when the number of directors last elected by 
shareholders was 16 or more.
    (b) Vacancies. If a vacancy occurs on the board of directors, 
including a vacancy resulting from an increase in the number of 
directors, the vacancy may be filled by the shareholders, a majority of 
the board of directors remaining in office, or, if the directors 
remaining in office constitute fewer than a quorum, by an affirmative 
vote of a

[[Page 192]]

majority of all the directors remaining in office.



Sec. 7.2008  Oath of directors.

    (a) Administration of the oath. A notary public, including one who 
is a director but not an officer of the national bank, may administer 
the oath of directors. Any person, other than an officer of the bank, 
having an official seal and authorized by the state to administer oaths, 
may also administer the oath.
    (b) Execution of the oath. Each director attending the organization 
meeting shall execute either a joint or individual oath. A director not 
attending the organization meeting (the first meeting after the election 
of the directors) shall execute the individual oath. A director shall 
take another oath upon re-election, notwithstanding uninterupted 
service. Appropriate sample oaths are located in the ``Comptroller's 
Corporate Manual''.
    (c) Filing and recordkeeping. A national bank must file the original 
executed oaths of directors with the OCC and retain a copy in the bank's 
records in accordance with the Comptroller's Corporate Manual filing and 
recordkeeping instructions for executed oaths of directors.

[61 FR 4862, Feb. 9, 1996, as amended at 64 FR 60099, Nov. 4, 1999]



Sec. 7.2009  Quorum of the board of directors; proxies not permissible.

    A national bank shall provide in its articles of association or 
bylaws that for the transaction of business, a quorum of the board of 
directors is at least a majority of the entire board then in office. A 
national bank director may not vote by proxy.



Sec. 7.2010  Directors' responsibilities.

    The business and affairs of the bank shall be managed by or under 
the direction of the board of directors. The board of directors should 
refer to OCC published guidance for additional information regarding 
responsibilities of directors.



Sec. 7.2011  Compensation plans.

    Consistent with safe and sound banking practices and the 
compensation provisions of 12 CFR part 30, a national bank may adopt 
compensation plans, including, among others, the following:
    (a) Bonus and profit-sharing plans. A national bank may adopt a 
bonus or profit-sharing plan designed to ensure adequate remuneration of 
bank officers and employees.
    (b) Pension plans. A national bank may provide employee pension 
plans and make reasonable contributions to the cost of the pension plan.
    (c) Employee stock option and stock purchase plans. A national bank 
may provide employee stock option and stock purchase plans.



Sec. 7.2012  President as director; chief executive officer.

    Pursuant to 12 U.S.C. 76, the president of a national bank must be a 
member of the board of directors, but a director other than the 
president may be elected chairman of the board. A person other than the 
president may serve as chief executive officer, and this person is not 
required to be a director of the bank.



Sec. 7.2013  Fidelity bonds covering officers and employees.

    (a) Adequate coverage. All officers and employees of a national bank 
must have adequate fidelity coverage. The failure of directors to 
require bonds with adequate sureties and in sufficient amount may make 
the directors liable for any losses that the bank sustains because of 
the absence of such bonds. Directors should not serve as sureties on 
such bonds.
    (b) Factors. The board of directors should determine the amount of 
such coverage, premised upon a consideration of factors, including:
    (1) Internal auditing safeguards employed;
    (2) Number of employees;
    (3) Amount of deposit liabilities; and
    (4) Amount of cash and securities normally held by the bank.



Sec. 7.2014  Indemnification of institution-affiliated parties.

    (a) Administrative proceedings or civil actions initiated by Federal 
banking agencies. A national bank may only

[[Page 193]]

make or agree to make indemnification payments to an institution-
affiliated party with respect to an administrative proceeding or civil 
action initiated by any Federal banking agency, that are reasonable and 
consistent with the requirements of 12 U.S.C. 1828(k) and the 
implementing regulations thereunder. The term ``institution-affiliated 
party'' has the same meaning as set forth at 12 U.S.C. 1813(u).
    (b) Administrative proceeding or civil actions not initiated by a 
Federal banking agency--(1) General. In cases involving an 
administrative proceeding or civil action not initiated by a Federal 
banking agency, a national bank may indemnify an institution-affiliated 
party for damages and expenses, including the advancement of expenses 
and legal fees, in accordance with the law of the state in which the 
main office of the bank is located, the law of the state in which the 
bank's holding company is incorporated, or the relevant provisions of 
the Model Business Corporation Act (1984, as amended 1994, and as 
amended thereafter), or Delaware General Corporation Law, Del. Code Ann. 
tit. 8 (1991, as amended 1994, and as amended thereafter), provided such 
payments are consistent with safe and sound banking practices. A 
national bank shall designate in its bylaws the body of law selected for 
making indemnification payments under this paragraph.
    (2) Insurance premiums. A national bank may provide for the payment 
of reasonable premiums for insurance covering the expenses, legal fees, 
and liability of institution-affiliated parties to the extent that the 
expenses, fees, or liability could be indemnified under paragraph (b)(1) 
of this section.



Sec. 7.2015  Cashier.

    A national bank's bylaws, board of directors, or a duly designated 
officer may assign some or all of the duties previously performed by the 
bank's cashier to its president, chief executive officer, or any other 
officer.



Sec. 7.2016  Restricting transfer of stock and record dates.

    (a) Conditions for stock transfer. Under 12 U.S.C. 52, a national 
bank may impose conditions upon the transfer of its stock reasonably 
calculated to simplify the work of the bank with respect to stock 
transfers, voting at shareholders' meetings, and related matters and to 
protect it against fraudulent transfers.
    (b) Record dates. A national bank may close its stock records for a 
reasonable period to ascertain shareholders for voting purposes. The 
board of directors may fix a record date for determining the 
shareholders entitled to notice of, and to vote at, any meeting of 
shareholders. The record date should be in reasonable proximity to the 
date that notice is given to the shareholders of the meeting.



Sec. 7.2017  Facsimile signatures on bank stock certificates.

    The president and cashier, or other officers authorized by the 
bank's bylaws, shall sign each national bank stock certificate. The 
signatures may be manual or facsimile, including electronic means of 
signature. Each certificate must be sealed with the seal of the 
association.



Sec. 7.2018  Lost stock certificates.

    If a national bank does not provide for replacing lost, stolen, or 
destroyed stock certificates in its articles of association or bylaws, 
the bank may adopt procedures in accordance with Sec. 7.2000.



Sec. 7.2019  Loans secured by a bank's own shares.

    (a) Permitted agreements, relating to bank shares. A national bank 
may require a borrower holding shares of the bank to execute agreements:
    (1) Not to pledge, give away, transfer, or otherwise assign such 
shares;
    (2) To pledge such shares at the request of the bank when necessary 
to prevent loss; and
    (3) To leave such shares in the bank's custody.
    (b) Use of capital notes and debentures. A national bank may not 
make loans secured by a pledge of the bank's own capital notes and 
debentures. Such notes and debentures must be subordinated to the claims 
of depositors and other creditors of the issuing bank, and are, 
therefore, capital instruments within the purview of 12 U.S.C. 83.

[[Page 194]]



Sec. 7.2020  Acquisition and holding of shares as treasury stock.

    (a) Acquisition of outstanding shares. Pursuant to 12 U.S.C. 59, 
including the requirements for prior approval by the bank's shareholders 
and the OCC imposed by that statute, a national bank may acquire its 
outstanding shares and hold them as treasury stock, if the acquisition 
and retention of the shares is, and continues to be, for a legitimate 
corporate purpose.
    (b) Legitimate corporate purpose. Examples of legitimate corporate 
purposes include the acquisition and holding of treasury stock to:
    (1) Have shares available for use in connection with employee stock 
option, bonus, purchase, or similar plans;
    (2) Sell to a director for the purpose of acquiring qualifying 
shares;
    (3) Purchase a director's qualifying shares upon the cessation of 
the director's service in that capacity if there is no ready market for 
the shares;
    (4) Reduce the number of shareholders in order to qualify as a 
Subchapter S corporation; and
    (5) Reduce costs associated with shareholder communications and 
meetings.
    (c) Prohibition. It is not a legitimate corporate purpose to acquire 
or hold treasury stock on speculation about changes in its value.

[64 FR 60099, Nov. 4, 1999]



Sec. 7.2021  Preemptive rights.

    A national bank in its articles of association must grant or deny 
preemptive rights to the bank's shareholders. Any amendment to a 
national bank's articles of association which modifies such preemptive 
rights must be approved by a vote of the holders of two-thirds of the 
bank's outstanding voting shares.



Sec. 7.2022  Voting trusts.

    The shareholders of a national bank may establish a voting trust 
under the applicable law of a state selected by the participants and 
designated in the trust agreement, provided the implementation of the 
trust is consistent with safe and sound banking practices.



Sec. 7.2023  Reverse stock splits.

    (a) Authority to engage in reverse stock splits. A national bank may 
engage in a reverse stock split if the transaction serves a legitimate 
corporate purpose and provides adequate dissenting shareholders' rights.
    (b) Legitimate corporate purpose. Examples of legitimate corporate 
purposes include a reverse stock split to:
    (1) Reduce the number of shareholders in order to qualify as a 
Subchapter S corporation; and
    (2) Reduce costs associated with shareholder communications and 
meetings.

[64 FR 60099, Nov. 4, 1999]



Sec. 7.2024  Staggered terms for national bank directors and size of bank board.

    (a) Staggered terms. Any national bank may adopt bylaws that provide 
for staggering the terms of its directors. National banks shall provide 
the OCC with copies of any bylaws so amended.
    (b) Maximum term. Any national bank director may hold office for a 
term that does not exceed three years.
    (c) Number of directors. A national bank's board of directors shall 
consist of no fewer than 5 and no more than 25 members. A national bank 
may, after notice to the OCC, increase the size of its board of 
directors above the 25 member limit. A national bank seeking to increase 
the number of its directors must notify the OCC any time the proposed 
size would exceed 25 directors. The bank's notice shall specify the 
reason(s) for the increase in the size of the board of directors beyond 
the statutory limit.

[68 FR 70131, Dec. 17, 2003]



                        Subpart C_Bank Operations



Sec. 7.3000  Bank hours and closings.

    (a) Bank hours. A national bank's board of directors should review 
its banking hours, and, independently of any other bank, take 
appropriate action to establish a schedule of banking hours.
    (b) Emergency closings. Pursuant to 12 U.S.C. 95(b)(1), the 
Comptroller of the Currency (Comptroller), a state, or a

[[Page 195]]

legally authorized state official may declare a day a legal holiday if 
emergency conditions exist. That day is a legal holiday for national 
banks or their offices in the affected geographic area (i.e., throughout 
the country, in a state, or in part of a state). Emergency conditions 
include natural disasters and civil and municipal emergencies (e.g., 
severe flooding, or a power emergency declared by a local power company 
or government requesting that businesses in the affected area close). 
The Comptroller issues a proclamation authorizing the emergency closing 
in accordance with 12 U.S.C. 95 at the time of the emergency condition, 
or soon thereafter. When the Comptroller, a State, or a legally 
authorized State official declares a legal holiday due to emergency 
conditions, a national bank may temporarily limit or suspend operations 
at its affected offices. Alternatively, the national bank may continue 
its operations unless the Comptroller by written order directs 
otherwise.
    (c) Ceremonial closings. A state or a legally authorized state 
official may declare a day a legal holiday for ceremonial reasons. When 
a state or a legally authorized state official declares a day to be a 
legal holiday for ceremonial reasons, a national bank may choose to 
remain open or to close.
    (d) Liability. A national bank should assure that all liabilities or 
other obligations under the applicable law due to the bank's closing are 
satisfied.

[61 FR 4862, Feb. 9, 1996, as amended at 66 FR 34791, July 2, 2001]



Sec. 7.3001  Sharing space and employees.

    (a) Sharing space. A national bank may:
    (1) Lease excess space on bank premises to one or more other 
businesses (including other banks and financial institutions);
    (2) Share space jointly held with one or more other businesses; or
    (3) Offer its services in space owned or leased to other businesses.
    (b) Sharing employees. When sharing space with other businesses as 
described in paragraph (a) of this section, a national bank may provide, 
under one or more written agreements among the bank, the other 
businesses, and their employees, that:
    (1) A bank employee may act as agent for the other business; or
    (2) An employee of the other business may act as agent for the bank.
    (c) Supervisory conditions. When a national bank engages in 
arrangements of the types listed in paragraphs (a) and (b) of this 
section, the bank shall ensure that:
    (1) The other business is conspicuously, accurately, and separately 
identified;
    (2) Shared employees clearly and fully disclose the nature of their 
agency relationship to customers of the bank and of the other businesses 
so that customers will know the identity of the bank or business that is 
providing the product or service;
    (3) The arrangement does not constitute a joint venture or 
partnership with the other business under applicable state law;
    (4) All aspects of the relationship between the bank and the other 
business are conducted at arm's length, unless a special arrangement is 
warranted because the other business is a subsidiary of the bank;
    (5) Security issues arising from the activities of the other 
business on the premises are addressed;
    (6) The activities of the other business do not adversely affect the 
safety and soundness of the bank;
    (7) The shared employees or the entity for which they perform 
services are duly licensed or meet qualification requirements of 
applicable statutes and regulations pertaining to agents or employees of 
such other business; and
    (8) The assets and records of the parties are segregated.
    (d) Other legal requirements. When entering into arrangements, of 
the types described in paragraphs (a) and (b) of this section, and in 
conducting operations pursuant to those arrangements the bank must 
ensure that each arrangement complies with 12 U.S.C. 29 and 36 and with 
any other applicable laws and regulations. If the arrangement involves 
an affiliate or a shareholder, director, officer or employee of the 
bank:

[[Page 196]]

    (1) The bank must ensure compliance with all applicable statutory 
and regulatory provisions governing bank transactions with these persons 
or entities;
    (2) The parties must comply with all applicable fiduciary duties; 
and
    (3) The parties, if they are in competition with each other, must 
consider limitations, if any, imposed by applicable antitrust laws.



                          Subpart D_Preemption



Sec. 7.4000  Visitorial powers.

    (a) General rule. (1) Only the OCC or an authorized representative 
of the OCC may exercise visitorial powers with respect to national 
banks, except as provided in paragraph (b) of this section. State 
officials may not exercise visitorial powers with respect to national 
banks, such as conducting examinations, inspecting or requiring the 
production of books or records of national banks, or prosecuting 
enforcement actions, except in limited circumstances authorized by 
federal law. However, production of a bank's records (other than non-
public OCC information under 12 CFR part 4, subpart C) may be required 
under normal judicial procedures.
    (2) For purposes of this section, visitorial powers include:
    (i) Examination of a bank;
    (ii) Inspection of a bank's books and records;
    (iii) Regulation and supervision of activities authorized or 
permitted pursuant to federal banking law; and
    (iv) Enforcing compliance with any applicable federal or state laws 
concerning those activities.
    (3) Unless otherwise provided by Federal law, the OCC has exclusive 
visitorial authority with respect to the content and conduct of 
activities authorized for national banks under Federal law.
    (b) Exceptions to the general rule. Under 12 U.S.C. 484, the OCC's 
exclusive visitorial powers are subject to the following exceptions:
    (1) Exceptions authorized by Federal law. National banks are subject 
to such visitorial powers as are provided by Federal law. Examples of 
laws vesting visitorial power in other governmental entities include 
laws authorizing state or other Federal officials to:
    (i) Inspect the list of shareholders, provided that the official is 
authorized to assess taxes under state authority (12 U.S.C. 62; this 
section also authorizes inspection of the shareholder list by 
shareholders and creditors of a national bank);
    (ii) Review, at reasonable times and upon reasonable notice to a 
bank, the bank's records solely to ensure compliance with applicable 
state unclaimed property or escheat laws upon reasonable cause to 
believe that the bank has failed to comply with those laws (12 U.S.C. 
484(b));
    (iii) Verify payroll records for unemployment compensation purposes 
(26 U.S.C. 3305(c));
    (iv) Ascertain the correctness of Federal tax returns (26 U.S.C. 
7602);
    (v) Enforce the Fair Labor Standards Act (29 U.S.C. 211); and
    (vi) Functionally regulate certain activities, as provided under the 
Gramm-Leach-Bliley Act, Pub. L. 106-102, 113 Stat. 1338 (Nov. 12, 1999).
    (2) Exception for courts of justice. National banks are subject to 
such visitorial powers as are vested in the courts of justice. This 
exception pertains to the powers inherent in the judiciary and does not 
grant state or other governmental authorities any right to inspect, 
superintend, direct, regulate or compel compliance by a national bank 
with respect to any law, regarding the content or conduct of activities 
authorized for national banks under Federal law.
    (3) Exception for Congress. National banks are subject to such 
visitorial powers as shall be, or have been, exercised or directed by 
Congress or by either House thereof or by any committee of Congress or 
of either House duly authorized.
    (c) Report of examination. The report of examination made by an OCC 
examiner is designated solely for use in the supervision of the bank. 
The bank's copy of the report is the property of the OCC and is loaned 
to the bank and any holding company thereof solely for its confidential 
use. The bank's directors, in keeping with their responsibilities both 
to depositors and to shareholders, should thoroughly review the

[[Page 197]]

report. The report may be made available to other persons only in 
accordance with the rules on disclosure in 12 CFR part 4.

[61 FR 4862, Feb. 9, 1996, as amended at 64 FR 60100, Nov. 4, 1999; 69 
FR 1904, Jan. 13, 2004]



Sec. 7.4001  Charging interest at rates permitted competing institutions; charging interest to corporate borrowers.

    (a) Definition. The term ``interest'' as used in 12 U.S.C. 85 
includes any payment compensating a creditor or prospective creditor for 
an extension of credit, making available of a line of credit, or any 
default or breach by a borrower of a condition upon which credit was 
extended. It includes, among other things, the following fees connected 
with credit extension or availability: numerical periodic rates, late 
fees, creditor-imposed not sufficient funds (NSF) fees charged when a 
borrower tenders payment on a debt with a check drawn on insufficient 
funds, overlimit fees, annual fees, cash advance fees, and membership 
fees. It does not ordinarily include appraisal fees, premiums and 
commissions attributable to insurance guaranteeing repayment of any 
extension of credit, finders' fees, fees for document preparation or 
notarization, or fees incurred to obtain credit reports.
    (b) Authority. A national bank located in a state may charge 
interest at the maximum rate permitted to any state-chartered or 
licensed lending institution by the law of that state. If state law 
permits different interest charges on specified classes of loans, a 
national bank making such loans is subject only to the provisions of 
state law relating to that class of loans that are material to the 
determination of the permitted interest. For example, a national bank 
may lawfully charge the highest rate permitted to be charged by a state-
licensed small loan company, without being so licensed, but subject to 
state law limitations on the size of loans made by small loan companies.
    (c) Effect on state definitions of interest. The Federal definition 
of the term ``interest'' in paragraph (a) of this section does not 
change how interest is defined by the individual states (nor how the 
state definition of interest is used) solely for purposes of state law. 
For example, if late fees are not ``interest'' under state law where a 
national bank is located but state law permits its most favored lender 
to charge late fees, then a national bank located in that state may 
charge late fees to its intrastate customers. The national bank may also 
charge late fees to its interstate customers because the fees are 
interest under the Federal definition of interest and an allowable 
charge under state law where the national bank is located. However, the 
late fees would not be treated as interest for purposes of evaluating 
compliance with state usury limitations because state law excludes late 
fees when calculating the maximum interest that lending institutions may 
charge under those limitations.
    (d) Usury. A national bank located in a state the law of which 
denies the defense of usury to a corporate borrower may charge a 
corporate borrower any rate of interest agreed upon by a corporate 
borrower.

[61 FR 4862, Feb. 9, 1996, as amended at 66 FR 34791, July 2, 2001]



Sec. 7.4002  National bank charges.

    (a) Authority to impose charges and fees. A national bank may charge 
its customers non-interest charges and fees, including deposit account 
service charges.
    (b) Considerations. (1) All charges and fees should be arrived at by 
each bank on a competitive basis and not on the basis of any agreement, 
arrangement, undertaking, understanding, or discussion with other banks 
or their officers.
    (2) The establishment of non-interest charges and fees, their 
amounts, and the method of calculating them are business decisions to be 
made by each bank, in its discretion, according to sound banking 
judgment and safe and sound banking principles. A national bank 
establishes non-interest charges and fees in accordance with safe and 
sound banking principles if the bank employs a decision-making process 
through which it considers the following factors, among others:
    (i) The cost incurred by the bank in providing the service;

[[Page 198]]

    (ii) The deterrence of misuse by customers of banking services;
    (iii) The enhancement of the competitive position of the bank in 
accordance with the bank's business plan and marketing strategy; and
    (iv) The maintenance of the safety and soundness of the institution.
    (c) Interest. Charges and fees that are ``interest'' within the 
meaning of 12 U.S.C. 85 are governed by Sec. 7.4001 and not by this 
section.
    (d) State law. The OCC applies preemption principles derived from 
the United States Constitution, as interpreted through judicial 
precedent, when determining whether State laws apply that purport to 
limit or prohibit charges and fees described in this section.
    (e) National bank as fiduciary. This section does not apply to 
charges imposed by a national bank in its capacity as a fiduciary, which 
are governed by 12 CFR part 9.

[66 FR 34791, July 2, 2001]



Sec. 7.4003  Establishment and operation of a remote service unit by a national bank.

    A remote service unit (RSU) is an automated facility, operated by a 
customer of a bank, that conducts banking functions, such as receiving 
deposits, paying withdrawals, or lending money. A national bank may 
establish and operate an RSU pursuant to 12 U.S.C. 24(Seventh). An RSU 
includes an automated teller machine, automated loan machine, and 
automated device for receiving deposits. An RSU may be equipped with a 
telephone or televideo device that allows contact with bank personnel. 
An RSU is not a ``branch'' within the meaning of 12 U.S.C. 36(j), and is 
not subject to state geographic or operational restrictions or licensing 
laws.

[64 FR 60100, Nov. 4, 1999]



Sec. 7.4004  Establishment and operation of a deposit production office by a national bank.

    (a) General rule. A national bank or its operating subsidiary may 
engage in deposit production activities at a site other than the main 
office or a branch of the bank. A deposit production office (DPO) may 
solicit deposits, provide information about deposit products, and assist 
persons in completing application forms and related documents to open a 
deposit account. A DPO is not a branch within the meaning of 12 U.S.C. 
36(j) and 12 CFR 5.30(d)(1) so long as it does not receive deposits, pay 
withdrawals, or make loans. All deposit and withdrawal transactions of a 
bank customer using a DPO must be performed by the customer, either in 
person at the main office or a branch office of the bank, or by mail, 
electronic transfer, or a similar method of transfer.
    (b) Services of other persons. A national bank may use the services 
of, and compensate, persons not employed by the bank in its deposit 
production activities.

[64 FR 60100, Nov. 4, 1999]



Sec. 7.4005  Combination of loan production office, deposit production office, and remote service unit.

    A location at which a national bank operates a loan production 
office (LPO), a deposit production office (DPO), and a remote service 
unit (RSU) is not a ``branch'' within the meaning of 12 U.S.C. 36(j) by 
virtue of that combination. Since an LPO, DPO, or RSU is not, 
individually, a branch under 12 U.S.C. 36(j), any combination of these 
facilities at one location does not create a branch.

[64 FR 60100, Nov. 4, 1999]



Sec. 7.4006  Applicability of State law to national bank operating subsidiaries.

    Unless otherwise provided by Federal law or OCC regulation, State 
laws apply to national bank operating subsidiaries to the same extent 
that those laws apply to the parent national bank.

[66 FR 34791, July 2, 2001]



Sec. 7.4007  Deposit-taking.

    (a) Authority of national banks. A national bank may receive 
deposits and engage in any activity incidental to receiving deposits, 
including issuing evidence of accounts, subject to such terms, 
conditions, and limitations prescribed by the Comptroller of the 
Currency and any other applicable Federal law.

[[Page 199]]

    (b) Applicability of state law. (1) Except where made applicable by 
Federal law, state laws that obstruct, impair, or condition a national 
bank's ability to fully exercise its Federally authorized deposit-taking 
powers are not applicable to national banks.
    (2) A national bank may exercise its deposit-taking powers without 
regard to state law limitations concerning:
    (i) Abandoned and dormant accounts;\3\
---------------------------------------------------------------------------

    \3\ This does not apply to state laws of the type upheld by the 
United States Supreme Court in Anderson Nat'l Bank v. Luckett, 321 U.S. 
233 (1944), which obligate a national bank to ``pay [deposits] to the 
persons entitled to demand payment according to the law of the state 
where it does business.'' Id. at 248-249.
---------------------------------------------------------------------------

    (ii) Checking accounts;
    (iii) Disclosure requirements;
    (iv) Funds availability;
    (v) Savings account orders of withdrawal;
    (vi) State licensing or registration requirements (except for 
purposes of service of process); and
    (vii) Special purpose savings services; \4\
---------------------------------------------------------------------------

    \4\ State laws purporting to regulate national bank fees and charges 
are addressed in 12 CFR 7.4002.
---------------------------------------------------------------------------

    (c) State laws that are not preempted. State laws on the following 
subjects are not inconsistent with the deposit-taking powers of national 
banks and apply to national banks to the extent that they only 
incidentally affect the exercise of national banks' deposit-taking 
powers:
    (1) Contracts;
    (2) Torts;
    (3) Criminal law; \5\
---------------------------------------------------------------------------

    \5\ But see the distinction drawn by the Supreme Court in Easton v. 
Iowa, 188 U.S. 220, 238 (1903) between ``crimes defined and punishable 
at common law or by the general statutes of a state and crimes and 
offences cognizable under the authority of the United States.'' The 
Court stated that ``[u]ndoubtedly a state has the legitimate power to 
define and punish crimes by general laws applicable to all persons 
within its jurisdiction * * *. But it is without lawful power to make 
such special laws applicable to banks organized and operating under the 
laws of the United States.'' Id. at 239 (holding that Federal law 
governing the operations of national banks preempted a state criminal 
law prohibiting insolvent banks from accepting deposits).
---------------------------------------------------------------------------

    (4) Rights to collect debts;
    (5) Acquisition and transfer of property;
    (6) Taxation;
    (7) Zoning; and
    (8) Any other law the effect of which the OCC determines to be 
incidental to the deposit-taking operations of national banks or 
otherwise consistent with the powers set out in paragraph (a) of this 
section.

[69 FR 1916, Jan. 13, 2004]



Sec. 7.4008  Lending.

    (a) Authority of national banks. A national bank may make, sell, 
purchase, participate in, or otherwise deal in loans and interests in 
loans that are not secured by liens on, or interests in, real estate, 
subject to such terms, conditions, and limitations prescribed by the 
Comptroller of the Currency and any other applicable Federal law.
    (b) Standards for loans. A national bank shall not make a consumer 
loan subject to this Sec. 7.4008 based predominantly on the bank's 
realization of the foreclosure or liquidation value of the borrower's 
collateral, without regard to the borrower's ability to repay the loan 
according to its terms. A bank may use any reasonable method to 
determine a borrower's ability to repay, including, for example, the 
borrower's current and expected income, current and expected cash flows, 
net worth, other relevant financial resources, current financial 
obligations, employment status, credit history, or other relevant 
factors.
    (c) Unfair and deceptive practices. A national bank shall not engage 
in unfair or deceptive practices within the meaning of section 5 of the 
Federal Trade Commission Act, 15 U.S.C. 45(a)(1), and regulations 
promulgated thereunder in connection with loans made under this Sec. 
7.4008.
    (d) Applicability of state law. (1) Except where made applicable by 
Federal law, state laws that obstruct, impair, or condition a national 
bank's ability to fully exercise its Federally authorized non-real 
estate lending powers are not applicable to national banks.

[[Page 200]]

    (2) A national bank may make non-real estate loans without regard to 
state law limitations concerning:
    (i) Licensing, registration (except for purposes of service of 
process), filings, or reports by creditors;
    (ii) The ability of a creditor to require or obtain insurance for 
collateral or other credit enhancements or risk mitigants, in 
furtherance of safe and sound banking practices;
    (iii) Loan-to-value ratios;
    (iv) The terms of credit, including the schedule for repayment of 
principal and interest, amortization of loans, balance, payments due, 
minimum payments, or term to maturity of the loan, including the 
circumstances under which a loan may be called due and payable upon the 
passage of time or a specified event external to the loan;
    (v) Escrow accounts, impound accounts, and similar accounts;
    (vi) Security property, including leaseholds;
    (vii) Access to, and use of, credit reports;
    (viii) Disclosure and advertising, including laws requiring specific 
statements, information, or other content to be included in credit 
application forms, credit solicitations, billing statements, credit 
contracts, or other credit-related documents;
    (ix) Disbursements and repayments; and
    (x) Rates of interest on loans.\6\
---------------------------------------------------------------------------

    \6\ The limitations on charges that comprise rates of interest on 
loans by national banks are determined under Federal law. See 12 U.S.C. 
85; 12 CFR 7.4001. State laws purporting to regulate national bank fees 
and charges that do not constitute interest are addressed in 12 CFR 
7.4002.
---------------------------------------------------------------------------

    (e) State laws that are not preempted. State laws on the following 
subjects are not inconsistent with the non-real estate lending powers of 
national banks and apply to national banks to the extent that they only 
incidentally affect the exercise of national banks' non-real estate 
lending powers:
    (1) Contracts;
    (2) Torts;
    (3) Criminal law;\7\
---------------------------------------------------------------------------

    \7\ See supra note 5 regarding the distinction drawn by the Supreme 
Court in Easton v. Iowa, 188 U.S. 220, 238 (1903) between ``crimes 
defined and punishable at common law or by the general statutes of a 
state and crimes and offences cognizable under the authority of the 
United States.''
---------------------------------------------------------------------------

    (4) Rights to collect debts;
    (5) Acquisition and transfer of property;
    (6) Taxation;
    (7) Zoning; and
    (8) Any other law the effect of which the OCC determines to be 
incidental to the non-real estate lending operations of national banks 
or otherwise consistent with the powers set out in paragraph (a) of this 
section.

[69 FR 1916, Jan. 13, 2004]



Sec. 7.4009  Applicability of state law to national bank operations.

    (a) Authority of national banks. A national bank may exercise all 
powers authorized to it under Federal law, including conducting any 
activity that is part of, or incidental to, the business of banking, 
subject to such terms, conditions, and limitations prescribed by the 
Comptroller of the Currency and any applicable Federal law.
    (b) Applicability of state law. Except where made applicable by 
Federal law, state laws that obstruct, impair, or condition a national 
bank's ability to fully exercise its powers to conduct activities 
authorized under Federal law do not apply to national banks.
    (c) Applicability of state law to particular national bank 
activities. (1) The provisions of this section govern with respect to 
any national bank power or aspect of a national bank's operations that 
is not covered by another OCC regulation specifically addressing the 
applicability of state law.
    (2) State laws on the following subjects are not inconsistent with 
the powers of national banks and apply to national banks to the extent 
that they only incidentally affect the exercise of national bank powers:
    (i) Contracts;
    (ii) Torts;
    (iii) Criminal law \8\
---------------------------------------------------------------------------

    \8\ 8 Id.
---------------------------------------------------------------------------

    (iv) Rights to collect debts;
    (v) Acquisition and transfer of property;
    (vi) Taxation;
    (vii) Zoning; and

[[Page 201]]

    (viii) Any other law the effect of which the OCC determines to be 
incidental to the exercise of national bank powers or otherwise 
consistent with the powers set out in paragraph (a) of this section.

[69 FR 1917, Jan. 13, 2004]



                     Subpart E_Electronic Activities

    Source: 67 FR 35004, May 17, 2002, unless otherwise noted.



Sec. 7.5000  Scope.

    This subpart applies to a national bank's use of technology to 
deliver services and products consistent with safety and soundness.



Sec. 7.5001  Electronic activities that are part of, or incidental to, the business of banking.

    (a) Purpose. This section identifies the criteria that the OCC uses 
to determine whether an electronic activity is authorized as part of, or 
incidental to, the business of banking under 12 U.S.C. 24 (Seventh) or 
other statutory authority.
    (b) Restrictions and conditions on electronic activities. The OCC 
may determine that activities are permissible under 12 U.S.C. 24 
(Seventh) or other statutory authority only if they are subject to 
standards or conditions designed to provide that the activities function 
as intended and are conducted safely and soundly, in accordance with 
other applicable statutes, regulations, or supervisory policies.
    (c) Activities that are part of the business of banking. (1) An 
activity is authorized for national banks as part of the business of 
banking if the activity is described in 12 U.S.C. 24 (Seventh) or other 
statutory authority. In determining whether an electronic activity is 
part of the business of banking, the OCC considers the following 
factors:
    (i) Whether the activity is the functional equivalent to, or a 
logical outgrowth of, a recognized banking activity;
    (ii) Whether the activity strengthens the bank by benefiting its 
customers or its business;
    (iii) Whether the activity involves risks similar in nature to those 
already assumed by banks; and
    (iv) Whether the activity is authorized for state-chartered banks.
    (2) The weight accorded each factor set out in paragraph (c)(1) of 
this section depends on the facts and circumstances of each case.
    (d) Activities that are incidental to the business of banking. (1) 
An electronic banking activity is authorized for a national bank as 
incidental to the business of banking if it is convenient or useful to 
an activity that is specifically authorized for national banks or to an 
activity that is otherwise part of the business of banking. In 
determining whether an activity is convenient or useful to such 
activities, the OCC considers the following factors:
    (i) Whether the activity facilitates the production or delivery of a 
bank's products or services, enhances the bank's ability to sell or 
market its products or services, or improves the effectiveness or 
efficiency of the bank's operations, in light of risks presented, 
innovations, strategies, techniques and new technologies for producing 
and delivering financial products and services; and
    (ii) Whether the activity enables the bank to use capacity acquired 
for its banking operations or otherwise avoid economic loss or waste.
    (2) The weight accorded each factor set out in paragraph (d)(1) of 
this section depends on the facts and circumstances of each case.



Sec. 7.5002  Furnishing of products and services by electronic means and facilities.

    (a) Use of electronic means and facilities. A national bank may 
perform, provide, or deliver through electronic means and facilities any 
activity, function, product, or service that it is otherwise authorized 
to perform, provide, or deliver, subject to Sec. 7.5001(b) and 
applicable OCC guidance. The following list provides examples of 
permissible activities under this authority. This list is illustrative 
and not exclusive; the OCC may determine that other activities are 
permissible pursuant to this authority.
    (1) Acting as an electronic finder by:

[[Page 202]]

    (i) Establishing, registering, and hosting commercially enabled web 
sites in the name of sellers;
    (ii) Establishing hyperlinks between the bank's site and a third-
party site, including acting as a ``virtual mall'' by providing a 
collection of links to web sites of third-party vendors, organized by-
product type and made available to bank customers;
    (iii) Hosting an electronic marketplace on the bank's Internet web 
site by providing links to the web sites of third-party buyers or 
sellers through the use of hypertext or other similar means;
    (iv) Hosting on the bank's servers the Internet web site of:
    (A) A buyer or seller that provides information concerning the 
hosted party and the products or services offered or sought and allows 
the submission of interest, bids, offers, orders and confirmations 
relating to such products or services; or
    (B) A governmental entity that provides information concerning the 
services or benefits made available by the governmental entity, assists 
persons in completing applications to receive such services or benefits 
and permits persons to transmit their applications for such services or 
benefits;
    (v) Operating an Internet web site that permits numerous buyers and 
sellers to exchange information concerning the products and services 
that they are willing to purchase or sell, locate potential counter-
parties for transactions, aggregate orders for goods or services with 
those made by other parties, and enter into transactions between 
themselves;
    (vi) Operating a telephone call center that provides permissible 
finder services; and
    (vii) Providing electronic communications services relating to all 
aspects of transactions between buyers and sellers;
    (2) Providing electronic bill presentment services;
    (3) Offering electronic stored value systems; and
    (4) Safekeeping for personal information or valuable confidential 
trade or business information, such as encryption keys.
    (b) Applicability of guidance and requirements not affected. When a 
national bank performs, provides, or delivers through electronic means 
and facilities an activity, function, product, or service that it is 
otherwise authorized to perform, provide, or deliver, the electronic 
activity is not exempt from the regulatory requirements and supervisory 
guidance that the OCC would apply if the activity were conducted by non-
electronic means or facilities.
    (c) State laws. As a general rule, and except as provided by Federal 
law, State law is not applicable to a national bank's conduct of an 
authorized activity through electronic means or facilities if the State 
law, as applied to the activity, would be preempted pursuant to 
traditional principles of Federal preemption derived from the Supremacy 
Clause of the U.S. Constitution and applicable judicial precedent. 
Accordingly, State laws that stand as an obstacle to the ability of 
national banks to exercise uniformly their Federally authorized powers 
through electronic means or facilities, are not applicable to national 
banks.



Sec. 7.5003  Composite authority to engage in electronic activities.

    Unless otherwise prohibited by Federal law, a national bank may 
engage in an electronic activity that is comprised of several component 
activities if each of the component activities is itself part of or 
incidental to the business of banking or is otherwise permissible under 
Federal law.



Sec. 7.5004  Sale of excess electronic capacity and by-products.

    (a) A national bank may, in order to optimize the use of the bank's 
resources or avoid economic loss or waste, market and sell to third 
parties electronic capacities legitimately acquired or developed by the 
bank for its banking business.
    (b) With respect to acquired equipment or facilities, legitimate 
excess electronic capacity that may be sold to others can arise in a 
variety of situations, including the following:
    (1) Due to the characteristics of the desired equipment or 
facilities available in the market, the capacity of the most practical 
optimal equipment or

[[Page 203]]

facilities available to meet the bank's requirements exceeds its present 
needs;
    (2) The acquisition and retention of additional capacity, beyond 
present needs, reasonably may be necessary for planned future expansion 
or to meet the expected future banking needs during the useful life of 
the equipment;
    (3) Requirements for capacity fluctuate because a bank engages in 
batch processing of banking transactions or because a bank must have 
capacity to meet peak period demand with the result that the bank has 
periods when its capacity is underutilized; and
    (4) After the initial acquisition of capacity thought to be fully 
needed for banking operations, the bank experiences either a decline in 
level of the banking operations or an increase in the efficiency of the 
banking operations using that capacity.
    (c) Types of electronic capacity in equipment or facilities that 
banks may have legitimately acquired and that may be sold to third 
parties if excess to the bank's needs for banking purposes include:
    (1) Data processing services;
    (2) Production and distribution of non-financial software;
    (3) Providing periodic back-up call answering services;
    (4) Providing full Internet access;
    (5) Providing electronic security system support services;
    (6) Providing long line communications services; and
    (7) Electronic imaging and storage.
    (d) A national bank may sell to third parties electronic by-products 
legitimately acquired or developed by the bank for its banking business. 
Examples of electronic by-products that banks may have legitimately 
acquired that may be sold to third parties if excess to the bank's needs 
include:
    (1) Software acquired (not merely licensed) or developed by the bank 
for banking purposes or to support its banking business; and
    (2) Electronic databases, records, or media (such as electronic 
images) developed by the bank for or during the performance of its 
permissible data processing activities.



Sec. 7.5005  National bank acting as digital certification authority.

    (a) It is part of the business of banking under 12 U.S.C. 
24(Seventh) for a national bank to act as a certificate authority and to 
issue digital certificates verifying the identity of persons associated 
with a particular public/private key pair. As part of this service, the 
bank may also maintain a listing or repository of public keys.
    (b) A national bank may issue digital certificates verifying 
attributes in addition to identity of persons associated with a 
particular public/private key pair where the attribute is one for which 
verification is part of or incidental to the business of banking. For 
example, national banks may issue digital certificates verifying certain 
financial attributes of a customer as of the current or a previous date, 
such as account balance as of a particular date, lines of credit as of a 
particular date, past financial performance of the customer, and 
verification of customer relationship with the bank as of a particular 
date.
    (c) When a national bank issues a digital certificate relating to 
financial capacity under this section, the bank shall include in that 
certificate an express disclaimer stating that the bank does not thereby 
promise or represent that funds will be available or will be advanced 
for any particular transaction.



Sec. 7.5006  Data processing.

    (a) Eligible activities. It is part of the business of banking under 
12 U.S.C. 24(Seventh) for a national bank to provide data processing, 
and data transmission services, facilities (including equipment, 
technology, and personnel), data bases, advice and access to such 
services, facilities, data bases and advice, for itself and for others, 
where the data is banking, financial, or economic data, and other types 
of data if the derivative or resultant product is banking, financial, or 
economic data. For this purpose, economic data includes anything of 
value in banking and financial decisions.
    (b) Other data. A national bank also may perform the activities 
described in paragraph (a) of this section for itself and others with 
respect to additional

[[Page 204]]

types of data to the extent convenient or useful to provide the data 
processing services described in paragraph (a), including where 
reasonably necessary to conduct those activities on a competitive basis. 
The total revenue attributable to the bank's data processing activities 
under this section must be derived predominantly from processing the 
activities described in paragraph (a) of this section.



Sec. 7.5007  Correspondent services.

    It is part of the business of banking for a national bank to offer 
as a correspondent service to any of its affiliates or to other 
financial institutions any service it may perform for itself. The 
following list provides examples of electronic activities that banks may 
offer correspondents under this authority. This list is illustrative and 
not exclusive; the OCC may determine that other activities are 
permissible pursuant to this authority.
    (a) The provision of computer networking packages and related 
hardware;
    (b) Data processing services;
    (c) The sale of software that performs data processing functions;
    (d) The development, operation, management, and marketing of 
products and processing services for transactions conducted at 
electronic terminal devices;
    (e) Item processing services and related software;
    (f) Document control and record keeping through the use of 
electronic imaging technology;
    (g) The provision of Internet merchant hosting services for resale 
to merchant customers;
    (h) The provision of communication support services through 
electronic means; and
    (i) Digital certification authority services.



Sec. 7.5008  Location of a national bank conducting electronic activities.

    A national bank shall not be considered located in a State solely 
because it physically maintains technology, such as a server or 
automated loan center, in that state, or because the bank's products or 
services are accessed through electronic means by customers located in 
the state.



Sec. 7.5009  Location under 12 U.S.C. 85 of national banks operating exclusively through the Internet.

    For purposes of 12 U.S.C. 85, the main office of a national bank 
that operates exclusively through the Internet is the office identified 
by the bank under 12 U.S.C. 22(Second) or as relocated under 12 U.S.C. 
30 or other appropriate authority.



Sec. 7.5010  Shared electronic space.

    National banks that share electronic space, including a co-branded 
web site, with a bank subsidiary, affiliate, or another third-party must 
take reasonable steps to clearly, conspicuously, and understandably 
distinguish between products and services offered by the bank and those 
offered by the bank's subsidiary, affiliate, or the third-party.



PART 8_ASSESSMENT OF FEES--Table of Contents




Sec.
8.1 Scope and application.
8.2 Semiannual assessment.
8.6 Fees for special examinations and investigations.
8.7 Payment of interest on delinquent assessments and examination and 
          investigation fees.
8.8 Notice of Comptroller of the Currency fees.

    Authority: 12 U.S.C. 93a, 481, 482, 1867, 3102, and 3108; and 15 
U.S.C. 78c and 78l.



Sec. 8.1  Scope and application.

    The assessments contained in this part are made pursuant to the 
authority contained in 12 U.S.C. 93a, 481, 482, 1867, 3102, and 3108; 
and 15 U.S.C. 78c and 78l.

[70 FR 69643, Nov. 17, 2005]



Sec. 8.2  Semiannual assessment.

    (a) Each national bank shall pay to the Comptroller of the Currency 
a semiannual assessment fee, due by March 31 and September 30 of each 
year, for the six month period beginning on January 1 and July 1 before 
each payment date. The Comptroller of the Currency will calculate the 
amount due under this section and provide a notice of assessments to 
each national

[[Page 205]]

bank no later than 7 business days prior to March 31 and September 30 of 
each year. The semiannual assessment will be calculated as follows:

------------------------------------------------------------------------
 If the bank's total assets          The semiannual assessment is:
 (consolidated domestic and  -------------------------------------------
 foreign subsidiaries) are:   This amount--       Plus        Of excess
-----------------------------------------------------------    over--
    Over--     But not over--  Base amount      Marginal   -------------
--------------               ---------------     rates
              ---------------               ---------------   Column E
   Column A       Column B       Column C       Column D
------------------------------------------------------------------------
   Million        Million     .............  .............     Million
          $0             $2             X1              0
           2             20             X2             Y1             $2
          20            100             X3             Y2             20
         100            200             X4             Y3            100
         200          1,000             X5             Y4            200
       1,000          2,000             X6             Y5          1,000
       2,000          6,000             X7             Y6          2,000
       6,000         20,000             X8             Y7          6,000
      20,000         40,000             X9             Y8         20,000
      40,000   .............           X10             Y9         40,000
------------------------------------------------------------------------

    (1) Every national bank falls into one of the ten asset-size 
brackets denoted by Columns A and B. A bank's semiannual assessment is 
composed of two parts. The first part is the calculation of a base 
amount of the assessment, which is computed on the assets of the bank up 
to the lower endpoint (Column A) of the bracket in which it falls. This 
base amount of the assessment is calculated by the OCC in Column C.
    (2) The second part is the calculation of assessments due on the 
remaining assets of the bank in excess of Column E. The excess is 
assessed at the marginal rate shown in Column D.
    (3) The total semiannual assessment is the amount in Column C, plus 
the amount of the bank's assets in excess of Column E times the marginal 
rate in Column D: Assessments = C+[(Assets-E) x D].
    (4) Each year, the OCC may index the marginal rates in Column D to 
adjust for the percent change in the level of prices, as measured by 
changes in the Gross Domestic Product Implicit Price Deflator (GDPIPD) 
for each June-to-June period. The OCC may at its discretion adjust 
marginal rates by amounts less than the percentage change in the GDPIPD. 
The OCC will also adjust the amounts in Column C to reflect any change 
made to the marginal rate.
    (5) The specific marginal rates and complete assessment schedule 
will be published in the ``Notice of Comptroller of the Currency Fees,'' 
provided for at Sec. 8.8 of this part. Each semiannual assessment is 
based upon the total assets shown in the national bank's most recent 
``Consolidated Reports of Condition and Income'' (Call Report) preceding 
the payment date. Each bank subject to the jurisdiction of the 
Comptroller of the Currency on the date of the second or fourth 
quarterly Call Report required by the Office under 12 U.S.C. 161 is 
subject to the full assessment for the next six month period.
    (6)(i) Notwithstanding any other provision of this part, the OCC may 
reduce the semiannual assessment for each non-lead bank by a percentage 
that it will specify in the Notice of Comptroller of the Currency Fees 
described in Sec. 8.8.
    (ii) For purposes of this paragraph (a)(6):
    (A) Lead bank means the largest national bank controlled by a 
company, based on a comparison of the total assets held by each national 
bank controlled by that company as reported in each bank's Call Report 
filed for the quarter immediately preceding the payment of a semiannual 
assessment.
    (B) Non-lead bank means a national bank that is not the lead bank 
controlled by a company that controls two or more national banks.
    (C) Control and company have the same meanings as these terms have 
in sections 2(a)(2) and 2(b), respectively, of the Bank Holding Company 
Act of 1956 (12 U.S.C. 1841(a)(2) and (b)).

[[Page 206]]

    (b)(1) Each Federal branch and each Federal agency shall pay to the 
Comptroller of the Currency a semiannual assessment fee, due by March 31 
and September 30 of each year, for the six month period beginning on 
January 1 and July 1 before each payment date. The Comptroller of the 
Currency will calculate the amount due under this section and provide a 
notice of assessments to each national bank no later than 7 business 
days prior to March 31 and September 30 of each year.
    (2) The amount of the semiannual assessment paid by each Federal 
branch and Federal agency shall be computed at the same rate as provided 
in the Table in 12 CFR 8.2(a); however, only the total domestic assets 
of the Federal branch or Federal agency shall be subject to assessment.
    (3) Each semiannual assessment of each Federal branch or Federal 
agency is based upon the total assets shown in the Federal branch's Call 
Report most recently preceding the payment date. Each Federal branch or 
Federal agency subject to the jurisdiction of the OCC on the date of the 
second and fourth Call Reports is subject to the full assessment for the 
next six-month period.
    (4)(i) Notwithstanding any other provision of this part, the OCC may 
reduce the semiannual assessment for each non-lead Federal branch or 
agency by an amount that it will specify in the Notice of Comptroller of 
the Currency Fees described in Sec. 8.8.
    (ii) For purposes of this paragraph (b)(4):
    (A) Lead Federal branch or agency means the largest Federal branch 
or agency of a foreign bank, based on a comparison of the total assets 
held by each Federal branch or agency of that foreign bank as reported 
in each Federal branch's or agency's Call Report filed for the quarter 
immediately preceding the payment of a semiannual assessment.
    (B) Non-lead Federal branch or agency means a Federal branch or 
Federal agency that is not the lead Federal branch or agency of a 
foreign bank that controls two or more Federal branches or agencies.
    (c) Additional assessment for independent credit card banks--(1) 
General rule. In addition to the assessment calculated according to 
paragraph (a) of this section, each independent credit card bank will 
pay an assessment based on receivables attributable to credit card 
accounts owned by the bank. This assessment will be computed by adding 
to its asset-based assessment an additional amount determined by its 
level of receivables attributable. The dollar amount of the additional 
assessment will be published in the ``Notice of Comptroller of the 
Currency Notice of Fees,'' described at Sec. 8.8.
    (2) Credit card banks affiliated with full-service national banks. 
The OCC will assess an independent credit card bank in accordance with 
paragraph (c)(1) of this section, notwithstanding that the bank is 
affiliated with a full-service national bank, if the OCC concludes that 
the affiliation is intended to evade this part.
    (3) Definitions. For purposes of this paragraph (c), the following 
definitions apply:
    (i) Affiliate has the same meaning as this term has in 12 U.S.C. 
221a(b).
    (ii) Engaged primarily in card operations means a bank described in 
section 2(c)(2)(F) of the Bank Holding Company Act (12 U.S.C. 
1841(c)(2)(F)) or whose ratio of total gross receivables attributable to 
the bank's balance sheet assets exceeds 50%.
    (iii) Full-service national bank is a national bank that generates 
more than 50% of its interest and non-interest income from activities 
other than credit card operations or trust activities and is authorized 
according to its charter to engage in all types of permissible banking 
activities.
    (iv) Independent credit card bank is a national bank that engages 
primarily in credit card operations and is not affiliated with a full-
service national bank.
    (v) Receivables attributable is the total amount of outstanding 
balances due on credit card accounts owned by an independent credit card 
bank (the receivables attributable to those accounts) on the last day of 
the assessment period, minus receivables retained on the bank's balance 
sheet as of that day.
    (4) Reports of receivables attributable. Independent credit card 
banks will report receivables attributable data to

[[Page 207]]

the OCC semiannually at a time specified by the OCC.
    (d) Surcharge based on the condition of the bank. Subject to any 
limit that the OCC prescribes in the Notice of the Comptroller of the 
Currency Fees, the OCC shall apply a surcharge to the semiannual 
assessment computed in accordance with paragraphs (a) through (c) of 
this section. This surcharge will be determined by multiplying the 
semiannual assessment computed in accordance with paragraphs (a) through 
(c) of this section by--
    (1) 1.5, in the case of any bank that receives a composite rating of 
3 under the Uniform Financial Institutions Rating System (UFIRS) and any 
Federal branch or agency that receives a composite rating of 3 under the 
ROCA rating system (which rates risk management, operational controls, 
compliance, and asset quality) at its most recent examination; and
    (2) 2.0, in the case of any bank that receives a composite UFIRS 
rating of 4 or 5 and any Federal branch or agency that receives a 
composite rating of 4 or 5 under the ROCA rating system at its most 
recent examination.

[44 FR 20065, Apr. 4, 1979, as amended at 49 FR 26205, June 27, 1984; 49 
FR 50602, Dec. 31, 1984; 53 FR 48627, Dec. 1, 1988; 55 FR 49842, Nov. 
30, 1990; 57 FR 22416, May 28, 1992; 61 FR 64002, Dec. 2, 1996; 62 FR 
54745, Oct. 21, 1997; 62 FR 64137, Dec. 4, 1997; 66 FR 29893, June 1, 
2001; 66 FR 57647, Nov. 16, 2001; 66 FR 58786, Nov. 23, 2001; 67 FR 
57509, Sept. 11, 2002; 67 FR 62873, Oct. 9, 2002; 70 FR 69643, Nov. 17, 
2005]



Sec. 8.6  Fees for special examinations and investigations.

    (a) Fees. Pursuant to the authority contained in 12 U.S.C. 481 and 
482, the Office of the Comptroller of the Currency assesses a fee for:
    (1) Examining the fiduciary activities of national banks and related 
entities;
    (2) Conducting special examinations and investigations of national 
banks and Federal branches or Federal agencies of foreign banks;
    (3) Conducting special examinations and investigations of an entity 
with respect to its performance of activities described in section 7(c) 
of the Bank Service Company Act (12 U.S.C. 1867(c)), if the OCC 
determines that assessment of the fee is warranted with regard to a 
particular bank because of the high risk or unusual nature of the 
activities performed; the significance to the bank's operations and 
income of the activities performed; or the extent to which the bank has 
sufficient systems, controls, and personnel to adequately monitor, 
measure, and control risks arising from such activities;
    (4) Conducting special examinations and investigations of affiliates 
of national banks and Federal branches or Federal agencies of foreign 
banks; and
    (5) Conducting examinations and investigations made pursuant to 12 
CFR part 5, Rules, Policies, and Procedures for Corporate Activities.
    (b) Notice of Comptroller of the Currency Fees. The OCC publishes 
the fee schedule for fiduciary activities, special examinations and 
investigations, examinations of affiliates and examinations related to 
corporate activities in the Notice of Comptroller of the Currency Fees 
described in Sec. 8.8.
    (c) Additional assessments on trust banks--(1) Independent trust 
banks. The assessment of independent trust banks will include a 
fiduciary and related asset component, in addition to the assessment 
calculated according to Sec. 8.2 of this part, as follows:
    (i) Minimum fee. All independent trust banks will pay a minimum fee, 
to be provided in the Notice of Comptroller of the Currency Fees.
    (ii) Additional amount for independent trust banks with fiduciary 
and related assets in excess of $1 billion. Independent trust banks with 
fiduciary and related assets in excess of $1 billion will pay an amount 
that exceeds the minimum fee. The amount to be paid will be calculated 
by multiplying the amount of fiduciary and related assets by a rate or 
rates provided by the OCC in the Notice of Comptroller of the Currency 
Fees.
    (iii) Surcharge based on the condition of the bank. Subject to any 
limit that the OCC prescribes in the Notice of the Comptroller of the 
Currency Fees, the OCC shall adjust the semiannual assessment computed 
in accordance with paragraphs (c)(1)(i) and (ii) of this section by 
multiplying that figure by 1.5 for each independent trust bank that 
receives a composite rating of 3 under the Uniform Financial 
Institutions

[[Page 208]]

Rating System (UFIRS) at its most recent examination and by 2.0 for each 
bank that receives a composite UFIRS rating of 4 or 5 at such 
examination.
    (2) Trust banks affiliated with full-service national banks. The OCC 
will assess a trust bank in accordance with paragraph (c)(1) of this 
section, notwithstanding that the bank is affiliated with a full-service 
national bank, if the OCC concludes that the affiliation is intended to 
evade the assessment regulation.
    (3) Definitions. For purposes of this paragraph (c) of this section, 
the following definitions apply:
    (i) Affiliate has the same meaning as this term has in 12 U.S.C. 
221a(b);
    (ii) Full-service national bank is a national bank that generates 
more than 50% of its interest and non-interest income from activities 
other than credit card operations or trust activities and is authorized 
according to its charter to engage in all types of permissible banking 
activities.
    (iii) Independent trust bank is a national bank that has trust 
powers, does not primarily offer full-service banking, and is not 
affiliated with a full-service national bank; and
    (iv) Fiduciary and related assets are those assets reported on 
Schedule RC-T of FFIEC Forms 031 and 041, Line 9 (columns A and B) and 
Line 10 (column B), any successor form issued by the FFIEC, and any 
other fiduciary and related assets defined in the Notice of Comptroller 
of the Currency Fees.

[59 FR 59642, Nov. 18, 1994, as amended at 65 FR 75862, Dec. 5, 2000; 66 
FR 23153, May 8, 2001; 66 FR 29894, June 1, 2001; 67 FR 37665, May 30, 
2002; 70 FR 69643, Nov. 17, 2005]



Sec. 8.7  Payment of interest on delinquent assessments and examination and investigation fees.

    (a) Each national bank, each Federal branch, and each Federal agency 
shall pay to the Comptroller of the Currency interest on its delinquent 
payments of semiannual assessments. In addition, each national bank and 
each entity with a trust department examined by the Comptroller of the 
Currency and each institution that is the subject of a special 
examination or investigation conducted by the Comptroller of the 
Currency shall pay to the Comptroller of the Currency interest on its 
delinquent payments of examination and investigation fees. Semiannual 
assessment payments will be considered delinquent if they are received 
after the time for payment specified in Sec. 8.2. Examination and 
investigation fees will be considered delinquent if not received by the 
Comptroller of the Currency within 30 calendar days of the invoice date.
    (b) In the event that an entity that is required to make semiannual 
assessment payments or trust examination fee payments believes that the 
notice of assessments prepared by the Comptroller of the Currency 
contains an error of miscalculation, the entity may provide the 
Comptroller of the Currency with a written request for a revised 
assessment notice and a refund of any overpayments. Any such request for 
a revised notice and refund must be made after timely payment of the 
semiannual assessment under the dates specified in Sec. 8.2.
    (1) Refund the amount of the overpayment or
    (2) Provide notice of its unwillingness to accept the request for a 
revised notice of assessments. In the latter instance, the Comptroller 
of the Currency and the entity claiming the overpayment shall thereafter 
attempt to reach agreement on the amount, if any, to be refunded; the 
Comptroller of the Currency shall refund this amount within 30 calendar 
days of such agreement.

The Comptroller of the Currency shall be considered delinquent if it 
fails to return an overpayment in accordance with the time limitations 
specified in this paragraph (b). The Comptroller of the Currency shall 
pay interest on any such delinquent payments.
    (c) Interest on delinquent payments, as described in paragraphs (a) 
and (b) of this section, will be assessed beginning the first calendar 
day on which payment is considered delinquent, and on each calendar day 
thereafter up to and including the day payment is received. Interest 
will be simple interest, calculated for each day payment is delinquent 
by multiplying the daily equivalent of the applicable interest rate by

[[Page 209]]

the amount delinquent. The rate of interest will be the United States 
Treasury Department's current value of funds rate (the ``TFRM rate''); 
that rate is issued under the Treasury Fiscal Requirements Manual and is 
published quarterly in the Federal Register. The interest rates 
applicable to a delinquent payment will be determined as follows:
    (1) For delinquent days occurring from January 1 to March 31, the 
rate will be the TFRM rate that is published the preceding December for 
the first quarter of the ensuing year.
    (2) For delinquent days occurring from April 1 to June 30, the rate 
will be the TFRM rate that is published the preceding March for the 
second quarter of that year.
    (3) For delinquent days occurring from July 1 to September 30, the 
rate will be the TFRM rate that is published the preceding June for the 
third quarter of that year.
    (4) For delinquent days occurring from October 1 to December 31, the 
rate will be the TFRM rate that is published the preceding September for 
the fourth quarter of that year.

[48 FR 30599, July 1, 1983. Redesignated and amended at 49 FR 50605, 
Dec. 31, 1984; 70 FR 69643, Nov. 17, 2005]



Sec. 8.8  Notice of Comptroller of the Currency fees.

    (a) December notice of fees. A ``Notice of Comptroller of the 
Currency Fees'' shall be published no later than the first business day 
in December of each year for fees to be charged by the Office during the 
upcoming year. These fees will be effective January 1 of that upcoming 
year.
    (b) Interim notice of Comptroller of the Currency fees. The OCC may 
issue an ``Interim Notice of Comptroller of the Currency Fees'' or issue 
an amended ``Notice of Comptroller of the Currency Fees'' from time to 
time throughout the year as necessary. Interim or amended notices will 
be effective 30 days after issuance.

[55 FR 49842, Nov. 30, 1990, as amended at 70 FR 69644, Nov. 17, 2005]



PART 9_FIDUCIARY ACTIVITIES OF NATIONAL BANKS--Table of Contents




                               Regulations

Sec.
9.1 Authority, purpose, and scope.
9.2 Definitions.
9.3 Approval requirements.
9.4 Administration of fiduciary powers.
9.5 Policies and procedures.
9.6 Review of fiduciary accounts.
9.7 Multi-state fiduciary operations.
9.8 Recordkeeping.
9.9 Audit of fiduciary activities.
9.10 Fiduciary funds awaiting investment or distribution.
9.11 Investment of fiduciary funds.
9.12 Self-dealing and conflicts of interest.
9.13 Custody of fiduciary assets.
9.14 Deposit of securities with state authorities.
9.15 Fiduciary compensation.
9.16 Receivership or voluntary liquidation of bank.
9.17 Surrender or revocation of fiduciary powers.
9.18 Collective investment funds.
9.20 Transfer agents.

                             Interpretations

9.100 Acting as indenture trustee and creditor.
9.101 Providing investment advice for a fee.

    Authority: 12 U.S.C. 24 (Seventh), 92a, and 93a; 15 U.S.C. 78q, 78q-
1, and 78w.

    Source: 61 FR 68554, Dec. 30, 1996, unless otherwise noted.

                               Regulations



Sec. 9.1  Authority, purpose, and scope.

    (a) Authority. The Office of the Comptroller of the Currency (OCC) 
issues this part pursuant to its authority under 12 U.S.C. 24 (Seventh), 
92a, and 93a, and 15 U.S.C. 78q, 78q-1, and 78w.
    (b) Purpose. The purpose of this part is to set forth the standards 
that apply to the fiduciary activities of national banks.
    (c) Scope. This part applies to all national banks that act in a 
fiduciary capacity, as defined in Sec. 9.2(e). This part also applies 
to all Federal branches of foreign banks to the same extent as it 
applies to national banks.



Sec. 9.2  Definitions.

    For the purposes of this part, the following definitions apply:

[[Page 210]]

    (a) Affiliate has the same meaning as in 12 U.S.C. 221a(b).
    (b) Applicable law means the law of a state or other jurisdiction 
governing a national bank's fiduciary relationships, any applicable 
Federal law governing those relationships, the terms of the instrument 
governing a fiduciary relationship, or any court order pertaining to the 
relationship.
    (c) Custodian under a uniform gifts to minors act means a fiduciary 
relationship established pursuant to a state law substantially similar 
to the Uniform Gifts to Minors Act or the Uniform Transfers to Minors 
Act as published by the American Law Institute.
    (d) Fiduciary account means an account administered by a national 
bank acting in a fiduciary capacity.
    (e) Fiduciary capacity means: trustee, executor, administrator, 
registrar of stocks and bonds, transfer agent, guardian, assignee, 
receiver, or custodian under a uniform gifts to minors act; investment 
adviser, if the bank receives a fee for its investment advice; any 
capacity in which the bank possesses investment discretion on behalf of 
another; or any other similar capacity that the OCC authorizes pursuant 
to 12 U.S.C. 92a.
    (f) Fiduciary officers and employees means all officers and 
employees of a national bank to whom the board of directors or its 
designee has assigned functions involving the exercise of the bank's 
fiduciary powers.
    (g) Fiduciary powers means the authority the OCC permits a national 
bank to exercise pursuant to 12 U.S.C. 92a.
    (h) Guardian means the guardian or conservator, by whatever name 
used by state law, of the estate of a minor, an incompetent person, an 
absent person, or a person over whose estate a court has taken 
jurisdiction, other than under bankruptcy or insolvency laws.
    (i) Investment discretion means, with respect to an account, the 
sole or shared authority (whether or not that authority is exercised) to 
determine what securities or other assets to purchase or sell on behalf 
of the account. A bank that delegates its authority over investments and 
a bank that receives delegated authority over investments are both 
deemed to have investment discretion.
    (j) Trust office means an office of a national bank, other than a 
main office or a branch, at which the bank engages in one or more of the 
activities specified in Sec. 9.7(d). Pursuant to 12 U.S.C. 36(j), a 
trust office is not a ``branch'' for purposes of 12 U.S.C. 36, unless it 
is also an office at which deposits are received, or checks paid, or 
money lent.
    (k) Trust representative office means an office of a national bank, 
other than a main office, branch, or trust office, at which the bank 
performs activities ancillary to its fiduciary business, but does not 
engage in any of the activities specified in Sec. 9.7(d). Examples of 
ancillary activities include advertising, marketing, and soliciting for 
fiduciary business; contacting existing or potential customers, 
answering questions, and providing information about matters related to 
their accounts; acting as a liaison between the trust office and the 
customer (e.g., forwarding requests for distribution or changes in 
investment objectives, or forwarding forms and funds received from the 
customer); inspecting or maintaining custody of fiduciary assets or 
holding title to real property. This list is illustrative and not 
comprehensive. Other activities may also be ``ancillary activities'' for 
the purposes of this definition. Pursuant to 12 U.S.C. 36(j), a trust 
representative office is not a ``branch'' for purposes of 12 U.S.C. 36, 
unless it is also an office at which deposits are received, or checks 
paid, or money lent.

[61 FR 68554, Dec.30, 1996, as amended at 66 FR 34797, July 2, 2001]



Sec. 9.3  Approval requirements.

    (a) A national bank may not exercise fiduciary powers unless it 
obtains prior approval from the OCC to the extent required under 12 CFR 
5.26.
    (b) A national bank that has obtained the OCC s approval to exercise 
fiduciary powers is not required to obtain the OCC s prior approval to 
engage in any of the activities specified in Sec. 9.7(d) in a new state 
or to conduct, in a new state, activities that are ancillary to its 
fiduciary business. Instead, the national bank must follow the notice 
procedures prescribed by 12 CFR 5.26(e).

[[Page 211]]

    (c) A person seeking approval to organize a special-purpose national 
bank limited to fiduciary powers shall file an application with the OCC 
pursuant to 12 CFR 5.20.

[61 FR 68554, Dec. 30, 1996, as amended at 66 FR 34798, July 2, 2001]



Sec. 9.4  Administration of fiduciary powers.

    (a) Responsibilities of the board of directors. A national bank's 
fiduciary activities shall be managed by or under the direction of its 
board of directors. In discharging its responsibilities, the board may 
assign any function related to the exercise of fiduciary powers to any 
director, officer, employee, or committee thereof.
    (b) Use of other personnel. The national bank may use any qualified 
personnel and facilities of the bank or its affiliates to perform 
services related to the exercise of its fiduciary powers, and any 
department of the bank or its affiliates may use fiduciary officers, 
employees, and facilities to perform services unrelated to the exercise 
of fiduciary powers, to the extent not prohibited by applicable law.
    (c) Agency agreements. Pursuant to a written agreement, a national 
bank exercising fiduciary powers may perform services related to the 
exercise of fiduciary powers for another bank or other entity, and may 
purchase services related to the exercise of fiduciary powers from 
another bank or other entity.
    (d) Bond requirement. A national bank shall ensure that all 
fiduciary officers and employees are adequately bonded.



Sec. 9.5  Policies and procedures.

    A national bank exercising fiduciary powers shall adopt and follow 
written policies and procedures adequate to maintain its fiduciary 
activities in compliance with applicable law. Among other relevant 
matters, the policies and procedures should address, where appropriate, 
the bank's:
    (a) Brokerage placement practices;
    (b) Methods for ensuring that fiduciary officers and employees do 
not use material inside information in connection with any decision or 
recommendation to purchase or sell any security;
    (c) Methods for preventing self-dealing and conflicts of interest;
    (d) Selection and retention of legal counsel who is readily 
available to advise the bank and its fiduciary officers and employees on 
fiduciary matters; and
    (e) Investment of funds held as fiduciary, including short-term 
investments and the treatment of fiduciary funds awaiting investment or 
distribution.



Sec. 9.6  Review of fiduciary accounts.

    (a) Pre-acceptance review. Before accepting a fiduciary account, a 
national bank shall review the prospective account to determine whether 
it can properly administer the account.
    (b) Initial post-acceptance review. Upon the acceptance of a 
fiduciary account for which a national bank has investment discretion, 
the bank shall conduct a prompt review of all assets of the account to 
evaluate whether they are appropriate for the account.
    (c) Annual review. At least once during every calendar year, a bank 
shall conduct a review of all assets of each fiduciary account for which 
the bank has investment discretion to evaluate whether they are 
appropriate, individually and collectively, for the account.



Sec. 9.7  Multi-state fiduciary operations.

    (a) Acting in a fiduciary capacity in more than one state. Pursuant 
to 12 U.S.C. 92a and this section, a national bank may act in a 
fiduciary capacity in any state. If a national bank acts, or proposes to 
act, in a fiduciary capacity in a particular state, the bank may act in 
the following specific capacities:
    (1) Any of the eight fiduciary capacities expressly listed in 12 
U.S.C. 92a(a), unless the state prohibits its own state banks, trust 
companies, and other corporations that compete with national banks in 
that state from acting in that capacity; and
    (2) Any other fiduciary capacity the state permits for its own state 
banks, trust companies, or other corporations that compete with national 
banks in that state.
    (b) Serving customers in other states. While acting in a fiduciary 
capacity in one state, a national bank may market its fiduciary services 
to, and act as fiduciary for, customers located in any state, and it may 
act as fiduciary for

[[Page 212]]

relationships that include property located in other states. The bank 
may use a trust representative office for this purpose.
    (c) Offices in more than one state. A national bank with fiduciary 
powers may establish trust offices or trust representative offices in 
any state.
    (d) Determination of the state referred to in 12 U.S.C. 92a. For 
each fiduciary relationship, the state referred to in section 92a is the 
state in which the bank acts in a fiduciary capacity for that 
relationship. A national bank acts in a fiduciary capacity in the state 
in which it accepts the fiduciary appointment, executes the documents 
that create the fiduciary relationship, and makes discretionary 
decisions regarding the investment or distribution of fiduciary assets. 
If these activities take place in more than one state, then the state in 
which the bank acts in a fiduciary capacity for section 92a purposes is 
the state that the bank designates from among those states.
    (e) Application of state law--(1) State laws used in section 92a. 
The state laws that apply to a national bank's fiduciary activities by 
virtue of 12 U.S.C. 92a are the laws of the state in which the bank acts 
in a fiduciary capacity.
    (2) Other state laws. Except for the state laws made applicable to 
national banks by virtue of 12 U.S.C. 92a, state laws limiting or 
establishing preconditions on the exercise of fiduciary powers are not 
applicable to national banks.

[66 FR 34798, July 2, 2001]



Sec. 9.8  Recordkeeping.

    (a) Documentation of accounts. A national bank shall adequately 
document the establishment and termination of each fiduciary account and 
shall maintain adequate records for all fiduciary accounts.
    (b) Retention of records. A national bank shall retain records 
described in paragraph (a) of this section for a period of three years 
from the later of the termination of the account or the termination of 
any litigation relating to the account.
    (c) Separation of records. A national bank shall ensure that records 
described in paragraph (a) of this section are separate and distinct 
from other records of the bank.



Sec. 9.9  Audit of fiduciary activities.

    (a) Annual audit. At least once during each calendar year, a 
national bank shall arrange for a suitable audit (by internal or 
external auditors) of all significant fiduciary activities, under the 
direction of its fiduciary audit committee, unless the bank adopts a 
continuous audit system in accordance with paragraph (b) of this 
section. The bank shall note the results of the audit (including 
significant actions taken as a result of the audit) in the minutes of 
the board of directors.
    (b) Continuous audit. In lieu of performing annual audits under 
paragraph (a) of this section, a national bank may adopt a continuous 
audit system under which the bank arranges for a discrete audit (by 
internal or external auditors) of each significant fiduciary activity 
(i.e., on an activity-by-activity basis), under the direction of its 
fiduciary audit committee, at an interval commensurate with the nature 
and risk of that activity. Thus, certain fiduciary activities may 
receive audits at intervals greater or less than one year, as 
appropriate. A bank that adopts a continuous audit system shall note the 
results of all discrete audits performed since the last audit report 
(including significant actions taken as a result of the audits) in the 
minutes of the board of directors at least once during each calendar 
year .
    (c) Fiduciary audit committee. A national bank's fiduciary audit 
committee must consist of a committee of the bank's directors or an 
audit committee of an affiliate of the bank. However, in either case, 
the committee:
    (1) Must not include any officers of the bank or an affiliate who 
participate significantly in the administration of the bank's fiduciary 
activities; and
    (2) Must consist of a majority of members who are not also members 
of any committee to which the board of directors has delegated power to 
manage and control the fiduciary activities of the bank.

[[Page 213]]



Sec. 9.10  Fiduciary funds awaiting investment or distribution.

    (a) In general. With respect to a fiduciary account for which a 
national bank has investment discretion or discretion over 
distributions, the bank may not allow funds awaiting investment or 
distribution to remain uninvested and undistributed any longer than is 
reasonable for the proper management of the account and consistent with 
applicable law. With respect to a fiduciary account for which a national 
bank has investment discretion, the bank shall obtain for funds awaiting 
investment or distribution a rate of return that is consistent with 
applicable law.
    (b) Self-deposits--(1) In general. A national bank may deposit funds 
of a fiduciary account that are awaiting investment or distribution in 
the commercial, savings, or another department of the bank, unless 
prohibited by applicable law. To the extent that the funds are not 
insured by the Federal Deposit Insurance Corporation, the bank shall set 
aside collateral as security, under the control of appropriate fiduciary 
officers and employees, in accordance with paragraph (b)(2) of this 
section. The market value of the collateral set aside must at all times 
equal or exceed the amount of the uninsured fiduciary funds.
    (2) Acceptable collateral. A national bank may satisfy the 
collateral requirement of paragraph (b)(1) of this section with any of 
the following:
    (i) Direct obligations of the United States, or other obligations 
fully guaranteed by the United States as to principal and interest;
    (ii) Securities that qualify as eligible for investment by national 
banks pursuant to 12 CFR part 1;
    (iii) Readily marketable securities of the classes in which state 
banks, trust companies, or other corporations exercising fiduciary 
powers are permitted to invest fiduciary funds under applicable state 
law;
    (iv) Surety bonds, to the extent they provide adequate security, 
unless prohibited by applicable law; and
    (v) Any other assets that qualify under applicable state law as 
appropriate security for deposits of fiduciary funds.
    (c) Affiliate deposits. A national bank, acting in its fiduciary 
capacity, may deposit funds of a fiduciary account that are awaiting 
investment or distribution with an affiliated insured depository 
institution, unless prohibited by applicable law. A national bank may 
set aside collateral as security for a deposit by or with an affiliate 
of fiduciary funds awaiting investment or distribution, unless 
prohibited by applicable law.



Sec. 9.11  Investment of fiduciary funds.

    A national bank shall invest funds of a fiduciary account in a 
manner consistent with applicable law.



Sec. 9.12  Self-dealing and conflicts of interest.

    (a) Investments for fiduciary accounts--(1) In general. Unless 
authorized by applicable law, a national bank may not invest funds of a 
fiduciary account for which a national bank has investment discretion in 
the stock or obligations of, or in assets acquired from: the bank or any 
of its directors, officers, or employees; affiliates of the bank or any 
of their directors, officers, or employees; or individuals or 
organizations with whom there exists an interest that might affect the 
exercise of the best judgment of the bank.
    (2) Additional securities investments. If retention of stock or 
obligations of the bank or its affiliates in a fiduciary account is 
consistent with applicable law, the bank may:
    (i) Exercise rights to purchase additional stock (or securities 
convertible into additional stock) when offered pro rata to 
stockholders; and
    (ii) Purchase fractional shares to complement fractional shares 
acquired through the exercise of rights or the receipt of a stock 
dividend resulting in fractional share holdings.
    (b) Loans, sales, or other transfers from fiduciary accounts--(1) In 
general. A national bank may not lend, sell, or otherwise transfer 
assets of a fiduciary account for which a national bank has investment 
discretion to the bank or any of its directors, officers, or employees, 
or to affiliates of the bank or any of their directors, officers, or 
employees, or to individuals or organizations with whom there exists an 
interest that

[[Page 214]]

might affect the exercise of the best judgment of the bank, unless:
    (i) The transaction is authorized by applicable law;
    (ii) Legal counsel advises the bank in writing that the bank has 
incurred, in its fiduciary capacity, a contingent or potential 
liability, in which case the bank, upon the sale or transfer of assets, 
shall reimburse the fiduciary account in cash at the greater of book or 
market value of the assets;
    (iii) As provided in Sec. 9.18(b)(8)(iii) for defaulted 
investments; or
    (iv) Required in writing by the OCC.
    (2) Loans of funds held as trustee. Notwithstanding paragraph (b)(1) 
of this section, a national bank may not lend to any of its directors, 
officers, or employees any funds held in trust, except with respect to 
employee benefit plans in accordance with the exemptions found in 
section 408 of the Employee Retirement Income Security Act of 1974 (29 
U.S.C. 1108).
    (c) Loans to fiduciary accounts. A national bank may make a loan to 
a fiduciary account and may hold a security interest in assets of the 
account if the transaction is fair to the account and is not prohibited 
by applicable law.
    (d) Sales between fiduciary accounts. A national bank may sell 
assets between any of its fiduciary accounts if the transaction is fair 
to both accounts and is not prohibited by applicable law.
    (e) Loans between fiduciary accounts. A national bank may make a 
loan between any of its fiduciary accounts if the transaction is fair to 
both accounts and is not prohibited by applicable law.



Sec. 9.13  Custody of fiduciary assets.

    (a) Control of fiduciary assets. A national bank shall place assets 
of fiduciary accounts in the joint custody or control of not fewer than 
two of the fiduciary officers or employees designated for that purpose 
by the board of directors. A national bank may maintain the investments 
of a fiduciary account off-premises, if consistent with applicable law 
and if the bank maintains adequate safeguards and controls.
    (b) Separation of fiduciary assets. A national bank shall keep the 
assets of fiduciary accounts separate from the assets of the bank. A 
national bank shall keep the assets of each fiduciary account separate 
from all other accounts or shall identify the investments as the 
property of a particular account, except as provided in Sec. 9.18.



Sec. 9.14  Deposit of securities with state authorities.

    (a) In general. If state law requires corporations acting in a 
fiduciary capacity to deposit securities with state authorities for the 
protection of private or court trusts, then before a national bank acts 
as a private or court-appointed trustee in that state, it shall make a 
similar deposit with state authorities. If the state authorities refuse 
to accept the deposit, the bank shall deposit the securities with the 
Federal Reserve Bank of the district in which the national bank is 
located, to be held for the protection of private or court trusts to the 
same extent as if the securities had been deposited with state 
authorities.
    (b) Acting in a fiduciary capacity in more than one state. If a 
national bank acts in a fiduciary capacity in more than one state, the 
bank may compute the amount of securities that are required to be 
deposited for each state on the basis of the amount of assets for which 
the bank is acting in a fiduciary capacity at offices located in that 
state. If state law requires a deposit of securities on a basis other 
than assets (e.g., a requirement to deposit a fixed amount or an amount 
equal to a percentage of capital), the bank may compute the amount of 
deposit required in that state on a pro-rated basis, according to the 
proportion of fiduciary assets for which the bank is acting in a 
fiduciary capacity at offices located in that state.

[61 FR 68554, Dec. 30, 1996, as amended at 66 FR 34798, July 2, 2001]



Sec. 9.15  Fiduciary compensation.

    (a) Compensation of bank. If the amount of a national bank's 
compensation for acting in a fiduciary capacity is not set or governed 
by applicable law, the bank may charge a reasonable fee for its 
services.
    (b) Compensation of co-fiduciary officers and employees. A national 
bank may not permit any officer or employee to retain any compensation 
for

[[Page 215]]

acting as a co-fiduciary with the bank in the administration of a 
fiduciary account, except with the specific approval of the bank's board 
of directors.



Sec. 9.16  Receivership or voluntary liquidation of bank.

    If the OCC appoints a receiver for an uninsured national bank, or if 
a national bank places itself in voluntary liquidation, the receiver or 
liquidating agent shall promptly close or transfer to a substitute 
fiduciary all fiduciary accounts, in accordance with OCC instructions 
and the orders of the court having jurisdiction.



Sec. 9.17  Surrender or revocation of fiduciary powers.

    (a) Surrender. In accordance with 12 U.S.C. 92a(j), a national bank 
seeking to surrender its fiduciary powers shall file with the OCC a 
certified copy of the resolution of its board of directors evidencing 
that intent. If, after appropriate investigation, the OCC is satisfied 
that the bank has been discharged from all fiduciary duties, the OCC 
will provide written notice that the bank is no longer authorized to 
exercise fiduciary powers.
    (b) Revocation. If the OCC determines that a national bank has 
unlawfully or unsoundly exercised, or has failed for a period of five 
consecutive years to exercise its fiduciary powers, the Comptroller may, 
in accordance with the provisions of 12 U.S.C. 92a(k), revoke the bank's 
fiduciary powers.



Sec. 9.18  Collective investment funds.

    (a) In general. Where consistent with applicable law, a national 
bank may invest assets that it holds as fiduciary in the following 
collective investment funds: \1\
---------------------------------------------------------------------------

    \1\ In determining whether investing fiduciary assets in a 
collective investment fund is proper, the bank may consider the fund as 
a whole and, for example, shall not be prohibited from making that 
investment because any particular asset is nonincome producing.
---------------------------------------------------------------------------

    (1) A fund maintained by the bank, or by one or more affiliated 
banks,\2\ exclusively for the collective investment and reinvestment of 
money contributed to the fund by the bank, or by one or more affiliated 
banks, in its capacity as trustee, executor, administrator, guardian, or 
custodian under a uniform gifts to minors act.
---------------------------------------------------------------------------

    \2\ A fund established pursuant to this paragraph (a)(1) that 
includes money contributed by entities that are affiliates under 12 
U.S.C. 221a(b), but are not members of the same affiliated group, as 
defined at 26 U.S.C. 1504, may fail to qualify for tax-exempt status 
under the Internal Revenue Code. See 26 U.S.C. 584.
---------------------------------------------------------------------------

    (2) A fund consisting solely of assets of retirement, pension, 
profit sharing, stock bonus or other trusts that are exempt from Federal 
income tax.
    (i) A national bank may invest assets of retirement, pension, profit 
sharing, stock bonus, or other trusts exempt from Federal income tax and 
that the bank holds in its capacity as trustee in a collective 
investment fund established under paragraph (a)(1) or (a)(2) of this 
section.
    (ii) A national bank may invest assets of retirement, pension, 
profit sharing, stock bonus, or other employee benefit trusts exempt 
from Federal income tax and that the bank holds in any capacity 
(including agent), in a collective investment fund established under 
this paragraph (a)(2) if the fund itself qualifies for exemption from 
Federal income tax.
    (b) Requirements. A national bank administering a collective 
investment fund authorized under paragraph (a) of this section shall 
comply with the following requirements:
    (1) Written plan. The bank shall establish and maintain each 
collective investment fund in accordance with a written plan (Plan) 
approved by a resolution of the bank's board of directors or by a 
committee authorized by the board. The bank shall make a copy of the 
Plan available for public inspection at its main office during all 
banking hours, and shall provide a copy of the Plan to any person who 
requests it. The Plan must contain appropriate provisions, not 
inconsistent with this part, regarding the manner in which the bank will 
operate the fund, including provisions relating to:
    (i) Investment powers and policies with respect to the fund;
    (ii) Allocation of income, profits, and losses;

[[Page 216]]

    (iii) Fees and expenses that will be charged to the fund and to 
participating accounts;
    (iv) Terms and conditions governing the admission and withdrawal of 
participating accounts;
    (v) Audits of participating accounts;
    (vi) Basis and method of valuing assets in the fund;
    (vii) Expected frequency for income distribution to participating 
accounts;
    (viii) Minimum frequency for valuation of fund assets;
    (ix) Amount of time following a valuation date during which the 
valuation must be made;
    (x) Bases upon which the bank may terminate the fund; and
    (xi) Any other matters necessary to define clearly the rights of 
participating accounts.
    (2) Fund management. A bank administering a collective investment 
fund shall have exclusive management thereof, except as a prudent person 
might delegate responsibilities to others.\3\
---------------------------------------------------------------------------

    \3\ If a fund, the assets of which consist solely of Individual 
Retirement Accounts, Keogh Accounts, or other employee benefit accounts 
that are exempt from taxation, is registered under the Investment 
Company Act of 1940 (15 U.S.C. 80a-1 et seq.), the fund will not be 
deemed in violation of this paragraph (b)(2) as a result of its 
compliance with section 10(c) of the Investment Company Act of 1940 (15 
U.S.C. 80a-10(c)).
---------------------------------------------------------------------------

    (3) Proportionate interests. Each participating account in a 
collective investment fund must have a proportionate interest in all the 
fund's assets.
    (4) Valuation--(i) Frequency of valuation. A bank administering a 
collective investment fund shall determine the value of the fund's 
readily marketable assets at least once every three months. A bank shall 
determine the value of the fund's assets that are not readily marketable 
at least once a year.
    (ii) Method of valuation--(A) In general. Except as provided in 
paragraph (b)(4)(ii)(B) of this section, a bank shall value each fund 
asset at market value as of the date set for valuation, unless the bank 
cannot readily ascertain market value, in which case the bank shall use 
a fair value determined in good faith.
    (B) Short-term investment funds. A bank may value a fund's assets on 
a cost, rather than market value, basis for purposes of admissions and 
withdrawals, if the Plan requires the bank to:
    (1) Maintain a dollar-weighted average portfolio maturity of 90 days 
or less;
    (2) Accrue on a straight-line basis the difference between the cost 
and anticipated principal receipt on maturity; and
    (3) Hold the fund's assets until maturity under usual circumstances.
    (5) Admission and withdrawal of accounts--(i) In general. A bank 
administering a collective investment fund shall admit an account to or 
withdraw an account from the fund only on the basis of the valuation 
described in paragraph (b)(4) of this section.
    (ii) Prior request or notice. A bank administering a collective 
investment fund may admit an account to or withdraw an account from a 
collective investment fund only if the bank has approved a request for 
or a notice of intention of taking that action on or before the 
valuation date on which the admission or withdrawal is based. No 
requests or notices may be canceled or countermanded after the valuation 
date.
    (iii) Prior notice period for withdrawals from funds with assets not 
readily marketable. A bank administering a collective investment fund 
described in paragraph (a)(2) of this section that is invested primarily 
in real estate or other assets that are not readily marketable, may 
require a prior notice period, not to exceed one year, for withdrawals.
    (iv) Method of distributions. A bank administering a collective 
investment fund shall make distributions to accounts withdrawing from 
the fund in cash, ratably in kind, a combination of cash and ratably in 
kind, or in any other manner consistent with applicable law in the state 
in which the bank maintains the fund.
    (v) Segregation of investments. If an investment is withdrawn in 
kind from a collective investment fund for the benefit of all 
participants in the fund at the time of the withdrawal but the 
investment is not distributed ratably in

[[Page 217]]

kind, the bank shall segregate and administer it for the benefit ratably 
of all participants in the collective investment fund at the time of 
withdrawal.
    (6) Audits and financial reports--(i) Annual audit. At least once 
during each 12-month period, a bank administering a collective 
investment fund shall arrange for an audit of the collective investment 
fund by auditors responsible only to the board of directors of the 
bank.\4\
---------------------------------------------------------------------------

    \4\ If a fund, the assets of which consist solely of Individual 
Retirement Accounts, Keogh Accounts, or other employee benefit accounts 
that are exempt from taxation, is registered under the Investment 
Company Act of 1940 (15 U.S.C. 80a-1 et seq.), the fund will not be 
deemed in violation of this paragraph (b)(6)(i) as a result of its 
compliance with section 10(c) of the Investment Company Act of 1940 (15 
U.S.C. 80a-10(c)), if the bank has access to the audit reports of the 
fund.
---------------------------------------------------------------------------

    (ii) Financial report. At least once during each 12-month period, a 
bank administering a collective investment fund shall prepare a 
financial report of the fund based on the audit required by paragraph 
(b)(6)(i) of this section. The report must disclose the fund's fees and 
expenses in a manner consistent with applicable law in the state in 
which the bank maintains the fund. This report must contain a list of 
investments in the fund showing the cost and current market value of 
each investment, and a statement covering the period after the previous 
report showing the following (organized by type of investment):
    (A) A summary of purchases (with costs);
    (B) A summary of sales (with profit or loss and any other investment 
changes);
    (C) Income and disbursements; and
    (D) An appropriate notation of any investments in default.
    (iii) Limitation on representations. A bank may include in the 
financial report a description of the fund's value on previous dates, as 
well as its income and disbursements during previous accounting periods. 
A bank may not publish in the financial report any predictions or 
representations as to future performance. In addition, with respect to 
funds described in paragraph (a)(1) of this section, a bank may not 
publish the performance of individual funds other than those 
administered by the bank or its affiliates.
    (iv) Availability of the report. A bank administering a collective 
investment fund shall provide a copy of the financial report, or shall 
provide notice that a copy of the report is available upon request 
without charge, to each person who ordinarily would receive a regular 
periodic accounting with respect to each participating account. The bank 
may provide a copy of the financial report to prospective customers. In 
addition, the bank shall provide a copy of the report upon request to 
any person for a reasonable charge.
    (7) Advertising restriction. A bank may not advertise or publicize 
any fund authorized under paragraph (a)(1) of this section, except in 
connection with the advertisement of the general fiduciary services of 
the bank.
    (8) Self-dealing and conflicts of interest. A national bank 
administering a collective investment fund must comply with the 
following (in addition to Sec. 9.12):
    (i) Bank interests. A bank administering a collective investment 
fund may not have an interest in that fund other than in its fiduciary 
capacity. If, because of a creditor relationship or otherwise, the bank 
acquires an interest in a participating account, the participating 
account must be withdrawn on the next withdrawal date. However, a bank 
may invest assets that it holds as fiduciary for its own employees in a 
collective investment fund.
    (ii) Loans to participating accounts. A bank administering a 
collective investment fund may not make any loan on the security of a 
participant's interest in the fund. An unsecured advance to a fiduciary 
account participating in the fund until the time of the next valuation 
date does not constitute the acquisition of an interest in a 
participating account by the bank.
    (iii) Purchase of defaulted investments. A bank administering a 
collective investment fund may purchase for its own account any 
defaulted investment held by the fund (in lieu of segregating the 
investment in accordance with paragraph (b)(5)(v) of this section) if, 
in the judgment of the bank, the cost of segregating the investment is 
excessive

[[Page 218]]

in light of the market value of the investment. If a bank elects to 
purchase a defaulted investment, it shall do so at the greater of market 
value or the sum of cost and accrued unpaid interest.
    (9) Management fees. A bank administering a collective investment 
fund may charge a reasonable fund management fee only if:
    (i) The fee is permitted under applicable law (and complies with fee 
disclosure requirements, if any) in the state in which the bank 
maintains the fund; and
    (ii) The amount of the fee does not exceed an amount commensurate 
with the value of legitimate services of tangible benefit to the 
participating fiduciary accounts that would not have been provided to 
the accounts were they not invested in the fund.
    (10) Expenses. A bank administering a collective investment fund may 
charge reasonable expenses incurred in operating the collective 
investment fund, to the extent not prohibited by applicable law in the 
state in which the bank maintains the fund. However, a bank shall absorb 
the expenses of establishing or reorganizing a collective investment 
fund.
    (11) Prohibition against certificates. A bank administering a 
collective investment fund may not issue any certificate or other 
document representing a direct or indirect interest in the fund, except 
to provide a withdrawing account with an interest in a segregated 
investment.
    (12) Good faith mistakes. The OCC will not deem a bank's mistake 
made in good faith and in the exercise of due care in connection with 
the administration of a collective investment fund to be a violation of 
this part if, promptly after the discovery of the mistake, the bank 
takes whatever action is practicable under the circumstances to remedy 
the mistake.
    (c) Other collective investments. In addition to the collective 
investment funds authorized under paragraph (a) of this section, a 
national bank may collectively invest assets that it holds as fiduciary, 
to the extent not prohibited by applicable law, as follows:
    (1) Single loans or obligations. In the following loans or 
obligations, if the bank's only interest in the loans or obligations is 
its capacity as fiduciary:
    (i) A single real estate loan, a direct obligation of the United 
States, or an obligation fully guaranteed by the United States, or a 
single fixed amount security, obligation, or other property, either 
real, personal, or mixed, of a single issuer; or
    (ii) A variable amount note of a borrower of prime credit, if the 
bank uses the note solely for investment of funds held in its fiduciary 
accounts.
    (2) Mini-funds. In a fund maintained by the bank for the collective 
investment of cash balances received or held by a bank in its capacity 
as trustee, executor, administrator, guardian, or custodian under a 
uniform gifts to minors act, that the bank considers too small to be 
invested separately to advantage. The total assets in the fund must not 
exceed $1,000,000 and the number of participating accounts must not 
exceed 100.
    (3) Trust funds of corporations and closely-related settlors. In any 
investment specifically authorized by the instrument creating the 
fiduciary account or a court order, in the case of trusts created by a 
corporation, including its affiliates and subsidiaries, or by several 
individual settlors who are closely related.
    (4) Other authorized funds. In any collective investment authorized 
by applicable law, such as investments pursuant to a state pre-need 
funeral statute.
    (5) Special exemption funds. In any other manner described by the 
bank in a written plan approved by the OCC.\5\ In order to obtain a 
special exemption, a bank shall submit to the OCC a written plan that 
sets forth:
---------------------------------------------------------------------------

    \5\ Any institution that must comply with this section in order to 
receive favorable tax treatment under 26 U.S.C. 584 (namely, any 
corporate fiduciary) may seek OCC approval of special exemption funds in 
accordance with this paragraph (c)(5).
---------------------------------------------------------------------------

    (i) The reason that the proposed fund requires a special exemption;
    (ii) The provisions of the proposed fund that are inconsistent with 
paragraphs (a) and (b) of this section;
    (iii) The provisions of paragraph (b) of this section for which the 
bank seeks an exemption; and

[[Page 219]]

    (iv) The manner in which the proposed fund addresses the rights and 
interests of participating accounts.

[61 FR 68554, Dec. 30, 1996, as amended at 68 FR 70131, Dec. 17, 2003]



Sec. 9.20  Transfer agents.

    (a) The rules adopted by the Securities and Exchange Commission 
(SEC) pursuant to section 17A of the Securities Exchange Act of 1934 (15 
U.S.C. 78q-1) prescribing procedures for registration of transfer agents 
for which the SEC is the appropriate regulatory agency (17 CFR 
240.17Ac2-1) apply to the domestic activities of national bank transfer 
agents. References to the ``Commission'' are deemed to refer to the 
``OCC.''
    (b) The rules adopted by the SEC pursuant to section 17A of the 
Securities Exchange Act of 1934 prescribing operational and reporting 
requirements for transfer agents (17 CFR 240.17Ac2-2, and 240.17Ad-1 
through 240.17Ad-17) apply to the domestic activities of national bank 
transfer agents.

[61 FR 68554, Dec. 30, 1996, as amended at 68 FR 70131, Dec. 17, 2003]

                             Interpretations



Sec. 9.100  Acting as indenture trustee and creditor.

    With respect to a debt securities issuance, a national bank may act 
both as indenture trustee and as creditor until 90 days after default, 
if the bank maintains adequate controls to manage the potential 
conflicts of interest.



Sec. 9.101  Providing investment advice for a fee.

    (a) In general. The term ``fiduciary capacity'' at Sec. 9.2(e) is 
defined to include ``investment adviser, if the bank receives a fee for 
its investment advice.'' In other words, if a bank is providing 
investment advice for a fee, then it is acting in a fiduciary capacity. 
For purposes of that definition, ``investment adviser'' generally means 
a national bank that provides advice or recommendations concerning the 
purchase or sale of specific securities, such as a national bank engaged 
in portfolio advisory and management activities (including acting as 
investment adviser to a mutual fund). Additionally, the qualifying 
phrase ``if the bank receives a fee for its investment advice'' excludes 
those activities in which the investment advice is merely incidental to 
other services.
    (b) Specific activities--(1) Full-service brokerage. Engaging in 
full-service brokerage may entail providing investment advice for a fee, 
depending upon the commission structure and specific facts. Full-service 
brokerage involves investment advice for a fee if a non-bank broker 
engaged in that activity is considered an investment adviser under the 
Investment Advisers Act of 1940 (15 U.S.C. 80b-1 et seq.).
    (2) Activities not involving investment advice for a fee. The 
following activities generally do not entail providing investment advice 
for a fee:
    (i) Financial advisory and counseling activities, including 
strategic planning of a financial nature, merger and acquisition 
advisory services, advisory and structuring services related to project 
finance transactions, and providing market economic information to 
customers in general;
    (ii) Client-directed investment activities (i.e., the bank has no 
investment discretion) where investment advice and research may be made 
available to the client, but the fee does not depend on the provision of 
investment advice;
    (iii) Investment advisory activities incidental to acting as a 
municipal securities dealer;
    (iv) Real estate management services provided to other financial 
institutions;
    (v) Real estate consulting services, including acting as a finder in 
locating, analyzing, and making recommendations regarding the purchase 
of property, and making recommendations concerning the sale of property;
    (vi) Advisory activities concerning bridge loans;
    (vii) Advisory activities for homeowners' associations;
    (viii) Advisory activities concerning tax planning and structuring; 
and
    (ix) Investment advisory activities authorized by the OCC under 12 
U.S.C. 24(Seventh) as incidental to the business of banking.

[63 FR 6473, Feb. 9, 1998]

[[Page 220]]



PART 10_MUNICIPAL SECURITIES DEALERS--Table of Contents




Sec.
10.1 Scope.
10.2 Filing requirements.

    Authority: 5 U.S.C. 93a, 481, and 1818; 15 U.S.C. 78o-4(c)(5) and 
78q-78w.

    Source: 63 FR 29094, May 28, 1998, unless otherwise noted.



Sec. 10.1  Scope.

    This part applies to:
    (a) Any national bank, District bank, and separately identifiable 
department or division of either (collectively, a national bank) that 
acts as a municipal securities dealer, as that term is defined in 
section 3(a)(30) of the Securities Exchange Act of 1934 (15 U.S.C. 
78c(a)(30)); and
    (b) Any person who is associated or to be associated with a national 
bank in the capacity of a municipal securities principal or a municipal 
securities representative, as those terms are defined in Rule G-3 of the 
Municipal Securities Rulemaking Board (MSRB).\1\
---------------------------------------------------------------------------

    \1\ The MSRB rules may be obtained by contacting the Municipal 
Securities Rulemaking Board at 1150 18th Street, NW., Suite 400, 
Washington, DC 20036-3816.
---------------------------------------------------------------------------



Sec. 10.2  Filing requirements.

    (a) A national bank shall use Form MSD-4 (Uniform Application for 
Municipal Securities Principal or Municipal Securities Representative 
Associated with a Bank Municipal Securities Dealer) for obtaining the 
information required by MSRB Rule G-7(b)(i)-(x) from a person identified 
in Sec. 10.1(b). A national bank receiving a completed MSD-4 form from 
a person identified in Sec. 10.1(b) must submit this form to the OCC 
before permitting the person to be associated with it as a municipal 
securities principal or a municipal securities representative.
    (b) A national bank must submit Form MSD-5 (Uniform Termination 
Notice for Municipal Securities Principal or Municipal Securities 
Representative Associated with a Bank Municipal Securities Dealer) to 
the OCC within 30 days of terminating a person's association with the 
bank as a municipal securities principal or municipal securities 
representative.
    (c) Forms MSD-4 and MSD-5, with instructions, may be obtained by 
contacting the OCC at 250 E Street, SW., Washington, DC 20219, 
Attention: Bank Dealer Activities.

[63 FR 29094, May 28, 1998, as amended at 63 FR 71343, Dec. 24, 1998]



PART 11_SECURITIES EXCHANGE ACT DISCLOSURE RULES--Table of Contents




Sec.
11.1 Authority and OMB control number.
11.2 Reporting requirements for registered national banks.
11.3 Filing requirements and inspection of documents.
11.4 Filing fees.

    Authority: 12 U.S.C. 93a; 15 U.S.C. 78l, 78m, 78n, 78p, 78w, 7241, 
7242, 7243, 7244, 7261, 7262, 7264, and 7265.

    Source: 57 FR 46084, Oct. 7, 1992; 57 FR 54499, Nov. 19, 1992.



Sec. 11.1  Authority and OMB control number.

    (a) Authority. The Office of the Comptroller of the Currency (OCC) 
is vested with the powers, functions, and duties otherwise vested in the 
Securities and Exchange Commission (Commission) to administer and 
enforce the provisions of sections 12, 13, 14(a), 14(c), 14(d), 14(f), 
and 16 of the Securities Exchange Act of 1934, as amended (1934 Act) (15 
U.S.C. 78l, 78m, 78n(a), 78n(c), 78n(d), 78n(f), and 78p), regarding 
national banks and banks chartered in the District of Columbia with one 
or more classes of securities subject to the registration provisions of 
sections 12(b) and (g) of the 1934 Act (registered national banks). 
Further, the OCC has general rulemaking authority under 12 U.S.C. 93a, 
to promulgate rules and regulations concerning the activities of 
national banks and banks chartered in the District of Columbia.
    (b) OMB control number. The collection of information contained in 
this part was approved by the Office of Management and Budget under OMB 
control number 1557-0106.

[57 FR 46084, Oct. 7, 1992; 57 FR 54499, Nov. 19, 1992, as amended at 60 
FR 57332, Nov. 15, 1995]

[[Page 221]]



Sec. 11.2  Reporting requirements for registered national banks.

    (a) Filing, disclosure and other requirements--(1) General. Except 
as otherwise provided in this section, a national bank whose securities 
are subject to registration pursuant to section 12(b) or section 12(g) 
of the 1934 Act (15 U.S.C. 78l(b) and (g)) shall comply with the rules, 
regulations, and forms adopted by the Securities and Exchange Commission 
(Commission) pursuant to:
    (i) Sections 10A(m), 12, 13, 14(a), 14(c), 14(d), 14(f), and 16 of 
the 1934 Act (15 U.S.C. 78f(m), 78l, 78m, 78n(a), (c), (d) and (f), and 
78p); and
    (ii) Sections 302, 303, 304, 306, 401(b), 404, 406, and 407 of the 
Sarbanes-Oxley Act of 2002 (codified at 15 U.S.C. 7241, 7242, 7243, 
7244, 7261, 7262, 7264, and 7265).
    (2) [Reserved]
    (b) References to the Commission. Any references to the ``Securities 
and Exchange Commission'' or the ``Commission'' in the rules, 
regulations and forms described in paragraph (a)(1) of this section 
shall with respect to securities issued by registered national banks be 
deemed to refer to the OCC unless the context otherwise requires.

[68 FR 68492, Dec. 9, 2003]



Sec. 11.3  Filing requirements and inspection of documents.

    (a) Filing requirements--(1) General. Except as otherwise provided 
in this section, all papers required to be filed with the OCC pursuant 
to the 1934 Act or regulations thereunder shall be submitted in 
quadruplicate to the Securities and Corporate Practices Division, Office 
of the Comptroller of the Currency, 250 E Street, SW., Washington, DC 
20219. Material may be filed by delivery to the OCC through the mail, by 
fax (202-874-5279), or otherwise.
    (2) Statements filed pursuant to section 16(a) of the 1934 Act. 
Statements required under section 16(a) of the 1934 Act shall be filed 
electronically, as directed by the OCC.
    (3) Date of filing. (i) General. The date on which papers are 
actually received by the OCC shall be the date of filing, if the person 
or bank filing the papers has complied with all applicable requirements.
    (ii) Electronic filings. An electronic filing of a statement 
required under section 16(a) of the 1934 Act that is submitted by direct 
transmission on or before 10 p.m. Eastern Standard Time or Eastern 
Daylight Savings Time, whichever is currently in effect, shall be deemed 
filed on the same business day.
    (4) Mandatory compliance date. Compliance with paragraph (a)(2) of 
this section and any applicable requirements that such statements must 
be posted on a registered national bank's Web site are mandatory for 
statements required to be filed on or after January 1, 2004.
    (b) Copies of registration statements, definitive proxy solicitation 
materials, reports, and annual reports to shareholders required by this 
part (exclusive of exhibits) are available from the Disclosure Officer, 
Communications Division, Office of the Comptroller of the Currency, at 
the address listed in paragraph (a) of this section.

[60 FR 57332, Nov. 15, 1995, as amended at 68 FR 54984, Sept. 22, 2003; 
70 FR 46404, Aug. 10, 2005]



Sec. 11.4  Filing fees.

    (a) The OCC may require filing fees to accompany certain filings 
made under this part before it will accept the filing. The OCC provides 
an applicable fee schedule for such filings in the ``Notice of 
Comptroller of the Currency Fees'' described in 12 CFR 8.8.
    (b) Fees must be paid by check payable to the Comptroller of the 
Currency.

[57 FR 46084, Oct. 7, 1992; 57 FR 54499, Nov. 19, 1992, as amended at 60 
FR 57332, Nov. 15, 1995]



PART 12_RECORDKEEPING AND CONFIRMATION REQUIREMENTS FOR SECURITIES TRANSACTIONS--Table of Contents




Sec.
12.1 Authority, purpose, and scope.
12.2 Definitions.
12.3 Recordkeeping.
12.4 Content and time of notification.
12.5 Notification by agreement; alternative forms and times of 
          notification.
12.6 Fees.
12.7 Securities trading policies and procedures.
12.8 Waivers.
12.9 Settlement of securities transactions.

[[Page 222]]

                             Interpretations

12.101 National bank disclosure of remuneration for mutual fund 
          transactions.
12.102 National bank use of electronic communications as customer 
          notifications.

    Authority: 12 U.S.C. 24, 92a, and 93a.

    Source: 61 FR 63965, Dec. 2, 1996, unless otherwise noted.



Sec. 12.1  Authority, purpose, and scope.

    (a) Authority. This part is issued pursuant to 12 U.S.C. 24, 92a, 
and 93a.
    (b) Purpose. This part establishes rules, policies, and procedures 
applicable to recordkeeping and confirmation requirements for certain 
securities transactions effected by national banks for customers.
    (c) Scope--(1) General. Any security transaction effected for a 
customer by a national bank is subject to this part, except as provided 
by paragraph (c)(2) of this section. This part applies to a national 
bank effecting transactions in government securities. This part also 
applies to municipal securities transactions by a national bank that is 
not registered as a ``municipal securities dealer'' with the Securities 
and Exchange Commission. See 15 U.S.C. 78c(a)(30) and 78o-4. This part, 
as well as 12 CFR part 9, applies to securities transactions effected by 
a national bank as fiduciary.
    (2) Exceptions--(i) Small number of transactions. The requirements 
of Sec. Sec. 12.3(a)(2) through (4) and 12.7(a)(1) through (3) do not 
apply to a national bank having an average of fewer than 200 securities 
transactions per year for customers over the prior three calendar year 
period. The calculation of this average does not include transactions in 
government securities.
    (ii) Government securities. The recordkeeping requirements of Sec. 
12.3 do not apply to national banks effecting fewer than 500 government 
securities brokerage transactions per year. This exception does not 
apply to government securities dealer transactions by national banks. 
See 17 CFR 404.4(a).
    (iii) Municipal securities. This part does not apply to transactions 
in municipal securities conducted by a national bank registered with the 
Securities and Exchange Commission as a ``municipal securities dealer'' 
as defined in title 15 U.S.C. 78c(a)(30). See 15 U.S.C. 78o-4.
    (iv) Foreign branches. This part does not apply to securities 
transactions conducted by a foreign branch of a national bank.
    (v) Transactions effected by registered broker/dealers. This part 
does not apply to securities transactions effected by a broker or dealer 
registered with the Securities and Exchange Commission (SEC) where the 
SEC-registered broker or dealer directly provides the customer a 
confirmation; including, transactions effected by a national bank 
employee when acting as an employee of an SEC-registered broker/dealer.
    (3) Safe and sound operations. Notwithstanding paragraph (c)(2) of 
this section, every national bank conducting securities transactions for 
customers shall maintain effective systems of records and controls 
regarding their customer securities transactions to ensure safe and 
sound operations. The systems maintained must clearly and accurately 
reflect appropriate information and provide an adequate basis for an 
audit.



Sec. 12.2  Definitions.

    (a) Asset-backed security means a security that is primarily 
serviced by the cashflows of a discrete pool of receivables or other 
financial assets, either fixed or revolving, that by their terms convert 
into cash within a finite time period plus any rights or other assets 
designed to assure the servicing or timely distribution of proceeds to 
the security holders.
    (b) Collective investment fund means any fund established pursuant 
to 12 CFR 9.18.
    (c) Completion of the transaction means:
    (1) In the case of a customer who purchases a security through or 
from a national bank, except as provided in paragraph (c)(2) of this 
section, the time when the customer pays the bank any part of the 
purchase price, or, if payment is made by a bookkeeping entry, the time 
when the bank makes the bookkeeping entry for any part of the purchase 
price;
    (2) In the case of a customer who purchases a security through or 
from a national bank and who makes payment

[[Page 223]]

for the security prior to the time when payment is requested or 
notification is given that payment is due, the time when the bank 
delivers the security to or into the account of the customer;
    (3) In the case of a customer who sells a security through or to a 
national bank, except as provided in paragraph (c)(4) of this section, 
if the security is not in the custody of the bank at the time of sale, 
the time when the security is delivered to the bank, and if the security 
is in the custody of the bank at the time of sale, the time when the 
bank transfers the security from the account of the customer;
    (4) In the case of a customer who sells a security through or to a 
national bank and who delivers the security to the bank prior to the 
time when delivery is requested or notification is given that delivery 
is due, the time when the bank makes payment to or into the account of 
the customer.
    (d) Crossing of buy and sell orders means a security transaction in 
which the same bank acts as agent for both the buyer and the seller.
    (e) Customer means any person or account, including any agency, 
trust, estate, guardianship, or other fiduciary account for which a 
national bank makes or participates in making the purchase or sale of 
securities, but does not include a broker, dealer, bank acting as a 
broker or dealer, bank acting as the fiduciary of an account, bank as 
trustee acting as shareholder of record for the purchase or sale of 
securities, or issuer of securities that are the subject of the 
transaction.
    (f) Debt security means any security, such as a bond, debenture, 
note, or any other similar instrument that evidences a liability of the 
issuer (including any security of this type that is convertible into 
stock or a similar security) and fractional or participation interests 
in one or more of any of the foregoing. This definition does not include 
securities issued by an investment company registered under the 
Investment Company Act of 1940, 15 U.S.C. 80a-1 et seq.
    (g) Government security means:
    (1) A security that is a direct obligation of, or obligation 
guaranteed as to principal and interest by, the United States;
    (2) A security that is issued or guaranteed by a corporation in 
which the United States has a direct or indirect interest and which is 
designated by the Secretary of the Treasury for exemption as necessary 
or appropriate in the public interest or for the protection of 
investors;
    (3) A security issued or guaranteed as to principal and interest by 
any corporation whose securities are designated, by statute specifically 
naming the corporation, to constitute exempt securities within the 
meaning of the laws administered by the Securities and Exchange 
Commission; or
    (4) Any put, call, straddle, option, or privilege on a security 
described in paragraph (g)(1), (2), or (3) of this section, other than a 
put, call, straddle, option, or privilege:
    (i) That is traded on one or more national securities exchanges; or
    (ii) For which quotations are disseminated through an automated 
quotation system operated by a registered securities association.
    (h) Investment discretion means that, with respect to an account, a 
bank directly or indirectly:
    (1) Is authorized to determine what securities or other property 
shall be purchased or sold by or for the account; or
    (2) Makes decisions as to what securities or other property shall be 
purchased or sold by or for the account even though some other person 
may have responsibility for these investment decisions.
    (i) Municipal security means:
    (1) A security that is a direct obligation of, or an obligation 
guaranteed as to principal or interest by, a State or any political 
subdivision, or any agency or instrumentality of a State or any 
political subdivision;
    (2) A security that is a direct obligation of, or an obligation 
guaranteed as to principal or interest by, any municipal corporate 
instrumentality of one or more States; or
    (3) A security that is an industrial development bond (as defined in 
section 103(c)(2) of the Internal Revenue Code of 1954 (26 U.S.C. 
103(c)(2) (1970)) (Code)) the interest on which is excludable from gross 
income under section 103(a)(1) of the Code (26 U.S.C. 103(a)(1))

[[Page 224]]

if, by reason of the application of paragraph (4) or (6) of section 
103(c) of the Code (26 U.S.C. 103(c)) (determined as if paragraphs 
(4)(A), (5), and (7) were not included in section 103(c) (26 U.S.C. 
103(c)), paragraph (1) of section 103(c) (26 U.S.C. 103(c)) does not 
apply to the security.
    (j) Periodic plan means:
    (1) A written authorization for a national bank to act as agent to 
purchase or sell for a customer a specific security or securities, in a 
specific amount (calculated in security units or dollars) or to the 
extent of dividends and funds available, at specific time intervals, and 
setting forth the commission or charges to be paid by the customer or 
the manner of calculating them. These plans include dividend 
reinvestment plans, automatic investment plans, and employee stock 
purchase plans.
    (2) Any prearranged, automatic transfer or ``sweep'' of funds from a 
deposit account to purchase a security, or any prearranged, automatic 
redemption or sale of a security with the funds being transferred into a 
deposit account (including cash management sweep services).
    (k) Security: (1) Means any note, stock, treasury stock, bond, 
debenture, certificate of interest or participation in any profit-
sharing agreement or in any oil, gas, or other mineral royalty or lease, 
any collateral-trust certificate, preorganization certificate or 
subscription, transferable share, investment contract, voting-trust 
certificate, and any put, call, straddle, option, or privilege on any 
security or group or index of securities (including any interest therein 
or based on the value thereof), or, in general, any instrument commonly 
known as a ``security''; or any certificate of interest or participation 
in, temporary or interim certificate for, receipt for, or warrant or 
right to subscribe to or purchase, any of the foregoing;
    (2) Does not mean currency; any note, draft, bill of exchange, or 
banker's acceptance which has a maturity at the time of issuance not 
exceeding nine months, exclusive of days of grace, or any renewal 
thereof, the maturity of which is likewise limited; a deposit or share 
account in a Federal or State chartered depository institution; a loan 
participation; a letter of credit or other form of bank indebtedness 
incurred in the ordinary course of business; units of a collective 
investment fund; interests in a variable amount note in accordance with 
12 CFR 9.18; U.S. Savings Bonds; or any other instrument the OCC 
determines does not constitute a security for purposes of this part.



Sec. 12.3  Recordkeeping.

    (a) General rule. A national bank effecting securities transactions 
for customers shall maintain the following records for at least three 
years:
    (1) Chronological records. An itemized daily record of each purchase 
and sale of securities maintained in chronological order, and including:
    (i) Account or customer name for which each transaction was 
effected;
    (ii) Description of the securities;
    (iii) Unit and aggregate purchase or sale price;
    (iv) Trade date; and
    (v) Name or other designation of the broker/dealer or other person 
from whom the securities were purchased or to whom the securities were 
sold;
    (2) Account records. Account records for each customer, reflecting:
    (i) Purchases and sales of securities;
    (ii) Receipts and deliveries of securities;
    (iii) Receipts and disbursements of cash; and
    (iv) Other debits and credits pertaining to transactions in 
securities;
    (3) Memorandum order. A separate memorandum (order ticket) of each 
order to purchase or sell securities (whether executed or canceled), 
including:
    (i) Account or customer name for which the transaction was effected;
    (ii) Type of order (market order, limit order, or subject to special 
instructions);
    (iii) Time the trader or other bank employee responsible for 
effecting the transaction received the order;
    (iv) Time the trader placed the order with the broker/dealer, or if 
there was no broker/dealer, time the order was executed or canceled;
    (v) Price at which the order was executed; and

[[Page 225]]

    (vi) Name of the broker/dealer utilized;
    (4) Record of broker/dealers. A record of all broker/dealers 
selected by the bank to effect securities transactions and the amount of 
commissions paid or allocated to each broker during the calendar year; 
and
    (5) Notifications. A copy of the written notification required by 
Sec. Sec. 12.4 and 12.5.
    (b) Manner of maintenance. The records required by this section must 
clearly and accurately reflect the information required and provide an 
adequate basis for the audit of the information. Record maintenance may 
include the use of automated or electronic records provided the records 
are easily retrievable, readily available for inspection, and capable of 
being reproduced in a hard copy.



Sec. 12.4  Content and time of notification.

    Unless a national bank elects to provide notification by one of the 
means specified in Sec. 12.5, a national bank effecting a securities 
transaction for a customer shall give or send to the customer either of 
the following types of notifications at or before completion of the 
transaction or, if the bank uses a registered broker/dealer's 
confirmation, within one business day from the bank's receipt of the 
registered broker/dealer's confirmation:
    (a) Written notification. A written notification disclosing:
    (1) Name of the bank;
    (2) Name of the customer;
    (3) Capacity in which the bank acts (i.e., as agent for the 
customer, as agent for both the customer and some other person, as 
principal for its own account, or in any other capacity);
    (4) Date and time of execution, or a statement that the bank will 
furnish the time of execution within a reasonable time upon written 
request of the customer, and the identity, price, and number of shares 
or units (or principal amount in the case of debt securities) of the 
security purchased or sold by the customer;
    (5) Amount of any remuneration that the customer has provided or is 
to provide any broker/dealer, directly or indirectly, in connection with 
the transaction;
    (6) (i) Amount of any remuneration that the bank has received or 
will receive from the customer, and the source and amount of any other 
remuneration that the bank has received or will receive in connection 
with the transaction; unless:
    (A) The bank and its customer have determined remuneration pursuant 
to a written agreement; or
    (B) In the case of government securities and municipal securities, 
the bank received the remuneration in other than an agency transaction.
    (ii) If the bank elects not to disclose the source and amount of 
remuneration it has or will receive from a party other than the customer 
pursuant to paragraph (a)(6)(i) of this section, the written 
notification must disclose whether the bank has received or will receive 
remuneration from a party other than the customer, and that the bank 
will furnish within a reasonable time the source and amount of this 
remuneration upon written request of the customer. This election is not 
available, however, if, with respect to a purchase, the bank was 
participating in a distribution of that security; or, with respect to a 
sale, the bank was participating in a tender offer for that security;
    (7) Name of the registered broker/dealer utilized; or where there is 
no registered broker/dealer, the name of the person from whom the 
security was purchased or to whom the security was sold, or a statement 
that the bank will furnish this information within a reasonable time 
upon written request from the customer;
    (8) In the case of any transaction in a debt security subject to 
redemption before maturity, a statement to the effect that the debt 
security may be redeemed in whole or in part before maturity, that the 
redemption could affect the yield represented and that additional 
information is available upon request;
    (9) In the case of a transaction in a debt security effected 
exclusively on the basis of a dollar price:
    (i) The dollar price at which the transaction was effected; and

[[Page 226]]

    (ii) The yield to maturity calculated from the dollar price, unless 
the transaction is for a debt security that either:
    (A) Has a maturity date that may be extended by the issuer thereof, 
with a variable interest payable thereon; or
    (B) Is an asset-backed security that represents an interest in or is 
secured by a pool of receivables or other financial assets that 
continuously are subject to prepayment;
    (10) In the case of a transaction in a debt security effected on the 
basis of yield:
    (i) The yield at which the transaction was effected, including the 
percentage amount and its characterization (e.g., current yield, yield 
to maturity, or yield to call) and if effected at yield to call, the 
type of call, the call date, and call price;
    (ii) The dollar price calculated from the yield at which the 
transaction was effected; and
    (iii) If effected on a basis other than yield to maturity and the 
yield to maturity is lower than the represented yield, the yield to 
maturity as well as the represented yield, unless the transaction is for 
a debt security that either:
    (A) Has a maturity date that may be extended by the issuer thereof, 
with a variable interest rate payable thereon; or
    (B) Is an asset-backed security that represents an interest in or is 
secured by a pool of receivables or other financial assets that 
continuously are subject to prepayment;
    (11) In the case of a transaction in a debt security that is an 
asset-backed security, which represents an interest in or is secured by 
a pool of receivables or other financial assets that continuously are 
subject to prepayment, a statement indicating that the actual yield of 
the asset-backed security may vary according to the rate at which the 
underlying receivables or other financial assets are prepaid and a 
statement that information concerning the factors that affect yield 
(including at a minimum estimated yield, weighted average life, and the 
prepayment assumptions underlying yield) will be furnished upon written 
request of the customer; and
    (12) In the case of a transaction in a debt security, other than a 
government security, that the security is unrated by a nationally 
recognized statistical rating organization, if that is the case; or
    (b) Copy of the registered broker/dealer's confirmation. A copy of 
the confirmation of a registered broker/dealer relating to the 
securities transaction and, if the customer or any other source will 
provide remuneration to the bank in connection with the transaction and 
a written agreement between the bank and the customer does not determine 
the remuneration, a statement of the source and amount of any 
remuneration that the customer or any other source is to provide the 
bank.



Sec. 12.5  Notification by agreement; alternative forms and times of notification.

    A national bank may elect to use the following notification 
procedures as an alternative to complying with Sec. 12.4:
    (a) Notification by agreement. A national bank effecting a 
securities transaction for an account in which the bank does not 
exercise investment discretion shall give or send written notification 
at the time and in the form agreed to in writing by the bank and 
customer, provided that the agreement makes clear the customer's right 
to receive the written notification pursuant to Sec. 12.4 (a) or (b) at 
no additional cost to the customer.
    (b) Trust transactions. A national bank effecting a securities 
transaction for an account in which the bank exercises investment 
discretion other than in an agency capacity shall give or send written 
notification within a reasonable time if a person having the power to 
terminate the account, or, if there is no such person, any person 
holding a vested beneficial interest in the account, requests written 
notification pursuant to Sec. 12.4 (a) or (b). Otherwise, notification 
is not required.
    (c) Agency transactions. (1) A national bank effecting a securities 
transaction for an account in which the bank exercises investment 
discretion in an agency capacity shall give or send, not less than once 
every three months, an itemized statement to each customer

[[Page 227]]

that specifies the funds and securities in the custody or possession of 
the bank at the end of the period and all debits, credits and 
transactions in the customer's account during the period.
    (2) If requested by the customer, the bank shall give or send 
written notification to the customer pursuant to Sec. 12.4 (a) or (b) 
within a reasonable time.
    (d) Collective investment fund transactions. A national bank 
effecting a securities transaction for a collective investment fund 
shall follow 12 CFR 9.18.
    (e) Periodic plan transactions. (1) A national bank effecting a 
securities transaction for a periodic plan (except for a cash management 
sweep service) shall give or send to its customer not less than once 
every three months, a written statement showing:
    (i) The customer's funds and securities in the custody or possession 
of the bank;
    (ii) All service charges and commissions paid by the customer in 
connection with the transaction; and
    (iii) All other debits and credits of the customer's account 
involved in the transaction.
    (2) A national bank effecting a securities transaction for a cash 
management sweep service or other periodic plan as defined in Sec. 
12.2(j)(2) shall give or send its customer a written statement, in the 
same form as under paragraph (e)(1) of this section, for each month in 
which a purchase or sale of a security takes place in a deposit account 
and not less than once every three months if there are no securities 
transactions in the account, subject to any other applicable laws and 
regulations.
    (3) Upon written request of the customer, the bank shall give or 
send the information described in Sec. 12.4 (a) or (b), except that the 
bank need not provide to the customer any information relating to 
remuneration paid in connection with the transaction when the 
remuneration is paid by a source other than the customer.



Sec. 12.6  Fees.

    A national bank may charge a reasonable fee for providing 
notification pursuant to Sec. 12.5(b), (c), and (e). A national bank 
may not charge a fee for providing notification pursuant to Sec. 12.4 
or Sec. 12.5 (a) and (d).



Sec. 12.7  Securities trading policies and procedures.

    (a) Policies and procedures; reports of securities trading. A 
national bank effecting securities transactions for customers shall 
maintain and adhere to policies and procedures that:
    (1) Assign responsibility for supervision of all officers or 
employees who:
    (i) Transmit orders to or place orders with registered broker/
dealers;
    (ii) Execute transactions in securities for customers; or
    (iii) Process orders for notification or settlement purposes, or 
perform other back office functions with respect to securities 
transactions effected for customers. Policies and procedures for 
personnel described in this paragraph (a)(1)(iii) must provide for 
supervision and reporting lines that are separate from supervision and 
reporting lines for personnel described in paragraphs (a)(1) (i) and 
(ii) of this section;
    (2) Provide for the fair and equitable allocation of securities and 
prices to accounts when the bank receives orders for the same security 
at approximately the same time and places the orders for execution 
either individually or in combination;
    (3) Provide for the crossing of buy and sell orders on a fair and 
equitable basis to the parties to the transaction, where permissible 
under applicable law; and
    (4) Require bank officers and employees to report to the bank, 
within ten business days after the end of the calendar quarter, all 
personal transactions in securities made by them or on their behalf in 
which they have a beneficial interest, if the officers and employees:
    (i) Make investment recommendations or decisions for the accounts of 
customers;
    (ii) Participate in the determination of the recommendations or 
decisions; or
    (iii) In connection with their duties, obtain information concerning 
which securities are purchased, sold, or recommended for purchase or 
sale by the bank.

[[Page 228]]

    (b) Required information. The report required under paragraph (a)(4) 
of this section must contain the following information:
    (1) The date of the transaction, the title and number of shares, and 
the principal amount of each security involved;
    (2) The nature of the transaction (i.e. purchase, sale, or other 
type of acquisition or disposition);
    (3) The price at which the transaction was effected; and
    (4) The name of the registered broker, registered dealer, or bank 
with or through whom the transaction was effected.
    (c) Report not required. This section does not require a bank 
officer or employee to report transactions if:
    (1) The officer or employee has no direct or indirect influence or 
control over the transaction;
    (2) The transaction is in mutual fund shares;
    (3) The transaction is in government securities; or
    (4) The transactions involve an aggregate amount of purchases and 
sales per officer or employee of $10,000 or less during the calendar 
quarter.
    (d) Additional reporting requirement. A national bank that acts as 
an investment adviser to an investment company is subject to the 
requirements of Securities and Exchange Commission (SEC) Rule 17j-1 (17 
CFR 270.17j-1) issued under the Investment Company Act of 1940. SEC Rule 
17j-1 requires an ``access person'' of the investment adviser to report 
certain personal securities transactions to the investment adviser for 
review by the Securities and Exchange Commission. ``Access person'' 
includes directors, officers, and certain employees of the investment 
adviser. The reporting requirement under paragraph (a)(4) of this 
section is a separate requirement from any applicable requirements under 
SEC Rule 17j-1. However, an ``access person'' required to file a report 
with a national bank pursuant to SEC Rule 17j-1 need not file a separate 
report under paragraph (a)(4) of this section if the required 
information is the same.



Sec. 12.8  Waivers.

    A national bank may file a written request with the OCC for waiver 
of one or more of the requirements set forth in Sec. Sec. 12.2 through 
12.7, either in whole or in part. The OCC may grant a waiver from the 
requirements of this part to any national bank, or any class of national 
banks, with regard to a specific transaction or a specific class of 
transactions.



Sec. 12.9  Settlement of securities transactions.

    (a) A national bank shall not effect or enter into a contract for 
the purchase or sale of a security (other than an exempted security as 
defined in 15 U.S.C. 78c(a)(12), government security, municipal 
security, commercial paper, bankers' acceptances, or commercial bills) 
that provides for payment of funds and delivery of securities later than 
the third business day after the date of the contract, unless otherwise 
expressly agreed to by the parties at the time of the transaction.
    (b) Paragraphs (a) and (c) of this section do not apply to 
contracts:
    (1) For the purchase or sale of limited partnership interests that 
are not listed on an exchange or for which quotations are not 
disseminated through an automated quotation system of a registered 
securities association;
    (2) For the purchase or sale of securities that the Securities and 
Exchange Commission (SEC) may from time to time, taking into account 
then existing market practices, exempt by order from the requirements of 
paragraph (a) of SEC Rule 15c6-1, 17 CFR 240.15c6-1(a), either 
unconditionally or on specified terms and conditions, if the SEC 
determines that an exemption is consistent with the public interest and 
the protection of investors.
    (c) Paragraph (a) of this section does not apply to contracts for 
the sale for cash of securities that are priced after 4:30 p.m. Eastern 
time on the date the securities are priced and that are sold by an 
issuer to an underwriter pursuant to a firm commitment underwritten 
offering registered under the Securities Act of 1933, 15 U.S.C. 77a et 
seq., or sold to an initial purchaser by

[[Page 229]]

a national bank participating in the offering. A national bank shall not 
effect or enter into a contract for the purchase or sale of the 
securities that provides for payment of funds and delivery of securities 
later than the fourth business day after the date of the contract unless 
otherwise expressly agreed to by the parties at the time of the 
transaction.
    (d) For purposes of paragraphs (a) and (c) of this section, the 
parties to a contract are deemed to have expressly agreed to an 
alternate date for payment of funds and delivery of securities at the 
time of the transaction for a contract for the sale for cash of 
securities pursuant to a firm commitment offering if the managing 
underwriter and the issuer have agreed to the date for all securities 
sold pursuant to the offering and the parties to the contract have not 
expressly agreed to another date for payment of funds and delivery of 
securities at the time of the transaction.

                             Interpretations



Sec. 12.101  National bank disclosure of remuneration for mutual fund transactions.

    A national bank may fulfill its obligation to disclose information 
on the source and amount of remuneration, required by Sec. 12.4, for 
mutual fund transactions by providing this information to the customer 
in a current prospectus, at or before completion of the securities 
transaction. The OCC's view is consistent with the position of the 
Securities and Exchange Commission (SEC) as provided in a no-action 
letter dated March 19, 1979, which permits confirmations for mutual 
funds to refer to the sales load disclosed in the prospectus. See Letter 
to the Investment Company Institute, reprinted in [1979 Transfer Binder] 
Fed. Sec. L. Rep. (CCH) 82041 (Mar. 19, 1979). The OCC would reconsider 
its position upon any change in the SEC's practice.



Sec. 12.102  National bank use of electronic communications as customer notifications.

    (a) In appropriate situations, a national bank may satisfy the 
``written'' notification requirement under Sec. Sec. 12.4 and 12.5 
through electronic communications. Where a customer has a facsimile 
machine, a national bank may fulfill its notification delivery 
requirement by sending the notification by facsimile transmission. 
Similarly, a bank may satisfy the notification delivery requirement by 
other electronic communications when:
    (1) The parties agree to use electronic instead of hard-copy 
notifications;
    (2) The parties have the ability to print or download the 
notification;
    (3) The recipient affirms or rejects the trade through electronic 
notification;
    (4) The system cannot automatically delete the electronic 
notification; and
    (5) Both parties have the capacity to receive electronic messages.
    (b) The OCC would consider the permissibility of other situations 
using electronic notifications on a case-by-case basis.



PART 13_GOVERNMENT SECURITIES SALES PRACTICES--Table of Contents




Sec.
13.1 Scope.
13.2 Definitions.
13.3 Business conduct.
13.4 Recommendations to customers.
13.5 Customer information.

                             Interpretations

13.100 Obligations concerning institutional customers.

    Authority: 12 U.S.C. 1 et seq., and 93a; 15 U.S.C. 78o-5.

    Source: 62 FR 13283, Mar. 19, 1997, unless otherwise noted.



Sec. 13.1  Scope.

    This part applies to national banks that have filed notice as, or 
are required to file notice as, government securities brokers or dealers 
pursuant to section 15C of the Securities Exchange Act (15 U.S.C. 78o-5) 
and Department of the Treasury rules under section 15C (17 CFR 400.1(d) 
and part 401).



Sec. 13.2  Definitions.

    (a) Bank that is a government securities broker or dealer means a 
national bank that has filed notice, or is required to file notice, as a 
government securities broker or dealer pursuant to section 15C of the 
Securities Exchange Act (15

[[Page 230]]

U.S.C. 78o-5) and Department of the Treasury rules under section 15C (17 
CFR 400.1(d) and part 401).
    (b) Customer does not include a broker or dealer or a government 
securities broker or dealer.
    (c) Government security has the same meaning as this term has in 
section 3(a)(42) of the Securities Exchange Act of 1934 (15 U.S.C. 
78c(a)(42)).
    (d) Non-institutional customer means any customer other than:
    (1) A bank, savings association, insurance company, or registered 
investment company;
    (2) An investment adviser registered under section 203 of the 
Investment Advisers Act of 1940 (15 U.S.C. 80b-3); or
    (3) Any entity (whether a natural person, corporation, partnership, 
trust, or otherwise) with total assets of at least $50 million.



Sec. 13.3  Business conduct.

    A bank that is a government securities broker or dealer shall 
observe high standards of commercial honor and just and equitable 
principles of trade in the conduct of its business as a government 
securities broker or dealer.



Sec. 13.4  Recommendations to customers.

    In recommending to a customer the purchase, sale or exchange of a 
government security, a bank that is a government securities broker or 
dealer shall have reasonable grounds for believing that the 
recommendation is suitable for the customer upon the basis of the facts, 
if any, disclosed by the customer as to the customer's other security 
holdings and as to the customer's financial situation and needs.



Sec. 13.5  Customer information.

    Prior to the execution of a transaction recommended to a non-
institutional customer, a bank that is a government securities broker or 
dealer shall make reasonable efforts to obtain information concerning:
    (a) The customer's financial status;
    (b) The customer's tax status;
    (c) The customer's investment objectives; and
    (d) Such other information used or considered to be reasonable by 
the bank in making recommendations to the customer.

                             Interpretations



Sec. 13.100  Obligations concerning institutional customers.

    (a) As a result of broadened authority provided by the Government 
Securities Act Amendments of 1993 (15 U.S.C. 78o-3 and 78o-5), the OCC 
is adopting sales practice rules for the government securities market, a 
market with a particularly broad institutional component. Accordingly, 
the OCC believes it is appropriate to provide further guidance to banks 
on their suitability obligations when making recommendations to 
institutional customers.
    (b) The OCC's suitability rule (Sec. 13.4) is fundamental to fair 
dealing and is intended to promote ethical sales practices and high 
standards of professional conduct. Banks' responsibilities include 
having a reasonable basis for recommending a particular security or 
strategy, as well as having reasonable grounds for believing the 
recommendation is suitable for the customer to whom it is made. Banks 
are expected to meet the same high standards of competence, 
professionalism, and good faith regardless of the financial 
circumstances of the customer.
    (c) In recommending to a customer the purchase, sale, or exchange of 
any government security, the bank shall have reasonable grounds for 
believing that the recommendation is suitable for the customer upon the 
basis of the facts, if any, disclosed by the customer as to the 
customer's other security holdings and financial situation and needs.
    (d) The interpretation in this section concerns only the manner in 
which a bank determines that a recommendation is suitable for a 
particular institutional customer. The manner in which a bank fulfills 
this suitability obligation will vary, depending on the nature of the 
customer and the specific transaction. Accordingly, the interpretation 
in this section deals only with guidance regarding how a bank may 
fulfill customer-specific suitability obligations under Sec. 13.4.\1\
---------------------------------------------------------------------------

    \1\ The interpretation in this section does not address the 
obligation related to suitability that requires that a bank have ``* * * 
a `reasonable basis' to believe that the recommendation could be 
suitable for at least some customers.'' In the Matter of the Application 
of F.J. Kaufman and Company of Virginia and Frederick J. Kaufman, Jr., 
50 SEC 164 (1989).

---------------------------------------------------------------------------

[[Page 231]]

    (e) While it is difficult to define in advance the scope of a bank's 
suitability obligation with respect to a specific institutional customer 
transaction recommended by a bank, the OCC has identified certain 
factors that may be relevant when considering compliance with Sec. 
13.4. These factors are not intended to be requirements or the only 
factors to be considered but are offered merely as guidance in 
determining the scope of a bank's suitability obligations.
    (f) The two most important considerations in determining the scope 
of a bank's suitability obligations in making recommendations to an 
institutional customer are the customer's capability to evaluate 
investment risk independently and the extent to which the customer is 
exercising independent judgement in evaluating a bank's recommendation. 
A bank must determine, based on the information available to it, the 
customer's capability to evaluate investment risk. In some cases, the 
bank may conclude that the customer is not capable of making independent 
investment decisions in general. In other cases, the institutional 
customer may have general capability, but may not be able to understand 
a particular type of instrument or its risk. This is more likely to 
arise with relatively new types of instruments, or those with 
significantly different risk or volatility characteristics than other 
investments generally made by the institution. If a customer is either 
generally not capable of evaluating investment risk or lacks sufficient 
capability to evaluate the particular product, the scope of a bank's 
customer-specific obligations under Sec. 13.4 would not be diminished 
by the fact that the bank was dealing with an institutional customer. On 
the other hand, the fact that a customer initially needed help 
understanding a potential investment need not necessarily imply that the 
customer did not ultimately develop an understanding and make an 
independent investment decision.
    (g) A bank may conclude that a customer is exercising independent 
judgement if the customer's investment decision will be based on its own 
independent assessment of the opportunities and risks presented by a 
potential investment, market factors and other investment 
considerations. Where the bank has reasonable grounds for concluding 
that the institutional customer is making independent investment 
decisions and is capable of independently evaluating investment risk, 
then a bank's obligations under Sec. 13.4 for a particular customer are 
fulfilled.\2\ Where a customer has delegated decision-making authority 
to an agent, such as an investment advisor or a bank trust department, 
the interpretation in this section shall be applied to the agent.
---------------------------------------------------------------------------

    \2\ See footnote 1 in paragraph (d) of this section.
---------------------------------------------------------------------------

    (h) A determination of capability to evaluate investment risk 
independently will depend on an examination of the customer's capability 
to make its own investment decisions, including the resources available 
to the customer to make informed decisions. Relevant considerations 
could include:
    (1) The use of one or more consultants, investment advisers, or bank 
trust departments;
    (2) The general level of experience of the institutional customer in 
financial markets and specific experience with the type of instruments 
under consideration;
    (3) The customer's ability to understand the economic features of 
the security involved;
    (4) The customer's ability to independently evaluate how market 
developments would affect the security; and
    (5) The complexity of the security or securities involved.
    (i) A determination that a customer is making independent investment 
decisions will depend on the nature of the relationship that exists 
between the bank and the customer.
    Relevant considerations could include:
    (1) Any written or oral understanding that exists between the bank 
and the customer regarding the nature of the relationship between the 
bank and the

[[Page 232]]

customer and the services to be rendered by the bank;
    (2) The presence or absence of a pattern of acceptance of the bank's 
recommendations;
    (3) The use by the customer of ideas, suggestions, market views and 
information obtained from other government securities brokers or dealers 
or market professionals, particularly those relating to the same type of 
securities; and
    (4) The extent to which the bank has received from the customer 
current comprehensive portfolio information in connection with 
discussing recommended transactions or has not been provided important 
information regarding its portfolio or investment objectives.
    (j) Banks are reminded that these factors are merely guidelines that 
will be utilized to determine whether a bank has fulfilled its 
suitability obligation with respect to a specific institutional customer 
transaction and that the inclusion or absence of any of these factors is 
not dispositive of the determination of suitability. Such a 
determination can only be made on a case-by-case basis taking into 
consideration all the facts and circumstances of a particular bank/
customer relationship, assessed in the context of a particular 
transaction.
    (k) For purposes of the interpretation in this section, an 
institutional customer shall be any entity other than a natural person. 
In determining the applicability of the interpretation in this section 
to an institutional customer, the OCC will consider the dollar value of 
the securities that the institutional customer has in its portfolio and/
or under management. While the interpretation in this section is 
potentially applicable to any institutional customer, the guidance 
contained in this section is more appropriately applied to an 
institutional customer with at least $10 million invested in securities 
in the aggregate in its portfolio and/or under management.



PART 14_CONSUMER PROTECTION IN SALES OF INSURANCE--Table of Contents




Sec.
14.10 Purpose and scope.
14.20 Definitions.
14.30 Prohibited practices.
14.40 What a covered person must disclose.
14.50 Where insurance activities may take place.
14.60 Qualification and licensing requirements for insurance sales 
          personnel.

Appendix A to Part 14--Consumer Grievance Process

    Authority: 12 U.S.C. 1 et seq., 24(Seventh), 92, 93a, 1818, and 
1831x.

    Source: 65 FR 75839, Dec. 4, 2000, unless otherwise noted.



Sec. 14.10  Purpose and scope.

    (a) General rule. This part establishes consumer protections in 
connection with retail sales practices, solicitations, advertising, or 
offers of any insurance product or annuity to a consumer by:
    (1) Any national bank; or
    (2) Any other person that is engaged in such activities at an office 
of the bank or on behalf of the bank.
    (b) Application to operating subsidiaries. For purposes of Sec. 
5.34(e)(3) of this chapter, an operating subsidiary is subject to this 
part only to the extent that it sells, solicits, advertises, or offers 
insurance products or annuities at an office of a bank or on behalf of a 
bank.



Sec. 14.20  Definitions.

    As used in this part:
    (a) Affiliate means a company that controls, is controlled by, or is 
under common control with another company.
    (b) Bank means a national bank or a Federal branch, or agency of a 
foreign bank as defined in section 1 of the International Banking Act of 
1978 (12 U.S.C. 3101, et seq.)
    (c) Company means any corporation, partnership, business trust, 
association or similar organization, or any other trust (unless by its 
terms the trust must terminate within twenty-five years or not later 
than twenty-one years and ten months after the death of individuals 
living on the effective date of the trust). It does not include any 
corporation the majority of the shares of which are owned by the United 
States or by any State, or a qualified family partnership, as defined in 
section 2(o)(10) of the Bank Holding

[[Page 233]]

Company Act of 1956, as amended (12 U.S.C. 1841(o)(10)).
    (d) Consumer means an individual who purchases, applies to purchase, 
or is solicited to purchase from a covered person insurance products or 
annuities primarily for personal, family, or household purposes.
    (e) Control of a company has the same meaning as in section 3(w)(5) 
of the Federal Deposit Insurance Act (12 U.S.C. 1813(w)(5)).
    (f)(1) Covered person means:
    (i) A bank; or
    (ii) Any other person only when the person sells, solicits, 
advertises, or offers an insurance product or annuity to a consumer at 
an office of the bank or on behalf of a bank.
    (2) For purposes of this definition, activities on behalf of a bank 
include activities where a person, whether at an office of the bank or 
at another location sells, solicits, advertises, or offers an insurance 
product or annuity and at least one of the following applies:
    (i) The person represents to a consumer that the sale, solicitation, 
advertisement, or offer of any insurance product or annuity is by or on 
behalf of the bank;
    (ii) The bank refers a consumer to a seller of insurance products or 
annuities and the bank has a contractual arrangement to receive 
commissions or fees derived from a sale of an insurance product or 
annuity resulting from that referral; or
    (iii) Documents evidencing the sale, solicitation, advertising, or 
offer of an insurance product or annuity identify or refer to the bank.
    (g) Domestic violence means the occurrence of one or more of the 
following acts by a current or former family member, household member, 
intimate partner, or caretaker:
    (1) Attempting to cause or causing or threatening another person 
physical harm, severe emotional distress, psychological trauma, rape, or 
sexual assault;
    (2) Engaging in a course of conduct or repeatedly committing acts 
toward another person, including following the person without proper 
authority, under circumstances that place the person in reasonable fear 
of bodily injury or physical harm;
    (3) Subjecting another person to false imprisonment; or
    (4) Attempting to cause or causing damage to property so as to 
intimidate or attempt to control the behavior of another person.
    (h) Electronic media includes any means for transmitting messages 
electronically between a covered person and a consumer in a format that 
allows visual text to be displayed on equipment, for example, a personal 
computer monitor.
    (i) Office means the premises of a bank where retail deposits are 
accepted from the public.
    (j) Subsidiary has the same meaning as in section 3(w)(4) of the 
Federal Deposit Insurance Act (12 U.S.C. 1813(w)(4)).



Sec. 14.30  Prohibited practices.

    (a) Anticoercion and antitying rules. A covered person may not 
engage in any practice that would lead a consumer to believe that an 
extension of credit, in violation of section 106(b) of the Bank Holding 
Company Act Amendments of 1970 (12 U.S.C. 1972), is conditional upon 
either:
    (1) The purchase of an insurance product or annuity from the bank or 
any of its affiliates; or
    (2) An agreement by the consumer not to obtain, or a prohibition on 
the consumer from obtaining, an insurance product or annuity from an 
unaffiliated entity.
    (b) Prohibition on misrepresentations generally. A covered person 
may not engage in any practice or use any advertisement at any office 
of, or on behalf of, the bank or a subsidiary of the bank that could 
mislead any person or otherwise cause a reasonable person to reach an 
erroneous belief with respect to:
    (1) The fact that an insurance product or annuity sold or offered 
for sale by a covered person or any subsidiary of the bank is not backed 
by the Federal government or the bank, or the fact that the insurance 
product or annuity is not insured by the Federal Deposit Insurance 
Corporation;
    (2) In the case of an insurance product or annuity that involves 
investment risk, the fact that there is an investment risk, including 
the potential

[[Page 234]]

that principal may be lost and that the product may decline in value; or
    (3) In the case of a bank or subsidiary of the bank at which 
insurance products or annuities are sold or offered for sale, the fact 
that:
    (i) The approval of an extension of credit to a consumer by the bank 
or subsidiary may not be conditioned on the purchase of an insurance 
product or annuity by the consumer from the bank or a subsidiary of the 
bank; and
    (ii) The consumer is free to purchase the insurance product or 
annuity from another source.
    (c) Prohibition on domestic violence discrimination. A covered 
person may not sell or offer for sale, as principal, agent, or broker, 
any life or health insurance product if the status of the applicant or 
insured as a victim of domestic violence or as a provider of services to 
victims of domestic violence is considered as a criterion in any 
decision with regard to insurance underwriting, pricing, renewal, or 
scope of coverage of such product, or with regard to the payment of 
insurance claims on such product, except as required or expressly 
permitted under State law.



Sec. 14.40  What a covered person must disclose.

    (a) Insurance disclosures. In connection with the initial purchase 
of an insurance product or annuity by a consumer from a covered person, 
a covered person must disclose to the consumer, except to the extent the 
disclosure would not be accurate, that:
    (1) The insurance product or annuity is not a deposit or other 
obligation of, or guaranteed by, the bank or an affiliate of the bank;
    (2) The insurance product or annuity is not insured by the Federal 
Deposit Insurance Corporation (FDIC) or any other agency of the United 
States, the bank, or (if applicable) an affiliate of the bank; and
    (3) In the case of an insurance product or annuity that involves an 
investment risk, there is investment risk associated with the product, 
including the possible loss of value.
    (b) Credit disclosure. In the case of an application for credit in 
connection with which an insurance product or annuity is solicited, 
offered, or sold, a covered person must disclose that the bank may not 
condition an extension of credit on either:
    (1) The consumer's purchase of an insurance product or annuity from 
the bank or any of its affiliates; or
    (2) The consumer's agreement not to obtain, or a prohibition on the 
consumer from obtaining, an insurance product or annuity from an 
unaffiliated entity.
    (c) Timing and method of disclosures--(1) In general. The 
disclosures required by paragraph (a) of this section must be provided 
orally and in writing before the completion of the initial sale of an 
insurance product or annuity to a consumer. The disclosure required by 
paragraph (b) of this section must be made orally and in writing at the 
time the consumer applies for an extension of credit in connection with 
which an insurance product or annuity is solicited, offered, or sold.
    (2) Exception for transactions by mail. If a sale of an insurance 
product or annuity is conducted by mail, a covered person is not 
required to make the oral disclosures required by paragraph (a) of this 
section. If a covered person takes an application for credit by mail, 
the covered person is not required to make the oral disclosure required 
by paragraph (b).
    (3) Exception for transactions by telephone. If a sale of an 
insurance product or annuity is conducted by telephone, a covered person 
may provide the written disclosures required by paragraph (a) of this 
section by mail within 3 business days beginning on the first business 
day after the sale, excluding Sundays and the legal public holidays 
specified in 5 U.S.C. 6103(a). If a covered person takes an application 
for credit by telephone, the covered person may provide the written 
disclosure required by paragraph (b) of this section by mail, provided 
the covered person mails it to the consumer within three days beginning 
the first business day after the application is taken, excluding Sundays 
and the legal public holidays specified in 5 U.S.C. 6103(a).
    (4) Electronic form of disclosures. (i) Subject to the requirements 
of section 101(c) of the Electronic Signatures in Global and National 
Commerce Act (12 U.S.C. 7001(c)), a covered person may

[[Page 235]]

provide the written disclosures required by paragraph (a) and (b) of 
this section through electronic media instead of on paper, if the 
consumer affirmatively consents to receiving the disclosures 
electronically and if the disclosures are provided in a format that the 
consumer may retain or obtain later, for example, by printing or storing 
electronically (such as by downloading).
    (ii) Any disclosures required by paragraphs (a) or (b) of this 
section that are provided by electronic media are not required to be 
provided orally.
    (5) Disclosures must be readily understandable. The disclosures 
provided shall be conspicuous, simple, direct, readily understandable, 
and designed to call attention to the nature and significance of the 
information provided. For instance, a covered person may use the 
following disclosures in visual media, such as television broadcasting, 
ATM screens, billboards, signs, posters and written advertisements and 
promotional materials, as appropriate and consistent with paragraphs (a) 
and (b) of this section:

 NOT A DEPOSIT
 NOT FDIC-INSURED
 NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY
 NOT GUARANTEED BY THE BANK [OR SAVINGS ASSOCIATION]
 MAY GO DOWN IN VALUE

    (6) Disclosures must be meaningful. (i) A covered person must 
provide the disclosures required by paragraphs (a) and (b) of this 
section in a meaningful form. Examples of the types of methods that 
could call attention to the nature and significance of the information 
provided include:
    (A) A plain-language heading to call attention to the disclosures;
    (B) A typeface and type size that are easy to read;
    (C) Wide margins and ample line spacing;
    (D) Boldface or italics for key words; and
    (E) Distinctive type style, and graphic devices, such as shading or 
sidebars, when the disclosures are combined with other information.
    (ii) A covered person has not provided the disclosures in a 
meaningful form if the covered person merely states to the consumer that 
the required disclosures are available in printed material, but does not 
provide the printed material when required and does not orally disclose 
the information to the consumer when required.
    (iii) With respect to those disclosures made through electronic 
media for which paper or oral disclosures are not required, the 
disclosures are not meaningfully provided if the consumer may bypass the 
visual text of the disclosures before purchasing an insurance product or 
annuity.
    (7) Consumer acknowledgment. A covered person must obtain from the 
consumer, at the time a consumer receives the disclosures required under 
paragraphs (a) or (b) of this section, or at the time of the initial 
purchase by the consumer of an insurance product or annuity, a written 
acknowledgment by the consumer that the consumer received the 
disclosures. A covered person may permit a consumer to acknowledge 
receipt of the disclosures electronically or in paper form. If the 
disclosures required under paragraphs (a) or (b) of this section are 
provided in connection with a transaction that is conducted by 
telephone, a covered person must:
    (i) Obtain an oral acknowledgment of receipt of the disclosures and 
maintain sufficient documentation to show that the acknowledgment was 
given; and
    (ii) Make reasonable efforts to obtain a written acknowledgment from 
the consumer.
    (d) Advertisements and other promotional material for insurance 
products or annuities. The disclosures described in paragraph (a) of 
this section are required in advertisements and promotional material for 
insurance products or annuities unless the advertisements and 
promotional materials are of a general nature describing or listing the 
services or products offered by the bank.



Sec. 14.50  Where insurance activities may take place.

    (a) General rule. A bank must, to the extent practicable, keep the 
area where the bank conducts transactions involving insurance products 
or annuities physically segregated from areas where retail deposits are 
routinely accepted

[[Page 236]]

from the general public, identify the areas where insurance product or 
annuity sales activities occur, and clearly delineate and distinguish 
those areas from the areas where the bank's retail deposit-taking 
activities occur.
    (b) Referrals. Any person who accepts deposits from the public in an 
area where such transactions are routinely conducted in the bank may 
refer a consumer who seeks to purchase an insurance product or annuity 
to a qualified person who sells that product only if the person making 
the referral receives no more than a one-time, nominal fee of a fixed 
dollar amount for each referral that does not depend on whether the 
referral results in a transaction.



Sec. 14.60  Qualification and licensing requirements for insurance sales personnel.

    A bank may not permit any person to sell or offer for sale any 
insurance product or annuity in any part of its office or on its behalf, 
unless the person is at all times appropriately qualified and licensed 
under applicable State insurance licensing standards with regard to the 
specific products being sold or recommended.



         Sec. Appendix A to Part 14--Consumer Grievance Process

    Any consumer who believes that any bank or any other person selling, 
soliciting, advertising, or offering insurance products or annuities to 
the consumer at an office of the bank or on behalf of the bank has 
violated the requirements of this part should contact the Customer 
Assistance Group, Office of the Comptroller of the Currency, (800) 613-
6743, 1301 McKinney Street, Suite 3710, Houston, Texas 77010-3031.

                           PART 15 [RESERVED]



PART 16_SECURITIES OFFERING DISCLOSURE RULES--Table of Contents




Sec.
16.1 Authority, purpose, and scope.
16.2 Definitions.
16.3 Registration statement and prospectus requirements.
16.4 Communications not deemed an offer.
16.5 Exemptions.
16.6 Sales of nonconvertible debt.
16.7 Nonpublic offerings.
16.8 Small issues.
16.15 Form and content.
16.16 Effectiveness.
16.17 Filing requirements and inspection of documents.
16.18 Use of prospectus.
16.19 Withdrawal or abandonment.
16.20 Compliance with requirements of the securities laws.
16.30 Request for interpretive advice or no-objection letter.
16.31 Escrow requirement.
16.32 Fraudulent transactions and unsafe and unsound practices.
16.33 Filing fees.

    Authority: 12 U.S.C. 1 et seq. and 93a.

    Source: 59 FR 54798, Nov. 2, 1994, unless otherwise noted.



Sec. 16.1  Authority, purpose, and scope.

    (a) Authority. This part is issued under the general authority of 
the national banking laws, 12 U.S.C. 1 et seq., and the OCC's general 
rulemaking authority in 12 U.S.C. 93a.
    (b) Purpose. This part sets forth rules governing the offer and sale 
of securities issued by a bank.
    (c) Scope. This part applies to offers and sales of bank securities 
by issuers, underwriters, and dealers.



Sec. 16.2  Definitions.

    For purposes of this part, the following definitions apply:
    (a) Accredited investor means the same as in Commission Rule 501(a) 
(17 CFR 230.501(a)).
    (b) Bank means an existing national bank, a national bank in 
organization, a bank operating under the Code of Law of the District of 
Columbia, or a federal branch or agency of a foreign bank.
    (c) Commission means the Securities and Exchange Commission. When 
used in the rules, regulations, or forms of the Commission referred to 
in this part, the term ``Commission'' shall be deemed to refer to the 
OCC.
    (d) Dealer means the same as in section 2(12) of the Securities Act 
(15 U.S.C. 77b(12)).
    (e) Exchange Act means the Securities Exchange Act of 1934 (15 
U.S.C. 78a through 78jj).
    (f) Insured depository institution means the same as in section 
3(c)(2) of the Federal Deposit Insurance Act (12 U.S.C. 1813(c)(2)).
    (g) Investment grade means that a security is rated investment grade 
(i.e.,

[[Page 237]]

in one of the top four rating categories) by each nationally recognized 
statistical rating organization that has rated the security.
    (h) Issuer means a bank that issues or proposes to issue any 
security.
    (i) Nonconvertible debt means a general obligation of the bank, 
whether senior or subordinated, that is not convertible into any class 
of common or preferred stock or any derivative thereof.
    (j) OCC means the Office of the Comptroller of the Currency.
    (k) Person means the same as in section 2(2) of the Securities Act 
(15 U.S.C. 77b(2)) and includes a bank.
    (l) Prospectus means an offering document that includes the 
information required by section 10(a) of the Securities Act (15 U.S.C. 
77j(a)).
    (m) Registration statement means a filing that includes the 
prospectus and other information required by section 7 of the Securities 
Act (15 U.S.C. 77g).
    (n) Sale, sell, offer to sell, offer for sale, and offer mean the 
same as in section 2(3) of the Securities Act (15 U.S.C. 77b(3)).
    (o) Securities Act means the Securities Act of 1933 (15 U.S.C. 77a 
through 77aa).
    (p) Security means the same as in section 2(1) of the Securities Act 
(15 U.S.C. 77b(1)).
    (q) Underwriter means the same as in section 2(11) of the Securities 
Act (15 U.S.C. 77b(11)). Commission Rules 137, 140, 141, 142, and 144 
(17 CFR 230.137, 230.140, 230.141, 230.142, and 230.144) (which apply to 
section 2(11) of the Securities Act) apply to this part.



Sec. 16.3  Registration statement and prospectus requirements.

    (a) No person shall offer or sell, directly or indirectly, any bank 
issued security unless:
    (1) A registration statement for the security meeting the 
requirements of Sec. 16.15 of this part has been filed with and 
declared effective by the OCC pursuant to this part, and the offer or 
sale is accompanied or preceded by a prospectus that has been filed with 
and declared effective by the OCC as a part of that registration 
statement; or
    (2) An exemption is available under Sec. 16.5 of this part.
    (b) Notwithstanding paragraph (a) of this section, securities of a 
bank may be offered through the use of a preliminary prospectus before a 
registration statement and prospectus for the securities have been 
declared effective by the OCC if:
    (1) A registration statement including the preliminary prospectus 
has been filed with the OCC;
    (2) The preliminary prospectus contains the information required by 
Sec. 16.15 of this part except for the omission of information with 
respect to the offering price, underwriting discounts or commissions, 
discounts or commissions to dealers, amount of proceeds, conversion 
rates, call prices, or other matters dependent upon the offering price; 
and
    (3) A copy of the prospectus as declared effective containing the 
information specified in paragraph (b)(2) of this section is furnished 
to each purchaser prior to or simultaneously with the sale of the 
security.
    (c) Commission Rule 174 (17 CFR 230.174--Delivery of prospectus by 
dealers; Exemptions under section 4(3) of the Act) applies to 
transactions by dealers in bank issued securities.



Sec. 16.4  Communications not deemed an offer.

    (a) The OCC will not deem the following communications to be an 
offer under Sec. 16.3 of this part:
    (1) Prior to the filing of a registration statement, any notice of a 
proposed offering that satisfies the requirements of Commission Rule 135 
(17 CFR 230.135);
    (2) Subsequent to the filing of a registration statement, any 
notice, circular, advertisement, letter, or other communication 
published or transmitted to any person that satisfies the requirements 
of Commission Rule 134 (17 CFR 230.134);
    (3) Subsequent to the filing of a registration statement, any oral 
offer of securities covered by that registration statement;
    (4) Subsequent to the filing of a registration statement, any 
summary prospectus that is filed as a part of that registration 
statement and satisfies the requirements of Commission Rule 431 (17 CFR 
230.431);

[[Page 238]]

    (5) Subsequent to the effective date of a registration statement, 
any written communication if it is proved that each recipient of the 
communication simultaneously or previously received a written prospectus 
meeting the requirements of section 10(a) of the Securities Act (15 
U.S.C. 77j(a)) and Sec. 16.15 of this part that was filed with and 
declared effective by the OCC;
    (6) A notice of a proposed unregistered offering that satisfies the 
requirements of Commission Rule 135c (17 CFR 230.135c); and
    (7) A communication that satisfies the requirements of Commission 
Rule 138 or 139 (17 CFR 230.138 or 230.139).
    (b) The OCC may request that communications not deemed an offer 
under paragraph (a) of this section be submitted to the OCC.
    (c) The OCC may prohibit the publication or distribution of any 
communication not deemed an offer under paragraph (a) of this section if 
necessary to protect the investing public.



Sec. 16.5  Exemptions.

    The registration statement and prospectus requirements of Sec. 16.3 
of this part do not apply to an offer or sale of bank securities:
    (a) If the securities are exempt from registration under section 3 
of the Securities Act (15 U.S.C. 77c), but only by reason of an 
exemption other than section 3(a)(2) (exemption for bank securities) and 
section 3(a)(11) (exemption for intrastate offerings) of the Securities 
Act. Commission Rules 149 and 150 (17 CFR 230.149 and 230.150) (which 
apply to section 3(a)(9) of the Securities Act) apply to this part;
    (b) In a transaction exempt from registration under section 4 of the 
Securities Act (15 U.S.C. 77d). Commission Rules 152 and 152a (17 CFR 
230.152 and 230.152a) (which apply to sections 4(2) and 4(1) of the 
Securities Act) apply to this part;
    (c) In a transaction that satisfies the requirements of Sec. 16.7 
of this part;
    (d) In a transaction that satisfies the requirements of Sec. 16.8 
of this part;
    (e) In a transaction that satisfies the requirements of Commission 
Rule 144, 144A, 148, or 236 (17 CFR 230.144, 230.144A, 230.148, or 
230.236);
    (f) In a transaction that satisfies the requirements of Commission 
Rule 701 (17 CFR 230.701); or
    (g) In a transaction that is an offer or sale occurring outside the 
United States under Commission Regulation S (17 CFR part 230, Regulation 
S--Rules Governing Offers and Sales Made Outside the United States 
Without Registration Under the Securities Act of 1933).

[59 FR 54798, Nov. 2, 1994; 59 FR 67153, Dec. 29, 1994]



Sec. 16.6  Sales of nonconvertible debt.

    (a) The OCC will deem offers or sales of bank issued nonconvertible 
debt to be in compliance with Sec. Sec. 16.3, 16.15 (a) and (b), and 
16.20 of this part if all of the following requirements are met:
    (1) The bank issuing the debt has securities registered under the 
Exchange Act or is a subsidiary of a bank holding company that has 
securities registered under the Exchange Act;
    (2) The debt is offered and sold only to accredited investors;
    (3) The debt is sold in minimum denominations of $250,000 and each 
note or debenture is legended to provide that it cannot be exchanged for 
notes or debentures of the bank in smaller denominations;
    (4) The debt is rated investment grade;
    (5) Prior to or simultaneously with the sale of the debt, each 
purchaser receives an offering document that contains a description of 
the terms of the debt, the use of proceeds, and method of distribution, 
and incorporates the bank's latest Consolidated Reports of Condition and 
Income (Call Report) and the bank's or its bank holding company's Forms 
10-K, 10-Q (or 10-KSB, 10-QSB), and 8-K (17 CFR part 249) filed under 
the Exchange Act; and
    (6) The offering document and any amendments are filed with the OCC 
no later than the fifth business day after they are first used.
    (b) Offers or sales of nonconvertible debt issued by a federal 
branch or agency of a foreign bank need not need comply with the 
requirements of paragraph (a)(1) of this section, if the federal branch 
or agency provides the OCC the information specified in Commission Rule 
12g3-2(b) (17 CFR 240.12g3-

[[Page 239]]

2(b)) and provides purchasers the information specified in Commission 
Rule 144A(d)(4)(i) (17 CFR 230.144A(d)(4)(i)). A federal branch or 
agency that provides the OCC the information specified in Commission 
Rule 12g3-2(b) need not incorporate that information by reference into 
the offering document provided to purchasers pursuant to paragraph 
(a)(5) of this section. However, the federal branch or agency must make 
that information available to the potential purchasers upon request. The 
OCC will make the information available for public inspection.



Sec. 16.7  Nonpublic offerings.

    (a) The OCC will deem offers and sales of bank issued securities 
that meet all of the following requirements to be exempt from the 
registration and prospectus requirements of Sec. 16.3 pursuant to Sec. 
16.5(c) of this part:
    (1) All the securities are offered and sold in a transaction that 
satisfies the requirements of Commission Regulation D (17 CFR part 230, 
Regulation D--Rules Governing the Limited Offer and Sale of Securities 
Without Registration Under the Securities Act of 1933);
    (2) Each purchaser who is not an accredited investor either alone or 
with its purchaser representative(s) has the knowledge and experience in 
financial and business matters that it is capable of evaluating the 
merits and risks of the prospective investment, or the issuer reasonably 
believes immediately prior to making any sale that the purchaser comes 
within this description; and
    (3) A notice that meets the requirements of Commission Rule 503 (17 
CFR 230.503) is filed with the OCC.
    (b) All subsequent sales of bank issued securities subject to the 
limitations on resale of Commission Regulation D (17 CFR part 230, 
Regulation D--Rules Governing the Limited Offer and Sale of Securities 
Without Registration Under the Securities Act of 1933) must be made 
pursuant to Commission Rule 144 (17 CFR 230.144), Commission Rule 144A 
(17 CFR 230.144A), another exemption from registration under the 
Securities Act referenced in Sec. 16.5 of this part, or in accordance 
with the registration and prospectus requirements of Sec. 16.3 of this 
part.
    (c) No offer or sale of bank issued securities shall be made in 
reliance on Commission Regulation D (17 CFR part 230, Regulation D--
Rules Governing the Limited Offer and Sale of Securities Without 
Registration Under the Securities Act of 1933) without compliance with 
paragraphs (a)(1) and (a)(2) of this section.



Sec. 16.8  Small issues.

    (a) The OCC will deem offers and sales of bank issued securities 
that satisfy the requirements of Commission Regulation A (17 CFR part 
230, Regulation A--Conditional Small Issues Exemption) to be exempt from 
the registration and prospectus requirements of Sec. 16.3 pursuant to 
Sec. 16.5(d) of this part.
    (b) A filer should consult the Commission's Securities Act Industry 
Guide 3--Statistical Disclosure by Bank Holding Companies (17 CFR 
229.801(c) and 231) and requirement 7 (Loans) of Rule 9-03 of Commission 
Regulation S-X (17 CFR 230.9-03) for guidance on appropriate disclosures 
when preparing offering documents to be filed with the OCC pursuant to 
Regulation A.



Sec. 16.15  Form and content.

    (a) Any registration statement filed pursuant to this part must be 
on the form for registration (17 CFR part 239) that the bank would be 
eligible to use were it required to register the securities under the 
Securities Act and must meet the requirements of the Commission 
regulations referred to in the applicable form for registration. A filer 
should consult the Commission's Securities Act Industry Guide 3--
Statistical Disclosure by Bank Holding Companies (17 CFR 229.801(c) and 
231) for guidance on appropriate disclosures when preparing registration 
statements.
    (b) Any registration statement or amendment filed pursuant to this 
part must comply with the requirements of Commission Regulation C (17 
CFR part 230, Regulation C--Registration), except to the extent those 
requirements conflict with specific requirements of this part.
    (c) In addition to the information expressly required to be included 
in the registration statement by paragraphs

[[Page 240]]

(a) and (b) of this section, the registration statement must include any 
additional material information that is necessary to make the required 
statements, in light of the circumstances under which they are made, not 
misleading.
    (d) Notwithstanding paragraph (a) of this section, the registration 
statement for securities issued by a bank that is not in compliance with 
the regulatory capital requirements set forth in part 3 of this chapter 
must be on the Form S-1 (17 CFR part 239) registration statement under 
the Securities Act.



Sec. 16.16  Effectiveness.

    (a) Registration statements and amendments filed with the OCC 
pursuant to this part will become effective in accordance with sections 
8(a) and (c) of the Securities Act (15 U.S.C. 77h(a) and (c)) and 
Commission Regulation C (17 CFR part 230, Regulation C--Registration).
    (b) The OCC will deem registration statements and amendments that 
become effective pursuant to paragraph (a) of this section to be 
declared effective. If the OCC deems a registration statement to be 
declared effective, the OCC will also deem the prospectus that was filed 
as a part of that registration statement to be declared effective.



Sec. 16.17  Filing requirements and inspection of documents.

    (a) Except as provided in paragraph (b) of this section, all 
registration statements, offering documents, amendments, notices, or 
other documents must be filed with the Securities, Investments, and 
Fiduciary Practices Division, Office of the Comptroller of the Currency, 
250 E Street, SW, Washington, DC 20219.
    (b) All registration statements, offering documents, amendments, 
notices, or other documents relating to a bank in organization must be 
filed with the appropriate District office of the OCC.
    (c) Where this part refers to a section of the Securities Act or the 
Exchange Act or a Commission rule that requires the filing of a notice 
or other document with the Commission, that notice or other document 
must be filed with the OCC.
    (d) Unless otherwise requested by the OCC, any filing under this 
part must include four copies of any document filed. Material may be 
filed by delivery to the OCC through use of the mails or otherwise. The 
date on which documents are actually received by the OCC will be the 
date of filing of those documents, if the person filing the documents 
has complied with all requirements regarding the filing, including the 
submission of any fee required under Sec. 16.33 of this part.
    (e) Any filing of amendments or revisions must include at least four 
copies, two of which are marked to indicate clearly and precisely, by 
underlining or in some other appropriate manner, the changes made.
    (f) The OCC will make available for public inspection copies of the 
registration statements, offering documents, amendments, exhibits, 
notices or reports filed pursuant to this part at the address identified 
in Sec. 4.17(b) of this chapter.



Sec. 16.18  Use of prospectus.

    (a) No person shall use a prospectus or amendment declared effective 
by the OCC more than nine months after the effective date unless the 
information contained in the prospectus or amendment is as of a date not 
more than 16 months prior to the date of use.
    (b) If any event arises, or change in fact occurs, after the 
effective date and that event or change in fact, individually or in the 
aggregate, results in the prospectus containing any untrue statement of 
material fact, or omitting to state a material fact necessary in order 
to make statements made in the prospectus not misleading under the 
circumstances, then no person shall use the prospectus that has been 
declared effective under this part until an amendment reflecting the 
event or change has been filed with and declared effective by the OCC.



Sec. 16.19  Withdrawal or abandonment.

    (a) Any registration statement, amendment, or exhibit may be 
withdrawn prior to the effective date. A withdrawal must be signed and 
state the grounds upon which it is made. The OCC will not remove any 
withdrawn document from its files, but will mark

[[Page 241]]

the document Withdrawn upon the request of the registrant on (date).
    (b) When a registration statement or amendment has been on file with 
the OCC for a period of nine months and has not become effective, the 
OCC may, in its discretion, determine whether the filing has been 
abandoned. Before determining that a filing has been abandoned, the OCC 
will notify the filer that the filing is out of date and must either be 
amended to comply with the applicable requirements of this part or be 
withdrawn within 30 days after the date of notice. When a filing is 
abandoned, the OCC will not remove the filing from its files but will 
mark the filing Declared abandoned by the OCC on (date).



Sec. 16.20  Compliance with requirements of the securities laws.

    (a) Each bank that files a registration statement that has been 
declared effective pursuant to this part shall comply with the rules, 
regulations, and forms adopted by the Commission pursuant to section 13 
of the Exchange Act and those provisions of the Sarbanes-Oxley Act of 
2002 that are listed in 12 CFR 11.2(a)(1)(ii) of this chapter as if the 
securities covered by the registration statement were securities 
registered pursuant to section 12 of the Exchange Act (15 U.S.C. 78l).
    (b) Suspension of the duty to file current and periodic reports 
under this section will be in accordance with section 15(d) of the 
Exchange Act (15 U.S.C. 78o(d)).
    (c) Paragraph (a) of this section does not apply if the bank is a 
subsidiary of a one-bank holding company, the financial statements of 
the bank and the parent bank holding company are substantially the same, 
and the bank's parent bank holding company files current and periodic 
reports pursuant to section 13 of the Exchange Act (15 U.S.C. 78m).
    (d) Paragraph (a) of this section does not apply if the bank files 
the registration statement in connection with a merger, consolidation, 
or acquisition of assets subject to 12 CFR 5.33(e)(8).

[68 FR 68492, Dec. 9, 2003]



Sec. 16.30  Request for interpretive advice or no-objection letter.

    Any person requesting interpretive advice or a no-objection letter 
from the OCC with respect to any provision of this part shall:
    (a) File a copy of the request, including any supporting attachments 
with the Securities, Investments, and Fiduciary Practices Division at 
the address listed in Sec. 16.17;
    (b) Identify or describe the provisions of this part to which the 
request relates, the participants in the proposed transaction, and the 
reasons for the request; and
    (c) Include with the request a legal opinion as to each legal issue 
raised and an accounting opinion as to each accounting issue raised.



Sec. 16.31  Escrow requirement.

    The OCC may require that any funds received in connection with an 
offer or sale of securities be held in an independent escrow account at 
an unrelated insured depository institution when the use of an escrow 
account is in the best interests of shareholders.



Sec. 16.32  Fraudulent transactions and unsafe and unsound practices.

    (a) No person in the offer or sale of bank securities shall directly 
or indirectly:
    (1) Employ any device, scheme or artifice to defraud;
    (2) Make any untrue statement of a material fact or omit to state a 
material fact necessary in order to make the statements made, in light 
of the circumstances under which they were made, not misleading; or
    (3) Engage in any act, practice, or course of business which 
operates as a fraud or deceit upon any person, in connection with the 
purchase or sale of any security of a bank.
    (b) Nothing in this section limits the applicability of section 17 
of the Securities Act (15 U.S.C. 77q) or section 10(b) of the Exchange 
Act (15 U.S.C. 78j) or Rule 10b-5 promulgated thereunder (17 CFR 
240.10b-5).
    (c) Any violation of this section also constitutes an unsafe or 
unsound practice under 12 U.S.C. 1818.

[[Page 242]]

    (d) Commission Rule 175 (17 CFR 230.175--Liability for certain 
statements by issuers) applies to this part.



Sec. 16.33  Filing fees.

    (a) Filing fees must accompany certain filings made under the 
provisions of this part before the OCC will accept those filings. The 
applicable fee schedule is provided in the Notice of Comptroller of the 
Currency Fees published pursuant to Sec. 8.8 of this chapter.
    (b) Filing fees must be paid by check payable to the Comptroller of 
the Currency.



PART 18_DISCLOSURE OF FINANCIAL AND OTHER INFORMATION BY NATIONAL BANKS--Table of Contents




Sec.
18.1 Purpose and OMB control number.
18.2 Definitions.
18.3 Preparation of annual disclosure statement.
18.4 Contents of annual disclosure statement.
18.5 Alternative annual disclosure statements.
18.6 Signature and attestation.
18.7 Notice of availability.
18.8 Delivery.
18.9 Disclosure of examination reports.
18.10 Prohibited conduct and penalties.
18.11 Safe harbor provision.

    Authority: 12 U.S.C. 93a, 161, and 1818.

    Source: 53 FR 3866, Feb. 10, 1988, unless otherwise noted.



Sec. 18.1  Purpose and OMB control number.

    (a) Purpose. The purpose of this part is to require all national 
banks and federal branches and agencies to prepare an annual financial 
disclosure statement, and to make this statement available to security 
holders, depositors, and anyone who requests it. The bank may, at its 
option, supplement this financial disclosure statement with narrative 
information management deems important. The availability of this 
information is expected to promote better public understanding of, and 
confidence in, individual national banks and the national banking 
system. The annual disclosure statement will serve to complement the 
supervisory efforts of the Office of the Comptroller of the Currency 
(OCC) to promote bank safety and soundness and public confidence in the 
national banking system.
    (b) OMB control number. The collection of information requirements 
contained in this part were approved by the Office of Management and 
Budget under OMB control number 1557-0182.

[53 FR 3866, Feb. 10, 1988, as amended at 60 FR 57332, Nov. 15, 1995]



Sec. 18.2  Definitions.

    Unless otherwise defined in this part, the terms used have the same 
meaning as in the instructions to the Consolidated Reports of Condition 
and Income (Call Reports).



Sec. 18.3  Preparation of annual disclosure statement.

    (a) Beginning with calendar year 1987, each national bank and 
federal branch and agency shall prepare an annual disclosure statement 
as of December 31. The annual disclosure statement shall contain 
information required by Sec. 18.4 (a), (b) and (d) may include other 
information that bank management believes important, as discussed in 
Sec. 18.4(c).
    (b) The annual disclosure statement shall be available by March 31 
of each year, or by an earlier date as necessary to be made available to 
security holders in advance of the annual meeting of shareholders. A 
bank shall continually make its annual disclosure statement available 
until the annual disclosure statement for the succeeding year becomes 
available.



Sec. 18.4  Contents of annual disclosure statement.

    (a) Information concerning financial condition and results of 
operations. The annual disclosure statement for any year shall reflect a 
fair presentation of the bank's financial condition at the end of that 
year and the preceding year. The annual disclosure statement may, at the 
option of bank management, consist of the bank's entire Call Reports, or 
applicable portions thereof, for the relevant periods. At a minimum, the 
statement must contain the same or comparable information as provided in 
the following Call Report schedules.
    (1) For national banks:

[[Page 243]]

    (i) Schedule RC (Balance Sheet);
    (ii) Schedule RC-N (Past Due and Nonaccrual Loans, Leases, and Other 
Assets--column A and memorandum Item 1 need not be included);
    (iii) Schedule RI (Income Statement);
    (iv) Schedule RI-A (Changes in Equity Capital); and
    (v) Schedule RI-B (Charge-Offs and Recoveries and Changes in 
Allowance for Loan and Lease Losses--part I may be omitted).
    (2) For federal branches or agencies:
    (i) Schedule RAL (Assets and Liabilities);
    (ii) Schedule E (Deposit Liabilities and Credit Balances); and
    (iii) Schedule P (Other Borrowed Money).
    (b) Other required information. The annual disclosure statement 
shall include such other information as the OCC may require. This may 
include a discussion of enforcement actions when the OCC deems it in the 
public interest.
    (c) Optional narrative. Bank management may, at its option, provide 
a narrative discussion to supplement the annual disclosure statement. 
This narrative may include information that bank management deems 
important in evaluating the overall condition of the bank. Information 
that bank management might present includes, but is not limited to, a 
discussion of the financial data; pertinent information relating to 
mergers and acquisitions; the existence and underlying causes of 
enforcement actions; business plans; material changes in balance sheet 
and income statement items; and future plans.
    (d) Disclaimer. The following legend shall be included in the annual 
disclosure statement to advise the public that the OCC has not reviewed 
the information contained therein:

    This statement has not been reviewed, or confirmed for accuracy or 
relevance by the Office of the Comptroller of the Currency.

[53 FR 3866, Feb. 10, 1988, as amended at 60 FR 57332, Nov. 15, 1995]



Sec. 18.5  Alternative annual disclosure statements.

    The Sec. 18.3(a) requirement to prepare an annual disclosure 
statement is satisfied:
    (a) In the case of a national bank having a class of securities 
registered pursuant to section 12 of the Securities Exchange Act of 1934 
(15 U.S.C. 78l), by its annual report to security holders for meetings 
at which directors are to be elected;
    (b) In the case of a national bank with audited financial 
statements, by those statements, provided all of the required 
information is included;
    (c) In the case of a bank subsidiary of a one-bank holding company, 
by an annual report of the one-bank holding company prepared in 
conformity with the regulations of the Securities and Exchange 
Commission or by schedules from the holding company's consolidated 
financial statements on Form FR Y-9c pursuant to Regulation Y of the 
Federal Reserve Board (12 CFR part 225). Such schedules must be 
comparable to the Call Report schedules enumerated in Sec. 18.4(a). In 
either case, not less than 95 percent of the holding company's 
consolidated total assets and total liabilities must be attributable to 
the bank and the bank's subsidiaries.

[53 FR 3866, Feb. 10, 1988, as amended at 60 FR 57332, Nov. 15, 1995]



Sec. 18.6  Signature and attestation.

    A duly authorized officer of the bank shall sign the annual 
disclosure statement and shall attest to the correctness of the 
information contained in the statement if the financial reports are not 
accompanied by a report of an independent accountant.



Sec. 18.7  Notice of availability.

    (a) Shareholders. In its notice of the annual meeting of 
shareholders, each national bank shall indicate that any person may 
obtain the annual disclosure statement from the bank, and shall include 
the address and telephone number of the person or office to be contacted 
for a copy. The first copy shall be provided without charge.
    (b) Depositors, Other Security Holders, and the General Public. In 
the lobby of its main office and each branch, each national bank shall 
prominently display, at all times, a notice that any person may obtain 
the annual disclosure statement from the bank. The notice shall include 
the address and telephone number of the person or office to

[[Page 244]]

be contacted for a copy. The first copy shall be provided without 
charge.



Sec. 18.8  Delivery.

    Each national bank shall, after receiving a request for an annual 
disclosure statement, promptly mail or otherwise furnish the statement 
to the requester.



Sec. 18.9  Disclosure of examination reports.

    Except as permitted under part 4 of this chapter, a national bank 
may not disclose any report of examination or report of supervisory 
activity, or any portion thereof, prepared by the OCC. The bank also 
shall not make any representation concerning such report or the findings 
therein.

[53 FR 3866, Feb. 10, 1988, as amended at 60 FR 57333, Nov. 15, 1995]



Sec. 18.10  Prohibited conduct and penalties.

    (a) No national bank or institution-affiliated party shall, directly 
or indirectly:
    (1) Disclose or cause to be disclosed false or misleading 
information in the annual disclosure statement, or omit or cause the 
omission of material or required information in the annual disclosure 
statement; or
    (2) Represent that the OCC, or any employee thereof, has passed upon 
the accuracy or completeness of the annual disclosure statement.
    (b) For purposes of this part, institution-affiliated party means:
    (1) Any director, officer, employee, or controlling stockholder 
(other than a bank holding company) of, or agent for, a national bank;
    (2) Any other person who has filed or is required to file a change-
in-control notice with the OCC under 12 U.S.C. 1817(j);
    (3) Any shareholder (other than a bank holding company), consultant, 
joint venture partner, and any other person as determined by the OCC (by 
regulation or case-by-case) who participates in the conduct of the 
affairs of a national bank; and
    (4) Any independent contractor (including any attorney, appraiser, 
or accountant) who knowingly or recklessly participates in:
    (i) Any violation of any law or regulation;
    (ii) Any breach of fiduciary duty; or
    (iii) Any unsafe or unsound practice, which caused or is likely to 
cause more than a minimal financial loss to, or a significant adverse 
effect on, the national bank.
    (c) Conduct that violates paragraph (a) of this section also may 
constitute an unsafe or unsound banking practice or otherwise serve as a 
basis for enforcement action by the OCC including, but not limited to, 
the assessment of civil money penalties against the bank or any 
institution-affiliated party who violates this part.

[60 FR 57333, Nov. 15, 1995]



Sec. 18.11  Safe harbor provision.

    The provisions of Sec. 18.10(c) shall apply unless it is shown by 
the person or bank involved that the information disclosed was included 
with a reasonable basis or in good faith.



PART 19_RULES OF PRACTICE AND PROCEDURE--Table of Contents




            Subpart A_Uniform Rules of Practice and Procedure

Sec.
19.1 Scope.
19.2 Rules of construction.
19.3 Definitions.
19.4 Authority of the Comptroller.
19.5 Authority of the administrative law judge.
19.6 Appearance and practice in adjudicatory proceedings.
19.7 Good faith certification.
19.8 Conflicts of interest.
19.9 Ex parte communications.
19.10 Filing of papers.
19.11 Service of papers.
19.12 Construction of time limits.
19.13 Change of time limits.
19.14 Witness fees and expenses.
19.15 Opportunity for informal settlement.
19.16 OCC's right to conduct examination.
19.17 Collateral attacks on adjudicatory proceeding.
19.18 Commencement of proceeding and contents of notice.
19.19 Answer.
19.20 Amended pleadings.
19.21 Failure to appear.
19.22 Consolidation and severance of actions.
19.23 Motions.
19.24 Scope of document discovery.

[[Page 245]]

19.25 Request for document discovery from parties.
19.26 Document subpoenas to nonparties.
19.27 Deposition of witness unavailable for hearing.
19.28 Interlocutory review.
19.29 Summary disposition.
19.30 Partial summary disposition.
19.31 Scheduling and prehearing conferences.
19.32 Prehearing submissions.
19.33 Public hearings.
19.34 Hearing subpoenas.
19.35 Conduct of hearings.
19.36 Evidence.
19.37 Post-hearing filings.
19.38 Recommended decision and filing of record.
19.39 Exceptions to recommended decision.
19.40 Review by the Comptroller.
19.41 Stays pending judicial review.

            Subpart B_Procedural Rules for OCC Adjudications

19.100 Filing documents.
19.101 Delegation to OFIA.

   Subpart C_Removals, Suspensions, and Prohibitions When a Crime Is 
                   Charged or a Conviction is Obtained

19.110 Scope.
19.111 Suspension, removal, or prohibition.
19.112 Informal hearing.
19.113 Recommended and final decisions.

   Subpart D_Exemption Hearings Under Section 12(h) of the Securities 
                          Exchange Act of 1934

19.120 Scope.
19.121 Application for exemption.
19.122 Newspaper notice.
19.123 Informal hearing.
19.124 Decision of the Comptroller.

Subpart E_Disciplinary Proceedings Involving the Federal Securities Laws

19.130 Scope.
19.131 Notice of charges and answer.
19.132 Disciplinary orders.
19.135 Applications for stay or review of disciplinary actions imposed 
          by registered clearing agencies.

    Subpart F_Civil Money Penalty Authority Under the Securities Laws

19.140 Scope.

     Subpart G_Cease-and-Desist Authority Under the Securities Laws

19.150 Scope.

                    Subpart H_Change in Bank Control

19.160 Scope.
19.161 Notice of disapproval and hearing initiation.

              Subpart I_Discovery Depositions and Subpoenas

19.170 Discovery depositions.
19.171 Deposition subpoenas.

                     Subpart J_Formal Investigations

19.180 Scope.
19.181 Confidentiality of formal investigations.
19.182 Order to conduct a formal investigation.
19.183 Rights of witnesses.
19.184 Service of subpoena and payment of witness expenses.

    Subpart K_Parties and Representational Practice Before the OCC; 
                          Standards of Conduct

19.190 Scope.
19.191 Definitions.
19.192 Sanctions relating to conduct in an adjudicatory proceeding.
19.193 Censure, suspension or debarment.
19.194 Eligibility of attorneys and accountants to practice.
19.195 Incompetence.
19.196 Disreputable conduct.
19.197 Initiation of disciplinary proceeding.
19.198 Conferences.
19.199 Proceedings under this subpart.
19.200 Effect of suspension, debarment or censure.
19.201 Petition for reinstatement.

                  Subpart L_Equal Access to Justice Act

19.210 Scope.

 Subpart M_Procedures for Reclassifying a Bank Based on Criteria Other 
                              Than Capital

19.220 Scope.
19.221 Reclassification of a bank based on unsafe or unsound condition 
          or practice.
19.222 Request for rescission of reclassification.

    Subpart N_Order To Dismiss a Director or Senior Executive Officer

19.230 Scope.
19.231 Order to dismiss a director or senior executive officer.

[[Page 246]]

           Subpart O_Civil Money Penalty Inflation Adjustments

19.240 Inflation adjustments.

    Subpart P_Removal, Suspension, and Debarment of Accountants From 
                        Performing Audit Services

19.241 Scope.
19.242 Definitions.
19.243 Removal, suspension, or debarment.
19.244 Automatic removal, suspension, or debarment.
19.245 Notice of removal, suspension, or debarment.
19.246 Petition for reinstatement.

    Authority: 5 U.S.C. 504, 554-557; 12 U.S.C. 93(b), 93a, 164, 505, 
1817, 1818, 1820, 1831m, 1831o, 1972, 3102, 3108(a), 3909, and 4717; 15 
U.S.C. 78(h) and (i), 78o-4(c), 78o-5, 78q-1, 78s, 78u, 78u-2, 78u-3, 
and 78w; 28 U.S.C. 2461 note; 31 U.S.C. 330 and 5321; and 42 U.S.C. 
4012a.

    Source: 56 FR 38028, Aug. 9, 1991, unless otherwise noted.



            Subpart A_Uniform Rules of Practice and Procedure



Sec. 19.1  Scope.

    This subpart prescribes Uniform Rules of practice and procedure 
applicable to adjudicatory proceedings required to be conducted on the 
record after opportunity for a hearing under the following statutory 
provisions:
    (a) Cease-and-desist proceedings under section 8(b) of the Federal 
Deposit Insurance Act (``FDIA'') (12 U.S.C. 1818(b));
    (b) Removal and prohibition proceedings under section 8(e) of the 
FDIA (12 U.S.C. 1818(e));
    (c) Change-in-control proceedings under section 7(j)(4) of the FDIA 
(12 U.S.C. 1817(j)(4)) to determine whether the Office of the 
Comptroller of the Currency (``OCC'') should issue an order to approve 
or disapprove a person's proposed acquisition of an institution;
    (d) Proceedings under section 15C(c)(2) of the Securities Exchange 
Act of 1934 (``Exchange Act'') (15 U.S.C. 78o-5), to impose sanctions 
upon any government securities broker or dealer or upon any person 
associated or seeking to become associated with a government securities 
broker or dealer for which the OCC is the appropriate agency;
    (e) Assessment of civil money penalties by the OCC against 
institutions, institution-affiliated parties, and certain other persons 
for which it is the appropriate agency for any violation of:
    (1) Any provision of law referenced in 12 U.S.C. 93, or any 
regulation issued thereunder, and certain unsafe or unsound practices 
and breaches of fiduciary duty, pursuant to 12 U.S.C. 93;
    (2) Sections 22 and 23 of the Federal Reserve Act (``FRA''), or any 
regulation issued thereunder, and certain unsafe or unsound practices 
and breaches of fiduciary duty, pursuant to 12 U.S.C. 504 and 505;
    (3) Section 106(b) of the Bank Holding CompanyAmendments of 1970, 
pursuant to 12 U.S.C. 1972(2)(F);
    (4) Any provision of the Change in Bank Control Act of 1978 or any 
regulation or order issued thereunder, and certain unsafe or unsound 
practices and breaches of fiduciary duty, pursuant to 12 U.S.C. 
1817(j)(16);
    (5) Any provision of the International Lending Supervision Act of 
1983 (``ILSA''), or any rule, regulation or order issued thereunder, 
pursuant to 12 U.S.C. 3909;
    (6) Any provision of the International Banking Act of 1978 
(``IBA''), or any rule, regulation or order issued thereunder, pursuant 
to 12 U.S.C. 3108;
    (7) Section 5211 of the Revised Statutes (12 U.S.C. 161), pursuant 
to 12 U.S.C. 164;
    (8) Certain provisions of the Exchange Act, pursuant to section 21B 
of the Exchange Act (15 U.S.C. 78u-2);
    (9) Section 1120 of the Financial Institutions Reform, Recovery, and 
Enforcement Act of 1989 (``FIRREA'') (12 U.S.C. 3349), or any order or 
regulation issued thereunder;
    (10) The terms of any final or temporary order issued under section 
8 of the FDIA or any written agreement executed by the OCC, the terms of 
any condition imposed in writing by the OCC in connection with the grant 
of an application or request, certain unsafe or unsound practices, 
breaches of fiduciary duty, or any law or regulation not otherwise 
provided herein, pursuant to 12 U.S.C. 1818(i)(2);
    (11) Any provision of law referenced in section 102(f) of the Flood 
Disaster

[[Page 247]]

Protection Act of 1973 (42 U.S.C. 4012a(f)) or any order or regulation 
issued thereunder; and
    (12) Any provision of law referenced in 31 U.S.C. 5321 or any order 
or regulation issued thereunder;
    (f) Remedial action under section 102(g) of the Flood Disaster 
Protection Act of 1973 (42 U.S.C. 4012a(g));
    (g) Removal, prohibition, and civil monetary penalty proceedings 
under section 10(k) of the FDI Act (12 U.S.C. 1820(k)) for violations of 
the post-employment restrictions imposed by that section; and
    (h) This subpart also applies to all other adjudications required by 
statute to be determined on the record after opportunity for an agency 
hearing, unless otherwise specifically provided for in the Local Rules.

[56 FR 38028, Aug. 9, 1991, as amended at 61 FR 20334, May 6, 1996; 70 
FR 69638, Nov. 17, 2005]



Sec. 19.2  Rules of construction.

    For purposes of this part:
    (a) Any term in the singular includes the plural, and the plural 
includes the singular, if such use would be appropriate;
    (b) Any use of a masculine, feminine, or neuter gender encompasses 
all three, if such use would be appropriate;
    (c) The term counsel includes a non-attorney representative; and
    (d) Unless the context requires otherwise, a party's counsel of 
record, if any, may, on behalf of that party, take any action required 
to be taken by the party.



Sec. 19.3  Definitions.

    For purposes of this part, unless explicitly stated to the contrary:
    (a) Administrative law judge means one who presides at an 
administrative hearing under authority set forth at 5 U.S.C. 556.
    (b) Adjudicatory proceeding means a proceeding conducted pursuant to 
these rules and leading to the formulation of a final order other than a 
regulation.
    (c) Comptroller means the Comptroller of the Currency or a person 
delegated to perform the functions of the Comptroller of the Currency 
under this part.
    (d) Decisional employee means any member of the Comptroller's or 
administrative law judge's staff who has not engaged in an investigative 
or prosecutorial role in a proceeding and who may assist the Comptroller 
or the administrative law judge, respectively, in preparing orders, 
recommended decisions, decisions, and other documents under the Uniform 
Rules.
    (e) Enforcement Counsel means any individual who files a notice of 
appearance as counsel on behalf of the OCC in an adjudicatory 
proceeding.
    (f) Final order means an order issued by the Comptroller with or 
without the consent of the affected institution or the institution-
affiliated party, that has become final, without regard to the pendency 
of any petition for reconsideration or review.
    (g) Institution includes any national bank, District of Columbia 
bank, or Federal branch or agency of a foreign bank.
    (h) Institution-affiliated party means any institution- affiliated 
party as that term is defined in section 3(u) of the FDIA (12 U.S.C. 
1813(u)).
    (i) Local Rules means those rules promulgated by the OCC in the 
subparts of this part excluding subpart A.
    (j) OCC means the Office of the Comptroller of the Currency.
    (k) OFIA means the Office of Financial Institution Adjudication, the 
executive body charged with overseeing the administration of 
administrative enforcement proceedings for the OCC, the Board of 
Governors of the Federal Reserve System (``Board of Governors''), the 
Federal Deposit Insurance Corporation (``FDIC''), the Office of Thrift 
Supervision (``OTS''), and the National Credit Union Administration 
(``NCUA'').
    (l) Party means the OCC and any person named as a party in any 
notice.
    (m) Person means an individual, sole proprietor, partnership, 
corporation, unincorporated association, trust, joint venture, pool, 
syndicate, agency or other entity or organization, including an 
institution as defined in paragraph (g) of this section.
    (n) Respondent means any party other than the OCC.

[[Page 248]]

    (o) Uniform Rules means those rules in subpart A of this part that 
are common to the OCC, the Board of Governors, the FDIC, the OTS, and 
the NCUA.
    (p) Violation includes any action (alone or with another or others) 
for or toward causing, bringing about, participating in, counseling, or 
aiding or abetting a violation.



Sec. 19.4  Authority of the Comptroller.

    The Comptroller may, at any time during the pendency of a 
proceeding, perform, direct the performance of, or waive performance of, 
any act which could be done or ordered by the administrative law judge.



Sec. 19.5  Authority of the administrative law judge.

    (a) General rule. All proceedings governed by this part shall be 
conducted in accordance with the provisions of chapter 5 of title 5 of 
the United States Code. The administrative law judge shall have all 
powers necessary to conduct a proceeding in a fair and impartial manner 
and to avoid unnecessary delay.
    (b) Powers. The administrative law judge shall have all powers 
necessary to conduct the proceeding in accordance with paragraph (a) of 
this section, including the following powers:
    (1) To administer oaths and affirmations;
    (2) To issue subpoenas, subpoenas duces tecum, and protective 
orders, as authorized by this part, and to quash or modify any such 
subpoenas and orders;
    (3) To receive relevant evidence and to rule upon the admission of 
evidence and offers of proof;
    (4) To take or cause depositions to be taken as authorized by this 
subpart;
    (5) To regulate the course of the hearing and the conduct of the 
parties and their counsel;
    (6) To hold scheduling and/or pre-hearing conferences as set forth 
in Sec. 19.31;
    (7) To consider and rule upon all procedural and other motions 
appropriate in an adjudicatory proceeding, provided that only the 
Comptroller shall have the power to grant any motion to dismiss the 
proceeding or to decide any other motion that results in a final 
determination of the merits of the proceeding;
    (8) To prepare and present to the Comptroller a recommended decision 
as provided herein;
    (9) To recuse himself or herself by motion made by a party or on his 
or her own motion;
    (10) To establish time, place and manner limitations on the 
attendance of the public and the media for any public hearing; and
    (11) To do all other things necessary and appropriate to discharge 
the duties of a presiding officer.

[56 FR 38028, Aug. 9, 1991; 56 FR 41726, Aug. 22, 1991]



Sec. 19.6  Appearance and practice in adjudicatory proceedings.

    (a) Appearance before the OCC or an administrative law judge--(1) By 
attorneys. Any member in good standing of the bar of the highest court 
of any state, commonwealth, possession, territory of the United States, 
or the District of Columbia may represent others before the OCC if such 
attorney is not currently suspended or debarred from practice before the 
OCC.
    (2) By non-attorneys. An individual may appear on his or her own 
behalf; a member of a partnership may represent the partnership; a duly 
authorized officer, director, or employee of any government unit, 
agency, institution, corporation or authority may represent that unit, 
agency, institution, corporation or authority if such officer, director, 
or employee is not currently suspended or debarred from practice before 
the OCC.
    (3) Notice of appearance. Any individual acting as counsel on behalf 
of a party, including the Comptroller, shall file a notice of appearance 
with OFIA at or before the time that the individual submits papers or 
otherwise appears on behalf of a party in the adjudicatory proceeding. 
The notice of appearance must include a written declaration that the 
individual is currently qualified as provided in paragraph (a)(1) or 
(a)(2) of this section and is authorized to represent the particular 
party. By filing a notice of appearance on behalf of a party in an 
adjudicatory proceeding, the counsel

[[Page 249]]

agrees and represents that he or she is authorized to accept service on 
behalf of the represented party and that, in the event of withdrawal 
from representation, he or she will, if required by the administrative 
law judge, continue to accept service until new counsel has filed a 
notice of appearance or until the represented party indicates that he or 
she will proceed on a pro se basis.
    (b) Sanctions. Dilatory, obstructionist, egregious, contemptuous or 
contumacious conduct at any phase of any adjudicatory proceeding may be 
grounds for exclusion or suspension of counsel from the proceeding.

[56 FR 38028, Aug. 9, 1991; 56 FR 41726, Aug. 22, 1991; 56 FR 63551, 
Dec. 4, 1991; 61 FR 20334, May 6, 1996]



Sec. 19.7  Good faith certification.

    (a) General requirement. Every filing or submission of record 
following the issuance of a notice shall be signed by at least one 
counsel of record in his or her individual name and shall state that 
counsel's address and telephone number. A party who acts as his or her 
own counsel shall sign his or her individual name and state his or her 
address and telephone number on every filing or submission of record.
    (b) Effect of signature. (1) The signature of counsel or a party 
shall constitute a certification that: the counsel or party has read the 
filing or submission of record; to the best of his or her knowledge, 
information, and belief formed after reasonable inquiry, the filing or 
submission of record is well-grounded in fact and is warranted by 
existing law or a good faith argument for the extension, modification, 
or reversal of existing law; and the filing or submission of record is 
not made for any improper purpose, such as to harass or to cause 
unnecessary delay or needless increase in the cost of litigation.
    (2) If a filing or submission of record is not signed, the 
administrative law judge shall strike the filing or submission of 
record, unless it is signed promptly after the omission is called to the 
attention of the pleader or movant.
    (c) Effect of making oral motion or argument. The act of making any 
oral motion or oral argument by any counsel or party constitutes a 
certification that to the best of his or her knowledge, information, and 
belief formed after reasonable inquiry, his or her statements are well-
grounded in fact and are warranted by existing law or a good faith 
argument for the extension, modification, or reversal of existing law, 
and are not made for any improper purpose, such as to harass or to cause 
unnecessary delay or needless increase in the cost of litigation.



Sec. 19.8  Conflicts of interest.

    (a) Conflict of interest in representation. No person shall appear 
as counsel for another person in an adjudicatory proceeding if it 
reasonably appears that such representation may be materially limited by 
that counsel's responsibilities to a third person or by the counsel's 
own interests. The administrative law judge may take corrective measures 
at any stage of a proceeding to cure a conflict of interest in 
representation, including the issuance of an order limiting the scope of 
representation or disqualifying an individual from appearing in a 
representative capacity for the duration of the proceeding.
    (b) Certification and waiver. If any person appearing as counsel 
represents two or more parties to an adjudicatory proceeding or also 
represents a non-party on a matter relevant to an issue in the 
proceeding, counsel must certify in writing at the time of filing the 
notice of appearance required by Sec. 19.6(a):
    (1) That the counsel has personally and fully discussed the 
possibility of conflicts of interest with each such party and non-party; 
and
    (2) That each such party and non-party waives any right it might 
otherwise have had to assert any known conflicts of interest or to 
assert any non-material conflicts of interest during the course of the 
proceeding.

[56 FR 38028, Aug. 9, 1991, as amended at 61 FR 20334, May 6, 1996]



Sec. 19.9  Ex parte communications.

    (a) Definition--(1) Ex parte communication means any material oral 
or written communication relevant to the merits of an adjudicatory 
proceeding that was neither on the record nor on

[[Page 250]]

reasonable prior notice to all parties that takes place between:
    (i) An interested person outside the OCC (including such person's 
counsel); and
    (ii) The administrative law judge handling that proceeding, the 
Comptroller, or a decisional employee.
    (2) Exception. A request for status of the proceeding does not 
constitute an ex parte communication.
    (b) Prohibition of ex parte communications. From the time the notice 
is issued by the Comptroller until the date that the Comptroller issues 
his or her final decision pursuant to Sec. 19.40(c):
    (1) No interested person outside the OCC shall make or knowingly 
cause to be made an ex parte communication to the Comptroller, the 
administrative law judge, or a decisional employee; and
    (2) The Comptroller, administrative law judge, or decisional 
employee shall not make or knowingly cause to be made to any interested 
person outside the OCC any ex parte communication.
    (c) Procedure upon occurrence of ex parte communication. If an ex 
parte communication is received by the administrative law judge, the 
Comptroller or any other person identified in paragraph (a) of this 
section, that person shall cause all such written communications (or, if 
the communication is oral, a memorandum stating the substance of the 
communication) to be placed on the record of the proceeding and served 
on all parties. All other parties to the proceeding shall have an 
opportunity, within ten days of receipt of service of the ex parte 
communication, to file responses thereto and to recommend any sanctions, 
in accordance with paragraph (d) of this section, that they believe to 
be appropriate under the circumstances.
    (d) Sanctions. Any party or his or her counsel who makes a 
prohibited ex parte communication, or who encourages or solicits another 
to make any such communication, may be subject to any appropriate 
sanction or sanctions imposed by the Comptroller or the administrative 
law judge including, but not limited to, exclusion from the proceedings 
and an adverse ruling on the issue which is the subject of the 
prohibited communication.
    (e) Separation of functions. Except to the extent required for the 
disposition of ex parte matters as authorized by law, the administrative 
law judge may not consult a person or party on any matter relevant to 
the merits of the adjudication, unless on notice and opportunity for all 
parties to participate. An employee or agent engaged in the performance 
of investigative or prosecuting functions for the OCC in a case may not, 
in that or a factually related case, participate or advise in the 
decision, recommended decision, or agency review of the recommended 
decision under Sec. 19.40, except as witness or counsel in public 
proceedings.

[56 FR 38028, Aug. 9, 1991, as amended at 60 FR 30184, June 8, 1995]



Sec. 19.10  Filing of papers.

    (a) Filing. Any papers required to be filed, excluding documents 
produced in response to a discovery request pursuant to Sec. Sec. 19.25 
and 19.26, shall be filed with OFIA, except as otherwise provided.
    (b) Manner of filing. Unless otherwise specified by the Comptroller 
or the administrative law judge, filing may be accomplished by:
    (1) Personal service;
    (2) Delivering the papers to a reliable commercial courier service, 
overnight delivery service, or to the U.S. Post Office for Express Mail 
delivery;
    (3) Mailing the papers by first class, registered, or certified 
mail; or
    (4) Transmission by electronic media, only if expressly authorized, 
and upon any conditions specified, by the Comptroller or the 
administrative law judge. All papers filed by electronic media shall 
also concurrently be filed in accordance with paragraph (c) of this 
section.
    (c) Formal requirements as to papers filed--(1) Form. All papers 
filed must set forth the name, address, and telephone number of the 
counsel or party making the filing and must be accompanied by a 
certification setting forth when and how service has been made on all 
other parties. All papers filed must be double-spaced and printed or 
typewritten on 8\1/2\x11 inch paper, and must be clear and legible.
    (2) Signature. All papers must be dated and signed as provided in 
Sec. 19.7.

[[Page 251]]

    (3) Caption. All papers filed must include at the head thereof, or 
on a title page, the name of the OCC and of the filing party, the title 
and docket number of the proceeding, and the subject of the particular 
paper.
    (4) Number of copies. Unless otherwise specified by the Comptroller 
or the administrative law judge, an original and one copy of all 
documents and papers shall be filed, except that only one copy of 
transcripts of testimony and exhibits shall be filed.



Sec. 19.11  Service of papers.

    (a) By the parties. Except as otherwise provided, a party filing 
papers shall serve a copy upon the counsel of record for all other 
parties to the proceeding so represented, and upon any party not so 
represented.
    (b) Method of service. Except as provided in paragraphs (c)(2) and 
(d) of this section, a serving party shall use one or more of the 
following methods of service:
    (1) Personal service;
    (2) Delivering the papers to a reliable commercial courier service, 
overnight delivery service, or to the U.S. Post Office for Express Mail 
delivery;
    (3) Mailing the papers by first class, registered, or certified 
mail; or
    (4) Transmission by electronic media, only if the parties mutually 
agree. Any papers served by electronic media shall also concurrently be 
served in accordance with the requirements of Sec. 19.10(c).
    (c) By the Comptroller or the administrative law judge. (1) All 
papers required to be served by the Comptroller or the administrative 
law judge upon a party who has appeared in the proceeding in accordance 
with Sec. 19.6 shall be served by any means specified in paragraph (b) 
of this section.
    (2) If a party has not appeared in the proceeding in accordance with 
Sec. 19.6, the Comptroller or the administrative law judge shall make 
service by any of the following methods:
    (i) By personal service;
    (ii) If the person to be served is an individual, by delivery to a 
person of suitable age and discretion at the physical location where the 
individual resides or works;
    (iii) If the person to be served is a corporation or other 
association, by delivery to an officer, managing or general agent, or to 
any other agent authorized by appointment or by law to receive service 
and, if the agent is one authorized by statute to receive service and 
the statute so requires, by also mailing a copy to the party;
    (iv) By registered or certified mail addressed to the person's last 
known address; or
    (v) By any other method reasonably calculated to give actual notice.
    (d) Subpoenas. Service of a subpoena may be made:
    (1) By personal service;
    (2) If the person to be served is an individual, by delivery to a 
person of suitable age and discretion at the physical location where the 
individual resides or works;
    (3) By delivery to an agent, which, in the case of a corporation or 
other association, is delivery to an officer, managing or general agent, 
or to any other agent authorized by appointment or by law to receive 
service and, if the agent is one authorized by statute to receive 
service and the statute so requires, by also mailing a copy to the 
party;
    (4) By registered or certified mail addressed to the person's last 
known address; or
    (5) By any other method reasonably calculated to give actual notice.
    (e) Area of service. Service in any state, territory, possession of 
the United States, or the District of Columbia, on any person or company 
doing business in any state, territory, possession of the United States, 
or the District of Columbia, or on any person as otherwise provided by 
law, is effective without regard to the place where the hearing is held, 
provided that if service is made on a foreign bank in connection with an 
action or proceeding involving one or more of its branches or agencies 
located in any state, territory, possession of the United States, or the 
District of Columbia, service shall be made on at least one branch or 
agency so involved.

[56 FR 38028, Aug. 9, 1991, as amended at 61 FR 20334, May 6, 1996]



Sec. 19.12  Construction of time limits.

    (a) General rule. In computing any period of time prescribed by this 
subpart,

[[Page 252]]

the date of the act or event that commences the designated period of 
time is not included. The last day so computed is included unless it is 
a Saturday, Sunday, or Federal holiday. When the last day is a Saturday, 
Sunday, or Federal holiday, the period runs until the end of the next 
day that is not a Saturday, Sunday, or Federal holiday. Intermediate 
Saturdays, Sundays, and Federal holidays are included in the computation 
of time. However, when the time period within which an act is to be 
performed is ten days or less, not including any additional time allowed 
for in paragraph (c) of this section, intermediate Saturdays, Sundays, 
and Federal holidays are not included.
    (b) When papers are deemed to be filed or served. (1) Filing and 
service are deemed to be effective:
    (i) In the case of personal service or same day commercial courier 
delivery, upon actual service;
    (ii) In the case of overnight commercial delivery service, U.S. 
Express Mail delivery, or first class, registered, or certified mail, 
upon deposit in or delivery to an appropriate point of collection;
    (iii) In the case of transmission by electronic media, as specified 
by the authority receiving the filing, in the case of filing, and as 
agreed among the parties, in the case of service.
    (2) The effective filing and service dates specified in paragraph 
(b)(1) of this section may be modified by the Comptroller or 
administrative law judge in the case of filing or by agreement of the 
parties in the case of service.
    (c) Calculation of time for service and filing of responsive papers. 
Whenever a time limit is measured by a prescribed period from the 
service of any notice or paper, the applicable time limits are 
calculated as follows:
    (1) If service is made by first class, registered, or certified 
mail, add three calendar days to the prescribed period;
    (2) If service is made by express mail or overnight delivery 
service, add one calendar day to the prescribed period; or
    (3) If service is made by electronic media transmission, add one 
calendar day to the prescribed period, unless otherwise determined by 
the Comptroller or the administrative law judge in the case of filing, 
or by agreement among the parties in the case of service.

[56 FR 38028, Aug. 9, 1991, as amended at 61 FR 20335, May 6, 1996]



Sec. 19.13  Change of time limits.

    Except as otherwise provided by law, the administrative law judge 
may, for good cause shown, extend the time limits prescribed by the 
Uniform Rules or by any notice or order issued in the proceedings. After 
the referral of the case to the Comptroller pursuant to Sec. 19.38, the 
Comptroller may grant extensions of the time limits for good cause 
shown. Extensions may be granted at the motion of a party after notice 
and opportunity to respond is afforded all non-moving parties or on the 
Comptroller's or the administrative law judge's own motion.



Sec. 19.14  Witness fees and expenses.

    Witnesses subpoenaed for testimony or depositions shall be paid the 
same fees for attendance and mileage as are paid in the United States 
district courts in proceedings in which the United States is a party, 
provided that, in the case of a discovery subpoena addressed to a party, 
no witness fees or mileage need be paid. Fees for witnesses shall be 
tendered in advance by the party requesting the subpoena, except that 
fees and mileage need not be tendered in advance where the OCC is the 
party requesting the subpoena. The OCC shall not be required to pay any 
fees to, or expenses of, any witness not subpoenaed by the OCC.



Sec. 19.15  Opportunity for informal settlement.

    Any respondent may, at any time in the proceeding, unilaterally 
submit to Enforcement Counsel written offers or proposals for settlement 
of a proceeding, without prejudice to the rights of any of the parties. 
No such offer or proposal shall be made to any OCC representative other 
than Enforcement Counsel. Submission of a written settlement offer does 
not provide a basis for adjourning or otherwise delaying all or any 
portion of a proceeding under this part. No settlement

[[Page 253]]

offer or proposal, or any subsequent negotiation or resolution, is 
admissible as evidence in any proceeding.



Sec. 19.16  OCC's right to conduct examination.

    Nothing contained in this subpart limits in any manner the right of 
the OCC to conduct any examination, inspection, or visitation of any 
institution or institution-affiliated party, or the right of the OCC to 
conduct or continue any form of investigation authorized by law.



Sec. 19.17  Collateral attacks on adjudicatory proceeding.

    If an interlocutory appeal or collateral attack is brought in any 
court concerning all or any part of an adjudicatory proceeding, the 
challenged adjudicatory proceeding shall continue without regard to the 
pendency of that court proceeding. No default or other failure to act as 
directed in the adjudicatory proceeding within the times prescribed in 
this subpart shall be excused based on the pendency before any court of 
any interlocutory appeal or collateral attack.

[56 FR 38028, Aug. 9, 1991; 56 FR 41726, Aug. 22, 1991]



Sec. 19.18  Commencement of proceeding and contents of notice.

    (a) Commencement of proceeding. (1)(i) Except for change-in-control 
proceedings under section 7(j)(4) of the FDIA, 12 U.S.C. 1817(j)(4), a 
proceeding governed by this subpart is commenced by issuance of a notice 
by the Comptroller.
    (ii) The notice must be served by the Comptroller upon the 
respondent and given to any other appropriate financial institution 
supervisory authority where required by law.
    (iii) The notice must be filed with OFIA.
    (2) Change-in control proceedings under section 7(j)(4) of the FDIA 
(12 U.S.C. 1817(j)(4)) commence with the issuance of an order by the 
Comptroller.
    (b) Contents of notice. The notice must set forth:
    (1) The legal authority for the proceeding and for the OCC's 
jurisdiction over the proceeding;
    (2) A statement of the matters of fact or law showing that the OCC 
is entitled to relief;
    (3) A proposed order or prayer for an order granting the requested 
relief;
    (4) The time, place, and nature of the hearing as required by law or 
regulation;
    (5) The time within which to file an answer as required by law or 
regulation;
    (6) The time within which to request a hearing as required by law or 
regulation; and
    (7) That the answer and/or request for a hearing shall be filed with 
OFIA.



Sec. 19.19  Answer.

    (a) When. Within 20 days of service of the notice, respondent shall 
file an answer as designated in the notice. In a civil money penalty 
proceeding, respondent shall also file a request for a hearing within 20 
days of service of the notice.
    (b) Content of answer. An answer must specifically respond to each 
paragraph or allegation of fact contained in the notice and must admit, 
deny, or state that the party lacks sufficient information to admit or 
deny each allegation of fact. A statement of lack of information has the 
effect of a denial. Denials must fairly meet the substance of each 
allegation of fact denied; general denials are not permitted. When a 
respondent denies part of an allegation, that part must be denied and 
the remainder specifically admitted. Any allegation of fact in the 
notice which is not denied in the answer must be deemed admitted for 
purposes of the proceeding. A respondent is not required to respond to 
the portion of a notice that constitutes the prayer for relief or 
proposed order. The answer must set forth affirmative defenses, if any, 
asserted by the respondent.
    (c) Default--(1) Effect of failure to answer. Failure of a 
respondent to file an answer required by this section within the time 
provided constitutes a waiver of his or her right to appear and contest 
the allegations in the notice. If no timely answer is filed, Enforcement 
Counsel may file a motion for entry of an order of default. Upon a 
finding that no good cause has been shown for the

[[Page 254]]

failure to file a timely answer, the administrative law judge shall file 
with the Comptroller a recommended decision containing the findings and 
the relief sought in the notice. Any final order issued by the 
Comptroller based upon a respondent's failure to answer is deemed to be 
an order issued upon consent.
    (2) Effect of failure to request a hearing in civil money penalty 
proceedings. If respondent fails to request a hearing as required by law 
within the time provided, the notice of assessment constitutes a final 
and unappealable order.



Sec. 19.20  Amended pleadings.

    (a) Amendments. The notice or answer may be amended or supplemented 
at any stage of the proceeding. The respondent must answer an amended 
notice within the time remaining for the respondent's answer to the 
original notice, or within ten days after service of the amended notice, 
whichever period is longer, unless the Comptroller or administrative law 
judge orders otherwise for good cause.
    (b) Amendments to conform to the evidence. When issues not raised in 
the notice or answer are tried at the hearing by express or implied 
consent of the parties, they will be treated in all respects as if they 
had been raised in the notice or answer, and no formal amendments are 
required. If evidence is objected to at the hearing on the ground that 
it is not within the issues raised by the notice or answer, the 
administrative law judge may admit the evidence when admission is likely 
to assist in adjudicating the merits of the action and the objecting 
party fails to satisfy the administrative law judge that the admission 
of such evidence would unfairly prejudice that party's action or defense 
upon the merits. The administrative law judge may grant a continuance to 
enable the objecting party to meet such evidence.

[61 FR 20335, May 6, 1996]



Sec. 19.21  Failure to appear.

    Failure of a respondent to appear in person at the hearing or by a 
duly authorized counsel constitutes a waiver of respondent's right to a 
hearing and is deemed an admission of the facts as alleged and consent 
to the relief sought in the notice. Without further proceedings or 
notice to the respondent, the administrative law judge shall file with 
the Comptroller a recommended decision containing the findings and the 
relief sought in the notice.



Sec. 19.22  Consolidation and severance of actions.

    (a) Consolidation. (1) On the motion of any party, or on the 
administrative law judge's own motion, the administrative law judge may 
consolidate, for some or all purposes, any two or more proceedings, if 
each such proceeding involves or arises out of the same transaction, 
occurrence or series of transactions or occurrences, or involves at 
least one common respondent or a material common question of law or 
fact, unless such consolidation would cause unreasonable delay or 
injustice.
    (2) In the event of consolidation under paragraph (a)(1) of this 
section, appropriate adjustment to the prehearing schedule must be made 
to avoid unnecessary expense, inconvenience, or delay.
    (b) Severance. The administrative law judge may, upon the motion of 
any party, sever the proceeding for separate resolution of the matter as 
to any respondent only if the administrative law judge finds that:
    (1) Undue prejudice or injustice to the moving party would result 
from not severing the proceeding; and
    (2) Such undue prejudice or injustice would outweigh the interests 
of judicial economy and expedition in the complete and final resolution 
of the proceeding.



Sec. 19.23  Motions.

    (a) In writing. (1) Except as otherwise provided herein, an 
application or request for an order or ruling must be made by written 
motion.
    (2) All written motions must state with particularity the relief 
sought and must be accompanied by a proposed order.
    (3) No oral argument may be held on written motions except as 
otherwise directed by the administrative law judge. Written memoranda, 
briefs, affidavits or other relevant material or documents may be filed 
in support of or in opposition to a motion.

[[Page 255]]

    (b) Oral motions. A motion may be made orally on the record unless 
the administrative law judge directs that such motion be reduced to 
writing.
    (c) Filing of motions. Motions must be filed with the administrative 
law judge, except that following the filing of the recommended decision, 
motions must be filed with the Comptroller.
    (d) Responses. (1) Except as otherwise provided herein, within ten 
days after service of any written motion, or within such other period of 
time as may be established by the administrative law judge or the 
Comptroller, any party may file a written response to a motion. The 
administrative law judge shall not rule on any oral or written motion 
before each party has had an opportunity to file a response.
    (2) The failure of a party to oppose a written motion or an oral 
motion made on the record is deemed a consent by that party to the entry 
of an order substantially in the form of the order accompanying the 
motion.
    (e) Dilatory motions. Frivolous, dilatory or repetitive motions are 
prohibited. The filing of such motions may form the basis for sanctions.
    (f) Dispositive motions. Dispositive motions are governed by 
Sec. Sec. 19.29 and 19.30.



Sec. 19.24  Scope of document discovery.

    (a) Limits on discovery. (1) Subject to the limitations set out in 
paragraphs (b), (c), and (d) of this section, a party to a proceeding 
under this subpart may obtain document discovery by serving a written 
request to produce documents. For purposes of a request to produce 
documents, the term ``documents'' may be defined to include drawings, 
graphs, charts, photographs, recordings, data stored in electronic form, 
and other data compilations from which information can be obtained, or 
translated, if necessary, by the parties through detection devices into 
reasonably usable form, as well as written material of all kinds.
    (2) Discovery by use of deposition is governed by subpart I of this 
part.
    (3) Discovery by use of interrogatories is not permitted.
    (b) Relevance. A party may obtain document discovery regarding any 
matter, not privileged, that has material relevance to the merits of the 
pending action. Any request to produce documents that calls for 
irrelevant material, that is unreasonable, oppressive, excessive in 
scope, unduly burdensome, or repetitive of previous requests, or that 
seeks to obtain privileged documents will be denied or modified. A 
request is unreasonable, oppressive, excessive in scope, or unduly 
burdensome if, among other things, it fails to include justifiable 
limitations on the time period covered and the geographic locations to 
be searched, the time provided to respond in the request is inadequate, 
or the request calls for copies of documents to be delivered to the 
requesting party and fails to include the requestor's written agreement 
to pay in advance for the copying, in accordance with Sec. 19.25.
    (c) Privileged matter. Privileged documents are not discoverable. 
Privileges include the attorney-client privilege, work-product 
privilege, any government's or government agency's deliberative process 
privilege, and any other privileges the Constitution, any applicable act 
of Congress, or the principles of common law provide.
    (d) Time limits. All discovery, including all responses to discovery 
requests, shall be completed at least 20 days prior to the date 
scheduled for the commencement of the hearing, except as provided in the 
Local Rules. No exceptions to this time limit shall be permitted, unless 
the administrative law judge finds on the record that good cause exists 
for waiving the requirements of this paragraph.

[56 FR 38028, Aug. 9, 1991, as amended at 61 FR 20335, May 6, 1996]



Sec. 19.25  Request for document discovery from parties.

    (a) General rule. Any party may serve on any other party a request 
to produce for inspection any discoverable documents that are in the 
possession, custody, or control of the party upon whom the request is 
served. The request must identify the documents to be produced either by 
individual item or by category, and must describe each item and category 
with reasonable particularity. Documents must be produced as they are 
kept in the usual course of business or must be organized

[[Page 256]]

to correspond with the categories in the request.
    (b) Production or copying. The request must specify a reasonable 
time, place, and manner for production and performing any related acts. 
In lieu of inspecting the documents, the requesting party may specify 
that all or some of the responsive documents be copied and the copies 
delivered to the requesting party. If copying of fewer than 250 pages is 
requested, the party to whom the request is addressed shall bear the 
cost of copying and shipping charges. If a party requests 250 pages or 
more of copying, the requesting party shall pay for the copying and 
shipping charges. Copying charges are the current per-page copying rate 
imposed by 12 CFR part 4 implementing the Freedom of Information Act (5 
U.S.C. 552). The party to whom the request is addressed may require 
payment in advance before producing the documents.
    (c) Obligation to update responses. A party who has responded to a 
discovery request with a response that was complete when made is not 
required to supplement the response to include documents thereafter 
acquired, unless the responding party learns that:
    (1) The response was materially incorrect when made; or
    (2) The response, though correct when made, is no longer true and a 
failure to amend the response is, in substance, a knowing concealment.
    (d) Motions to limit discovery. (1) Any party that objects to a 
discovery request may, within ten days of being served with such 
request, file a motion in accordance with the provisions of Sec. 19.23 
to strike or otherwise limit the request. If an objection is made to 
only a portion of an item or category in a request, the portion objected 
to shall be specified. Any objections not made in accordance with this 
paragraph and Sec. 19.23 are waived.
    (2) The party who served the request that is the subject of a motion 
to strike or limit may file a written response within five days of 
service of the motion. No other party may file a response.
    (e) Privilege. At the time other documents are produced, the 
producing party must reasonably identify all documents withheld on the 
grounds of privilege and must produce a statement of the basis for the 
assertion of privilege. When similar documents that are protected by 
deliberative process, attorney work-product, or attorney-client 
privilege are voluminous, these documents may be identified by category 
instead of by individual document. The administrative law judge retains 
discretion to determine when the identification by category is 
insufficient.
    (f) Motions to compel production. (1) If a party withholds any 
documents as privileged or fails to comply fully with a discovery 
request, the requesting party may, within ten days of the assertion of 
privilege or of the time the failure to comply becomes known to the 
requesting party, file a motion in accordance with the provisions of 
Sec. 19.23 for the issuance of a subpoena compelling production.
    (2) The party who asserted the privilege or failed to comply with 
the request may file a written response to a motion to compel within 
five days of service of the motion. No other party may file a response.
    (g) Ruling on motions. After the time for filing responses pursuant 
to this section has expired, the administrative law judge shall rule 
promptly on all motions filed pursuant to this section. If the 
administrative law judge determines that a discovery request, or any of 
its terms, calls for irrelevant material, is unreasonable, oppressive, 
excessive in scope, unduly burdensome, or repetitive of previous 
requests, or seeks to obtain privileged documents, he or she may deny or 
modify the request, and may issue appropriate protective orders, upon 
such conditions as justice may require. The pendency of a motion to 
strike or limit discovery or to compel production is not a basis for 
staying or continuing the proceeding, unless otherwise ordered by the 
administrative law judge. Notwithstanding any other provision in this 
part, the administrative law judge may not release, or order a party to 
produce, documents withheld on grounds of privilege if the party has 
stated to the administrative law judge its intention to file a timely 
motion for interlocutory review of the administrative law

[[Page 257]]

judge's order to produce the documents, and until the motion for 
interlocutory review has been decided.
    (h) Enforcing discovery subpoenas. If the administrative law judge 
issues a subpoena compelling production of documents by a party, the 
subpoenaing party may, in the event of noncompliance and to the extent 
authorized by applicable law, apply to any appropriate United States 
district court for an order requiring compliance with the subpoena. A 
party's right to seek court enforcement of a subpoena shall not in any 
manner limit the sanctions that may be imposed by the administrative law 
judge against a party who fails to produce subpoenaed documents.

[56 FR 38028, Aug. 9, 1991, as amended at 61 FR 20335, May 6, 1996]



Sec. 19.26  Document subpoenas to nonparties.

    (a) General rules. (1) Any party may apply to the administrative law 
judge for the issuance of a document discovery subpoena addressed to any 
person who is not a party to the proceeding. The application must 
contain a proposed document subpoena and a brief statement showing the 
general relevance and reasonableness of the scope of documents sought. 
The subpoenaing party shall specify a reasonable time, place, and manner 
for making production in response to the document subpoena.
    (2) A party shall only apply for a document subpoena under this 
section within the time period during which such party could serve a 
discovery request under Sec. 19.24(d). The party obtaining the document 
subpoena is responsible for serving it on the subpoenaed person and for 
serving copies on all parties. Document subpoenas may be served in any 
state, territory, or possession of the United States, the District of 
Columbia, or as otherwise provided by law.
    (3) The administrative law judge shall promptly issue any document 
subpoena requested pursuant to this section. If the administrative law 
judge determines that the application does not set forth a valid basis 
for the issuance of the subpoena, or that any of its terms are 
unreasonable, oppressive, excessive in scope, or unduly burdensome, he 
or she may refuse to issue the subpoena or may issue it in a modified 
form upon such conditions as may be consistent with the Uniform Rules.
    (b) Motion to quash or modify. (1) Any person to whom a document 
subpoena is directed may file a motion to quash or modify such subpoena, 
accompanied by a statement of the basis for quashing or modifying the 
subpoena. The movant shall serve the motion on all parties, and any 
party may respond to such motion within ten days of service of the 
motion.
    (2) Any motion to quash or modify a document subpoena must be filed 
on the same basis, including the assertion of privilege, upon which a 
party could object to a discovery request under Sec. 19.25(d), and 
during the same time limits during which such an objection could be 
filed.
    (c) Enforcing document subpoenas. If a subpoenaed person fails to 
comply with any subpoena issued pursuant to this section or any order of 
the administrative law judge which directs compliance with all or any 
portion of a document subpoena, the subpoenaing party or any other 
aggrieved party may, to the extent authorized by applicable law, apply 
to an appropriate United States district court for an order requiring 
compliance with so much of the document subpoena as the administrative 
law judge has not quashed or modified. A party's right to seek court 
enforcement of a document subpoena shall in no way limit the sanctions 
that may be imposed by the administrative law judge on a party who 
induces a failure to comply with subpoenas issued under this section.



Sec. 19.27  Deposition of witness unavailable for hearing.

    (a) General rules. (1) If a witness will not be available for the 
hearing, a party desiring to preserve that witness' testimony for the 
record may apply in accordance with the procedures set forth in 
paragraph (a)(2) of this section, to the administrative law judge for 
the issuance of a subpoena, including a subpoena duces tecum, requiring 
the attendance of the witness at a deposition. The administrative law 
judge may issue a deposition subpoena under this section upon showing 
that:

[[Page 258]]

    (i) The witness will be unable to attend or may be prevented from 
attending the hearing because of age, sickness or infirmity, or will 
otherwise be unavailable;
    (ii) The witness' unavailability was not procured or caused by the 
subpoenaing party;
    (iii) The testimony is reasonably expected to be material; and
    (iv) Taking the deposition will not result in any undue burden to 
any other party and will not cause undue delay of the proceeding.
    (2) The application must contain a proposed deposition subpoena and 
a brief statement of the reasons for the issuance of the subpoena. The 
subpoena must name the witness whose deposition is to be taken and 
specify the time and place for taking the deposition. A deposition 
subpoena may require the witness to be deposed at any place within the 
country in which that witness resides or has a regular place of 
employment or such other convenient place as the administrative law 
judge shall fix.
    (3) Any requested subpoena that sets forth a valid basis for its 
issuance must be promptly issued, unless the administrative law judge on 
his or her own motion, requires a written response or requires 
attendance at a conference concerning whether the requested subpoena 
should be issued.
    (4) The party obtaining a deposition subpoena is responsible for 
serving it on the witness and for serving copies on all parties. Unless 
the administrative law judge orders otherwise, no deposition under this 
section shall be taken on fewer than ten days' notice to the witness and 
all parties. Deposition subpoenas may be served in any state, territory, 
possession of the United States, or the District of Columbia, on any 
person or company doing business in any state, territory, possession of 
the United States, or the District of Columbia, or as otherwise 
permitted by law.
    (b) Objections to deposition subpoenas. (1) The witness and any 
party who has not had an opportunity to oppose a deposition subpoena 
issued under this section may file a motion with the administrative law 
judge to quash or modify the subpoena prior to the time for compliance 
specified in the subpoena, but not more than ten days after service of 
the subpoena.
    (2) A statement of the basis for the motion to quash or modify a 
subpoena issued under this section must accompany the motion. The motion 
must be served on all parties.
    (c) Procedure upon deposition. (1) Each witness testifying pursuant 
to a deposition subpoena must be duly sworn, and each party shall have 
the right to examine the witness. Objections to questions or documents 
must be in short form, stating the grounds for the objection. Failure to 
object to questions or documents is not deemed a waiver except where the 
ground for the objection might have been avoided if the objection had 
been timely presented. All questions, answers, and objections must be 
recorded.
    (2) Any party may move before the administrative law judge for an 
order compelling the witness to answer any questions the witness has 
refused to answer or submit any evidence the witness has refused to 
submit during the deposition.
    (3) The deposition must be subscribed by the witness, unless the 
parties and the witness, by stipulation, have waived the signing, or the 
witness is ill, cannot be found, or has refused to sign. If the 
deposition is not subscribed by the witness, the court reporter taking 
the deposition shall certify that the transcript is a true and complete 
transcript of the deposition.
    (d) Enforcing subpoenas. If a subpoenaed person fails to comply with 
any order of the administrative law judge which directs compliance with 
all or any portion of a deposition subpoena under paragraph (b) or 
(c)(3) of this section, the subpoenaing party or other aggrieved party 
may, to the extent authorized by applicable law, apply to an appropriate 
United States district court for an order requiring compliance with the 
portions of the subpoena that the administrative law judge has ordered 
enforced. A party's right to seek court enforcement of a deposition 
subpoena in no way limits the sanctions that may be imposed by the 
administrative law judge on a party who fails to comply with, or 
procures a failure to

[[Page 259]]

comply with, a subpoena issued under this section.



Sec. 19.28  Interlocutory review.

    (a) General rule. The Comptroller may review a ruling of the 
administrative law judge prior to the certification of the record to the 
Comptroller only in accordance with the procedures set forth in this 
section and Sec. 19.23.
    (b) Scope of review. The Comptroller may exercise interlocutory 
review of a ruling of the administrative law judge if the Comptroller 
finds that:
    (1) The ruling involves a controlling question of law or policy as 
to which substantial grounds exist for a difference of opinion;
    (2) Immediate review of the ruling may materially advance the 
ultimate termination of the proceeding;
    (3) Subsequent modification of the ruling at the conclusion of the 
proceeding would be an inadequate remedy; or
    (4) Subsequent modification of the ruling would cause unusual delay 
or expense.
    (c) Procedure. Any request for interlocutory review shall be filed 
by a party with the administrative law judge within ten days of his or 
her ruling and shall otherwise comply with Sec. 19.23. Any party may 
file a response to a request for interlocutory review in accordance with 
Sec. 19.23(d). Upon the expiration of the time for filing all 
responses, the administrative law judge shall refer the matter to the 
Comptroller for final disposition.
    (d) Suspension of proceeding. Neither a request for interlocutory 
review nor any disposition of such a request by the Comptroller under 
this section suspends or stays the proceeding unless otherwise ordered 
by the administrative law judge or the Comptroller.



Sec. 19.29  Summary disposition.

    (a) In general. The administrative law judge shall recommend that 
the Comptroller issue a final order granting a motion for summary 
disposition if the undisputed pleaded facts, admissions, affidavits, 
stipulations, documentary evidence, matters as to which official notice 
may be taken, and any other evidentiary materials properly submitted in 
connection with a motion for summary disposition show that:
    (1) There is no genuine issue as to any material fact; and
    (2) The moving party is entitled to a decision in its favor as a 
matter of law.
    (b) Filing of motions and responses. (1) Any party who believes 
there is no genuine issue of material fact to be determined and that he 
or she is entitled to a decision as a matter of law may move at any time 
for summary disposition in its favor of all or any part of the 
proceeding. Any party, within 20 days after service of such a motion, or 
within such time period as allowed by the administrative law judge, may 
file a response to such motion.
    (2) A motion for summary disposition must be accompanied by a 
statement of the material facts as to which the moving party contends 
there is no genuine issue. Such motion must be supported by documentary 
evidence, which may take the form of admissions in pleadings, 
stipulations, depositions, investigatory depositions, transcripts, 
affidavits and any other evidentiary materials that the moving party 
contends support his or her position. The motion must also be 
accompanied by a brief containing the points and authorities in support 
of the contention of the moving party. Any party opposing a motion for 
summary disposition must file a statement setting forth those material 
facts as to which he or she contends a genuine dispute exists. Such 
opposition must be supported by evidence of the same type as that 
submitted with the motion for summary disposition and a brief containing 
the points and authorities in support of the contention that summary 
disposition would be inappropriate.
    (c) Hearing on motion. At the request of any party or on his or her 
own motion, the administrative law judge may hear oral argument on the 
motion for summary disposition.
    (d) Decision on motion. Following receipt of a motion for summary 
disposition and all responses thereto, the administrative law judge 
shall determine whether the moving party is entitled to summary 
disposition. If the administrative law judge determines that summary 
disposition is warranted, the administrative law judge shall submit

[[Page 260]]

a recommended decision to that effect to the Comptroller. If the 
administrative law judge finds that no party is entitled to summary 
disposition, he or she shall make a ruling denying the motion.



Sec. 19.30  Partial summary disposition.

    If the administrative law judge determines that a party is entitled 
to summary disposition as to certain claims only, he or she shall defer 
submitting a recommended decision as to those claims. A hearing on the 
remaining issues must be ordered. Those claims for which the 
administrative law judge has determined that summary disposition is 
warranted will be addressed in the recommended decision filed at the 
conclusion of the hearing.



Sec. 19.31  Scheduling and prehearing conferences.

    (a) Scheduling conference. Within 30 days of service of the notice 
or order commencing a proceeding or such other time as parties may 
agree, the administrative law judge shall direct counsel for all parties 
to meet with him or her in person at a specified time and place prior to 
the hearing or to confer by telephone for the purpose of scheduling the 
course and conduct of the proceeding. This meeting or telephone 
conference is called a ``scheduling conference.'' The identification of 
potential witnesses, the time for and manner of discovery, and the 
exchange of any prehearing materials including witness lists, statements 
of issues, stipulations, exhibits and any other materials may also be 
determined at the scheduling conference.
    (b) Prehearing conferences. The administrative law judge may, in 
addition to the scheduling conference, on his or her own motion or at 
the request of any party, direct counsel for the parties to meet with 
him or her (in person or by telephone) at a prehearing conference to 
address any or all of the following:
    (1) Simplification and clarification of the issues;
    (2) Stipulations, admissions of fact, and the contents, authenticity 
and admissibility into evidence of documents;
    (3) Matters of which official notice may be taken;
    (4) Limitation of the number of witnesses;
    (5) Summary disposition of any or all issues;
    (6) Resolution of discovery issues or disputes;
    (7) Amendments to pleadings; and
    (8) Such other matters as may aid in the orderly disposition of the 
proceeding.
    (c) Transcript. The administrative law judge, in his or her 
discretion, may require that a scheduling or prehearing conference be 
recorded by a court reporter. A transcript of the conference and any 
materials filed, including orders, becomes part of the record of the 
proceeding. A party may obtain a copy of the transcript at his or her 
expense.
    (d) Scheduling or prehearing orders. At or within a reasonable time 
following the conclusion of the scheduling conference or any prehearing 
conference, the administrative law judge shall serve on each party an 
order setting forth any agreements reached and any procedural 
determinations made.



Sec. 19.32  Prehearing submissions.

    (a) Within the time set by the administrative law judge, but in no 
case later than 14 days before the start of the hearing, each party 
shall serve on every other party, his or her:
    (1) Prehearing statement;
    (2) Final list of witnesses to be called to testify at the hearing, 
including name and address of each witness and a short summary of the 
expected testimony of each witness;
    (3) List of the exhibits to be introduced at the hearing along with 
a copy of each exhibit; and
    (4) Stipulations of fact, if any.
    (b) Effect of failure to comply. No witness may testify and no 
exhibits may be introduced at the hearing if such witness or exhibit is 
not listed in the prehearing submissions pursuant to paragraph (a) of 
this section, except for good cause shown.



Sec. 19.33  Public hearings.

    (a) General rule. All hearings shall be open to the public, unless 
the Comptroller, in the Comptroller's discretion, determines that 
holding an open hearing would be contrary to the public interest. Within 
20 days of service of the

[[Page 261]]

notice or, in the case of change-in-control proceedings under section 
7(j)(4) of the FDIA (12 U.S.C. 1817(j)(4)), within 20 days from service 
of the hearing order, any respondent may file with the Comptroller a 
request for a private hearing, and any party may file a reply to such a 
request. A party must serve on the administrative law judge a copy of 
any request or reply the party files with the Comptroller. The form of, 
and procedure for, these requests and replies are governed by Sec. 
19.23. A party's failure to file a request or a reply constitutes a 
waiver of any objections regarding whether the hearing will be public or 
private.
    (b) Filing document under seal. Enforcement Counsel, in his or her 
discretion, may file any document or part of a document under seal if 
disclosure of the document would be contrary to the public interest. The 
administrative law judge shall take all appropriate steps to preserve 
the confidentiality of such documents or parts thereof, including 
closing portions of the hearing to the public.

[56 FR 38028, Aug. 9, 1991, as amended at 61 FR 20336, May 6, 1996]



Sec. 19.34  Hearing subpoenas.

    (a) Issuance. (1) Upon application of a party showing general 
relevance and reasonableness of scope of the testimony or other evidence 
sought, the administrative law judge may issue a subpoena or a subpoena 
duces tecum requiring the attendance of a witness at the hearing or the 
production of documentary or physical evidence at the hearing. The 
application for a hearing subpoena must also contain a proposed subpoena 
specifying the attendance of a witness or the production of evidence 
from any state, territory, or possession of the United States, the 
District of Columbia, or as otherwise provided by law at any designated 
place where the hearing is being conducted. The party making the 
application shall serve a copy of the application and the proposed 
subpoena on every other party.
    (2) A party may apply for a hearing subpoena at any time before the 
commencement of a hearing. During a hearing, a party may make an 
application for a subpoena orally on the record before the 
administrative law judge.
    (3) The administrative law judge shall promptly issue any hearing 
subpoena requested pursuant to this section. If the administrative law 
judge determines that the application does not set forth a valid basis 
for the issuance of the subpoena, or that any of its terms are 
unreasonable, oppressive, excessive in scope, or unduly burdensome, he 
or she may refuse to issue the subpoena or may issue it in a modified 
form upon any conditions consistent with this subpart. Upon issuance by 
the administrative law judge, the party making the application shall 
serve the subpoena on the person named in the subpoena and on each 
party.
    (b) Motion to quash or modify. (1) Any person to whom a hearing 
subpoena is directed or any party may file a motion to quash or modify 
the subpoena, accompanied by a statement of the basis for quashing or 
modifying the subpoena. The movant must serve the motion on each party 
and on the person named in the subpoena. Any party may respond to the 
motion within ten days of service of the motion.
    (2) Any motion to quash or modify a hearing subpoena must be filed 
prior to the time specified in the subpoena for compliance but not more 
than ten days after the date of service of the subpoena upon the movant.
    (c) Enforcing subpoenas. If a subpoenaed person fails to comply with 
any subpoena issued pursuant to this section or any order of the 
administrative law judge which directs compliance with all or any 
portion of a document subpoena, the subpoenaing party or any other 
aggrieved party may seek enforcement of the subpoena pursuant to Sec. 
19.26(c).

[56 FR 38028, Aug. 9, 1991, as amended at 61 FR 20336, May 6, 1996]



Sec. 19.35  Conduct of hearings.

    (a) General rules. (1) Hearings shall be conducted so as to provide 
a fair and expeditious presentation of the relevant disputed issues. 
Each party has the right to present its case or defense by oral and 
documentary evidence and to conduct such cross examination as

[[Page 262]]

may be required for full disclosure of the facts.
    (2) Order of hearing. Enforcement Counsel shall present its case-in-
chief first, unless otherwise ordered by the administrative law judge, 
or unless otherwise expressly specified by law or regulation. 
Enforcement Counsel shall be the first party to present an opening 
statement and a closing statement, and may make a rebuttal statement 
after the respondent's closing statement. If there are multiple 
respondents, respondents may agree among themselves as to their order of 
presentation of their cases, but if they do not agree, the 
administrative law judge shall fix the order.
    (3) Examination of witnesses. Only one counsel for each party may 
conduct an examination of a witness, except that in the case of 
extensive direct examination, the administrative law judge may permit 
more than one counsel for the party presenting the witness to conduct 
the examination. A party may have one counsel conduct the direct 
examination and another counsel conduct re-direct examination of a 
witness, or may have one counsel conduct the cross examination of a 
witness and another counsel conduct the re-cross examination of a 
witness.
    (4) Stipulations. Unless the administrative law judge directs 
otherwise, all stipulations of fact and law previously agreed upon by 
the parties, and all documents, the admissibility of which have been 
previously stipulated, will be admitted into evidence upon commencement 
of the hearing.
    (b) Transcript. The hearing must be recorded and transcribed. The 
reporter will make the transcript available to any party upon payment by 
that party to the reporter of the cost of the transcript. The 
administrative law judge may order the record corrected, either upon 
motion to correct, upon stipulation of the parties, or following notice 
to the parties upon the administrative law judge's own motion.

[56 FR 38028, Aug. 9, 1991, as amended at 61 FR 20336, May 6, 1996]



Sec. 19.36  Evidence.

    (a) Admissibility. (1) Except as is otherwise set forth in this 
section, relevant, material, and reliable evidence that is not unduly 
repetitive is admissible to the fullest extent authorized by the 
Administrative Procedure Act and other applicable law.
    (2) Evidence that would be admissible under the Federal Rules of 
Evidence is admissible in a proceeding conducted pursuant to this 
subpart.
    (3) Evidence that would be inadmissible under the Federal Rules of 
Evidence may not be deemed or ruled to be inadmissible in a proceeding 
conducted pursuant to this subpart if such evidence is relevant, 
material, reliable and not unduly repetitive.
    (b) Official notice. (1) Official notice may be taken of any 
material fact which may be judicially noticed by a United States 
district court and any material information in the official public 
records of any Federal or state government agency.
    (2) All matters officially noticed by the administrative law judge 
or the Comptroller shall appear on the record.
    (3) If official notice is requested or taken of any material fact, 
the parties, upon timely request, shall be afforded an opportunity to 
object.
    (c) Documents. (1) A duplicate copy of a document is admissible to 
the same extent as the original, unless a genuine issue is raised as to 
whether the copy is in some material respect not a true and legible copy 
of the original.
    (2) Subject to the requirements of paragraph (a) of this section, 
any document, including a report of examination, supervisory activity, 
inspection or visitation, prepared by an appropriate Federal financial 
institutions regulatory agency or by a state regulatory agency, is 
admissible either with or without a sponsoring witness.
    (3) Witnesses may use existing or newly created charts, exhibits, 
calendars, calculations, outlines or other graphic material to 
summarize, illustrate, or simplify the presentation of testimony. Such 
materials may, subject to the administrative law judge's discretion, be 
used with or without being admitted into evidence.
    (d) Objections. (1) Objections to the admissibility of evidence must 
be timely made and rulings on all objections must appear on the record.
    (2) When an objection to a question or line of questioning 
propounded to a

[[Page 263]]

witness is sustained, the examining counsel may make a specific proffer 
on the record of what he or she expected to prove by the expected 
testimony of the witness either by representation of counsel or by 
direct interrogation of the witness.
    (3) The administrative law judge shall retain rejected exhibits, 
adequately marked for identification, for the record, and transmit such 
exhibits to the Comptroller.
    (4) Failure to object to admission of evidence or to any ruling 
constitutes a waiver of the objection.
    (e) Stipulations. The parties may stipulate as to any relevant 
matters of fact or the authentication of any relevant documents. Such 
stipulations must be received in evidence at a hearing and are binding 
on the parties with respect to the matters therein stipulated.
    (f) Depositions of unavailable witnesses. (1) If a witness is 
unavailable to testify at a hearing, and that witness has testified in a 
deposition to which all parties in a proceeding had notice and an 
opportunity to participate, a party may offer as evidence all or any 
part of the transcript of the deposition, including deposition exhibits, 
if any.
    (2) Such deposition transcript is admissible to the same extent that 
testimony would have been admissible had that person testified at the 
hearing, provided that if a witness refused to answer proper questions 
during the depositions, the administrative law judge may, on that basis, 
limit the admissibility of the deposition in any manner that justice 
requires.
    (3) Only those portions of a deposition received in evidence at the 
hearing constitute a part of the record.



Sec. 19.37  Post-hearing filings.

    (a) Proposed findings and conclusions and supporting briefs. (1) 
Using the same method of service for each party, the administrative law 
judge shall serve notice upon each party that the certified transcript, 
together with all hearing exhibits and exhibits introduced but not 
admitted into evidence at the hearing, has been filed. Any party may 
file with the administrative law judge proposed findings of fact, 
proposed conclusions of law, and a proposed order within 30 days 
following service of this notice by the administrative law judge or 
within such longer period as may be ordered by the administrative law 
judge.
    (2) Proposed findings and conclusions must be supported by citation 
to any relevant authorities and by page references to any relevant 
portions of the record. A post-hearing brief may be filed in support of 
proposed findings and conclusions, either as part of the same document 
or in a separate document. Any party who fails to file timely with the 
administrative law judge any proposed finding or conclusion is deemed to 
have waived the right to raise in any subsequent filing or submission 
any issue not addressed in such party's proposed finding or conclusion.
    (b) Reply briefs. Reply briefs may be filed within 15 days after the 
date on which the parties' proposed findings, conclusions, and order are 
due. Reply briefs must be strictly limited to responding to new matters, 
issues, or arguments raised in another party's papers. A party who has 
not filed proposed findings of fact and conclusions of law or a post-
hearing brief may not file a reply brief.
    (c) Simultaneous filing required. The administrative law judge shall 
not order the filing by any party of any brief or reply brief in advance 
of the other party's filing of its brief.

[56 FR 38028, Aug. 9, 1991, as amended at 61 FR 20336, May 6, 1996]



Sec. 19.38  Recommended decision and filing of record.

    (a) Filing of recommended decision and record. Within 45 days after 
expiration of the time allowed for filing reply briefs under Sec. 
19.37(b), the administrative law judge shall file with and certify to 
the Comptroller, for decision, the record of the proceeding. The record 
must include the administrative law judge's recommended decision, 
recommended findings of fact, recommended conclusions of law, and 
proposed order; all prehearing and hearing transcripts, exhibits, and 
rulings; and the motions, briefs, memoranda, and other supporting papers 
filed in connection with the hearing. The administrative law judge shall 
serve upon each party the recommended decision, findings, conclusions, 
and proposed order.

[[Page 264]]

    (b) Filing of index. At the same time the administrative law judge 
files with and certifies to the Comptroller for final determination the 
record of the proceeding, the administrative law judge shall furnish to 
the Comptroller a certified index of the entire record of the 
proceeding. The certified index shall include, at a minimum, an entry 
for each paper, document or motion filed with the administrative law 
judge in the proceeding, the date of the filing, and the identity of the 
filer. The certified index shall also include an exhibit index 
containing, at a minimum, an entry consisting of exhibit number and 
title or description for: Each exhibit introduced and admitted into 
evidence at the hearing; each exhibit introduced but not admitted into 
evidence at the hearing; each exhibit introduced and admitted into 
evidence after the completion of the hearing; and each exhibit 
introduced but not admitted into evidence after the completion of the 
hearing.

[61 FR 20336, May 6, 1996]



Sec. 19.39  Exceptions to recommended decision.

    (a) Filing exceptions. Within 30 days after service of the 
recommended decision, findings, conclusions, and proposed order under 
Sec. 19.38, a party may file with the Comptroller written exceptions to 
the administrative law judge's recommended decision, findings, 
conclusions or proposed order, to the admission or exclusion of 
evidence, or to the failure of the administrative law judge to make a 
ruling proposed by a party. A supporting brief may be filed at the time 
the exceptions are filed, either as part of the same document or in a 
separate document.
    (b) Effect of failure to file or raise exceptions. (1) Failure of a 
party to file exceptions to those matters specified in paragraph (a) of 
this section within the time prescribed is deemed a waiver of objection 
thereto.
    (2) No exception need be considered by the Comptroller if the party 
taking exception had an opportunity to raise the same objection, issue, 
or argument before the administrative law judge and failed to do so.
    (c) Contents. (1) All exceptions and briefs in support of such 
exceptions must be confined to the particular matters in, or omissions 
from, the administrative law judge's recommendations to which that party 
takes exception.
    (2) All exceptions and briefs in support of exceptions must set 
forth page or paragraph references to the specific parts of the 
administrative law judge's recommendations to which exception is taken, 
the page or paragraph references to those portions of the record relied 
upon to support each exception, and the legal authority relied upon to 
support each exception.



Sec. 19.40  Review by the Comptroller.

    (a) Notice of submission to the Comptroller. When the Comptroller 
determines that the record in the proceeding is complete, the 
Comptroller shall serve notice upon the parties that the proceeding has 
been submitted to the Comptroller for final decision.
    (b) Oral argument before the Comptroller. Upon the initiative of the 
Comptroller or on the written request of any party filed with the 
Comptroller within the time for filing exceptions, the Comptroller may 
order and hear oral argument on the recommended findings, conclusions, 
decision, and order of the administrative law judge. A written request 
by a party must show good cause for oral argument and state reasons why 
arguments cannot be presented adequately in writing. A denial of a 
request for oral argument may be set forth in the Comptroller's final 
decision. Oral argument before the Comptroller must be on the record.
    (c) Comptroller's final decision. (1) Decisional employees may 
advise and assist the Comptroller in the consideration and disposition 
of the case. The final decision of the Comptroller will be based upon 
review of the entire record of the proceeding, except that the 
Comptroller may limit the issues to be reviewed to those findings and 
conclusions to which opposing arguments or exceptions have been filed by 
the parties.
    (2) The Comptroller shall render a final decision within 90 days 
after notification of the parties that the case has been submitted for 
final decision, or 90 days after oral argument, whichever is later, 
unless the Comptroller orders

[[Page 265]]

that the action or any aspect thereof be remanded to the administrative 
law judge for further proceedings. Copies of the final decision and 
order of the Comptroller shall be served upon each party to the 
proceeding, upon other persons required by statute, and, if directed by 
the Comptroller or required by statute, upon any appropriate state or 
Federal supervisory authority.



Sec. 19.41  Stays pending judicial review.

    The commencement of proceedings for judicial review of a final 
decision and order of the Comptroller may not, unless specifically 
ordered by the Comptroller or a reviewing court, operate as a stay of 
any order issued by the Comptroller. The Comptroller may, in his or her 
discretion, and on such terms as he or she finds just, stay the 
effectiveness of all or any part of an order pending a final decision on 
a petition for review of that order.



            Subpart B_Procedural Rules for OCC Adjudications



Sec. 19.100  Filing documents.

    All materials required to be filed with or referred to the 
Comptroller or the administrative law judge in any proceeding under this 
part must be filed with the Hearing Clerk, Office of the Comptroller of 
the Currency, 250 E Street, SW., Washington, DC 20219. Filings to be 
made with the Hearing Clerk include the notice and answer; motions and 
responses to motions; briefs; the record filed by the administrative law 
judge after the issuance of a recommended decision; the recommended 
decision filed by the administrative law judge following a motion for 
summary disposition (except that in removal and prohibition cases 
instituted pursuant to 12 U.S.C. 1818, the administrative law judge will 
file the record and the recommended decision with the Board of Governors 
of the Federal Reserve System); referrals by the administrative law 
judge of motions for interlocutory review; exceptions and requests for 
oral argument; and any other papers required to be filed with the 
Comptroller or the administrative law judge under this part.

[68 FR 48265, Aug. 13, 2002]



Sec. 19.101  Delegation to OFIA.

    Unless otherwise ordered by the Comptroller, administrative 
adjudications subject to subpart A of this part shall be conducted by an 
administrative law judge assigned to OFIA.



   Subpart C_Removals, Suspensions, and Prohibitions When a Crime Is 
                   Charged or a Conviction is Obtained



Sec. 19.110  Scope.

    This subpart applies to informal hearings afforded to any 
institution-affiliated party who has been suspended or removed from 
office or prohibited from further participation in bank affairs by a 
notice or order issued by the Comptroller.



Sec. 19.111  Suspension, removal, or prohibition.

    The Comptroller may serve a notice of suspension or order of removal 
or prohibition on an institution-affiliated party. A copy of such notice 
or order will be served on the bank, whereupon the institution-
affiliated party involved must immediately cease service to the bank or 
participation in the affairs of the bank. The notice or order will 
indicate the basis for suspension, removal or prohibition and will 
inform the institution-affiliated party of the right to request in 
writing, to be received by the OCC within 30 days from the date that the 
institution-affiliated party was served with such notice or order, an 
opportunity to show at an informal hearing that continued service to or 
participation in the conduct of the affairs of the bank does not, or is 
not likely to, pose a threat to the interest of the bank's depositors or 
threaten to impair public confidence in the bank. The written request 
must be sent by certified mail to, or served personally with a signed 
receipt on, the District Deputy Comptroller in the OCC district in which 
the bank, accountant, or accounting firm in question is located, or, if 
the bank is supervised by Large Bank Supervision, to the appropriate 
Deputy Comptroller for Large Bank Supervision for the Office of the 
Comptroller of the Currency, or if the bank is supervised by Mid-Size/

[[Page 266]]

Community Bank Supervision, to the Senior Deputy Comptroller for Mid-
Size/Community Bank Supervision for the Office of the Comptroller of the 
Currency, Washington, DC 20219. The request must state specifically the 
relief desired and the grounds on which that relief is based.

[56 FR 38028, Aug. 9, 1991, as amended at 68 FR 48265, Aug. 13, 2003]



Sec. 19.112  Informal hearing.

    (a) Issuance of hearing order. After receipt of a request for 
hearing, the District Deputy Comptroller or Administrator, the Deputy 
Comptroller for Multinational Banking, or the Deputy Comptroller or 
Director for Special Supervision, as appropriate, must notify the 
petitioner requesting the hearing, the OCC's Enforcement and Compliance 
Division, and the appropriate OCC District Counsel of the date, time, 
and place fixed for the hearing. The hearing must be scheduled to be 
held not later than 30 days from the date when a request for hearing is 
received unless the time is extended in response to a written request of 
the petitioner. The District Deputy Comptroller or Administrator, the 
Deputy Comptroller for Multinational Banking, or the Deputy Comptroller 
or Director for Special Supervision, as appropriate, may extend the 
hearing date only for a specific period of time and must take 
appropriate action to ensure that the hearing is not unduly delayed.
    (b) Appointment of presiding officer. The District Deputy 
Comptroller or Administrator, the Deputy Comptroller for Multinational 
Banking, or the Deputy Comptroller or Director for Special Supervision, 
as appropriate, must appoint one or more OCC employees as the presiding 
officer to conduct the hearing. The presiding officer(s) may not have 
been involved in the proceeding, a factually related proceeding, or the 
underlying enforcement action in a prosecutorial or investigative role.
    (c) Waiver of oral hearing--(1) Petitioner. When the petitioner 
requests a hearing, the petitioner may elect to have the matter 
determined by the presiding officer solely on the basis of written 
submissions by serving on the District Deputy Comptroller or 
Administrator, the Deputy Comptroller for Multinational Banking, or the 
Deputy Comptroller or Director for Special Supervision, as appropriate, 
and all parties, a signed document waiving the statutory right to appear 
and make oral argument. The petitioner must present the written 
submissions to the presiding officer, and serve the other parties, not 
later than ten days prior to the date fixed for the hearing, or within 
such shorter time period as the presiding officer may permit.
    (2) OCC. The OCC may respond to the petitioner's submissions by 
presenting the presiding officer with a written response, and by serving 
the other parties, not later than the date fixed for the hearing, or 
within such other time period as the presiding officer may require.
    (d) Hearing procedures--(1) Conduct of hearing. Hearings under this 
subpart are not subject to the provisions of subpart A of this part or 
the adjudicative provisions of the Administrative Procedure Act (5 
U.S.C. 554-557).
    (2) Powers of the presiding officer. The presiding officer shall 
determine all procedural issues that are governed by this subpart. The 
presiding officer may also permit or limit the number of witnesses and 
impose time limitations as he or she deems reasonable. The informal 
hearing will not be governed by the formal rules of evidence. All oral 
presentations, when permitted, and documents deemed by the presiding 
officer to be relevant and material to the proceeding and not unduly 
repetitious will be considered. The presiding officer may ask questions 
of any person participating in the hearing and may make any rulings 
reasonably necessary to facilitate the effective and efficient operation 
of the hearing.
    (3) Presentation. (i) The OCC may appear and the petitioner may 
appear personally or through counsel at the hearing to present relevant 
written materials and oral argument. Except as permitted in paragraph 
(c) of this section, each party, including the OCC, must file a copy of 
any affidavit, memorandum, or other written material to be presented at 
the hearing with the presiding officer and must serve the other parties 
not later than ten days prior to the hearing or within

[[Page 267]]

such shorter time period as permitted by the presiding officer.
    (ii) If the petitioner or the appointed OCC attorney desires to 
present oral testimony or witnesses at the hearing, he or she must file 
a written request with the presiding officer not later than ten days 
prior to the hearing, or within a shorter time period as permitted by 
the presiding officer. The names of proposed witnesses should be 
included, along with the general nature of the expected testimony, and 
the reasons why oral testimony is necessary. The presiding officer 
generally will not admit oral testimony or witnesses unless a specific 
and compelling need is demonstrated. Witnesses, if admitted, shall be 
sworn.
    (iii) In deciding on any suspension, the presiding officer shall not 
consider the ultimate question of the guilt or innocence of the 
individual with respect to the criminal charges which are outstanding. 
In deciding on any removal, the presiding officer shall not consider 
challenges to or efforts to impeach the validity of the conviction. The 
presiding officer may consider facts in either situation, however, which 
show the nature of the events on which the indictment or conviction was 
based.
    (4) Record. A transcript of the proceedings may be taken if the 
petitioner requests a transcript and agrees to pay all expenses or if 
the presiding officer determines that the nature of the case warrants a 
transcript. The presiding officer may order the record to be kept open 
for a reasonable period following the hearing, not to exceed five 
business days, to permit the petitioner or the appointed OCC attorney to 
submit additional documents for the record. Thereafter, no further 
submissions may be accepted except for good cause shown.

[56 FR 38028, Aug. 9, 1991, as amended at 61 FR 20337, May 6, 1996]



Sec. 19.113  Recommended and final decisions.

    (a) The presiding officer must issue a recommended decision to the 
Comptroller within 20 days of the conclusion of the hearing or, when the 
petitioner has waived an oral hearing, within 20 days of the date fixed 
for the hearing. The presiding officer must serve promptly a copy of the 
recommended decision on the parties to the proceeding. The decision must 
include a summary of the facts and arguments of the parties.
    (b) Each party may, within ten days of being served with the 
presiding officer's recommended decision, submit to the Comptroller 
comments on the recommended decision.
    (c) Within 60 days of the conclusion of the hearing or, when the 
petitioner has waived an oral hearing, within 60 days from the date 
fixed for the hearing, the Comptroller must notify the petitioner by 
registered mail whether the suspension or removal from office, and 
prohibition from participation in any manner in the affairs of the bank, 
will be affirmed, terminated, or modified. The Comptroller's decision 
must include a statement of reasons supporting the decision. The 
Comptroller's decision is a final and unappealable order.
    (d) A finding of not guilty or other disposition of the charge on 
which a notice of suspension was based does not preclude the Comptroller 
from thereafter instituting removal proceedings pursuant to section 8(e) 
of the FDIA (12 U.S.C. 1818(e)) and subpart: A of this part.
    (e) A removal or prohibition by order remains in effect until 
terminated by the Comptroller. A suspension or prohibition by notice 
remains in effect until the criminal charge is disposed of or until 
terminated by the Comptroller.
    (f) A suspended or removed individual may petition the Comptroller 
to reconsider the decision any time after the expiration of a 12-month 
period from the date of the decision, but no petition for 
reconsideration may be made within 12 months of a previous petition. The 
petition must state specifically the relief sought and the grounds 
therefor, and may be accompanied by a supporting memorandum and any 
other documentation the petitioner wishes to have considered. No hearing 
need be granted on the petition for reconsideration.

[56 FR 38028, Aug. 9, 1991, as amended at 61 FR 20337, May 6, 1996]

[[Page 268]]



   Subpart D_Exemption Hearings Under Section 12(h) of the Securities 
                          Exchange Act of 1934



Sec. 19.120  Scope.

    The rules in this subpart apply to informal hearings that may be 
held by the Comptroller to determine whether, pursuant to authority in 
sections 12 (h) and (i) of the Exchange Act (15 U.S.C. 78l (h) and (i)), 
to exempt in whole or in part an issuer or a class of issuers from the 
provisions of section 12(g), or from section 13 or 14 of the Exchange 
Act (15 U.S.C. 78l(g), 78m or 78n), or whether to exempt from section 16 
of the Exchange Act (15 U.S.C. 78p) any officer, director, or beneficial 
owner of securities of an issuer. The only issuers covered by this 
subpart are banks whose securities are registered pursuant to section 
12(g) of the Exchange Act (15 U.S.C. 78l(g)). The Comptroller may deny 
an application for exemption without a hearing.



Sec. 19.121  Application for exemption.

    An issuer or an individual (officer, director or shareholder) may 
submit a written application for an exemption order to the Securities 
and Corporate Practices Division, Office of the Comptroller of the 
Currency, Washington, DC 20219. The application must specify the type of 
exemption sought and the reasons therefor, including an explanation of 
why an exemption would not be inconsistent with the public interest or 
the protection of investors. The Securities and Corporate Practices 
Division shall inform the applicant in writing whether a hearing will be 
held to consider the matter.



Sec. 19.122  Newspaper notice.

    Upon being informed that an application will be considered at a 
hearing, the applicant shall publish a notice one time in a newspaper of 
general circulation in the community where the issuer's main office is 
located. The notice must state: the name and title of any individual 
applicants; the type of exemption sought; the fact that a hearing will 
be held; and a statement that interested persons may submit to the 
Securities and Corporate Practices Division, Office of the Comptroller 
of the Currency, Washington, DC 20219, within 30 days from the date of 
the newspaper notice, written comments concerning the application and a 
written request for an opportunity to be heard. The applicant shall 
promptly furnish a copy of the notice to the Securities and Corporate 
Practices Division, and to bank shareholders.



Sec. 19.123  Informal hearing.

    (a) Conduct of proceeding. The adjudicative provisions of the 
Administrative Procedure Act, formal rules of evidence and subpart A of 
this part do not apply to hearings conducted under this subpart, except 
as provided in Sec. 19.100(b).
    (b) Notice of hearing. Following the comment period, the Comptroller 
shall send a notice which fixes a date, time and place for hearing to 
each applicant and to any person who has requested an opportunity to be 
heard.
    (c) Presiding officer. The Comptroller shall designate a presiding 
officer to conduct the hearing. The presiding officer shall determine 
all procedural questions not governed by this subpart and may limit the 
number of witnesses and impose time and presentation limitations as are 
deemed reasonable. At the conclusion of the informal hearing, the 
presiding officer shall issue a recommended decision to the Comptroller 
as to whether the exemption should issue. The decision shall include a 
summary of the facts and arguments of the parties.
    (d) Attendance. The applicant and any person who has requested an 
opportunity to be heard may attend the hearing, with or without counsel. 
The hearing shall be open to the public. In addition, the applicant and 
any other hearing participant may introduce oral testimony through such 
witnesses as the presiding officer shall permit.
    (e) Order of presentation. (1) The applicant may present an opening 
statement of a length decided by the presiding officer. Then each of the 
hearing participants, or one among them selected with the approval of 
the presiding officer, may present an opening statement. The opening 
statement should summarize concisely what the applicant and each 
participant intends to show.

[[Page 269]]

    (2) The applicant shall have an opportunity to make an oral 
presentation of facts and materials or submit written materials for the 
record. One or more of the hearing participants may make an oral 
presentation or a written submission.
    (3) After the above presentations, the applicant, followed by one or 
more of the hearing participants, may make concise summary statements 
reviewing their position.
    (f) Witnesses. The obtaining and use of witnesses is the 
responsibility of the parties afforded the hearing. All witnesses shall 
be present on their own volition, but any person appearing as a witness 
may be questioned by each applicant, any hearing participant, and the 
presiding officer. Witnesses shall be sworn unless otherwise directed by 
the presiding officer.
    (g) Evidence. The presiding officer may exclude data or materials 
deemed to be improper or irrelevant. Formal rules of evidence do not 
apply. Documentary material must be of a size consistent with ease of 
handling and filing. The presiding officer may determine the number of 
copies that must be furnished for purposes of the hearing.
    (h) Transcript. A transcript of each proceeding will be arranged by 
the OCC, with all expenses, including the furnishing of a copy to the 
presiding officer, being borne by the applicant.



Sec. 19.124  Decision of the Comptroller.

    Following the conclusion of the hearing and the submission of the 
record and the presiding officer's recommended decision to the 
Comptroller for decision, the Comptroller shall notify the applicant and 
all persons who have so requested in writing of the final disposition of 
the application. Exemptions granted must be in the form of an order 
which specifies the type of exemption granted and its terms and 
conditions.



Subpart E_Disciplinary Proceedings Involving the Federal Securities Laws



Sec. 19.130  Scope.

    (a) Except as provided in this subpart, subpart A of this part 
applies to proceedings by the Comptroller to determine whether, pursuant 
to authority contained in sections 15B(c)(5), 15C(c)(2)(A), 17A(c)(3), 
and 17A(c)(4)(C) of the Exchange Act (15 U.S.C. 78o-4(c)(5), 78o-
5(c)(2)(A), 78q-1(c)(3)(A), and 78q-1(c)(4)(C)), to take disciplinary 
action against the following:
    (1) A bank which is a municipal securities dealer, or any person 
associated or seeking to become associated with such a municipal 
securities dealer;
    (2) A bank which is a government securities broker or dealer, or any 
person associated with such government securities broker or dealer; or
    (3) A bank which is a transfer agent, or any person associated or 
seeking to become associated with such transfer agent.
    (b) In addition to the issuance of disciplinary orders after 
opportunity for hearing, the Comptroller or the Comptroller's delegate 
may issue and serve any notices and temporary or permanent cease-and-
desist orders and take any actions that are authorized by section 8 of 
the FDIA (12 U.S.C. 1818), sections 15B(c)(5), 15C(c)(2)(B), and 
17A(d)(2) of the Exchange Act, and other subparts of this part against 
the following:
    (1) The parties listed in paragraph (a) of this section; and
    (2) A bank which is a clearing agency.
    (c) Nothing in this subpart impairs the powers conferred on the 
Comptroller by other provisions of law.



Sec. 19.131  Notice of charges and answer.

    (a) Proceedings are commenced when the Comptroller serves a notice 
of charges on a bank or associated person. The notice must indicate the 
type of disciplinary action being contemplated and the grounds therefor, 
and fix a date, time and place for hearing. The hearing must be set for 
a date at least 30 days after service of the notice. A party served with 
a notice of charges may file an answer as prescribed in Sec. 19.19. Any 
party who fails to appear at a hearing personally or by a duly 
authorized representative shall be deemed to have consented to the 
issuance of a disciplinary order.
    (b) All proceedings under this subpart must be commenced, and the 
notice of

[[Page 270]]

charges must be filed, on a public basis, unless otherwise ordered by 
the Comptroller. Pursuant to Sec. 19.33(a), a request for a private 
hearing may be filed within 20 days of service of the notice.



Sec. 19.132  Disciplinary orders.

    (a) In the event of consent, or if on the record filed by the 
administrative law judge, the Comptroller finds that any act or omission 
or violation specified in the notice of charges has been established, 
the Comptroller may serve on the bank or persons concerned a 
disciplinary order, as provided in the Exchange Act. The order may:
    (1) Censure, limit the activities, functions or operations, or 
suspend or revoke the registration of a bank which is a municipal 
securities dealer;
    (2) Censure, suspend or bar any person associated or seeking to 
become associated with a municipal securities dealer;
    (3) Censure, limit the activities, functions or operations, or 
suspend or bar a bank which is a government securities broker or dealer;
    (4) Censure, limit the activities, functions or operations, or 
suspend or bar any person associated with a government securities broker 
or dealer;
    (5) Deny registration to, limit the activities, functions, or 
operations or suspend or revoke the registration of a bank which is a 
transfer agent; or
    (6) Censure or limit the activities or functions, or suspend or bar, 
any person associated or seeking to become associated with a transfer 
agent.
    (b) A disciplinary order is effective when served on the party or 
parties involved and remains effective and enforceable until it is 
stayed, modified, terminated, or set aside by action of the Comptroller 
or a reviewing court.



Sec. 19.135  Applications for stay or review of disciplinary actions imposed by registered clearing agencies.

    (a) Stays. The rules adopted by the Securities and Exchange 
Commission (SEC) pursuant to section 19 of the Securities Exchange Act 
of 1934 (15 U.S.C. 78s) regarding applications by persons for whom the 
SEC is the appropriate regulatory agency for stays of disciplinary 
sanctions or summary suspensions imposed by registered clearing agencies 
(17 CFR 240.19d-2) apply to applications by national banks. References 
to the ``Commission'' are deemed to refer to the ``OCC.''
    (b) Reviews. The regulations adopted by the SEC pursuant to section 
19 of the Securities Exchange Act of 1934 (15 U.S.C. 78s) regarding 
applications by persons for whom the SEC is the appropriate regulatory 
agency for reviews of final disciplinary sanctions, denials of 
participation, or prohibitions or limitations of access to services 
imposed by registered clearing agencies (17 CFR 240.19d-3(a)-(f)) apply 
to applications by national banks. References to the ``Commission'' are 
deemed to refer to the ``OCC.''

[61 FR 68559, Dec. 30, 1996]



    Subpart F_Civil Money Penalty Authority Under the Securities Laws



Sec. 19.140  Scope.

    (a) Except as provided in this subpart, subpart A of this part 
applies to proceedings by the Comptroller to determine whether, pursuant 
to authority contained in section 21B of the Exchange Act (15 U.S.C. 
78u-2), in proceedings commenced pursuant to sections 15B, 15C, and 17A 
of the Exchange Act (15 U.S.C. 78o-4, 78o-5, or 78q-1) for which the OCC 
is the appropriate regulatory agency under section 3(a)(34) of the 
Exchange Act (15 U.S.C. 78c(a)(34)), the Comptroller may impose a civil 
money penalty against the following:
    (1) A bank which is a municipal securities dealer, or any person 
associated or seeking to become associated with such a municipal 
securities dealer;
    (2) A bank which is a government securities broker or dealer, or any 
person associated with such government securities broker or dealer; or
    (3) A bank which is a transfer agent, or any person associated or 
seeking to become associated with such transfer agent.
    (b) All proceedings under this subpart must be commenced, and the 
notice of assessment must be filed, on a public basis, unless otherwise 
ordered by the Comptroller. Pursuant to Sec. 19.33(a), any request for 
a private hearing must be

[[Page 271]]

filed within 20 days of service of the notice.



     Subpart G_Cease-and-Desist Authority Under the Securities Laws



Sec. 19.150  Scope.

    (a) Except as provided in this subpart, subpart A of this part 
applies to proceedings by the Comptroller to determine whether, pursuant 
to authority contained in sections 12(i) and 21C of the Exchange Act (15 
U.S.C. 78l(i) and 78u-3), the Comptroller may initiate cease-and-desist 
proceedings against a national bank for violations of sections 12, 13, 
14(a), 14(c), 14(d), 14(f), and 16 of the Exchange Act or regulations or 
rules issued thereunder (15 U.S.C. 78l, 78m, 78n(a), 78n(c), 78n(d), 
78n(f), and 78p) .
    (b) All proceedings under this subpart must be commenced, and the 
notice of charges must be filed, on a public basis, unless otherwise 
ordered by the Comptroller. Pursuant to Sec. 19.33(a), any request for 
a private hearing must be filed within 20 days of service of the notice.



                    Subpart H_Change in Bank Control



Sec. 19.160  Scope.

    (a) Section 7(j) of the FDIA (12 U.S.C. 1817(j)) provides that no 
person may acquire control of an insured depository institution unless 
the appropriate Federal bank regulatory agency has been given prior 
written notice of the proposed acquisition. If, after investigating and 
soliciting comment on the proposed acquisition, the agency decides that 
the acquisition should be disapproved, the agency shall mail a written 
notification to the proposed acquiring person in writing within three 
days of the decision. The party can then request an agency hearing on 
the proposed acquisition. The OCC's procedures for reviewing notices of 
proposed acquisitions in change-in-control proceedings are set forth in 
Sec. 5.50 of this chapter.
    (b) Unless otherwise provided in this subpart, the rules in subpart 
A of this part set forth the procedures applicable to requests for OCC 
hearings.

[56 FR 38028, Aug. 9, 1991, as amended at 61 FR 20337, May 6, 1996]



Sec. 19.161  Notice of disapproval and hearing initiation.

    (a) Notice of disapproval. The OCC's written disapproval of a 
proposed acquisition of control of a national bank must:
    (1) Contain a statement of the basis for the disapproval; and
    (2) Indicate that the filer may request a hearing.
    (b) Hearing request. Following receipt of a notice of disapproval, a 
filer may request a hearing on the proposed acquisition. A hearing 
request must:
    (1) Be in writing; and
    (2) Be filed with the Hearing Clerk of the OCC within ten days after 
service on the filer of the notice of disapproval. If a filer fails to 
request a hearing with a timely written request, the notice of 
disapproval constitutes a final and unappealable order.
    (c) Hearing order. Following receipt of a hearing request, the 
Comptroller shall issue, within 20 days, an order that sets forth:
    (1) The legal authority for the proceeding and for the OCC's 
jurisdiction over the proceeding;
    (2) The matters of fact or law upon which the disapproval is based; 
and
    (3) The requirement for filing an answer to the hearing order with 
OFIA within 20 days after service of the hearing order.
    (d) Answer. An answer to a hearing order must specifically deny 
those portions of the order that are disputed. Those portions of the 
order that the filer does not specifically deny are deemed admitted by 
the filer. Any hearing under this subpart is limited to those portions 
of the order that are specifically denied.
    (e) Effect of failure to answer. Failure of a filer to file an 
answer within 20 days after service of the hearing order constitutes a 
waiver of the filer's right to appear and contest the allegations in the 
hearing order. If a filer does not file a timely answer, enforcement 
counsel may file a motion for entry of an order of default. Upon a 
finding that no good cause has been shown for the

[[Page 272]]

failure to file a timely answer, the administrative law judge shall file 
with the Comptroller a recommended decision containing the findings and 
the relief sought in the hearing order. Any final order issued by the 
Comptroller based upon a filer's failure to answer is deemed to be an 
order issued upon consent and is a final and unappealable order.

[61 FR 20337, May 6, 1996]



              Subpart I_Discovery Depositions and Subpoenas



Sec. 19.170  Discovery depositions.

    (a) General rule. In any proceeding instituted under or subject to 
the provisions of subpart A of this part, a party may take the 
deposition of an expert, or of a person, including another party, who 
has direct knowledge of matters that are non-privileged, relevant, and 
material to the proceeding, and where there is need for the deposition. 
The deposition of experts shall be limited to those experts who are 
expected to testify at the hearing.
    (b) Notice. A party desiring to take a deposition shall give 
reasonable notice in writing to the deponent and to every other party to 
the proceeding. The notice must state the time and place for taking the 
deposition, and the name and address of the person to be deposed.
    (c) Time limits. A party may take depositions at any time after the 
commencement of the proceeding, but no later than ten days before the 
scheduled hearing date, except with permission of the administrative law 
judge for good cause shown.
    (d) Conduct of the deposition. The witness must be duly sworn, and 
each party will have the right to examine the witness with respect to 
all non-privileged, relevant, and material matters of which the witness 
has factual, direct, and personal knowledge. Objections to questions or 
exhibits must be in short form and must state the grounds for the 
objection. Failure to object to questions or exhibits is not a waiver 
except where the grounds for the objection might have been avoided if 
the objection had been timely presented.
    (e) Recording the testimony--(1) Generally. The party taking the 
deposition must have a certified court reporter record the witness's 
testimony:
    (i) By stenotype machine or electronic sound recording device;
    (ii) Upon agreement of the parties, by any other method; or
    (iii) For good cause and with leave of the administrative law judge, 
by any other method.
    (2) Cost. The party taking the deposition must bear the cost of the 
recording and transcribing the witness's testimony.
    (3) Transcript. Unless the parties agree that a transcription is not 
necessary, the court reporter must provide a transcript of the witness's 
testimony to the party taking the deposition and must make a copy of the 
transcript available to each party upon payment by that party of the 
cost of the copy.
    (f) Protective orders. At any time after notice of a deposition has 
been given, a party may file a motion for the issuance of a protective 
order. Such protective order may prohibit, terminate, or limit the scope 
or manner of the taking of a deposition. The administrative law judge 
shall grant such protective order upon a showing of sufficient grounds, 
including that the deposition:
    (1) Is unreasonable, oppressive, excessive in scope, or unduly 
burdensome;
    (2) Involves privileged, irrelevant, or immaterial matters;
    (3) Involves unwarranted attempts to pry into a party's preparation 
for trial; or
    (4) Is being conducted in bad faith or in such manner as to 
unreasonably annoy, embarrass, or oppress the witness.
    (g) Fees. Deposition witnesses, including expert witnesses, shall be 
paid the same expenses in the same manner as are paid witnesses in the 
district courts of the United States in proceedings in which the United 
States is a party. Expenses in accordance with this paragraph shall be 
paid by the party seeking to take the deposition.

[56 FR 38028, Aug. 9, 1991, as amended at 61 FR 20338, May 6, 1996]

[[Page 273]]



Sec. 19.171  Deposition subpoenas.

    (a) Issuance. At the request of a party, the administrative law 
judge shall issue a subpoena requiring the attendance of a witness at a 
discovery deposition under paragraph (a) of this section. The attendance 
of a witness may be required from any place in any state or territory 
that is subject to the jurisdiction of the United States or as otherwise 
permitted by law.
    (b) Service--(1) Methods of service. The party requesting the 
subpoena must serve it on the person named therein, or on that person's 
counsel, by any of the methods identified in Sec. 19.11(d).
    (2) Proof of service. The party serving the subpoena must file proof 
of service with the administrative law judge.
    (c) Motion to quash. A person named in a subpoena may file a motion 
to quash or modify the subpoena. A statement of the reasons for the 
motion must accompany it and a copy of the motion must be served on the 
party which requested the subpoena. The motion must be made prior to the 
time for compliance specified in the subpoena and not more than ten days 
after the date of service of the subpoena, or if the subpoena is served 
within 15 days of the hearing, within five days after the date of 
service.
    (d) Enforcement of deposition subpoena. Enforcement of a deposition 
subpoena shall be in accordance with the procedures of Sec. 19.27(d).

[56 FR 38028, Aug. 9, 1991, as amended at 61 FR 20338, May 6, 1996]



                     Subpart J_Formal Investigations



Sec. 19.180  Scope.

    This subpart and Sec. 19.8 apply to formal investigations initiated 
by order of the Comptroller or the Comptroller's delegate and pertain to 
the exercise of powers specified in 12 U.S.C. 481, 1818(n) and 1820(c), 
and section 21 of the Exchange Act (15 U.S.C. 78u). This subpart does 
not restrict or in any way affect the authority of the Comptroller to 
conduct examinations into the affairs or ownership of banks and their 
affiliates.



Sec. 19.181  Confidentiality of formal investigations.

    Information or documents obtained in the course of a formal 
investigation are confidential and may be disclosed only in accordance 
with the provisions of part 4 of this chapter.



Sec. 19.182  Order to conduct a formal investigation.

    A formal investigation begins with the issuance of an order signed 
by the Comptroller or the Comptroller's delegate. The order must 
designate the person or persons who will conduct the investigation. Such 
persons are authorized, among other things, to issue subpoenas duces 
tecum, to administer oaths, and receive affirmations as to any matter 
under investigation by the Comptroller. Upon application and for good 
cause shown, the Comptroller may limit, modify, or withdraw the order at 
any stage of the proceedings.



Sec. 19.183  Rights of witnesses.

    (a) Any person who is compelled or requested to furnish testimony, 
documentary evidence, or other information with respect to any matter 
under formal investigation shall, on request, be shown the order 
initiating the investigation.
    (b) Any person who, in a formal investigation, is compelled to 
appear and testify, or who appears and testifies by request or 
permission of the Comptroller, may be accompanied, represented, and 
advised by counsel. The right to be accompanied, represented, and 
advised by counsel means the right of a person testifying to have an 
attorney present at all times while testifying and to have the 
attorney--
    (1) Advise the person before, during and after the conclusion of 
testimony;
    (2) Question the person briefly at the conclusion of testimony to 
clarify any of the answers given; and
    (3) Make summary notes during the testimony solely for the use of 
the person.
    (c) Any person who has given or will give testimony and counsel 
representing the person may be excluded from the proceedings during the 
taking of testimony of any other witness.
    (d) Any person who is compelled to give testimony is entitled to 
inspect

[[Page 274]]

any transcript that has been made of the testimony but may not obtain a 
copy if the Comptroller's representatives conducting the proceedings 
have cause to believe that the contents should not be disclosed pending 
completion of the investigation.
    (e) Any designated representative conducting an investigative 
proceeding shall report to the Comptroller any instances where a person 
has been guilty of dilatory, obstructionist or insubordinate conduct 
during the course of the proceeding or any other instance involving a 
violation of this part. The Comptroller may take such action as the 
circumstances warrant, including exclusion of the offending individual 
or individuals from participation in the proceedings.



Sec. 19.184  Service of subpoena and payment of witness expenses.

    (a) Methods of service. Service of a subpoena may be made by any of 
the methods identified in Sec. 19.11(d).
    (b) Expenses. A witness who is subpoenaed will be paid the same 
expenses in the same manner as witnesses in the district courts of the 
United States. The expenses need not be tendered at the time a subpoena 
is served.

[61 FR 20338, May 6, 1996]



    Subpart K_Parties and Representational Practice Before the OCC; 
                          Standards of Conduct



Sec. 19.190  Scope.

    This subpart contains rules relating to parties and representational 
practice before the OCC. This subpart includes the imposition of 
sanctions by the administrative law judge, any other presiding officer 
appointed pursuant to subparts C and D of this part, or the Comptroller 
against parties or their counsel in an adjudicatory proceeding under 
this part. This subpart also covers other disciplinary sanctions--
censure, suspension or debarment--against individuals who appear before 
the OCC in a representational capacity either in an adjudicatory 
proceeding under this part or in any other matters connected with 
presentations to the OCC relating to a client's rights, privileges, or 
liabilities. This representation includes, but is not limited to, the 
practice of attorneys and accountants. Employees of the OCC are not 
subject to disciplinary proceedings under this subpart.

[56 FR 38028, Aug. 9, 1991; 56 FR 41726, Aug. 22, 1991]



Sec. 19.191  Definitions.

    As used in Sec. Sec. 19.190 through 19.201, the following terms 
shall have the meaning given in this section unless the context 
otherwise requires:
    (a) Practice before the OCC includes any matters connected with 
presentations to the OCC or any of its officers or employees relating to 
a client's rights, privileges or liabilities under laws or regulations 
administered by the OCC. Such matters include, but are not limited to, 
representation of a client in an adjudicatory proceeding under this 
part; the preparation of any statement, opinion or other paper or 
document by an attorney, accountant, or other licensed professional 
which is filed with, or submitted to, the OCC, on behalf of another 
person in, or in connection with, any application, notification, report 
or document; the representation of a person at conferences, hearings and 
meetings; and the transaction of other business before the OCC on behalf 
of another person. The term ``practice before the OCC'' does not include 
work prepared for a bank solely at its request for use in the ordinary 
course of its business.
    (b) Attorney means any individual who is a member in good standing 
of the bar of the highest court of any state, possession, territory, 
commonwealth, of the United States or the District of Columbia.
    (c) Accountant means any individual who is duly qualified to 
practice as a certified public accountant or a public accountant in any 
state, possession, territory, commonwealth of the United States, or the 
District of Columbia.



Sec. 19.192  Sanctions relating to conduct in an adjudicatory proceeding.

    (a) General rule. Appropriate sanctions may be imposed when any 
party or person representing a party in an adjudicatory proceeding under 
this

[[Page 275]]

part has failed to comply with an applicable statute, regulation, or 
order, and that failure to comply:
    (1) Constitutes contemptuous conduct;
    (2) Materially injures or prejudices another party in terms of 
substantive injury, incurring additional expenses including attorney's 
fees, prejudicial delay, or otherwise;
    (3) Is a clear and unexcused violation of an applicable statute, 
regulation, or order; or
    (4) Unduly delays the proceeding.
    (b) Sanctions. Sanctions which may be imposed include any one or 
more of the following:
    (1) Issuing an order against the party;
    (2) Rejecting or striking any testimony or documentary evidence 
offered, or other papers filed, by the party;
    (3) Precluding the party from contesting specific issues or 
findings;
    (4) Precluding the party from offering certain evidence or from 
challenging or contesting certain evidence offered by another party;
    (5) Precluding the party from making a late filing or conditioning a 
late filing on any terms that are just; and
    (6) Assessing reasonable expenses, including attorney's fees, 
incurred by any other party as a result of the improper action or 
failure to act.
    (c) Procedure for imposition of sanctions. (1) Upon the motion of 
any party, or on his or her own motion, the administrative law judge or 
other presiding officer may impose sanctions in accordance with this 
section. The administrative law judge or other presiding officer shall 
submit to the Comptroller for final ruling any sanction entering a final 
order that determines the case on the merits.
    (2) No sanction authorized by this section, other than refusal to 
accept late filings, shall be imposed without prior notice to all 
parties and an opportunity for any party against whom sanctions would be 
imposed to be heard. Such opportunity to be heard may be on such notice, 
and the response may be in such form as the administrative law judge or 
other presiding officer directs. The administrative law judge or other 
presiding officer may limit the opportunity to be heard to an 
opportunity of a party or a party's representative to respond orally 
immediately after the act or inaction covered by this section is noted 
by the administrative law judge or other presiding officer.
    (3) Requests for the imposition of sanctions by any party, and the 
imposition of sanctions, are subject to interlocutory review pursuant to 
Sec. 19.25 in the same manner as any other ruling.
    (d) Section not exclusive. Nothing in this section shall be read as 
precluding the administrative law judge or other presiding officer or 
the Comptroller from taking any other action, or imposing any 
restriction or sanction, authorized by applicable statute or regulation.



Sec. 19.193  Censure, suspension or debarment.

    The Comptroller may censure an individual or suspend or debar such 
individual from practice before the OCC if he or she is incompetent in 
representing a client's rights or interest in a significant matter 
before the OCC; or engages, or has engaged, in disreputable conduct; or 
refuses to comply with the rules and regulations in this part; or with 
intent to defraud in any manner, willfully and knowingly deceives, 
misleads, or threatens any client or prospective client. The suspension 
or debarment of an individual may be initiated only upon a finding by 
the Comptroller that the basis for the disciplinary action is 
sufficiently egregious.



Sec. 19.194  Eligibility of attorneys and accountants to practice.

    (a) Attorneys. Any attorney who is qualified to practice as an 
attorney and is not currently under suspension or debarment pursuant to 
this subpart may practice before the OCC.
    (b) Accountants. Any accountant who is qualified to practice as a 
certified public accountant or public accountant and is not currently 
under suspension or debarment by the OCC may practice before the OCC.



Sec. 19.195  Incompetence.

    Incompetence in the representation of a client's rights and 
interests in a

[[Page 276]]

significant matter before the OCC is grounds for suspension or 
debarment. The term ``incompetence'' encompasses conduct that reflects a 
lack of the knowledge, judgment and skill that a professional would 
ordinarily and reasonably be expected to exercise in adequately 
representing the rights and interests of a client. Such conduct 
includes, but is not limited to:
    (a) Handling a matter which the individual knows or should know that 
he or she is not competent to handle, without associating with a 
professional who is competent to handle such matter.
    (b) Handling a matter without adequate preparation under the 
circumstances.
    (c) Neglect in a matter entrusted to him or her.



Sec. 19.196  Disreputable conduct.

    Disreputable conduct for which an individual may be censured, 
debarred, or suspended from practice before the OCC includes:
    (a) Willfully or recklessly violating or willfully or recklessly 
aiding and abetting the violation of any provision of the Federal 
banking or applicable securities laws or the rules and regulations 
thereunder or conviction of any offense involving dishonesty or breach 
of trust;
    (b) Knowingly or recklessly giving false or misleading information, 
or participating in any way in the giving of false information to the 
OCC or any officer or employee thereof, or to any tribunal authorized to 
pass upon matters administered by the OCC in connection with any matter 
pending or likely to be pending before it. The term ``information'' 
includes facts or other statements contained in testimony, financial 
statements, applications for enrollment, affidavits, declarations, or 
any other document or written or oral statement;
    (c) Directly or indirectly attempting to influence, or offering or 
agreeing to attempt to influence, the official action of any officer or 
employee of the OCC by the use of threats, false accusations, duress or 
coercion, by the offer of any special inducement or promise of advantage 
or by the bestowing of any gift, favor, or thing of value.
    (d) Disbarment or suspension from practice as an attorney, or 
debarment or suspension from practice as a certified public accountant 
or public accountant, by any duly constituted authority of any state, 
possession, or commonwealth of the United States, or the District of 
Columbia for the conviction of a felony or misdemeanor involving moral 
turpitude in matters relating to the supervisory responsibilities of the 
OCC, where the conviction has not been reversed on appeal.
    (e) Knowingly aiding or abetting another individual to practice 
before the OCC during that individual's period of suspension, debarment, 
or ineligibility.
    (f) Contemptuous conduct in connection with practice before the OCC, 
and knowingly making false accusations and statements, or circulating or 
publishing malicious or libelous matter.
    (g) Suspension, debarment or removal from practice before the Board 
of Governors, the FDIC, the OTS, the Securities and Exchange Commission, 
the Commodity Futures Trading Commission, or any other Federal or state 
agency; and
    (h) Willful violation of any of the regulations contained in this 
part.

[56 FR 38028, Aug. 9, 1991, as amended at 68 FR 48265, Aug. 13, 2003]



Sec. 19.197  Initiation of disciplinary proceeding.

    (a) Receipt of information. An individual, including any employee of 
the OCC, who has reason to believe that an individual practicing before 
the OCC in a representative capacity has engaged in any conduct that 
would serve as a basis for censure, suspension or debarment under Sec. 
19.192, may make a report thereof and forward it to the OCC or to such 
person as may be delegated responsibility for such matters by the 
Comptroller.
    (b) Censure without formal proceeding. Upon receipt of information 
regarding an individual's qualification to practice before the OCC, the 
Comptroller or the Comptroller's delegate may, after giving the 
individual notice and opportunity to respond, censure such individual.
    (c) Institution of formal disciplinary proceeding. When the 
Comptroller has reason to believe that any individual

[[Page 277]]

who practices before the OCC in a representative capacity has engaged in 
conduct that would serve as a basis for censure, suspension or debarment 
under Sec. 19.192, the Comptroller may, after giving the individual 
notice and opportunity to respond, institute a formal disciplinary 
proceeding against such individual. The proceeding will be conducted 
pursuant to Sec. 19.199 and initiated by a complaint which names the 
individual as a respondent and is signed by the Comptroller or the 
Comptroller's delegate. Except in cases of willfulness, or when time, 
the nature of the proceeding, or the public interest do not permit, a 
proceeding under this section may not be commenced until the respondent 
has been informed, in writing, of the facts or conduct which warrant 
institution of a proceeding and the respondent has been accorded the 
opportunity to comply with all lawful requirements or take whatever 
action may be necessary to remedy the conduct that is the basis for the 
commencement of the proceeding.

[56 FR 38028, Aug. 9, 1991; 56 FR 46667, Sept. 13, 1991]



Sec. 19.198  Conferences.

    (a) General. The Comptroller may confer with a proposed respondent 
concerning allegations of misconduct or other grounds for censure, 
debarment or suspension, regardless of whether a proceeding for 
debarment or suspension has been commenced. If a conference results in a 
stipulation in connection with a proceeding in which the individual is 
the respondent, the stipulation may be entered in the record at the 
request of either party to the proceeding.
    (b) Resignation or voluntary suspension. In order to avoid the 
institution of, or a decision in, a debarment or suspension proceeding, 
a person who practices before the OCC may consent to suspension from 
practice. At the discretion of the Comptroller, the individual may be 
suspended or debarred in accordance with the consent offered.



Sec. 19.199  Proceedings under this subpart.

    Any hearing held under this subpart is held before an administrative 
law judge pursuant to procedures set forth in subpart A of this part. 
The Comptroller or the Comptroller's delegate shall appoint a person to 
represent the OCC in the hearing. Any person having prior involvement in 
the matter which is the basis for the suspension or debarment proceeding 
is disqualified from representing the OCC in the hearing. The hearing 
will be closed to the public unless the Comptroller on his or her own 
initiative, or on the request of a party, otherwise directs. The 
administrative law judge shall issue a recommended decision to the 
Comptroller who shall issue the final decision and order. The 
Comptroller may censure, debar or suspend an individual, or take such 
other disciplinary action as the Comptroller deems appropriate.



Sec. 19.200  Effect of suspension, debarment or censure.

    (a) Debarment. If the final order against the respondent is for 
debarment, the individual may not practice before the OCC unless 
otherwise permitted to do so by the Comptroller.
    (b) Suspension. If the final order against the respondent is for 
suspension, the individual may not practice before the OCC during the 
period of suspension.
    (c) Censure. If the final order against the respondent is for 
censure, the individual may be permitted to practice before the OCC, but 
such individual's future representations may be subject to conditions 
designed to promote high standards of conduct. If a written letter of 
censure is issued, a copy will be maintained in the OCC's files.
    (d) Notice of debarment or suspension. Upon the issuance of a final 
order for suspension or debarment, the Comptroller shall give notice of 
the order to appropriate officers and employees of the OCC and to 
interested departments and agencies of the Federal government. The 
Comptroller or the Comptroller's delegate shall also give notice to the 
appropriate authorities of the state in which any debarred or suspended 
individual is or was licensed to practice.



Sec. 19.201  Petition for reinstatement.

    At the expiration of the period of time designated in the order of 
debarment, the Comptroller may entertain a

[[Page 278]]

petition for reinstatement from any person debarred from practice before 
the OCC. The Comptroller may grant reinstatement only if satisfied that 
the petitioner is likely to act in accordance with the regulations in 
this part, and that granting reinstatement would not be contrary to the 
public interest. Any request for reinstatement shall be limited to 
written submissions unless the Comptroller, in his or her discretion, 
affords the petitioner a hearing.



                  Subpart L_Equal Access to Justice Act



Sec. 19.210  Scope.

    The Equal Access to Justice Act regulations applicable to formal OCC 
adjudicatory proceedings under this part are set forth at 31 CFR part 6.



 Subpart M_Procedures for Reclassifying a Bank Based on Criteria Other 
                              Than Capital

    Source: 57 FR 44895, Sept. 29, 1992, unless otherwise noted.



Sec. 19.220  Scope.

    This subpart applies to the procedures afforded to any bank that has 
been reclassified to a lower capital category by a notice or order 
issued by the OCC pursuant to section 38 of the Federal Deposit 
Insurance Act and this part.



Sec. 19.221  Reclassification of a bank based on unsafe or unsound condition or practice.

    (a) Issuance of notice of proposed reclassification--(1) Grounds for 
reclassification. (i) Pursuant to Sec. 6.4 of this chapter, the OCC may 
reclassify a well capitalized bank as adequately capitalized or subject 
an adequately capitalized bank or undercapitalized bank to the 
supervisory actions applicable to the next lower capital category if:
    (A) The OCC determines that the bank is in an unsafe or unsound 
condition; or
    (B) The OCC deems the bank to be engaging in an unsafe or unsound 
practice and not to have corrected the deficiency.
    (ii) Any action pursuant to this paragraph (a)(1) shall hereinafter 
be referred to as ``reclassification.''
    (2) Prior notice to institution. Prior to taking action pursuant to 
Sec. 6.4 of this chapter, the OCC shall issue and serve on the bank a 
written notice of the OCC's intention to reclassify the bank.
    (b) Contents of notice. A notice of intention to reclassify a bank 
based on unsafe or unsound condition will include:
    (1) A statement of the bank's capital measures and capital levels 
and the category to which the bank would be reclassified;
    (2) The reasons for reclassification of the bank;
    (3) The date by which the bank subject to the notice of 
reclassification may file with the OCC a written appeal of the proposed 
reclassification and a request for a hearing, which shall be at least 14 
calendar days from the date of service of the notice unless the OCC 
determines that a shorter period is appropriate in light of the 
financial condition of the bank or other relevant circumstances.
    (c) Response to notice of proposed reclassification. A bank may file 
a written response to a notice of proposed reclassification within the 
time period set by the OCC. The response should include:
    (1) An explanation of why the bank is not in unsafe or unsound 
condition or otherwise should not be reclassified;
    (2) Any other relevant information, mitigating circumstances, 
documentation, or other evidence in support of the position of the bank 
or company regarding the reclassification.
    (d) Failure to file response. Failure by a bank to file, within the 
specified time period, a written response with the OCC to a notice of 
proposed reclassification shall constitute a waiver of the opportunity 
to respond and shall constitute consent to the reclassification.
    (e) Request for hearing and presentation of oral testimony or 
witnesses. The response may include a request for an informal hearing 
before the OCC under this section. If the bank desires to present oral 
testimony or witnesses at the hearing, the bank shall include a request 
to do so with the request for an informal hearing. A request to present

[[Page 279]]

oral testimony or witnesses shall specify the names of the witnesses and 
the general nature of their expected testimony. Failure to request a 
hearing shall constitute a waiver of any right to a hearing, and failure 
to request the opportunity to present oral testimony or witnesses shall 
constitute a waiver of any right to present oral testimony or witnesses.
    (f) Order for informal hearing. Upon receipt of a timely written 
request that includes a request for a hearing, the OCC shall issue an 
order directing an informal hearing to commence no later than 30 days 
after receipt of the request, unless the OCC allows further time at the 
request of the bank. The hearing shall be held in Washington, DC or at 
such other place as may be designated by the OCC, before a presiding 
officer(s) designated by the OCC to conduct the hearing.
    (g) Hearing procedures. (1) The bank shall have the right to 
introduce relevant written materials and to present oral argument at the 
hearing. The bank may introduce oral testimony and present witnesses 
only if expressly authorized by the OCC or the presiding officer(s). 
Neither the provisions of the Administrative Procedure Act (5 U.S.C. 
554-557) governing adjudications required by statute to be determined on 
the record nor the Uniform Rules of Practice and Procedure in subpart A 
of this part apply to an informal hearing under this section unless the 
OCC orders that such procedures shall apply.
    (2) The informal hearing shall be recorded, and a transcript 
furnished to the bank upon request and payment of the cost thereof. 
Witnesses need not be sworn, unless specifically requested by a party or 
the presiding officer(s). The presiding officer(s) may ask questions of 
any witness.
    (3) The presiding officer(s) may order that the hearing be continued 
for a reasonable period (normally five business days) following 
completion of oral testimony or argument to allow additional written 
submissions to the hearing record.
    (h) Recommendation of presiding officer(s). Within 20 calendar days 
following the date the hearing and the record on the proceeding are 
closed, the presiding officer(s) shall make a recommendation to the OCC 
on the reclassification.
    (i) Time for decision. Not later than 60 calendar days after the 
date the record is closed or the date of the response in a case where no 
hearing was requested, the OCC will decide whether to reclassify the 
bank and notify the bank of the OCC's decision.



Sec. 19.222  Request for rescission of reclassification.

    Any bank that has been reclassified under part 6 of this chapter and 
this subpart, may, upon a change in circumstances, request in writing 
that the OCC reconsider the reclassification, and may propose that the 
reclassification be rescinded and that any directives issued in 
connection with the reclassification be modified, rescinded, or removed. 
Unless otherwise ordered by the OCC, the bank shall remain subject to 
the reclassification and to any directives issued in connection with 
that reclassification while such request is pending before the OCC.



    Subpart N_Order To Dismiss a Director or Senior Executive Officer

    Source: 57 FR 44896, Sept. 29, 1992, unless otherwise noted.



Sec. 19.230  Scope.

    This subpart applies to informal hearings afforded to any director 
or senior executive officer dismissed pursuant to an order issued under 
12 U.S.C. 1831o and part 6 of this chapter.



Sec. 19.231  Order to dismiss a director or senior executive officer.

    (a) Service of notice. When the OCC issues and serves a directive on 
a bank pursuant to subpart B of part 6 of this chapter requiring the 
bank to dismiss from office any director or senior executive officer 
under section 38(f)(2)(F)(ii) of the FDI Act, the OCC shall also serve a 
copy of the directive, or the relevant portions of the directive where 
appropriate, upon the person to be dismissed.
    (b) Response to directive--(1) Request for reinstatement. A director 
or senior executive officer who has been served with a directive under 
paragraph (a) of

[[Page 280]]

this section (Respondent) may file a written request for reinstatement. 
The request for reinstatement shall be filed within 10 calendar days of 
the receipt of the directive by the Respondent, unless further time is 
allowed by the OCC at the request of the Respondent.
    (2) Contents of request; informal hearing. The request for 
reinstatement shall include reasons why the Respondent should be 
reinstated, and may include a request for an informal hearing before the 
OCC or its designee under this section. If the Respondent desires to 
present oral testimony or witnesses at the hearing, the Respondent shall 
include a request to do so with the request for an informal hearing. The 
request to present oral testimony or witnesses shall specify the names 
of the witnesses and the general nature of their expected testimony. 
Failure to request a hearing shall constitute a waiver of any right to a 
hearing and failure to request the opportunity to present oral testimony 
or witnesses shall constitute a waiver of any right or opportunity to 
present oral testimony or witnesses.
    (3) Effective date. Unless otherwise ordered by the OCC, the 
dismissal shall remain in effect while a request for reinstatement is 
pending.
    (c) Order for informal hearing. Upon receipt of a timely written 
request from a Respondent for an informal hearing on the portion of a 
directive requiring a bank to dismiss from office any director or senior 
executive officer, the OCC shall issue an order directing an informal 
hearing to commence no later than 30 days after receipt of the request, 
unless the Respondent requests a later date. The hearing shall be held 
in Washington, DC, or at such other place as may be designated by the 
OCC, before a presiding officer(s) designated by the OCC to conduct the 
hearing.
    (d) Hearing procedures. (1) A Respondent may appear at the hearing 
personally or through counsel. A Respondent shall have the right to 
introduce relevant written materials and to present oral argument. A 
Respondent may introduce oral testimony and present witnesses only if 
expressly authorized by the OCC or the presiding officer(s). Neither the 
provisions of the Administrative Procedure Act governing adjudications 
required by statute to be determined on the record nor the Uniform Rules 
of Practice and Procedure in subpart A of this part apply to an informal 
hearing under this section unless the OCC orders that such procedures 
shall apply.
    (2) The informal hearing shall be recorded, and a transcript 
furnished to the Respondent upon request and payment of the cost 
thereof. Witnesses need not be sworn, unless specifically requested by a 
party or the presiding officer(s). The presiding officer(s) may ask 
questions of any witness.
    (3) The presiding officer(s) may order that the hearing be continued 
for a reasonable period (normally five business days) following 
completion of oral testimony or argument to allow additional written 
submissions to the hearing record.
    (e) Standard for review. A Respondent shall bear the burden of 
demonstrating that his or her continued employment by or service with 
the bank would materially strengthen the bank's ability:
    (1) To become adequately capitalized, to the extent that the 
directive was issued as a result of the bank's capital level or failure 
to submit or implement a capital restoration plan; and
    (2) To correct the unsafe or unsound condition or unsafe or unsound 
practice, to the extent that the directive was issued as a result of 
classification of the bank based on supervisory criteria other than 
capital, pursuant to section 38(g) of the FDI Act.
    (f) Recommendation of presiding officer. Within 20 calendar days 
following the date the hearing and the record on the proceeding are 
closed, the presiding officer(s) shall make a recommendation to the OCC 
concerning the Respondent's request for reinstatement with the bank.
    (g) Time for decision. Not later than 60 calendar days after the 
date the record is closed or the date of the response in a case where no 
hearing was requested, the OCC shall grant or deny the request for 
reinstatement and notify the Respondent of the OCC's decision. If the 
OCC denies the request for reinstatement, the OCC shall set forth in the 
notification the reasons for the OCC's action.

[[Page 281]]



           Subpart O_Civil Money Penalty Inflation Adjustments

    Source: 65 FR 77252, Dec. 11, 2000, unless otherwise noted.



Sec. 19.240  Inflation adjustments.

    (a) The maximum amount of each civil money penalty within the OCC's 
jurisdiction is adjusted in accordance with the Federal Civil Penalties 
Inflation Adjustment Act of 1990 (28 U.S.C. 2461 note) as follows:

------------------------------------------------------------------------
                                                              Maximum
        U.S. Code citation               Description       penalty  (in
                                                             Dollars)
------------------------------------------------------------------------
12 U.S.C. 93(b), 504, 1817(j)(16),  Tier 1..............           6,500
 1818(i)(2), and 1972(2)(F).
                                    Tier 2..............          32,500
                                    Tier 3..............       1,250,000
12 U.S.C. 164 and 3110(c).........  Tier 1..............           2,200
                                    Tier 2..............          27,000
                                    Tier 3..............       1.250,000
12 U.S.C. 1832(c) and 3909(d)(1)..  ....................           1,100
12 U.S.C. 1884....................  ....................             110
12 U.S.C. 3110(a).................  ....................          32,500
15 U.S.C. 78u-2(b)................  Tier 1 (natural                6,500
                                     person).
                                    Tier 1 (other                 65,000
                                     person).
                                    Tier 2 (natural               65,000
                                     person).
                                    Tier 2 (other                325,000
                                     person).
                                    Tier 3 (natural              130,000
                                     person).
                                    Tier 3 (other                625,000
                                     person).
42 U.S.C. 4012a(f)(5).............  Per violation.......             385
                                    Per year............         125,000
------------------------------------------------------------------------

    (b) The adjustments in Sec. 19.240(a) apply to violations that 
occur after December 10, 2004.

[69 FR 65068, Nov. 10, 2004]



    Subpart P_Removal, Suspension, and Debarment of Accountants From 
                        Performing Audit Services

    Source: 68 FR 48265, Aug. 13, 2003, unless otherwise noted.



Sec. 19.241  Scope.

    This subpart, which implements section 36(g)(4) of the Federal 
Deposit Insurance Act (FDIA) (12 U.S.C. 1831m(g)(4)), provides rules and 
procedures for the removal, suspension, or debarment of independent 
public accountants and their accounting firms from performing 
independent audit and attestation services required by section 36 of the 
FDIA (12 U.S.C. 1831m) for insured national banks, District of Columbia 
banks, and Federal branches and agencies of foreign banks.



Sec. 19.242  Definitions.

    As used in this subpart, the following terms shall have the meaning 
given below unless the context requires otherwise:
    (a) Accounting firm means a corporation, proprietorship, 
partnership, or other business firm providing audit services.
    (b) Audit services means any service required to be performed by an 
independent public accountant by section 36 of the FDIA and 12 CFR part 
363, including attestation services.
    (c) Independent public accountant (accountant) means any individual 
who performs or participates in providing audit services.



Sec. 19.243  Removal, suspension, or debarment.

    (a) Good cause for removal, suspension, or debarment--(1) 
Individuals. The Comptroller may remove, suspend, or debar an 
independent public accountant from performing audit services for insured 
national banks that are subject to section 36 of the FDIA if, after 
service of a notice of intention and opportunity for hearing in the 
matter, the Comptroller finds that the accountant:
    (i) Lacks the requisite qualifications to perform audit services;
    (ii) Has knowingly or recklessly engaged in conduct that results in 
a violation of applicable professional standards, including those 
standards and conflicts of interest provisions applicable to accountants 
through the Sarbanes-Oxley Act of 2002, Pub. L. 107-204, 116 Stat. 745 
(2002) (Sarbanes-Oxley Act), and developed by the Public Company 
Accounting Oversight Board and

[[Page 282]]

the Securities and Exchange Commission;
    (iii) Has engaged in negligent conduct in the form of:
    (A) A single instance of highly unreasonable conduct that results in 
a violation of applicable professional standards in circumstances in 
which an accountant knows, or should know, that heightened scrutiny is 
warranted; or
    (B) Repeated instances of unreasonable conduct, each resulting in a 
violation of applicable professional standards, that indicate a lack of 
competence to perform audit services;
    (iv) Has knowingly or recklessly given false or misleading 
information, or knowingly or recklessly participated in any way in the 
giving of false or misleading information, to the OCC or any officer or 
employee of the OCC;
    (v) Has engaged in, or aided and abetted, a material and knowing or 
reckless violation of any provision of the Federal banking or securities 
laws or the rules and regulations thereunder, or any other law;
    (vi) Has been removed, suspended, or debarred from practice before 
any Federal or state agency regulating the banking, insurance, or 
securities industries, other than by an action listed in Sec. 19.244, 
on grounds relevant to the provision of audit services; or
    (vii) Is suspended or debarred for cause from practice as an 
accountant by any duly constituted licensing authority of any state, 
possession, commonwealth, or the District of Columbia.
    (2) Accounting firms. If the Comptroller determines that there is 
good cause for the removal, suspension, or debarment of a member or 
employee of an accounting firm under paragraph (a)(1) of this section, 
the Comptroller also may remove, suspend, or debar such firm or one or 
more offices of such firm. In considering whether to remove, suspend, or 
debar a firm or an office thereof, and the term of any sanction against 
a firm under this section, the Comptroller may consider, for example:
    (i) The gravity, scope, or repetition of the act or failure to act 
that constitutes good cause for the removal, suspension, or debarment;
    (ii) The adequacy of, and adherence to, applicable policies, 
practices, or procedures for the accounting firm's conduct of its 
business and the performance of audit services;
    (iii) The selection, training, supervision, and conduct of members 
or employees of the accounting firm involved in the performance of audit 
services;
    (iv) The extent to which managing partners or senior officers of the 
accounting firm have participated, directly, or indirectly through 
oversight or review, in the act or failure to act; and
    (v) The extent to which the accounting firm has, since the 
occurrence of the act or failure to act, implemented corrective internal 
controls to prevent its recurrence.
    (3) Limited scope orders. An order of removal, suspension (including 
an immediate suspension), or debarment may, at the discretion of the 
Comptroller, be made applicable to a particular national bank or class 
of national banks.
    (4) Remedies not exclusive. The remedies provided in this subpart 
are in addition to any other remedies the OCC may have under any other 
applicable provisions of law, rule, or regulation.
    (b) Proceedings to remove, suspend, or debar--(1) Initiation of 
formal removal, suspension, or debarment proceedings. The Comptroller 
may initiate a proceeding to remove, suspend, or debar an accountant or 
accounting firm from performing audit services by issuing a written 
notice of intention to take such action that names the individual or 
firm as a respondent and describes the nature of the conduct that 
constitutes good cause for such action.
    (2) Hearings under paragraph (b) of this section. An accountant or 
firm named as a respondent in the notice issued under paragraph (b)(1) 
of this section may request a hearing on the allegations in the notice. 
Hearings conducted under this paragraph shall be conducted in the same 
manner as other hearings under the Uniform Rules of Practice and 
Procedure (12 CFR part 19, subpart A).
    (c) Immediate suspension from performing audit services--(1) In 
general. If the Comptroller serves a written notice of intention to 
remove, suspend, or

[[Page 283]]

debar an accountant or accounting firm from performing audit services, 
the Comptroller may, with due regard for the public interest and without 
a preliminary hearing, immediately suspend such accountant or firm from 
performing audit services for insured national banks, if the 
Comptroller:
    (i) Has a reasonable basis to believe that the accountant or firm 
has engaged in conduct (specified in the notice served on the accountant 
or firm under paragraph (b) of this section) that would constitute 
grounds for removal, suspension, or debarment under paragraph (a) of 
this section;
    (ii) Determines that immediate suspension is necessary to avoid 
immediate harm to an insured depository institution or its depositors or 
to the depository system as a whole; and
    (iii) Serves such respondent with written notice of the immediate 
suspension.
    (2) Procedures. An immediate suspension notice issued under this 
paragraph will become effective upon service. Such suspension will 
remain in effect until the date the Comptroller dismisses the charges 
contained in the notice of intention, or the effective date of a final 
order of removal, suspension, or debarment issued by the Comptroller to 
the respondent.
    (3) Petition for stay. Any accountant or firm immediately suspended 
from performing audit services in accordance with paragraph (c)(1) of 
this section may, within 10 calendar days after service of the notice of 
immediate suspension, file with the Office of the Comptroller of the 
Currency, Washington, DC 20219 for a stay of such immediate suspension. 
If no petition is filed within 10 calendar days, the immediate 
suspension shall remain in effect.
    (4) Hearing on petition. Upon receipt of a stay petition, the 
Comptroller will designate a presiding officer who shall fix a place and 
time (not more than 10 calendar days after receipt of the petition, 
unless extended at the request of petitioner) at which the immediately 
suspended party may appear, personally or through counsel, to submit 
written materials and oral argument. Any OCC employee engaged in 
investigative or prosecuting functions for the OCC in a case may not, in 
that or a factually related case, serve as a presiding officer or 
participate or advise in the decision of the presiding officer or of the 
OCC, except as witness or counsel in the proceeding. In the sole 
discretion of the presiding officer, upon a specific showing of 
compelling need, oral testimony of witnesses may also be presented. In 
hearings held pursuant to this paragraph there shall be no discovery and 
the provisions of Sec. Sec. 19.6 through 19.12, 19.16, and 19.21 of 
this part shall apply.
    (5) Decision on petition. Within 30 calendar days after the hearing, 
the presiding officer shall issue a decision. The presiding officer will 
grant a stay upon a demonstration that a substantial likelihood exists 
of the respondent's success on the issues raised by the notice of 
intention and that, absent such relief, the respondent will suffer 
immediate and irreparable injury, loss, or damage. In the absence of 
such a demonstration, the presiding officer will notify the parties that 
the immediate suspension will be continued pending the completion of the 
administrative proceedings pursuant to the notice.
    (6) Review of presiding officer's decision. The parties may seek 
review of the presiding officer's decision by filing a petition for 
review with the presiding officer within 10 calendar days after service 
of the decision. Replies must be filed within 10 calendar days after the 
petition filing date. Upon receipt of a petition for review and any 
reply, the presiding officer shall promptly certify the entire record to 
the Comptroller. Within 60 calendar days of the presiding officer's 
certification, the Comptroller shall issue an order notifying the 
affected party whether or not the immediate suspension should be 
continued or reinstated. The order shall state the basis of the 
Comptroller's decision.



Sec. 19.244  Automatic removal, suspension, and debarment.

    (a) An independent public accountant or accounting firm may not 
perform audit services for insured national banks if the accountant or 
firm:
    (1) Is subject to a final order of removal, suspension, or debarment 
(other

[[Page 284]]

than a limited scope order) issued by the Board of Governors of the 
Federal Reserve System, the Federal Deposit Insurance Corporation, or 
the Office of Thrift Supervision under section 36 of the FDIA.
    (2) Is subject to a temporary suspension or permanent revocation of 
registration or a temporary or permanent suspension or bar from further 
association with any registered public accounting firm issued by the 
Public Company Accounting Oversight Board or the Securities and Exchange 
Commission under sections 105(c)(4)(A) or (B) of the Sarbanes-Oxley Act 
(15 U.S.C. 7215(c)(4)(A) or (B)); or
    (3) Is subject to an order of suspension or denial of the privilege 
of appearing or practicing before the Securities and Exchange 
Commission.
    (b) Upon written request, the Comptroller, for good cause shown, may 
grant written permission to such accountant or firm to perform audit 
services for national banks. The request shall contain a concise 
statement of the action requested. The Comptroller may require the 
applicant to submit additional information.



Sec. 19.245  Notice of removal, suspension or debarment.

    (a) Notice to the public. Upon the issuance of a final order for 
removal, suspension, or debarment of an independent public accountant or 
accounting firm from providing audit services, the Comptroller shall 
make the order publicly available and provide notice of the order to the 
other Federal banking agencies.
    (b) Notice to the Comptroller by accountants and firms. An 
accountant or accounting firm that provides audit services to a national 
bank must provide the Comptroller with written notice of:
    (1) Any currently effective order or other action described in 
Sec. Sec. 19.243(a)(1)(vi) through (a)(1)(vii) or Sec. Sec. 
19.244(a)(2) through (a)(3); and
    (2) Any currently effective action by the Public Company Accounting 
Oversight Board under sections 105(c)(4)(C) or (G) of the Sarbanes-Oxley 
Act) (15 U.S.C. 7215(c)(4)(C) or (G)).
    (c) Timing of notice. Written notice required by this paragraph 
shall be given no later than 15 calendar days following the effective 
date of an order or action, or 15 calendar days before an accountant or 
firm accepts an engagement to provide audit services, whichever date is 
earlier.



Sec. 19.246  Petition for reinstatement.

    (a) Form of petition. Unless otherwise ordered by the Comptroller, a 
petition for reinstatement by an independent public accountant, an 
accounting firm, or an office of a firm that was removed, suspended, or 
debarred under Sec. 19.243 may be made in writing at any time. The 
request shall contain a concise statement of the action requested. The 
Comptroller may require the applicant to submit additional information.
    (b) Procedure. A petitioner for reinstatement under this section 
may, in the sole discretion of the Comptroller, be afforded a hearing. 
The accountant or firm shall bear the burden of going forward with a 
petition and proving the grounds asserted in support of the petition. In 
reinstatement proceedings, the person seeking reinstatement shall bear 
the burden of going forward with an application and proving the grounds 
asserted in support of the application. The Comptroller may, in his sole 
discretion, direct that any reinstatement proceeding be limited to 
written submissions. The removal, suspension, or debarment shall 
continue until the Comptroller, for good cause shown, has reinstated the 
petitioner or until the suspension period has expired. The filing of a 
petition for reinstatement shall not stay the effectiveness of the 
removal, suspension, or debarment of an accountant or firm.



PART 21_MINIMUM SECURITY DEVICES AND PROCEDURES, REPORTS OF SUSPICIOUS ACTIVITIES, AND BANK SECRECY ACT COMPLIANCE PROGRAM--Table of Contents




            Subpart A_Minimum Security Devices and Procedures

Sec.
21.1 Purpose and scope of subpart A of this part.
21.2 Designation of security officer.
21.3 Security program.
21.4 Report.

[[Page 285]]

               Subpart B_Reports of Suspicious Activities

21.11 Suspicious Activity Report.

     Subpart C_Procedures for Monitoring Bank Secrecy Act Compliance

21.21 Procedures for monitoring Bank Secrecy Act (BSA) compliance.

    Authority: 12 U.S.C. 93a, 1818, 1881-1884, and 3401-3422; 31 U.S.C. 
5318.



            Subpart A_Minimum Security Devices and Procedures

    Source: 56 FR 29564, June 28, 1991, unless otherwise noted.



Sec. 21.1  Purpose and scope of subpart A of this part.

    (a) This subpart is issued by the Comptroller of the Currency 
pursuant to section 3 of the Bank Protection Act of 1968 (12 U.S.C. 
1882) and is applicable to all national banking associations and all 
banks located in the District of Columbia subject to the supervision of 
the Office of the Comptroller of the Currency. It requires each bank to 
adopt appropriate security procedures to discourage robberies, 
burglaries, and larcenies and to assist in identifying and apprehending 
persons who commit such acts.
    (b) It is the responsibility of a bank's board of directors to 
comply with this regulation and ensure that a security program which 
equals or exceeds the standards prescribed by this part is developed and 
implemented for the bank's main office and branches (as the term 
``branch'' is used in 12 U.S.C. 36).



Sec. 21.2  Designation of security officer.

    Within 30 days after the opening of a new bank, the Bank's board of 
directors shall designate a security officer who shall have the 
authority, subject to the approval of the board of directors, for 
immediately developing and administering a written security program to 
protect each banking office from robberies, burglaries, and larcenies 
and to assist in identifying and apprehending persons who commit such 
acts.

(Approval by the Office of Management and Budget under control number 
1557-0180)



Sec. 21.3  Security program.

    (a) Contents of security program. The security program shall:
    (1) Establish procedures for opening and closing for business and 
for the safekeeping of all currency, negotiable securities, and similar 
valuables at all times;
    (2) Establish procedures that will assist in identifying persons 
committing crimes against the institution and that will preserve 
evidence that may aid in their identification or conviction; such 
procedures may include, but are not limited to:
    (i) Using identification devices, such as prerecorded serial-
numbered bills, or chemical and electronic devices;
    (ii) Maintaining a camera that records activity in the banking 
office; and
    (iii) Retaining a record of any robbery, burglary or larceny 
committed or attempted against a banking office;
    (3) Provide for initial and periodic training of employees in their 
responsibilities under the security program and in proper employee 
conduct during and after a robbery; and
    (4) Provide for selecting, testing, operating and maintaining 
appropriate security devices, as specified in paragraph (b) of this 
section.
    (b) Security devices. Each national bank shall have, at a minimum, 
the following security devices:
    (1) A means of protecting cash or other liquid assets, such as a 
vault, safe, or other secure space;
    (2) A lighting system for illuminating, during the hours of 
darkness, the area around the vault, if the vault is visible from 
outside the banking office;
    (3) Tamper-resistant locks on exterior doors and exterior windows 
designed to be opened;
    (4) An alarm system or other appropriate device for promptly 
notifying the nearest responsible law enforcement officers of an 
attempted or perpetrated robbery, burglary or larceny; and
    (5) Such other devices as the security officer determines to be 
appropriate, taking into consideration:
    (i) The incidence of crimes against financial institutions in the 
area;

[[Page 286]]

    (ii) The amount of currency or other valuables exposed to robbery, 
burglary, or larceny;
    (iii) The distance of the banking office from the nearest 
responsible law enforcement officers and the time required for such law 
enforcement officers ordinarily to arrive at the banking office;
    (iv) The cost of the security devices;
    (v) Other security measures in effect at the banking office; and
    (vi) The physical characteristics of the banking office structure 
and its surroundings.



Sec. 21.4  Report.

    The security officer for a national bank shall report at least 
annually to the bank's board of directors on the effectiveness of the 
security program. The substance of such report shall be reflected in the 
minutes of the Board meeting in which it is given.

(Approved by the Office of Management and Budget under control number 
1557-0180)



               Subpart B_Reports of Suspicious Activities



Sec. 21.11  Suspicious Activity Report.

    (a) Purpose and scope. This section ensures that national banks file 
a Suspicious Activity Report when they detect a known or suspected 
violation of Federal law or a suspicious transaction related to a money 
laundering activity or a violation of the Bank Secrecy Act. This section 
applies to all national banks as well as any Federal branches and 
agencies of foreign banks licensed or chartered by the OCC.
    (b) Definitions. For the purposes of this section:
    (1) FinCEN means the Financial Crimes Enforcement Network of the 
Department of the Treasury.
    (2) Institution-affiliated party means any institution-affiliated 
party as that term is defined in sections 3(u) and 8(b)(5) of the 
Federal Deposit Insurance Act (12 U.S.C. 1813(u) and 1818(b)(5)).
    (3) SAR means a Suspicious Activity Report on the form prescribed by 
the OCC.
    (c) SARs required. A national bank shall file a SAR with the 
appropriate Federal law enforcement agencies and the Department of the 
Treasury in accordance with the form's instructions, by sending a 
completed SAR to FinCEN in the following circumstances:
    (1) Insider abuse involving any amount. Whenever the national bank 
detects any known or suspected Federal criminal violation, or pattern of 
criminal violations, committed or attempted against the bank or 
involving a transaction or transactions conducted through the bank, 
where the bank believes that it was either an actual or potential victim 
of a criminal violation, or series of criminal violations, or that the 
bank was used to facilitate a criminal transaction, and the bank has a 
substantial basis for identifying one of its directors, officers, 
employees, agents or other institution-affiliated parties as having 
committed or aided in the commission of a criminal act, regardless of 
the amount involved in the violation.
    (2) Violations aggregating $5,000 or more where a suspect can be 
identified. Whenever the national bank detects any known or suspected 
Federal criminal violation, or pattern of criminal violations, committed 
or attempted against the bank or involving a transaction or transactions 
conducted through the bank and involving or aggregating $5,000 or more 
in funds or other assets where the bank believes that it was either an 
actual or potential victim of a criminal violation, or series of 
criminal violations or that it was used to facilitate a criminal 
transaction, and the bank has a substantial basis for identifying a 
possible suspect or group of suspects. If it is determined prior to 
filing this report that the identified suspect or group of suspects has 
used an alias, then information regarding the true identity of the 
suspect or group of suspects, as well as alias identifiers, such as 
drivers' license or social security numbers, addresses and telephone 
numbers, must be reported.
    (3) Violations aggregating $25,000 or more regardless of potential 
suspects. Whenever the national bank detects any known or suspected 
Federal criminal violation, or pattern of criminal violations, committed 
or attempted against the bank or involving a transaction or transactions 
conducted

[[Page 287]]

through the bank and involving or aggregating $25,000 or more in funds 
or other assets where the bank believes that it was either an actual or 
potential victim of a criminal violation, or series of criminal 
violations, or that the bank was used to facilitate a criminal 
transaction, even though there is no substantial basis for identifying a 
possible suspect or group of suspects.
    (4) Transactions aggregating $5,000 or more that involve potential 
money laundering or violate the Bank Secrecy Act. Any transaction (which 
for purposes of this paragraph (c)(4) means a deposit, withdrawal, 
transfer between accounts, exchange of currency, loan, extension of 
credit, or purchase or sale of any stock, bond, certificate of deposit, 
or other monetary instrument or investment security, or any other 
payment, transfer, or delivery by, through, or to a financial 
institution, by whatever means effected) conducted or attempted by, at 
or through the national bank and involving or aggregating $5,000 or more 
in funds or other assets, if the bank knows, suspects, or has reason to 
suspect that:
    (i) The transaction involves funds derived from illegal activities 
or is intended or conducted in order to hide or disguise funds or assets 
derived from illegal activities (including, without limitation, the 
ownership, nature, source, location, or control of such funds or assets) 
as part of a plan to violate or evade any law or regulation or to avoid 
any transaction reporting requirement under Federal law;
    (ii) The transaction is designed to evade any regulations 
promulgated under the Bank Secrecy Act; or
    (iii) The transaction has no business or apparent lawful purpose or 
is not the sort in which the particular customer would normally be 
expected to engage, and the institution knows of no reasonable 
explanation for the transaction after examining the available facts, 
including the background and possible purpose of the transaction.
    (d) Time for reporting. A national bank is required to file a SAR no 
later than 30 calendar days after the date of the initial detection of 
facts that may constitute a basis for filing a SAR. If no suspect was 
identified on the date of detection of the incident requiring the 
filing, a national bank may delay filing a SAR for an additional 30 
calendar days to identify a suspect. In no case shall reporting be 
delayed more than 60 calendar days after the date of initial detection 
of a reportable transaction. In situations involving violations 
requiring immediate attention, such as when a reportable violation is 
ongoing, the financial institution shall immediately notify, by 
telephone, an appropriate law enforcement authority and the OCC in 
addition to filing a timely SAR.
    (e) Reports to state and local authorities. National banks are 
encouraged to file a copy of the SAR with state and local law 
enforcement agencies where appropriate.
    (f) Exceptions. (1) A national bank need not file a SAR for a 
robbery or burglary committed or attempted that is reported to 
appropriate law enforcement authorities.
    (2) A national bank need not file a SAR for lost, missing, 
counterfeit, or stolen securities if it files a report pursuant to the 
reporting requirements of 17 CFR 240.17f-1.
    (g) Retention of records. A national bank shall maintain a copy of 
any SAR filed and the original or business record equivalent of any 
supporting documentation for a period of five years from the date of the 
filing of the SAR. Supporting documentation shall be identified and 
maintained by the bank as such, and shall be deemed to have been filed 
with the SAR. A national bank shall make all supporting documentation 
available to appropriate law enforcement agencies upon request.
    (h) Notification to board of directors--(1) Generally. Whenever a 
national bank files a SAR pursuant to this section, the management of 
the bank shall promptly notify its board of directors, or a committee of 
directors or executive officers designated by the board of directors to 
receive notice.
    (2) Suspect is a director or executive officer. If the bank files a 
SAR pursuant to paragraph (c) of this section and the suspect is a 
director or executive officer, the bank may not notify the suspect, 
pursuant to 31 U.S.C. 5318(g)(2),

[[Page 288]]

but shall notify all directors who are not suspects.
    (i) Compliance. Failure to file a SAR in accordance with this 
section and the instructions may subject the national bank, its 
directors, officers, employees, agents, or other institution-affiliated 
parties to supervisory action.
    (j) Obtaining SARs. A national bank may obtain SARs and the 
Instructions from the appropriate OCC District Office listed in 12 CFR 
part 4.
    (k) Confidentiality of SARs. SARs are confidential. Any national 
bank or person subpoenaed or otherwise requested to disclose a SAR or 
the information contained in a SAR shall decline to produce the SAR or 
to provide any information that would disclose that a SAR has been 
prepared or filed, citing this section, applicable law (e.g., 31 U.S.C. 
5318(g)), or both, and shall notify the OCC.
    (l) Safe harbor. The safe harbor provision of 31 U.S.C. 5318(g), 
which exempts any financial institution that makes a disclosure of any 
possible violation of law or regulation from liability under any law or 
regulation of the United States, or any constitution, law, or regulation 
of any state or political subdivision, covers all reports of suspected 
or known criminal violations and suspicious activities to law 
enforcement and financial institution supervisory authorities, including 
supporting documentation, regardless of whether such reports are 
required to be filed pursuant to this section or are filed on a 
voluntary basis.

[61 FR 4337, Feb. 5, 1996]



     Subpart C_Procedures for Monitoring Bank Secrecy Act Compliance



Sec. 21.21  Procedures for monitoring Bank Secrecy Act (BSA) compliance.

    (a) Purpose. This subpart is issued to assure that all national 
banks establish and maintain procedures reasonably designed to assure 
and monitor their compliance with the requirements of subchapter II of 
chapter 53 of title 31, United States Code, and the implementing 
regulations promulgated thereunder by the Department of Treasury at 31 
CFR part 103.
    (b) Establishment of a BSA compliance program--(1) Program 
requirement. Each bank shall develop and provide for the continued 
administration of a program reasonably designed to assure and monitor 
compliance with the recordkeeping and reporting requirements set forth 
in subchapter II of chapter 53 of title 31, United States Code and the 
implementing regulations issued by the Department of the Treasury at 31 
CFR part 103. The compliance program must be written, approved by the 
bank's board of directors, and reflected in the minutes of the bank.
    (2) Customer identification program. Each bank is subject to the 
requirements of 31 U.S.C. 5318(l) and the implementing regulation 
jointly promulgated by the OCC and the Department of the Treasury at 31 
CFR 103.121, which require a customer identification program to be 
implemented as part of the BSA compliance program required under this 
section.
    (c) Contents of compliance program. The compliance program shall, at 
a minimum:
    (1) Provide for a system of internal controls to assure ongoing 
compliance;
    (2) Provide for independent testing for compliance to be conducted 
by bank personnel or by an outside party;
    (3) Designate an individual or individuals responsible for 
coordinating and monitoring day-to-day compliance; and
    (4) Provide training for appropriate personnel.

(Approved by the Office of Management and Budget under control number 
1557-0180)

[52 FR 2859, Jan. 27, 1987, as amended at 68 FR 25111, May 9, 2003]



PART 22_LOANS IN AREAS HAVING SPECIAL FLOOD HAZARDS--Table of Contents




Sec.
22.1 Authority, purpose, and scope.
22.2 Definitions.
22.3 Requirement to purchase flood insurance where available.
22.4 Exemptions.
22.5 Escrow requirement.
22.6 Required use of standard flood hazard determination form.
22.7 Forced placement of flood insurance.
22.8 Determination fees.

[[Page 289]]

22.9 Notice of special flood hazards and availability of Federal 
          disaster relief assistance.
22.10 Notice of servicer's identity.

Appendix A to Part 22--Sample Form of Notice of Special Flood Hazards 
          and Availability of Federal Disaster Relief Assistance

    Authority: 12 U.S.C. 93a; 42 U.S.C. 4012a, 4104a, 4104b, 4106, and 
4128.

    Source: 61 FR 45702, Aug. 29, 1996, unless otherwise noted.



Sec. 22.1  Authority, purpose, and scope.

    (a) Authority. This part is issued pursuant to 12 U.S.C. 93a and 42 
U.S.C. 4012a, 4104a, 4104b, 4106, and 4128.
    (b) Purpose. The purpose of this part is to implement the 
requirements of the National Flood Insurance Act of 1968 and the Flood 
Disaster Protection Act of 1973, as amended (42 U.S.C. 4001-4129).
    (c) Scope. This part, except for Sec. Sec. 22.6 and 22.8, applies 
to loans secured by buildings or mobile homes located or to be located 
in areas determined by the Director of the Federal Emergency Management 
Agency to have special flood hazards. Sections 22.6 and 22.8 apply to 
loans secured by buildings or mobile homes, regardless of location.



Sec. 22.2  Definitions.

    (a) Act means the National Flood Insurance Act of 1968, as amended 
(42 U.S.C. 4001-4129).
    (b) Bank means a national bank or a bank located in the District of 
Columbia and subject to the supervision of the Comptroller of the 
Currency.
    (c) Building means a walled and roofed structure, other than a gas 
or liquid storage tank, that is principally above ground and affixed to 
a permanent site, and a walled and roofed structure while in the course 
of construction, alteration, or repair.
    (d) Community means a State or a political subdivision of a State 
that has zoning and building code jurisdiction over a particular area 
having special flood hazards.
    (e) Designated loan means a loan secured by a building or mobile 
home that is located or to be located in a special flood hazard area in 
which flood insurance is available under the Act.
    (f) Director of FEMA means the Director of the Federal Emergency 
Management Agency.
    (g) Mobile home means a structure, transportable in one or more 
sections, that is built on a permanent chassis and designed for use with 
or without a permanent foundation when attached to the required 
utilities. The term mobile home does not include a recreational vehicle. 
For purposes of this part, the term mobile home means a mobile home on a 
permanent foundation. The term mobile home includes a manufactured home 
as that term is used in the NFIP.
    (h) NFIP means the National Flood Insurance Program authorized under 
the Act.
    (i) Residential improved real estate means real estate upon which a 
home or other residential building is located or to be located.
    (j) Servicer means the person responsible for:
    (1) Receiving any scheduled, periodic payments from a borrower under 
the terms of a loan, including amounts for taxes, insurance premiums, 
and other charges with respect to the property securing the loan; and
    (2) Making payments of principal and interest and any other payments 
from the amounts received from the borrower as may be required under the 
terms of the loan.
    (k) Special flood hazard area means the land in the flood plain 
within a community having at least a one percent chance of flooding in 
any given year, as designated by the Director of FEMA.
    (l) Table funding means a settlement at which a loan is funded by a 
contemporaneous advance of loan funds and an assignment of the loan to 
the person advancing the funds.



Sec. 22.3  Requirement to purchase flood insurance where available.

    (a) In general. A bank shall not make, increase, extend, or renew 
any designated loan unless the building or mobile home and any personal 
property securing the loan is covered by flood insurance for the term of 
the loan. The amount of insurance must be at least equal to the lesser 
of the outstanding principal balance of the designated

[[Page 290]]

loan or the maximum limit of coverage available for the particular type 
of property under the Act. Flood insurance coverage under the Act is 
limited to the overall value of the property securing the designated 
loan minus the value of the land on which the property is located.
    (b) Table funded loans. A bank that acquires a loan from a mortgage 
broker or other entity through table funding shall be considered to be 
making a loan for the purposes of this part.



Sec. 22.4  Exemptions.

    The flood insurance requirement prescribed by Sec. 22.3 does not 
apply with respect to:
    (a) Any State-owned property covered under a policy of self-
insurance satisfactory to the Director of FEMA, who publishes and 
periodically revises the list of States falling within this exemption; 
or
    (b) Property securing any loan with an original principal balance of 
$5,000 or less and a repayment term of one year or less.



Sec. 22.5  Escrow requirement.

    If a bank requires the escrow of taxes, insurance premiums, fees, or 
any other charges for a loan secured by residential improved real estate 
or a mobile home that is made, increased, extended, or renewed on or 
after October 1, 1996, the bank shall also require the escrow of all 
premiums and fees for any flood insurance required under Sec. 22.3. The 
bank, or a servicer acting on behalf of the bank, shall deposit the 
flood insurance premiums on behalf of the borrower in an escrow account. 
This escrow account will be subject to escrow requirements adopted 
pursuant to section 10 of the Real Estate Settlement Procedures Act of 
1974 (12 U.S.C. 2609) (RESPA), which generally limits the amount that 
may be maintained in escrow accounts for certain types of loans and 
requires escrow account statements for those accounts, only if the loan 
is otherwise subject to RESPA. Following receipt of a notice from the 
Director of FEMA or other provider of flood insurance that premiums are 
due, the bank, or a servicer acting on behalf of the bank, shall pay the 
amount owed to the insurance provider from the escrow account by the 
date when such premiums are due.



Sec. 22.6  Required use of standard flood hazard determination form.

    (a) Use of form. A bank shall use the standard flood hazard 
determination form developed by the Director of FEMA when determining 
whether the building or mobile home offered as collateral security for a 
loan is or will be located in a special flood hazard area in which flood 
insurance is available under the Act. The standard flood hazard 
determination form may be used in a printed, computerized, or electronic 
manner. A bank may obtain the standard flood hazard determination form 
from FEMA, P.O. Box 2012, Jessup, MD 20794-2012.
    (b) Retention of form. A bank shall retain a copy of the completed 
standard flood hazard determination form, in either hard copy or 
electronic form, for the period of time the bank owns the loan.

[61 FR 45702, Aug. 29, 1996, as amended at 64 FR 71273, Dec. 21, 1999]



Sec. 22.7  Forced placement of flood insurance.

    If a bank, or a servicer acting on behalf of the bank, determines at 
any time during the term of a designated loan that the building or 
mobile home and any personal property securing the designated loan is 
not covered by flood insurance or is covered by flood insurance in an 
amount less than the amount required under Sec. 22.3, then the bank or 
its servicer shall notify the borrower that the borrower should obtain 
flood insurance, at the borrower's expense, in an amount at least equal 
to the amount required under Sec. 22.3, for the remaining term of the 
loan. If the borrower fails to obtain flood insurance within 45 days 
after notification, then the bank or its servicer shall purchase 
insurance on the borrower's behalf. The bank or its servicer may charge 
the borrower for the cost of premiums and fees incurred in purchasing 
the insurance.



Sec. 22.8  Determination fees.

    (a) General. Notwithstanding any Federal or State law other than the 
Flood Disaster Protection Act of 1973

[[Page 291]]

as amended (42 U.S.C. 4001-4129), any bank, or a servicer acting on 
behalf of the bank, may charge a reasonable fee for determining whether 
the building or mobile home securing the loan is located or will be 
located in a special flood hazard area. A determination fee may also 
include, but is not limited to, a fee for life-of-loan monitoring.
    (b) Borrower fee. The determination fee authorized by paragraph (a) 
of this section may be charged to the borrower if the determination:
    (1) Is made in connection with a making, increasing, extending, or 
renewing of the loan that is initiated by the borrower;
    (2) Reflects the Director of FEMA's revision or updating of 
floodplain areas or flood-risk zones;
    (3) Reflects the Director of FEMA's publication of a notice or 
compendium that:
    (i) Affects the area in which the building or mobile home securing 
the loan is located; or
    (ii) By determination of the Director of FEMA, may reasonably 
require a determination whether the building or mobile home securing the 
loan is located in a special flood hazard area; or
    (4) Results in the purchase of flood insurance coverage by the bank 
or its servicer on behalf of the borrower under Sec. 22.7.
    (c) Purchaser or transferee fee. The determination fee authorized by 
paragraph (a) of this section may be charged to the purchaser or 
transferee of a loan in the case of the sale or transfer of the loan.



Sec. 22.9  Notice of special flood hazards and availability of Federal disaster relief assistance.

    (a) Notice requirement. When a bank makes, increases, extends, or 
renews a loan secured by a building or a mobile home located or to be 
located in a special flood hazard area, the bank shall mail or deliver a 
written notice to the borrower and to the servicer in all cases whether 
or not flood insurance is available under the Act for the collateral 
securing the loan.
    (b) Contents of notice. The written notice must include the 
following information:
    (1) A warning, in a form approved by the Director of FEMA, that the 
building or the mobile home is or will be located in a special flood 
hazard area;
    (2) A description of the flood insurance purchase requirements set 
forth in section 102(b) of the Flood Disaster Protection Act of 1973, as 
amended (42 U.S.C. 4012a(b));
    (3) A statement, where applicable, that flood insurance coverage is 
available under the NFIP and may also be available from private 
insurers; and
    (4) A statement whether Federal disaster relief assistance may be 
available in the event of damage to the building or mobile home caused 
by flooding in a Federally declared disaster.
    (c) Timing of notice. The bank shall provide the notice required by 
paragraph (a) of this section to the borrower within a reasonable time 
before the completion of the transaction, and to the servicer as 
promptly as practicable after the bank provides notice to the borrower 
and in any event no later than the time the bank provides other similar 
notices to the servicer concerning hazard insurance and taxes. Notice to 
the servicer may be made electronically or may take the form of a copy 
of the notice to the borrower.
    (d) Record of receipt. The bank shall retain a record of the receipt 
of the notices by the borrower and the servicer for the period of time 
the bank owns the loan.
    (e) Alternate method of notice. Instead of providing the notice to 
the borrower required by paragraph (a) of this section, a bank may 
obtain satisfactory written assurance from a seller or lessor that, 
within a reasonable time before the completion of the sale or lease 
transaction, the seller or lessor has provided such notice to the 
purchaser or lessee. The bank shall retain a record of the written 
assurance from the seller or lessor for the period of time the bank owns 
the loan.
    (f) Use of prescribed form of notice. A bank will be considered to 
be in compliance with the requirement for notice to the borrower of this 
section by providing written notice to the borrower containing the 
language presented in appendix A to this part within a reasonable time 
before the completion of the transaction. The notice presented

[[Page 292]]

in appendix A to this part satisfies the borrower notice requirements of 
the Act.



Sec. 22.10  Notice of servicer's identity.

    (a) Notice requirement. When a bank makes, increases, extends, 
renews, sells, or transfers a loan secured by a building or mobile home 
located or to be located in a special flood hazard area, the bank shall 
notify the Director of FEMA (or the Director's designee) in writing of 
the identity of the servicer of the loan. The Director of FEMA has 
designated the insurance provider to receive the bank's notice of the 
servicer's identity. This notice may be provided electronically if 
electronic transmission is satisfactory to the Director of FEMA's 
designee.
    (b) Transfer of servicing rights. The bank shall notify the Director 
of FEMA (or the Director's designee) of any change in the servicer of a 
loan described in paragraph (a) of this section within 60 days after the 
effective date of the change. This notice may be provided electronically 
if electronic transmission is satisfactory to the Director of FEMA's 
designee. Upon any change in the servicing of a loan described in 
paragraph (a) of this section, the duty to provide notice under this 
paragraph (b) shall transfer to the transferee servicer.



   Sec. Appendix A to Part 22--Sample Form of Notice of Special Flood 
     Hazards and Availability of Federal Disaster Relief Assistance

    We are giving you this notice to inform you that:
    The building or mobile home securing the loan for which you have 
applied is or will be located in an area with special flood hazards.
    The area has been identified by the Director of the Federal 
Emergency Management Agency (FEMA) as a special flood hazard area using 
FEMA's Flood Insurance Rate Map or the Flood Hazard Boundary Map for the 
following community: ----------------. This area has at least a one 
percent (1%) chance of a flood equal to or exceeding the base flood 
elevation (a 100-year flood) in any given year. During the life of a 30-
year mortgage loan, the risk of a 100-year flood in a special flood 
hazard area is 26 percent (26%).
    Federal law allows a lender and borrower jointly to request the 
Director of FEMA to review the determination of whether the property 
securing the loan is located in a special flood hazard area. If you 
would like to make such a request, please contact us for further 
information.
    ------ The community in which the property securing the loan is 
located participates in the National Flood Insurance Program (NFIP). 
Federal law will not allow us to make you the loan that you have applied 
for if you do not purchase flood insurance. The flood insurance must be 
maintained for the life of the loan. If you fail to purchase or renew 
flood insurance on the property, Federal law authorizes and requires us 
to purchase the flood insurance for you at your expense.
     Flood insurance coverage under the NFIP may be 
purchased through an insurance agent who will obtain the policy either 
directly through the NFIP or through an insurance company that 
participates in the NFIP. Flood insurance also may be available from 
private insurers that do not participate in the NFIP.
     At a minimum, flood insurance purchased must 
cover the lesser of:
    (1) the outstanding principal balance of the loan; or
    (2) the maximum amount of coverage allowed for the type of property 
under the NFIP.
    Flood insurance coverage under the NFIP is limited to the overall 
value of the property securing the loan minus the value of the land on 
which the property is located.
     Federal disaster relief assistance (usually in 
the form of a low-interest loan) may be available for damages incurred 
in excess of your flood insurance if your community's participation in 
the NFIP is in accordance with NFIP requirements.
    ------ Flood insurance coverage under the NFIP is not available for 
the property securing the loan because the community in which the 
property is located does not participate in the NFIP. In addition, if 
the non-participating community has been identified for at least one 
year as containing a special flood hazard area, properties located in 
the community will not be eligible for Federal disaster relief 
assistance in the event of a Federally-declared flood disaster.

[61 FR 45702, Aug. 29, 1996]



PART 23_LEASING--Table of Contents




                      Subpart A_General Provisions

Sec.
23.1 Authority, purpose, and scope.
23.2 Definitions.
23.3 Lease requirements.
23.4 Investment in personal property.
23.5 Requirement for separate records.
23.6 Application of lending limits; restrictions on transactions with 
          affiliates.

[[Page 293]]

                          Subpart B_CEBA Leases

23.10 General rule.
23.11 Lease term.
23.12 Transition rule.

                  Subpart C_Section 24(Seventh) Leases

23.20 General rule.
23.21 Estimated residual value.
23.22 Transition rule.

    Authority: 12 U.S.C. 1 et seq., 24(Seventh), 24(Tenth), and 93a.

    Source: 61 FR 66560, Dec. 18, 1996, unless otherwise noted.



                      Subpart A_General Provisions



Sec. 23.1  Authority, purpose, and scope.

    (a) Authority. A national bank may engage in personal property lease 
financing transactions pursuant to 12 U.S.C. 24(Seventh) or 12 U.S.C. 
24(Tenth).
    (b) Purpose. The purpose of this part is to set forth standards for 
personal property lease financing transactions authorized for national 
banks.
    (c) Scope. This part applies to the acquisition of personal property 
by a national bank for the purpose of, or in connection with, the 
leasing of that property.



Sec. 23.2  Definitions.

    (a) Affiliate means an affiliate as described in Sec. 23.6.
    (b) Capital and surplus means:
    (1) A bank's Tier 1 and Tier 2 capital calculated under the OCC's 
risk-based capital standards set forth in appendix A to 12 CFR part 3 as 
reported in the bank's Consolidated Report of Condition and Income filed 
under 12 U.S.C. 161; plus
    (2) The balance of a bank's allowance for loan and lease losses not 
included in the bank's Tier 2 capital, for purposes of the calculation 
of risk-based capital described in paragraph (b)(1) of this section, as 
reported in the bank's Consolidated Report of Condition and Income filed 
under 12 U.S.C. 161.
    (c) CEBA Lease means a personal property lease authorized under 12 
U.S.C. 24(Tenth).
    (d) Conforming lease means:
    (1) A CEBA Lease that conforms with the requirements of subparts A 
and B of this part; or
    (2) A Section 24(Seventh) Lease that conforms with the requirements 
of subparts A and C of this part.
    (e) Full-payout lease means a lease in which the national bank 
reasonably expects to realize the return of its full investment in the 
leased property, plus the estimated cost of financing the property over 
the term of the lease, from:
    (1) Rentals;
    (2) Estimated tax benefits; and
    (3) The estimated residual value of the property at the expiration 
of the lease term.
    (f) Net lease means a lease under which the national bank will not, 
directly or indirectly, provide or be obligated to provide for:
    (1) Servicing, repair, or maintenance of the leased property during 
the lease term;
    (2) Parts or accessories for the leased property;
    (3) Loan of replacement or substitute property while the leased 
property is being serviced;
    (4) Payment of insurance for the lessee, except where the lessee has 
failed in its contractual obligation to purchase or maintain required 
insurance; or
    (5) Renewal of any license or registration for the property unless 
renewal by the bank is necessary to protect its interest as owner or 
financier of the property.
    (g) Off-lease property means property that reverts to a national 
bank's possession or control upon the expiration of a lease or upon the 
default of the lessee.
    (h) Section 24(Seventh) Lease means a personal property lease 
authorized under 12 U.S.C. 24(Seventh).



Sec. 23.3  Lease requirements.

    (a) General requirements. A national bank may acquire personal 
property for the purpose of, or in connection with leasing that 
property, and may engage in activities incidental thereto, if the lease 
qualifies as a full-payout lease and a net lease.
    (b) Exceptions--(1) Change in condition. If, in good faith, a 
national bank believes that there has been a change

[[Page 294]]

in condition that threatens its financial position by increasing its 
exposure to loss, then the bank may:
    (i) Take reasonable and appropriate action, including the actions 
specified in Sec. 23.2(f), to salvage or protect the value of the 
leased property or its interests arising under the lease; and
    (ii) Acquire or perfect title to the leased property pursuant to any 
existing rights.
    (2) Provisions to protect the bank's interests. A national bank may 
include any provision in a lease, or make any additional agreement, to 
protect its financial position or investment in the event of a change in 
conditions that would increase its exposure to loss.
    (3) Arranging for services by a third party. A national bank may 
arrange for a third party to provide any of the services enumerated in 
Sec. 23.2(f) to the lessee at the expense of the lessee.



Sec. 23.4  Investment in personal property.

    (a) General rule. A national bank may acquire specific property to 
be leased only after the bank has entered into:
    (1) A conforming lease;
    (2) A legally binding written agreement that indemnifies the bank 
against loss in connection with its acquisition of the property; or
    (3) A legally binding written commitment to enter into a conforming 
lease.
    (b) Exception. A national bank may acquire property to be leased 
without complying with the requirements of paragraph (a) of this 
section, if:
    (1) The acquisition of the property is consistent with the leasing 
business then conducted by the bank or is consistent with a business 
plan for expansion of the bank's existing leasing business or for entry 
into the leasing business; and
    (2) The bank's aggregate investment in property held pursuant to 
this paragraph (b) does not exceed 15 percent of the bank's capital and 
surplus.
    (c) Holding period. At the expiration of the lease (including any 
renewals or extensions with the same lessee), or in the event of a 
default on a lease agreement prior to the expiration of the lease term, 
a national bank shall either liquidate the off-lease property or re-
lease it under a conforming lease as soon as practicable. Liquidation or 
re-lease must occur not later than five years from the date that the 
bank acquires the legal right to possession or control of the property, 
except the OCC may extend the period for up to an additional five years, 
if the bank provides a clearly convincing demonstration why any 
additional holding period is necessary. The bank must value off-lease 
property at the lower of current fair market value or book value 
promptly after the property becomes off-lease property.
    (d) Bridge or interim leases. During the holding period allowed by 
paragraph (c) of this section, a national bank may enter into a short-
term bridge or interim lease pending the liquidation of off-lease 
property or the re-lease of the property under a conforming lease. A 
short-term bridge or interim lease must be a net lease, but need not 
comply with any requirement of subpart B or C of this part.



Sec. 23.5  Requirement for separate records.

    If a national bank enters into both CEBA Leases and Section 
24(Seventh) Leases, the bank's records must distinguish the CEBA Leases 
from the Section 24(Seventh) Leases.



Sec. 23.6  Application of lending limits; restrictions on transactions with affiliates.

    A lease entered into pursuant to this part is subject to the lending 
limits prescribed by 12 U.S.C. 84 or, if the lessee is an affiliate of 
the bank, to the restrictions on transactions with affiliates prescribed 
by 12 U.S.C. 371c and 371c-1. The OCC may also determine that other 
limits or restrictions apply. The term affiliate means an affiliate as 
defined in 12 U.S.C. 371c or 371c-1, as applicable. For the purpose of 
measuring compliance with the lending limits prescribed by 12 U.S.C. 84, 
a national bank records the investment in a lease net of any nonrecourse 
debt the bank has incurred to finance the acquisition of the leased 
asset.

[[Page 295]]



                          Subpart B_CEBA Leases



Sec. 23.10  General rule.

    Pursuant to 12 U.S.C. 24(Tenth) a national bank may invest in 
tangible personal property, including vehicles, manufactured homes, 
machinery, equipment, or furniture, for the purpose of, or in connection 
with leasing that property, if the aggregate book value of the property 
does not exceed 10 percent of the bank's consolidated assets and the 
related lease is a conforming lease. For the purpose of measuring 
compliance with the 10 percent limit prescribed by this section, a 
national bank records the investment in a lease entered into pursuant to 
this subpart net of any nonrecourse debt the bank has incurred to 
finance the acquisition of the leased asset.



Sec. 23.11  Lease term.

    A CEBA Lease must have an initial term of not less than 90 days. A 
national bank may acquire property subject to an existing lease with a 
remaining maturity of less than 90 days if, at its inception, the lease 
was a conforming lease.



Sec. 23.12  Transition rule.

    (a) General rule. A CEBA Lease entered into prior to July 22, 1991, 
may continue to be administered in accordance with the lease terms in 
effect as of that date. For purposes of applying the lending limits and 
the restrictions on transactions with affiliates described in Sec. 
23.6, however, a national bank that enters into a new extension of 
credit to a customer, including a lease, on or after July 22, 1991, 
shall include all outstanding leases regardless of the date on which 
they were made.
    (b) Renewal of non-conforming leases. A national bank may renew a 
CEBA Lease that was entered into prior to July 22, 1991, and that is not 
a conforming lease only if the following conditions are satisfied:
    (1) The bank entered into the CEBA Lease in good faith;
    (2) The expiring lease contains a binding agreement requiring that 
the bank renew the lease at the lessee's option, and the bank cannot 
reasonably avoid its commitment to do so; and
    (3) The bank determines in good faith, and demonstrates by 
appropriate documentation, that renewal of the lease is necessary to 
avoid financial loss and to recover its investment in, and its cost of 
financing, the leased property.



                  Subpart C_Section 24(Seventh) Leases



Sec. 23.20  General rule.

    Pursuant to 12 U.S.C. 24(Seventh) a national bank may invest in 
tangible or intangible personal property, including vehicles, 
manufactured homes, machinery, equipment, furniture, patents, 
copyrights, and other intellectual property, for the purpose of, or in 
connection with leasing that property, if the related lease is a 
conforming lease representing a noncancelable obligation of the lessee 
(notwithstanding the possible early termination of that lease).



Sec. 23.21  Estimated residual value.

    (a) Recovery of investment and costs. A national bank's estimate of 
the residual value of the property that the bank relies upon to satisfy 
the requirements of a full-payout lease, for purposes of this subpart:
    (1) Must be reasonable in light of the nature of the leased property 
and all circumstances relevant to the transaction; and
    (2) Any unguaranteed amount must not exceed 25 percent of the 
original cost of the property to the bank or the percentage for a 
particular type of property specified in published OCC guidance.
    (b) Estimated residual value subject to guarantee. The amount of any 
estimated residual value guaranteed by the manufacturer, the lessee, or 
other third party may exceed 25 percent of the original cost of the 
property if the bank determines, and demonstrates by appropriate 
documentation, that the guarantor has the resources to meet the 
guarantee and the guarantor is not an affiliate of the bank.
    (c) Leases to government entities. A bank's calculations of 
estimated residual value in connection with leases of personal property 
to Federal, State, or local governmental entities may be

[[Page 296]]

based on future transactions or renewals that the bank reasonably 
anticipates will occur.

[61 FR 66560, Dec. 18, 1996, as amended at 66 FR 34792, July 2, 2001]



Sec. 23.22  Transition rule.

    (a) Exclusion. A Section 24(Seventh) Lease entered into prior to 
June 12, 1979, may continue to be administered in accordance with the 
lease terms in effect as of that date. For purposes of applying the 
lending limits and the restrictions on transactions with affiliates 
described in Sec. 23.6, however, a national bank that enters into a new 
extension of credit to a customer, including a lease, on or after June 
12, 1979, shall include all outstanding leases regardless of the date on 
which they were made.
    (b) Renewal of non-conforming leases. A national bank may renew a 
Section 24(Seventh) Lease that was entered into prior to June 12, 1979, 
and that is not a conforming lease only if the following conditions are 
satisfied:
    (1) The bank entered into the Section 24(Seventh) Lease in good 
faith;
    (2) The expiring lease contains a binding agreement requiring that 
the bank renew the lease at the lessee's option, and the bank cannot 
reasonably avoid its commitment to do so; and
    (3) The bank determines in good faith, and demonstrates by 
appropriate documentation, that renewal of the lease is necessary to 
avoid financial loss and to recover its investment in, and its cost of 
financing, the leased property.



PART 24_COMMUNITY AND ECONOMIC DEVELOPMENT ENTITIES, COMMUNITY DEVELOPMENT PROJECTS, AND OTHER PUBLIC WELFARE INVESTMENTS--Table of Contents




Sec.
24.1 Authority, purpose, and OMB control number.
24.2 Definitions.
24.3 Public welfare investments.
24.4 Investment limits.
24.5 Public welfare investment after-the-fact notice and prior 
          procedures.
24.6 Examples of qualifying public welfare investments.
24.7 Examination, records, and remedial action.

Appendix 1 to Part 24--CD-1-National Bank Community Development (Part 
          24) Investments

    Authority: 12 U.S.C. 24(Eleventh), 93a, 481 and 1818.

    Source: 61 FR 49660, Sept. 23, 1996, unless otherwise noted.



Sec. 24.1  Authority, purpose, and OMB control number.

    (a) Authority: The Office of the Comptroller of the Currency (OCC) 
issues this part pursuant to its authority under 12 U.S.C. 24(Eleventh), 
93a, and 481.
    (b) Purpose. This part implements 12 U.S.C. 24(Eleventh), which 
authorizes national banks to make investments designed primarily to 
promote the public welfare, including the welfare of low- and moderate-
income areas or individuals, such as by providing housing, services, or 
jobs. It is the OCC's policy to encourage national banks to make 
investments described in Sec. 24.3, consistent with safety and 
soundness. The OCC believes that national banks can promote the public 
welfare through a variety of investments, including those in community 
and economic development entity (CEDEs) and community development 
projects (CD Projects) that develop affordable housing, foster 
revitalization or stabilization of low- and moderate-income areas or 
other areas targeted for redevelopment by local, state, tribal or 
Federal government, or provide equity or debt financing for small 
businesses that are located in such areas or that produce or retain 
permanent jobs for low- and moderate-income persons. This part provides:
    (1) The standards that the OCC uses to determine whether an 
investment is designed primarily to promote the public welfare; and
    (2) The procedures that apply to these investments.
    (c) OMB control number. The collection of information requirements 
contained in this part were approved by the Office of Management and 
Budget under OMB control number 1557-0194.
    (d) National banks that make loans or investments that are designed 
primarily to promote the public welfare

[[Page 297]]

and that are authorized under provisions of the banking laws other than 
12 U.S.C. 24(Eleventh), may do so without regard to the provisions of 12 
U.S.C. 24(Eleventh) or this part.

[61 FR 49660, Sept. 23, 1996, as amended at 64 FR 70990, Dec. 20, 1999; 
68 FR 48775, Aug. 15, 2003]



Sec. 24.2  Definitions.

    For purposes of this part, the following definitions apply:
    (a) Adequately capitalized has the same meaning as adequately 
capitalized in 12 CFR 6.4.
    (b) Capital and surplus means:
    (1) A bank's Tier 1 and Tier 2 capital calculated under the OCC's 
risk-based capital standards set out in Appendix A to 12 CFR part 3 as 
reported in the bank's Consolidated Report of Condition and Income as 
filed under 12 U.S.C. 161; plus
    (2) The balance of a bank's allowance for loan and lease losses not 
included in the bank's Tier 2 capital, for purposes of the calculation 
of risk-based capital under Appendix A to 12 CFR part 3, as reported in 
the bank's Consolidated Report of Condition and Income as filed under 12 
U.S.C. 161.
    (c) Community and economic development entity (CEDE) means an entity 
that makes investments or conducts activities that primarily benefit 
low- and moderate-income individuals, low- and moderate-income areas, or 
other areas targeted by a governmental entity for redevelopment, or 
would receive consideration as ``qualified investments'' under 12 CFR 
25.23. The following is a non-exclusive list of examples of the types of 
entities that may be CEDEs:
    (1) National bank community development corporation subsidiaries;
    (2) Private or nonbank community development corporations;
    (3) CDFI Fund-certified Community Development Financial Institutions 
or Community Development Entities;
    (4) Limited liability companies or limited partnerships;
    (5) Community development loan funds or lending consortia;
    (6) Community development real estate investment trusts;
    (7) Business development companies;
    (8) Community development closed-end mutual funds;
    (9) Non-diversified closed-end investment companies; and
    (10) Community development venture or equity capital funds.
    (d) Community development Project (CD Project) means a project to 
make an investment that meets the requirements of Sec. 24.3.
    (e) Eligible bank means, for purposes of Sec. 24.5, a national bank 
that:
    (1) Is well capitalized;
    (2) Has a composite rating of 1 or 2 under the Uniform Financial 
Institutions Rating System;
    (3) Has a Community Reinvestment Act (CRA) rating of ``Outstanding'' 
or ``Satisfactory''; and
    (4) Is not subject to a cease and desist order, consent order, 
formal written agreement, or Prompt Corrective Action directive (see 12 
CFR part 6, subpart B) or, if subject to any such order, agreement or 
directive, is informed in writing by the OCC that the bank may be 
treated as an ``eligible bank'' for purposes of this part.
    (f) Low-income and moderate-income have the same meanings as ``low-
income'' and ``moderate-income'' in 12 CFR 25.12(n).
    (g) Significant risk to the deposit insurance fund means a 
substantial probability that any Federal deposit insurance fund could 
suffer a loss.
    (h) Small business means a business, including a small farm or 
minority-owned small business, that meets the qualifications for Small 
Business Administration Development Company or Small Business Investment 
Company loan programs in 13 CFR 121.301.
    (i) Well capitalized has the same meaning as well capitalized in 12 
CFR 6.4.

[61 FR 49660, Sept. 23, 1996, as amended at 68 FR 48775, Aug. 15, 2003]



Sec. 24.3  Public welfare investments.

    A national bank may make an investment under this part if the 
investment primarily benefits low- and moderate-income individuals, low- 
and moderate-income areas, or other areas targeted by a governmental 
entity for redevelopment, or the investment

[[Page 298]]

would receive consideration under 12 CFR 25.23 as a ``qualified 
investment.''

[68 FR 48776, Aug. 15, 2003]



Sec. 24.4  Investment limits.

    (a) Limits on aggregate outstanding investments. A national bank's 
aggregate outstanding investments under this part may not exceed 5 
percent of its capital and surplus, unless the bank is at least 
adequately capitalized and the OCC determines, by written approval of 
the bank's proposed investment pursuant to Sec. 24.5(b), that a higher 
amount will pose no significant risk to the deposit insurance fund. In 
no case may a bank's aggregate outstanding investments under this part 
exceed 10 percent of its capital and surplus. When calculating the 
aggregate amount of its aggregate outstanding investments under this 
part, a national bank should follow generally accepted accounting 
principles, unless otherwise directed or permitted in writing by the OCC 
for prudential or safety and soundness reasons.
    (b) Limited liability. A national bank may not make an investment 
under this part that would expose the bank to unlimited liability.

[61 FR 49660, Sept. 23, 1996, as amended at 64 FR 70991, Dec. 20, 1999; 
68 FR 48776, Aug. 15, 2003]



Sec. 24.5  Public welfare investment after-the-fact notice and prior approval procedures.

    (a) After-the-fact notice of public welfare investments. (1) Subject 
to Sec. 24.4(a), an eligible bank may make an investment authorized by 
12 U.S.C. 24 (Eleventh) and this part without prior notification to, or 
approval by, the OCC if the bank follows the after-the-fact notice 
procedures described in this section.
    (2) An eligible bank shall provide an after-the-fact notification of 
an investment, within 10 working days after it makes the investment, to 
the Director, Community Development Division, Office of the Comptroller 
of the Currency, Washington, DC 20219.
    (3) The bank's after-the-fact-notice must include:
    (i) A description of the bank's investment;
    (ii) The amount of the investment;
    (iii) The percentage of the bank's capital and surplus represented 
by the investment that is the subject of the notice and by the bank's 
aggregate outstanding public welfare investments and commitments, 
including the investment that is the subject of the notice; and
    (iv) A statement certifying that the investment complies with the 
requirements of Sec. Sec. 24.3 and 24.4.
    (4) A bank may satisfy the notice requirements of paragraph (3) of 
this section by completing form CD-1, attached as Appendix 1 to this 
part.
    (5) A national bank that is not an eligible bank but that is at 
least adequately capitalized, and has a composite rating of at least 3 
with improving trends under the Uniform Financial Institutions Rating 
System, may submit a letter to the Community Development Division 
requesting authority to submit after-the-fact notices of its 
investments. The Community Development Division considers these requests 
on a case-by-case basis.
    (6) Notwithstanding the provisions of this section, a bank may not 
submit an after-the-fact notice of an investment if:
    (i) The investment involves properties carried on the bank's books 
as ``other real estate owned''; or
    (ii) The OCC determines, in published guidance, that the investment 
is inappropriate for after-the-fact notice.
    (b) Investments requiring prior approval. (1) If a national bank 
does not meet the requirements for after-the-fact investment 
notification set forth in this part, the bank must submit an investment 
proposal to the Director, Community Development Division, Office of the 
Comptroller of the Currency, Washington, DC 20219. The bank may use form 
CD-1, attached to this part as Appendix 1, to satisfy this requirement.
    (2) The bank's investment proposal must include:
    (i) A description of the bank's investment;
    (ii) The amount of the investment;
    (iii) The percentage of the bank's capital and surplus represented 
by the proposed investment and by the bank's aggregate outstanding 
public welfare

[[Page 299]]

investments and commitments, including the proposed investment; and
    (iv) A statement certifying that the investment complies with the 
requirements of Sec. Sec. 24.3 and 24.4.
    (3) In reviewing a proposal, the OCC considers the following factors 
and other available information:
    (i) Whether the investment satisfies the requirements of Sec. 24.3 
and Sec. 24.4;
    (ii) Whether the investment is consistent with the safe and sound 
operation of the bank; and
    (iii) Whether the investment is consistent with the requirements of 
this part and the OCC's policies.
    (4) Unless otherwise notified in writing by the OCC, and subject to 
Sec. 24.4(a), the proposed investment is deemed approved after 30 
calendar days from the date on which the OCC receives the bank's 
investment proposal.
    (5) The OCC, by notifying the bank, may extend its period for 
reviewing the investment proposal. If so notified, the bank may make the 
investment only with the OCC's written approval.
    (6) The OCC may impose one or more conditions in connection with its 
approval of an investment under this part. All approvals are subject to 
the condition that a national bank must conduct the approved activity in 
a manner consistent with any published guidance issued by the OCC 
regarding the activity.

[61 FR 49660, Sept. 23, 1996, as amended at 64 FR 70991, Dec. 20, 1999; 
68 FR 48776, Aug. 15, 2003]



Sec. 24.6  Examples of qualifying public welfare investments.

    Investments that primarily support the following types of activities 
are examples of investments that meet the requirements of Sec. 24.3:
    (a) Affordable housing activities, including:
    (1) Investments in an entity that finances, acquires, develops, 
rehabilitates, manages, sells, or rents housing primarily for low- and 
moderate-income individuals;
    (2) Investments in a project that develops or operates transitional 
housing for the homeless;
    (3) Investments in a project that develops or operates special needs 
housing for disabled or elderly low- and moderate-income individuals; 
and
    (4) Investments in a project that qualifies for the Federal low-
income housing tax credit;
    (b) Economic development and job creation investments, including:
    (1) Investments that finance small businesses (including equity or 
debt financing and investments in an entity that provides loan 
guarantees) that are located in low- and moderate-income areas or other 
targeted redevelopment areas or that produce or retain permanent jobs, 
the majority of which are held by low- and moderate-income individuals;
    (2) Investments that finance small businesses or small farms that, 
although not located in low- and moderate-income areas or targeted 
redevelopment areas, create a significant number of permanent jobs for 
low- or moderate-income individuals;
    (3) Investments in an entity that acquires, develops, rehabilitates, 
manages, sells, or rents commercial or industrial property that is 
located in a low- and moderate-income area or targeted redevelopment 
area and occupied primarily by small businesses, or that is occupied 
primarily by small businesses that produce or retain permanent jobs, the 
majority of which are held by low- and moderate-income individuals; and
    (4) Investments in low- and moderate-income areas or targeted 
redevelopment areas that produce or retain permanent jobs, the majority 
of which are held by low- and moderate-income individuals;
    (c) Investments in CEDEs, including:
    (1) Investments in a national bank that has been approved by the OCC 
as a national bank with a community development focus;
    (2) Investments in a community development financial institution, as 
defined in 12 U.S.C. 4742(5);
    (3) Investments in a CEDE that is eligible to receive New Markets 
tax credits under 26 U.S.C. 45D; and
    (d) Other public welfare investments, including:
    (1) Investments that provide credit counseling, job training, 
community development research, and similar technical assistance 
services for non-

[[Page 300]]

profit community development organizations, low- and moderate-income 
individuals or areas or targeted redevelopment areas, or small 
businesses located in low- and moderate-income areas or that produce or 
retain permanent jobs, the majority of which are held by low- and 
moderate-income individuals;
    (2) Investments of a type approved by the Federal Reserve Board 
under 12 CFR 208.22 for state member banks that are consistent with the 
requirements of Sec. 24.3; and
    (3) Investments of a type previously determined by the OCC to be 
permissible under this part.

[68 FR 48776, Aug. 15, 2003]



Sec. 24.7  Examination, records, and remedial action.

    (a) Examination. National bank investments under this part are 
subject to the examination provisions of 12 U.S.C. 481.
    (b) Records. Each national bank shall maintain in its files 
information adequate to demonstrate that its investments meet the 
standards set out in Sec. 24.3 of this part, including, where 
applicable, the criteria of 12 C.F.R. 25.23, and that the bank is 
otherwise in compliance with the requirements of this part.
    (c) Remedial action. If the OCC finds that an investment under this 
part is in violation of law or regulation, is inconsistent with the safe 
and sound operation of the bank, or poses a significant risk to a 
Federal deposit insurance fund, the national bank shall take appropriate 
remedial action as determined by the OCC.

[61 FR 49660, Sept. 23, 1996, as amended at 68 FR 48777, Aug. 15, 2003]

[[Page 301]]



  Sec. Appendix 1 to Part 24--CD-1-National Bank Community Development 
                          (Part 24) Investments
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[68 FR 48777, Aug. 15, 2003]



PART 25_COMMUNITY REINVESTMENT ACT AND INTERSTATE DEPOSIT PRODUCTION REGULATIONS--Table of Contents




                               Regulations

                            Subpart A_General

Sec.
25.11 Authority, purposes, and scope.
25.12 Definitions.

              Subpart B_Standards for Assessing Performance

25.21 Performance tests, standards, and ratings, in general.
25.22 Lending test.
25.23 Investment test.
25.24 Service test.
25.25 Community development test for wholesale or limited purpose banks.
25.26 Small bank performance standards.
25.27 Strategic plan.
25.28 Assigned ratings.
25.29 Effect of CRA performance on applications.

        Subpart C_Records, Reporting, and Disclosure Requirements

25.41 Assessment area delineation.
25.42 Data collection, reporting, and disclosure.
25.43 Content and availability of public file.
25.44 Public notice by banks.
25.45 Publication of planned examination schedule.

Subpart D [Reserved]

 Subpart E_Prohibition Against Use of Interstate Branches Primarily for 
                           Deposit Production

25.61 Purpose and scope.
25.62 Definitions.
25.63 Loan-to-deposit ratio screen.
25.64 Credit needs determination.
25.65 Sanctions.

Appendix A to Part 25--Ratings
Appendix B to Part 25--CRA Notice

    Authority: 12 U.S.C. 21, 22, 26, 27, 30, 36, 93a, 161, 215, 215a, 
481, 1814, 1816, 1828(c), 1835a, 2901 through 2907, and 3101 through 
3111.

    Source: 43 FR 47146, Oct. 12, 1978, unless otherwise noted.

                               Regulations



                            Subpart A_General



Sec. 25.11  Authority, purposes, and scope.

    (a) Authority and OMB control number--(1) Authority. The authority 
for subparts A, B, C, D, and E is 12 U.S.C. 21, 22, 26, 27, 30, 36, 93a, 
161, 215, 215a, 481, 1814, 1816, 1828(c), 1835a, 2901 through 2907, and 
3101 through 3111.
    (2) OMB control number. The information collection requirements 
contained in this part were approved by the Office of Management and 
Budget under the provisions of 44 U.S.C. 3501 et seq. and have been 
assigned OMB control number 1557-0160.
    (b) Purposes. In enacting the Community Reinvestment Act (CRA), the 
Congress required each appropriate Federal financial supervisory agency 
to assess an institution's record of helping to meet the credit needs of 
the local communities in which the institution is chartered, consistent 
with the safe and sound operation of the institution, and to take this 
record into account in the agency's evaluation of an application for a 
deposit facility by the institution. This part is intended to carry out 
the purposes of the CRA by:
    (1) Establishing the framework and criteria by which the Office of 
the Comptroller of the Currency (OCC) assesses a bank's record of 
helping to meet the credit needs of its entire community, including low- 
and moderate-income neighborhoods, consistent with the safe and sound 
operation of the bank; and
    (2) Providing that the OCC takes that record into account in 
considering certain applications.
    (c) Scope--(1) General. This part applies to all banks except as 
provided in paragraphs (c)(2) and (c)(3) of this section.
    (2) Federal branches and agencies. (i) This part applies to all 
insured Federal branches and to any Federal branch that is uninsured 
that results from an acquisition described in section 5(a)(8) of the 
International Banking Act of 1978 (12 U.S.C. 3103(a)(8)).
    (ii) Except as provided in paragraph (c)(2)(i) of this section, this 
part does not apply to Federal branches that are uninsured, limited 
Federal branches, or

[[Page 307]]

Federal agencies, as those terms are defined in part 28 of this chapter.
    (3) Certain special purpose banks. This part does not apply to 
special purpose banks that do not perform commercial or retail banking 
services by granting credit to the public in the ordinary course of 
business, other than as incident to their specialized operations. These 
banks include banker's banks, as defined in 12 U.S.C. 24 (Seventh), and 
banks that engage only in one or more of the following activities: 
providing cash management controlled disbursement services or serving as 
correspondent banks, trust companies, or clearing agents.

[60 FR 22178, May 4, 1995, as amended at 62 FR 47734, Sept. 10, 1997]



Sec. 25.12  Definitions.

    For purposes of this part, the following definitions apply:
    (a) Affiliate means any company that controls, is controlled by, or 
is under common control with another company. The term ``control'' has 
the meaning given to that term in 12 U.S.C. 1841(a)(2), and a company is 
under common control with another company if both companies are directly 
or indirectly controlled by the same company.
    (b) Area median income means:
    (1) The median family income for the MSA, if a person or geography 
is located in an MSA, or for the metropolitan division, if a person or 
geography is located in an MSA that has been subdivided into 
metropolitan divisions; or
    (2) The statewide nonmetropolitan median family income, if a person 
or geography is located outside an MSA.
    (c) Assessment area means a geographic area delineated in accordance 
with Sec. 25.41.
    (d) Automated teller machine (ATM) means an automated, unstaffed 
banking facility owned or operated by, or operated exclusively for, the 
bank at which deposits are received, cash dispersed, or money lent.
    (e) Bank means a national bank (including a Federal branch as 
defined in part 28 of this chapter) with Federally insured deposits, 
except as provided in Sec. 25.11(c).
    (f) Branch means a staffed banking facility authorized as a branch, 
whether shared or unshared, including, for example, a mini-branch in a 
grocery store or a branch operated in conjunction with any other local 
business or nonprofit organization.
    (g) Community development means:
    (1) Affordable housing (including multifamily rental housing) for 
low- or moderate-income individuals;
    (2) Community services targeted to low- or moderate-income 
individuals;
    (3) Activities that promote economic development by financing 
businesses or farms that meet the size eligibility standards of the 
Small Business Administration's Development Company or Small Business 
Investment Company programs (13 CFR 121.301) or have gross annual 
revenues of $1 million or less; or
    (4) Activities that revitalize or stabilize--
    (i) Low-or moderate-income geographies;
    (ii) Designated disaster areas; or
    (iii) Distressed or underserved nonmetropolitan middle-income 
geographies designated by the Board of Governors of the Federal Reserve 
System, Federal Deposit Insurance Corporation, and OCC, based on--
    (A) Rates of poverty, unemployment, and population loss; or
    (B) Population size, density, and dispersion. Activities revitalize 
and stabilize geographies designated based on population size, density, 
and dispersion if they help to meet essential community needs, including 
needs of low- and moderate-income individuals.
    (h) Community development loan means a loan that:
    (1) Has as its primary purpose community development; and
    (2) Except in the case of a wholesale or limited purpose bank:
    (i) Has not been reported or collected by the bank or an affiliate 
for consideration in the bank's assessment as a home mortgage, small 
business, small farm, or consumer loan, unless it is a multifamily 
dwelling loan (as described in appendix A to part 203 of this title); 
and
    (ii) Benefits the bank's assessment area(s) or a broader statewide 
or regional area that includes the bank's assessment area(s).

[[Page 308]]

    (i) Community development service means a service that:
    (1) Has as its primary purpose community development;
    (2) Is related to the provision of financial services; and
    (3) Has not been considered in the evaluation of the bank's retail 
banking services under Sec. 25.24(d).
    (j) Consumer loan means a loan to one or more individuals for 
household, family, or other personal expenditures. A consumer loan does 
not include a home mortgage, small business, or small farm loan. 
Consumer loans include the following categories of loans:
    (1) Motor vehicle loan, which is a consumer loan extended for the 
purchase of and secured by a motor vehicle;
    (2) Credit card loan, which is a line of credit for household, 
family, or other personal expenditures that is accessed by a borrower's 
use of a ``credit card,'' as this term is defined in Sec. 226.2 of this 
title;
    (3) Home equity loan, which is a consumer loan secured by a 
residence of the borrower;
    (4) Other secured consumer loan, which is a secured consumer loan 
that is not included in one of the other categories of consumer loans; 
and
    (5) Other unsecured consumer loan, which is an unsecured consumer 
loan that is not included in one of the other categories of consumer 
loans.
    (k) Geography means a census tract delineated by the United States 
Bureau of the Census in the most recent decennial census.
    (l) Home mortgage loan means a ``home improvement loan,'' ``home 
purchase loan,'' or a ``refinancing'' as defined in Sec. 203.2 of this 
title.
    (m) Income level includes:
    (1) Low-income, which means an individual income that is less than 
50 percent of the area median income, or a median family income that is 
less than 50 percent, in the case of a geography.
    (2) Moderate-income, which means an individual income that is at 
least 50 percent and less than 80 percent of the area median income, or 
a median family income that is at least 50 and less than 80 percent, in 
the case of a geography.
    (3) Middle-income, which means an individual income that is at least 
80 percent and less than 120 percent of the area median income, or a 
median family income that is at least 80 and less than 120 percent, in 
the case of a geography.
    (4) Upper-income, which means an individual income that is 120 
percent or more of the area median income, or a median family income 
that is 120 percent or more, in the case of a geography.
    (n) Limited purpose bank means a bank that offers only a narrow 
product line (such as credit card or motor vehicle loans) to a regional 
or broader market and for which a designation as a limited purpose bank 
is in effect, in accordance with Sec. 25.25(b).
    (o) Loan location. A loan is located as follows:
    (1) A consumer loan is located in the geography where the borrower 
resides;
    (2) A home mortgage loan is located in the geography where the 
property to which the loan relates is located; and
    (3) A small business or small farm loan is located in the geography 
where the main business facility or farm is located or where the loan 
proceeds otherwise will be applied, as indicated by the borrower.
    (p) Loan production office means a staffed facility, other than a 
branch, that is open to the public and that provides lending-related 
services, such as loan information and applications.
    (q) Metropolitan division means a metropolitan division as defined 
by the Director of the Office of Management and Budget.
    (r) MSA means a metropolitan statistical area as defined by the 
Director of the Office of Management and Budget.
    (s) Nonmetropolitan area means any area that is not located in an 
MSA.
    (t) Qualified investment means a lawful investment, deposit, 
membership share, or grant that has as its primary purpose community 
development.
    (u) Small bank--(1) Definition. Small bank means a bank that, as of 
December 31 of either of the prior two calendar years, had assets of 
less than $1.061 billion. Intermediate small bank means a small bank 
with assets of at least $265 million as of December 31 of both of the 
prior two calendar years

[[Page 309]]

and less than $1.061 billion as of December 31 of either of the prior 
two calendar years.
    (2) Adjustment. The dollar figures in paragraph (u)(1) of this 
section shall be adjusted annually and published by the OCC, based on 
the year-to-year change in the average of the Consumer Price Index for 
Urban Wage Earners and Clerical Workers, not seasonally adjusted, for 
each twelve-month period ending in November, with rounding to the 
nearest million.
    (v) Small business loan means a loan included in ``loans to small 
businesses'' as defined in the instructions for preparation of the 
Consolidated Report of Condition and Income.
    (w) Small farm loan means a loan included in ``loans to small 
farms'' as defined in the instructions for preparation of the 
Consolidated Report of Condition and Income.
    (x) Wholesale bank means a bank that is not in the business of 
extending home mortgage, small business, small farm, or consumer loans 
to retail customers, and for which a designation as a wholesale bank is 
in effect, in accordance with Sec. 25.25(b).

[60 FR 22178, May 4, 1995, as amended at 60 FR 66050, Dec. 20, 1995; 61 
FR 21363, May 10, 1996; 69 FR 41186, July 8, 2004; 70 FR 44266, Aug. 2, 
2005; 71 FR 78336, Dec. 29, 2006; 72 FR 72573, Dec. 21, 2007]



              Subpart B_Standards for Assessing Performance

    Source: 60 FR 22180, May 4, 1995, unless otherwise noted.



Sec. 25.21  Performance tests, standards, and ratings, in general.

    (a) Performance tests and standards. The OCC assesses the CRA 
performance of a bank in an examination as follows:
    (1) Lending, investment, and service tests. The OCC applies the 
lending, investment, and service tests, as provided in Sec. Sec. 25.22 
through 25.24, in evaluating the performance of a bank, except as 
provided in paragraphs (a)(2), (a)(3), and (a)(4) of this section.
    (2) Community development test for wholesale or limited purpose 
banks. The OCC applies the community development test for a wholesale or 
limited purpose bank, as provided in Sec. 25.25, except as provided in 
paragraph (a)(4) of this section.
    (3) Small bank performance standards. The OCC applies the small bank 
performance standards as provided in Sec. 25.26 in evaluating the 
performance of a small bank or a bank that was a small bank during the 
prior calendar year, unless the bank elects to be assessed as provided 
in paragraphs (a)(1), (a)(2), or (a)(4) of this section. The bank may 
elect to be assessed as provided in paragraph (a)(1) of this section 
only if it collects and reports the data required for other banks under 
Sec. 25.42.
    (4) Strategic plan. The OCC evaluates the performance of a bank 
under a strategic plan if the bank submits, and the OCC approves, a 
strategic plan as provided in Sec. 25.27.
    (b) Performance context. The OCC applies the tests and standards in 
paragraph (a) of this section and also considers whether to approve a 
proposed strategic plan in the context of:
    (1) Demographic data on median income levels, distribution of 
household income, nature of housing stock, housing costs, and other 
relevant data pertaining to a bank's assessment area(s);
    (2) Any information about lending, investment, and service 
opportunities in the bank's assessment area(s) maintained by the bank or 
obtained from community organizations, state, local, and tribal 
governments, economic development agencies, or other sources;
    (3) The bank's product offerings and business strategy as determined 
from data provided by the bank;
    (4) Institutional capacity and constraints, including the size and 
financial condition of the bank, the economic climate (national, 
regional, and local), safety and soundness limitations, and any other 
factors that significantly affect the bank's ability to provide lending, 
investments, or services in its assessment area(s);
    (5) The bank's past performance and the performance of similarly 
situated lenders;
    (6) The bank's public file, as described in Sec. 25.43, and any 
written comments about the bank's CRA performance submitted to the bank 
or the OCC; and
    (7) Any other information deemed relevant by the OCC.

[[Page 310]]

    (c) Assigned ratings. The OCC assigns to a bank one of the following 
four ratings pursuant to Sec. 25.28 and appendix A of this part: 
``outstanding''; ``satisfactory''; ``needs to improve''; or 
``substantial noncompliance'' as provided in 12 U.S.C. 2906(b)(2). The 
rating assigned by the OCC reflects the bank's record of helping to meet 
the credit needs of its entire community, including low- and moderate-
income neighborhoods, consistent with the safe and sound operation of 
the bank.
    (d) Safe and sound operations. This part and the CRA do not require 
a bank to make loans or investments or to provide services that are 
inconsistent with safe and sound operations. To the contrary, the OCC 
anticipates banks can meet the standards of this part with safe and 
sound loans, investments, and services on which the banks expect to make 
a profit. Banks are permitted and encouraged to develop and apply 
flexible underwriting standards for loans that benefit low- or moderate-
income geographies or individuals, only if consistent with safe and 
sound operations.



Sec. 25.22  Lending test.

    (a) Scope of test. (1) The lending test evaluates a bank's record of 
helping to meet the credit needs of its assessment area(s) through its 
lending activities by considering a bank's home mortgage, small 
business, small farm, and community development lending. If consumer 
lending constitutes a substantial majority of a bank's business, the OCC 
will evaluate the bank's consumer lending in one or more of the 
following categories: motor vehicle, credit card, home equity, other 
secured, and other unsecured loans. In addition, at a bank's option, the 
OCC will evaluate one or more categories of consumer lending, if the 
bank has collected and maintained, as required in Sec. 25.42(c)(1), the 
data for each category that the bank elects to have the OCC evaluate.
    (2) The OCC considers originations and purchases of loans. The OCC 
will also consider any other loan data the bank may choose to provide, 
including data on loans outstanding, commitments and letters of credit.
    (3) A bank may ask the OCC to consider loans originated or purchased 
by consortia in which the bank participates or by third parties in which 
the bank has invested only if the loans meet the definition of community 
development loans and only in accordance with paragraph (d) of this 
section. The OCC will not consider these loans under any criterion of 
the lending test except the community development lending criterion.
    (b) Performance criteria. The OCC evaluates a bank's lending 
performance pursuant to the following criteria:
    (1) Lending activity. The number and amount of the bank's home 
mortgage, small business, small farm, and consumer loans, if applicable, 
in the bank's assessment area(s);
    (2) Geographic distribution. The geographic distribution of the 
bank's home mortgage, small business, small farm, and consumer loans, if 
applicable, based on the loan location, including:
    (i) The proportion of the bank's lending in the bank's assessment 
area(s);
    (ii) The dispersion of lending in the bank's assessment area(s); and
    (iii) The number and amount of loans in low-, moderate-, middle-, 
and upper-income geographies in the bank's assessment area(s);
    (3) Borrower characteristics. The distribution, particularly in the 
bank's assessment area(s), of the bank's home mortgage, small business, 
small farm, and consumer loans, if applicable, based on borrower 
characteristics, including the number and amount of:
    (i) Home mortgage loans to low-, moderate-, middle-, and upper-
income individuals;
    (ii) Small business and small farm loans to businesses and farms 
with gross annual revenues of $1 million or less;
    (iii) Small business and small farm loans by loan amount at 
origination; and
    (iv) Consumer loans, if applicable, to low-, moderate-, middle-, and 
upper-income individuals;
    (4) Community development lending. The bank's community development 
lending, including the number and amount of community development

[[Page 311]]

loans, and their complexity and innovativeness; and
    (5) Innovative or flexible lending practices. The bank's use of 
innovative or flexible lending practices in a safe and sound manner to 
address the credit needs of low- or moderate-income individuals or 
geographies.
    (c) Affiliate lending. (1) At a bank's option, the OCC will consider 
loans by an affiliate of the bank, if the bank provides data on the 
affiliate's loans pursuant to Sec. 25.42.
    (2) The OCC considers affiliate lending subject to the following 
constraints:
    (i) No affiliate may claim a loan origination or loan purchase if 
another institution claims the same loan origination or purchase; and
    (ii) If a bank elects to have the OCC consider loans within a 
particular lending category made by one or more of the bank's affiliates 
in a particular assessment area, the bank shall elect to have the OCC 
consider, in accordance with paragraph (c)(1) of this section, all the 
loans within that lending category in that particular assessment area 
made by all of the bank's affiliates.
    (3) The OCC does not consider affiliate lending in assessing a 
bank's performance under paragraph (b)(2)(i) of this section.
    (d) Lending by a consortium or a third party. Community development 
loans originated or purchased by a consortium in which the bank 
participates or by a third party in which the bank has invested:
    (1) Will be considered, at the bank's option, if the bank reports 
the data pertaining to these loans under Sec. 25.42(b)(2); and
    (2) May be allocated among participants or investors, as they 
choose, for purposes of the lending test, except that no participant or 
investor:
    (i) May claim a loan origination or loan purchase if another 
participant or investor claims the same loan origination or purchase; or
    (ii) May claim loans accounting for more than its percentage share 
(based on the level of its participation or investment) of the total 
loans originated by the consortium or third party.
    (e) Lending performance rating. The OCC rates a bank's lending 
performance as provided in appendix A of this part.



Sec. 25.23  Investment test.

    (a) Scope of test. The investment test evaluates a bank's record of 
helping to meet the credit needs of its assessment area(s) through 
qualified investments that benefit its assessment area(s) or a broader 
statewide or regional area that includes the bank's assessment area(s).
    (b) Exclusion. Activities considered under the lending or service 
tests may not be considered under the investment test.
    (c) Affiliate investment. At a bank's option, the OCC will consider, 
in its assessment of a bank's investment performance, a qualified 
investment made by an affiliate of the bank, if the qualified investment 
is not claimed by any other institution.
    (d) Disposition of branch premises. Donating, selling on favorable 
terms, or making available on a rent-free basis a branch of the bank 
that is located in a predominantly minority neighborhood to a minority 
depository institution or women's depository institution (as these terms 
are defined in 12 U.S.C. 2907(b)) will be considered as a qualified 
investment.
    (e) Performance criteria. The OCC evaluates the investment 
performance of a bank pursuant to the following criteria:
    (1) The dollar amount of qualified investments;
    (2) The innovativeness or complexity of qualified investments;
    (3) The responsiveness of qualified investments to credit and 
community development needs; and
    (4) The degree to which the qualified investments are not routinely 
provided by private investors.
    (f) Investment performance rating. The OCC rates a bank's investment 
performance as provided in appendix A of this part.



Sec. 25.24  Service test.

    (a) Scope of test. The service test evaluates a bank's record of 
helping to meet the credit needs of its assessment area(s) by analyzing 
both the availability and effectiveness of a bank's systems for 
delivering retail banking

[[Page 312]]

services and the extent and innovativeness of its community development 
services.
    (b) Area(s) benefitted. Community development services must benefit 
a bank's assessment area(s) or a broader statewide or regional area that 
includes the bank's assessment area(s).
    (c) Affiliate service. At a bank's option, the OCC will consider, in 
its assessment of a bank's service performance, a community development 
service provided by an affiliate of the bank, if the community 
development service is not claimed by any other institution.
    (d) Performance criteria--retail banking services. The OCC evaluates 
the availability and effectiveness of a bank's systems for delivering 
retail banking services, pursuant to the following criteria:
    (1) The current distribution of the bank's branches among low-,

moderate-, middle-, and upper-income geographies;
    (2) In the context of its current distribution of the bank's 
branches, the bank's record of opening and closing branches, 
particularly branches located in low- or moderate-income geographies or 
primarily serving low- or moderate-income individuals;
    (3) The availability and effectiveness of alternative systems for 
delivering retail banking services (e.g., ATMs, ATMs not owned or 
operated by or exclusively for the bank, banking by telephone or 
computer, loan production offices, and bank-at-work or bank-by-mail 
programs) in low- and moderate-income geographies and to low- and 
moderate-income individuals; and
    (4) The range of services provided in low-, moderate-, middle-, and 
upper-income geographies and the degree to which the services are 
tailored to meet the needs of those geographies.
    (e) Performance criteria--community development services. The OCC 
evaluates community development services pursuant to the following 
criteria:
    (1) The extent to which the bank provides community development 
services; and
    (2) The innovativeness and responsiveness of community development 
services.
    (f) Service performance rating. The OCC rates a bank's service 
performance as provided in appendix A of this part.



Sec. 25.25  Community development test for wholesale or limited purpose banks.

    (a) Scope of test. The OCC assesses a wholesale or limited purpose 
bank's record of helping to meet the credit needs of its assessment 
area(s) under the community development test through its community 
development lending, qualified investments, or community development 
services.
    (b) Designation as a wholesale or limited purpose bank. In order to 
receive a designation as a wholesale or limited purpose bank, a bank 
shall file a request, in writing, with the OCC, at least three months 
prior to the proposed effective date of the designation. If the OCC 
approves the designation, it remains in effect until the bank requests 
revocation of the designation or until one year after the OCC notifies 
the bank that the OCC has revoked the designation on its own initiative.
    (c) Performance criteria. The OCC evaluates the community 
development performance of a wholesale or limited purpose bank pursuant 
to the following criteria:
    (1) The number and amount of community development loans (including 
originations and purchases of loans and other community development loan 
data provided by the bank, such as data on loans outstanding, 
commitments, and letters of credit), qualified investments, or community 
development services;
    (2) The use of innovative or complex qualified investments, 
community development loans, or community development services and the 
extent to which the investments are not routinely provided by private 
investors; and
    (3) The bank's responsiveness to credit and community development 
needs.
    (d) Indirect activities. At a bank's option, the OCC will consider 
in its community development performance assessment:
    (1) Qualified investments or community development services provided 
by

[[Page 313]]

an affiliate of the bank, if the investments or services are not claimed 
by any other institution; and
    (2) Community development lending by affiliates, consortia and third 
parties, subject to the requirements and limitations in Sec. 25.22(c) 
and (d).
    (e) Benefit to assessment area(s)--(1) Benefit inside assessment 
area(s). The OCC considers all qualified investments, community 
development loans, and community development services that benefit areas 
within the bank's assessment area(s) or a broader statewide or regional 
area that includes the bank's assessment area(s).
    (2) Benefit outside assessment area(s). The OCC considers the 
qualified investments, community development loans, and community 
development services that benefit areas outside the bank's assessment 
area(s), if the bank has adequately addressed the needs of its 
assessment area(s).
    (f) Community development performance rating. The OCC rates a bank's 
community development performance as provided in appendix A of this 
part.



Sec. 25.26  Small bank performance standards.

    (a) Performance criteria--(1) Small banks that are not intermediate 
small banks. The OCC evaluates the record of a small bank that is not, 
or that was not during the prior calendar year, an intermediate small 
bank, of helping to meet the credit needs of its assessment area(s) 
pursuant to the criteria set forth in paragraph (b) of this section.
    (2) Intermediate small banks. The OCC evaluates the record of a 
small bank that is, or that was during the prior calendar year, an 
intermediate small bank, of helping to meet the credit needs of its 
assessment area(s) pursuant to the criteria set forth in paragraphs (b) 
and (c) of this section.
    (b) Lending test. A small bank's lending performance is evaluated 
pursuant to the following criteria:
    (1) The bank's loan-to-deposit ratio, adjusted for seasonal 
variation, and, as appropriate, other lending-related activities, such 
as loan originations for sale to the secondary markets, community 
development loans, or qualified investments;
    (2) The percentage of loans and, as appropriate, other lending-
related activities located in the bank's assessment area(s);
    (3) The bank's record of lending to and, as appropriate, engaging in 
other lending-related activities for borrowers of different income 
levels and businesses and farms of different sizes;
    (4) The geographic distribution of the bank's loans; and
    (5) The bank's record of taking action, if warranted, in response to 
written complaints about its performance in helping to meet credit needs 
in its assessment area(s).
    (c) Community development test. An intermediate small bank's 
community development performance also is evaluated pursuant to the 
following criteria:
    (1) The number and amount of community development loans;
    (2) The number and amount of qualified investments;
    (3) The extent to which the bank provides community development 
services; and
    (4) The bank's responsiveness through such activities to community 
development lending, investment, and services needs.
    (d) Small bank performance rating. The OCC rates the performance of 
a bank evaluated under this section as provided in appendix A of this 
part.

[70 FR 44266, Aug. 2, 2005, as amended at 71 FR 78336, Dec. 29, 2006; 72 
FR 72573, Dec. 21, 2007]



Sec. 25.27  Strategic plan.

    (a) Alternative election. The OCC will assess a bank's record of 
helping to meet the credit needs of its assessment area(s) under a 
strategic plan if:
    (1) The bank has submitted the plan to the OCC as provided for in 
this section;
    (2) The OCC has approved the plan;
    (3) The plan is in effect; and
    (4) The bank has been operating under an approved plan for at least 
one year.
    (b) Data reporting. The OCC's approval of a plan does not affect the 
bank's obligation, if any, to report data as required by Sec. 25.42.
    (c) Plans in general--(1) Term. A plan may have a term of no more 
than five years, and any multi-year plan must

[[Page 314]]

include annual interim measurable goals under which the OCC will 
evaluate the bank's performance.
    (2) Multiple assessment areas. A bank with more than one assessment 
area may prepare a single plan for all of its assessment areas or one or 
more plans for one or more of its assessment areas.
    (3) Treatment of affiliates. Affiliated institutions may prepare a 
joint plan if the plan provides measurable goals for each institution. 
Activities may be allocated among institutions at the institutions' 
option, provided that the same activities are not considered for more 
than one institution.
    (d) Public participation in plan development. Before submitting a 
plan to the OCC for approval, a bank shall:
    (1) Informally seek suggestions from members of the public in its 
assessment area(s) covered by the plan while developing the plan;
    (2) Once the bank has developed a plan, formally solicit public 
comment on the plan for at least 30 days by publishing notice in at 
least one newspaper of general circulation in each assessment area 
covered by the plan; and
    (3) During the period of formal public comment, make copies of the 
plan available for review by the public at no cost at all offices of the 
bank in any assessment area covered by the plan and provide copies of 
the plan upon request for a reasonable fee to cover copying and mailing, 
if applicable.
    (e) Submission of plan. The bank shall submit its plan to the OCC at 
least three months prior to the proposed effective date of the plan. The 
bank shall also submit with its plan a description of its informal 
efforts to seek suggestions from members of the public, any written 
public comment received, and, if the plan was revised in light of the 
comment received, the initial plan as released for public comment.
    (f) Plan content--(1) Measurable goals. (i) A bank shall specify in 
its plan measurable goals for helping to meet the credit needs of each 
assessment area covered by the plan, particularly the needs of low- and 
moderate-income geographies and low- and moderate-income individuals, 
through lending, investment, and services, as appropriate.
    (ii) A bank shall address in its plan all three performance 
categories and, unless the bank has been designated as a wholesale or 
limited purpose bank, shall emphasize lending and lending-related 
activities. Nevertheless, a different emphasis, including a focus on one 
or more performance categories, may be appropriate if responsive to the 
characteristics and credit needs of its assessment area(s), considering 
public comment and the bank's capacity and constraints, product 
offerings, and business strategy.
    (2) Confidential information. A bank may submit additional 
information to the OCC on a confidential basis, but the goals stated in 
the plan must be sufficiently specific to enable the public and the OCC 
to judge the merits of the plan.
    (3) Satisfactory and outstanding goals. A bank shall specify in its 
plan measurable goals that constitute ``satisfactory'' performance. A 
plan may specify measurable goals that constitute ``outstanding'' 
performance. If a bank submits, and the OCC approves, both 
``satisfactory'' and ``outstanding'' performance goals, the OCC will 
consider the bank eligible for an ``outstanding'' performance rating.
    (4) Election if satisfactory goals not substantially met. A bank may 
elect in its plan that, if the bank fails to meet substantially its plan 
goals for a satisfactory rating, the OCC will evaluate the bank's 
performance under the lending, investment, and service tests, the 
community development test, or the small bank performance standards, as 
appropriate.
    (g) Plan approval--(1) Timing. The OCC will act upon a plan within 
60 calendar days after the OCC receives the complete plan and other 
material required under paragraph (e) of this section. If the OCC fails 
to act within this time period, the plan shall be deemed approved unless 
the OCC extends the review period for good cause.
    (2) Public participation. In evaluating the plan's goals, the OCC 
considers the public's involvement in formulating the plan, written 
public comment on the plan, and any response by the bank to public 
comment on the plan.
    (3) Criteria for evaluating plan. The OCC evaluates a plan's 
measurable goals using the following criteria, as appropriate:

[[Page 315]]

    (i) The extent and breadth of lending or lending-related activities, 
including, as appropriate, the distribution of loans among different 
geographies, businesses and farms of different sizes, and individuals of 
different income levels, the extent of community development lending, 
and the use of innovative or flexible lending practices to address 
credit needs;
    (ii) The amount and innovativeness, complexity, and responsiveness 
of the bank's qualified investments; and
    (iii) The availability and effectiveness of the bank's systems for 
delivering retail banking services and the extent and innovativeness of 
the bank's community development services.
    (h) Plan amendment. During the term of a plan, a bank may request 
the OCC to approve an amendment to the plan on grounds that there has 
been a material change in circumstances. The bank shall develop an 
amendment to a previously approved plan in accordance with the public 
participation requirements of paragraph (d) of this section.
    (i) Plan assessment. The OCC approves the goals and assesses 
performance under a plan as provided for in appendix A of this part.

[60 FR 22180, May 4, 1995, as amended at 60 FR 66050, Dec. 20, 1995; 69 
FR 41186, July 8, 2004]



Sec. 25.28  Assigned ratings.

    (a) Ratings in general. Subject to paragraphs (b) and (c) of this 
section, the OCC assigns to a bank a rating of ``outstanding,'' 
``satisfactory,'' ``needs to improve,'' or ``substantial noncompliance'' 
based on the bank's performance under the lending, investment and 
service tests, the community development test, the small bank 
performance standards, or an approved strategic plan, as applicable.
    (b) Lending, investment, and service tests. The OCC assigns a rating 
for a bank assessed under the lending, investment, and service tests in 
accordance with the following principles:
    (1) A bank that receives an ``outstanding'' rating on the lending 
test receives an assigned rating of at least ``satisfactory'';
    (2) A bank that receives an ``outstanding'' rating on both the 
service test and the investment test and a rating of at least ``high 
satisfactory'' on the lending test receives an assigned rating of 
``outstanding''; and
    (3) No bank may receive an assigned rating of ``satisfactory'' or 
higher unless it receives a rating of at least ``low satisfactory'' on 
the lending test.
    (c) Effect of evidence of discriminatory or other illegal credit 
practices. (1) The OCC's evaluation of a bank's CRA performance is 
adversely affected by evidence of discriminatory or other illegal credit 
practices in any geography by the bank or in any assessment area by any 
affiliate whose loans have been considered as part of the bank's lending 
performance. In connection with any type of lending activity described 
in Sec. 25.22(a), evidence of discriminatory or other credit practices 
that violate an applicable law, rule, or regulation includes, but is not 
limited to:
    (i) Discrimination against applicants on a prohibited basis in 
violation, for example, of the Equal Credit Opportunity Act or the Fair 
Housing Act;
    (ii) Violations of the Home Ownership and Equity Protection Act;
    (iii) Violations of section 5 of the Federal Trade Commission Act;
    (iv) Violations of section 8 of the Real Estate Settlement 
Procedures Act; and
    (v) Violations of the Truth in Lending Act provisions regarding a 
consumer's right of rescission.
    (2) In determining the effect of evidence of practices described in 
paragraph (c)(1) of this section on the bank's assigned rating, the OCC 
considers the nature, extent, and strength of the evidence of the 
practices; the policies and procedures that the bank (or affiliate, as 
applicable) has in place to prevent the practices; any corrective action 
that the bank (or affiliate, as applicable) has taken or has committed 
to take, including voluntary corrective action resulting from self-
assessment; and any other relevant information.

[43 FR 47146, Oct. 12, 1978, as amended at 70 FR 44266, Aug. 2, 2005]



Sec. 25.29  Effect of CRA performance on applications.

    (a) CRA performance. Among other factors, the OCC takes into account 
the record of performance under the CRA

[[Page 316]]

of each applicant bank in considering an application for:
    (1) The establishment of a domestic branch;
    (2) The relocation of the main office or a branch;
    (3) Under the Bank Merger Act (12 U.S.C. 1828(c)), the merger or 
consolidation with or the acquisition of assets or assumption of 
liabilities of an insured depository institution; and
    (4) The conversion of an insured depository institution to a 
national bank charter.
    (b) Charter application. An applicant (other than an insured 
depository institution) for a national bank charter shall submit with 
its application a description of how it will meet its CRA objectives. 
The OCC takes the description into account in considering the 
application and may deny or condition approval on that basis.
    (c) Interested parties. The OCC takes into account any views 
expressed by interested parties that are submitted in accordance with 
the OCC's procedures set forth in part 5 of this chapter in considering 
CRA performance in an application listed in paragraphs (a) and (b) of 
this section.
    (d) Denial or conditional approval of application. A bank's record 
of performance may be the basis for denying or conditioning approval of 
an application listed in paragraph (a) of this section.
    (e) Insured depository institution. For purposes of this section, 
the term ``insured depository institution'' has the meaning given to 
that term in 12 U.S.C. 1813.



        Subpart C_Records, Reporting, and Disclosure Requirements

    Source: 60 FR 22184, May 4, 1995, unless otherwise noted.



Sec. 25.41  Assessment area delineation.

    (a) In general. A bank shall delineate one or more assessment areas 
within which the OCC evaluates the bank's record of helping to meet the 
credit needs of its community. The OCC does not evaluate the bank's 
delineation of its assessment area(s) as a separate performance 
criterion, but the OCC reviews the delineation for compliance with the 
requirements of this section.
    (b) Geographic area(s) for wholesale or limited purpose banks. The 
assessment area(s) for a wholesale or limited purpose bank must consist 
generally of one or more MSAs or metropolitan divisions (using the MSA 
or metropolitan division boundaries that were in effect as of January 1 
of the calendar year in which the delineation is made) or one or more 
contiguous political subdivisions, such as counties, cities, or towns, 
in which the bank has its main office, branches, and deposit-taking 
ATMs.
    (c) Geographic area(s) for other banks. The assessment area(s) for a 
bank other than a wholesale or limited purpose bank must:
    (1) Consist generally of one or more MSAs or metropolitan divisions 
(using the MSA or metropolitan division boundaries that were in effect 
as of January 1 of the calendar year in which the delineation is made) 
or one or more contiguous political subdivisions, such as counties, 
cities, or towns; and
    (2) Include the geographies in which the bank has its main office, 
its branches, and its deposit-taking ATMs, as well as the surrounding 
geographies in which the bank has originated or purchased a substantial 
portion of its loans (including home mortgage loans, small business and 
small farm loans, and any other loans the bank chooses, such as those 
consumer loans on which the bank elects to have its performance 
assessed).
    (d) Adjustments to geographic area(s). A bank may adjust the 
boundaries of its assessment area(s) to include only the portion of a 
political subdivision that it reasonably can be expected to serve. An 
adjustment is particularly appropriate in the case of an assessment area 
that otherwise would be extremely large, of unusual configuration, or 
divided by significant geographic barriers.
    (e) Limitations on the delineation of an assessment area. Each 
bank's assessment area(s):
    (1) Must consist only of whole geographies;
    (2) May not reflect illegal discrimination;

[[Page 317]]

    (3) May not arbitrarily exclude low- or moderate-income geographies, 
taking into account the bank's size and financial condition; and
    (4) May not extend substantially beyond an MSA boundary or beyond a 
state boundary unless the assessment area is located in a multistate 
MSA. If a bank serves a geographic area that extends substantially 
beyond a state boundary, the bank shall delineate separate assessment 
areas for the areas in each state. If a bank serves a geographic area 
that extends substantially beyond an MSA boundary, the bank shall 
delineate separate assessment areas for the areas inside and outside the 
MSA.
    (f) Banks serving military personnel. Notwithstanding the 
requirements of this section, a bank whose business predominantly 
consists of serving the needs of military personnel or their dependents 
who are not located within a defined geographic area may delineate its 
entire deposit customer base as its assessment area.
    (g) Use of assessment area(s). The OCC uses the assessment area(s) 
delineated by a bank in its evaluation of the bank's CRA performance 
unless the OCC determines that the assessment area(s) do not comply with 
the requirements of this section.

[60 FR 22184, May 4, 1995, as amended at 69 FR 41186, July 8, 2004]



Sec. 25.42  Data collection, reporting, and disclosure.

    (a) Loan information required to be collected and maintained. A 
bank, except a small bank, shall collect, and maintain in machine 
readable form (as prescribed by the OCC) until the completion of its 
next CRA examination, the following data for each small business or 
small farm loan originated or purchased by the bank:
    (1) A unique number or alpha-numeric symbol that can be used to 
identify the relevant loan file;
    (2) The loan amount at origination;
    (3) The loan location; and
    (4) An indicator whether the loan was to a business or farm with 
gross annual revenues of $1 million or less.
    (b) Loan information required to be reported. A bank, except a small 
bank or a bank that was a small bank during the prior calendar year, 
shall report annually by March 1 to the OCC in machine readable form (as 
prescribed by the OCC) the following data for the prior calendar year:
    (1) Small business and small farm loan data. For each geography in 
which the bank originated or purchased a small business or small farm 
loan, the aggregate number and amount of loans:
    (i) With an amount at origination of $100,000 or less;
    (ii) With amount at origination of more than $100,000 but less than 
or equal to $250,000;
    (iii) With an amount at origination of more than $250,000; and
    (iv) To businesses and farms with gross annual revenues of $1 
million or less (using the revenues that the bank considered in making 
its credit decision);
    (2) Community development loan data. The aggregate number and 
aggregate amount of community development loans originated or purchased; 
and
    (3) Home mortgage loans. If the bank is subject to reporting under 
part 203 of this title, the location of each home mortgage loan 
application, origination, or purchase outside the MSAs in which the bank 
has a home or branch office (or outside any MSA) in accordance with the 
requirements of part 203 of this title.
    (c) Optional data collection and maintenance--(1) Consumer loans. A 
bank may collect and maintain in machine readable form (as prescribed by 
the OCC) data for consumer loans originated or purchased by the bank for 
consideration under the lending test. A bank may maintain data for one 
or more of the following categories of consumer loans: motor vehicle, 
credit card, home equity, other secured, and other unsecured. If the 
bank maintains data for loans in a certain category, it shall maintain 
data for all loans originated or purchased within that category. The 
bank shall maintain data separately for each category, including for 
each loan:
    (i) A unique number or alpha-numeric symbol that can be used to 
identify the relevant loan file;
    (ii) The loan amount at origination or purchase;
    (iii) The loan location; and

[[Page 318]]

    (iv) The gross annual income of the borrower that the bank 
considered in making its credit decision.
    (2) Other loan data. At its option, a bank may provide other 
information concerning its lending performance, including additional 
loan distribution data.
    (d) Data on affiliate lending. A bank that elects to have the OCC 
consider loans by an affiliate, for purposes of the lending or community 
development test or an approved strategic plan, shall collect, maintain, 
and report for those loans the data that the bank would have collected, 
maintained, and reported pursuant to paragraphs (a), (b), and (c) of 
this section had the loans been originated or purchased by the bank. For 
home mortgage loans, the bank shall also be prepared to identify the 
home mortgage loans reported under part 203 of this title by the 
affiliate.
    (e) Data on lending by a consortium or a third party. A bank that 
elects to have the OCC consider community development loans by a 
consortium or third party, for purposes of the lending or community 
development tests or an approved strategic plan, shall report for those 
loans the data that the bank would have reported under paragraph (b)(2) 
of this section had the loans been originated or purchased by the bank.
    (f) Small banks electing evaluation under the lending, investment, 
and service tests. A bank that qualifies for evaluation under the small 
bank performance standards but elects evaluation under the lending, 
investment, and service tests shall collect, maintain, and report the 
data required for other banks pursuant to paragraphs (a) and (b) of this 
section.
    (g) Assessment area data. A bank, except a small bank or a bank that 
was a small bank during the prior calendar year, shall collect and 
report to the OCC by March 1 of each year a list for each assessment 
area showing the geographies within the area.
    (h) CRA Disclosure Statement. The OCC prepares annually for each 
bank that reports data pursuant to this section a CRA Disclosure 
Statement that contains, on a state-by-state basis:
    (1) For each county (and for each assessment area smaller than a 
county) with a population of 500,000 persons or fewer in which the bank 
reported a small business or small farm loan:
    (i) The number and amount of small business and small farm loans 
reported as originated or purchased located in low-, moderate-, middle-, 
and upper-income geographies;
    (ii) A list grouping each geography according to whether the 
geography is low-, moderate-, middle-, or upper-income;
    (iii) A list showing each geography in which the bank reported a 
small business or small farm loan; and
    (iv) The number and amount of small business and small farm loans to 
businesses and farms with gross annual revenues of $1 million or less;
    (2) For each county (and for each assessment area smaller than a 
county) with a population in excess of 500,000 persons in which the bank 
reported a small business or small farm loan:
    (i) The number and amount of small business and small farm loans 
reported as originated or purchased located in geographies with median 
income relative to the area median income of less than 10 percent, 10 or 
more but less than 20 percent, 20 or more but less than 30 percent, 30 
or more but less than 40 percent, 40 or more but less than 50 percent, 
50 or more but less than 60 percent, 60 or more but less than 70 
percent, 70 or more but less than 80 percent, 80 or more but less than 
90 percent, 90 or more but less than 100 percent, 100 or more but less 
than 110 percent, 110 or more but less than 120 percent, and 120 percent 
or more;
    (ii) A list grouping each geography in the county or assessment area 
according to whether the median income in the geography relative to the 
area median income is less than 10 percent, 10 or more but less than 20 
percent, 20 or more but less than 30 percent, 30 or more but less than 
40 percent, 40 or more but less than 50 percent, 50 or more but less 
than 60 percent, 60 or more but less than 70 percent, 70 or more but 
less than 80 percent, 80 or more but less than 90 percent, 90 or more 
but less than 100 percent, 100 or more but less than 110 percent, 110 or 
more but less than 120 percent, and 120 percent or more;

[[Page 319]]

    (iii) A list showing each geography in which the bank reported a 
small business or small farm loan; and
    (iv) The number and amount of small business and small farm loans to 
businesses and farms with gross annual revenues of $1 million or less;
    (3) The number and amount of small business and small farm loans 
located inside each assessment area reported by the bank and the number 
and amount of small business and small farm loans located outside the 
assessment area(s) reported by the bank; and
    (4) The number and amount of community development loans reported as 
originated or purchased.
    (i) Aggregate disclosure statements. The OCC, in conjunction with 
the Board of Governors of the Federal Reserve System, the Federal 
Deposit Insurance Corporation, and the Office of Thrift Supervision, 
prepares annually, for each MSA or metropolitan division (including an 
MSA or metropolitan division that crosses a state boundary) and the 
nonmetropolitan portion of each state, an aggregate disclosure statement 
of small business and small farm lending by all institutions subject to 
reporting under this part or parts 228, 345, or 563e of this title. 
These disclosure statements indicate, for each geography, the number and 
amount of all small business and small farm loans originated or 
purchased by reporting institutions, except that the OCC may adjust the 
form of the disclosure if necessary, because of special circumstances, 
to protect the privacy of a borrower or the competitive position of an 
institution.
    (j) Central data depositories. The OCC makes the aggregate 
disclosure statements, described in paragraph (i) of this section, and 
the individual bank CRA Disclosure Statements, described in paragraph 
(h) of this section, available to the public at central data 
depositories. The OCC publishes a list of the depositories at which the 
statements are available.

[60 FR 22184, May 4, 1995, as amended at 69 FR 41186, July 8, 2004]



Sec. 25.43  Content and availability of public file.

    (a) Information available to the public. A bank shall maintain a 
public file that includes the following information:
    (1) All written comments received from the public for the current 
year and each of the prior two calendar years that specifically relate 
to the bank's performance in helping to meet community credit needs, and 
any response to the comments by the bank, if neither the comments nor 
the responses contain statements that reflect adversely on the good name 
or reputation of any persons other than the bank or publication of which 
would violate specific provisions of law;
    (2) A copy of the public section of the bank's most recent CRA 
Performance Evaluation prepared by the OCC. The bank shall place this 
copy in the public file within 30 business days after its receipt from 
the OCC;
    (3) A list of the bank's branches, their street addresses, and 
geographies;
    (4) A list of branches opened or closed by the bank during the 
current year and each of the prior two calendar years, their street 
addresses, and geographies;
    (5) A list of services (including hours of operation, available loan 
and deposit products, and transaction fees) generally offered at the 
bank's branches and descriptions of material differences in the 
availability or cost of services at particular branches, if any. At its 
option, a bank may include information regarding the availability of 
alternative systems for delivering retail banking services (e.g., ATMs, 
ATMs not owned or operated by or exclusively for the bank, banking by 
telephone or computer, loan production offices, and bank-at-work or 
bank-by-mail programs);
    (6) A map of each assessment area showing the boundaries of the area 
and identifying the geographies contained within the area, either on the 
map or in a separate list; and
    (7) Any other information the bank chooses.
    (b) Additional information available to the public--(1) Banks other 
than small banks. A bank, except a small bank or a bank that was a small 
bank during the prior calendar year, shall include

[[Page 320]]

in its public file the following information pertaining to the bank and 
its affiliates, if applicable, for each of the prior two calendar years:
    (i) If the bank has elected to have one or more categories of its 
consumer loans considered under the lending test, for each of these 
categories, the number and amount of loans:
    (A) To low-, moderate-, middle-, and upper-income individuals;
    (B) Located in low-, moderate-, middle-, and upper-income census 
tracts; and
    (C) Located inside the bank's assessment area(s) and outside the 
bank's assessment area(s); and
    (ii) The bank's CRA Disclosure Statement. The bank shall place the 
statement in the public file within three business days of its receipt 
from the OCC.
    (2) Banks required to report Home Mortgage Disclosure Act (HMDA) 
data. A bank required to report home mortgage loan data pursuant part 
203 of this title shall include in its public file a copy of the HMDA 
Disclosure Statement provided by the Federal Financial Institutions 
Examination Council pertaining to the bank for each of the prior two 
calendar years. In addition, a bank that elected to have the OCC 
consider the mortgage lending of an affiliate for any of these years 
shall include in its public file the affiliate's HMDA Disclosure 
Statement for those years. The bank shall place the statement(s) in the 
public file within three business days after its receipt.
    (3) Small banks. A small bank or a bank that was a small bank during 
the prior calendar year shall include in its public file:
    (i) The bank's loan-to-deposit ratio for each quarter of the prior 
calendar year and, at its option, additional data on its loan-to-deposit 
ratio; and
    (ii) The information required for other banks by paragraph (b)(1) of 
this section, if the bank has elected to be evaluated under the lending, 
investment, and service tests.
    (4) Banks with strategic plans. A bank that has been approved to be 
assessed under a strategic plan shall include in its public file a copy 
of that plan. A bank need not include information submitted to the OCC 
on a confidential basis in conjunction with the plan.
    (5) Banks with less than satisfactory ratings. A bank that received 
a less than satisfactory rating during its most recent examination shall 
include in its public file a description of its current efforts to 
improve its performance in helping to meet the credit needs of its 
entire community. The bank shall update the description quarterly.
    (c) Location of public information. A bank shall make available to 
the public for inspection upon request and at no cost the information 
required in this section as follows:
    (1) At the main office and, if an interstate bank, at one branch 
office in each state, all information in the public file; and
    (2) At each branch:
    (i) A copy of the public section of the bank's most recent CRA 
Performance Evaluation and a list of services provided by the branch; 
and
    (ii) Within five calendar days of the request, all the information 
in the public file relating to the assessment area in which the branch 
is located.
    (d) Copies. Upon request, a bank shall provide copies, either on 
paper or in another form acceptable to the person making the request, of 
the information in its public file. The bank may charge a reasonable fee 
not to exceed the cost of copying and mailing (if applicable).
    (e) Updating. Except as otherwise provided in this section, a bank 
shall ensure that the information required by this section is current as 
of April 1 of each year.



Sec. 25.44  Public notice by banks.

    A bank shall provide in the public lobby of its main office and each 
of its branches the appropriate public notice set forth in appendix B of 
this part. Only a branch of a bank having more than one assessment area 
shall include the bracketed material in the notice for branch offices. 
Only a bank that is an affiliate of a holding company shall include the 
next to the last sentence of the notices. A bank shall include the last 
sentence of the notices only if it is an affiliate of a holding company 
that is not prevented by statute from acquiring additional banks.

[[Page 321]]



Sec. 25.45  Publication of planned examination schedule.

    The OCC publishes at least 30 days in advance of the beginning of 
each calendar quarter a list of banks scheduled for CRA examinations in 
that quarter.

Subpart D [Reserved]



 Subpart E_Prohibition Against Use of Interstate Branches Primarily for 
                           Deposit Production

    Source: 62 FR 47734, Sept. 10, 1997, unless otherwise noted.



Sec. 25.61  Purpose and scope.

    (a) Purpose. The purpose of this subpart is to implement section 109 
(12 U.S.C. 1835a) of the Riegle-Neal Interstate Banking and Branching 
Efficiency Act of 1994 (Interstate Act).
    (b) Scope. (1) This subpart applies to any national bank that has 
operated a covered interstate branch for a period of at least one year, 
and any foreign bank that has operated a covered interstate branch that 
is a Federal branch for a period of at least one year.
    (2) This subpart describes the requirements imposed under 12 U.S.C. 
1835a, which requires the appropriate Federal banking agencies (the OCC, 
the Board of Governors of the Federal Reserve System, and the Federal 
Deposit Insurance Corporation) to prescribe uniform rules that prohibit 
a bank from using any authority to engage in interstate branching 
pursuant to the Interstate Act, or any amendment made by the Interstate 
Act to any other provision of law, primarily for the purpose of deposit 
production.



Sec. 25.62  Definitions.

    For purposes of this subpart, the following definitions apply:
    (a) Bank means, unless the context indicates otherwise:
    (1) A national bank; and
    (2) A foreign bank as that term is defined in 12 U.S.C. 3101(7) and 
12 CFR 28.11(j).
    (b) Covered interstate branch means:
    (1) Any branch of a national bank, and any Federal branch of a 
foreign bank, that:
    (i) Is established or acquired outside the bank's home State 
pursuant to the interstate branching authority granted by the Interstate 
Act or by any amendment made by the Interstate Act to any other 
provision of law; or
    (ii) Could not have been established or acquired outside of the 
bank's home State but for the establishment or acquisition of a branch 
described in paragraph (b)(1)(i) of this section; and
    (2) Any bank or branch of a bank controlled by an out-of-State bank 
holding company.
    (c) Federal branch means Federal branch as that term is defined in 
12 U.S.C. 3101(6) and 12 CFR 28.11(i).
    (d) Home State means:
    (1) With respect to a State bank, the State that chartered the bank;
    (2) With respect to a national bank, the State in which the main 
office of the bank is located;
    (3) With respect to a bank holding company, the State in which the 
total deposits of all banking subsidiaries of such company are the 
largest on the later of:
    (i) July 1, 1966; or
    (ii) The date on which the company becomes a bank holding company 
under the Bank Holding Company Act;
    (4) With respect to a foreign bank:
    (i) For purposes of determining whether a U.S. branch of a foreign 
bank is a covered interstate branch, the home State of the foreign bank 
as determined in accordance with 12 U.S.C. 3103(c) and 12 CFR 28.11(o); 
and
    (ii) For purposes of determining whether a branch of a U.S. bank 
controlled by a foreign bank is a covered interstate branch, the State 
in which the total deposits of all banking subsidiaries of such foreign 
bank are the largest on the later of:
    (A) July 1, 1966; or
    (B) The date on which the foreign bank becomes a bank holding 
company under the Bank Holding Company Act.
    (e) Host State means a State in which a covered interstate branch is 
established or acquired.
    (f) Host state loan-to-deposit ratio generally means, with respect 
to a particular host state, the ratio of total loans in the host state 
relative to total deposits from the host state for all banks (including 
institutions covered

[[Page 322]]

under the definition of ``bank'' in 12 U.S.C. 1813(a)(1)) that have that 
state as their home state, as determined and updated periodically by the 
appropriate Federal banking agencies and made available to the public.
    (g) Out-of-State bank holding company means, with respect to any 
State, a bank holding company whose home State is another State.
    (h) State means state as that term is defined in 12 U.S.C. 
1813(a)(3).
    (i) Statewide loan-to-deposit ratio means, with respect to a bank, 
the ratio of the bank's loans to its deposits in a state in which the 
bank has one or more covered interstate branches, as determined by the 
OCC.

[62 FR 47734, Sept. 10, 1997, as amended at 67 FR 38847, June 6, 2002; 
67 FR 46842, July 17, 2002]



Sec. 25.63  Loan-to-deposit ratio screen.

    (a) Application of screen. Beginning no earlier than one year after 
a covered interstate branch is acquired or established, the OCC will 
consider whether the bank's statewide loan-to-deposit ratio is less than 
50 percent of the relevant host State loan-to-deposit ratio.
    (b) Results of screen. (1) If the OCC determines that the bank's 
statewide loan-to-deposit ratio is 50 percent or more of the host state 
loan-to-deposit ratio, no further consideration under this subpart is 
required.
    (2) If the OCC determines that the bank's statewide loan-to-deposit 
ratio is less than 50 percent of the host state loan-to-deposit ratio, 
or if reasonably available data are insufficient to calculate the bank's 
statewide loan-to-deposit ratio, the OCC will make a credit needs 
determination for the bank as provided in Sec. 25.64.

[62 FR 47734, Sept. 10, 1997, as amended at 67 FR 38848, June 6, 2002]



Sec. 25.64  Credit needs determination.

    (a) In general. The OCC will review the loan portfolio of the bank 
and determine whether the bank is reasonably helping to meet the credit 
needs of the communities in the host state that are served by the bank.
    (b) Guidelines. The OCC will use the following considerations as 
guidelines when making the determination pursuant to paragraph (a) of 
this section:
    (1) Whether covered interstate branches were formerly part of a 
failed or failing depository institution;
    (2) Whether covered interstate branches were acquired under 
circumstances where there was a low loan-to-deposit ratio because of the 
nature of the acquired institution's business or loan portfolio;
    (3) Whether covered interstate branches have a high concentration of 
commercial or credit card lending, trust services, or other specialized 
activities, including the extent to which the covered interstate 
branches accept deposits in the host state;
    (4) The CRA ratings received by the bank, if any;
    (5) Economic conditions, including the level of loan demand, within 
the communities served by the covered interstate branches;
    (6) The safe and sound operation and condition of the bank; and
    (7) The OCC's CRA regulations (subparts A through D of this part) 
and interpretations of those regulations.



Sec. 25.65  Sanctions.

    (a) In general. If the OCC determines that a bank is not reasonably 
helping to meet the credit needs of the communities served by the bank 
in the host state, and that the bank's statewide loan-to-deposit ratio 
is less than 50 percent of the host state loan-to-deposit ratio, the 
OCC:
    (1) May order that a bank's covered interstate branch or branches be 
closed unless the bank provides reasonable assurances to the 
satisfaction of the OCC, after an opportunity for public comment, that 
the bank has an acceptable plan under which the bank will reasonably 
help to meet the credit needs of the communities served by the bank in 
the host state; and
    (2) Will not permit the bank to open a new branch in the host state 
that would be considered to be a covered interstate branch unless the 
bank provides reasonable assurances to the satisfaction of the OCC, 
after an opportunity for public comment, that the bank will reasonably 
help to meet the credit needs of the community that the new branch will 
serve.

[[Page 323]]

    (b) Notice prior to closure of a covered interstate branch. Before 
exercising the OCC's authority to order the bank to close a covered 
interstate branch, the OCC will issue to the bank a notice of the OCC's 
intent to order the closure and will schedule a hearing within 60 days 
of issuing the notice.
    (c) Hearing. The OCC will conduct a hearing scheduled under 
paragraph (b) of this section in accordance with the provisions of 12 
U.S.C. 1818(h) and 12 CFR part 19.



                   Sec. Appendix A to Part 25--Ratings

    (a) Ratings in general. (1) In assigning a rating, the OCC evaluates 
a bank's performance under the applicable performance criteria in this 
part, in accordance with Sec. Sec. 25.21, and 25.28, which provides for 
adjustments on the basis of evidence of discriminatory or other illegal 
credit practices.
    (2) A bank's performance need not fit each aspect of a particular 
rating profile in order to receive that rating, and exceptionally strong 
performance with respect to some aspects may compensate for weak 
performance in others. The bank's overall performance, however, must be 
consistent with safe and sound banking practices and generally with the 
appropriate rating profile as follows.
    (b) Banks evaluated under the lending, investment, and service 
tests--(1) Lending performance rating. The OCC assigns each bank's 
lending performance one of the five following ratings.
    (i) Outstanding. The OCC rates a bank's lending performance 
``outstanding'' if, in general, it demonstrates:
    (A) Excellent responsiveness to credit needs in its assessment 
area(s), taking into account the number and amount of home mortgage, 
small business, small farm, and consumer loans, if applicable, in its 
assessment area(s);
    (B) A substantial majority of its loans are made in its assessment 
area(s);
    (C) An excellent geographic distribution of loans in its assessment 
area(s);
    (D) An excellent distribution, particularly in its assessment 
area(s), of loans among individuals of different income levels and 
businesses (including farms) of different sizes, given the product lines 
offered by the bank;
    (E) An excellent record of serving the credit needs of highly 
economically disadvantaged areas in its assessment area(s), low-income 
individuals, or businesses (including farms) with gross annual revenues 
of $1 million or less, consistent with safe and sound operations;
    (F) Extensive use of innovative or flexible lending practices in a 
safe and sound manner to address the credit needs of low- or moderate-
income individuals or geographies; and
    (G) It is a leader in making community development loans.
    (ii) High satisfactory. The OCC rates a bank's lending performance 
``high satisfactory'' if, in general, it demonstrates:
    (A) Good responsiveness to credit needs in its assessment area(s), 
taking into account the number and amount of home mortgage, small 
business, small farm, and consumer loans, if applicable, in its 
assessment area(s);
    (B) A high percentage of its loans are made in its assessment 
area(s);
    (C) A good geographic distribution of loans in its assessment 
area(s);
    (D) A good distribution, particularly in its assessment area(s), of 
loans among individuals of different income levels and businesses 
(including farms) of different sizes, given the product lines offered by 
the bank;
    (E) A good record of serving the credit needs of highly economically 
disadvantaged areas in its assessment area(s), low-income individuals, 
or businesses (including farms) with gross annual revenues of $1 million 
or less, consistent with safe and sound operations;
    (F) Use of innovative or flexible lending practices in a safe and 
sound manner to address the credit needs of low- or moderate-income 
individuals or geographies; and
    (G) It has made a relatively high level of community development 
loans.
    (iii) Low satisfactory. The OCC rates a bank's lending performance 
``low satisfactory'' if, in general, it demonstrates:
    (A) Adequate responsiveness to credit needs in its assessment 
area(s), taking into account the number and amount of home mortgage, 
small business, small farm, and consumer loans, if applicable, in its 
assessment area(s);
    (B) An adequate percentage of its loans are made in its assessment 
area(s);
    (C) An adequate geographic distribution of loans in its assessment 
area(s);
    (D) An adequate distribution, particularly in its assessment 
area(s), of loans among individuals of different income levels and 
businesses (including farms) of different sizes, given the product lines 
offered by the bank;
    (E) An adequate record of serving the credit needs of highly 
economically disadvantaged areas in its assessment area(s), low-income 
individuals, or businesses (including farms) with gross annual revenues 
of $1 million or less, consistent with safe and sound operations;
    (F) Limited use of innovative or flexible lending practices in a 
safe and sound manner to address the credit needs of low- or moderate-
income individuals or geographies; and
    (G) It has made an adequate level of community development loans.

[[Page 324]]

    (iv) Needs to improve. The OCC rates a bank's lending performance 
``needs to improve'' if, in general, it demonstrates:
    (A) Poor responsiveness to credit needs in its assessment area(s), 
taking into account the number and amount of home mortgage, small 
business, small farm, and consumer loans, if applicable, in its 
assessment area(s);
    (B) A small percentage of its loans are made in its assessment 
area(s);
    (C) A poor geographic distribution of loans, particularly to low- or 
moderate-income geographies, in its assessment area(s);
    (D) A poor distribution, particularly in its assessment area(s), of 
loans among individuals of different income levels and businesses 
(including farms) of different sizes, given the product lines offered by 
the bank;
    (E) A poor record of serving the credit needs of highly economically 
disadvantaged areas in its assessment area(s), low-income individuals, 
or businesses (including farms) with gross annual revenues of $1 million 
or less, consistent with safe and sound operations;
    (F) Little use of innovative or flexible lending practices in a safe 
and sound manner to address the credit needs of low- or moderate-income 
individuals or geographies; and
    (G) It has made a low level of community development loans.
    (v) Substantial noncompliance. The OCC rates a bank's lending 
performance as being in ``substantial noncompliance'' if, in general, it 
demonstrates:
    (A) A very poor responsiveness to credit needs in its assessment 
area(s), taking into account the number and amount of home mortgage, 
small business, small farm, and consumer loans, if applicable, in its 
assessment area(s);
    (B) A very small percentage of its loans are made in its assessment 
area(s);
    (C) A very poor geographic distribution of loans, particularly to 
low- or moderate-income geographies, in its assessment area(s);
    (D) A very poor distribution, particularly in its assessment 
area(s), of loans among individuals of different income levels and 
businesses (including farms) of different sizes, given the product lines 
offered by the bank;
    (E) A very poor record of serving the credit needs of highly 
economically disadvantaged areas in its assessment area(s), low-income 
individuals, or businesses (including farms) with gross annual revenues 
of $1 million or less, consistent with safe and sound operations;
    (F) No use of innovative or flexible lending practices in a safe and 
sound manner to address the credit needs of low- or moderate-income 
individuals or geographies; and
    (G) It has made few, if any, community development loans.
    (2) Investment performance rating. The OCC assigns each bank's 
investment performance one of the five following ratings.
    (i) Outstanding. The OCC rates a bank's investment performance 
``outstanding'' if, in general, it demonstrates:
    (A) An excellent level of qualified investments, particularly those 
that are not routinely provided by private investors, often in a 
leadership position;
    (B) Extensive use of innovative or complex qualified investments; 
and
    (C) Excellent responsiveness to credit and community development 
needs.
    (ii) High satisfactory. The OCC rates a bank's investment 
performance ``high satisfactory'' if, in general, it demonstrates:
    (A) A significant level of qualified investments, particularly those 
that are not routinely provided by private investors, occasionally in a 
leadership position;
    (B) Significant use of innovative or complex qualified investments; 
and
    (C) Good responsiveness to credit and community development needs.
    (iii) Low satisfactory. The OCC rates a bank's investment 
performance ``low satisfactory'' if, in general, it demonstrates:
    (A) An adequate level of qualified investments, particularly those 
that are not routinely provided by private investors, although rarely in 
a leadership position;
    (B) Occasional use of innovative or complex qualified investments; 
and
    (C) Adequate responsiveness to credit and community development 
needs.
    (iv) Needs to improve. The OCC rates a bank's investment performance 
``needs to improve'' if, in general, it demonstrates:
    (A) A poor level of qualified investments, particularly those that 
are not routinely provided by private investors;
    (B) Rare use of innovative or complex qualified investments; and
    (C) Poor responsiveness to credit and community development needs.
    (v) Substantial noncompliance. The OCC rates a bank's investment 
performance as being in ``substantial noncompliance'' if, in general, it 
demonstrates:
    (A) Few, if any, qualified investments, particularly those that are 
not routinely provided by private investors;
    (B) No use of innovative or complex qualified investments; and
    (C) Very poor responsiveness to credit and community development 
needs.
    (3) Service performance rating. The OCC assigns each bank's service 
performance one of the five following ratings.
    (i) Outstanding. The OCC rates a bank's service performance 
``outstanding'' if, in general, the bank demonstrates:
    (A) Its service delivery systems are readily accessible to 
geographies and individuals of different income levels in its assessment 
area(s);
    (B) To the extent changes have been made, its record of opening and 
closing branches has improved the accessibility of its delivery

[[Page 325]]

systems, particularly in low- or moderate-income geographies or to low- 
or moderate-income individuals;
    (C) Its services (including, where appropriate, business hours) are 
tailored to the convenience and needs of its assessment area(s), 
particularly low- or moderate-income geographies or low- or moderate-
income individuals; and
    (D) It is a leader in providing community development services.
    (ii) High satisfactory. The OCC rates a bank's service performance 
``high satisfactory'' if, in general, the bank demonstrates:
    (A) Its service delivery systems are accessible to geographies and 
individuals of different income levels in its assessment area(s);
    (B) To the extent changes have been made, its record of opening and 
closing branches has not adversely affected the accessibility of its 
delivery systems, particularly in low- and moderate-income geographies 
and to low- and moderate-income individuals;
    (C) Its services (including, where appropriate, business hours) do 
not vary in a way that inconveniences its assessment area(s), 
particularly low- and moderate-income geographies and low- and moderate-
income individuals; and
    (D) It provides a relatively high level of community development 
services.
    (iii) Low satisfactory. The OCC rates a bank's service performance 
``low satisfactory'' if, in general, the bank demonstrates:
    (A) Its service delivery systems are reasonably accessible to 
geographies and individuals of different income levels in its assessment 
area(s);
    (B) To the extent changes have been made, its record of opening and 
closing branches has generally not adversely affected the accessibility 
of its delivery systems, particularly in low- and moderate-income 
geographies and to low- and moderate-income individuals;
    (C) Its services (including, where appropriate, business hours) do 
not vary in a way that inconveniences its assessment area(s), 
particularly low- and moderate-income geographies and low- and moderate-
income individuals; and
    (D) It provides an adequate level of community development services.
    (iv) Needs to improve. The OCC rates a bank's service performance 
``needs to improve'' if, in general, the bank demonstrates:
    (A) Its service delivery systems are unreasonably inaccessible to 
portions of its assessment area(s), particularly to low- or moderate-
income geographies or to low- or moderate-income individuals;
    (B) To the extent changes have been made, its record of opening and 
closing branches has adversely affected the accessibility its delivery 
systems, particularly in low- or moderate-income geographies or to low- 
or moderate-income individuals;
    (C) Its services (including, where appropriate, business hours) vary 
in a way that inconveniences its assessment area(s), particularly low- 
or moderate-income geographies or low- or moderate-income individuals; 
and
    (D) It provides a limited level of community development services.
    (v) Substantial noncompliance. The OCC rates a bank's service 
performance as being in ``substantial noncompliance'' if, in general, 
the bank demonstrates:
    (A) Its service delivery systems are unreasonably inaccessible to 
significant portions of its assessment area(s), particularly to low- or 
moderate-income geographies or to low- or moderate-income individuals;
    (B) To the extent changes have been made, its record of opening and 
closing branches has significantly adversely affected the accessibility 
of its delivery systems, particularly in low- or moderate-income 
geographies or to low- or moderate-income individuals;
    (C) Its services (including, where appropriate, business hours) vary 
in a way that significantly inconveniences its assessment area(s), 
particularly low- or moderate-income geographies or low- or moderate-
income individuals; and
    (D) It provides few, if any, community development services.
    (c) Wholesale or limited purpose banks. The OCC assigns each 
wholesale or limited purpose bank's community development performance 
one of the four following ratings.
    (1) Outstanding. The OCC rates a wholesale or limited purpose bank's 
community development performance ``outstanding'' if, in general, it 
demonstrates:
    (i) A high level of community development loans, community 
development services, or qualified investments, particularly investments 
that are not routinely provided by private investors;
    (ii) Extensive use of innovative or complex qualified investments, 
community development loans, or community development services; and
    (iii) Excellent responsiveness to credit and community development 
needs in its assessment area(s).
    (2) Satisfactory. The OCC rates a wholesale or limited purpose 
bank's community development performance ``satisfactory'' if, in 
general, it demonstrates:
    (i) An adequate level of community development loans, community 
development services, or qualified investments, particularly investments 
that are not routinely provided by private investors;
    (ii) Occasional use of innovative or complex qualified investments, 
community development loans, or community development services; and

[[Page 326]]

    (iii) Adequate responsiveness to credit and community development 
needs in its assessment area(s).
    (3) Needs to improve. The OCC rates a wholesale or limited purpose 
bank's community development performance as ``needs to improve'' if, in 
general, it demonstrates:
    (i) A poor level of community development loans, community 
development services, or qualified investments, particularly investments 
that are not routinely provided by private investors;
    (ii) Rare use of innovative or complex qualified investments, 
community development loans, or community development services; and
    (iii) Poor responsiveness to credit and community development needs 
in its assessment area(s).
    (4) Substantial noncompliance. The OCC rates a wholesale or limited 
purpose bank's community development performance in ``substantial 
noncompliance'' if, in general, it demonstrates:
    (i) Few, if any, community development loans, community development 
services, or qualified investments, particularly investments that are 
not routinely provided by private investors;
    (ii) No use of innovative or complex qualified investments, 
community development loans, or community development services; and
    (iii) Very poor responsiveness to credit and community development 
needs in its assessment area(s).
    (d) Banks evaluated under the small bank performance standards--(1) 
Lending test ratings. (i) Eligibility for a satisfactory lending test 
rating. The OCC rates a small bank's lending performance 
``satisfactory'' if, in general, the bank demonstrates:
    (A) A reasonable loan-to-deposit ratio (considering seasonal 
variations) given the bank's size, financial condition, the credit needs 
of its assessment area(s), and taking into account, as appropriate, 
other lending-related activities such as loan originations for sale to 
the secondary markets and community development loans and qualified 
investments;
    (B) A majority of its loans and, as appropriate, other lending-
related activities, are in its assessment area;
    (C) A distribution of loans to and, as appropriate, other lending-
related activities for individuals of different income levels (including 
low- and moderate-income individuals) and businesses and farms of 
different sizes that is reasonable given the demographics of the bank's 
assessment area(s);
    (D) A record of taking appropriate action, when warranted, in 
response to written complaints, if any, about the bank's performance in 
helping to meet the credit needs of its assessment area(s); and
    (E) A reasonable geographic distribution of loans given the bank's 
assessment area(s).
    (ii) Eligibility for an ``outstanding'' lending test rating. A small 
bank that meets each of the standards for a ``satisfactory'' rating 
under this paragraph and exceeds some or all of those standards may 
warrant consideration for a lending test rating of ``outstanding.''
    (iii) Needs to improve or substantial noncompliance ratings. A small 
bank may also receive a lending test rating of ``needs to improve'' or 
``substantial noncompliance'' depending on the degree to which its 
performance has failed to meet the standard for a ``satisfactory'' 
rating.
    (2) Community development test ratings for intermediate small 
banks--(i) Eligibility for a satisfactory community development test 
rating. The OCC rates an intermediate small bank's community development 
performance ``satisfactory'' if the bank demonstrates adequate 
responsiveness to the community development needs of its assessment 
area(s) through community development loans, qualified investments, and 
community development services. The adequacy of the bank's response will 
depend on its capacity for such community development activities, its 
assessment area's need for such community development activities, and 
the availability of such opportunities for community development in the 
bank's assessment area(s).
    (ii) Eligibility for an outstanding community development test 
rating. The OCC rates an intermediate small bank's community development 
performance ``outstanding'' if the bank demonstrates excellent 
responsiveness to community development needs in its assessment area(s) 
through community development loans, qualified investments, and 
community development services, as appropriate, considering the bank's 
capacity and the need and availability of such opportunities for 
community development in the bank's assessment area(s).
    (iii) Needs to improve or substantial noncompliance ratings. An 
intermediate small bank may also receive a community development test 
rating of ``needs to improve'' or ``substantial noncompliance'' 
depending on the degree to which its performance has failed to meet the 
standards for a ``satisfactory'' rating.
    (3) Overall rating--(i) Eligibility for a satisfactory overall 
rating. No intermediate small bank may receive an assigned overall 
rating of ``satisfactory'' unless it receives a rating of at least 
``satisfactory'' on both the lending test and the community development 
test.
    (ii) Eligibility for an outstanding overall rating. (A) An 
intermediate small bank that receives an ``outstanding'' rating on one 
test and at least ``satisfactory'' on the other test may receive an 
assigned overall rating of ``outstanding.''

[[Page 327]]

    (B) A small bank that is not an intermediate small bank that meets 
each of the standards for a ``satisfactory'' rating under the lending 
test and exceeds some or all of those standards may warrant 
consideration for an overall rating of ``outstanding.'' In assessing 
whether a bank's performance is ``outstanding,'' the OCC considers the 
extent to which the bank exceeds each of the performance standards for a 
``satisfactory'' rating and its performance in making qualified 
investments and its performance in providing branches and other services 
and delivery systems that enhance credit availability in its assessment 
area(s).
    (iii) Needs to improve or substantial noncompliance overall ratings. 
A small bank may also receive a rating of ``needs to improve'' or 
``substantial noncompliance'' depending on the degree to which its 
performance has failed to meet the standards for a ``satisfactory'' 
rating.
    (e) Strategic plan assessment and rating--(1) Satisfactory goals. 
The OCC approves as ``satisfactory'' measurable goals that adequately 
help to meet the credit needs of the bank's assessment area(s).
    (2) Outstanding goals. If the plan identifies a separate group of 
measurable goals that substantially exceed the levels approved as 
``satisfactory,'' the OCC will approve those goals as ``outstanding.''
    (3) Rating. The OCC assesses the performance of a bank operating 
under an approved plan to determine if the bank has met its plan goals:
    (i) If the bank substantially achieves its plan goals for a 
satisfactory rating, the OCC will rate the bank's performance under the 
plan as ``satisfactory.''
    (ii) If the bank exceeds its plan goals for a satisfactory rating 
and substantially achieves its plan goals for an outstanding rating, the 
OCC will rate the bank's performance under the plan as ``outstanding.''
    (iii) If the bank fails to meet substantially its plan goals for a 
satisfactory rating, the OCC will rate the bank as either ``needs to 
improve'' or ``substantial noncompliance,'' depending on the extent to 
which it falls short of its plan goals, unless the bank elected in its 
plan to be rated otherwise, as provided in Sec. 25.27(f)(4).

[60 FR 22186, May 4, 1995, as amended at 70 FR 44267, Aug. 2, 2005]



                 Sec. Appendix B to Part 25--CRA Notice

    (a) Notice for main offices and, if an interstate bank, one branch 
office in each state.

                    Community Reinvestment Act Notice

    Under the Federal Community Reinvestment Act (CRA), the Comptroller 
of the Currency evaluates our record of helping to meet the credit needs 
of this community consistent with safe and sound operations. The 
Comptroller also takes this record into account when deciding on certain 
applications submitted by us.
    Your involvement is encouraged.
    You are entitled to certain information about our operations and our 
performance under the CRA, including, for example, information about our 
branches, such as their location and services provided at them; the 
public section of our most recent CRA Performance Evaluation, prepared 
by the Comptroller; and comments received from the public relating to 
our performance in helping to meet community credit needs, as well as 
our responses to those comments. You may review this information today.
    At least 30 days before the beginning of each quarter, the 
Comptroller publishes a nationwide list of the banks that are scheduled 
for CRA examination in that quarter. This list is available from the 
Deputy Comptroller (address). You may send written comments about our 
performance in helping to meet community credit needs to (name and 
address of official at bank) and Deputy Comptroller (address). Your 
letter, together with any response by us, will be considered by the 
Comptroller in evaluating our CRA performance and may be made public.
    You may ask to look at any comments received by the Deputy 
Comptroller. You may also request from the Deputy Comptroller an 
announcement of our applications covered by the CRA filed with the 
Comptroller. We are an affiliate of (name of holding company), a bank 
holding company. You may request from the (title of responsible 
official), Federal Reserve Bank of -------- (address) an announcement of 
applications covered by the CRA filed by bank holding companies.
    (b) Notice for branch offices.

                    Community Reinvestment Act Notice

    Under the Federal Community Reinvestment Act (CRA), the Comptroller 
of the Currency evaluates our record of helping to meet the credit needs 
of this community consistent with safe and sound operations. The 
Comptroller also takes this record into account when deciding on certain 
applications submitted by us.
    Your involvement is encouraged.
    You are entitled to certain information about our operations and our 
performance under the CRA. You may review today the public section of 
our most recent CRA evaluation, prepared by the Comptroller, and a list 
of services provided at this branch. You may also have access to the 
following additional information, which we will make available to you at 
this branch within five calendar days after you make a request to us: 
(1) A map showing the assessment area containing this branch, which is 
the area in which the Comptroller evaluates our CRA

[[Page 328]]

performance in this community; (2) information about our branches in 
this assessment area; (3) a list of services we provide at those 
locations; (4) data on our lending performance in this assessment area; 
and (5) copies of all written comments received by us that specifically 
relate to our CRA performance in this assessment area, and any responses 
we have made to those comments. If we are operating under an approved 
strategic plan, you may also have access to a copy of the plan.
    [If you would like to review information about our CRA performance 
in other communities served by us, the public file for our entire bank 
is available at (name of office located in state), located at 
(address).]
    At least 30 days before the beginning of each quarter, the 
Comptroller publishes a nationwide list of the banks that are scheduled 
for CRA examination in that quarter. This list is available from the 
Deputy Comptroller (address). You may send written comments about our 
performance in helping to meet community credit needs to (name and 
address of official at bank) and Deputy Comptroller (address). Your 
letter, together with any response by us, will be considered by the 
Comptroller in evaluating our CRA performance and may be made public.
    You may ask to look at any comments received by the Deputy 
Comptroller. You may also request from the Deputy Comptroller an 
announcement of our applications covered by the CRA filed with the 
Comptroller. We are an affiliate of (name of holding company), a bank 
holding company. You may request from the (title of responsible 
official), Federal Reserve Bank of -------- (address) an announcement of 
applications covered by the CRA filed by bank holding companies.

[60 FR 22189, May 4, 1995]



PART 26_MANAGEMENT OFFICIAL INTERLOCKS--Table of Contents




Sec.
26.1 Authority, purpose, and scope.
26.2 Definitions.
26.3 Prohibitions.
26.4 Interlocking relationships permitted by statute.
26.5 Small market share exemption.
26.6 General exemption.
26.7 Change in circumstances.
26.8 Enforcement.

    Authority: 12 U.S.C. 93a and 3201-3208.

    Source: 61 FR 40300, Aug. 2, 1996, unless otherwise noted.



Sec. 26.1  Authority, purpose, and scope.

    (a) Authority. This part is issued under the provisions of the 
Depository Institution Management Interlocks Act (Interlocks Act) (12 
U.S.C. 3201 et seq.), as amended, and the OCC's general rulemaking 
authority in 12 U.S.C. 93a.
    (b) Purpose. The purpose of the Interlocks Act and this part is to 
foster competition by generally prohibiting a management official from 
serving two nonaffiliated depository organizations in situations where 
the management interlock likely would have an anticompetitive effect.
    (c) Scope. This part applies to management officials of national 
banks, District banks, and affiliates of either.



Sec. 26.2  Definitions.

    For purposes of this part, the following definitions apply:
    (a) Affiliate. (1) The term affiliate has the meaning given in 
section 202 of the Interlocks Act (12 U.S.C. 3201). For purposes of that 
section 202, shares held by an individual include shares held by members 
of his or her immediate family. ``Immediate family'' means spouse, 
mother, father, child, grandchild, sister, brother, or any of their 
spouses, whether or not any of their shares are held in trust.
    (2) For purposes of section 202(3)(B) of the Interlocks Act (12 
U.S.C. 3201(3)(B)), an affiliate relationship involving a national bank 
based on common ownership does not exist if the OCC determines, after 
giving the affected persons the opportunity to respond, that the 
asserted affiliation was established in order to avoid the prohibitions 
of the Interlocks Act and does not represent a true commonality of 
interest between the depository organizations. In making this 
determination, the OCC considers, among other things, whether a person, 
including members of his or her immediate family, whose shares are 
necessary to constitute the group owns a nominal percentage of the 
shares of one of the organizations and the percentage is substantially 
disproportionate to that person's ownership of shares in the other 
organization.
    (b) Area median income means:
    (1) The median family income for the metropolitan statistical area 
(MSA), if a depository organization is located in an MSA; or

[[Page 329]]

    (2) The statewide nonmetropolitan median family income, if a 
depository organization is located outside an MSA.
    (c) Community means a city, town, or village, and contiguous or 
adjacent cities, towns, or villages.
    (d) Contiguous or adjacent cities, towns, or villages means cities, 
towns, or villages whose borders touch each other or whose borders are 
within 10 road miles of each other at their closest points. The property 
line of an office located in an unincorporated city, town, or village is 
the boundary line of that city, town, or village for the purpose of this 
definition.
    (e) Depository holding company means a bank holding company or a 
savings and loan holding company (as more fully defined in section 202 
of the Interlocks Act (12 U.S.C. 3201)) having its principal office 
located in the United States.
    (f) Depository institution means a commercial bank (including a 
private bank), a savings bank, a trust company, a savings and loan 
association, a building and loan association, a homestead association, a 
cooperative bank, an industrial bank, or a credit union, chartered under 
the laws of the United States and having a principal office located in 
the United States. Additionally, a United States office, including a 
branch or agency, of a foreign commercial bank is a depository 
institution.
    (g) Depository institution affiliate means a depository institution 
that is an affiliate of a depository organization.
    (h) Depository organization means a depository institution or a 
depository holding company.
    (i) District bank means any State bank operating under the Code of 
Law of the District of Columbia.
    (j) Low- and moderate-income areas means census tracts (or, if an 
area is not in a census tract, block numbering areas delineated by the 
United States Bureau of the Census) where the median family income is 
less than 100 percent of the area median income.
    (k) Management official. (1) The term management official means:
    (i) A director;
    (ii) An advisory or honorary director of a depository institution 
with total assets of $100 million or more;
    (iii) A senior executive officer as that term is defined in 12 CFR 
5.51(c)(3);
    (iv) A branch manager;
    (v) A trustee of a depository organization under the control of 
trustees; and
    (vi) Any person who has a representative or nominee serving in any 
of the capacities in this paragaph (k)(1).
    (2) The term management official does not include:
    (i) A person whose management functions relate exclusively to the 
business of retail merchandising or manufacturing;
    (ii) A person whose management functions relate principally to the 
business outside the United States of a foreign commercial bank; or
    (iii) A person described in the provisos of section 202(4) of the 
Interlocks Act (12 U.S.C. 3201(4)) (referring to an officer of a State-
chartered savings bank, cooperative bank, or trust company that neither 
makes real estate mortgage loans nor accepts savings).
    (l) Office means a principal or branch office of a depository 
institution located in the United States. Office does not include a 
representative office of a foreign commercial bank, an electronic 
terminal, or a loan production office.
    (m) Person means a natural person, corporation, or other business 
entity.
    (n) Relevant metropolitan statistical area (RMSA) means an MSA, a 
primary MSA, or a consolidated MSA that is not comprised of designated 
primary MSAs to the extent that these terms are defined and applied by 
the Office of Management and Budget.
    (o) Representative or nominee means a natural person who serves as a 
management official and has an obligation to act on behalf of another 
person with respect to management responsibilities. The OCC will find 
that a person has an obligation to act on behalf of another person only 
if the first person has an agreement, express or implied, to act on 
behalf of the second person with respect to management responsibilities. 
The OCC will determine, after giving the affected persons an opportunity 
to respond, whether a person is a representative or nominee.

[[Page 330]]

    (p) Total assets. (1) The term total assets means assets measured on 
a consolidated basis and reported in the most recent fiscal year-end 
Consolidated Report of Condition and Income.
    (2) The term total assets does not include:
    (i) Assets of a diversified savings and loan holding company as 
defined by section 10(a)(1)(F) of the Home Owners' Loan Act (12 U.S.C. 
1467a(a)(1)(F)) other than the assets of its depository institution 
affiliate;
    (ii) Assets of a bank holding company that is exempt from the 
prohibitions of section 4 of the Bank Holding Company Act of 1956 
pursuant to an order issued under section 4(d) of that Act (12 U.S.C. 
1843(d)) other than the assets of its depository institution affiliate; 
or
    (iii) Assets of offices of a foreign commercial bank other than the 
assets of its United States branch or agency.
    (q) United States means the United States of America, any State or 
territory of the United States of America, the District of Columbia, 
Puerto Rico, Guam, American Samoa, and the Virgin Islands.

[61 FR 40300, Aug. 2, 1996, as amended at 64 FR 51678, Sept. 24, 1999; 
72 FR 1276, Jan. 11, 2007]



Sec. 26.3  Prohibitions.

    (a) Community. A management official of a depository organization 
may not serve at the same time as a management official of an 
unaffiliated depository organization if the depository organizations in 
question (or a depository institution affiliate thereof) have offices in 
the same community.
    (b) RMSA. A management official of a depository organization may not 
serve at the same time as a management official of an unaffiliated 
depository organization if the depository organizations in question (or 
a depository institution affiliate thereof) have offices in the same 
RMSA and each depository organization has total assets of $50 million or 
more.
    (c) Major assets. A management official of a depository organization 
with total assets exceeding $2.5 billion (or any affiliate of such an 
organization) may not serve at the same time as a management official of 
an unaffiliated depository organization with total assets exceeding $1.5 
billion (or any affiliate of such an organization), regardless of the 
location of the two depository organizations. The OCC will adjust these 
thresholds, as necessary, based on the year-to-year change in the 
average of the Consumer Price Index for the Urban Wage Earners and 
Clerical Workers, not seasonally adjusted, with rounding to the nearest 
$100 million. The OCC will announce the revised thresholds by publishing 
a final rule without notice and comment in the Federal Register.

[61 FR 40300, Aug. 2, 1996, as amended at 64 FR 51678, Sept. 24, 1999; 
72 FR 1276, Jan. 11, 2007]



Sec. 26.4  Interlocking relationships permitted by statute.

    The prohibitions of Sec. 26.3 do not apply in the case of any one 
or more of the following organizations or to a subsidiary thereof:
    (a) A depository organization that has been placed formally in 
liquidation, or which is in the hands of a receiver, conservator, or 
other official exercising a similar function;
    (b) A corporation operating under section 25 or section 25A of the 
Federal Reserve Act (12 U.S.C. 601 et seq. and 12 U.S.C. 611 et seq., 
respectively) (Edge Corporations and Agreement Corporations);
    (c) A credit union being served by a management official of another 
credit union;
    (d) A depository organization that does not do business within the 
United States except as an incident to its activities outside the United 
States;
    (e) A State-chartered savings and loan guaranty corporation;
    (f) A Federal Home Loan Bank or any other bank organized solely to 
serve depository institutions (a bankers' bank) or solely for the 
purpose of providing securities clearing services and services related 
thereto for depository institutions and securities companies;
    (g) A depository organization that is closed or is in danger of 
closing as determined by the appropriate Federal depository institutions 
regulatory agency and is acquired by another depository organization. 
This exemption lasts for five years, beginning on the

[[Page 331]]

date the depository organization is acquired; and
    (h)(1) A diversified savings and loan holding company (as defined in 
section 10(a)(1)(F) of the Home Owners' Loan Act (12 U.S.C. 
1467a(a)(1)(F)) with respect to the service of a director of such 
company who also is a director of an unaffiliated depository 
organization if:
    (i) Both the diversified savings and loan holding company and the 
unaffiliated depository organization notify their appropriate Federal 
depository institutions regulatory agency at least 60 days before the 
dual service is proposed to begin; and
    (ii) The appropriate regulatory agency does not disapprove the dual 
service before the end of the 60-day period.
    (2) The OCC may disapprove a notice of proposed service if it finds 
that:
    (i) The service cannot be structured or limited so as to preclude an 
anticompetitive effect in financial services in any part of the United 
States;
    (ii) The service would lead to substantial conflicts of interest or 
unsafe or unsound practices; or
    (iii) The notificant failed to furnish all the information required 
by the OCC.
    (3) The OCC may require that any interlock permitted under this 
paragraph (h) be terminated if a change in circumstances occurs with 
respect to one of the interlocked depository organizations that would 
have provided a basis for disapproval of the interlock during the notice 
period.



Sec. 26.5  Small market share exemption.

    (a) Exemption. A management interlock that is prohibited by Sec. 
26.3 is permissible, if:
    (1) The interlock is not prohibited by Sec. 26.3(c); and
    (2) The depository organizations (and their depository institution 
affiliates) hold, in the aggregate, no more than 20 percent of the 
deposits in each RMSA or community in which both depository 
organizations (or their depository institution affiliates) have offices. 
The amount of deposits shall be determined by reference to the most 
recent annual Summary of Deposits published by the FDIC for the RMSA or 
community.
    (b) Confirmation and records. Each depository organization must 
maintain records sufficient to support its determination of eligibility 
for the exemption under paragraph (a) of this section, and must 
reconfirm that determination on an annual basis.

[64 FR 51678, Sept. 24, 1999]



Sec. 26.6  General exemption.

    (a) Exemption. The OCC may by order issued following receipt of an 
application, exempt an interlock from the prohibitions in Sec. 26.3 if 
the OCC finds that the interlock would not result in a monopoly or 
substantial lessening of competition and would not present safety and 
soundness concerns.
    (b) Presumptions. In reviewing an application for an exemption under 
this section, the OCC will apply a rebuttable presumption that an 
interlock will not result in a monopoly or substantial lessening of 
competition if the depository organization seeking to add a management 
official:
    (1) Primarily serves low-and moderate-income areas;
    (2) Is controlled or managed by persons who are members of a 
minority group, or women;
    (3) Is a depository institution that has been chartered for less 
than two years; or
    (4) Is deemed to be in ``troubled condition'' as defined in 12 CFR 
5.51(c)(6).
    (c) Duration. Unless a specific expiration period is provided in the 
OCC approval, an exemption permitted by paragraph (a) of this section 
may continue so long as it does not result in a monopoly or substantial 
lessening of competition, or is unsafe or unsound. If the OCC grants an 
interlock exemption in reliance upon a presumption under paragraph (b) 
of this section, the interlock may continue for three years, unless 
otherwise provided by the OCC in writing.

[64 FR 51678, Sept. 24, 1999]



Sec. 26.7  Change in circumstances.

    (a) Termination. A management official shall terminate his or her 
service or apply for an exemption if a change in circumstances causes 
the service to become prohibited. A change in circumstances may include 
an increase in

[[Page 332]]

asset size of an organization, a change in the delineation of the RMSA 
or community, the establishment of an office, an increase in the 
aggregate deposits of the depository organization, or an acquisition, 
merger, consolidation, or any reorganization of the ownership structure 
of a depository organization that causes a previously permissible 
interlock to become prohibited.
    (b) Transition period. A management official described in paragraph 
(a) of this section may continue to serve the depository organization 
involved in the interlock for 15 months following the date of the change 
in circumstances. The OCC may shorten this period under appropriate 
circumstances.

[61 FR 40300, Aug. 2, 1996, as amended at 64 FR 51678, Sept. 24, 1999]



Sec. 26.8  Enforcement.

    Except as provided in this section, the OCC administers and enforces 
the Interlocks Act with respect to national banks, District banks, and 
affiliates of either, and may refer any case of a prohibited 
interlocking relationship involving these entities to the Attorney 
General of the United States to enforce compliance with the Interlocks 
Act and this part. If an affiliate of a national bank or a District bank 
is subject to the primary regulation of another Federal depository 
organization supervisory agency, then the OCC does not administer and 
enforce the Interlocks Act with respect to that affiliate.



PART 27_FAIR HOUSING HOME LOAN DATA SYSTEM--Table of Contents




Sec.
27.1 Scope and OMB control number.
27.2 Definitions.
27.3 Recordkeeping requirements.
27.4 Inquiry/Application Log.
27.5 Record retention period.
27.6 Substitute monitoring program.
27.7 Availability, submission and use of data.

Appendix I to Part 27--Monthly Home Loan Activity Format
Appendix II to Part 27--Information for Government Monitoring Purposes
Appendix III to Part 27--Fair Housing Lending Inquiry/Application Log 
          Sheet
Appendix IV to Part 27--Home Loan Data Submission

    Authority: 5 U.S.C. 301; 12 U.S.C. 1 et seq., 93a, 161, 481, and 
1818; 15 U.S.C. 1691 et seq.; 42 U.S.C. 3601 et seq.; 12 CFR part 202.

    Source: 44 FR 63089, Nov. 2, 1979, unless otherwise noted.



Sec. 27.1  Scope and OMB control number.

    (a) Scope. This part applies to the activities of national banks and 
banks located in the District of Columbia, and their subsidiaries, which 
make home loans for the purpose of purchasing, construction-permanent 
financing, or refinancing of residential real property.
    (b) OMB control number. The collection of information requirements 
contained in this part were approved by the Office of Management and 
Budget under OMB control number 1557-0160.

[49 FR 11825, Mar. 28, 1984]



Sec. 27.2  Definitions.

    For the purpose of this part, including all forms and instructions 
issued for use under this part:
    (a) Applicant means a natural person, including a co-applicant, who 
makes an application.
    (b) Application means an oral in-person or written request for an 
extension of credit for a home loan that is made in accordance with 
procedures established by a bank for the type of credit requested.
    (c) Bank means a national bank or bank located in the District of 
Columbia, and any subsidiaries of such a bank.
    (d) Completed application means an application in connection with 
which a bank has received all the information that it regularly obtains 
and considers in evaluating the amount and type of credit requested.
    (e) Decision center means the place where home loan applications are 
accepted or rejected.
    (f) Home loan means a real estate loan for the purchase, permanent 
financing for construction, or the refinancing of residential real 
property which the applicant intends to occupy as a principal residence.
    (g) Inquirer means a natural person who makes an inquiry.
    (h) Inquiry means a written or an oral in-person request for 
information about the terms of a home loan by a

[[Page 333]]

natural person on his/her own behalf which is received on a bank's 
premises by any person at the bank who customarily receives or is 
authorized to receive such requests. Telephonic communications do not 
constitute an inquiry for purposes of this part.
    (i) Real estate loan means any loan secured by real estate where the 
bank relies upon such real estate as the primary security for the loan. 
Where the bank in its judgment relies substantially upon other factors, 
such as the general credit standing of the borrower, guaranties, or 
security other than real estate, the loan does not constitute a real 
estate loan, although as a matter of prudent banking practice it may 
also be secured by real estate.
    (1) A loan made in reliance upon the security of a mobile home will 
not be considered a real estate loan, although as a prudent banking 
practice the security interest is recorded or otherwise perfected as if 
the mobile home were real estate. For purposes of this part, a loan made 
in reliance upon the security of a mobile home and the parcel of land to 
which it is permanently affixed will be considered a real estate loan.
    (2) Where the bank relies substantially on the insurance guaranty of 
a governmental agency in making a loan, it does not constitute a real 
estate loan except for the purposes of Sec. 27.4 of this part (Inquiry/
Application Log).
    (j) Residential real property means improved real property (not 
vacant land) used or intended to be used for residential purposes, 
including single family homes, dwellings for from two to four families, 
and individual units of condominiums and cooperatives.



Sec. 27.3  Recordkeeping requirements.

    (a) Quarterly recordkeeping requirement. (1) A bank that is required 
to collect data on home loans under part 203 of this title shall present 
the data on Federal Reserve Form FR HMDA-LAR or in an automated format 
in accordance with the instructions, except that:
    (i) A bank shall maintain the reason(s) it denied a loan 
application, using the codes provided in part 203 of this title; and
    (ii) A bank shall record all information required by this paragraph 
and part 203 of this title within 30 calendar days after the end of each 
calendar quarter.
    (2) A bank that receives 50 or more home loan applications a year, 
as measured by the previous calendar year, and that is not required to 
collect data under paragraph (a)(1) of this section, shall record and 
maintain for each decision center the following information on home loan 
activity:
    (i) Number of applications received for each of the following: 
Purchase; construction-permanent; refinance.
    (ii) Number of loans closed for each of the following: Purchase; 
construction-permanent; refinance.
    (iii) Number of loans denied for each of the following: Purchase; 
construction-permanent; refinance.
    (iv) Number of loans withdrawn by applicant, for each of the 
following: Purchase; construction-permanent; refinance.
    (3) The information required to be maintained under paragraph (a)(2) 
of this section shall be updated quarterly, within 30 calendar days 
after the end of each calendar quarter, in a format consistent with the 
bank's recordkeeping procedures.
    (4) A bank exempted under paragraph (a)(2) of this section shall be 
covered by that requirement beginning the month following any quarter in 
which their average monthly volume of home loan applications exceeds 
four applications per month. Banks which are subject to this paragraph 
may discontinue keeping this information beginning the month following 
two consecutive quarters in which their average monthly volume of home 
loan applications drops to four or fewer applications per month. A bank 
which is otherwise exempted under this paragraph may be required upon 
notification received from the Comptroller, to record and maintain such 
information where there is cause to believe that the bank is not in 
compliance with the fair housing laws based on prior examinations and/or 
has substantive consumer complaints, among other factors.
    (5) A bank required to maintain information under paragraph (a)(2) 
or (a)(4) of this section may choose to comply with the quarterly 
recordkeeping requirement by maintaining

[[Page 334]]

information in accordance with paragraph (a)(1) of this section.
    (b) Information required on applications for home loans--(1) Each 
bank shall attempt to obtain all of the information listed below, as 
part of completed applications for home loans:
    (i) Loan Amount requested by the applicant(s).
    (ii) Interest rate requested by the applicant(s).
    (iii) Number of months requested to maturity by the applicant(s).
    (iv) Location. Complete street address, city, county, state and zip 
code of the dwelling which will secure the loan.
    (v) Number of residential units (1-4) of the dwelling which will 
secure the loan.
    (vi) Year built. The year in which the dwelling which will secure 
the loan was built. If the exact year is unknown, approximate to the 
nearest decade.
    (vii) Purpose of the loan. Purchase; refinance; or construction-
permanent.
    (viii) Name and present address of applicant(s).
    (ix) Age of applicant(s).
    (x) Marital status of applicant(s) using the categories married, 
unmarried and separated.
    (xi) Number of years employed in present line of work or profession 
for the applicant(s).
    (xii) Years on present job. Number of continuous years employed by 
the current employer of the applicant(s). For self-employed persons, the 
number of continuous years self-employed.
    (xiii) Gross total monthly income of each applicant, comprising the 
sum of normal base salary, wages, overtime pay, bonuses, commissions, 
dividends, interest, rental income, retirement or disability income and 
income from part-time employment. For self-employed persons, include the 
average or normal monthly income. Include alimony, separate maintenance 
and child support income information only if the applicant has been 
advised that such information need not be provided and nevertheless 
elects to have it considered.
    (xiv) Proposed monthly housing payment, comprising the sum of 
principal and interest. The bank may also include insurance, real estate 
taxes and any monthly assessments for home owner dues or condominium 
fees, and/or utilities if the bank considers these factors in computing 
housing costs. However, if the bank includes any of these factors for 
computing the monthly housing payment, it must do so consistently. When 
a bank changes its regular practice, such change and its effective date 
should be identifiable with respect to the bank's new policy.
    (xv) Purchase price. Sales price or approximate current market value 
of the property which will secure the loan.
    (xvi) Applicant's or applicants' total monthly payments on all 
outstanding liabilities. Include installment debts, real estate loans 
and any alimony, child support or separate maintenance payments. Exclude 
any payments on liabilities which will be satisfied upon sale of real 
estate owned or upon refinancing of property associated with this 
application.
    (xvii) Net worth. Applicant's or applicants' total assets, including 
cash checking and savings accounts, stocks and bonds, cash value of life 
insurance, value of real estate owned, net worth of business owned, 
automobile, furniture and personal property and other assets, minus 
total liabilities, including installment debts, automobile loans, real 
estate loans, and any other debts, including stock pledges.
    (xviii) Date of application. The date on which a signed application 
is received by the bank.
    (xix) Sex of applicant(s).
    (xx) Race/national origin of applicant(s) using the categories: 
American Indian or Alaskan Native; Asian or Pacific Islander; Black, not 
of Hispanic origin; White, not of Hispanic origin; Hispanic; Other.
    (2) Information on race/national origin and sex.
    (i) Disclosure to applicant.
    (A) In collecting the information required under Sec. 27.3(b)(1) 
(xix) and (xx), the bank shall advise an applicant, either orally or in 
writing, that:
    (1) The information on race/national origin and sex is requested by 
the Federal Government if this loan is related to a home loan, in order 
to monitor the lender's compliance with equal credit opportunity and 
fair housing laws;

[[Page 335]]

    (2) The applicant is not required to furnish the information but is 
encouraged to do so. The law provides that a lender may neither 
discriminate on the basis of this information, nor on whether the 
applicant chooses to furnish it;
    (3) However, if the applicant chooses not to furnish it, Federal 
regulations require the lender to note race and sex on the basis of 
visual observation or surname.
    (B) Banks which use the Federal Home Loan Mortgage Corporation/
Federal National Mortgage Association (FHLMC/FNMA) insert form 
(``Information for Government Monitoring Purposes'') requesting this 
information will be in compliance with paragraph (b)(2)(i) of this 
section. A copy of the insert form is set forth in appendix II.
    (ii) If the applicant does not voluntarily provide the information 
on sex and race/national origin which the bank is required to record and 
maintain under Sec. 27.3(b)(1) (xix) and (xx), the bank shall request 
the applicant to note that fact (by initials or otherwise) on the 
application, and the bank shall provide the information based on visual 
observation or surname. If the applicant does not voluntarily provide 
the information and does not initial or otherwise note that fact, the 
bank shall initial, or otherwise note that fact on the application, as 
well as provide the information based on visual observation or surname.
    (c) Additional information required in the loan file. In addition to 
the information required by Sec. 27.3(b), each bank shall maintain the 
following information in each of its home loan files:
    (1) If an appraisal is completed:
    (i) The appraised value; and
    (ii) The census tract number, where available, for those properties 
which are in a Standard Metropolitan Statistical Area (SMSA) in which 
the bank has a home office or branch office.
    (2) Disposition of loan application. The disposition of the 
completed applications using the following categories:
    (i) Withdrawn before terms were offered;
    (ii) Withdrawn after terms were offered;
    (iii) Denied;
    (iv) Terms offered and accepted by applicant(s).
    (3) If final terms are offered, whether or not accepted:
    (i) The loan amount.
    (ii) Whether private mortgage insurance is required, and if so, the 
terms of the insurance.
    (iii) Whether a deposit balance is required, and if so, the amount.
    (iv) The note (simple) interest rate.
    (v) The number of months to maturity of the loan offered.
    (vi) Points. The loan origination or discount fee(s) charged to the 
buyer, computed as a percentage of the loan amount.
    (4) Commitment date. The date final terms were offered.
    (5) The type of mortgage using the following categories: Standard 
Fixed Payment; Variable Rate; Graduated Payment; Rollover; Other.
    (6) The name or identification of the bank office where the 
application was submitted.
    (7) Whenever credit is denied, copy(s) of the Equal Credit 
Opportunity Act credit notice and statement of credit denial.
    (8) Any additional information used by the bank in determining 
whether or not to extend credit, or in establishing the terms, 
including, but not limited to, credit reports, employment verification 
forms, Federal Income Tax Forms, availability of insurance, and the 
complete appraisal.

[44 FR 63089, Nov. 2, 1979, as amended at 59 FR 26415, May 20, 1994]



Sec. 27.4  Inquiry/Application Log.

    (a) The Comptroller, among other things, may require a bank to 
maintain a Fair Housing Inquiry/Application Log (``Log''), based upon, 
but not limited to, one or more of the following causes:
    (1) There is reason(s) to believe that the bank may be prescreening 
or otherwise engaging in discriminatory practices on a prohibited basis.
    (2) Complaints filed with the Comptroller or letters in the 
Community Reinvestment Act file are found to be substantive in nature, 
indicating that the bank's home lending practices are, or may be, 
discriminatory.
    (3) Analysis of the data compiled by the bank under the provisions 
of the

[[Page 336]]

Home Mortgage Disclosure Act (12 U.S.C. 2801 et seq. and Regulation C of 
the Federal Reserve Board, 12 CFR part 203) indicates a pattern of 
significant variation in the number of home loans between census tracts 
with similar incomes and home ownership levels, differentiated only by 
race or national origin (i.e., possible racial redlining).
    (b) The Comptroller, when requiring the maintenance of a Log, will 
specify in writing:
    (1) The location(s) where the information shall be obtained;
    (2) The length of time it shall be maintained;
    (3) The frequency with which it shall be submitted to the 
Comptroller; and
    (4) The reason(s) for imposing this requirement.
    (c) A bank which has been directed by the Comptroller to maintain a 
Log shall obtain and note all of the following information regarding 
each inquiry or application for the extension of a home loan and each 
inquiry or application for a government insured home loan (not otherwise 
included in this part):
    (1) Date of application or inquiry.
    (2) Type of loan using the categories: purchase, construction-
permanent; refinance; and government insured by type of insurance, i.e., 
FHA, VA, and FmHA (if applicable).
    (3) Indication of whether the entry refers to an application or an 
inquiry.
    (4) Case identification (either a unique number which permits the 
application file to be located, or the name(s) and address(es) of the 
applicant(s)).
    (5) Race/national origin of the inquirer(s) or applicant(s) using 
the categories: American Indian or Alaskan Native; Asian or Pacific 
Islander; Black, not of Hispanic origin; White, not of Hispanic origin; 
Hispanic; Other. In the case of inquiries, this item shall be noted on 
the basis of visual observation or surname(s) only. In the case of 
applications, the information shall be obtained pursuant to Sec. 
27.3(b)(2).
    (6) Location. Complete street address, city, county, state and zip 
code of the property which will secure the extension of credit. The 
census tract shall also be recorded when the property is located in an 
SMSA in which the bank has a home office or branch office.
    (d) The information required under Sec. 27.4(c), of this part, 
shall be recorded and maintained on the form set forth in appendix III. 
Additional information may be recorded and maintained at the bank's 
discretion.

[44 FR 63089, Nov. 2, 1979, as amended at 59 FR 26415, May 20, 1994]



Sec. 27.5  Record retention period.

    (a) Each bank shall retain the records required under Sec. 27.3 for 
25 months after the bank notifies an applicant of action taken on an 
application, or after withdrawal of an application. This requirement 
also applies to records of home loans which are originated by the bank 
and subsequently sold.
    (b) The Comptroller of the Currency may, by written notice to a 
bank, extend the retention period.



Sec. 27.6  Substitute monitoring program.

    The recordkeeping provisions of Sec. 27.3 constitute a substitute 
monitoring program as authorized under Sec. 202.13(d) of Regulation B 
of the Federal Reserve Board (12 CFR 202.13(d)). A bank collecting the 
data in compliance with Sec. 27.3 of this part will be in compliance 
with the requirements of Sec. 202.13 of Regulation B.



Sec. 27.7  Availability, submission and use of data.

    (a) Each bank shall make all information collected under Sec. 27.3 
and Sec. 27.4 available for review at the bank to national bank 
examiners upon request.
    (b) Prior to a scheduled bank examination, the Comptroller may 
request the information maintained under Sec. 27.3(a). A bank required 
to maintain information under Sec. 27.3(a)(2) shall submit the 
information to the Comptroller on the form prescribed in appendix I of 
this part. A bank which is exempt from maintaining the information 
required under Sec. 27.3(a) shall notify the Comptroller of this fact 
in writing within 30 calendar days of its receipt of the Comptroller's 
request.
    (c) If, upon review of the information maintained under Sec. 
27.3(a), the Comptroller determines that statistical

[[Page 337]]

analysis prior to examination is warranted, the bank will be notified.
    (1) Within 30 calendar days after receipt of notification from the 
Comptroller, the bank shall submit, for application records specified by 
the Comptroller, completed Home Loan Data Submission Forms (set forth as 
appendix IV). The Comptroller may, upon the request of a bank and for 
good reason, extend the 30-day period.
    (2) The number of Home Loan Data Submission Forms requested by the 
Comptroller will not exceed 250 per decision center, or 2,000 per bank 
with multiple decision centers, unless there is cause to believe that a 
bank is not in compliance with fair housing laws based on examination 
findings or substantiated complaints, among other factors.
    (3) A bank with fewer than 75 home loan applications in the 
preceding year will not be required to submit such forms unless:
    (i) The home loan activity is concentrated in the few months 
preceding the request for data, indicating the likelihood of increased 
activity over the subsequent year, or
    (ii) There is cause to believe that a bank is not in compliance with 
the fair housing laws based on prior examinations and/or complaints, 
among other factors.
    (d) If there is cause to believe that a bank is in noncompliance 
with fair housing laws, the Comptroller may require submission of 
additional Home Loan Data Submission Forms. The Comptroller may also 
require submission of the information maintained under Sec. 27.3(a) and 
Home Loan Data Submission Forms at more frequent intervals than 
specified in paragraphs (b) and (c) of this section.

[44 FR 63089, Nov. 2, 1979, as amended at 59 FR 26415, May 20, 1994]

[[Page 338]]



      Sec. Appendix I to Part 27--Monthly Home Loan Activity Format
[GRAPHIC] [TIFF OMITTED] TC22SE91.001


[[Page 339]]





   Sec. Appendix II to Part 27--Information for Government Monitoring 
                                Purposes

    The following language is approved by the Comptroller of the 
Currency and will satisfy the requirements of 12 CFR part 27. It may be 
inserted to complete the ``Information for Government Monitoring 
Purposes'' section of the Residential Loan Application Form (FHLMC Form 
65/FNMA 1003) or may be used separately. This information may also be 
provided orally by the applicant.
    The following information is requested by the Federal Government if 
this loan is related to a dwelling, in order to monitor the lender's 
compliance with equal credit opportunity and fair housing laws. You are 
not required to furnish this information, but are encourage to do so. 
The law provides that a lender may neither discriminate on the basis of 
this information, nor on whether you choose to furnish it. However, if 
you choose not to furnish it, under Federal regulations this lender is 
required to note race and sex on the basis of visual observation or 
surname. If you do not wish to furnish the above information, please 
initial below.

                                Borrower

    I do not wish to furnish this information (initial)--------.

                          Race/National Origin

    [squ] American Indian or Alaskan Native
    [squ] Asian or Pacific Islander
    [squ] Black, not of Hispanic origin
    [squ] Hispanic
    [squ] White, not of Hispanic origin
    [squ] Other (specify)--------

                                   Sex

    [squ] Female
    [squ] Male

                               Co-borrower

    I do not wish to furnish this information (initial)--------.

                          Race/National Origin

    [squ] American Indian or Alaskan Native
    [squ] Asian or Pacific Islander
    [squ] Black, not of Hispanic origin
    [squ] Hispanic
    [squ] White, not of Hispanic origin
    [squ] Other (specify)--------

                                   Sex

    [squ] Female
    [squ] Male

[59 FR 26415, May 20, 1994]

[[Page 340]]



 Sec. Appendix III to Part 27--Fair Housing Lending Inquiry/Application 
                                Log Sheet
[GRAPHIC] [TIFF OMITTED] TR20MY94.003


[59 FR 26417, May 20, 1994]

[[Page 341]]



         Sec. Appendix IV to Part 27--Home Loan Data Submission
[GRAPHIC] [TIFF OMITTED] TR21JN94.003


[[Page 342]]


[GRAPHIC] [TIFF OMITTED] TR21JN94.004


[59 FR 31925, June 21, 1994]

[[Page 343]]



PART 28_INTERNATIONAL BANKING ACTIVITIES--Table of Contents




             Subpart A_Foreign Operations of National Banks

Sec.
28.1 Authority, purpose, and scope.
28.2 Definitions.
28.3 Filing requirements for foreign operations of a national bank.
28.4 Permissible activities.
28.5 Filing of notice.

        Subpart B_Federal Branches and Agencies of Foreign Banks

28.10 Authority, purpose, and scope.
28.11 Definitions.
28.12 Approval of a Federal branch or agency.
28.13 Permissible activities.
28.14 Limitations based upon capital of a foreign bank.
28.15 Capital equivalency deposits.
28.16 Deposit-taking by an uninsured Federal branch.
28.17 Notice of change in activity or operations.
28.18 Recordkeeping and reporting.
28.19 Enforcement.
28.20 Maintenance of assets.
28.21 Service of process.
28.22 Voluntary liquidation.
28.23 Procedures for closing of some of a foreign bank's Federal 
          branches and/or agencies.
28.24 Termination of a Federal branch or agency.
28.25 Change in control.
28.26 Loan production offices.

               Subpart C_International Lending Supervision

28.50 Authority, purpose, and scope.
28.51 Definitions.
28.52 Allocated transfer risk reserve.
28.53 Accounting for fees on international loans.
28.54 Reporting and disclosure of international assets.

    Authority: 12 U.S.C. 1 et seq., 24(Seventh), 93a, 161, 602, 1818, 
3101 et seq., and 3901 et seq.

    Source: 61 FR 19532, May 2, 1996, unless otherwiswe noted.



             Subpart A_Foreign Operations of National Banks



Sec. 28.1  Authority, purpose, and scope.

    (a) Authority. This subpart is issued pursuant to 12 U.S.C. 1 et 
seq., 24(Seventh), 93a, and 602.
    (b) Purpose. This subpart sets forth filing requirements for 
national banks that engage in international operations and clarifies 
permissible foreign activities of national banks.
    (c) Scope. This subpart applies to any national bank that engages in 
international operations through a foreign branch, or acquires an 
interest in an Edge corporation, Agreement corporation, foreign bank, or 
certain other foreign organizations.



Sec. 28.2  Definitions.

    For purposes of this subpart:
    (a) Agreement corporation means a corporation having an agreement or 
undertaking with the Board of Governors of the Federal Reserve System 
(FRB) under section 25 of the Federal Reserve Act (FRA), 12 U.S.C. 601 
through 604a.
    (b) Edge corporation means a corporation that is organized under 
section 25A of the FRA, 12 U.S.C. 611 through 631.
    (c) Foreign bank means an organization that:
    (1) Is organized under the laws of a foreign country;
    (2) Engages in the business of banking;
    (3) Is recognized as a bank by the bank supervisory or monetary 
authority of the country of its organization or principal banking 
operations;
    (4) Receives deposits to a substantial extent in the regular course 
of its business; and
    (5) Has the power to accept demand deposits.
    (d) Foreign branch means an office of a national bank (other than a 
representative office) that is located outside the United States at 
which banking or financing business is conducted.
    (e) Foreign country means one or more foreign nations, and includes 
the overseas territories, dependencies, and insular possessions of those 
nations and of the United States, and the Commonwealth of Puerto Rico.

[61 FR 19532, May 2, 1996, as amended at 61 FR 60387, Nov. 27, 1996]



Sec. 28.3  Filing requirements for foreign operations of a national bank.

    (a) Notice requirement. A national bank shall notify the OCC when 
it:

[[Page 344]]

    (1) Files an application, notice, or report with the FRB to:
    (i) Establish or open a foreign branch;
    (ii) Acquire or divest of an interest in, or close, an Edge 
corporation, Agreement corporation, foreign bank, or other foreign 
organization; or
    (2) Opens a foreign branch, and no application or notice is required 
by the FRB for such transaction.
    (b) Other applications and notices accepted. In lieu of a notice 
under paragraph (a)(1) of this section, the OCC may accept a copy of an 
application, notice, or report submitted to another Federal agency that 
covers the proposed action and contains substantially the same 
information required by the OCC.
    (c) Additional information. A national bank shall furnish the OCC 
with any additional information the OCC may require in connection with 
the national bank's foreign operations.

[61 FR 19532, May 2, 1996, as amended at 68 FR 70699, Dec. 19, 2003]



Sec. 28.4  Permissible activities.

    (a) General. Subject to the applicable approval process, if any, a 
national bank may engage in any activity in a foreign country that is:
    (1) Permissible for a national bank in the United States; and
    (2) Usual in connection with the business of banking in the country 
where it transacts business.
    (b) Additional activities. In addition to its general banking 
powers, a national bank may engage in any activity in a foreign country 
that is permissible under the FRB's Regulation K, 12 CFR part 211.
    (c) Foreign operations guarantees. A national bank may guarantee the 
deposits and other liabilities of its Edge corporations and Agreement 
corporations and of its corporate instrumentalities in foreign 
countries.



Sec. 28.5  Filing of notice.

    (a) Where to file. A national bank shall file any notice or 
submission required under this subpart with the appropriate supervisory 
office of the OCC.
    (b) Availability of forms. Individual forms and instructions for 
filings are available from the appropriate supervisory office of the 
OCC.

[61 FR 19532, May 2, 1996, as amended at 68 FR 70699, Dec. 19, 2003]



        Subpart B_Federal Branches and Agencies of Foreign Banks



Sec. 28.10  Authority, purpose, and scope.

    (a) Authority. This subpart is issued pursuant to the authority in 
the International Banking Act of 1978 (IBA), 12 U.S.C. 3101 et seq., and 
12 U.S.C. 93a.
    (b) Purpose--Purpose and scope. This subpart implements the IBA 
pertaining to the licensing, supervision, and operations of Federal 
branches and agencies in the United States. For corporate procedures 
pertaining to Federal branches and agencies, refer to 12 CFR part 5.
    (c) Scope. This subpart applies to all Federal branches and agencies 
of foreign banks. Nothing in the OCC's rules relieves a Federal branch 
or agency from complying with requirements that are imposed by the FRB 
under Regulation K (12 CFR part 211) or otherwise imposed in accordance 
with applicable law.

[61 FR 19532, May 2, 1996, as amended at 61 FR 60387, Nov. 27, 1996; 68 
FR 70699, Dec. 19, 2003]



Sec. 28.11  Definitions.

    For purposes of this subpart:
    (a) Affiliate means any entity that controls, is controlled by, or 
is under common control with another entity.
    (b) Agreement corporation means a corporation having an agreement or 
undertaking with the FRB under section 25 of the FRA, 12 U.S.C. 601 
through 604a.
    (c) Capital equivalency deposit means a deposit by a Federal branch 
or agency in a member bank as described in section 4 of the IBA, 12 
U.S.C. 3102(g).
    (d) Control. An entity controls another entity if the entity 
directly or indirectly controls or has the power to vote 25 percent or 
more of any class of voting securities of the other entity or controls 
in any manner the election of a majority of the directors or trustees of 
the other entity.
    (e) Edge corporation means a corporation that is organized under 
section

[[Page 345]]

25A of the FRA, 12 U.S.C. 611 through 631.
    (f) Establish a Federal branch or agency means to:
    (1) Open and conduct business through an initial or additional 
Federal branch or agency;
    (2) Acquire directly or indirectly through merger, consolidation, or 
similar transaction with another foreign bank, the operations of a 
Federal branch or agency that is open and conducting business;
    (3) Acquire a Federal branch or agency through the acquisition of a 
foreign bank subsidiary that will cease to operate in the same corporate 
form following the acquisition;
    (4) Convert a state branch or agency operated by a foreign bank, or 
a commercial lending company controlled by a foreign bank, into a 
Federal branch or agency;
    (5) Relocate a Federal branch or agency within a state or from one 
state to another; or
    (6) Convert a Federal agency or a limited Federal branch into a 
Federal branch.
    (g) Federal agency means an office or place of business, licensed by 
the OCC and operated by a foreign bank in any state, that may engage in 
the business of banking, including maintaining credit balances, cashing 
checks, and lending money, but may not accept deposits from citizens or 
residents of the United States. Obligations may not be considered credit 
balances unless they are:
    (1) Incidental to, or arise out of the exercise of, other lawful 
banking powers;
    (2) To serve a specific purpose;
    (3) Not solicited from the general public;
    (4) Not used to pay routine operating expenses in the United States 
such as salaries, rent, or taxes;
    (5) Withdrawn within a reasonable period of time after the specific 
purpose for which they were placed has been accomplished; and
    (6) Drawn upon in a manner reasonable in relation to the size and 
nature of the account.
    (h) Federal branch means an office or place of business, licensed by 
the OCC and operated by a foreign bank in any state, that may engage in 
the business of banking, including accepting deposits, that is not a 
Federal agency as defined in paragraph (h) of this section. Unless 
otherwise provided, the references in this subpart B of part 28 to a 
Federal branch include a limited Federal branch.
    (i) Foreign bank means an organization that is organized under the 
laws of a foreign country, a territory of the United States, Puerto 
Rico, Guam, American Samoa, or the Virgin Islands, and that engages 
directly in the business of banking in a foreign country.
    (j) Foreign business means any entity, including a corporation, 
partnership, sole proprietorship, association, foundation or trust that 
is organized under the laws of a foreign country, or any United States 
entity that is controlled by a foreign entity or foreign national.
    (k) Foreign country means one or more foreign nations, and includes 
the overseas territories, dependencies, and insular possessions of those 
nations and of the United States, and the Commonwealth of Puerto Rico.
    (l) Home country means the country in which the foreign bank is 
chartered or incorporated.
    (m) Home country supervisor means the governmental entity or 
entities in the foreign bank's home country responsible for supervising 
and regulating the foreign bank.
    (n) Home state of a foreign bank means the state in which the 
foreign bank has a branch, agency, subsidiary commercial lending 
company, or subsidiary bank. If a foreign bank has an office in more 
than one state, the home state of the foreign bank is the state that is 
selected to be the home state by the foreign bank or, in default of the 
foreign bank's selection, by the FRB.
    (o) Immediate family member of an individual means the spouse, 
father, mother, brother, sister, son, or daughter of that individual.
    (p) Initial deposit means the first deposit transaction between a 
depositor and the Federal branch made on or after July 1, 1996. The 
initial deposit

[[Page 346]]

may be placed into different deposit accounts or into different kinds of 
deposit accounts, such as demand, savings, or time accounts. Deposit 
accounts that are held by a depositor in the same right and capacity may 
be added together for the purpose of determining the dollar amount of 
the initial deposit. First deposit means the deposit made when there is 
no current deposit relationship between the depositor and the Federal 
branch.
    (q) International banking facility means a set of asset and 
liability accounts segregated on the books and records of a depository 
institution, a United States branch or agency of a foreign bank, or an 
Edge corporation or Agreement corporation, that includes only 
international banking facility time deposits and extensions of credit.
    (r) Large United States business means any business entity including 
a corporation, company, partnership, sole proprietorship, association, 
foundation or trust that is organized under the laws of the United 
States or any state thereof, and has:
    (1) Securities registered on a national securities exchange or 
quoted on the National Association of Securities Dealers Automated 
Quotation System; or
    (2) More than $1 million in annual gross revenues for the fiscal 
year immediately preceding the year of the initial deposit.
    (s) Limited Federal branch means a Federal branch that, pursuant to 
an agreement between the parent foreign bank and the FRB, may receive 
only those deposits permissible for an Edge corporation to receive.
    (t) Managed or controlled by a Federal branch or agency means that a 
majority of the responsibility for business decisions, including 
decisions with regard to lending, asset management, funding, or 
liability management, or the responsibility for recordkeeping of assets 
or liabilities for a non-United States office, resides at the Federal 
branch or agency. For purposes of this definition, forwarding data or 
information of offshore operations gathered or compiled by the United 
States office in the normal course of business to the parent foreign 
bank does not constitute recordkeeping.
    (u) Manual has the same meaning as in 12 CFR 5.2(c).
    (v) Parent foreign bank senior management means individuals at the 
executive level of the parent foreign bank who are responsible for 
supervising and authorizing activities of the Federal branch or agency.
    (w) Person means an individual or a corporation, government, 
partnership, association, or any other entity.
    (x) State means any state of the United States and the District of 
Columbia.
    (y) United States bank means a bank organized under the laws of the 
United States or any state.

[61 FR 19532, May 2, 1996, as amended at 61 FR 60387, Nov. 27, 1996; 68 
FR 70699, Dec. 19, 2003]



Sec. 28.12  Approval of a Federal branch or agency.

    (a) Approval and licensing requirements--(1) General. Except as 
otherwise provided in this section, a foreign bank shall submit an 
application to, and obtain prior approval from, the OCC before it:
    (i) Establishes a Federal branch or agency; or
    (ii) Exercises fiduciary powers at a Federal branch.
    (2) Licensing. A foreign bank must receive a license from the OCC to 
open and operate its initial Federal branch or agency in the United 
States. A foreign bank that has a license to operate and is operating a 
full-service Federal branch need not obtain a new license for any 
additional Federal branches or agencies, or to upgrade or downgrade its 
operations in an existing Federal branch or agency. A foreign bank that 
only has a license to operate and is operating a limited Federal branch 
or Federal agency need not obtain a new license for any additional 
limited Federal branches or Federal agencies, or to convert a limited 
Federal branch into a Federal agency or a Federal agency into a limited 
Federal branch.
    (b) Standards for approval. Generally, in reviewing an application 
by a foreign bank to establish a Federal branch or agency, the OCC 
considers:

[[Page 347]]

    (1) The financial and managerial resources and future prospects of 
the applicant foreign bank and the Federal branch or agency;
    (2) Whether the foreign bank has furnished to the OCC the 
information the OCC requires to assess the application adequately, and 
provided the OCC with adequate assurances that information will be made 
available to the OCC on the operations or activities of the foreign bank 
or any of its affiliates that the OCC deems necessary to determine and 
enforce compliance with the IBA and other applicable Federal banking 
statutes;
    (3) Whether the foreign bank and its United States affiliates are in 
compliance with applicable United States law;
    (4) The convenience and needs of the community to be served and the 
effects of the proposal on competition in the domestic and foreign 
commerce of the United States;
    (5) With respect to an application to establish a Federal branch or 
agency outside of the foreign bank's home state, whether the foreign 
bank is subject to comprehensive supervision or regulation on a 
consolidated basis by its home country supervisor. The OCC, in its 
discretion, also may consider whether the foreign bank is subject to 
comprehensive supervision or regulation on a consolidated basis by its 
home country supervisor when reviewing any other type of application to 
establish a Federal branch or agency; and
    (6) Whether the home country supervisor has consented to the 
proposed establishment of the Federal branch or agency.
    (c) Comprehensive supervision or regulation on a consolidated basis. 
In determining whether a foreign bank is subject to comprehensive 
supervision or regulation on a consolidated basis, the OCC reviews 
various factors, including whether the foreign bank is supervised or 
regulated in a manner so that its home country supervisor receives 
sufficient information on the worldwide operations of the foreign bank 
to assess the foreign bank's overall financial condition and compliance 
with laws and regulations as specified in the FRB's Regulation K, 12 CFR 
211.24.
    (d) Conditions on approval. The OCC may impose conditions on its 
approval including a condition permitting future termination of 
activities based on the inability of the foreign bank to provide 
information on its activities, or those of its affiliate, that the OCC 
deems necessary to determine and enforce compliance with United States 
banking laws.
    (e) Expedited review. Unless the OCC concludes that the filing 
presents significant supervisory or compliance concerns, or raises 
significant legal or policy issues, the OCC generally processes the 
following filings by an eligible foreign bank, as defined in paragraph 
(f) of this section, under expedited review procedures:
    (1) Intrastate relocations. An application submitted by an eligible 
foreign bank to relocate a Federal branch or agency within a state is 
deemed approved by the OCC as of the seventh day after the close of the 
applicable public comment period in 12 CFR part 5, unless the OCC 
notifies the bank prior to that date that the filing is not eligible for 
expedited review.
    (2) Written notice for an additional intrastate Federal branch or 
agency. (i) In a case where a foreign bank seeks to establish intrastate 
an additional Federal branch or agency, the foreign bank shall provide 
written notice 30 days in advance of the establishment of the intrastate 
Federal branch or agency.
    (ii) The OCC may waive the 30-day period required under paragraph 
(e)(2)(i) of this section if immediate action is required. The OCC also 
may suspend the notice period or require an application if the 
notification raises significant policy or supervisory concerns.
    (3) Expedited approval procedures for an interstate Federal branch 
or agency. An application submitted by an eligible foreign bank to 
establish and operate a de novo Federal branch or agency in any state 
outside the home state of the foreign bank is deemed conditionally 
approved by the OCC as of the 30th day after the OCC receives the 
filing, unless the OCC notifies the foreign bank prior to that date that 
the filing is not eligible for expedited review. In the event that the 
FRB has approved the application prior to the expiration of the period, 
then the OCC's approval shall be deemed a final approval.

[[Page 348]]

    (4) Conversions. An application submitted by an eligible foreign 
bank to establish a Federal branch or agency as defined in 12 CFR 
28.11(f)(4) or (f)(6) is deemed approved by the OCC as of the 30th day 
after the OCC receives the filing, unless the OCC notifies the foreign 
bank prior to that date that the filing is not eligible for expedited 
review.
    (5) Fiduciary powers. An application submitted by an eligible 
foreign bank to exercise fiduciary powers at an established Federal 
branch is deemed approved by the OCC 30 days after filing with the OCC, 
unless the OCC notifies the bank prior to that date that the filing is 
not eligible for expedited review.
    (6) Other filings. Any other application submitted by an eligible 
foreign bank may be approved by the OCC on an expedited basis as 
described in the Manual.
    (f) Eligible foreign bank. For purposes of this section, a foreign 
bank is an eligible foreign bank if each Federal branch and agency of 
the foreign bank or, if the foreign bank has no Federal branches or 
agencies and is engaging in an establishment of a Federal branch or 
agency as defined in 12 CFR 28.11(f)(4), each state branch and agency:
    (1) Has a composite rating of 1 or 2 under the interagency rating 
system for United States branches and agencies of foreign banks;
    (2) Is not subject to a cease and desist order, consent order, 
formal written agreement, Prompt Corrective Action directive (see 12 CFR 
part 6) or, if subject to such order, agreement, or directive, is 
informed in writing by the OCC that the Federal branch or agency may be 
treated as an ``eligible foreign bank'' for purposes of this section; 
and
    (3) Has, if applicable, a Community Reinvestment Act (CRA), 12 
U.S.C. 2906, rating of ``Outstanding'' or ``Satisfactory''.
    (g) After-the-fact approval. Unless otherwise provided by the OCC, a 
foreign bank proposing to establish a Federal branch or agency through 
the acquisition of, or merger or consolidation with, a foreign bank that 
has an office in the United States, may proceed with the transaction 
before an application to establish the Federal branch or agency has been 
filed or acted upon, if the applicant:
    (1) Gives the OCC reasonable advance notice of the proposed 
acquisition, merger, or consolidation;
    (2) Prior to consummation of the acquisition, merger, or 
consolidation, commits in writing to comply with the OCC application 
procedures within a reasonable period of time, or has already submitted 
an application; and
    (3) Commits in writing to abide by the OCC's decision on the 
application, including a decision to terminate activities of the Federal 
branch or agency.
    (h) After-the-fact notice for an eligible foreign bank. Unless 
otherwise provided by the OCC, a foreign bank proposing to establish a 
Federal branch or agency through the acquisition of, or merger or 
consolidation with, a foreign bank that has an existing U.S. bank 
subsidiary or a Federal or state branch or agency may proceed with the 
transaction and provide after-the-fact notice to the OCC within 14 days 
of the transaction, if:
    (1) The resulting bank is an ``eligible foreign bank'' under 
paragraph (f) of this section; and
    (2) No Federal branch established by the transaction accepts 
deposits that are insured by the FDIC pursuant to the Federal Deposit 
Insurance Act (12 U.S.C. 1811 et seq.).
    (i) Contraction of operations. A foreign bank shall provide written 
notice to the OCC within 10 days after converting a Federal branch into 
a limited Federal branch or Federal agency.
    (j) Procedures for approval. A foreign bank shall file an 
application for approval pursuant to this section in accordance with 12 
CFR part 5 and the Manual. The OCC reserves the right to adopt 
materially different procedures for a particular filing, or class of 
filings, pursuant to 12 CFR 5.2(b).
    (k) Other applications accepted. As provided in 12 CFR 5.4(c), the 
OCC may accept an application or other filing submitted to another U.S. 
Government agency that covers the proposed activity or transaction and 
contains substantially the same information as required by the OCC.

[61 FR 19532, May 2, 1996, as amended at 68 FR 70699, Dec. 19, 2003]

[[Page 349]]



Sec. 28.13  Permissible activities.

    (a) Applicability of laws--(1) General. Except as otherwise provided 
by the IBA, other Federal laws or regulations, or otherwise determined 
by the OCC, the operations of a foreign bank at a Federal branch or 
agency shall be conducted with the same rights and privileges and 
subject to the same duties, restrictions, penalties, liabilities, 
conditions, and limitations that would apply if the Federal branch or 
agency were a national bank operating at the same location.
    (2) Parent foreign bank senior management approval. Unless otherwise 
provided by the OCC, any provision in law, regulation, policy, or 
procedure that requires a national bank to obtain the approval of its 
board of directors will be deemed to require a Federal branch or agency 
to obtain the approval of parent foreign bank senior management.
    (b) Management of shell branches--(1) Federal branches and agencies. 
A Federal branch or agency of a foreign bank shall not manage, through 
an office of the foreign bank that is located outside the United States 
and that is managed or controlled by that Federal branch or agency, any 
type of activity that a United States bank is not permitted to manage at 
any branch or subsidiary of the United States bank that is located 
outside the United States.
    (2) Activities managed in foreign branches or subsidiaries of United 
States banks. The types of activities referred to in paragraph (b)(1) of 
this section include the types of activities authorized to a United 
States bank by state or Federal charters, regulations issued by 
chartering or regulatory authorities, and other United States banking 
laws. However, United States procedural or quantitative requirements 
that may be applicable to the conduct of those activities by United 
States banks do not apply.
    (c) Additional guidance regarding permissible activities. For 
purposes of section 7(h) of the IBA, 12 U.S.C. 3105(h), the OCC may 
issue opinions, interpretations, or rulings regarding permissible 
activities of Federal branches.



Sec. 28.14  Limitations based upon capital of a foreign bank.

    (a) General. Any limitation or restriction based upon the capital of 
a national bank shall be deemed to refer, as applied to a Federal branch 
or agency, to the dollar equivalent of the capital of the foreign bank.
    (b) Calculation. Unless otherwise provided by the OCC, a foreign 
bank must calculate its capital in a manner consistent with 12 CFR part 
3, for purposes of this section.
    (c) Aggregation. The foreign bank shall aggregate business 
transacted by all Federal branches and agencies with the business 
transacted by all state branches and state agencies controlled by the 
foreign bank in determining its compliance with limitations based upon 
the capital of the foreign bank. The foreign bank shall designate one 
Federal branch or agency office in the United States to maintain 
consolidated information so that the OCC can monitor compliance.



Sec. 28.15  Capital equivalency deposits.

    (a) Capital equivalency deposits--(1) General. For purposes of 
section 4(g) of the IBA, 12 U.S.C. 3102(g), unless otherwise provided by 
the OCC, a foreign bank's capital equivalency deposits (CED) must 
consist of:
    (i) Investment securities eligible for investment by national banks;
    (ii) United States dollar deposits payable in the United States or 
payable in any other Group of Ten country;
    (iii) Certificates of deposit, payable in the United States, and 
banker's acceptances, provided that, in either case, the issuer or the 
instrument is rated investment grade by an internationally recognized 
rating organization, and neither the issuer nor the instrument is rated 
lower than investment grade by any such rating organization that has 
rated the issuer or the instrument;
    (iv) Repurchase agreements; or
    (v) Other similar assets permitted by the OCC to qualify to be 
included in the CED.
    (2) Legal requirements. The agreement with the depository bank to 
hold the CED and the amount of the deposit must comply with the 
requirements in section 4(g) of the IBA, 12 U.S.C.

[[Page 350]]

3102(g). If a foreign bank has more than one Federal branch or agency in 
a state, it shall determine the CED and the amount of liabilities 
requiring capital equivalency coverage on an aggregate basis for all the 
foreign bank's Federal branches or agencies in that state.
    (3) Exceptions. In determining the amount of the CED, the OCC 
excludes liabilities of an international banking facility (IBF) to third 
parties and of a Federal branch of a foreign bank to an IBF. The OCC may 
exclude liabilities from repurchase agreements on a case-by-case basis.
    (b) Increase in capital equivalency deposits. For prudential or 
supervisory reasons, the OCC may require, in individual cases or 
otherwise, that a foreign bank increase its CED above the minimum 
amount. For example, the OCC may require an increase if a Federal branch 
or agency of the foreign bank increases its leverage through the 
establishment, acquisition, or maintenance of an operating subsidiary.
    (c) Value of assets. The obligations referred to in paragraph (a) of 
this section must be valued at principal amount or market value, 
whichever is lower.
    (d) Deposit arrangements. A foreign bank should require its 
depository bank to segregate its CED on the depository bank's books and 
records. The funds deposited and obligations referred to in paragraph 
(a) of this section that are placed in safekeeping at a depository bank 
to satisfy a foreign bank's CED requirement:
    (1) May not be reduced in value below the minimum required for that 
branch or agency without the prior approval of the OCC, but in no event 
below the statutory minimum;
    (2) Must be maintained pursuant to an agreement prescribed by the 
OCC that shall be a written agreement entered into with the OCC for 
purposes of section 8 of the Federal Deposit Insurance Act, 12 U.S.C. 
1818; and
    (3) Must be free from any lien, charge, right of setoff, credit, or 
preference in connection with any claim of the depository bank against 
the foreign bank.
    (e)(1) Deposit and Consolidation. As provided in 12 U.S.C. 3102(g), 
a foreign bank with a Federal branch or agency shall deposit its CED 
into an account in a bank that is located in the state in which the 
Federal branch or agency is located. For this purpose, such depository 
bank is considered to be located in those states in which it has its 
main office or a branch. A foreign bank with Federal branches or 
agencies in more than one state may consolidate some or all of its CEDs 
into one such account.
    (2) Calculation. The total amount of the consolidated CED shall 
continue to be calculated on an office-by-office basis.
    (f) Maintenance of capital equivalency ledger account. Each Federal 
branch or agency shall maintain a capital equivalency account and keep 
records of the amount of liabilities requiring capital equivalency 
coverage in a manner and form prescribed by the OCC.

[61 FR 60363, Nov. 27, 1996, as amended at 66 FR 49098, Sept. 26, 2001; 
67 FR 4326, Jan. 30, 2002; 67 FR 41620, June 19, 2002; 68 FR 70700, Dec. 
19, 2003]



Sec. 28.16  Deposit-taking by an uninsured Federal branch.

    (a) Policy. In carrying out this section, the OCC shall consider the 
importance of according foreign banks competitive opportunities equal to 
those of United States banks and the availability of credit to all 
sectors of the United States economy, including international trade 
finance.
    (b) General. An uninsured Federal branch may accept initial deposits 
of less than $100,000 only from:
    (1) Individuals who are not citizens or residents of the United 
States at the time of the initial deposit;
    (2) Individuals who are not citizens of the United States, but are 
residents of the United States, and are employed by a foreign bank, 
foreign business, foreign government, or recognized international 
organization;
    (3) Persons (including immediate family members of an individual) to 
whom the branch or foreign bank (including any affiliate thereof) has 
extended credit or provided other nondeposit banking services within the 
past 12 months, or with whom the branch or foreign bank has a written 
agreement to extend credit or provide

[[Page 351]]

such services within 12 months after the date of the initial deposit;
    (4) Foreign businesses and large United States businesses;
    (5) Foreign governmental units, including political subdivisions, 
and recognized international organizations;
    (6) Federal and state governmental units, including political 
subdivisions and agencies thereof;
    (7) Persons who are depositing funds in connection with the issuance 
of a financial instrument by the branch for transmission of funds, or 
transmission of funds by any electronic means;
    (8) Persons who may deposit funds with an Edge corporation as 
provided in the FRB's Regulation K, 12 CFR 211.6, including persons 
engaged in certain international business activities; and
    (9) Any other depositor if:
    (i) The aggregate amount of deposits received from those depositors 
does not exceed, on an average daily basis, 1 percent of the average of 
the branch's deposits for the last 30 days of the most recent calendar 
quarter, excluding deposits of other offices, branches, agencies, or 
wholly owned subsidiaries of the foreign bank; and
    (ii) The branch does not solicit deposits from the general public by 
advertising, display of signs, or similar activity designed to attract 
the attention of the general public.
    (c) Application for an exemption. A foreign bank may apply to the 
OCC for an exemption to permit an uninsured Federal branch to accept or 
maintain deposit accounts that are not listed in paragraph (b) of this 
section. The request should describe:
    (1) The types, sources, and estimated amounts of such deposits and 
explain why the OCC should grant an exemption; and
    (2) How the exemption maintains and furthers the policies described 
in paragraph (a) of this section.
    (d) Aggregation of deposits. For purposes of paragraph (b)(9) of 
this section, a foreign bank that has more than one Federal branch in 
the same state may aggregate deposits in all of its Federal branches in 
that state, but exclude deposits of other branches, agencies or wholly 
owned subsidiaries of the bank. The Federal branch shall compute the 
average amount by using the sum of deposits as of the close of business 
of the last 30 calendar days ending with and including the last day of 
the calendar quarter, divided by 30. The Federal branch shall maintain 
records of the calculation until its next examination by the OCC.
    (e) Notification to depositors. A Federal branch that accepts 
deposits pursuant to this section shall provide notice to depositors 
pursuant to 12 CFR 346.207, which generally requires that the Federal 
branch conspicuously display a sign at the branch and include a 
statement on each signature card, passbook, and instrument evidencing a 
deposit that the deposit is not insured by the Federal Deposit Insurance 
Corporation (FDIC).
    (f) Transition period. (1) An uninsured Federal branch may maintain 
a deposit lawfully accepted under the exemptions existing prior to July 
1, 1996 if the deposit would qualify for an exemption under paragraph 
(b) of this section, except for the fact that the deposit was made 
before July 1, 1996.
    (2) If a deposit lawfully accepted under the exemption existing 
prior to July 1, 1996 would not qualify for an exemption under paragraph 
(b) or (c) of this section, the uninsured Federal branch must terminate 
the deposit no later than:
    (i) In the case of time deposits, the maturity of a time deposit or 
October 1, 1996, whichever is longer; or
    (ii) In the case of all other deposits, five years after July 1, 
1996.
    (g) Insured banks in United States territories. For purposes of this 
section, the term ``foreign bank'' does not include any bank organized 
under the laws of any territory of the United States, Puerto Rico, Guam, 
American Samoa, or the Virgin Islands whose deposits are insured by the 
FDIC pursuant to the Federal Deposit Insurance Act, 12 U.S.C. 1811 et 
seq.

[61 FR 19532, May 2, 1996, as amended at 68 FR 70131, Dec. 17, 2003; 68 
FR 70700, Dec. 19, 2003]



Sec. 28.17  Notice of change in activity or operations.

    Notice. A Federal branch or agency shall notify the OCC if:
    (a) It changes its corporate title;

[[Page 352]]

    (b) It changes its mailing address;
    (c) It converts to a state branch, state agency, or representative 
office; or
    (d) The parent foreign bank changes the designation of its home 
state.



Sec. 28.18  Recordkeeping and reporting.

    (a) General. A Federal branch or agency shall comply with applicable 
recordkeeping and reporting requirements that apply to national banks 
and with any additional requirements that may be prescribed by the OCC. 
A Federal branch or agency, and the parent foreign bank, shall furnish 
information relating to the affairs of the parent foreign bank and its 
affiliates that the OCC may from time to time request.
    (b) Regulatory reports filed with other agencies. A foreign bank 
operating a Federal branch or agency in the United States shall provide 
the OCC with a copy of reports filed with other Federal regulatory 
agencies that are designated in guidance issued by the OCC.
    (c) Maintenance of accounts, books, and records. (1) Each Federal 
branch or agency shall maintain a set of accounts and records reflecting 
its transactions that are separate from those of the foreign bank and 
any other branch or agency. The Federal branch or agency shall keep a 
set of accounts and records in English sufficient to permit the OCC to 
examine the condition of the Federal branch or agency and its compliance 
with applicable laws and regulations. The Federal branch or agency shall 
promptly provide any additional records requested by the OCC for 
examination or supervisory purposes.
    (2) A foreign bank with more than one Federal branch or agency in a 
state shall designate one of those offices to maintain consolidated 
asset, liability, and capital equivalency accounts for all Federal 
branches or agencies in that state.
    (3) A foreign bank with a Federal branch or agency in more than one 
state that consolidates its CEDs into one account in accordance with 
Sec. 28.15(e) shall designate a participating Federal branch or agency 
to maintain consolidated asset, liability, and capital equivalency 
account information for all Federal branches and agencies covered by the 
consolidated deposit. A foreign bank with a consolidated CED shall 
maintain a book entry accounting of assets designated under the 
consolidated CED for each office of that foreign bank.

[61 FR 19532, May 2, 1996, as amended at 68 FR 70700, Dec. 19, 2003]



Sec. 28.19  Enforcement.

    As provided by section 13 of the IBA, 12 U.S.C. 3108(b), the OCC may 
enforce compliance with the requirements of the IBA, other applicable 
banking laws, and OCC regulations or orders under section 8 of the 
Federal Deposit Insurance Act, 12 U.S.C. 1818. This enforcement 
authority is in addition to any other remedies otherwise provided by the 
IBA or any other law.



Sec. 28.20  Maintenance of assets.

    (a) General rule. (1) For prudential, supervisory, or enforcement 
reasons, the OCC may require a foreign bank to hold certain assets in 
the state in which its Federal branch or agency is located. Those assets 
may only consist of currency, bonds, notes, debentures, drafts, bills of 
exchange, or other evidence of indebtedness including loan participation 
agreements or certificates, or other obligations payable in the United 
States or in United States funds or, with the approval of the OCC, funds 
freely convertible into United States funds.
    (2) If the OCC requires asset maintenance, the amount of assets held 
by a foreign bank shall be prescribed by the OCC after consideration of 
the aggregate amount of liabilities of the Federal branch or agency, 
payable at or through the Federal branch or agency. To determine the 
aggregate amount of liabilities for purposes of this section, the 
foreign bank shall include bankers' acceptances, but exclude liabilities 
to the head office and any other branches, offices, agencies, 
subsidiaries, and affiliates of the foreign bank.
    (b) Valuation. For the purposes of this section, marketable 
securities must be valued at principal amount or market value, whichever 
is lower.
    (c) Credits. In determining compliance with the asset maintenance 
requirements, the OCC will give the Federal branch or agency credit for:

[[Page 353]]

    (1) Capital equivalency deposits maintained pursuant to Sec. 28.15;
    (2) Reserves required to be maintained by the Federal branch or 
agency pursuant to the FRB's authority under 12 U.S.C. 3105(a); and
    (3) Assets pledged, and surety bonds payable, to the FDIC to secure 
the payment of domestic deposits.
    (d) Exclusions. In determining eligible assets for purposes of this 
section, the Federal branch or agency shall exclude:
    (1) Any amount due from the head office or any other branch, office, 
agency, subsidiary, or affiliate of the foreign bank;
    (2) Any classified asset;
    (3) Any asset that, in the determination of the OCC, is not 
supported by sufficient credit information;
    (4) Any deposit with a bank in the United States, unless that bank 
has executed a valid waiver of offset agreement;
    (5) Any asset not in the Federal branch's actual possession unless 
the branch holds title to the asset and maintains records sufficient to 
enable independent verification of the branch's ownership of the asset, 
as determined at the most recent examination; and
    (6) Any other particular asset or class of assets as provided by the 
OCC, based on a case-by-case assessment of the risks associated with the 
asset.
    (e) International banking facility. Unless specifically exempted by 
the OCC, the eligible assets and liabilities of any international 
banking facility operated through the Federal branch or agency must be 
included in the computation of eligible assets and liabilities for 
purposes of this section.

[61 FR 19532, May 2, 1996, as amended at 68 FR 70700, Dec. 19, 2003]



Sec. 28.21  Service of process.

    A foreign bank operating at any Federal branch or agency is subject 
to service of process at the location of the Federal branch or agency.



Sec. 28.22  Voluntary liquidation.

    (a) Procedures to close all Federal branches and agencies. Unless 
otherwise provided, in cases in which a foreign bank proposes to close 
all of its Federal branches or agencies, the foreign bank shall comply 
with applicable requirements in 12 CFR 5.48 and the Manual, including 
requirements that apply to an expedited liquidation of an insured 
Federal branch.
    (b) Notice to customers and creditors. A foreign bank shall publish 
notice of the impending closure of each Federal branch or agency for a 
period of two months in every issue of a local newspaper where the 
Federal branch or agency is located. If only weekly publication is 
available, the notice must be published for nine consecutive weeks.
    (c) Report of condition. The Federal branch or agency shall submit a 
Report of Assets and Liabilities of United States Branches and Agencies 
of Foreign Banks as of the close of the last business day prior to the 
start of liquidation of the Federal branch or agency. This report must 
include a certified maturity schedule of all remaining liabilities, if 
any.
    (d) Return of certificate. The Federal branch or agency shall return 
the Federal branch or agency license certificate within 30 days of 
closure to the public.
    (e) Reports of examination. The Federal branch or agency shall send 
the OCC certification that all of its Reports of Examination have been 
destroyed or return its Reports of Examination to the OCC.

[61 FR 19532, May 2, 1996, as amended at 68 FR 70700, Dec. 19, 2003]



Sec. 28.23  Procedures for closing of some of a foreign bank's Federal branches and/or agencies.

    In cases where Sec. 28.22 does not apply, and a foreign bank is 
closing one or more, but not all, of its Federal branches and/or 
agencies, it shall follow the procedures set forth in 12 U.S.C. 1831r-
1(a) and (b) (branch closings).

[68 FR 70700, Dec. 19, 2003]



Sec. 28.24  Termination of a Federal branch or agency.

    (a) Grounds for termination. The OCC may revoke the authority of a 
foreign bank to operate a Federal branch or agency if:
    (1) The OCC determines that there is reasonable cause to believe 
that the foreign bank has violated or failed to

[[Page 354]]

comply with any of the provisions of the IBA, other applicable Federal 
laws or regulations, or orders of the OCC;
    (2) A conservator is appointed for the foreign bank, or a similar 
proceeding is initiated in the foreign bank's home country;
    (3) One or more grounds for receivership, including insolvency, as 
specified in 12 U.S.C. 3102(j), exists;
    (4) One or more grounds for termination, including unsafe and 
unsound practices, insufficiency or dissipation of assets, concealment 
of books and records, a money laundering conviction, or other grounds as 
specified in 12 U.S.C. 191, exists; or
    (5) The OCC receives a recommendation from the FRB, pursuant to 12 
U.S.C. 3105(e)(5), that the license of a Federal branch or agency be 
terminated.
    (b) Procedures--(1) Notice and hearing. Except as otherwise provided 
in this section, the OCC may issue an order to terminate the license of 
a Federal branch or agency after providing notice to the Federal branch 
or agency and after providing an opportunity for a hearing.
    (2) Procedures for hearing. The OCC shall conduct a hearing under 
this section pursuant to the OCC's Rules of Practice and Procedure in 12 
CFR part 19.
    (3) Expedited procedure. The OCC may act without providing an 
opportunity for a hearing if it determines that expeditious action is 
necessary in order to protect the public interest. When the OCC finds 
that it is necessary to act without providing an opportunity for a 
hearing, the OCC in its sole discretion, may:
    (i) Provide the Federal branch or agency with notice of the intended 
termination order;
    (ii) Grant the Federal branch or agency an opportunity to present a 
written submission opposing issuance of the order; or
    (iii) Take any other action designed to provide the Federal branch 
or agency with notice and an opportunity to present its views concerning 
the termination order.

[61 FR 19532, May 2, 1996. Redesignated at 68 FR 70700, Dec. 19, 2003]



Sec. 28.25  Change in control.

    (a) After-the-fact notice. In cases in which no other filing is 
required under subpart B of this part, a foreign bank that operates a 
Federal branch or agency shall inform the OCC in writing of the direct 
or indirect acquisition of control of the foreign bank by any person or 
entity, or group of persons or entities acting in concert, within 14 
calendar days after the foreign bank becomes aware of a change in 
control.
    (b) Additional information. The foreign bank shall furnish the OCC 
with any additional information the OCC may require in connection with 
the acquisition of control.

[68 FR 70701, Dec. 19, 2003]



Sec. 28.26  Loan production offices.

    A Federal branch may establish lending offices, make credit 
decisions, and engage in other representational activities at a site 
other than a Federal branch office, subject to the same rights, 
privileges, requirements and limitations that apply to national banks 
under 12 CFR 7.1003, 7.1004, and 7.1005.

[68 FR 70701, Dec. 19, 2003]



               Subpart C_International Lending Supervision



Sec. 28.50  Authority, purpose, and scope.

    (a) Authority. This subpart is issued pursuant to 12 U.S.C. 1 et 
seq., 93a, 161, and 1818; and the International Lending Supervision Act 
of 1983 (Pub. L. 98-181, title IX, 97 Stat. 1153, 12 U.S.C. 3901 et 
seq.).
    (b) Purpose. This subpart implements the requirements of the 
International Lending Supervision Act of 1983 (12 U.S.C. 3901 et seq.),
    (c) Scope. This subpart requires national banks and District of 
Columbia banks to establish reserves against the risks presented in 
certain international assets and sets forth the accounting for various 
fees received by the banks when making international loans.



Sec. 28.51  Definitions.

    For the purposes of this subpart:

[[Page 355]]

    (a) Banking institution means a national bank or a District of 
Columbia bank.
    (b) Federal banking agencies means the OCC, the FRB, and the FDIC.
    (c) International assets means those assets required to be included 
in banking institutions' Country Exposure Report forms (FFIEC 009).
    (d) International loan means a loan as defined in the instructions 
to the Report of Condition and Income for the respective banking 
institution (FFIEC 031, 032, 033 and 034) and made to a foreign 
government, or to an individual, a corporation, or other entity not a 
citizen of, resident in, or organized or incorporated in the United 
States.
    (e) Restructured international loan means a loan that meets the 
following criteria:
    (1) The borrower is unable to service the existing loan according to 
its terms and is a resident of a foreign country in which there is a 
generalized inability of public and private sector obligors to meet 
their external debt obligations on a timely basis because of a lack of, 
or restraints on the availability of, needed foreign exchange in the 
country; and
    (2) The terms of the existing loan are amended to reduce stated 
interest or extend the schedule of payments; or
    (3) A new loan is made to, or for the benefit of, the borrower, 
enabling the borrower to service or refinance the existing debt.
    (f) Transfer risk means the possibility that an asset cannot be 
serviced in the currency of payment because of a lack of, or restraints 
on the availability of, needed foreign exchange in the country of the 
obligor.

[61 FR 19532, May 2, 1996, as amended at 63 FR 57048, Oct. 26, 1998]



Sec. 28.52  Allocated transfer risk reserve.

    (a) Establishment of allocated transfer risk reserve. A banking 
institution shall establish an allocated transfer risk reserve (ATRR) 
for specified international assets when required by the OCC in 
accordance with this section.
    (b) Procedures and standards--(1) Joint agency determination. At 
least annually, the Federal banking agencies shall determine jointly, 
based on the standards set forth in paragraph (b)(2) of this section, 
the following:
    (i) Which international assets subject to transfer risk warrant 
establishment of an ATRR;
    (ii) The amount of the ATRR for the specified assets; and
    (iii) Whether an ATRR established for specified assets may be 
reduced.
    (2) Standards for requiring ATRR--(i) Evaluation of assets. The 
Federal banking agencies shall apply the following criteria in 
determining whether an ATRR is required for particular international 
assets:
    (A) Whether the quality of a banking institution's assets has been 
impaired by a protracted inability of public or private obligors in a 
foreign country to make payments on their external indebtedness as 
indicated by such factors, among others, as whether:
    (1) Such obligors have failed to make full interest payments on 
external indebtedness;
    (2) Such obligors have failed to comply with the terms of any 
restructured indebtedness; or
    (3) A foreign country has failed to comply with any International 
Monetary Fund or other suitable adjustment program; or
    (B) Whether no definite prospects exist for the orderly restoration 
of debt service.
    (ii) Determination of amount of ATRR. (A) In determining the amount 
of the ATRR, the Federal banking agencies shall consider:
    (1) The length of time the quality of the asset has been impaired;
    (2) Recent actions taken to restore debt service capability;
    (3) Prospects for restored asset quality; and
    (4) Such other factors as the Federal banking agencies may consider 
relevant to the quality of the asset.
    (B) The initial year's provision for the ATRR shall be 10 percent of 
the principal amount of each specified international asset, or such 
greater or lesser percentage determined by the Federal banking agencies. 
Additional provision, if any, for the ATRR in subsequent years shall be 
15 percent of the principal amount of each specified international 
asset, or such greater or lesser percentage determined by the Federal 
banking agencies.

[[Page 356]]

    (3) Notification. Based on the joint agency determinations under 
paragraph (b)(1) of this section, the OCC shall notify each banking 
institution holding assets subject to an ATRR:
    (i) Of the amount of the ATRR to be established by the institution 
for specified international assets; and
    (ii) That an ATRR to be established for specified assets may be 
reduced.
    (c) Accounting treatment of ATRR--(1) Charge to current income. A 
banking institution shall establish an ATRR by a charge to current 
income and the amounts so charged shall not be included in the banking 
institution's capital or surplus.
    (2) Separate accounting. A banking institution shall account for an 
ATRR separately from the Allowance for Possible Loan Losses, and shall 
deduct the ATRR from ``gross loans and leases'' to arrive at ``net loans 
and leases.'' The ATRR must be established for each asset subject to the 
ATRR in the percentage amount specified.
    (3) Consolidation. A banking institution shall establish an ATRR, as 
required, on a consolidated basis. Consolidation should be in accordance 
with the procedures and tests of significance set forth in the 
instructions for preparation of Consolidated Reports of Condition and 
Income (FFIEC 031, 032, 033 and 034). For bank holding companies, the 
consolidation shall be in accordance with the principles set forth in 
the ``Instructions to the Bank Holding Company Financial Supplement to 
Report F.R. Y-6'' (Form F.R. Y-9). Edge corporations and Agreement 
corporations engaged in banking shall report in accordance with 
instructions for preparation of the Report of Condition for Edge 
corporations and Agreement corporations (Form F.R. 2886b).
    (4) Alternative accounting treatment. A banking institution need not 
establish an ATRR if it writes down in the period in which the ATRR is 
required, or has written down in prior periods, the value of the 
specified international assets in the requisite amount for each such 
asset. For purposes of this paragraph, international assets may be 
written down by a charge to the Allowance for Possible Loan Losses or a 
reduction in the principal amount of the asset by application of 
interest payments or other collections on the asset. However, the 
Allowance for Possible Loan Losses must be replenished in such amount 
necessary to restore it to a level which adequately provides for the 
estimated losses inherent in the banking institution's loan portfolio.
    (5) Reduction of ATRR. A banking institution may reduce an ATRR when 
notified by the OCC or, at any time, by writing down such amount of the 
international asset for which the ATRR was established.



Sec. 28.53  Accounting for fees on international loans.

    (a) Restrictions on fees for restructured international loans. No 
banking institution shall charge, in connection with the restructuring 
of an international loan, any fee exceeding the administrative costs of 
the restructuring unless it amortizes the amount of the fee exceeding 
the administrative cost over the effective life of the loan.
    (b) Accounting treatment. Subject to paragraph (a) of this section, 
a banking institution is to account for fees in accordance with 
generally accepted accounting principles.

[63 FR 57048, Oct. 26, 1998]



Sec. 28.54  Reporting and disclosure of international assets.

    (a) Requirements. (1) Pursuant to section 907(a) of the 
International Lending Supervision Act of 1983 (title IX, Pub. L. 98-181, 
97 Stat. 1153, 12 U.S.C. 3906) (ILSA) a banking institution shall submit 
to the OCC, at least quarterly, information regarding the amounts and 
composition of its holdings of international assets.
    (2) Pursuant to section 907(b) of ILSA (12 U.S.C. 3906), a banking 
institution shall submit to the OCC information regarding concentrations 
in its holdings of international assets that are material in relation to 
total assets and to capital of the institution, such information to be 
made publicly available by the OCC on request.
    (b) Procedures. The format, content, and reporting and filing dates 
of the reports required under paragraph (a) of this section shall be 
determined jointly by the Federal banking agencies. The requirements to 
be prescribed by the

[[Page 357]]

agencies may include changes to existing reporting forms (such as the 
Country Exposure Report, FFIEC 009) or such other requirements as the 
agencies deem appropriate. The agencies also may determine to exempt 
from the requirements of paragraph (a) of this section banking 
institutions that, in the agencies' judgment, have de minimis holdings 
of international assets.
    (c) Reservation of authority. Nothing contained in this part shall 
preclude the OCC from requiring from a banking institution such 
additional or more frequent information on the institution's holdings of 
international assets as the OCC may consider necessary.

                           PART 29 [RESERVED]



PART 30_SAFETY AND SOUNDNESS STANDARDS--Table of Contents




Sec.
30.1 Scope.
30.2 Purpose.
30.3 Determination and notification of failure to meet safety and 
          soundness standard and request for compliance plan.
30.4 Filing of safety and soundness compliance plan.
30.5 Issuance of orders to correct deficiencies and to take or refrain 
          from taking other actions.
30.6 Enforcement of orders.

Appendix A to Part 30--Interagency Guidelines Establishing Standards for 
          Safety and Soundness
Appendix B to Part 30--Interagency Guidelines Establishing Information 
          Security Standards
Appendix C to Part 30--OCC Guidelines Establishing Standards for 
          Residential Mortgage Lending Practices

    Authority: 12 U.S.C. 93a, 1818, 1831-p and 3102(b); 15 U.S.C. 1681s, 
1681w, 6801, and 6805(b)(1).

    Source: 60 FR 35680, July 10, 1995, unless otherwise noted.

    Editorial Note: Nomenclature changes for part 30 appear at 69 FR 
77616, Dec. 28, 2004.



Sec. 30.1  Scope.

    (a) The rules set forth in this part and the standards set forth in 
appendices A, B, and C to this part apply to national banks and federal 
branches of foreign banks, that are subject to the provisions of section 
39 of the Federal Deposit Insurance Act (section 39)(12 U.S.C. 1831p-1).
    (b) The standards set forth in appendix B to this part also apply to 
uninsured national banks, federal branches and federal agencies of 
foreign banks, and the subsidiaries of any national bank, federal branch 
or federal agency of a foreign bank (except brokers, dealers, persons 
providing insurance, investment companies and investment advisers). 
Violation of these standards may be an unsafe and unsound practice 
within the meaning of 12 U.S.C. 1818.

[66 FR 8633, Feb. 1, 2001, as amended at 70 FR 6332, Feb. 7, 2005]



Sec. 30.2  Purpose.

    Section 39 of the FDI Act, 12 U.S.C. 1831p-1, requires the Office of 
the Comptroller of the Currency (OCC) to establish safety and soundness 
standards. Pursuant to section 39, a bank may be required to submit a 
compliance plan if it is not in compliance with a safety and soundness 
standard prescribed by guideline under section 39(a) or (b). An 
enforceable order under section 8 of the FDI Act, 12 U.S.C. 1818(b), may 
be issued if, after being notified that it is in violation of a safety 
and soundness standard prescribed under section 39, the bank fails to 
submit an acceptable compliance plan or fails in any material respect to 
implement an accepted plan. This part establishes procedures for 
requiring submission of a compliance plan and issuing an enforceable 
order pursuant to section 39. The Interagency Guidelines Establishing 
Standards for Safety and Soundness are set forth in appendix A to this 
part, and the Interagency Guidelines Establishing Information Security 
Standards are set forth in appendix B to this part. The OCC Guidelines 
Establishing Standards for Residential Mortgage Lending Practices are 
set forth in appendix C to this part.

[60 FR 35680, July 10, 1995, as amended at 63 FR 55488, Oct. 15, 1998; 
64 FR 52641, Sept. 30, 1999; 66 FR 8633, Feb. 1, 2001; 70 FR 6332, Feb. 
7, 2005]

[[Page 358]]



Sec. 30.3  Determination and notification of failure to meet safety and soundness standard and request for compliance plan.

    (a) Determination. The OCC may, based upon an examination, 
inspection, or any other information that becomes available to the OCC, 
determine that a bank has failed to satisfy the safety and soundness 
standards contained in the Interagency Guidelines Establishing Standards 
for Safety and Soundness set forth in appendix A to this part, the 
Interagency Guidelines Establishing Standards for Safeguarding Customer 
Information set forth in appendix B to this part, or the OCC Guidelines 
Establishing Standards for Residential Mortgage Lending Practices set 
forth in appendix C to this part.
    (b) Request for compliance plan. If the OCC determines that a bank 
has failed a safety and soundness standard pursuant to paragraph (a) of 
this section, the OCC may request, by letter or through a report of 
examination, the submission of a compliance plan and the bank shall be 
deemed to have notice of the deficiency three days after mailing of the 
letter by the OCC or delivery of the report of examination.

[60 FR 35680, July 10, 1995, as amended at 63 FR 55488, Oct. 15, 1998; 
64 FR 52641, Sept. 30, 1999; 66 FR 8633, Feb. 1, 2001; 70 FR 6332, Feb. 
7, 2005]



Sec. 30.4  Filing of safety and soundness compliance plan.

    (a) Schedule for filing compliance plan--(1) In general. A bank 
shall file a written safety and soundness compliance plan with the OCC 
within 30 days of receiving a request for a compliance plan pursuant to 
Sec. 30.3(b) unless the OCC notifies the bank in writing that the plan 
is to be filed within a different period.
    (2) Other plans. If a bank is obligated to file, or is currently 
operating under, a capital restoration plan submitted pursuant to 
section 38 of the FDI Act (12 U.S.C. 1831o), a cease-and-desist order 
entered into pursuant to section 8 of the FDI Act (12 U.S.C. 1818(b)), a 
formal or informal agreement, or a response to a report of examination 
or report of inspection, it may, with the permission of the OCC, submit 
a compliance plan under this section as part of that plan, order, 
agreement, or response, subject to the deadline provided in paragraph 
(a) of this section.
    (b) Contents of plan. The compliance plan shall include a 
description of the steps the bank will take to correct the deficiency 
and the time within which those steps will be taken.
    (c) Review of safety and soundness compliance plans. Within 30 days 
after receiving a safety and soundness compliance plan under this part, 
the OCC shall provide written notice to the bank of whether the plan has 
been approved or seek additional information from the bank regarding the 
plan. The OCC may extend the time within which notice regarding approval 
of a plan will be provided.
    (d) Failure to submit or implement a compliance plan--(1) 
Supervisory actions. If a bank fails to submit an acceptable plan within 
the time specified by the OCC or fails in any material respect to 
implement a compliance plan, then the OCC shall, by order, require the 
bank to correct the deficiency and may take further actions provided in 
section 39(e)(2)(B). Pursuant to section 39(e)(3), the OCC may be 
required to take certain actions if the bank commenced operations or 
experienced a change in control within the previous 24-month period, or 
the bank experienced extraordinary growth during the previous 18-month 
period.
    (2) Extraordinary growth. For purposes of paragraph (d)(1) of this 
section, extraordinary growth means an increase in assets of more than 
7.5 percent during any quarter within the 18-month period preceding the 
issuance of a request for submission of a compliance plan, by a bank 
that is not well capitalized for purposes of section 38 of the FDI Act. 
For purposes of calculating an increase in assets, assets acquired 
through merger or acquisition approved pursuant to the Bank Merger Act 
(12 U.S.C. 1828(c)) will be excluded.
    (e) Amendment of compliance plan. A bank that has filed an approved 
compliance plan may, after prior written notice to and approval by the 
OCC, amend the plan to reflect a change in circumstance. Until such time 
as a proposed amendment has been approved,

[[Page 359]]

the bank shall implement the compliance plan as previously approved.



Sec. 30.5  Issuance of orders to correct deficiencies and to take or refrain from taking other actions.

    (a) Notice of intent to issue order--(1) In general. The OCC shall 
provide a bank prior written notice of the OCC's intention to issue an 
order requiring the bank to correct a safety and soundness deficiency or 
to take or refrain from taking other actions pursuant to section 39 of 
the FDI Act. The bank shall have such time to respond to a proposed 
order as provided by the OCC under paragraph (c) of this section.
    (2) Immediate issuance of final order. If the OCC finds it necessary 
in order to carry out the purposes of section 39 of the FDI Act, the OCC 
may, without providing the notice prescribed in paragraph (a)(1) of this 
section, issue an order requiring a bank immediately to take actions to 
correct a safety and soundness deficiency or take or refrain from taking 
other actions pursuant to section 39. A bank that is subject to such an 
immediately effective order may submit a written appeal of the order to 
the OCC. Such an appeal must be received by the OCC within 14 calendar 
days of the issuance of the order, unless the OCC permits a longer 
period. The OCC shall consider any such appeal, if filed in a timely 
matter, within 60 days of receiving the appeal. During such period of 
review, the order shall remain in effect unless the OCC, in its sole 
discretion, stays the effectiveness of the order.
    (b) Content of notice. A notice of intent to issue an order shall 
include:
    (1) A statement of the safety and soundness deficiency or 
deficiencies that have been identified at the bank;
    (2) A description of any restrictions, prohibitions, or affirmative 
actions that the OCC proposes to impose or require;
    (3) The proposed date when such restrictions or prohibitions would 
be effective or the proposed date for completion of any required action; 
and
    (4) The date by which the bank subject to the order may file with 
the OCC a written response to the notice.
    (c) Response to notice--(1) Time for response. A bank may file a 
written response to a notice of intent to issue an order within the time 
period set by the OCC. Such a response must be received by the OCC 
within 14 calendar days from the date of the notice unless the OCC 
determines that a different period is appropriate in light of the safety 
and soundness of the bank or other relevant circumstances.
    (2) Content of response. The response should include:
    (i) An explanation why the action proposed by the OCC is not an 
appropriate exercise of discretion under section 39;
    (ii) Any recommended modification of the proposed order; and
    (iii) Any other relevant information, mitigating circumstances, 
documentation, or other evidence in support of the position of the bank 
regarding the proposed order.
    (d) Agency consideration of response. After considering the 
response, the OCC may:
    (1) Issue the order as proposed or in modified form;
    (2) Determine not to issue the order and so notify the bank; or
    (3) Seek additional information or clarification of the response 
from the bank, or any other relevant source.
    (e) Failure to file response. Failure by a bank to file with the 
OCC, within the specified time period, a written response to a proposed 
order shall constitute a waiver of the opportunity to respond and shall 
constitute consent to the issuance of the order.
    (f) Request for modification or rescission of order. Any bank that 
is subject to an order under this part may, upon a change in 
circumstances, request in writing that the OCC reconsider the terms of 
the order, and may propose that the order be rescinded or modified. 
Unless otherwise ordered by the OCC, the order shall continue in place 
while such request is pending before the OCC.



Sec. 30.6  Enforcement of orders.

    (a) Judicial remedies. Whenever a bank fails to comply with an order 
issued under section 39, the OCC may seek enforcement of the order in 
the appropriate United States district court pursuant to section 8(i)(1) 
of the FDI Act.
    (b) Failure to comply with order. Pursuant to section 8(i)(2)(A) of 
the FDI

[[Page 360]]

Act, the OCC may assess a civil money penalty against any bank that 
violates or otherwise fails to comply with any final order issued under 
section 39 and against any institution-affiliated party who participates 
in such violation or noncompliance.
    (c) Other enforcement action. In addition to the actions described 
in paragraphs (a) and (b) of this section, the OCC may seek enforcement 
of the provisions of section 39 or this part through any other judicial 
or administrative proceeding authorized by law.



    Sec. Appendix A to Part 30--Interagency Guidelines Establishing 
                   Standards for Safety and Soundness

                            Table of Contents

                             I. Introduction

    A. Preservation of existing authority.
    B. Definitions.

                II. Operational and Managerial Standards

    A. Internal controls and information systems.
    B. Internal audit system.
    C. Loan documentation.
    D. Credit underwriting.
    E. Interest rate exposure.
    F. Asset growth.
    G. Asset quality.
    H. Earnings.
    I. Compensation, fees and benefits.

III. Prohibition on Compensation That Constitutes an Unsafe and Unsound 
                                Practice

    A. Excessive compensation.
    B. Compensation leading to material financial loss.

                             I. Introduction

    i. Section 39 of the Federal Deposit Insurance Act \1\ (FDI Act) 
requires each Federal banking agency (collectively, the agencies) to 
establish certain safety and soundness standards by regulation or by 
guideline for all insured depository institutions. Under section 39, the 
agencies must establish three types of standards: (1) Operational and 
managerial standards; (2) compensation standards; and (3) such standards 
relating to asset quality, earnings, and stock valuation as they 
determine to be appropriate.
---------------------------------------------------------------------------

    \1\ Section 39 of the Federal Deposit Insurance Act (12 U.S.C. 
1831p-1) was added by section 132 of the Federal Deposit Insurance 
Corporation Improvement Act of 1991 (FDICIA), Pub. L. 102-242, 105 Stat. 
2236 (1991), and amended by section 956 of the Housing and Community 
Development Act of 1992, Pub. L. 102-550, 106 Stat. 3895 (1992) and 
section 318 of the Riegle Community Development and Regulatory 
Improvement Act of 1994, Pub. L. 103-325, 108 Stat. 2160 (1994).
---------------------------------------------------------------------------

    ii. Section 39(a) requires the agencies to establish operational and 
managerial standards relating to: (1) Internal controls, information 
systems and internal audit systems, in accordance with section 36 of the 
FDI Act (12 U.S.C. 1831m); (2) loan documentation; (3) credit 
underwriting; (4) interest rate exposure; (5) asset growth; and (6) 
compensation, fees, and benefits, in accordance with subsection (c) of 
section 39. Section 39(b) requires the agencies to establish standards 
relating to asset quality, earnings, and stock valuation that the 
agencies determine to be appropriate.
    iii. Section 39(c) requires the agencies to establish standards 
prohibiting as an unsafe and unsound practice any compensatory 
arrangement that would provide any executive officer, employee, 
director, or principal shareholder of the institution with excessive 
compensation, fees or benefits and any compensatory arrangement that 
could lead to material financial loss to an institution. Section 39(c) 
also requires that the agencies establish standards that specify when 
compensation is excessive.
    iv. If an agency determines that an institution fails to meet any 
standard established by guideline under subsection (a) or (b) of section 
39, the agency may require the institution to submit to the agency an 
acceptable plan to achieve compliance with the standard. In the event 
that an institution fails to submit an acceptable plan within the time 
allowed by the agency or fails in any material respect to implement an 
accepted plan, the agency must, by order, require the institution to 
correct the deficiency. The agency may, and in some cases must, take 
other supervisory actions until the deficiency has been corrected.
    v. The agencies have adopted amendments to their rules and 
regulations to establish deadlines for submission and review of 
compliance plans.\2\
---------------------------------------------------------------------------

    \2\ For the Office of the Comptroller of the Currency, these 
regulations appear at 12 CFR Part 30; for the Board of Governors of the 
Federal Reserve System, these regulations appear at 12 CFR Part 263; for 
the Federal Deposit Insurance Corporation, these regulations appear at 
12 CFR Part 308, subpart R, and for the Office of Thrift Supervision, 
these regulations appear at 12 CFR Part 570.
---------------------------------------------------------------------------

    vi. The following Guidelines set out the safety and soundness 
standards that the agencies use to identify and address problems at 
insured depository institutions before capital becomes impaired. The 
agencies believe that the standards adopted in these Guidelines serve 
this end without dictating

[[Page 361]]

how institutions must be managed and operated. These standards are 
designed to identify potential safety and soundness concerns and ensure 
that action is taken to address those concerns before they pose a risk 
to the deposit insurance funds.

                  A. Preservation of Existing Authority

    Neither section 39 nor these Guidelines in any way limits the 
authority of the agencies to address unsafe or unsound practices, 
violations of law, unsafe or unsound conditions, or other practices. 
Action under section 39 and these Guidelines may be taken independently 
of, in conjunction with, or in addition to any other enforcement action 
available to the agencies. Nothing in these Guidelines limits the 
authority of the FDIC pursuant to section 38(i)(2)(F) of the FDI Act (12 
U.S.C. 1831(o)) and Part 325 of Title 12 of the Code of Federal 
Regulations.

                             B. Definitions

    1. In general. For purposes of these Guidelines, except as modified 
in the Guidelines or unless the context otherwise requires, the terms 
used have the same meanings as set forth in sections 3 and 39 of the FDI 
Act (12 U.S.C. 1813 and 1831p-1).
    2. Board of directors, in the case of a state-licensed insured 
branch of a foreign bank and in the case of a federal branch of a 
foreign bank, means the managing official in charge of the insured 
foreign branch.
    3. Compensation means all direct and indirect payments or benefits, 
both cash and non-cash, granted to or for the benefit of any executive 
officer, employee, director, or principal shareholder, including but not 
limited to payments or benefits derived from an employment contract, 
compensation or benefit agreement, fee arrangement, perquisite, stock 
option plan, postemployment benefit, or other compensatory arrangement.
    4. Director shall have the meaning described in 12 CFR 215.2(c).\3\
---------------------------------------------------------------------------

    \3\ In applying these definitions for savings associations, pursuant 
to 12 U.S.C. 1464, savings associations shall use the terms ``savings 
association'' and ``insured savings association'' in place of the terms 
``member bank'' and ``insured bank''.
---------------------------------------------------------------------------

    5. Executive officer shall have the meaning described in 12 CFR 
215.2(d).\4\
---------------------------------------------------------------------------

    \4\ See footnote 3 in section I.B.4. of this appendix.
---------------------------------------------------------------------------

    6. Principal shareholder shall have the meaning described in 12 CFR 
215.2(l).\5\
---------------------------------------------------------------------------

    \5\ See footnote 3 in section I.B.4. of this appendix.
---------------------------------------------------------------------------

                II. Operational and Managerial Standards

    A. Internal controls and information systems. An institution should 
have internal controls and information systems that are appropriate to 
the size of the institution and the nature, scope and risk of its 
activities and that provide for:
    1. An organizational structure that establishes clear lines of 
authority and responsibility for monitoring adherence to established 
policies;
    2. Effective risk assessment;
    3. Timely and accurate financial, operational and regulatory 
reports;
    4. Adequate procedures to safeguard and manage assets; and
    5. Compliance with applicable laws and regulations.
    B. Internal audit system. An institution should have an internal 
audit system that is appropriate to the size of the institution and the 
nature and scope of its activities and that provides for:
    1. Adequate monitoring of the system of internal controls through an 
internal audit function. For an institution whose size, complexity or 
scope of operations does not warrant a full scale internal audit 
function, a system of independent reviews of key internal controls may 
be used;
    2. Independence and objectivity;
    3. Qualified persons;
    4. Adequate testing and review of information systems;
    5. Adequate documentation of tests and findings and any corrective 
actions;
    6. Verification and review of management actions to address material 
weaknesses; and
    7. Review by the institution's audit committee or board of directors 
of the effectiveness of the internal audit systems.
    C. Loan documentation. An institution should establish and maintain 
loan documentation practices that:
    1. Enable the institution to make an informed lending decision and 
to assess risk, as necessary, on an ongoing basis;
    2. Identify the purpose of a loan and the source of repayment, and 
assess the ability of the borrower to repay the indebtedness in a timely 
manner;
    3. Ensure that any claim against a borrower is legally enforceable;
    4. Demonstrate appropriate administration and monitoring of a loan; 
and
    5. Take account of the size and complexity of a loan.
    D. Credit underwriting. An institution should establish and maintain 
prudent credit underwriting practices that:
    1. Are commensurate with the types of loans the institution will 
make and consider the terms and conditions under which they will be 
made;
    2. Consider the nature of the markets in which loans will be made;
    3. Provide for consideration, prior to credit commitment, of the 
borrower's overall financial condition and resources, the financial 
responsibility of any guarantor, the nature

[[Page 362]]

and value of any underlying collateral, and the borrower's character and 
willingness to repay as agreed;
    4. Establish a system of independent, ongoing credit review and 
appropriate communication to management and to the board of directors;
    5. Take adequate account of concentration of credit risk; and
    6. Are appropriate to the size of the institution and the nature and 
scope of its activities.
    E. Interest rate exposure. An institution should:
    1. Manage interest rate risk in a manner that is appropriate to the 
size of the institution and the complexity of its assets and 
liabilities; and
    2. Provide for periodic reporting to management and the board of 
directors regarding interest rate risk with adequate information for 
management and the board of directors to assess the level of risk.
    F. Asset growth. An institution's asset growth should be prudent and 
consider:
    1. The source, volatility and use of the funds that support asset 
growth;
    2. Any increase in credit risk or interest rate risk as a result of 
growth; and
    3. The effect of growth on the institution's capital.
    G. Asset quality. An insured depository institution should establish 
and maintain a system that is commensurate with the institution's size 
and the nature and scope of its operations to identify problem assets 
and prevent deterioration in those assets. The institution should:
    1. Conduct periodic assetquality reviews to identify problem assets;
    2. Estimate the inherent losses in those assets and establish 
reserves that are sufficient to absorb estimated losses;
    3. Compare problem asset totals to capital;
    4. Take appropriate corrective action to resolve problem assets;
    5. Consider the size and potential risks of material asset 
concentrations; and
    6. Provide periodic asset reports with adequate information for 
management and the board of directors to assess the level of asset risk.
    H. Earnings. An insured depository institution should establish and 
maintain a system that is commensurate with the institution's size and 
the nature and scope of its operations to evaluate and monitor earnings 
and ensure that earnings are sufficient to maintain adequate capital and 
reserves. The institution should:
    1. Compare recent earnings trends relative to equity, assets, or 
other commonly used benchmarks to the institution's historical results 
and those of its peers;
    2. Evaluate the adequacy of earnings given the size, complexity, and 
risk profile of the institution's assets and operations;
    3. Assess the source, volatility, and sustainability of earnings, 
including the effect of nonrecurring or extraordinary income or expense;
    4. Take steps to ensure that earnings are sufficient to maintain 
adequate capital and reserves after considering the institution's asset 
quality and growth rate; and
    5. Provide periodic earnings reports with adequate information for 
management and the board of directors to assess earnings performance.
    I. Compensation, fees and benefits. An institution should maintain 
safeguards to prevent the payment of compensation, fees, and benefits 
that are excessive or that could lead to material financial loss to the 
institution.

III. Prohibition on Compensation That Constitutes an Unsafe and Unsound 
                                Practice

                        A. Excessive Compensation

    Excessive compensation is prohibited as an unsafe and unsound 
practice. Compensation shall be considered excessive when amounts paid 
are unreasonable or disproportionate to the services performed by an 
executive officer, employee, director, or principal shareholder, 
considering the following:
    1. The combined value of all cash and non-cash benefits provided to 
the individual;
    2. The compensation history of the individual and other individuals 
with comparable expertise at the institution;
    3. The financial condition of the institution;
    4. Comparable compensation practices at comparable institutions, 
based upon such factors as asset size, geographic location, and the 
complexity of the loan portfolio or other assets;
    5. For postemployment benefits, the projected total cost and benefit 
to the institution;
    6. Any connection between the individual and any fraudulent act or 
omission, breach of trust or fiduciary duty, or insider abuse with 
regard to the institution; and
    7. Any other factors the agencies determines to be relevant.

           B. Compensation Leading to Material Financial Loss

    Compensation that could lead to material financial loss to an 
institution is prohibited as an unsafe and unsound practice.

[60 FR 35678, 35682, July 10, 1995, as amended at 61 FR 43950, Aug. 27, 
1996]



    Sec. Appendix B to Part 30--Interagency Guidelines Establishing 
                     Information Security Standards

                            Table of Contents

I. Introduction

[[Page 363]]

    A. Scope
    B. Preservation of Existing Authority
    C. Definitions
II. Standards for Safeguarding Customer Information
    A. Information Security Program
    B. Objectives
III. Development and Implementation of Customer Information Security 
Program
    A. Involve the Board of Directors
    B. Assess Risk
    C. Manage and Control Risk
    D. Oversee Service Provider Arrangements
    E. Adjust the Program
    F. Report to the Board
    G. Implement the Standards
    I. Introduction
    The Interagency Guidelines Establishing Information Security 
Standards (Guidelines) set forth standards pursuant to section 39 of the 
Federal Deposit Insurance Act (section 39, codified at 12 U.S.C. 1831p-
1), and sections 501 and 505(b), codified at 15 U.S.C. 6801 and 6805(b) 
of the Gramm-Leach Bliley Act. These Guidelines address standards for 
developing and implementing administrative, technical, and physical 
safeguards to protect the security, confidentiality, and integrity of 
customer information. These Guidelines also address standards with 
respect to the proper disposal of consumer information, pursuant to 
sections 621 and 628 of the Fair Credit Reporting Act (15 U.S.C. 1681s 
and 1681w).
    A. Scope. The Guidelines apply to customer information maintained by 
or on behalf of entities over which the OCC has authority. Such 
entities, referred to as ``the bank,'' are national banks, federal 
branches and federal agencies of foreign banks, and any subsidiaries of 
such entities (except brokers, dealers, persons providing insurance, 
investment companies, and investment advisers). The Guidelines also 
apply to the proper disposal of consumer information by or on behalf of 
such entities.
    B. Preservation of Existing Authority. Neither section 39 nor these 
Guidelines in any way limit the authority of the OCC to address unsafe 
or unsound practices, violations of law, unsafe or unsound conditions, 
or other practices. The OCC may take action under section 39 and these 
Guidelines independently of, in conjunction with, or in addition to, any 
other enforcement action available to the OCC.
    C. Definitions. 1. Except as modified in the Guidelines, or unless 
the context otherwise requires, the terms used in these Guidelines have 
the same meanings as set forth in sections 3 and 39 of the Federal 
Deposit Insurance Act (12 U.S.C. 1813 and 1831p-1).
    2. For purposes of the Guidelines, the following definitions apply:
    a. Board of directors, in the case of a branch or agency of a 
foreign bank, means the managing official in charge of the branch or 
agency.
    b. Consumer information means any record about an individual, 
whether in paper, electronic, or other form, that is a consumer report 
or is derived from a consumer report and that is maintained or otherwise 
possessed by or on behalf of the bank for a business purpose. Consumer 
information also means a compilation of such records. The term does not 
include any record that does not identify an individual.
    i. Examples. (1) Consumer information includes:
    (A) A consumer report that a bank obtains;
    (B) Information from a consumer report that the bank obtains from 
its affiliate after the consumer has been given a notice and has elected 
not to opt out of that sharing;
    (C) Information from a consumer report that the bank obtains about 
an individual who applies for but does not receive a loan, including any 
loan sought by an individual for a business purpose;
    (D) Information from a consumer report that the bank obtains about 
an individual who guarantees a loan (including a loan to a business 
entity); or
    (E) Information from a consumer report that the bank obtains about 
an employee or prospective employee.
    (2) Consumer information does not include:
    (A) Aggregate information, such as the mean credit score, derived 
from a group of consumer reports; or
    (B) Blind data, such as payment history on accounts that are not 
personally identifiable, that may be used for developing credit scoring 
models or for other purposes.
    c. Consumer report has the same meaning as set forth in the Fair 
Credit Reporting Act, 15 U.S.C. 1681a(d).
    d. Customer means any customer of the bank as defined in Sec. 
40.3(h) of this chapter.
    e. Customer information means any record containing nonpublic 
personal information, as defined in Sec. 40.3(n) of this chapter, about 
a customer, whether in paper, electronic, or other form, that is 
maintained by or on behalf of the bank.
    f. Customer information systems means any methods used to access, 
collect, store, use, transmit, protect, or dispose of customer 
information.
    g. Service provider means any person or entity that maintains, 
processes, or otherwise is permitted access to customer information or 
consumer information through its provision of services directly to the 
bank.

                 II. Standards for Information Security

    A. Information Security Program. Each bank shall implement a 
comprehensive written information security program that includes 
administrative, technical, and physical safeguards appropriate to the 
size and complexity of the bank and the nature and scope

[[Page 364]]

of its activities. While all parts of the bank are not required to 
implement a uniform set of policies, all elements of the information 
security program must be coordinated.
    B. Objectives. A bank's information security program shall be 
designed to:
    1. Ensure the security and confidentiality of customer information;
    2. Protect against any anticipated threats or hazards to the 
security or integrity of such information;
    3. Protect against unauthorized access to or use of such information 
that could result in substantial harm or inconvenience to any customer; 
and
    4. Ensure the proper disposal of customer information and consumer 
information.

   III. Development and Implementation of Information Security Program

    A. Involve the Board of Directors. The board of directors or an 
appropriate committee of the board of each bank shall:
    1. Approve the bank's written information security program; and
    2. Oversee the development, implementation, and maintenance of the 
bank's information security program, including assigning specific 
responsibility for its implementation and reviewing reports from 
management.
    B. Assess Risk. Each bank shall:
    1. Identify reasonably foreseeable internal and external threats 
that could result in unauthorized disclosure, misuse, alteration, or 
destruction of customer information or customer information systems.
    2. Assess the likelihood and potential damage of these threats, 
taking into consideration the sensitivity of customer information.
    3. Assess the sufficiency of policies, procedures, customer 
information systems, and other arrangements in place to control risks.
    C. Manage and Control Risk. Each bank shall:
    1. Design its information security program to control the identified 
risks, commensurate with the sensitivity of the information as well as 
the complexity and scope of the bank's activities. Each bank must 
consider whether the following security measures are appropriate for the 
bank and, if so, adopt those measures the bank concludes are 
appropriate:
    a. Access controls on customer information systems, including 
controls to authenticate and permit access only to authorized 
individuals and controls to prevent employees from providing customer 
information to unauthorized individuals who may seek to obtain this 
information through fraudulent means.
    b. Access restrictions at physical locations containing customer 
information, such as buildings, computer facilities, and records storage 
facilities to permit access only to authorized individuals;
    c. Encryption of electronic customer information, including while in 
transit or in storage on networks or systems to which unauthorized 
individuals may have access;
    d. Procedures designed to ensure that customer information system 
modifications are consistent with the bank's information security 
program;
    e. Dual control procedures, segregation of duties, and employee 
background checks for employees with responsibilities for or access to 
customer information;
    f. Monitoring systems and procedures to detect actual and attempted 
attacks on or intrusions into customer information systems;
    g. Response programs that specify actions to be taken when the bank 
suspects or detects that unauthorized individuals have gained access to 
customer information systems, including appropriate reports to 
regulatory and law enforcement agencies; and
    h. Measures to protect against destruction, loss, or damage of 
customer information due to potential environmental hazards, such as 
fire and water damage or technological failures.
    2. Train staff to implement the bank's information security program.
    3. Regularly test the key controls, systems and procedures of the 
information security program. The frequency and nature of such tests 
should be determined by the bank's risk assessment. Tests should be 
conducted or reviewed by independent third parties or staff independent 
of those that develop or maintain the security programs.
    4. Develop, implement, and maintain, as part of its information 
security program, appropriate measures to properly dispose of customer 
information and consumer information in accordance with each of the 
requirements of this paragraph III.
    D. Oversee Service Provider Arrangements. Each bank shall:
    1. Exercise appropriate due diligence in selecting its service 
providers;
    2. Require its service providers by contract to implement 
appropriate measures designed to meet the objectives of these 
Guidelines; and
    3. Where indicated by the bank's risk assessment, monitor its 
service providers to confirm that they have satisfied their obligations 
as required by section D.2. As part of this monitoring, a bank should 
review audits, summaries of test results, or other equivalent 
evaluations of its service providers.
    E. Adjust the Program. Each bank shall monitor, evaluate, and 
adjust, as appropriate, the information security program in light of any 
relevant changes in technology, the sensitivity of its customer 
information, internal or external threats to information,

[[Page 365]]

and the bank's own changing business arrangements, such as mergers and 
acquisitions, alliances and joint ventures, outsourcing arrangements, 
and changes to customer information systems.
    F. Report to the Board. Each bank shall report to its board or an 
appropriate committee of the board at least annually. This report should 
describe the overall status of the information security program and the 
bank's compliance with these Guidelines. The reports should discuss 
material matters related to its program, addressing issues such as: risk 
assessment; risk management and control decisions; service provider 
arrangements; results of testing; security breaches or violations and 
management's responses; and recommendations for changes in the 
information security program.
    G. Implement the Standards. 1. Effective date. Each bank must 
implement an information security program pursuant to these Guidelines 
by July 1, 2001.
    2. Two-year grandfathering of agreements with service providers. 
Until July 1, 2003, a contract that a bank has entered into with a 
service provider to perform services for it or functions on its behalf 
satisfies the provisions of section III.D., even if the contract does 
not include a requirement that the servicer maintain the security and 
confidentiality of customer information, as long as the bank entered 
into the contract on or before March 5, 2001.
    3. Effective date for measures relating to the disposal of consumer 
information. Each bank must satisfy these Guidelines with respect to the 
proper disposal of consumer information by July 1, 2005.
    4. Exception for existing agreements with service providers relating 
to the disposal of consumer information. Notwithstanding the requirement 
in paragraph III.G.3., a bank's contracts with its service providers 
that have access to consumer information and that may dispose of 
consumer information, entered into before July 1, 2005, must comply with 
the provisions of the Guidelines relating to the proper disposal of 
consumer information by July 1, 2006.

Supplement A to Appendix B to Part 30--Interagency Guidance on Response 
 Programs for Unauthorized Access to Customer Information and Customer 
                                 Notice

                              I. Background

    This Guidance \1\ interprets section 501(b) of the Gramm-Leach-
Bliley Act (``GLBA'') and the Interagency Guidelines Establishing 
Information Security Standards (the ``Security Guidelines'')\2\ and 
describes response programs, including customer notification procedures, 
that a financial institution should develop and implement to address 
unauthorized access to or use of customer information that could result 
in substantial harm or inconvenience to a customer. The scope of, and 
definitions of terms used in, this Guidance are identical to those of 
the Security Guidelines. For example, the term ``customer information'' 
is the same term used in the Security Guidelines, and means any record 
containing nonpublic personal information about a customer, whether in 
paper, electronic, or other form, maintained by or on behalf of the 
institution.
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    \1\ This Guidance is being jointly issued by the Board of Governors 
of the Federal Reserve System (Board), the Federal Deposit Insurance 
Corporation (FDIC), the Office of the Comptroller of the Currency (OCC), 
and the Office of Thrift Supervision (OTS).
    \2\ 12 CFR part 30, app. B (OCC); 12 CFR part 208, app. D-2 and part 
225, app. F (Board); 12 CFR part 364, app. B (FDIC); and 12 CFR part 
570, app. B (OTS). The ``Interagency Guidelines Establishing Information 
Security Standards'' were formerly known as ``The Interagency Guidelines 
Establishing Standards for Safeguarding Customer Information.''
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                   A. Interagency Security Guidelines

    Section 501(b) of the GLBA required the Agencies to establish 
appropriate standards for financial institutions subject to their 
jurisdiction that include administrative, technical, and physical 
safeguards, to protect the security and confidentiality of customer 
information. Accordingly, the Agencies issued Security Guidelines 
requiring every financial institution to have an information security 
program designed to:
    1. Ensure the security and confidentiality of customer information;
    2. Protect against any anticipated threats or hazards to the 
security or integrity of such information; and
    3. Protect against unauthorized access to or use of such information 
that could result in substantial harm or inconvenience to any customer.

                     B. Risk Assessment and Controls

    1. The Security Guidelines direct every financial institution to 
assess the following risks, among others, when developing its 
information security program:
    a. Reasonably foreseeable internal and external threats that could 
result in unauthorized disclosure, misuse, alteration, or destruction of 
customer information or customer information systems;
    b. The likelihood and potential damage of threats, taking into 
consideration the sensitivity of customer information; and

[[Page 366]]

    c. The sufficiency of policies, procedures, customer information 
systems, and other arrangements in place to control risks.\3\
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    \3\ See Security Guidelines, III.B.
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    2. Following the assessment of these risks, the Security Guidelines 
require a financial institution to design a program to address the 
identified risks. The particular security measures an institution should 
adopt will depend upon the risks presented by the complexity and scope 
of its business. At a minimum, the financial institution is required to 
consider the specific security measures enumerated in the Security 
Guidelines,\4\ and adopt those that are appropriate for the institution, 
including:
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    \4\ See Security Guidelines, III.C.
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    a. Access controls on customer information systems, including 
controls to authenticate and permit access only to authorized 
individuals and controls to prevent employees from providing customer 
information to unauthorized individuals who may seek to obtain this 
information through fraudulent means;
    b. Background checks for employees with responsibilities for access 
to customer information; and
    c. Response programs that specify actions to be taken when the 
financial institution suspects or detects that unauthorized individuals 
have gained access to customer information systems, including 
appropriate reports to regulatory and law enforcement agencies.\5\
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    \5\ See Security Guidelines, III.C.
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                          C. Service Providers

    The Security Guidelines direct every financial institution to 
require its service providers by contract to implement appropriate 
measures designed to protect against unauthorized access to or use of 
customer information that could result in substantial harm or 
inconvenience to any customer.\6\
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    \6\ See Security Guidelines, II.B. and III.D. Further, the Agencies 
note that, in addition to contractual obligations to a financial 
institution, a service provider may be required to implement its own 
comprehensive information security program in accordance with the 
Safeguards Rule promulgated by the Federal Trade Commission (``FTC''), 
16 CFR part 314.
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                          II. Response Program

    Millions of Americans, throughout the country, have been victims of 
identity theft.\7\ Identity thieves misuse personal information they 
obtain from a number of sources, including financial institutions, to 
perpetrate identity theft. Therefore, financial institutions should take 
preventative measures to safeguard customer information against attempts 
to gain unauthorized access to the information. For example, financial 
institutions should place access controls on customer information 
systems and conduct background checks for employees who are authorized 
to access customer information.\8\ However, every financial institution 
should also develop and implement a risk-based response program to 
address incidents of unauthorized access to customer information in 
customer information systems \9\ that occur nonetheless. A response 
program should be a key part of an institution's information security 
program.\10\ The program should be appropriate to the size and 
complexity of the institution and the nature and scope of its 
activities.
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    \7\ The FTC estimates that nearly 10 million Americans discovered 
they were victims of some form of identity theft in 2002. See The 
Federal Trade Commission, Identity Theft Survey Report, (September 
2003), available at http://www.ftc.gov/os/2003/09/synovatereport.pdf.
    \8\ Institutions should also conduct background checks of employees 
to ensure that the institution does not violate 12 U.S.C. 1829, which 
prohibits an institution from hiring an individual convicted of certain 
criminal offenses or who is subject to a prohibition order under 12 
U.S.C. 1818(e)(6).
    \9\ Under the Guidelines, an institution's customer information 
systems consist of all of the methods used to access, collect, store, 
use, transmit, protect, or dispose of customer information, including 
the systems maintained by its service providers. See Security 
Guidelines, I.C.2.d (I.C.2.c for OTS).
    \10\ See FFIEC Information Technology Examination Handbook, 
Information Security Booklet, Dec. 2002 available at http://
www.ffiec.gov/ffiecinfobase/html--pages/infosec--book--frame.htm. 
Federal Reserve SR 97-32, Sound Practice Guidance for Information 
Security for Networks, Dec. 4, 1997; OCC Bulletin 2000-14, 
``Infrastructure Threats--Intrusion Risks'' (May 15, 2000), for 
additional guidance on preventing, detecting, and responding to 
intrusions into financial institution computer systems.
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    In addition, each institution should be able to address incidents of 
unauthorized access to customer information in customer information 
systems maintained by its domestic and foreign service providers. 
Therefore, consistent with the obligations in the Guidelines that relate 
to these arrangements, and with existing guidance on this topic issued 
by the Agencies,\11\ an institution's contract

[[Page 367]]

with its service provider should require the service provider to take 
appropriate actions to address incidents of unauthorized access to the 
financial institution's customer information, including notification to 
the institution as soon as possible of any such incident, to enable the 
institution to expeditiously implement its response program.
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    \11\ See Federal Reserve SR Ltr. 00-04, Outsourcing of Information 
and Transaction Processing, Feb. 9, 2000; OCC Bulletin 2001-47, ``Third-
Party Relationships Risk Management Principles,'' Nov. 1, 2001; FDIC FIL 
68-99, Risk Assessment Tools and Practices for Information System 
Security, July 7, 1999; OTS Thrift Bulletin 82a, Third Party 
Arrangements, Sept. 1, 2004.
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                   A. Components of a Response Program

    1. At a minimum, an institution's response program should contain 
procedures for the following:
    a. Assessing the nature and scope of an incident, and identifying 
what customer information systems and types of customer information have 
been accessed or misused;
    b. Notifying its primary Federal regulator as soon as possible when 
the institution becomes aware of an incident involving unauthorized 
access to or use of sensitive customer information, as defined below;
    c. Consistent with the Agencies' Suspicious Activity Report 
(``SAR'') regulations,\12\ notifying appropriate law enforcement 
authorities, in addition to filing a timely SAR in situations involving 
Federal criminal violations requiring immediate attention, such as when 
a reportable violation is ongoing;
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    \12\ An institution's obligation to file a SAR is set out in the 
Agencies' SAR regulations and Agency guidance. See 12 CFR 21.11 
(national banks, Federal branches and agencies); 12 CFR 208.62 (State 
member banks); 12 CFR 211.5(k) (Edge and agreement corporations); 12 CFR 
211.24(f) (uninsured State branches and agencies of foreign banks); 12 
CFR 225.4(f) (bank holding companies and their nonbank subsidiaries); 12 
CFR part 353 (State non-member banks); and 12 CFR 563.180 (savings 
associations). National banks must file SARs in connection with computer 
intrusions and other computer crimes. See OCC Bulletin 2000-14, 
``Infrastructure Threats--Intrusion Risks'' (May 15, 2000); Advisory 
Letter 97-9, ``Reporting Computer Related Crimes'' (November 19, 1997) 
(general guidance still applicable though instructions for new SAR form 
published in 65 FR 1229, 1230 (January 7, 2000)). See also Federal 
Reserve SR 01-11, Identity Theft and Pretext Calling, Apr. 26, 2001; SR 
97-28, Guidance Concerning Reporting of Computer Related Crimes by 
Financial Institutions, Nov. 6, 1997; FDIC FIL 48-2000, Suspicious 
Activity Reports, July 14, 2000; FIL 47-97, Preparation of Suspicious 
Activity Reports, May 6, 1997; OTS CEO Memorandum 139, Identity Theft 
and Pretext Calling, May 4, 2001; CEO Memorandum 126, New Suspicious 
Activity Report Form, July 5, 2000; http://www.ots.treas.gov/BSA (for 
the latest SAR form and filing instructions required by OTS as of July 
1, 2003).
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    d. Taking appropriate steps to contain and control the incident to 
prevent further unauthorized access to or use of customer information, 
for example, by monitoring, freezing, or closing affected accounts, 
while preserving records and other evidence;\13\ and
---------------------------------------------------------------------------

    \13\ See FFIEC Information Technology Examination Handbook, 
Information Security Booklet, Dec. 2002, pp. 68-74.
---------------------------------------------------------------------------

    e. Notifying customers when warranted.
    2. Where an incident of unauthorized access to customer information 
involves customer information systems maintained by an institution's 
service providers, it is the responsibility of the financial institution 
to notify the institution's customers and regulator. However, an 
institution may authorize or contract with its service provider to 
notify the institution's customers or regulator on its behalf.

                          III. Customer Notice

    Financial institutions have an affirmative duty to protect their 
customers' information against unauthorized access or use. Notifying 
customers of a security incident involving the unauthorized access or 
use of the customer's information in accordance with the standard set 
forth below is a key part of that duty. Timely notification of customers 
is important to manage an institution's reputation risk. Effective 
notice also may reduce an institution's legal risk, assist in 
maintaining good customer relations, and enable the institution's 
customers to take steps to protect themselves against the consequences 
of identity theft. When customer notification is warranted, an 
institution may not forgo notifying its customers of an incident because 
the institution believes that it may be potentially embarrassed or 
inconvenienced by doing so.

                    A. Standard for Providing Notice

    When a financial institution becomes aware of an incident of 
unauthorized access to sensitive customer information, the institution 
should conduct a reasonable investigation to promptly determine the 
likelihood that the information has been or will be misused. If the 
institution determines that misuse of its information about a customer 
has occurred or is reasonably possible, it should notify the affected 
customer as soon as possible. Customer notice may be delayed if an 
appropriate law enforcement agency determines that notification will 
interfere with a criminal investigation and provides the institution 
with a written request for the delay. However, the institution should 
notify its customers as soon as notification will no longer interfere 
with the investigation.

[[Page 368]]

                    1. Sensitive Customer Information

    Under the Guidelines, an institution must protect against 
unauthorized access to or use of customer information that could result 
in substantial harm or inconvenience to any customer. Substantial harm 
or inconvenience is most likely to result from improper access to 
sensitive customer information because this type of information is most 
likely to be misused, as in the commission of identity theft. For 
purposes of this Guidance, sensitive customer information means a 
customer's name, address, or telephone number, in conjunction with the 
customer's social security number, driver's license number, account 
number, credit or debit card number, or a personal identification number 
or password that would permit access to the customer's account. 
Sensitive customer information also includes any combination of 
components of customer information that would allow someone to log onto 
or access the customer's account, such as user name and password or 
password and account number.

                          2. Affected Customers

    If a financial institution, based upon its investigation, can 
determine from its logs or other data precisely which customers' 
information has been improperly accessed, it may limit notification to 
those customers with regard to whom the institution determines that 
misuse of their information has occurred or is reasonably possible. 
However, there may be situations where the institution determines that a 
group of files has been accessed improperly, but is unable to identify 
which specific customers' information has been accessed. If the 
circumstances of the unauthorized access lead the institution to 
determine that misuse of the information is reasonably possible, it 
should notify all customers in the group.

                      B. Content of Customer Notice

    1. Customer notice should be given in a clear and conspicuous 
manner. The notice should describe the incident in general terms and the 
type of customer information that was the subject of unauthorized access 
or use. It also should generally describe what the institution has done 
to protect the customers' information from further unauthorized access. 
In addition, it should include a telephone number that customers can 
call for further information and assistance.\14\ The notice also should 
remind customers of the need to remain vigilant over the next twelve to 
twenty-four months, and to promptly report incidents of suspected 
identity theft to the institution. The notice should include the 
following additional items, when appropriate:
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    \14\ The institution should, therefore, ensure that it has 
reasonable policies and procedures in place, including trained 
personnel, to respond appropriately to customer inquiries and requests 
for assistance.
---------------------------------------------------------------------------

    a. A recommendation that the customer review account statements and 
immediately report any suspicious activity to the institution;
    b. A description of fraud alerts and an explanation of how the 
customer may place a fraud alert in the customer's consumer reports to 
put the customer's creditors on notice that the customer may be a victim 
of fraud;
    c. A recommendation that the customer periodically obtain credit 
reports from each nationwide credit reporting agency and have 
information relating to fraudulent transactions deleted;
    d. An explanation of how the customer may obtain a credit report 
free of charge; and
    e. Information about the availability of the FTC's online guidance 
regarding steps a consumer can take to protect against identity theft. 
The notice should encourage the customer to report any incidents of 
identity theft to the FTC, and should provide the FTC's Web site address 
and toll-free telephone number that customers may use to obtain the 
identity theft guidance and report suspected incidents of identity 
theft.\15\
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    \15\ Currently, the FTC Web site for the ID Theft brochure and the 
FTC Hotline phone number are http://www.consumer.gov/idtheft and 1-877-
IDTHEFT. The institution may also refer customers to any materials 
developed pursuant to section 151(b) of the FACT Act (educational 
materials developed by the FTC to teach the public how to prevent 
identity theft).
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    2. The Agencies encourage financial institutions to notify the 
nationwide consumer reporting agencies prior to sending notices to a 
large number of customers that include contact information for the 
reporting agencies.

                     C. Delivery of Customer Notice

    Customer notice should be delivered in any manner designed to ensure 
that a customer can reasonably be expected to receive it. For example, 
the institution may choose to contact all customers affected by 
telephone or by mail, or by electronic mail for those customers for whom 
it has a valid e-mail address and who have agreed to receive 
communications electronically.

[66 FR 8633, Feb. 1, 2001, as amended at 69 FR 77616, Dec. 28, 2004; 70 
FR 15751, 15753, Mar. 29, 2005; 71 FR 5780, Feb. 3, 2006]

[[Page 369]]



 Sec. Appendix C to Part 30--OCC Guidelines Establishing Standards for 
                 Residential Mortgage Lending Practices

                            Table of Contents

I. Introduction
A. Scope
B. Preservation of Existing Authority
C. Relationship to Other Legal Requirements
D. Definitions
II. Standards for Residential Mortgage Lending Practices
A. General
B. Objectives
III. Implementation of Residential Mortgage Lending Standards
A. Avoidance of Particular Loan Terms, Conditions, and Features
B. Prudent Consideration of Certain Loan Terms, Conditions and Features
C. Enhanced Care To Avoid Abusive Loan Terms, Conditions, and Features 
in Certain Mortgages
D. Avoidance of Consumer Misunderstanding
E. Purchased and Brokered Loans
F. Monitoring and Corrective Action

                             I. Introduction

    i. These OCC Guidelines for Residential Mortgage Lending Practices 
(Guidelines) set forth standards pursuant to Section 39 of the Federal 
Deposit Insurance Act, 12 U.S.C. 1831p-1 (Section 39). The Guidelines 
are designed to protect against involvement by national banks and their 
operating subsidiaries, either directly or through loans that they 
purchase or make through intermediaries, in predatory or abusive 
residential mortgage lending practices that are injurious to bank 
customers and that expose the bank to credit, legal, compliance, 
reputation, and other risks. The Guidelines focus on the substance of 
activities and practices, not the creation of policies. The Guidelines 
are enforceable under Section 39 in accordance with the procedures 
prescribed by the regulations in 12 CFR part 30.
    ii. As the OCC has previously indicated in guidance to national 
banks and in rulemaking proceedings (OCC Advisory Letters 2003-2 and 
2003-3 (Feb. 21, 2003)), many of the abusive practices commonly 
associated with predatory mortgage lending, such as loan flipping and 
equity stripping, will involve conduct that likely violates the Federal 
Trade Commission Act's (FTC Act) prohibition against unfair or deceptive 
acts or practices. 15 U.S.C. 45. In addition, loans that involve 
violations of the FTC Act, or mortgage loans based predominantly on the 
foreclosure or liquidation value of the borrower's collateral without 
regard to the borrower's ability to repay the loan according to its 
terms, will involve violations of OCC regulations governing real estate 
lending activities, 12 CFR 34.3 (Lending Rules).
    iii. In addition, national banks and their operating subsidiaries 
must comply with the requirements and Guidelines affecting appraisals of 
residential mortgage loans and appraiser independence. 12 CFR part 34, 
subpart C, and the Interagency Appraisal and Evaluation Guidelines (OCC 
Advisory Letter 2003-9 (October 28, 2003)). For example, engaging in a 
practice of influencing the independent judgment of an appraiser with 
respect to a valuation of real estate that is to be security for a 
residential mortgage loan would violate applicable standards.
    iv. Targeting inappropriate credit products and unfair loan terms to 
certain borrowers also may entail conduct that violates the FTC Act, as 
well as the Equal Credit Opportunity Act (ECOA) and the Fair Housing Act 
(FHA). 15 U.S.C. 1691 et seq. 42 U.S.C. 3601 et seq. For example, 
``steering'' a consumer to a loan with higher costs rather than to a 
comparable loan offered by the bank with lower costs for which the 
consumer could qualify, on a prohibited basis such as the borrower's 
race, national origin, age, gender, or marital status, would be 
unlawful.
    v. OCC regulations also prohibit national banks and their operating 
subsidiaries from providing lump sum, single premium fees for debt 
cancellation contracts and debt suspension agreements in connection with 
residential mortgage loans. 12 CFR 37.3(c)(2). Some lending practices 
and loan terms, including financing single premium credit insurance and 
the use of mandatory arbitration clauses, also may significantly impair 
the eligibility of a residential mortgage loan for purchase in the 
secondary market.
    vi. Finally, OCC regulations and supervisory guidance on fiduciary 
activities and asset management address the need for national banks to 
perform due diligence and exercise appropriate control with regard to 
trustee activities. See 12 CFR 9.6 (a) and Comptroller's Handbook on 
Asset Management. For example, national banks should exercise 
appropriate diligence to minimize potential reputation risks when they 
undertake to act as trustees in mortgage securitizations.
    A. Scope. These Guidelines apply to the residential mortgage lending 
activities of national banks, federal branches and agencies of foreign 
banks, and operating subsidiaries of such entities (except brokers, 
dealers, persons providing insurance, investment companies, and 
investment advisers).
    B. Preservation of Existing Authority. Neither Section 39 nor these 
Guidelines in any way limits the authority of the OCC to address unsafe 
or unsound practices or conditions, unfair or deceptive practices, or 
other violations of law. The OCC may take action

[[Page 370]]

under Section 39 and these Guidelines independently of, in conjunction 
with, or in addition to any other enforcement action available to the 
OCC.
    C. Relationship to Other Legal Requirements. Actions by a bank in 
connection with residential mortgage lending that are inconsistent with 
these Guidelines or Appendix A to this Part 30 may also constitute 
unsafe or unsound practices for purposes of section 8 of the Federal 
Deposit Insurance Act, 12 U.S.C. 1818, unfair or deceptive practices for 
purposes of section 5 of the FTC Act, 15 U.S.C 45, and the OCC Lending 
Rules, 12 CFR 34.3, or violations of the ECOA and FHA.
    D. Definitions.
    1. Except as modified in these Guidelines, or unless the context 
otherwise requires, the terms used in these Guidelines have the same 
meanings as set forth in sections 3 and 39 of the Federal Deposit 
Insurance Act, 12 U.S.C. 1813 and 1831p-1.
    2. For purposes of these Guidelines, the following definitions 
apply:
    a. Residential mortgage loan means any loan or other extension of 
credit made to one or more individuals for personal, family, or 
household purposes secured by an owner-occupied 1-4 family residential 
dwelling, including a cooperative unit or mobile home.
    b. Bank means any national bank, federal branch or agency of a 
foreign bank, and any operating subsidiary thereof that is subject to 
these Guidelines.

        II. Standards for Residential Mortgage Lending Practices

    A. General. A bank's residential mortgage lending activities should 
reflect standards and practices consistent with and appropriate to the 
size and complexity of the bank and the nature and scope of its lending 
activities.
    B. Objectives. A bank's residential mortgage lending activities 
should reflect standards and practices that:
    1. Enable the bank to effectively manage the credit, legal, 
compliance, reputation, and other risks associated with the bank's 
consumer residential mortgage lending activities.
    2. Effectively prevent the bank from becoming engaged in abusive, 
predatory, unfair, or deceptive practices, directly, indirectly through 
mortgage brokers or other intermediaries, or through purchased loans.

      III. Implementation of Residential Mortgage Lending Standards

    A. Avoidance of Particular Loan Terms, Conditions, and Features. A 
bank should not become involved, directly or indirectly in residential 
mortgage lending activities involving abusive, predatory, unfair or 
deceptive lending practices, including, but not limited to:
    1. Equity Stripping and Fee Packing. Repeat refinancings where a 
borrower's equity is depleted as a result of financing excessive fees 
for the loan or ancillary products.
    2. Loan Flipping. Repeat refinancings under circumstances where the 
relative terms of the new and refinanced loan and the cost of the new 
loan do not provide a tangible economic benefit to the borrower.
    3. Refinancing of Special Mortgages. Refinancing of a special 
subsidized mortgage that contains terms favorable to the borrower with a 
loan that does not provide a tangible economic benefit to the borrower 
relative to the refinanced loan.
    4. Encouragement of Default. Encouraging a borrower to breach a 
contract and default on an existing loan prior to and in connection with 
the consummation of a loan that refinances all or part of the existing 
loan.
    B. Prudent Consideration of Certain Loan Terms, Conditions and 
Features. Certain loan terms, conditions and features, may, under 
particular circumstances, be susceptible to abusive, predatory, unfair 
or deceptive practices, yet may be appropriate and acceptable risk 
mitigation measures, consistent with safe and sound lending, and benefit 
customers under other circumstances. A bank should prudently consider 
the circumstances, including the characteristics of a targeted market 
and applicable consumer and safety and soundness safeguards, under which 
the bank will engage directly or indirectly in making residential 
mortgage loans with the following loan terms, conditions and features:
    1. Financing single premium credit life, disability or unemployment 
insurance.
    2. Negative amortization, involving a payment schedule in which 
regular periodic payments cause the principal balance to increase.
    3. Balloon payments in short-term transactions.
    4. Prepayment penalties that are not limited to the early years of 
the loan, particularly in subprime loans.
    5. Interest rate increases upon default at a level not commensurate 
with risk mitigation.
    6. Call provisions permitting the bank to accelerate payment of the 
loan under circumstances other than the borrower's default under the 
credit agreement or to mitigate the bank's exposure to loss.
    7. Absence of an appropriate assessment and documentation of the 
consumer's ability to repay the loan in accordance with its terms, 
commensurate with the type of loan, as required by Appendix A of this 
part.
    8. Mandatory arbitration clauses or agreements, particularly if the 
eligibility of the loan for purchase in the secondary market is thereby 
impaired.
    9. Pricing terms that result in the loan's being subject to the 
provisions of the Home

[[Page 371]]

Ownership and Equity Protection Act. 15 U.S.C. 1639 et seq.
    10. Original principal balance of the loan in excess of appraised 
value.
    11. Payment schedules that consolidate more than two periodic 
payments and pay them in advance from the loan proceeds.
    12. Payments to home improvement contractors under a home 
improvement contract from the proceeds of a residential mortgage loan 
other than by an instrument payable to the consumer, jointly to the 
consumer and the contractor, or through an independent third party 
escrow agent.
    C. Enhanced Care to Avoid Abusive Loan Terms, Conditions, and 
Features in Certain Mortgages. A bank may face heightened risks when it 
solicits or offers loans to consumers who are not financially 
sophisticated, have language barriers, or are elderly, or have limited 
or poor credit histories, are substantially indebted, or have other 
characteristics that limit their credit choices. In connection with such 
consumers, a bank should exercise enhanced care if it employs the 
residential mortgage loan terms, conditions, and features described in 
paragraph B of this section III, and should also apply appropriate 
heightened internal controls and monitoring to any line of business that 
does so.
    D. Avoidance of Consumer Misunderstanding. A bank's residential 
mortgage lending activities should include provision of timely, 
sufficient, and accurate information to a consumer concerning the terms 
and costs, risks, and benefits of the loan. Consumers should be provided 
with information sufficient to draw their attention to these key terms.
    E. Purchased and Brokered Loans. With respect to consumer 
residential mortgage loans that the bank purchases, or makes through a 
mortgage broker or other intermediary, the bank's residential mortgage 
lending activities should reflect standards and practices consistent 
with those applied by the bank in its direct lending activities and 
include appropriate measures to mitigate risks, such as the following:
    1. Criteria for entering into and continuing relationships with 
intermediaries and originators, including due diligence requirements.
    2. Underwriting and appraisal requirements.
    3. Standards related to total loan compensation and total 
compensation of intermediaries, including maximum rates, points, and 
other charges, and the use of overages and yield-spread premiums, 
structured to avoid providing an incentive to originate loans with 
predatory or abusive characteristics.
    4. Requirements for agreements with intermediaries and originators, 
including with respect to risks identified in the due diligence process, 
compliance with appropriate bank policies, procedures and practices and 
with applicable law (including remedies for failure to comply), 
protection of the bank against risk, and termination procedures.
    5. Loan documentation procedures, management information systems, 
quality control reviews, and other methods through which the bank will 
verify compliance with agreements, bank policies, and applicable laws, 
and otherwise retain appropriate oversight of mortgage origination 
functions, including loan sourcing, underwriting, and loan closings.
    6. Criteria and procedures for the bank to take appropriate 
corrective action, including modification of loan terms and termination 
of the relationship with the intermediary or originator in question.
    F. Monitoring and Corrective Action. A bank's consumer residential 
mortgage lending activities should include appropriate monitoring of 
compliance with applicable law and the bank's lending standards and 
practices, periodic monitoring and evaluation of the nature, quantity 
and resolution of customer complaints, and appropriate evaluation of the 
effectiveness of the bank's standards and practices in accomplishing the 
objectives set forth in these Guidelines. The bank's activities also 
should include appropriate steps for taking corrective action in 
response to failures to comply with applicable law and the bank's 
lending standards, and for making adjustments to the bank's activities 
as may be appropriate to enhance their effectiveness or to reflect 
changes in business practices, market conditions, or the bank's lines of 
business, residential mortgage loan programs, or customer base.

[70 FR 6332, Feb. 7, 2005]



PART 31_EXTENSIONS OF CREDIT TO INSIDERS AND TRANSACTIONS WITH AFFILIATES--Table of Contents




Sec.
31.1 Authority.
31.2 Insider lending restrictions and reporting requirements.

Appendix A to Part 31--Interpretations
Appendix B to Part 31--Comparison of Selected Provisions of Part 31 and 
          Part 32 (as of October 1, 1996)

    Authority: 12 U.S.C. 93a, 375a(4), 375b(3), 1817(k), and 1972(2)(G).

    Source: 61 FR 54536, Oct. 21, 1996, unless otherwise noted.



Sec. 31.1  Authority.

    This part is issued by the Comptroller of the Currency pursuant to 
12 U.S.C. 93a, 375a(4), 375b(3), 1817(k), and 1972(2)(G), as amended.

[[Page 372]]



Sec. 31.2  Insider lending restrictions and reporting requirements.

    (a) General rule. A national bank and its insiders shall comply with 
the provisions contained in 12 CFR part 215.
    (b) Enforcement. The Comptroller of the Currency administers and 
enforces insider lending standards and reporting requirements as they 
apply to national banks and their insiders.



               Sec. Appendix A to Part 31--Interpretations

    Section 1. Loans Secured by Stock or Obligations of an Affiliate

    A bank that makes a loan to an unaffiliated third party may take a 
security interest in securities of an affiliate as collateral for the 
loan without the loan being deemed a ``covered transaction'' under 
section 23A of the Federal Reserve Act (12 U.S.C. 371c) if:
    a. The borrower provides additional collateral that, taken alone, 
meets or exceeds the collateral requirements specified in section 23A(c) 
(12 U.S.C. 371c(c)); and
    b. The loan proceeds:
    1. Are not used to purchase the bank affiliate's securities that 
serve as collateral; and
    2. Are not otherwise used for the benefit of, or transferred to, any 
affiliate.

              Section 2. Deposits Between Affiliated Banks

    a. General rule. The OCC considers a deposit made by a bank in an 
affiliated bank to be a loan or extension of credit to the affiliate 
under 12 U.S.C. 371c. These deposits must be secured in accordance with 
12 U.S.C. 371c(c). However, a national bank may not pledge assets to 
secure private deposits unless otherwise permitted by law (see, e.g., 12 
U.S.C. 90 (permitting collateralization of deposits of public funds); 12 
U.S.C. 92a (trust funds); and 25 U.S.C. 156 and 162a (Native American 
funds)). Thus, unless one of the exceptions to 12 U.S.C. 371c noted in 
paragraph b. of this interpretation applies or unless another exception 
applies that enables a bank to meet the collateral requirements of 12 
U.S.C. 371c(c), a national bank may not:
    1. Make a deposit in an affiliated national bank;
    2. Make a deposit in an affiliated State-chartered bank unless the 
affiliated State- chartered bank can legally offer collateral for the 
deposit in conformance with applicable State law and 12 U.S.C. 371c; or
    3. Receive deposits from an affiliated bank.
    b. Exceptions. The restrictions of 12 U.S.C. 371c (other than 12 
U.S.C. 371c(a)(4), which requires affiliate transactions to be 
consistent with safe and sound banking practices) do not apply to 
deposits:
    1. Made in the ordinary course of correspondent business; or
    2. Made in an affiliate that qualifies as a ``sister bank'' under 12 
U.S.C. 371c(d)(1).

[61 FR 54536, Oct. 21, 1996]



Sec. Appendix B to Part 31--Comparison of Selected Provisions of Part 31 
                   and Part 32 (as of October 1, 1996)

    Note: Even though part 31 now simply requires that national banks 
comply with the insider lending provisions contained in Regulation O 
(Reg. O) (12 CFR part 215), the chart in this appendix refers to part 31 
because Reg. O is a Federal Reserve Board regulation and part 31 is the 
means by which several provisions of Reg. O are made applicable to 
national banks and their insiders.

              Definition of ``Loan or Extension of Credit''
 
Renewals.....................  In most cases, the two definitions of
                                ``loan or extension of credit'' will be
                                applied in the same manner. A difference
                                exists, however, in the treatment of
                                renewals. Under Part 31, a renewal of a
                                loan to an ``insider'' (which, unless
                                noted otherwise, includes a bank's
                                executive officers, directors, principal
                                shareholders, and ``related interests''
                                of such persons) is considered to be an
                                extension of credit. Under Part 32,
                                renewals generally are not considered to
                                be an extension of credit if the bank
                                exercises reasonable efforts, consistent
                                with safe and sound banking practices,
                                to bring the loan into conformance with
                                the lending limit. Renewals would be
                                considered an extension of credit under
                                Part 32, however, if new funds are
                                advanced to the borrower, a new borrower
                                replaces the original borrower, or the
                                OCC determines that the renewal was
                                undertaken to evade the lending limits.

[[Page 373]]

 
Commitments to extend          A binding commitment to make a loan is
 credit...                      treated as an extension of credit under
                                Part 31. Under Part 32, a commitment to
                                make a loan will not be treated as an
                                extension of credit if the amount of the
                                commitment exceeds the lending limit.
                                Rather, the commitment will be deemed a
                                ``nonqualifying commitment'' under Part
                                32 and advances may be made thereunder
                                only if the advance, together with all
                                other outstanding loans to the borrower,
                                will not exceed the bank's lending
                                limit.
Overdrafts...................  An advance by means of an overdraft
                                (except for an intraday overdraft)
                                generally is considered to be an
                                extension of credit under both Parts 31
                                and 32. However, indebtedness in amounts
                                up to $5,000 is excluded from the
                                definition of ``extension of credit''
                                under Part 31 if the indebtedness arises
                                pursuant to a written, preauthorized,
                                interest-bearing plan or written,
                                preauthorized transfer of funds from
                                another account. Under Part 31, if an
                                overdraft is not made pursuant to this
                                type of plan or transfer, a bank is
                                prohibited from paying an overdraft of
                                an insider (which, in this case,
                                includes only an executive officer or
                                director of the insider's bank) unless
                                the overdraft is inadvertent, in amounts
                                not exceeding $1,000, outstanding for
                                not more than 5 business days, and
                                subject to the bank's standard overdraft
                                fee. Part 32 does not contain these
                                exceptions for overdrafts, and simply
                                treats overdrafts (except for intraday
                                overdrafts) as extensions of credit
                                subject to lending limits.
Guarantees...................  Generally speaking, guarantees are
                                included in the Part 31 definition of
                                ``extension of credit'' but are not
                                included in the definition of
                                ``extension of credit'' in Part 32
                                unless other criteria are satisfied.
                                Part 31 applies to any transaction as a
                                result of which an insider becomes
                                obligated to pay money to a bank,
                                whether the obligation arises (i)
                                directly or indirectly, (ii) because of
                                an endorsement on an obligation or
                                otherwise, or (iii) by any means
                                whatsoever. Accordingly, a loan
                                guaranteed by an insider will be deemed
                                to have been made to that insider. In
                                contrast, Part 32 does not consider a
                                loan on which someone signs as guarantor
                                as having been made to the guarantor
                                unless that person is deemed to be a
                                borrower under the ``direct benefit'' or
                                ``common enterprise'' tests (see
                                discussion of these tests in the
                                discussion of the ``General Rule'' under
                                ``Combination/Attribution Rules,''
                                below).
 
                        Exclusions to Definition
 
Funds advanced for taxes,      Both rules exclude funds advanced for
 etc., necessary to preserve    items such as taxes, insurance, or other
 collateral or that are         expenses related to existing
 incidental to indebtedness.    indebtedness. However, Part 32 includes
                                these advances for the purpose of
                                determining whether subsequent loans
                                meet the lending limit, whereas Part 31
                                excludes these advances for all
                                purposes. In addition, Part 32 requires
                                that the funds, which are advanced ``for
                                the benefit of'' a borrower, be advanced
                                by the bank directly to the third party
                                to whom the borrower is indebted. Part
                                31 contains no such requirement.
Loan participations..........  Both rules exclude loan participations if
                                the participation is without recourse.
                                However, Part 32 elaborates on this
                                exclusion by requiring that the
                                participation result in a pro rata
                                sharing of credit risk proportionate to
                                the respective interests of the
                                originating and participating lenders.
                                Part 32 also requires the originating
                                bank, if funding the entire loan, to
                                receive funding from the participants
                                before the close of the next business
                                day. Otherwise, the portion funded will
                                be treated as a loan by the originating
                                bank to the underlying borrower, and may
                                be treated as a ``nonconforming'' loan
                                rather than a violation if (i) the
                                originating bank had an agreement with
                                the participating bank that reduced the
                                loan to an amount within the originating
                                bank's lending limit, (ii) the
                                participating bank reconfirmed its
                                participation and the originating bank
                                had no knowledge of information that
                                would permit the participating bank to
                                withhold its participation, and (iii)
                                the participation was to be funded by
                                close of business of the originating
                                bank's next business day.

[[Page 374]]

 
Acquisition of debt through    Under Part 31, a note or other evidence
 merger or foreclosure.         of indebtedness acquired through a
                                merger is excluded from the definition
                                of ``extension of credit.'' Under Part
                                32, the indebtedness is deemed to be a
                                loan or extension of credit. However, if
                                a loan that conformed with Part 32 when
                                originally made exceeds the lending
                                limits following a merger after the loan
                                is aggregated with other extensions of
                                credit to the same borrower, the loan
                                will not be deemed to be a lending
                                limits violation. Rather, the loan will
                                be treated as ``nonconforming,'' and the
                                bank will have to exercise reasonable
                                efforts to bring the loan into
                                compliance unless to do so would be
                                inconsistent with safe and sound banking
                                practices.
Credit card indebtedness.....  An insider may incur up to $15,000 in
                                debt on a credit card or similar open-
                                end credit plan offered by the insider's
                                bank without the debt counting as an
                                extension of credit under Part 31. The
                                terms of the credit card or other credit
                                plan must be no more favorable than
                                those offered by the bank to the general
                                public. Part 32 does not exclude credit
                                card debt from the lending limits.
 
                     Combination/ Attribution Rules
 
General rule.................  Under Part 31, a loan will be attributed
                                to an insider if the loan proceeds are
                                ``transferred to,'' or used for the
                                ``tangible economic benefit of,'' the
                                insider or if the loan is made to a
                                ``related interest'' of the insider.
                                Under Part 32, a loan will be attributed
                                to another person when either (i) the
                                proceeds of the loan are to be used for
                                the direct benefit of the other person
                                or (ii) a common enterprise exists
                                between the borrower and the other
                                person. The ``transfer'' test and
                                ``tangible economic benefit'' test of
                                Part 31 are substantially the same as
                                the ``direct benefit'' test of Part 32.
                                Under each of these tests, a loan will
                                be attributed to another person where
                                the proceeds are transferred to the
                                other person, unless the proceeds are
                                used in a bona fide arm's length
                                transaction to acquire property, goods,
                                or services. However, the ``related
                                interest'' test of Part 31 and the
                                ``common enterprise'' test under Part 32
                                will lead to different results in many
                                instances. Under Part 31, a ``related
                                interest'' is a company or a political
                                or campaign committee that is
                                ``controlled'' by an insider. Part 31
                                defines ``control'' as meaning,
                                generally speaking, that someone owns or
                                controls at least 25 percent of a class
                                of voting securities of a company,
                                controls the election of a majority of
                                the company's directors, or can
                                ``exercise a controlling influence''
                                over the company. Part 32 uses the same
                                definition of ``control'' in the
                                ``common enterprise'' test, but a mere
                                finding of ``control'' is not, by
                                itself, a sufficient basis to find that
                                a common enterprise exists. Part 32 will
                                attribute a loan under the ``common
                                enterprise'' test if the borrowers are
                                under common control (including where
                                one of the persons in question controls
                                the other) and there is ``substantial
                                financial interdependence'' between the
                                borrowers (i.e., where at least 50
                                percent of the gross receipts or
                                expenditures of one borrower comes from
                                transactions with the other). If there
                                is not both common control and
                                substantial financial interdependence,
                                the OCC will not attribute a loan under
                                the ``common enterprise'' test unless
                                (i) the expected source of repayment for
                                a loan is the same for each borrower and
                                neither borrower has another source of
                                income from which the loan may be
                                repaid, (ii) two people borrow to
                                acquire a business of which they will
                                own a majority of the voting securities,
                                or (iii) OCC determines that a common
                                enterprise exists based on facts and
                                circumstances of a particular
                                transaction.
 


[[Page 375]]


Loans to corporate groups....  Both Parts 31 and 32 will consider a loan
                                that was made to a corporation to have
                                been made to a third person if the tests
                                identified in the previous discussion of
                                the ``General Rule'' are satisfied. If
                                these tests are not met, Parts 31 and 32
                                still may require attribution, but the
                                circumstances when this will occur and
                                the consequences of attribution under
                                these circumstances differ under the two
                                rules. Under Part 31, a loan to a
                                corporation will be deemed to have been
                                made to an insider if the corporation is
                                a ``related interest'' of the insider
                                (i.e., the insider owns at least 25%
                                percent of a class of voting shares of
                                the company, controls the election of a
                                majority of the company's directors, or
                                has the power to exercise a controlling
                                influence over the company). Under Part
                                32, a loan to an individual or company
                                will not be considered to have been made
                                to a corporate group until a ``person''
                                (which includes individuals and
                                companies) owns more than 50% of the
                                voting shares of a company. If a loan is
                                found to have been made to a related
                                interest of an insider under Part 31,
                                the loan must comply with all of the
                                insider lending restrictions of Part 31.
                                If a loan is found to have been made to
                                a corporate group under Part 32, the
                                loan, when aggregated with all other
                                loans to that corporate group, generally
                                may not exceed 50% of the bank's capital
                                and surplus.
 


[61 FR 54536, Oct. 21, 1996]



PART 32_LENDING LIMITS

Sec.
32.1 Authority, purpose and scope.
32.2 Definitions.
32.3 Lending limits.
32.4 Calculation of lending limits.
32.5 Combination rules.
32.6 Nonconforming loans.
32.7 Residential real estate loans, small business loans, and small farm 
          loans.

    Authority: 12 U.S.C. 1 et seq., 84, and 93a.

    Source: 60 FR 8532, Feb. 15, 1995, unless otherwise noted.



Sec. 32.1  Authority, purpose and scope.

    (a) Authority. This part is issued pursuant to 12 U.S.C. 1 et seq., 
12 U.S.C. 84, and 12 U.S.C. 93a.
    (b) Purpose. The purpose of this part is to protect the safety and 
soundness of national banks by preventing excessive loans to one person, 
or to related persons that are financially dependent, and to promote 
diversification of loans and equitable access to banking services.
    (c) Scope. (1) This part applies to all loans and extensions of 
credit made by national banks and their domestic operating subsidiaries. 
This part does not apply to loans made by a national bank and its 
domestic operating subsidiaries to the bank's ``affiliates,'' as that 
term is defined in 12 U.S.C. 371c(b)(1), to the bank's operating 
subsidiaries, or to Edge Act or Agreement Corporation subsidiaries.
    (2) The lending limits in this part are separate and independent 
from the investment limits prescribed by 12 U.S.C. 24 (Seventh), and a 
national bank may make loans or extensions of credit to one borrower up 
to the full amount permitted by this part and also hold eligible 
securities of the same obligor up to the full amount permitted under 12 
U.S.C. 24 (Seventh) and 12 CFR part 1.
    (3) Extensions of credit to executive officers, directors and 
principal shareholders of national banks, and their related interests 
are subject to limits prescribed by 12 U.S.C. 375a and 375b in addition 
to the lending limits established by 12 U.S.C. 84 and this part.
    (4) In addition to the foregoing, loans and extensions of credit 
made by national banks and their domestic operating subsidiaries must be 
consistent with safe and sound banking practices.



Sec. 32.2  Definitions.

    (a) Borrower means a person who is named as a borrower or debtor in 
a loan or extension of credit, or any other person, including a drawer, 
endorser, or guarantor, who is deemed to be a borrower under the 
``direct benefit'' or the ``common enterprise'' tests set forth in Sec. 
32.5.
    (b) Capital and surplus means--
    (1) A bank's Tier 1 and Tier 2 capital calculated under the OCC's 
risk-based capital standards set forth in Appendix A to 12 CFR part 3 as 
reported in the

[[Page 376]]

bank's Consolidated Report of Condition and Income filed under 12 U.S.C. 
161; plus
    (2) The balance of a bank's allowance for loan and lease losses not 
included in the bank's Tier 2 capital, for purposes of the calculation 
of risk-based capital described in paragraph (b)(1) of this section, as 
reported in the bank's Call Report filed under 12 U.S.C. 161.
    (c) Close of business means the time at which a bank closes its 
accounting records for the business day.
    (d) Consumer means the user of any products, commodities, goods, or 
services, whether leased or purchased, but does not include any person 
who purchases products or commodities for resale or fabrication into 
goods for sale.
    (e) Consumer paper means paper relating to automobiles, mobile 
homes, residences, office equipment, household items, tuition fees, 
insurance premium fees, and similar consumer items. Consumer paper also 
includes paper covering the lease (where the bank is not the owner or 
lessor) or purchase of equipment for use in manufacturing, farming, 
construction, or excavation.
    (f) Contractual commitment to advance funds. (1) The term includes a 
bank's obligation to--
    (i) Make payment (directly or indirectly) to a third person 
contingent upon default by a customer of the bank in performing an 
obligation and to make such payment in keeping with the agreed upon 
terms of the customer's contract with the third person, or to make 
payments upon some other stated condition;
    (ii) Guarantee or act as surety for the benefit of a person;
    (iii) Advance funds under a qualifying commitment to lend, as 
defined in paragraph (m) of this section, and
    (iv) Advance funds under a standby letter of credit as defined in 
paragraph (s) of this section, a put, or other similar arrangement.
    (2) The term does not include commercial letters of credit and 
similar instruments where the issuing bank expects the beneficiary to 
draw on the issuer, that do not guarantee payment, and that do not 
provide for payment in the event of a default by a third party.
    (g) Control is presumed to exist when a person directly or 
indirectly, or acting through or together with one or more persons--
    (1) Owns, controls, or has the power to vote 25 percent or more of 
any class of voting securities of another person;
    (2) Controls, in any manner, the election of a majority of the 
directors, trustees, or other persons exercising similar functions of 
another person; or
    (3) Has the power to exercise a controlling influence over the 
management or policies of another person.
    (h) Current market value means the bid or closing price listed for 
an item in a regularly published listing or an electronic reporting 
service.
    (i) Eligible bank means a national bank that:
    (1) Is well capitalized as defined in 12 CFR 6.4(b)(1); and
    (2) Has a composite rating of 1 or 2 under the Uniform Financial 
Institutions Rating System in connection with the bank's most recent 
examination or subsequent review, with at least a rating of 2 for asset 
quality and for management.
    (j) Financial instrument means stocks, notes, bonds, and debentures 
traded on a national securities exchange, OTC margin stocks as defined 
in Regulation U, 12 CFR part 221, commercial paper, negotiable 
certificates of deposit, bankers' acceptances, and shares in money 
market and mutual funds of the type that issue shares in which banks may 
perfect a security interest. Financial instruments may be denominated in 
foreign currencies that are freely convertible to U.S. dollars. The term 
``financial instrument'' does not include mortgages.
    (k) Loans and extensions of credit means a bank's direct or indirect 
advance of funds to or on behalf of a borrower based on an obligation of 
the borrower to repay the funds or repayable from specific property 
pledged by or on behalf of the borrower.
    (1) Loans or extensions of credit for purposes of 12 U.S.C. 84 and 
this part include--
    (i) A contractual commitment to advance funds, as defined in 
paragraph (f) of this section;
    (ii) A maker or endorser's obligation arising from a bank's discount 
of commercial paper;

[[Page 377]]

    (iii) A bank's purchase of securities subject to an agreement that 
the seller will repurchase the securities at the end of a stated period, 
but not including a bank's purchase of Type I securities, as defined in 
part 1 of this chapter, subject to a repurchase agreement, where the 
purchasing bank has assured control over or has established its rights 
to the Type I securities as collateral;
    (iv) A bank's purchase of third-party paper subject to an agreement 
that the seller will repurchase the paper upon default or at the end of 
a stated period. The amount of the bank's loan is the total unpaid 
balance of the paper owned by the bank less any applicable dealer 
reserves retained by the bank and held by the bank as collateral 
security. Where the seller's obligation to repurchase is limited, the 
bank's loan is measured by the total amount of the paper the seller may 
ultimately be obligated to repurchase. A bank's purchase of third party 
paper without direct or indirect recourse to the seller is not a loan or 
extension of credit to the seller;
    (v) An overdraft, whether or not prearranged, but not an intra-day 
overdraft for which payment is received before the close of business of 
the bank that makes the funds available;
    (vi) The sale of Federal funds with a maturity of more than one 
business day, but not Federal funds with a maturity of one day or less 
or Federal funds sold under a continuing contract; and
    (vii) Loans or extensions of credit that have been charged off on 
the books of the bank in whole or in part, unless the loan or extension 
of credit--
    (A) Is unenforceable by reason of discharge in bankruptcy;
    (B) Is no longer legally enforceable because of expiration of the 
statute of limitations or a judicial decision; or
    (C) Is no longer legally enforceable for other reasons, provided 
that the bank maintains sufficient records to demonstrate that the loan 
is unenforceable.
    (2) The following items do not constitute loans or extensions of 
credit for purposes of 12 U.S.C. 84 and this part--
    (i) Additional funds advanced for the benefit of a borrower by a 
bank for payment of taxes, insurance, utilities, security, and 
maintenance and operating expenses necessary to preserve the value of 
real property securing the loan, consistent with safe and sound banking 
practices, but only if the advance is for the protection of the bank's 
interest in the collateral, and provided that such amounts must be 
treated as an extension of credit if a new loan or extension of credit 
is made to the borrower;
    (ii) Accrued and discounted interest on an existing loan or 
extension of credit, including interest that has been capitalized from 
prior notes and interest that has been advanced under terms and 
conditions of a loan agreement;
    (iii) Financed sales of a bank's own assets, including Other Real 
Estate Owned, if the financing does not put the bank in a worse position 
than when the bank held title to the assets;
    (iv) A renewal or restructuring of a loan as a new ``loan or 
extension of credit,'' following the exercise by a bank of reasonable 
efforts, consistent with safe and sound banking practices, to bring the 
loan into conformance with the lending limit, unless new funds are 
advanced by the bank to the borrower (except as permitted by Sec. 
32.3(b)(5)), or a new borrower replaces the original borrower, or unless 
the OCC determines that a renewal or restructuring was undertaken as a 
means to evade the bank's lending limit;
    (v) Amounts paid against uncollected funds in the normal process of 
collection; and
    (vi)(A) That portion of a loan or extension of credit sold as a 
participation by a bank on a nonrecourse basis, provided that the 
participation results in a pro rata sharing of credit risk proportionate 
to the respective interests of the originating and participating 
lenders. Where a participation agreement provides that repayment must be 
applied first to the portions sold, a pro rata sharing will be deemed to 
exist only if the agreement also provides that, in the event of a 
default or comparable event defined in the agreement, participants must 
share in all subsequent repayments and collections in proportion to 
their percentage participation at the time of the occurrence of the 
event.

[[Page 378]]

    (B) When an originating bank funds the entire loan, it must receive 
funding from the participants before the close of business of its next 
business day. If the participating portions are not received within that 
period, then the portions funded will be treated as a loan by the 
originating bank to the borrower. If the portions so attributed to the 
borrower exceed the originating bank's lending limit, the loan may be 
treated as nonconforming subject to Sec. 32.6, rather than a violation, 
if:
    (1) The originating bank had a valid and unconditional participation 
agreement with a participating bank or banks that was sufficient to 
reduce the loan to within the originating bank's lending limit;
    (2) The participating bank reconfirmed its participation and the 
originating bank had no knowledge of any information that would permit 
the participant to withhold its participation; and
    (3) The participation was to be funded by close of business of the 
originating bank's next business day.
    (l) Person means an individual; sole proprietorship; partnership; 
joint venture; association; trust; estate; business trust; corporation; 
limited liability company; not-for-profit corporation; sovereign 
government or agency, instrumentality, or political subdivision thereof; 
or any similar entity or organization.
    (m) Qualifying commitment to lend means a legally binding written 
commitment to lend that, when combined with all other outstanding loans 
and qualifying commitments to a borrower, was within the bank's lending 
limit when entered into, and has not been disqualified.
    (1) In determining whether a commitment is within the bank's lending 
limit when made, the bank may deduct from the amount of the commitment 
the amount of any legally binding loan participation commitments that 
are issued concurrent with the bank's commitment and that would be 
excluded from the definition of ``loan or extension of credit'' under 
paragraph (k)(2)(vi) of this section.
    (2) If the bank subsequently chooses to make an additional loan and 
that subsequent loan, together with all outstanding loans and qualifying 
commitments to a borrower, exceeds the bank's applicable lending limit 
at that time, the bank's qualifying commitments to the borrower that 
exceed the bank's lending limit at that time are deemed to be 
permanently disqualified, beginning with the most recent qualifying 
commitment and proceeding in reverse chronological order. When a 
commitment is disqualified, the entire commitment is disqualified and 
the disqualified commitment is no longer considered a ``loan or 
extension of credit.'' Advances of funds under a disqualified or non-
qualifying commitment may only be made to the extent that the advance, 
together with all other outstanding loans to the borrower, do not exceed 
the bank's lending limit at the time of the advance, calculated pursuant 
to Sec. 32.4.
    (n) Readily marketable collateral means financial instruments and 
bullion that are salable under ordinary market conditions with 
reasonable promptness at a fair market value determined by quotations 
based upon actual transactions on an auction or similarly available 
daily bid and ask price market.
    (o) Readily marketable staple means an article of commerce, 
agriculture, or industry, such as wheat and other grains, cotton, wool, 
and basic metals such as tin, copper and lead, in the form of 
standardized interchangeable units, that is easy to sell in a market 
with sufficiently frequent price quotations.
    (1) An article comes within this definition if--
    (i) The exact price is easy to determine; and
    (ii) The staple itself is easy to sell at any time at a price that 
would not be considerably less than the amount at which it is valued as 
collateral.
    (2) Whether an article qualifies as a readily marketable staple is 
determined on the basis of the conditions existing at the time the loan 
or extension of credit that is secured by the staples is made.
    (p) Residential real estate loan means a loan or extension of credit 
that is secured by 1-4 family residential real estate.

[[Page 379]]

    (q) Sale of Federal funds means any transaction between depository 
institutions involving the transfer of immediately available funds 
resulting from credits to deposit balances at Federal Reserve Banks, or 
from credits to new or existing deposit balances due from a 
correspondent depository institution.
    (r) Small business loan means a loan or extension of credit 
``secured by nonfarm nonresidential properties'' or ``a commercial or 
industrial loan'' as defined in the instructions for preparation of the 
Consolidated Report of Condition and Income.
    (s) Small farm loans or extensions of credit means ``loans to small 
farms,'' as defined in the instructions for preparation of the 
Consolidated Report of Condition and Income.
    (t) Standby letter of credit means any letter of credit, or similar 
arrangement, that represents an obligation to the beneficiary on the 
part of the issuer:
    (1) To repay money borrowed by or advanced to or for the account of 
the account party;
    (2) To make payment on account of any indebtedness undertaken by the 
account party; or
    (3) To make payment on account of any default by the account party 
in the performance of an obligation.

[60 FR 8532, Feb. 15, 1995, as amended at 63 FR 15746, Apr. 1, 1998; 66 
FR 31120, June 11, 2001; 66 FR 55072, Nov. 1, 2001; 69 FR 51357, Aug. 
19, 2004]



Sec. 32.3  Lending limits.

    (a) Combined general limit. A national bank's total outstanding 
loans and extensions of credit to one borrower may not exceed 15 percent 
of the bank's capital and surplus, plus an additional 10 percent of the 
bank's capital and surplus, if the amount that exceeds the bank's 15 
percent general limit is fully secured by readily marketable collateral, 
as defined in Sec. 32.2(n). To qualify for the additional 10 percent 
limit, the bank must perfect a security interest in the collateral under 
applicable law and the collateral must have a current market value at 
all times of at least 100 percent of the amount of the loan or extension 
of credit that exceeds the bank's 15 percent general limit.
    (b) Loans subject to special lending limits. The following loans or 
extensions of credit are subject to the lending limits set forth below. 
When loans and extensions of credit qualify for more than one special 
lending limit, the special limits are cumulative.
    (1) Loans secured by bills of lading or warehouse receipts covering 
readily marketable staples. (i) A national bank's loans or extensions of 
credit to one borrower secured by bills of lading, warehouse receipts, 
or similar documents transferring or securing title to readily 
marketable staples, as defined in Sec. 32.2(o), may not exceed 35 
percent of the bank's capital and surplus in addition to the amount 
allowed under the bank's combined general limit. The market value of the 
staples securing the loan must at all times equal at least 115 percent 
of the amount of the outstanding loan that exceeds the bank's combined 
general limit.
    (ii) Staples that qualify for this special limit must be 
nonperishable, may be refrigerated or frozen, and must be fully covered 
by insurance if such insurance is customary. Whether a staple is non-
perishable must be determined on a case-by-case basis because of 
differences in handling and storing commodities.
    (iii) This special limit applies to a loan or extension of credit 
arising from a single transaction or secured by the same staples, 
provided that the duration of the loan or extension of credit is:
    (A) Not more than ten months if secured by nonperishable staples; or
    (B) Not more than six months if secured by refrigerated or frozen 
staples.
    (iv) The holder of the warehouse receipts, order bills of lading, 
documents qualifying as documents of title under the Uniform Commercial 
Code, or other similar documents, must have control and be able to 
obtain immediate possession of the staple so that the bank is able to 
sell the underlying staples and promptly transfer title and possession 
to a purchaser if default should occur on a loan secured by such 
documents. The existence of a brief notice period, or similar procedural 
requirements under applicable law, for the disposal of the collateral 
will not

[[Page 380]]

affect the eligibility of the instruments for this special limit.
    (A) Field warehouse receipts are an acceptable form of collateral 
when issued by a duly bonded and licensed grain elevator or warehouse 
having exclusive possession and control of the staples even though the 
grain elevator or warehouse is maintained on the premises of the owner 
of the staples.
    (B) Warehouse receipts issued by the borrower-owner that is a grain 
elevator or warehouse company, duly-bonded and licensed and regularly 
inspected by state or Federal authorities, may be considered eligible 
collateral under this provision only when the receipts are registered 
with an independent registrar whose consent is required before the 
staples may be withdrawn from the warehouse.
    (2) Discount of installment consumer paper. (i) A national bank's 
loans and extensions of credit to one borrower that arise from the 
discount of negotiable or nonnegotiable installment consumer paper, as 
defined at Sec. 32.2(e), that carries a full recourse endorsement or 
unconditional guarantee by the person selling the paper, may not exceed 
10 percent of the bank's capital and surplus in addition to the amount 
allowed under the bank's combined general limit. An unconditional 
guarantee may be in the form of a repurchase agreement or separate 
guarantee agreement. A condition reasonably within the power of the bank 
to perform, such as the repossession of collateral, will not make 
conditional an otherwise unconditional guarantee.
    (ii) Where the seller of the paper offers only partial recourse to 
the bank, the lending limits of this section apply to the obligation of 
the seller to the bank, which is measured by the total amount of paper 
the seller may be obligated to repurchase or has guaranteed.
    (iii) Where the bank is relying primarily upon the maker of the 
paper for payment of the loans or extensions of credit and not upon any 
full or partial recourse endorsement or guarantee by the seller of the 
paper, the lending limits of this section apply only to the maker. The 
bank must substantiate its reliance on the maker with--
    (A) Records supporting the bank's independent credit analysis of the 
maker's ability to repay the loan or extension of credit, maintained by 
the bank or by a third party that is contractually obligated to make 
those records available for examination purposes; and
    (B) A written certification by an officer of the bank authorized by 
the bank's board of directors or any designee of that officer, that the 
bank is relying primarily upon the maker to repay the loan or extension 
of credit.
    (iv) Where paper is purchased in substantial quantities, the 
records, evaluation, and certification must be in a form appropriate for 
the class and quantity of paper involved. The bank may use sampling 
techniques, or other appropriate methods, to independently verify the 
reliability of the credit information supplied by the seller.
    (3) Loans secured by documents covering livestock. (i) A national 
bank's loans or extensions of credit to one borrower secured by shipping 
documents or instruments that transfer or secure title to or give a 
first lien on livestock may not exceed 10 percent of the bank's capital 
and surplus in addition to the amount allowed under the bank's combined 
general limit. The market value of the livestock securing the loan must 
at all times equal at least 115 percent of the amount of the outstanding 
loan that exceeds the bank's combined general limit. For purposes of 
this subsection, the term ``livestock'' includes dairy and beef cattle, 
hogs, sheep, goats, horses, mules, poultry and fish, whether or not held 
for resale.
    (ii) The bank must maintain in its files an inspection and valuation 
for the livestock pledged that is reasonably current, taking into 
account the nature and frequency of turnover of the livestock to which 
the documents relate, but in any case not more than 12 months old.
    (iii) Under the laws of certain states, persons furnishing pasturage 
under a grazing contract may have a lien on the livestock for the amount 
due for pasturage. If a lien that is based on pasturage furnished by the 
lienor prior to the bank's loan or extension of credit is assigned to 
the bank by a recordable instrument and protected against being defeated 
by some other lien or

[[Page 381]]

claim, by payment to a person other than the bank, or otherwise, it will 
qualify under this exception provided the amount of the perfected lien 
is at least equal to the amount of the loan and the value of the 
livestock is at no time less than 115 percent of the portion of the loan 
or extension of credit that exceeds the bank's combined general limit. 
When the amount due under the grazing contract is dependent upon future 
performance, the resulting lien does not meet the requirements of the 
exception.
    (4) Loans secured by dairy cattle. A national bank's loans and 
extensions of credit to one borrower that arise from the discount by 
dealers in dairy cattle of paper given in payment for the cattle may not 
exceed 10 percent of the bank's capital and surplus in addition to the 
amount allowed under the bank's combined general limit. To qualify, the 
paper--
    (i) Must carry the full recourse endorsement or unconditional 
guarantee of the seller; and
    (ii) Must be secured by the cattle being sold, pursuant to liens 
that allow the bank to maintain a perfected security interest in the 
cattle under applicable law.
    (5) Additional advances to complete project financing pursuant to 
renewal of a qualifying commitment to lend. A national bank may renew a 
qualifying commitment to lend, as defined by Sec. 32.2(m), and complete 
funding under that commitment if all of the following criteria are met--
    (i) The completion of funding is consistent with safe and sound 
banking practices and is made to protect the position of the bank;
    (ii) The completion of funding will enable the borrower to complete 
the project for which the qualifying commitment to lend was made; and
    (iii) The amount of the additional funding does not exceed the 
unfunded portion of the bank's qualifying commitment to lend.
    (c) Loans not subject to the lending limits. The following loans or 
extensions of credit are not subject to the lending limits of 12 U.S.C. 
84 or this part.
    (1) Loans arising from the discount of commercial or business paper. 
(i) Loans or extensions of credit arising from the discount of 
negotiable commercial or business paper that evidences an obligation to 
the person negotiating the paper. The paper--
    (A) Must be given in payment of the purchase price of commodities 
purchased for resale, fabrication of a product, or any other business 
purpose that may reasonably be expected to provide funds for payment of 
the paper; and
    (B) Must bear the full recourse endorsement of the owner of the 
paper, except that paper discounted in connection with export 
transactions, that is transferred without recourse, or with limited 
recourse, must be supported by an assignment of appropriate insurance 
covering the political, credit, and transfer risks applicable to the 
paper, such as insurance provided by the Export-Import Bank.
    (ii) A failure to pay principal or interest on commercial or 
business paper when due does not result in a loan or extension of credit 
to the maker or endorser of the paper; however, the amount of such paper 
thereafter must be counted in determining whether additional loans or 
extensions of credit to the same borrower may be made within the limits 
of 12 U.S.C. 84 and this part.
    (2) Bankers' acceptances. A bank's acceptance of drafts eligible for 
rediscount under 12 U.S.C. 372 and 373, or a bank's purchase of 
acceptances created by other banks that are eligible for rediscount 
under those sections; but not including--
    (i) A bank's acceptance of drafts ineligible for rediscount (which 
constitutes a loan by the bank to the customer for whom the acceptance 
was made, in the amount of the draft);
    (ii) A bank's purchase of ineligible acceptances created by other 
banks (which constitutes a loan from the purchasing bank to the 
accepting bank, in the amount of the purchase price); and
    (iii) A bank's purchase of its own acceptances (which constitutes a 
loan to the bank's customer for whom the acceptance was made, in the 
amount of the purchase price).
    (3)(i) Loans secured by U.S. obligations. Loans or extensions of 
credit, or portions thereof, to the extent fully secured by the current 
market value of:
    (A) Bonds, notes, certificates of indebtedness, or Treasury bills of 
the

[[Page 382]]

United States or by similar obligations fully guaranteed as to principal 
and interest by the United States;
    (B) Loans to the extent guaranteed as to repayment of principal by 
the full faith and credit of the U.S. government, as set forth in 
paragraph (c)(4)(ii) of this section.
    (ii) To qualify under this paragraph, the bank must perfect a 
security interest in the collateral under applicable law.
    (4) Loans to or guaranteed by a Federal agency. (i) Loans or 
extensions of credit to any department, agency, bureau, board, 
commission, or establishment of the United States or any corporation 
wholly owned directly or indirectly by the United States.
    (ii) Loans or extensions of credit, including portions thereof, to 
the extent secured by unconditional takeout commitments or guarantees of 
any of the foregoing governmental entities. The commitment or 
guarantee--
    (A) Must be payable in cash or its equivalent within 60 days after 
demand for payment is made;
    (B) Is considered unconditional if the protection afforded the bank 
is not substantially diminished or impaired if loss should result from 
factors beyond the bank's control. Protection against loss is not 
materially diminished or impaired by procedural requirements, such as an 
agreement to pay on the obligation only in the event of default, 
including default over a specific period of time, a requirement that 
notification of default be given within a specific period after its 
occurrence, or a requirement of good faith on the part of the bank.
    (5) Loans to or guaranteed by general obligations of a State or 
political subdivision. (i) A loan or extension of credit to a State or 
political subdivision that constitutes a general obligation of the State 
or political subdivision, as defined in part 1 of this chapter, and for 
which the lending bank has an opinion of counsel or the opinion of that 
State Attorney General, or other State legal official with authority to 
opine on the obligation in question, that the loan or extension of 
credit is a valid and enforceable general obligation of the borrower; 
and
    (ii) A loan or extension of credit, including portions thereof, to 
the extent guaranteed or secured by a general obligation of a State or 
political subdivision and for which the lending bank has an opinion of 
counsel or the opinion of that State Attorney General, or other State 
legal official with authority to opine on the guarantee or collateral in 
question, that the guarantee or collateral is a valid and enforceable 
general obligation of that public body.
    (6) Loans secured by segregated deposit accounts. Loans or 
extensions of credit, including portions thereof, to the extent secured 
by a segregated deposit account in the lending bank, provided a security 
interest in the deposit has been perfected under applicable law.
    (i) Where the deposit is eligible for withdrawal before the secured 
loan matures, the bank must establish internal procedures to prevent 
release of the security without the lending bank's prior consent.
    (ii) A deposit that is denominated and payable in a currency other 
than that of the loan or extension of credit that it secures may be 
eligible for this exception if the currency is freely convertible to 
U.S. dollars.
    (A) This exception applies to only that portion of the loan or 
extension of credit that is covered by the U.S. dollar value of the 
deposit.
    (B) The lending bank must establish procedures to periodically 
revalue foreign currency deposits to ensure that the loan or extension 
of credit remains fully secured at all times.
    (7) Loans to financial institutions with the approval of the 
Comptroller. Loans or extensions of credit to any financial institution 
or to any receiver, conservator, superintendent of banks, or other agent 
in charge of the business and property of a financial institution when 
an emergency situation exists and a national bank is asked to provide 
assistance to another financial institution, and the loan is approved by 
the Comptroller. For purposes of this paragraph, financial institution 
means a commercial bank, savings bank, trust company, savings 
association, or credit union.
    (8) Loans to the Student Loan Marketing Association. Loans or 
extensions

[[Page 383]]

of credit to the Student Loan Marketing Association.
    (9) Loans to industrial development authorities. A loan or extension 
of credit to an industrial development authority or similar public 
entity created to construct and lease a plant facility, including a 
health care facility, to an industrial occupant will be deemed a loan to 
the lessee, provided that--
    (i) The bank evaluates the creditworthiness of the industrial 
occupant before the loan is extended to the authority;
    (ii) The authority's liability on the loan is limited solely to 
whatever interest it has in the particular facility;
    (iii) The authority's interest is assigned to the bank as security 
for the loan or the industrial occupant issues a promissory note to the 
bank that provides a higher order of security than the assignment of a 
lease; and
    (iv) The industrial occupant's lease rentals are assigned and paid 
directly to the bank.
    (10) Loans to leasing companies. A loan or extension of credit to a 
leasing company for the purpose of purchasing equipment for lease will 
be deemed a loan to the lessee, provided that--
    (i) The bank evaluates the creditworthiness of the lessee before the 
loan is extended to the leasing corporation;
    (ii) The loan is without recourse to the leasing corporation;
    (iii) The bank is given a security interest in the equipment and in 
the event of default, may proceed directly against the equipment and the 
lessee for any deficiency resulting from the sale of the equipment;
    (iv) The leasing corporation assigns all of its rights under the 
lease to the bank;
    (v) The lessee's lease payments are assigned and paid to the bank; 
and
    (vi) The lease terms are subject to the same limitations that would 
apply to a national bank acting as a lessor.

[60 FR 8532, Feb. 15, 1995, as amended at 63 FR 15746, Apr. 1, 1998; 66 
FR 31120, June 11, 2001; 66 FR 35072, Nov. 1, 2001]



Sec. 32.4  Calculation of lending limits.

    (a) Calculation date. For purposes of determining compliance with 12 
U.S.C. 84 and this part, a bank shall determine its lending limit as of 
the most recent of the following dates:
    (1) The last day of the preceding calendar quarter; or
    (2) The date on which there is a change in the bank's capital 
category for purposes of 12 U.S.C. 1831o and 12 CFR 6.3.
    (b) Effective date. (1) A bank's lending limit calculated in 
accordance with paragraph (a)(1) of this section will be effective as of 
the earlier of the following dates:
    (i) The date on which the bank's Call Report is submitted; or
    (ii) The date on which the bank's Call Report is required to be 
submitted.
    (2) A bank's lending limit calculated in accordance with paragraph 
(a)(2) of this section will be effective on the date that the limit is 
to be calculated.
    (c) More frequent calculations. If the OCC determines for safety and 
soundness reasons that a bank should calculate its lending limit more 
frequently than required by paragraph (a) of this section, the OCC may 
provide written notice to the bank directing the bank to calculate its 
lending limit at a more frequent interval, and the bank shall thereafter 
calculate its lending limit at that interval until further notice.

[63 FR 15746, Apr. 1, 1998]



Sec. 32.5  Combination rules.

    (a) General rule. Loans or extensions of credit to one borrower will 
be attributed to another person and each person will be deemed a 
borrower--
    (1) When proceeds of a loan or extension of credit are to be used 
for the direct benefit of the other person, to the extent of the 
proceeds so used; or
    (2) When a common enterprise is deemed to exist between the persons.
    (b) Direct benefit. The proceeds of a loan or extension of credit to 
a borrower will be deemed to be used for the direct benefit of another 
person and will be attributed to the other person when the proceeds, or 
assets purchased with the proceeds, are transferred to another person, 
other than in a bona fide arm's length transaction where the proceeds 
are used to acquire property, goods, or services.
    (c) Common enterprise. A common enterprise will be deemed to exist 
and

[[Page 384]]

loans to separate borrowers will be aggregated:
    (1) When the expected source of repayment for each loan or extension 
of credit is the same for each borrower and neither borrower has another 
source of income from which the loan (together with the borrower's other 
obligations) may be fully repaid. An employer will not be treated as a 
source of repayment under this paragraph because of wages and salaries 
paid to an employee, unless the standards of paragraph (c)(2) of this 
section are met;
    (2) When loans or extensions of credit are made--
    (i) To borrowers who are related directly or indirectly through 
common control, including where one borrower is directly or indirectly 
controlled by another borrower; and
    (ii) Substantial financial interdependence exists between or among 
the borrowers. Substantial financial interdependence is deemed to exist 
when 50 percent or more of one borrower's gross receipts or gross 
expenditures (on an annual basis) are derived from transactions with the 
other borrower. Gross receipts and expenditures include gross revenues/
expenses, intercompany loans, dividends, capital contributions, and 
similar receipts or payments;
    (3) When separate persons borrow from a bank to acquire a business 
enterprise of which those borrowers will own more than 50 percent of the 
voting securities or voting interests, in which case a common enterprise 
is deemed to exist between the borrowers for purposes of combining the 
acquisition loans; or
    (4) When the OCC determines, based upon an evaluation of the facts 
and circumstances of particular transactions, that a common enterprise 
exists.
    (d) Special rule for loans to a corporate group. (1) Loans or 
extensions of credit by a bank to a corporate group may not exceed 50 
percent of the bank's capital and surplus. This limitation applies only 
to loans subject to the combined general limit. A corporate group 
includes a person and all of its subsidiaries. For purposes of this 
paragraph, a corporation or a limited liability company is a subsidiary 
of a person if the person owns or beneficially owns directly or 
indirectly more than 50 percent of the voting securities or voting 
interests of the corporation or company.
    (2) Except as provided in paragraph (d)(1) of this section, loans or 
extensions of credit to a person and its subsidiary, or to different 
subsidiaries of a person, are not combined unless either the direct 
benefit or the common enterprise test is met.
    (e) Special rules for loans to partnerships, joint ventures, and 
associations--(1) Partnership loans. Loans or extensions of credit to a 
partnership, joint venture, or association are deemed to be loans or 
extensions of credit to each member of the partnership, joint venture, 
or association. This rule does not apply to limited partners in limited 
partnerships or to members of joint ventures or associations if the 
partners or members, by the terms of the partnership or membership 
agreement, are not held generally liable for the debts or actions of the 
partnership, joint venture, or association, and those provisions are 
valid under applicable law.
    (2) Loans to partners. (i) Loans or extensions of credit to members 
of a partnership, joint venture, or association are not attributed to 
the partnership, joint venture, or association unless either the direct 
benefit or the common enterprise tests are met. Both the direct benefit 
and common enterprise tests are met between a member of a partnership, 
joint venture or association and such partnership, joint venture or 
association, when loans or extensions of credit are made to the member 
to purchase an interest in the partnership, joint venture or 
association.
    (ii) Loans or extensions of credit to members of a partnership, 
joint venture, or association are not attributed to other members of the 
partnership, joint venture, or association unless either the direct 
benefit or common enterprise test is met.
    (f) Loans to foreign governments, their agencies, and 
instrumentalities--(1) Aggregation. Loans and extensions of credit to 
foreign governments, their agencies, and instrumentalities will be 
aggregated with one another only if the loans or extensions of credit 
fail to

[[Page 385]]

meet either the means test or the purpose test at the time the loan or 
extension of credit is made.
    (i) The means test is satisfied if the borrower has resources or 
revenue of its own sufficient to service its debt obligations. If the 
government's support (excluding guarantees by a central government of 
the borrower's debt) exceeds the borrower's annual revenues from other 
sources, it will be presumed that the means test has not been satisfied.
    (ii) The purpose test is satisfied if the purpose of the loan or 
extension of credit is consistent with the purposes of the borrower's 
general business.
    (2) Documentation. In order to show that the means and purpose tests 
have been satisfied, a bank must, at a minimum, retain in its files the 
following items:
    (i) A statement (accompanied by supporting documentation) describing 
the legal status and the degree of financial and operational autonomy of 
the borrowing entity;
    (ii) Financial statements for the borrowing entity for a minimum of 
three years prior to the date the loan or extension of credit was made 
or for each year that the borrowing entity has been in existence, if 
less than three;
    (iii) Financial statements for each year the loan or extension of 
credit is outstanding;
    (iv) The bank's assessment of the borrower's means of servicing the 
loan or extension of credit, including specific reasons in support of 
that assessment. The assessment shall include an analysis of the 
borrower's financial history, its present and projected economic and 
financial performance, and the significance of any financial support 
provided to the borrower by third parties, including the borrower's 
central government; and
    (v) A loan agreement or other written statement from the borrower 
which clearly describes the purpose of the loan or extension of credit. 
The written representation will ordinarily constitute sufficient 
evidence that the purpose test has been satisfied. However, when, at the 
time the funds are disbursed, the bank knows or has reason to know of 
other information suggesting that the borrower will use the proceeds in 
a manner inconsistent with the written representation, it may not, 
without further inquiry, accept the representation.
    (3) Restructured loans--(i) Non-combination rule. Notwithstanding 
paragraphs (a) through (e) of this section, when previously outstanding 
loans and other extensions of credit to a foreign government, its 
agencies, and instrumentalities (i.e., public-sector obligors) that 
qualified for a separate lending limit under paragraph (f)(1) of this 
section are consolidated under a central obligor in a qualifying 
restructuring, such loans will not be aggregated and attributed to the 
central obligor. This includes any substitution in named obligors, 
solely because of the restructuring. Such loans (other than loans 
originally attributed to the central obligor in their own right) will 
not be considered obligations of the central obligor and will continue 
to be attributed to the original public-sector obligor for purposes of 
the lending limit.
    (ii) Qualifying restructuring. Loans and other extensions of credit 
to a foreign government, its agencies, and instrumentalities will 
qualify for the non-combination process under paragraph (f)(3)(i) of 
this section only if they are restructured in a sovereign debt 
restructuring approved by the OCC, upon request by a bank for 
application of the non combination rule. The factors that the OCC will 
use in making this determination include, but are not limited to, the 
following:
    (A) Whether the restructuring involves a substantial portion of the 
total commercial bank loans outstanding to the foreign government, its 
agencies, and instrumentalities;
    (B) Whether the restructuring involves a substantial number of the 
foreign country's external commercial bank creditors;
    (C) Whether the restructuring and consolidation under a central 
obligor is being done primarily to facilitate external debt management; 
and
    (D) Whether the restructuring includes features of debt or debt-
service reduction.
    (iii) 50 percent aggregate limit. With respect to any case in which 
the non-combination process under paragraph

[[Page 386]]

(f)(3)(i) of this section applies, a national bank's loans and other 
extensions of credit to a foreign government, its agencies and 
instrumentalities, (including restructured debt) shall not exceed, in 
the aggregate, 50 percent of the bank's capital and surplus.



Sec. 32.6  Nonconforming loans.

    (a) A loan, within a bank's legal lending limit when made, will not 
be deemed a violation but will be treated as nonconforming if the loan 
is no longer in conformity with the bank's lending limit because--
    (1) The bank's capital has declined, borrowers have subsequently 
merged or formed a common enterprise, lenders have merged, the lending 
limit or capital rules have changed; or
    (2) Collateral securing the loan to satisfy the requirements of a 
lending limit exception has declined in value.
    (b) A bank must use reasonable efforts to bring a loan that is 
nonconforming as a result of paragraph (a)(1) of this section into 
conformity with the bank's lending limit unless to do so would be 
inconsistent with safe and sound banking practices.
    (c) A bank must bring a loan that is nonconforming as a result of 
circumstances described in paragraph (a)(2) of this section into 
conformity with the bank's lending limit within 30 calendar days, except 
when judicial proceedings, regulatory actions or other extraordinary 
circumstances beyond the bank's control prevent the bank from taking 
action.



Sec. 32.7  Residential real estate loans, small business loans, and small farm loans.

    (a) Residential real estate, small business, and small farm loans. 
(1) In addition to the amount that a national bank may lend to one 
borrower under Sec. 32.3, an eligible national bank may make 
residential real estate loans or extensions of credit to one borrower in 
the lesser of the following two amounts: 10 percent of its capital and 
surplus; or the percent of its capital and surplus, in excess of 15 
percent, that a State bank is permitted to lend under the State lending 
limit that is available for residential real estate loans or unsecured 
loans in the State where the main office of the national bank is 
located. Any such loan or extension of credit must be secured by a 
perfected first-lien security interest in 1-4 family real estate in an 
amount that does not exceed 80 percent of the appraised value of the 
collateral at the time the loan or extension of credit is made.
    (2) In addition to the amount that a national bank may lend to one 
borrower under Sec. 32.3, an eligible national bank may make small 
business loans or extensions of credit to one borrower in the lesser of 
the following two amounts: 10 percent of its capital and surplus; or the 
percent of its capital and surplus, in excess of 15 percent, that a 
State bank is permitted to lend under the State lending limit that is 
available for small business loans or unsecured loans in the State where 
the main office of the national bank is located.
    (3) In addition to the amount that a national bank may lend to one 
borrower under Sec. 32.3, an eligible national bank may make small farm 
loans or extensions of credit to one borrower in the lesser of the 
following two amounts: 10 percent of its capital and surplus; or the 
percent of its capital and surplus, in excess of 15 percent, that a 
State bank is permitted to lend under the State lending limit that is 
available for small farm loans or unsecured loans in the State where the 
main office of the national bank is located.
    (4) The total outstanding amount of a national bank's loans and 
extensions of credit to one borrower made under Sec. Sec. 32.3(a) and 
(b), together with loans and extensions of credit to the borrower made 
pursuant to paragraphs (a)(1), (2), and (3) of this section, shall not 
exceed 25 percent of the bank's capital and surplus.
    (5) The total outstanding amount of a national bank's loans and 
extensions of credit to all of its borrowers made pursuant to the 
special lending limits provided in paragraphs (a)(1), (2), and (3) of 
this section may not exceed 100 percent of the bank's capital and 
surplus.
    (b) Application process. An eligible bank must submit an application 
to, and receive approval from, its supervisory office before using the 
special

[[Page 387]]

lending limits in paragraphs (a)(1), (2), and (3) of this section. The 
supervisory office may approve a completed application if it finds that 
approval is consistent with safety and soundness. To be deemed complete, 
the application must include:
    (1) Certification that the bank is an ``eligible bank'' as defined 
in Sec. 32.2(i);
    (2) Citations to relevant State laws or regulations;
    (3) A copy of a written resolution by a majority of the bank's board 
of directors approving the use of the limits provided in paragraphs 
(a)(1), (2), and (3) of this section, and confirming the terms and 
conditions for use of this lending authority; and
    (4) A description of how the board will exercise its continuing 
responsibility to oversee the use of this lending authority.
    (c) Duration of approval. Except as provided in Sec. 32.7(d), a 
bank that has received OCC approval may continue to make loans and 
extensions of credit under the special lending limits in paragraphs 
(a)(1), (2), and (3) of this section, provided the bank remains an 
``eligible bank.''
    (d) Discretionary termination of authority. The OCC may rescind a 
bank's authority to use the special lending limits in paragraphs (a)(1), 
(2), and (3) of this section based upon concerns about credit quality, 
undue concentrations in the bank's portfolio of residential real estate, 
small business, or small farm loans, or concerns about the bank's 
overall credit risk management systems and controls. The bank must cease 
making new loans or extensions of credit in reliance on the special 
limits upon receipt of written notice from the OCC that its authority 
has been rescinded.
    (e) Existing loans. Any loans or extensions of credit made by a bank 
under the special lending limits in paragraphs (a)(1), (2), and (3) of 
this section, that were in compliance with this section when made, will 
not be deemed a lending limit violation and will not be treated as 
nonconforming under Sec. 32.6.

[66 FR 31120, June 11, 2001, as amended at 69 FR 32436, June 10, 2004; 
69 FR 51357, Aug. 19, 2004; 72 FR 31444, June 7, 2007]

                           PART 33 [RESERVED]



PART 34_REAL ESTATE LENDING AND APPRAISALS--Table of Contents




                            Subpart A_General

Sec.
34.1 Purpose and scope.
34.2 Definitions.
34.3 General rule.
34.4 Applicability of state law.
34.5 Due-on-sale clauses.

                   Subpart B_Adjustable-Rate Mortgages

34.20 Definitions.
34.21 General rule.
34.22 Index.
34.23 Prepayment fees.
34.24 Nonfederally chartered commercial banks.
34.25 Transition rule.

                          Subpart C_Appraisals

34.41 Authority, purpose, and scope.
34.42 Definitions.
34.43 Appraisals required; transactions requiring a State certified or 
          licensed appraiser.
34.44 Minimum appraisal standards.
34.45 Appraiser independence.
34.46 Professional association membership; competency.
34.47 Enforcement.

                 Subpart D_Real Estate Lending Standards

34.61 Purpose and scope.
34.62 Real estate lending standards.

Appendix A to Subpart D of Part 34--Interagency Guidelines for Real 
          Estate Lending

                    Subpart E_Other Real Estate Owned

34.81 Definitions.
34.82 Holding period.
34.83 Disposition of real estate.
34.84 Future bank expansion.
34.85 Appraisal requirements.
34.86 Additional expenditures and notification.
34.87 Accounting treatment.

    Authority: 12 U.S.C. 1 et seq., 29, 93a, 371, 1701j-3, 1828(o), and 
3331 et seq.



                            Subpart A_General

    Source: 61 FR 11300, Mar. 20, 1996, unless otherwise noted.



Sec. 34.1  Purpose and scope.

    (a) Purpose. The purpose of this part is to set forth standards for 
real estate-

[[Page 388]]

related lending and associated activities by national banks.
    (b) Scope. This part applies to national banks and their operating 
subsidiaries as provided in 12 CFR 5.34. For the purposes of 12 U.S.C. 
371 and subparts A and B of this part, loans secured by liens on 
interests in real estate include loans made upon the security of 
condominiums, leaseholds, cooperatives, forest tracts, land sales 
contracts, and construction project loans. Construction project loans 
are not subject to subparts A and B of this part, however, if they have 
a maturity not exceeding 60 months and are made to finance the 
construction of either:
    (1) A building where there is a valid and binding agreement entered 
into by a financially responsible lender or other party to advance the 
full amount of the bank's loan upon completion of the building; or
    (2) A residential or farm building.



Sec. 34.2  Definitions.

    (a) Due-on-sale clause means any clause that gives the lender or any 
assignee or transferee of the lender the power to declare the entire 
debt payable if all or part of the legal or equitable title or an 
equivalent contractual interest in the property securing the loan is 
transferred to another person, whether by deed, contract, or otherwise.
    (b) State means any State of the United States of America, the 
District of Columbia, Puerto Rico, the Virgin Islands, the Northern 
Mariana Islands, American Samoa, and Guam.
    (c) State law limitations means any State statute, regulation, or 
order of any State agency, or judicial decision interpreting State law.



Sec. 34.3  General rule.

    (a) A national bank may make, arrange, purchase, or sell loans or 
extensions of credit, or interests therein, that are secured by liens 
on, or interests in, real estate (real estate loans), subject to 12 
U.S.C. 1828(o) and such restrictions and requirements as the Comptroller 
of the Currency may prescribe by regulation or order.
    (b) A national bank shall not make a consumer loan subject to this 
subpart based predominantly on the bank's realization of the foreclosure 
or liquidation value of the borrower's collateral, without regard to the 
borrower's ability to repay the loan according to its terms. A bank may 
use any reasonable method to determine a borrower's ability to repay, 
including, for example, the borrower's current and expected income, 
current and expected cash flows, net worth, other relevant financial 
resources, current financial obligations, employment status, credit 
history, or other relevant factors.
    (c) A national bank shall not engage in unfair or deceptive 
practices within the meaning of section 5 of the Federal Trade 
Commission Act, 15 U.S.C. 45(a)(1), and regulations promulgated 
thereunder in connection with loans made under this part.

[68 FR 70131, Dec. 17, 2003, as amended at 69 FR 1917, Jan. 13, 2004]



Sec. 34.4  Applicability of state law.

    (a) Except where made applicable by Federal law, state laws that 
obstruct, impair, or condition a national bank's ability to fully 
exercise its Federally authorized real estate lending powers do not 
apply to national banks. Specifically, a national bank may make real 
estate loans under 12 U.S.C. 371 and Sec. 34.3, without regard to state 
law limitations concerning:
    (1) Licensing, registration (except for purposes of service of 
process), filings, or reports by creditors;
    (2) The ability of a creditor to require or obtain private mortgage 
insurance, insurance for other collateral, or other credit enhancements 
or risk mitigants, in furtherance of safe and sound banking practices;
    (3) Loan-to-value ratios;
    (4) The terms of credit, including schedule for repayment of 
principal and interest, amortization of loans, balance, payments due, 
minimum payments, or term to maturity of the loan, including the 
circumstances under which a loan may be called due and payable upon the 
passage of time or a specified event external to the loan;
    (5) The aggregate amount of funds that may be loaned upon the 
security of real estate;
    (6) Escrow accounts, impound accounts, and similar accounts;

[[Page 389]]

    (7) Security property, including leaseholds;
    (8) Access to, and use of, credit reports;
    (9) Disclosure and advertising, including laws requiring specific 
statements, information, or other content to be included in credit 
application forms, credit solicitations, billing statements, credit 
contracts, or other credit-related documents;
    (10) Processing, origination, servicing, sale or purchase of, or 
investment or participation in, mortgages;
    (11) Disbursements and repayments;
    (12) Rates of interest on loans;\1\
---------------------------------------------------------------------------

    \1\ The limitations on charges that comprise rates of interest on 
loans by national banks are determined under Federal law. See 12 U.S.C. 
85 and 1735f-7a; 12 CFR 7.4001. State laws purporting to regulate 
national bank fees and charges that do not constitute interest are 
addressed in 12 CFR 7.4002.
---------------------------------------------------------------------------

    (13) Due-on-sale clauses except to the extent provided in 12 U.S.C. 
1701j-3 and 12 CFR part 591; and
    (14) Covenants and restrictions that must be contained in a lease to 
qualify the leasehold as acceptable security for a real estate loan.
    (b) State laws on the following subjects are not inconsistent with 
the real estate lending powers of national banks and apply to national 
banks to the extent that they only incidentally affect the exercise of 
national banks' real estate lending powers:
    (1) Contracts;
    (2) Torts;
    (3) Criminal law; \2\
---------------------------------------------------------------------------

    \2\ But see the distinction drawn by the Supreme Court in Easton v. 
Iowa, 188 U.S. 220, 238 (1903) between ``crimes defined and punishable 
at common law or by the general statutes of a state and crimes and 
offences cognizable under the authority of the United States.'' The 
Court stated that ``[u]ndoubtedly a state has the legitimate power to 
define and punish crimes by general laws applicable to all persons 
within its jurisdiction * * *. But it is without lawful power to make 
such special laws applicable to banks organized and operating under the 
laws of the United States.'' Id. at 239 (holding that Federal law 
governing the operations of national banks preempted a state criminal 
law prohibiting insolvent banks from accepting deposits).
---------------------------------------------------------------------------

    (4) Homestead laws specified in 12 U.S.C. 1462a(f);
    (5) Rights to collect debts;
    (6) Acquisition and transfer of real property;
    (7) Taxation;
    (8) Zoning; and
    (9) Any other law the effect of which the OCC determines to be 
incidental to the real estate lending operations of national banks or 
otherwise consistent with the powers and purposes set out in Sec. 
34.3(a).

[69 FR 1917, Jan. 13, 2004]



Sec. 34.5  Due-on-sale clauses.

    A national bank may make or acquire a loan or interest therein, 
secured by a lien on real property, that includes a due-on-sale clause. 
Except as set forth in 12 U.S.C. 1701j-3(d) (which contains a list of 
transactions in which due-on-sale clauses may not be enforced), due-on-
sale clauses in loans, whenever originated, will be valid and 
enforceable, notwithstanding any State law limitations to the contrary. 
For the purposes of this section, the term real property includes 
residential dwellings such as condominium units, cooperative housing 
units, and residential manufactured homes.



                   Subpart B_Adjustable-Rate Mortgages

    Source: 61 FR 11301, Mar. 20, 1996, unless otherwise noted.



Sec. 34.20  Definitions.

    Adjustable-rate mortgage (ARM) loan means an extension of credit 
made to finance or refinance the purchase of, and secured by a lien on, 
a one-to-four family dwelling, including a condominium unit, cooperative 
housing unit, or residential manufactured home, where the lender, 
pursuant to an agreement with the borrower, may adjust the rate of 
interest from time to time. An ARM loan does not include fixed-rate 
extensions of credit that are payable at the end of a term that, when 
added to any terms for which the bank has promised to renew the loan, is 
shorter than the term of the amortization schedule.



Sec. 34.21  General rule.

    (a) Authorization. A national bank and its subsidiaries may make, 
sell,

[[Page 390]]

purchase, participate in, or otherwise deal in ARM loans and interests 
therein without regard to any State law limitations on those activities.
    (b) Purchase of loans not in compliance. A national bank may 
purchase or participate in ARM loans that were not made in accordance 
with this part, except that loans purchased, in whole or in part, from 
an affiliate or subsidiary must comply with this part. For purposes of 
this paragraph, the terms affiliate and subsidiary have the same meaning 
as in 12 U.S.C. 371c.



Sec. 34.22  Index.

    If a national bank makes an ARM loan to which 12 CFR 226.19(b) 
applies (i.e., the annual percentage rate of a loan may increase after 
consummation, the term exceeds one year, and the consumer's principal 
dwelling secures the indebtedness), the loan documents must specify an 
index to which changes in the interest rate will be linked. This index 
must be readily available to, and verifiable by, the borrower and beyond 
the control of the bank. A national bank may use as an index any measure 
of rates of interest that meets these requirements. The index may be 
either single values of the chosen measure or a moving average of the 
chosen measure calculated over a specified period. A national bank also 
may increase the interest rate in accordance with applicable loan 
documents specifying the amount of the increase and the times at which, 
or circumstances under which, it may be made. A national bank may 
decrease the interest rate at any time.



Sec. 34.23  Prepayment fees.

    A national bank offering or purchasing ARM loans may impose fees for 
prepayments notwithstanding any State law limitations to the contrary. 
For purposes of this section, prepayments do not include:
    (a) Payments that exceed the required payment amount to avoid or 
reduce negative amortization; or
    (b) Principal payments, in excess of those necessary to retire the 
outstanding debt over the remaining loan term at the then-current 
interest rate, that are made in accordance with rules governing the 
determination of monthly payments contained in the loan documents.



Sec. 34.24  Nonfederally chartered commercial banks.

    Pursuant to 12 U.S.C. 3803(a), a State chartered commercial bank may 
make ARM loans in accordance with the provisions of this subpart. For 
purposes of this section, the term ``State'' shall have the same meaning 
as set forth in Sec. 34.2(b).



Sec. 34.25  Transition rule.

    If, on October 1, 1988, a national bank had made a loan or binding 
commitment to lend under an ARM loan program that complied with the 
requirements of 12 CFR part 29 in effect prior to October 1, 1988 (see 
12 CFR Parts 1 to 199, revised as of January 1, 1988) but would have 
violated any of the provisions of this subpart, the national bank may 
continue to administer the loan or binding commitment to lend in 
accordance with that loan program. All ARM loans or binding commitments 
to make ARM loans that a national bank entered into after October 1, 
1988, must comply with all provisions of this subpart.



                          Subpart C_Appraisals

    Source: 55 FR 34696, Aug. 24, 1990, unless otherwise noted.



Sec. 34.41  Authority, purpose, and scope.

    (a) Authority. This subpart is issued by the Office of the 
Comptroller of the Currency (the OCC) under 12 U.S.C. 93a and title XI 
of the Financial Institutions Reform, Recovery, and Enforcement Act of 
1989 (FIRREA) (Pub. L. 101-73, 103 Stat. 183 (1989)), 12 U.S.C. 3331 et 
seq.
    (b) Purpose and scope. (1) Title XI provides protection for federal 
financial and public policy interests in real estate-related 
transactions by requiring real estate appraisals used in connection with 
federally related transactions to be performed in writing, in accordance 
with uniform standards, by appraisers whose competency has been 
demonstrated and whose professional conduct will be subject to effective 
supervision. This subpart implements the requirements of title XI, and 
applies to

[[Page 391]]

all federally related transactions entered into by the OCC or by 
institutions regulated by the OCC (regulated institutions).
    (2) This subpart:
    (i) Identifies which real estate-related financial transactions 
require the services of an appraiser;
    (ii) Prescribes which categories of federally related transactions 
shall be appraised by a State certified appraiser and which by a State 
licensed appraiser; and
    (iii) Prescribes minimum standards for the performance of real 
estate appraisals in connection with federally related transactions 
under the jurisdiction of the OCC.



Sec. 34.42  Definitions.

    (a) Appraisal means a written statement independently and 
impartially prepared by a qualified appraiser setting forth an opinion 
as to the market value of an adequately described property as of a 
specific date(s), supported by the presentation and analysis of relevant 
market information.
    (b) Appraisal Foundation means the Appraisal Foundation established 
on November 30, 1987, as a not-for-profit corporation under the laws of 
Illinois.
    (c) Appraisal Subcommittee means the Appraisal Subcommittee of the 
Federal Financial Institutions Examination Council.
    (d) Business loan means a loan or extension of credit to any 
corporation, general or limited partnership, business trust, joint 
venture, pool, syndicate, sole proprietorship, or other business entity.
    (e) Complex 1-to-4 family residential property appraisal means one 
in which the property to be appraised, the form of ownership, or market 
conditions are atypical.
    (f) Federally related transaction means any real estate-related 
financial transaction entered into on or after August 9, 1990, that:
    (1) The OCC or any of its regulated institution engages in or 
contracts for; and
    (2) Requires the services of an appraiser.
    (g) Market value means the most probable price which a property 
should bring in a competitive and open market under all conditions 
requisite to a fair sale, the buyer and seller each acting prudently and 
knowledgeably, and assuming the price is not affected by undue stimulus. 
Implicit in this definition is the consummation of a sale as of a 
specified date and the passing of title from seller to buyer under 
conditions whereby:
    (1) Buyer and seller are typically motivated;
    (2) Both parties are well informed or well advised, and acting in 
what they consider their own best interests;
    (3) A reasonable time is allowed for exposure in the open market;
    (4) Payment is made in terms of cash in U.S. dollars or in terms of 
financial arrangements comparable thereto; and
    (5) The price represents the normal consideration for the property 
sold unaffected by special or creative financing or sales concessions 
granted by anyone associated with the sale.
    (h) Real estate or real property means an identified parcel or tract 
of land, with improvements, and includes easements, rights of way, 
undivided or future interests, or similar rights in a tract of land, but 
does not include mineral rights, timber rights, growing crops, water 
rights, or similar interests severable from the land when the 
transaction does not involve the associated parcel or tract of land.
    (i) Real estate-related financial transaction means any transaction 
involving:
    (1) The sale, lease, purchase, investment in or exchange of real 
property, including interests in property, or the financing thereof; or
    (2) The refinancing of real property or interests in real property; 
or
    (3) The use of real property or interests in property as security 
for a loan or investment, including mortgage-backed securities.
    (j) State certified appraiser means any individual who has satisfied 
the requirements for certification in a State or territory whose 
criteria for certification as a real estate appraiser currently meet the 
minimum criteria for certification issued by the Appraiser 
Qualifications Board of the Appraisal Foundation. No individual shall be 
a State certified appraiser unless such individual has achieved a 
passing grade

[[Page 392]]

upon a suitable examination administered by a State or territory that is 
consistent with and equivalent to the Uniform State Certification 
Examination issued or endorsed by the Appraiser Qualifications Board of 
the Appraisal Foundation. In addition, the Appraisal Subcommittee must 
not have issued a finding that the policies, practices, or procedures of 
the State or territory are inconsistent with title XI of FIRREA. The OCC 
may, from time to time, impose additional qualification criteria for 
certified appraisers performing appraisals in connection with federally 
related transactions within its jurisdiction.
    (k) State licensed appraiser means any individual who has satisfied 
the requirements for licensing in a State or territory where the 
licensing procedures comply with title XI of FIRREA and where the 
Appraisal Subcommittee has not issued a finding that the policies, 
practices, or procedures of the State or territory are inconsistent with 
title XI. The OCC may, from time to time, impose additional 
qualification criteria for licensed appraisers performing appraisals in 
connection with federally related transactions within its jurisdiction.
    (l) Tract development means a project of five units or more that is 
constructed or is to be constructed as a single development.
    (m) Transaction value means:
    (1) For loans or other extensions of credit, the amount of the loan 
or extension of credit;
    (2) For sales, leases, purchases, and investments in or exchanges of 
real property, the market value of the real property interest involved; 
and
    (3) For the pooling of loans or interests in real property for 
resale or purchase, the amount of the loan or market value of the real 
property calculated with respect to each such loan or interest in real 
property.

[55 FR 34696, Aug. 24, 1990, as amended at 57 FR 12202, Apr. 9, 1992; 59 
FR 29499, June 7, 1994]



Sec. 34.43  Appraisals required; transactions requiring a State certified or licensed appraiser.

    (a) Appraisals required. An appraisal performed by a State certified 
or licensed appraiser is required for all real estate-related financial 
transactions except those in which:
    (1) The transaction value is $250,000 or less;
    (2) A lien on real estate has been taken as collateral in an 
abundance of caution;
    (3) The transaction is not secured by real estate;
    (4) A lien on real estate has been taken for purposes other than the 
real estate's value;
    (5) The transaction is a business loan that:
    (i) Has a transaction value of $1 million or less; and
    (ii) Is not dependent on the sale of, or rental income derived from, 
real estate as the primary source of repayment;
    (6) A lease of real estate is entered into, unless the lease is the 
economic equivalent of a purchase or sale of the leased real estate;
    (7) The transaction involves an existing extension of credit at the 
lending institution, provided that:
    (i) There has been no obvious and material change in market 
conditions or physical aspects of the property that threatens the 
adequacy of the institution's real estate collateral protection after 
the transaction, even with the advancement of new monies; or
    (ii) There is no advancement of new monies, other than funds 
necessary to cover reasonable closing costs;
    (8) The transaction involves the purchase, sale, investment in, 
exchange of, or extension of credit secured by, a loan or interest in a 
loan, pooled loans, or interests in real property, including mortgaged-
backed securities, and each loan or interest in a loan, pooled loan, or 
real property interest met OCC regulatory requirements for appraisals at 
the time of origination;
    (9) The transaction is wholly or partially insured or guaranteed by 
a United States government agency or United States government sponsored 
agency;
    (10) The transaction either:
    (i) Qualifies for sale to a United States government agency or 
United States government sponsored agency; or

[[Page 393]]

    (ii) Involves a residential real estate transaction in which the 
appraisal conforms to the Federal National Mortgage Association or 
Federal Home Loan Mortgage Corporation appraisal standards applicable to 
that category of real estate;
    (11) The regulated institution is acting in a fiduciary capacity and 
is not required to obtain an appraisal under other law; or
    (12) The OCC determines that the services of an appraiser are not 
necessary in order to protect Federal financial and public policy 
interests in real estate-related financial transactions or to protect 
the safety and soundness of the institution.
    (b) Evaluations required. For a transaction that does not require 
the services of a State certified or licensed appraiser under paragraph 
(a)(1), (a)(5) or (a)(7) of this section, the institution shall obtain 
an appropriate evaluation of real property collateral that is consistent 
with safe and sound banking practices.
    (c) Appraisals to address safety and soundness concerns. The OCC 
reserves the right to require an appraisal under this subpart whenever 
the agency believes it is necessary to address safety and soundness 
concerns.
    (d) Transactions requiring a State certified appraiser--(1) All 
transactions of $1,000,000 or more. All federally related transactions 
having a transaction value of $1,000,000 or more shall require an 
appraisal prepared by a State certified appraiser.
    (2) Nonresidential transactions of $250,000 or more. All federally 
related transactions having a transaction value of $250,000 or more, 
other than those involving appraisals of 1-to-4 family residential 
properties, shall require an appraisal performed by a State certified 
appraiser.
    (3) Complex residential transactions of $250,000 or more. All 
complex 1-to-4 family residential property appraisals rendered in 
connection with federally related transactions shall require a State 
certified appraiser if the transaction value is $250,000 or more. A 
regulated institution may presume that appraisals of 1-to-4 family 
residential properties are not complex, unless the institution has 
readily available information that a given appraisal will be complex. 
The regulated institution shall be responsible for making the final 
determination whether the appraisal is complex. If during the course of 
the appraisal a licensed appraiser identifies factors that would result 
in the property, form of ownership, or market conditions being 
considered atypical, then either:
    (i) The regulated institution may ask the licensed appraiser to 
complete the appraisal and have a certified appraiser approve and co-
sign the appraisal; or
    (ii) The institution may engage a certified appraiser to complete 
the appraisal.
    (e) Transactions requiring either a State certified or licensed 
appraiser. All appraisals for federally related transactions not 
requiring the services of a State certified appraiser shall be prepared 
by either a State certified appraiser or a State licensed appraiser.
    (f) Effective date. National banks are required to use State 
certified or licensed appraisers as set forth in this part no later than 
December 31, 1992.

[55 FR 34696, Aug. 24, 1990, as amended at 57 FR 12202, Apr. 9, 1992; 59 
FR 29499, June 7, 1994]



Sec. 34.44  Minimum appraisal standards.

    For federally related transactions, all appraisals shall, at a 
minimum:
    (a) Conform to generally accepted appraisal standards as evidenced 
by the Uniform Standards of Professional Appraisal Practice (USPAP) 
promulgated by the Appraisal Standards Board of the Appraisal 
Foundation, 1029 Vermont Ave., NW., Washington, DC 20005, unless 
principles of safe and sound banking require compliance with stricter 
standards;
    (b) Be written and contain sufficient information and analysis to 
support the institution's decision to engage in the transaction;
    (c) Analyze and report appropriate deductions and discounts for 
proposed construction or renovation, partially leased buildings, non-
market lease terms, and tract developments with unsold units;
    (d) Be based upon the definition of market value as set forth in 
this subpart; and

[[Page 394]]

    (e) Be performed by State licensed or certified appraisers in 
accordance with requirements set forth in this subpart.

[59 FR 29500, June 7, 1994]



Sec. 34.45  Appraiser independence.

    (a) Staff appraisers. If an appraisal is prepared by a staff 
appraiser, that appraiser must be independent of the lending, 
investment, and collection functions and not involved, except as an 
appraiser, in the federally related transaction, and have no direct or 
indirect interest, financial or otherwise, in the property. If the only 
qualified persons available to perform an appraisal are involved in the 
lending, investment, or collection functions of the regulated 
institution, the regulated institution shall take appropriate steps to 
ensure that the appraisers exercise independent judgment. Such steps 
include, but are not limited to, prohibiting an individual from 
performing an appraisal in connection with federally related 
transactions in which the appraiser is otherwise involved and 
prohibiting directors and officers from participating in any vote or 
approval involving assets on which they performed an appraisal.
    (b) Fee appraisers. (1) If an appraisal is prepared by a fee 
appraiser, the appraiser shall be engaged directly by the regulated 
institution or its agent, and have no direct or indirect interest, 
financial or otherwise, in the property or the transaction.
    (2) A regulated institution also may accept an appraisal that was 
prepared by an appraiser engaged directly by another financial services 
institution, if:
    (i) The appraiser has no direct or indirect interest, financial or 
otherwise, in the property or the transaction; and
    (ii) The regulated institution determines that the appraisal 
conforms to the requirements of this subpart and is otherwise 
acceptable.

[55 FR 34696, Aug. 24, 1990, as amended at 59 FR 29500, June 7, 1994]



Sec. 34.46  Professional association membership; competency.

    (a) Membership in appraisal organizations. A State certified 
appraiser or a State licensed appraiser may not be excluded from 
consideration for an assignment for a federally related transaction 
solely by virtue of membership or lack of membership in any particular 
appraisal organization.
    (b) Competency. All staff and fee appraisers performing appraisals 
in connection with federally related transactions must be State 
certified or licensed, as appropriate. However, a State certified or 
licensed appraiser may not be considered competent solely by virtue of 
being certified or licensed. Any determination of competency shall be 
based upon the individual's experience and educational background as 
they relate to the particular appraisal assignment for which he or she 
is being considered.



Sec. 34.47  Enforcement.

    Institutions and institution-affiliated parties, including staff 
appraisers and fee appraisers, may be subject to removal and/or 
prohibition orders, cease and desist orders, and the imposition of civil 
money penalties pursuant to the Federal Deposit Insurance Act, 12 U.S.C. 
1811 et seq., as amended, or other applicable law.



                 Subpart D_Real Estate Lending Standards

    Source: 57 FR 62889, Dec. 31, 1992, unless otherwise noted.



Sec. 34.61  Purpose and scope.

    This subpart, issued pursuant to section 304 of the Federal Deposit 
Insurance Corporation Improvement Act of 1991, 12 U.S.C. 1828(o), 
prescribes standards for real estate lending to be used by national 
banks in adopting internal real estate lending policies.



Sec. 34.62  Real estate lending standards.

    (a) Each national bank shall adopt and maintain written policies 
that establish appropriate limits and standards for extensions of credit 
that are secured by liens on or interests in real estate, or that are 
made for the purpose of financing permanent improvements to real estate.
    (b)(1) Real estate lending policies adopted pursuant to this section 
must:
    (i) Be consistent with safe and sound banking practices;

[[Page 395]]

    (ii) Be appropriate to the size of the institution and the nature 
and scope of its operations; and
    (iii) Be reviewed and approved by the bank's board of directors at 
least annually.
    (2) The lending policies must establish:
    (i) Loan portfolio diversification standards;
    (ii) Prudent underwriting standards, including loan-to-value limits, 
that are clear and measurable;
    (iii) Loan administration procedures for the bank's real estate 
portfolio; and
    (iv) Documentation, approval, and reporting requirements to monitor 
compliance with the bank's real estate lending policies.
    (c) Each national bank must monitor conditions in the real estate 
market in its lending area to ensure that its real estate lending 
policies continue to be appropriate for current market conditions.
    (d) The real estate lending policies adopted pursuant to this 
section should reflect consideration of the Interagency Guidelines for 
Real Estate Lending Policies established by the Federal bank and thrift 
supervisory agencies.



Sec. Appendix A to Subpart D of Part 34--Interagency Guidelines for Real 
                             Estate Lending

    The agencies' regulations require that each insured depository 
institution adopt and maintain a written policy that establishes 
appropriate limits and standards for all extensions of credit that are 
secured by liens on or interests in real estate or made for the purpose 
of financing the construction of a building or other improvements.\1\ 
These guidelines are intended to assist institutions in the formulation 
and maintenance of a real estate lending policy that is appropriate to 
the size of the institution and the nature and scope of its individual 
operations, as well as satisfies the requirements of the regulation.
---------------------------------------------------------------------------

    \1\ The agencies have adopted a uniform rule on real estate lending. 
See 12 CFR part 365 (FDIC); 12 CFR part 208, subpart C (FRB); 12 CFR 
part 34, subpart D (OCC); and 12 CFR 563.100-101 (OTS).
---------------------------------------------------------------------------

    Each institution's policies must be comprehensive, and consistent 
with safe and sound lending practices, and must ensure that the 
institution operates within limits and according to standards that are 
reviewed and approved at least annually by the board of directors. Real 
estate lending is an integral part of many institutions' business plans 
and, when undertaken in a prudent manner, will not be subject to 
examiner criticism.

                Loan Portfolio Management Considerations

    The lending policy should contain a general outline of the scope and 
distribution of the institution's credit facilities and the manner in 
which real estate loans are made, serviced, and collected. In 
particular, the institution's policies on real estate lending should:
     Identify the geographic areas in which the 
institution will consider lending.
     Establish a loan portfolio diversification policy 
and set limits for real estate loans by type and geographic market 
(e.g., limits on higher risk loans).
     Identify appropriate terms and conditions by type 
of real estate loan.
     Establish loan origination and approval 
procedures, both generally and by size and type of loan.
     Establish prudent underwriting standards that are 
clear and measurable, including loan-to-value limits, that are 
consistent with these supervisory guidelines.
     Establish review and approval procedures for 
exception loans, including loans with loan-to-value percentages in 
excess of supervisory limits.
     Establish loan administration procedures, 
including documentation, disbursement, collateral inspection, 
collection, and loan review.
     Establish real estate appraisal and evaluation 
programs.
     Require that management monitor the loan 
portfolio and provide timely and adequate reports to the board of 
directors.

    The institution should consider both internal and external factors 
in the formulation of its loan policies and strategic plan. Factors that 
should be considered include:
     The size and financial condition of the 
institution.
     The expertise and size of the lending staff.
     The need to avoid undue concentrations of risk.
     Compliance with all real estate related laws and 
regulations, including the Community Reinvestment Act, anti-
discrimination laws, and for savings associations, the Qualified Thrift 
Lender test.
     Market conditions.

    The institution should monitor conditions in the real estate markets 
in its lending area so that it can react quickly to changes in market 
conditions that are relevant to its

[[Page 396]]

lending decisions. Market supply and demand factors that should be 
considered include:
     Demographic indicators, including population and 
employment trends.
     Zoning requirements.
     Current and projected vacancy, construction, and 
absorption rates.
     Current and projected lease terms, rental rates, 
and sales prices, including concessions.
     Current and projected operating expenses for 
different types of projects.
     Economic indicators, including trends and 
diversification of the lending area.
     Valuation trends, including discount and direct 
capitalization rates.

                         Underwriting Standards

    Prudently underwritten real estate loans should reflect all relevant 
credit factors, including:
     The capacity of the borrower, or income from the 
underlying property, to adequately service the debt.
     The value of the mortgaged property.
     The overall creditworthiness of the borrower.
     The level of equity invested in the property.
     Any secondary sources of repayment.
     Any additional collateral or credit enhancements 
(such as guarantees, mortgage insurance or takeout commitments).

    The lending policies should reflect the level of risk that is 
acceptable to the board of directors and provide clear and measurable 
underwriting standards that enable the institution's lending staff to 
evaluate these credit factors. The underwriting standards should 
address:
     The maximum loan amount by type of property.
     Maximum loan maturities by type of property.
     Amortization schedules.
     Pricing structure for different types of real 
estate loans.
     Loan-to-value limits by type of property.

    For development and construction projects, and completed commercial 
properties, the policy should also establish, commensurate with the size 
and type of the project or property:
     Requirements for feasibility studies and 
sensitivity and risk analyses (e.g., sensitivity of income projections 
to changes in economic variables such as interest rates, vacancy rates, 
or operating expenses).
     Minimum requirements for initial investment and 
maintenance of hard equity by the borrower (e.g., cash or unencumbered 
investment in the underlying property).
     Minimum standards for net worth, cash flow, and 
debt service coverage of the borrower or underlying property.
     Standards for the acceptability of and limits on 
non-amortizing loans.
     Standards for the acceptability of and limits on 
the use of interest reserves.
     Pre-leasing and pre-sale requirements for income-
producing property.
     Pre-sale and minimum unit release requirements 
for non-income-producing property loans.
     Limits on partial recourse or nonrecourse loans 
and requirements for guarantor support.
     Requirements for takeout commitments.
     Minimum covenants for loan agreements.

                           Loan Administration

    The institution should also establish loan administration procedures 
for its real estate portfolio that address:
     Documentation, including:
    Type and frequency of financial statements, including requirements 
for verification of information provided by the borrower;
    Type and frequency of collateral evaluations (appraisals and other 
estimates of value).
     Loan closing and disbursement.
     Payment processing.
     Escrow administration.
     Collateral administration.
     Loan payoffs.
     Collections and foreclosure, including:
    Delinquency follow-up procedures;
    Foreclosure timing;
    Extensions and other forms of forbearance;
    Acceptance of deeds in lieu of foreclosure.
     Claims processing (e.g., seeking recovery on a 
defaulted loan covered by a government guaranty or insurance program).
     Servicing and participation agreements.

                    Supervisory Loan-to-Value Limits

    Institutions should establish their own internal loan-to-value 
limits for real estate loans. These internal limits should not exceed 
the following supervisory limits:

------------------------------------------------------------------------
                                                               Loan-to-
                                                                 value
                        Loan category                            limit
                                                               (percent)
------------------------------------------------------------------------
Raw land....................................................          65
Land development............................................          75
Construction:
    Commercial, multifamily,\1\ and other nonresidential....          80
    1- to 4-family residential..............................          85
Improved property...........................................          85
Owner-occupied 1- to 4-family and home equity...............       (\2\)
------------------------------------------------------------------------
\1\ Multifamily construction includes condominiums and cooperatives.
\2\ A loan-to-value limit has not been established for permanent
  mortgage or home equity loans on owner-occupied, 1- to 4-family
  residential property. However, for any such loan with a loan-to-value
  ratio that equals or exceeds 90 percent at origination, an institution
  should require appropriate credit enhancement in the form of either
  mortgage insurance or readily marketable collateral.


[[Page 397]]

    The supervisory loan-to-value limits should be applied to the 
underlying property that collateralizes the loan. For loans that fund 
multiple phases of the same real estate project (e.g., a loan for both 
land development and construction of an office building), the 
appropriate loan-to-value limit is the limit applicable to the final 
phase of the project funded by the loan; however, loan disbursements 
should not exceed actual development or construction outlays. In 
situations where a loan is fully cross-collateralized by two or more 
properties or is secured by a collateral pool of two or more properties, 
the appropriate maximum loan amount under supervisory loan-to-value 
limits is the sum of the value of each property, less senior liens, 
multiplied by the appropriate loan-to-value limit for each property. To 
ensure that collateral margins remain within the supervisory limits, 
lenders should redetermine conformity whenever collateral substitutions 
are made to the collateral pool.
    In establishing internal loan-to-value limits, each lender is 
expected to carefully consider the institution-specific and market 
factors listed under ``Loan Portfolio Management Considerations,'' as 
well as any other relevant factors, such as the particular subcategory 
or type of loan. For any subcategory of loans that exhibits greater 
credit risk than the overall category, a lender should consider the 
establishment of an internal loan-to-value limit for that subcategory 
that is lower than the limit for the overall category.
    The loan-to-value ratio is only one of several pertinent credit 
factors to be considered when underwriting a real estate loan. Other 
credit factors to be taken into account are highlighted in the 
``Underwriting Standards'' section above. Because of these other 
factors, the establishment of these supervisory limits should not be 
interpreted to mean that loans at these levels will automatically be 
considered sound.

         Loans in Excess of the Supervisory Loan-to-Value Limits

    The agencies recognize that appropriate loan-to-value limits vary 
not only among categories of real estate loans but also among individual 
loans. Therefore, it may be appropriate in individual cases to originate 
or purchase loans with loan-to-value ratios in excess of the supervisory 
loan-to-value limits, based on the support provided by other credit 
factors. Such loans should be identified in the institutions's records, 
and their aggregate amount reported at least quarterly to the 
institution's board of directors. (See additional reporting requirements 
described under ``Exceptions to the General Policy.'')
    The aggregate amount of all loans in excess of the supervisory loan-
to-value limits should not exceed 100 percent of total capital.\2\ 
Moreover, within the aggregate limit, total loans for all commercial, 
agricultural, multifamily or other non-1-to-4 family residential 
properties should not exceed 30 percent of total capital. An institution 
will come under increased supervisory scrutiny as the total of such 
loans approaches these levels.
---------------------------------------------------------------------------

    \2\ For the state member banks, the term ``total capital'' means 
``total risk-based capital'' as defined in appendix A to 12 CFR part 
208. For insured state non-member banks, ``total capital'' refers to 
that term described in table I of appendix A to 12 CFR part 325. For 
national banks, the term ``total capital'' is defined at 12 CFR 3.2(e). 
For savings associations, the term ``total capital'' is defined at 12 
CFR 567.5(c).
---------------------------------------------------------------------------

    In determining the aggregate amount of such loans, institutions 
should: (a) Include all loans secured by the same property if any one of 
those loans exceeds the supervisory loan-to-value limits; and (b) 
include the recourse obligation of any such loan sold with recourse. 
Conversely, a loan should no longer be reported to the directors as part 
of aggregate totals when reduction in principal or senior liens, or 
additional contribution of collateral or equity (e.g., improvements to 
the real property securing the loan), bring the loan-to-value ratio into 
compliance with supervisory limits.

                          Excluded Transactions

    The agencies also recognize that there are a number of lending 
situations in which other factors significantly outweigh the need to 
apply the supervisory loan-to-value limits. These include:
     Loans guaranteed or insured by the U.S. 
government or its agencies, provided that the amount of the guaranty or 
insurance is at least equal to the portion of the loan that exceeds the 
supervisory loan-to-value limit.
     Loans backed by the full faith and credit of a 
State government, provided that the amount of the assurance is at least 
equal to the portion of the loan that exceeds the supervisory loan-to-
value limit.
     Loans guaranteed or insured by a State, municipal 
or local government, or an agency thereof, provided that the amount of 
the guaranty or insurance is at least equal to the portion of the loan 
that exceeds the supervisory loan-to-value limit, and provided that the 
lender has determined that the guarantor or insurer has the financial 
capacity and willingness to perform under the terms of the guaranty or 
insurance agreement.
     Loans that are to be sold promptly after 
origination, without recourse, to a financially responsible third party.

[[Page 398]]

     Loans that are renewed, refinanced, or 
restructured without the advancement of new funds or an increase in the 
line of credit (except for reasonable closing costs), or loans that are 
renewed, refinanced, or restructured in connection with a workout 
situation, either with or without the advancement of new funds, where 
consistent with safe and sound banking practices and part of a clearly 
defined and well-documented program to achieve orderly liquidation of 
the debt, reduce risk of loss, or maximize recovery on the loan.
     Loans that facilitate the sale of real estate 
acquired by the lender in the ordinary course of collecting a debt 
previously contracted in good faith.
     Loans for which a lien on or interest in real 
property is taken as additional collateral through an abundance of 
caution by the lender (e.g., the institution takes a blanket lien on all 
or substantially all of the assets of the borrower, and the value of the 
real property is low relative to the aggregate value of all other 
collateral).
     Loans, such as working capital loans, where the 
lender does not rely principally on real estate as security and the 
extension of credit is not used to acquire, develop, or construct 
permanent improvements on real property.
     Loans for the purpose of financing permanent 
improvements to real property, but not secured by the property, if such 
security interest is not required by prudent underwriting practice.

                Exceptions to the General Lending Policy

    Some provision should be made for the consideration of loan requests 
from creditworthy borrowers whose credit needs do not fit within the 
institution's general lending policy. An institution may provide for 
prudently underwritten exceptions to its lending policies, including 
loan-to-value limits, on a loan-by-loan basis. However, any exceptions 
from the supervisory loan-to-value limits should conform to the 
aggregate limits on such loans discussed above.
    The board of directors is responsible for establishing standards for 
the review and approval of exception loans. Each institution should 
establish an appropriate internal process for the review and approval of 
loans that do not conform to its own internal policy standards. The 
approval of any such loan should be supported by a written justification 
that clearly sets forth all of the relevant credit factors that support 
the underwriting decision. The justification and approval documents for 
such loans should be maintained as a part of the permanent loan file. 
Each institution should monitor compliance with its real estate lending 
policy and individually report exception loans of a significant size to 
its board of directors.

    Supervisory Review of Real Estate Lending Policies and Practices

    The real estate lending policies of institutions will be evaluated 
by examiners during the course of their examinations to determine if the 
policies are consistent with safe and sound lending practices, these 
guidelines, and the requirements of the regulation. In evaluating the 
adequacy of the institution's real estate lending policies and 
practices, examiners will take into consideration the following factors:
     The nature and scope of the institution's real 
estate lending activities.
     The size and financial condition of the 
institution.
     The quality of the institution's management and 
internal controls.
     The expertise and size of the lending and loan 
administration staff.
     Market conditions.
    Lending policy exception reports will also be reviewed by examiners 
during the course of their examinations to determine whether the 
institutions' exceptions are adequately documented and appropriate in 
light of all of the relevant credit considerations. An excessive volume 
of exceptions to an institution's real estate lending policy may signal 
a weakening of its underwriting practices, or may suggest a need to 
revise the loan policy.

                               Definitions

    For the purposes of these Guidelines:
    Construction loan means an extension of credit for the purpose of 
erecting or rehabilitating buildings or other structures, including any 
infrastructure necessary for development.
    Extension of credit or loan means:
    (1) The total amount of any loan, line of credit, or other legally 
binding lending commitment with respect to real property; and
    (2) The total amount, based on the amount of consideration paid, of 
any loan, line of credit, or other legally binding lending commitment 
acquired by a lender by purchase, assignment, or otherwise.
    Improved property loan means an extension of credit secured by one 
of the following types of real property:
    (1) Farmland, ranchland or timberland committed to ongoing 
management and agricultural production;
    (2) 1- to 4-family residential property that is not owner-occupied;
    (3) Residential property containing five or more individual dwelling 
units;
    (4) Completed commercial property; or
    (5) Other income-producing property that has been completed and is 
available for occupancy and use, except income-producing owner-occupied 
1- to 4-family residential property.

[[Page 399]]

    Land development loan means an extension of credit for the purpose 
of improving unimproved real property prior to the erection of 
structures. The improvement of unimproved real property may include the 
laying or placement of sewers, water pipes, utility cables, streets, and 
other infrastructure necessary for future development.
    Loan origination means the time of inception of the obligation to 
extend credit (i.e., when the last event or prerequisite, controllable 
by the lender, occurs causing the lender to become legally bound to fund 
an extension of credit).
    Loan-to-value or loan-to-value ratio means the percentage or ratio 
that is derived at the time of loan origination by dividing an extension 
of credit by the total value of the property(ies) securing or being 
improved by the extension of credit plus the amount of any readily 
marketable collateral and other acceptable collateral that secures the 
extension of credit. The total amount of all senior liens on or 
interests in such property(ies) should be included in determining the 
loan-to-value ratio. When mortgage insurance or collateral is used in 
the calculation of the loan-to-value ratio, and such credit enhancement 
is later released or replaced, the loan-to-value ratio should be 
recalculated.
    Other acceptable collateral means any collateral in which the lender 
has a perfected security interest, that has a quantifiable value, and is 
accepted by the lender in accordance with safe and sound lending 
practices. Other acceptable collateral should be appropriately 
discounted by the lender consistent with the lender's usual practices 
for making loans secured by such collateral. Other acceptable collateral 
includes, among other items, unconditional irrevocable standby letters 
of credit for the benefit of the lender.
    Owner-occupied, when used in conjunction with the term 1- to 4-
family residential property means that the owner of the underlying real 
property occupies at least one unit of the real property as a principal 
residence of the owner.
    Readily marketable collateral means insured deposits, financial 
instruments, and bullion in which the lender has a perfected interest. 
Financial instruments and bullion must be salable under ordinary 
circumstances with reasonable promptness at a fair market value 
determined by quotations based on actual transactions, on an auction or 
similarly available daily bid and ask price market. Readily marketable 
collateral should be appropriately discounted by the lender consistent 
with the lender's usual practices for making loans secured by such 
collateral.
    Value means an opinion or estimate, set forth in an appraisal or 
evaluation, whichever may be appropriate, of the market value of real 
property, prepared in accordance with the agency's appraisal regulations 
and guidance. For loans to purchase an existing property, the term 
``value'' means the lesser of the actual acquisition cost or the 
estimate of value.
    1- to 4-family residential property means property containing fewer 
than five individual dwelling units, including manufactured homes 
permanently affixed to the underlying property (when deemed to be real 
property under State law).

[57 FR 62896, Dec. 31, 1992; 58 FR 4460, Jan. 14, 1993]



                    Subpart E_Other Real Estate Owned

    Source: 61 FR 11301, Mar. 20, 1996, unless otherwise noted.



Sec. 34.81  Definitions.

    (a) Capital and surplus means:
    (1) A bank's Tier 1 and Tier 2 capital as calculated under the OCC's 
risk-based capital standards set out in appendix A to part 3 of this 
chapter based upon the bank's Consolidated Report of Condition and 
Income filed under 12 U.S.C. 161; plus
    (2) The balance of a bank's allowance for loan and lease losses not 
included in the bank's Tier 2 capital, for purposes of the calculation 
of risk-based capital under Appendix A to 12 CFR part 3, based upon the 
bank's Consolidated Report of Condition and Income filed under 12 U.S.C. 
161.
    (b) Debts previously contracted (DPC) real estate means real estate 
(including capitalized and operating leases) acquired by a national bank 
through any means in full or partial satisfaction of a debt previously 
contracted.
    (c) Former banking premises means real estate (including capitalized 
and operating leases) for which banking use no longer is contemplated. 
This includes real estate originally acquired for future expansion that 
no longer will be used for expansion or other banking purposes.
    (d) Market value means the value determined in accordance with 
subpart C of this part.
    (e) Other real estate owned (OREO) means:
    (1) DPC real estate; and
    (2) Former banking premises.
    (f) Recorded investment amount means:

[[Page 400]]

    (1) For loans, the recorded loan balance, as determined by generally 
accepted accounting principles; and
    (2) For former banking premises, the net book value.



Sec. 34.82  Holding period.

    (a) Holding period for OREO. A national bank shall dispose of OREO 
at the earliest time that prudent judgment dictates, but not later than 
the end of the holding period (or an extension thereof) permitted by 12 
U.S.C. 29.
    (b) Commencement of holding period. The holding period begins on the 
date that:
    (1) Ownership of the property is originally transferred to a 
national bank;
    (2) A bank completes relocation from former banking premises to new 
banking premises or ceases to use the former banking premises without 
relocating; or
    (3) A bank decides not to use real estate acquired for future bank 
expansion.
    (c) Effect of statutory redemption period. For DPC real estate that 
is subject to a redemption period imposed under State law, the holding 
period begins at the expiration of that redemption period.



Sec. 34.83  Disposition of real estate.

    (a) Disposition. A national bank may comply with its obligation to 
dispose of real estate under 12 U.S.C. 29 in the following ways:
    (1) With respect to OREO in general:
    (i) By entering into a transaction that is a sale under generally 
accepted accounting principles;
    (ii) By entering into a transaction that involves a loan guaranteed 
or insured by the United States government or by an agency of the United 
States government or a loan eligible for purchase by a Federally-
sponsored instrumentality that purchases loans; or
    (iii) By selling the property pursuant to a land contract or a 
contract for deed;
    (2) With respect to DPC real estate, by retaining the property for 
its own use as bank premises or by transferring it to a subsidiary or 
affiliate for use in the business of the subsidiary or affiliate;
    (3) With respect to a capitalized or operating lease:
    (i) By obtaining an assignment or a coterminous sublease. If a 
national bank enters into a sublease that is not coterminous, the period 
during which the master lease must be divested will be suspended for the 
duration of the sublease, and will begin running again upon termination 
of the sublease. A national bank holding a lease as OREO may enter into 
an extension of the lease that would exceed the holding period referred 
to in Sec. 34.82 if the extension meets the following criteria:
    (A) The extension is necessary in order to sublease the master 
lease;
    (B) The national bank, prior to entering into the extension, has a 
firm commitment from a prospective subtenant to sublease the property; 
and
    (C) The term of the extension is reasonable and does not materially 
exceed the term of the sublease;
    (ii) Should the OCC determine that a bank has entered into a lease, 
extension of a lease, or a sublease for the purpose of real estate 
speculation in violation of 12 U.S.C. 29 and this part, the OCC will 
take appropriate measures to address the violation, which may include 
requiring the bank to take immediate steps to divest the lease or 
sublease; and
    (4) With respect to a transaction that does not qualify as a 
disposition under paragraphs (a)(1) through (3) of this section, by 
receiving or accumulating from the purchaser an amount in a down 
payment, principal and interest payments, and private mortgage insurance 
totalling at least 10 percent of the sales price, as measured in 
accordance with generally accepted accounting principles.
    (b) Disposition efforts and documentation. A national bank shall 
make diligent and ongoing efforts to dispose of each parcel of OREO, and 
shall maintain documentation adequate to reflect those efforts.



Sec. 34.84  Future bank expansion.

    A national bank normally should use real estate acquired for future 
bank expansion within five years. After holding such real estate for one 
year, the bank shall state, by resolution of the board of directors or 
an appropriately

[[Page 401]]

authorized bank official or subcommittee of the board, definite plans 
for its use. The resolution or other official action must be available 
for inspection by national bank examiners.



Sec. 34.85  Appraisal requirements.

    (a) General. (1) Upon transfer to OREO, a national bank shall 
substantiate the parcel's market value by obtaining either:
    (i) An appraisal in accordance with subpart C of this part; or
    (ii) An appropriate evaluation when the recorded investment amount 
is equal to or less than the threshold amount in subpart C of this part.
    (2) A national bank shall develop a prudent real estate collateral 
evaluation policy that allows the bank to monitor the value of each 
parcel of OREO in a manner consistent with prudent banking practice.
    (b) Exception. If a national bank has a valid appraisal or an 
appropriate evaluation obtained in connection with a real estate loan 
and in accordance with subpart C of this part, then the bank need not 
obtain another appraisal or evaluation when it acquires ownership of the 
property.
    (c) Sales of OREO. A national bank need not obtain a new appraisal 
or evaluation when selling OREO if the sale is consummated based on a 
valid appraisal or an appropriate evaluation.



Sec. 34.86  Additional expenditures and notification.

    (a) Additional expenditures on OREO. For OREO that is a development 
or improvement project, a national bank may make advances to complete 
the project if the advances:
    (1) Are reasonably calculated to reduce any shortfall between the 
parcel's market value and the bank's recorded investment amount;
    (2) Are not made for the purpose of speculation in real estate; and
    (3) Are consistent with safe and sound banking practices.
    (b) Notification procedures. (1) A national bank shall notify the 
appropriate supervisory office at least 30 days before implementing a 
development or improvement plan for OREO when the sum of the plan's 
estimated cost and the bank's current recorded investment amount 
(including any unpaid prior liens on the property) exceeds 10 percent of 
the bank's capital and surplus. A national bank need notify the OCC 
under this paragraph (b)(1) only once. A national bank need not notify 
the OCC that the bank intends to re-fit an existing building for new 
tenants or to make normal repairs and incur maintenance costs to protect 
the value of the collateral.
    (2) The required notification must demonstrate that the additional 
expenditure is consistent with the conditions and limitations in 
paragraph (a) of this section.
    (3) Unless informed otherwise, the bank may implement the proposed 
plan on the thirty-first day (or sooner, if notified by the OCC) 
following receipt by the OCC of the bank's notification, subject to any 
conditions imposed by the OCC.



Sec. 34.87  Accounting treatment.

    A national bank shall account for OREO, and sales of OREO, in 
accordance with the Instructions for the preparation of the Consolidated 
Reports of Condition and Income.



PART 35_DISCLOSURE AND REPORTING OF CRA-RELATED AGREEMENTS--Table of Contents




Sec.
35.1 Purpose and scope of this part.
35.2 Definition of covered agreement.
35.3 CRA communications.
35.4 Fulfillment of the CRA.
35.5 Related agreements considered a single agreement.
35.6 Disclosure of covered agreements.
35.7 Annual reports.
35.8 Release of information under FOIA.
35.9 Compliance provisions.
35.10 Transition provisions.
35.11 Other definitions and rules of construction used in this part.

    Authority: 12 U.S.C. 1831y.

    Source: 66 FR 2084, Jan. 10, 2001, unless otherwise noted.



Sec. 35.1  Purpose and scope of this part.

    (a) General. This part implements section 711 of the Gramm-Leach-
Bliley Act (12 U.S.C. 1831y). That section requires any nongovernmental 
entity or person, insured depository institution,

[[Page 402]]

or affiliate of an insured depository institution that enters into a 
covered agreement to--
    (1) Make the covered agreement available to the public and the 
appropriate Federal banking agency; and
    (2) File an annual report with the appropriate Federal banking 
agency concerning the covered agreement.
    (b) Scope of this part. The provisions of this part apply to 
national banks, subsidiaries of national banks, and nongovernmental 
entities or persons that enter into covered agreements with a national 
bank or a subsidiary of a national bank.
    (c) Relation to Community Reinvestment Act. This part does not 
affect in any way the Community Reinvestment Act of 1977 (12 U.S.C. 2901 
et seq.), part 25 of this chapter (Community Reinvestment Act and 
Interstate Deposit Production Regulations) or the OCC's interpretations 
or administration of that Act or regulation.
    (d) Examples. (1) The examples in this part are not exclusive. 
Compliance with an example, to the extent applicable, constitutes 
compliance with this part.
    (2) Examples in a paragraph illustrate only the issue described in 
the paragraph and do not illustrate any other issues that may arise in 
this part.



Sec. 35.2  Definition of covered agreement.

    (a) General definition of covered agreement. A covered agreement is 
any contract, arrangement, or understanding that meets all of the 
following criteria--
    (1) The agreement is in writing.
    (2) The parties to the agreement include--
    (i) One or more insured depository institutions or affiliates of an 
insured depository institution; and
    (ii) One or more nongovernmental entities or persons (referred to 
hereafter as NGEPs).
    (3) The agreement provides for the insured depository institution or 
any affiliate to--
    (i) Provide to one or more individuals or entities (whether or not 
parties to the agreement) cash payments, grants, or other consideration 
(except loans) that have an aggregate value of more than $10,000 in any 
calendar year; or
    (ii) Make to one or more individuals or entities (whether or not 
parties to the agreement) loans that have an aggregate principal amount 
of more than $50,000 in any calendar year.
    (4) The agreement is made pursuant to, or in connection with, the 
fulfillment of the Community Reinvestment Act of 1977 (12 U.S.C. 2901 et 
seq.) (CRA), as defined in Sec. 35.4.
    (5) The agreement is with a NGEP that has had a CRA communication as 
described in Sec. 35.3 prior to entering into the agreement.
    (b) Examples concerning written arrangements or understandings--(1) 
Example 1. A NGEP meets with an insured depository institution and 
states that the institution needs to make more community development 
investments in the NGEP's community. The NGEP and insured depository 
institution do not reach an agreement concerning the community 
development investments the institution should make in the community, 
and the parties do not reach any mutual arrangement or understanding. 
Two weeks later, the institution unilaterally issues a press release 
announcing that it has established a general goal of making $100 million 
of community development grants in low- and moderate-income 
neighborhoods served by the insured depository institution over the next 
5 years. The NGEP is not identified in the press release. The press 
release is not a written arrangement or understanding.
    (2) Example 2. A NGEP meets with an insured depository institution 
and states that the institution needs to offer new loan programs in the 
NGEP's community. The NGEP and the insured depository institution reach 
a mutual arrangement or understanding that the institution will provide 
additional loans in the NGEP's community. The institution tells the NGEP 
that it will issue a press release announcing the program. Later, the 
insured depository institution issues a press release announcing the 
loan program. The press release incorporates the key terms of the 
understanding reached between the

[[Page 403]]

NGEP and the insured depository institution. The written press release 
reflects the mutual arrangement or understanding of the NGEP and the 
insured depository institution and is, therefore, a written arrangement 
or understanding.
    (3) Example 3. An NGEP sends a letter to an insured depository 
institution requesting that the institution provide a $15,000 grant to 
the NGEP. The insured depository institution responds in writing and 
agrees to provide the grant in connection with its annual grant program. 
The exchange of letters constitutes a written arrangement or 
understanding.
    (c) Loan agreements that are not covered agreements. A covered 
agreement does not include--
    (1) Any individual loan that is secured by real estate; or
    (2) Any specific contract or commitment for a loan or extension of 
credit to an individual, business, farm, or other entity, or group of 
such individuals or entities, if--
    (i) The funds are loaned at rates that are not substantially below 
market rates; and
    (ii) The loan application or other loan documentation does not 
indicate that the borrower intends or is authorized to use the borrowed 
funds to make a loan or extension of credit to one or more third 
parties.
    (d) Examples concerning loan agreements--(1) Example 1. An insured 
depository institution provides an organization with a $1 million loan 
that is documented in writing and is secured by real estate owned or to-
be-acquired by the organization. The agreement is an individual mortgage 
loan and is exempt from coverage under paragraph (c)(1) of this section, 
regardless of the interest rate on the loan or whether the organization 
intends or is authorized to re-loan the funds to a third party.
    (2) Example 2. An insured depository institution commits to provide 
a $500,000 line of credit to a small business that is documented by a 
written agreement. The loan is made at rates that are within the range 
of rates offered by the institution to similarly situated small 
businesses in the market and the loan documentation does not indicate 
that the small business intends or is authorized to re-lend the borrowed 
funds. The agreement is exempt from coverage under paragraph (c)(2) of 
this section.
    (3) Example 3. An insured depository institution offers small 
business loans that are guaranteed by the Small Business Administration 
(SBA). A small business obtains a $75,000 loan, documented in writing, 
from the institution under the institution's SBA loan program. The loan 
documentation does not indicate that the borrower intends or is 
authorized to re-lend the funds. Although the rate charged on the loan 
is well below that charged by the institution on commercial loans, the 
rate is within the range of rates that the institution would charge a 
similarly situated small business for a similar loan under the SBA loan 
program. Accordingly, the loan is not made at substantially below market 
rates and is exempt from coverage under paragraph (c)(2) of this 
section.
    (4) Example 4. A bank holding company enters into a written 
agreement with a community development organization that provides that 
insured depository institutions owned by the bank holding company will 
make $250 million in small business loans in the community over the next 
5 years. The written agreement is not a specific contract or commitment 
for a loan or an extension of credit and, thus, is not exempt from 
coverage under paragraph (c)(2) of this section. Each small business 
loan made by the insured depository institution pursuant to this general 
commitment would, however, be exempt from coverage if the loan is made 
at rates that are not substantially below market rates and the loan 
documentation does not indicate that the borrower intended or was 
authorized to re-lend the funds.
    (e) Agreements that include exempt loan agreements. If an agreement 
includes a loan, extension of credit or loan commitment that, if 
documented separately, would be exempt under paragraph (c) of this 
section, the exempt loan, extension of credit or loan commitment may be 
excluded for purposes of determining whether the agreement is a covered 
agreement.

[[Page 404]]

    (f) Determining annual value of agreements that lack schedule of 
disbursements. For purposes of paragraph (a)(3) of this section, a 
multi-year agreement that does not include a schedule for the 
disbursement of payments, grants, loans or other consideration by the 
insured depository institution or affiliate, is considered to have a 
value in the first year of the agreement equal to all payments, grants, 
loans and other consideration to be provided at any time under the 
agreement.



Sec. 35.3  CRA communications.

    (a) Definition of CRA communication. A CRA communication is any of 
the following--
    (1) Any written or oral comment or testimony provided to a Federal 
banking agency concerning the adequacy of the performance under the CRA 
of the insured depository institution, any affiliated insured depository 
institution, or any CRA affiliate.
    (2) Any written comment submitted to the insured depository 
institution that discusses the adequacy of the performance under the CRA 
of the institution and must be included in the institution's CRA public 
file.
    (3) Any discussion or other contact with the insured depository 
institution or any affiliate about--
    (i) Providing (or refraining from providing) written or oral 
comments or testimony to any Federal banking agency concerning the 
adequacy of the performance under the CRA of the insured depository 
institution, any affiliated insured depository institution, or any CRA 
affiliate;
    (ii) Providing (or refraining from providing) written comments to 
the insured depository institution that concern the adequacy of the 
institution's performance under the CRA and must be included in the 
institution's CRA public file; or
    (iii) The adequacy of the performance under the CRA of the insured 
depository institution, any affiliated insured depository institution, 
or any CRA affiliate.
    (b) Discussions or contacts that are not CRA communications--(1) 
Timing of contacts with a Federal banking agency. An oral or written 
communication with a Federal banking agency is not a CRA communication 
if it occurred more than 3 years before the parties entered into the 
agreement.
    (2) Timing of contacts with insured depository institutions and 
affiliates. A communication with an insured depository institution or 
affiliate is not a CRA communication if the communication occurred--
    (i) More than 3 years before the parties entered into the agreement, 
in the case of any written communication;
    (ii) More than 3 years before the parties entered into the 
agreement, in the case of any oral communication in which the NGEP 
discusses providing (or refraining from providing) comments or testimony 
to a Federal banking agency or written comments that must be included in 
the institution's CRA public file in connection with a request to, or 
agreement by, the institution or affiliate to take (or refrain from 
taking) any action that is in fulfillment of the CRA; or
    (iii) More than 1 year before the parties entered into the 
agreement, in the case of any other oral communication not described in 
paragraph (b)(2)(ii).
    (3) Knowledge of communication by insured depository institution or 
affiliate. (i) A communication is only a CRA communication under 
paragraph (a) of this section if the insured depository institution or 
its affiliate has knowledge of the communication under this paragraph 
(b)(3)(ii) or (b)(3)(iii) of this section.
    (ii) Communication with insured depository institution or affiliate. 
An insured depository institution or affiliate has knowledge of a 
communication by the NGEP to the institution or its affiliate under this 
paragraph only if one of the following representatives of the insured 
depository institution or any affiliate has knowledge of the 
communication--
    (A) An employee who approves, directs, authorizes, or negotiates the 
agreement with the NGEP; or
    (B) An employee designated with responsibility for compliance with 
the CRA or executive officer if the employee or executive officer knows 
that the institution or affiliate is negotiating, intends to negotiate, 
or has been informed by the NGEP that it expects

[[Page 405]]

to request that the institution or affiliate negotiate an agreement with 
the NGEP.
    (iii) Other communications. An insured depository institution or 
affiliate is deemed to have knowledge of--
    (A) Any testimony provided to a Federal banking agency at a public 
meeting or hearing;
    (B) Any comment submitted to a Federal banking agency that is 
conveyed in writing by the agency to the insured depository institution 
or affiliate; and
    (C) Any written comment submitted to the insured depository 
institution that must be and is included in the institution's CRA public 
file.
    (4) Communication where NGEP has knowledge. A NGEP has a CRA 
communication with an insured depository institution or affiliate only 
if any of the following individuals has knowledge of the communication--
    (i) A director, employee, or member of the NGEP who approves, 
directs, authorizes, or negotiates the agreement with the insured 
depository institution or affiliate;
    (ii) A person who functions as an executive officer of the NGEP and 
who knows that the NGEP is negotiating or intends to negotiate an 
agreement with the insured depository institution or affiliate; or
    (iii) Where the NGEP is an individual, the NGEP.
    (c) Examples of CRA communications--(1) Examples of actions that are 
CRA communications. The following are examples of CRA communications. 
These examples are not exclusive and assume that the communication 
occurs within the relevant time period as described in paragraph (b)(1) 
or (b)(2) of this section and the appropriate representatives have 
knowledge of the communication as specified in paragraphs (b)(3) and 
(b)(4) of this section.
    (i) Example 1. A NGEP files a written comment with a Federal banking 
agency that states than an insured depository institution successfully 
addresses the credit needs of its community. The written comment is in 
response to a general request from the agency for comments on an 
application of the insured depository institution to open a new branch 
and a copy of the comment is provided to the institution.
    (ii) Example 2. A NGEP meets with an executive officer of an insured 
depository institution and states that the institution must improve its 
CRA performance.
    (iii) Example 3. A NGEP meets with an executive officer of an 
insured depository institution and states that the institution needs to 
make more mortgage loans in low- and moderate-income neighborhoods in 
its community.
    (iv) Example 4. A bank holding company files an application with a 
Federal banking agency to acquire an insured depository institution. Two 
weeks later, the NGEP meets with an executive officer of the bank 
holding company to discuss the adequacy of the performance under the CRA 
of the target insured depository institution. The insured depository 
institution was an affiliate of the bank holding company at the time the 
NGEP met with the target institution. (See Sec. 35.11(a).) Accordingly, 
the NGEP had a CRA communication with an affiliate of the bank holding 
company.
    (2) Examples of actions that are not CRA communications. The 
following are examples of actions that are not by themselves CRA 
communications. These examples are not exclusive.
    (i) Example 1. A NGEP provides to a Federal banking agency comments 
or testimony concerning an insured depository institution or affiliate 
in response to a direct request by the agency for comments or testimony 
from that NGEP. Direct requests for comments or testimony do not include 
a general invitation by a Federal banking agency for comments or 
testimony from the public in connection with a CRA performance 
evaluation of, or application for a deposit facility (as defined in 
section 803 of the CRA (12 U.S.C. 2902(3)) by, an insured depository 
institution or an application by a company to acquire an insured 
depository institution.
    (ii) Example 2. A NGEP makes a statement concerning an insured 
depository institution or affiliate at a widely attended conference or 
seminar regarding a general topic. A public or private meeting, public 
hearing, or other meeting regarding one or more

[[Page 406]]

specific institutions, affiliates or transactions involving an 
application for a deposit facility is not considered a widely attended 
conference or seminar.
    (iii) Example 3. A NGEP, such as a civil rights group, community 
group providing housing and other services in low- and moderate-income 
neighborhoods, veterans organization, community theater group, or youth 
organization, sends a fundraising letter to insured depository 
institutions and to other businesses in its community. The letter 
encourages all businesses in the community to meet their obligation to 
assist in making the local community a better place to live and work by 
supporting the fundraising efforts of the NGEP.
    (iv) Example 4. A NGEP discusses with an insured depository 
institution or affiliate whether particular loans, services, 
investments, community development activities, or other activities are 
generally eligible for consideration by a Federal banking agency under 
the CRA. The NGEP and insured depository institution or affiliate do not 
discuss the adequacy of the CRA performance of the insured depository 
institution or affiliate.
    (v) Example 5. A NGEP engaged in the sale or purchase of loans in 
the secondary market sends a general offering circular to financial 
institutions offering to sell or purchase a portfolio of loans. An 
insured depository institution that receives the offering circular 
discusses with the NGEP the types of loans included in the loan pool, 
whether such loans are generally eligible for consideration under the 
CRA, and which loans are made to borrowers in the institution's local 
community. The NGEP and insured depository institution do not discuss 
the adequacy of the institution's CRA performance.
    (d) Multiparty covered agreements--(1) A NGEP that is a party to a 
covered agreement that involves multiple NGEPs is not required to comply 
with the requirements of this part if--
    (i) The NGEP has not had a CRA communication; and
    (ii) No representative of the NGEP identified in paragraph (b)(4) of 
this section has knowledge at the time of the agreement that another 
NGEP that is a party to the agreement has had a CRA communication.
    (2) An insured depository institution or affiliate that is a party 
to a covered agreement that involves multiple insured depository 
institutions or affiliates is not required to comply with the disclosure 
and annual reporting requirements in Sec. Sec. 35.6 and 35.7 if--
    (i) No NGEP that is a party to the agreement has had a CRA 
communication concerning the insured depository institution or any 
affiliate; and
    (ii) No representative of the insured depository institution or any 
affiliate identified in paragraph (b)(3) of this section has knowledge 
at the time of the agreement that an NGEP that is a party to the 
agreement has had a CRA communication concerning any other insured 
depository institution or affiliate that is a party to the agreement.



Sec. 35.4  Fulfillment of the CRA.

    (a) List of factors that are in fulfillment of the CRA. Fulfillment 
of the CRA, for purposes of this part, means the following list of 
factors--
    (1) Comments to a Federal banking agency or included in CRA public 
file. Providing or refraining from providing written or oral comments or 
testimony to any Federal banking agency concerning the performance under 
the CRA of an insured depository institution or CRA affiliate that is a 
party to the agreement or an affiliate of a party to the agreement or 
written comments that are required to be included in the CRA public file 
of any such insured depository institution; or
    (2) Activities given favorable CRA consideration. Performing any of 
the following activities if the activity is of the type that is likely 
to receive favorable consideration by a Federal banking agency in 
evaluating the performance under the CRA of the insured depository 
institution that is a party to the agreement or an affiliate of a party 
to the agreement--
    (i) Home-purchase, home-improvement, small business, small farm, 
community development, and consumer lending, as described in Sec. 25.22 
(12 CFR 25.22), including loan purchases, loan commitments, and letters 
of credit;
    (ii) Making investments, deposits, or grants, or acquiring 
membership

[[Page 407]]

shares, that have as their primary purpose community development, as 
described in Sec. 25.23 (12 CFR 25.23);
    (iii) Delivering retail banking services, as described in Sec. 
25.24(d) (12 CFR 25.24(d));
    (iv) Providing community development services, as described in Sec. 
25.24(e) (12 CFR 25.24(e));
    (v) In the case of a wholesale or limited-purpose insured depository 
institution, community development lending, including originating and 
purchasing loans and making loan commitments and letters of credit, 
making qualified investments, or providing community development 
services, as described in Sec. 25.25(c) (12 CFR 25.25(c));
    (vi) In the case of a small insured depository institution, any 
lending or other activity described in Sec. 25.26(a) (12 CFR 25.26(a)); 
or
    (vii) In the case of an insured depository institution that is 
evaluated on the basis of a strategic plan, any element of the strategic 
plan, as described in Sec. 25.27(f) (12 CFR 25.27(f)).
    (b) Agreements relating to activities of CRA affiliates. An insured 
depository institution or affiliate that is a party to a covered 
agreement that concerns any activity described in paragraph (a) of this 
section of a CRA affiliate must, prior to the time the agreement is 
entered into, notify each NGEP that is a party to the agreement that the 
agreement concerns a CRA affiliate.



Sec. 35.5  Related agreements considered a single agreement.

    The following rules must be applied in determining whether an 
agreement is a covered agreement under Sec. 35.2.
    (a) Agreements entered into by same parties. All written agreements 
to which an insured depository institution or an affiliate of the 
insured depository institution is a party shall be considered to be a 
single agreement if the agreements--
    (1) Are entered into with the same NGEP;
    (2) Were entered into within the same 12-month period; and
    (3) Are each in fulfillment of the CRA.
    (b) Substantively related contracts. All written contracts to which 
an insured depository institution or an affiliate of the insured 
depository institution is a party shall be considered to be a single 
agreement, without regard to whether the other parties to the contracts 
are the same or whether each such contract is in fulfillment of the CRA, 
if the contracts were negotiated in a coordinated fashion and a NGEP is 
a party to each contract.



Sec. 35.6  Disclosure of covered agreements.

    (a) Applicability date. This section applies only to covered 
agreements entered into after November 12, 1999.
    (b) Disclosure of covered agreements to the public--(1) Disclosure 
required. Each NGEP and each insured depository institution or affiliate 
that enters into a covered agreement must promptly make a copy of the 
covered agreement available to any individual or entity upon request.
    (2) Nondisclosure of confidential and proprietary information 
permitted. In responding to a request for a covered agreement from any 
individual or entity under paragraph (b)(1) of this section, a NGEP, 
insured depository institution, or affiliate may withhold from public 
disclosure confidential or proprietary information that the party 
believes the relevant supervisory agency could withhold from disclosure 
under the Freedom of Information Act (5 U.S.C. 552 et seq.) (FOIA).
    (3) Information that must be disclosed. Notwithstanding paragraph 
(b)(2) of this section, a party must disclose any of the following 
information that is contained in a covered agreement--
    (i) The names and addresses of the parties to the agreement;
    (ii) The amount of any payments, fees, loans, or other consideration 
to be made or provided by any party to the agreement;
    (iii) Any description of how the funds or other resources provided 
under the agreement are to be used;
    (iv) The term of the agreement (if the agreement establishes a 
term); and
    (v) Any other information that the relevant supervisory agency 
determines is not properly exempt from public disclosure.
    (4) Request for review of withheld information. Any individual or 
entity may request that the relevant supervisory

[[Page 408]]

agency review whether any information in a covered agreement withheld by 
a party must be disclosed. Any requests for agency review of withheld 
information must be filed, and will be processed in accordance with, the 
relevant supervisory agency's rules concerning the availability of 
information (see subpart B of part 4 of the OCC's rules regarding the 
availability of information under the Freedom of Information Act (12 CFR 
part 4, subpart B).
    (5) Duration of obligation. The obligation to disclose a covered 
agreement to the public terminates 12 months after the end of the term 
of the agreement.
    (6) Reasonable copy and mailing fees. Each NGEP and each insured 
depository institution or affiliate may charge an individual or entity 
that requests a copy of a covered agreement a reasonable fee not to 
exceed the cost of copying and mailing the agreement.
    (7) Use of CRA public file by insured depository institution or 
affiliate. An insured depository institution and any affiliate of an 
insured depository institution may fulfill its obligation under this 
paragraph (b) by placing a copy of the covered agreement in the insured 
depository institution's CRA public file if the institution makes the 
agreement available in accordance with the procedures set forth in Sec. 
25.43 (12 CFR 25.43);
    (c) Disclosure by NGEPs of covered agreements to the relevant 
supervisory agency. (1) Each NGEP that is a party to a covered agreement 
must provide the following within 30 days of receiving a request from 
the relevant supervisory agency--
    (i) A complete copy of the agreement; and
    (ii) In the event the NGEP proposes the withholding of any 
information contained in the agreement in accordance with paragraph 
(b)(2) of this section, a public version of the agreement that excludes 
such information and an explanation justifying the exclusions. Any 
public version must include the information described in paragraph 
(b)(3) of this section.
    (2) The obligation of a NGEP to provide a covered agreement to the 
relevant supervisory agency terminates 12 months after the end of the 
term of the covered agreement.
    (d) Disclosure by insured depository institution or affiliate of 
covered agreements to the relevant supervisory agency--(1) In general. 
Within 60 days of the end of each calendar quarter, each insured 
depository institution and affiliate must provide each relevant 
supervisory agency with--
    (i)(A) A complete copy of each covered agreement entered into by the 
insured depository institution or affiliate during the calendar quarter; 
and
    (B) In the event the institution or affiliate proposes the 
withholding of any information contained in the agreement in accordance 
with paragraph (b)(2) of this section, a public version of the agreement 
that excludes such information (other than any information described in 
paragraph (b)(3) of this section) and an explanation justifying the 
exclusions; or
    (ii) A list of all covered agreements entered into by the insured 
depository institution or affiliate during the calendar quarter that 
contains--
    (A) The name and address of each insured depository institution or 
affiliate that is a party to the agreement;
    (B) The name and address of each NGEP that is a party to the 
agreement;
    (C) The date the agreement was entered into;
    (D) The estimated total value of all payments, fees, loans and other 
consideration to be provided by the institution or any affiliate of the 
institution under the agreement; and
    (E) The date the agreement terminates.
    (2) Prompt filing of covered agreements contained in list 
required.--(i) If an insured depository institution or affiliate files a 
list of the covered agreements entered into by the institution or 
affiliate pursuant to paragraph (d)(1)(ii) of this section, the 
institution or affiliate must provide any relevant supervisory agency a 
complete copy and public version of any covered agreement referenced in 
the list within 7 calendar days of receiving a request from the agency 
for a copy of the agreement.
    (ii) The obligation of an insured depository institution or 
affiliate to provide a covered agreement to the relevant supervisory 
agency under this paragraph (d)(2) terminates 36 months

[[Page 409]]

after the end of the term of the agreement.
    (3) Joint filings. In the event that 2 or more insured depository 
institutions or affiliates are parties to a covered agreement, the 
insured depository institution(s) and affiliate(s) may jointly file the 
documents required by this paragraph (d). Any joint filing must identify 
the insured depository institution(s) and affiliate(s) for whom the 
filings are being made.



Sec. 35.7  Annual reports.

    (a) Applicability date. This section applies only to covered 
agreements entered into on or after May 12, 2000.
    (b) Annual report required. Each NGEP and each insured depository 
institution or affiliate that is a party to a covered agreement must 
file an annual report with each relevant supervisory agency concerning 
the disbursement, receipt, and uses of funds or other resources under 
the covered agreement.
    (c) Duration of reporting requirement--(1) NGEPs. A NGEP must file 
an annual report for a covered agreement for any fiscal year in which 
the NGEP receives or uses funds or other resources under the agreement.
    (2) Insured depository institutions and affiliates. An insured 
depository institution or affiliate must file an annual report for a 
covered agreement for any fiscal year in which the institution or 
affiliate--
    (i) provides or receives any payments, fees, or loans under the 
covered agreement that must be reported under paragraphs (e)(1)(iii) and 
(iv) of this section; or
    (ii) has data to report on loans, investments, and services provided 
by a party to the covered agreement under the covered agreement under 
paragraph (e)(1)(vi) of this section.
    (d) Annual reports filed by NGEP--(1) Contents of report. The annual 
report filed by a NGEP under this section must include the following--
    (i) The name and mailing address of the NGEP filing the report;
    (ii) Information sufficient to identify the covered agreement for 
which the annual report is being filed, such as by providing the names 
of the parties to the agreement and the date the agreement was entered 
into or by providing a copy of the agreement;
    (iii) The amount of funds or resources received under the covered 
agreement during the fiscal year; and
    (iv) A detailed, itemized list of how any funds or resources 
received by the NGEP under the covered agreement were used during the 
fiscal year, including the total amount used for--
    (A) Compensation of officers, directors, and employees;
    (B) Administrative expenses;
    (C) Travel expenses;
    (D) Entertainment expenses;
    (E) Payment of consulting and professional fees; and
    (F) Other expenses and uses (specify expense or use).
    (2) More detailed reporting of uses of funds or resources 
permitted--(i) In general. If a NGEP allocated and used funds received 
under a covered agreement for a specific purpose, the NGEP may fulfill 
the requirements of paragraph (d)(1)(iv) of this section with respect to 
such funds by providing--
    (A) A brief description of each specific purpose for which the funds 
or other resources were used; and
    (B) The amount of funds or resources used during the fiscal year for 
each specific purpose.
    (ii) Specific purpose defined. A NGEP allocates and uses funds for a 
specific purpose if the NGEP receives and uses the funds for a purpose 
that is more specific and limited than the categories listed in 
paragraph (d)(1)(iv) of this section.
    (3) Use of other reports. The annual report filed by a NGEP may 
consist of or incorporate a report prepared for any other purpose, such 
as the Internal Revenue Service Return of Organization Exempt From 
Income Tax on Form 990, or any other Internal Revenue Service form, 
state tax form, report to members or shareholders, audited or unaudited 
financial statements, audit report, or other report, so long as the 
annual report filed by the NGEP contains all of the information required 
by this paragraph (d).
    (4) Consolidated reports permitted. A NGEP that is a party to 2 or 
more covered agreements may file with each relevant supervisory agency a 
single consolidated annual report covering all

[[Page 410]]

the covered agreements. Any consolidated report must contain all the 
information required by this paragraph (d). The information reported 
under paragraphs (d)(1)(iv) and (d)(2) of this section may be reported 
on an aggregate basis for all covered agreements.
    (5) Examples of annual report requirements for NGEPs--(i) Example 1. 
A NGEP receives an unrestricted grant of $15,000 under a covered 
agreement, includes the funds in its general operating budget and uses 
the funds during its fiscal year. The NGEP's annual report for the 
fiscal year must provide the name and mailing address of the NGEP, 
information sufficient to identify the covered agreement, and state that 
the NGEP received $15,000 during the fiscal year. The report must also 
indicate the total expenditures made by the NGEP during the fiscal year 
for compensation, administrative expenses, travel expenses, 
entertainment expenses, consulting and professional fees, and other 
expenses and uses. The NGEP's annual report may provide this information 
by submitting an Internal Revenue Service Form 990 that includes the 
required information. If the Internal Revenue Service Form does not 
include information for all of the required categories listed in this 
part, the NGEP must report the total expenditures in the remaining 
categories either by providing that information directly or by providing 
another form or report that includes the required information.
    (ii) Example 2. An organization receives $15,000 from an insured 
depository institution under a covered agreement and allocates and uses 
the $15,000 during the fiscal year to purchase computer equipment to 
support its functions. The organization's annual report must include the 
name and address of the organization, information sufficient to identify 
the agreement, and a statement that the organization received $15,000 
during the year. In addition, since the organization allocated and used 
the funds for a specific purpose that is more narrow and limited than 
the categories of expenses included in the detailed, itemized list of 
expenses, the organization would have the option of providing either the 
total amount it used during the year for each category of expenses 
included in paragraph (d)(1)(iv) of this section, or a statement that it 
used the $15,000 to purchase computer equipment and a brief description 
of the equipment purchased.
    (iii) Example 3. A community group receives $50,000 from an insured 
depository institution under a covered agreement. During its fiscal 
year, the community group specifically allocates and uses $5,000 of the 
funds to pay for a particular business trip and uses the remaining 
$45,000 for general operating expenses. The group's annual report for 
the fiscal year must include the name and address of the group, 
information sufficient to identify the agreement, and a statement that 
the group received $50,000. Because the group did not allocate and use 
all of the funds for a specific purpose, the group's annual report must 
provide the total amount of funds it used during the year for each 
category of expenses included in paragraph (d)(1)(iv) of this section. 
The group's annual report also could state that it used $5,000 for a 
particular business trip and include a brief description of the trip.
    (iv) Example 4. A community development organization is a party to 
two separate covered agreements with two unaffiliated insured depository 
institutions. Under each agreement, the organization receives $15,000 
during its fiscal year and uses the funds to support its activities 
during that year. If the organization elects to file a consolidated 
annual report, the consolidated report must identify the organization 
and the two covered agreements, state that the organization received 
$15,000 during the fiscal year under each agreement, and provide the 
total amount that the organization used during the year for each 
category of expenses included in paragraph (d)(1)(iv) of this section.
    (e) Annual report filed by insured depository institution or 
affiliate--(1) General. The annual report filed by an insured depository 
institution or affiliate must include the following--
    (i) The name and principal place of business of the insured 
depository institution or affiliate filing the report;
    (ii) Information sufficient to identify the covered agreement for 
which the annual report is being filed, such as by

[[Page 411]]

providing the names of the parties to the agreement and the date the 
agreement was entered into or by providing a copy of the agreement;
    (iii) The aggregate amount of payments, aggregate amount of fees, 
and aggregate amount of loans provided by the insured depository 
institution or affiliate under the covered agreement to any other party 
to the agreement during the fiscal year;
    (iv) The aggregate amount of payments, aggregate amount of fees, and 
aggregate amount of loans received by the insured depository institution 
or affiliate under the covered agreement from any other party to the 
agreement during the fiscal year;
    (v) A general description of the terms and conditions of any 
payments, fees, or loans reported under paragraphs (e)(1)(iii) and (iv) 
of this section, or, in the event such terms and conditions are set 
forth--
    (A) In the covered agreement, a statement identifying the covered 
agreement and the date the agreement (or a list identifying the 
agreement) was filed with the relevant supervisory agency; or
    (B) In a previous annual report filed by the insured depository 
institution or affiliate, a statement identifying the date the report 
was filed with the relevant supervisory agency; and
    (vi) The aggregate amount and number of loans, aggregate amount and 
number of investments, and aggregate amount of services provided under 
the covered agreement to any individual or entity not a party to the 
agreement--
    (A) By the insured depository institution or affiliate during its 
fiscal year; and
    (B) By any other party to the agreement, unless such information is 
not known to the insured depository institution or affiliate filing the 
report or such information is or will be contained in the annual report 
filed by another party under this section.
    (2) Consolidated reports permitted--(i) Party to multiple 
agreements. An insured depository institution or affiliate that is a 
party to 2 or more covered agreements may file a single consolidated 
annual report with each relevant supervisory agency concerning all the 
covered agreements.
    (ii) Affiliated entities party to the same agreement. An insured 
depository institution and its affiliates that are parties to the same 
covered agreement may file a single consolidated annual report relating 
to the agreement with each relevant supervisory agency for the covered 
agreement.
    (iii) Content of report. Any consolidated annual report must contain 
all the information required by this paragraph (e). The amounts and data 
required to be reported under paragraphs (e)(1)(iv) and (vi) of this 
section may be reported on an aggregate basis for all covered 
agreements.
    (f) Time and place of filing--(1) General. Each party must file its 
annual report with each relevant supervisory agency for the covered 
agreement no later than six months following the end of the fiscal year 
covered by the report.
    (2) Alternative method of fulfilling annual reporting requirement 
for a NGEP. (i) A NGEP may fulfill the filing requirements of this 
section by providing the following materials to an insured depository 
institution or affiliate that is a party to the agreement no later than 
six months following the end of the NGEP's fiscal year--
    (A) A copy of the NGEP's annual report required under paragraph (d) 
of this section for the fiscal year; and
    (B) Written instructions that the insured depository institution or 
affiliate promptly forward the annual report to the relevant supervisory 
agency or agencies on behalf of the NGEP.
    (ii) An insured depository institution or affiliate that receives an 
annual report from a NGEP pursuant to paragraph (f)(2)(i) of this 
section must file the report with the relevant supervisory agency or 
agencies on behalf of the NGEP within 30 days.



Sec. 35.8  Release of information under FOIA.

    The OCC will make covered agreements and annual reports available to 
the public in accordance with the Freedom of Information Act (5 U.S.C. 
552 et seq.) and the OCC's rules regarding the availability of 
information under the Freedom of Information Act (12 CFR part 4, subpart 
B). A party to a covered agreement may request confidential

[[Page 412]]

treatment of proprietary and confidential information in a covered 
agreement or an annual report under those procedures.



Sec. 35.9  Compliance provisions.

    (a) Willful failure to comply with disclosure and reporting 
obligations. (1) If the OCC determines that a NGEP has willfully failed 
to comply in a material way with Sec. Sec. 35.6 or 35.7, the OCC will 
notify the NGEP in writing of that determination and provide the NGEP a 
period of 90 days (or such longer period as the OCC finds to be 
reasonable under the circumstances) to comply.
    (2) If the NGEP does not comply within the time period established 
by the OCC, the agreement shall thereafter be unenforceable by that NGEP 
by operation of section 48 of the Federal Deposit Insurance Act (12 
U.S.C. 1831y).
    (3) The OCC may assist any insured depository institution or 
affiliate that is a party to a covered agreement that is unenforceable 
by a NGEP by operation of section 48 of the Federal Deposit Insurance 
Act (12 U.S.C. 1831y) in identifying a successor to assume the NGEP's 
responsibilities under the agreement.
    (b) Diversion of funds. If a court or other body of competent 
jurisdiction determines that funds or resources received under a covered 
agreement have been diverted contrary to the purposes of the covered 
agreement for an individual's personal financial gain, the OCC may take 
either or both of the following actions--
    (1) Order the individual to disgorge the diverted funds or resources 
received under the agreement;
    (2) Prohibit the individual from being a party to any covered 
agreement for a period not to exceed 10 years.
    (c) Notice and opportunity to respond. Before making a determination 
under paragraph (a)(1) of this section, or taking any action under 
paragraph (b) of this section, the OCC will provide written notice and 
an opportunity to present information to the OCC concerning any relevant 
facts or circumstances relating to the matter.
    (d) Inadvertent or de minimis errors. Inadvertent or de minimis 
errors in annual reports or other documents filed with the OCC under 
Sec. Sec. 35.6 or 35.7 will not subject the reporting party to any 
penalty.
    (e) Enforcement of provisions in covered agreements. No provision of 
this part shall be construed as authorizing the OCC to enforce the 
provisions of any covered agreement.



Sec. 35.10  Transition provisions.

    (a) Disclosure of covered agreements entered into before the 
effective date of this part. The following disclosure requirements apply 
to covered agreements that were entered into after November 12, 1999, 
and that terminated before April 1, 2001.
    (1) Disclosure to the public. Each NGEP and each insured depository 
institution or affiliate that was a party to the agreement must make the 
agreement available to the public under Sec. 35.6 until at least April 
1, 2002.
    (2) Disclosure to the relevant supervisory agency. (i) Each NGEP 
that was a party to the agreement must make the agreement available to 
the relevant supervisory agency under Sec. 35.6 until at least April 1, 
2002.
    (ii) Each insured depository institution or affiliate that was a 
party to the agreement must, by June 30, 2001, provide each relevant 
supervisory agency either--
    (A) A copy of the agreement under Sec. 35.6(d)(1)(i); or
    (B) The information described in Sec. 35.6(d)(1)(ii) for each 
agreement.
    (b) Filing of annual reports that relate to fiscal years ending on 
or before December 31, 2000. In the event that a NGEP, insured 
depository institution or affiliate has any information to report under 
Sec. 35.7 for a fiscal year that ends on or before December 31, 2000, 
and that concerns a covered agreement entered into between May 12, 2000, 
and December 31, 2000, the annual report for that fiscal year must be 
provided no later than June 30, 2001, to--
    (1) Each relevant supervisory agency; or
    (2) In the case of a NGEP, to an insured depository institution or 
affiliate that is a party to the agreement in accordance with Sec. 
35.7(f)(2).

[[Page 413]]



Sec. 35.11  Other definitions and rules of construction used in this part.

    (a) Affiliate. ``Affiliate'' means--
    (1) Any company that controls, is controlled by, or is under common 
control with another company; and
    (2) For the purpose of determining whether an agreement is a covered 
agreement under Sec. 35.2, an ``affiliate'' includes any company that 
would be under common control or merged with another company on 
consummation of any transaction pending before a Federal banking agency 
at the time--
    (i) The parties enter into the agreement; and
    (ii) The NGEP that is a party to the agreement makes a CRA 
communication, as described in Sec. 35.3.
    (b) Control. ``Control'' is defined in section 2(a) of the Bank 
Holding Company Act (12 U.S.C. 1841(a)).
    (c) CRA affiliate. A ``CRA affiliate'' of an insured depository 
institution is any company that is an affiliate of an insured depository 
institution to the extent, and only to the extent, that the activities 
of the affiliate were considered by the appropriate Federal banking 
agency when evaluating the CRA performance of the institution at its 
most recent CRA examination prior to the agreement. An insured 
depository institution or affiliate also may designate any company as a 
CRA affiliate at any time prior to the time a covered agreement is 
entered into by informing the NGEP that is a party to the agreement of 
such designation.
    (d) CRA public file. ``CRA public file'' means the public file 
maintained by an insured depository institution and described in Sec. 
25.43 (12 CFR 25.43).
    (e) Executive officer. The term ``executive officer'' has the same 
meaning as in Sec. 215.2(e)(1) of Regulation O issued by the Board of 
Governors of the Federal Reserve System (12 CFR 215.2(e)(1)).
    (f) Federal banking agency; appropriate Federal banking agency. The 
terms ``Federal banking agency'' and ``appropriate Federal banking 
agency'' have the same meanings as in section 3 of the Federal Deposit 
Insurance Act (12 U.S.C. 1813).
    (g) Fiscal year. (1) The fiscal year for a NGEP that does not have a 
fiscal year shall be the calendar year.
    (2) Any NGEP, insured depository institution, or affiliate that has 
a fiscal year may elect to have the calendar year be its fiscal year for 
purposes of this part.
    (h) Insured depository institution. ``Insured depository 
institution'' has the same meaning as in section 3 of the Federal 
Deposit Insurance Act (12 U.S.C. 1813).
    (i) NGEP. ``NGEP'' means a nongovernmental entity or person.
    (j) Nongovernmental entity or person--(1) General. A 
``nongovernmental entity or person'' is any partnership, association, 
trust, joint venture, joint stock company, corporation, limited 
liability corporation, company, firm, society, other organization, or 
individual.
    (2) Exclusions. A nongovernmental entity or person does not 
include--
    (i) The United States government, a state government, a unit of 
local government (including a county, city, town, township, parish, 
village, or other general-purpose subdivision of a state) or an Indian 
tribe or tribal organization established under Federal, state or Indian 
tribal law (including the Department of Hawaiian Home Lands), or a 
department, agency, or instrumentality of any such entity;
    (ii) A federally-chartered public corporation that receives Federal 
funds appropriated specifically for that corporation;
    (iii) An insured depository institution or affiliate of an insured 
depository institution; or
    (iv) An officer, director, employee, or representative (acting in 
his or her capacity as an officer, director, employee, or 
representative) of an entity listed in paragraphs (i)(2)(i) through 
(iii) of this section.
    (k) Party. The term ``party'' with respect to a covered agreement 
means each NGEP and each insured depository institution or affiliate 
that entered into the agreement.
    (l) Relevant supervisory agency. The ``relevant supervisory agency'' 
for a covered agreement means the appropriate Federal banking agency 
for--
    (1) Each insured depository institution (or subsidiary thereof) that 
is a party to the covered agreement;

[[Page 414]]

    (2) Each insured depository institution (or subsidiary thereof) or 
CRA affiliate that makes payments or loans or provides services that are 
subject to the covered agreement; and
    (3) Any company (other than an insured depository institution or 
subsidiary thereof) that is a party to the covered agreement.
    (m) Term of agreement. An agreement that does not have a fixed 
termination date is considered to terminate on the last date on which 
any party to the agreement makes any payment or provides any loan or 
other resources under the agreement, unless the relevant supervisory 
agency for the agreement otherwise notifies each party in writing.

                           PARTS 36 [RESERVED]



PART 37_DEBT CANCELLATION CONTRACTS AND DEBT SUSPENSION AGREEMENTS--Table of Contents




Sec.
37.1 Authority, purpose, and scope.
37.2 Definitions.
37.3 Prohibited practices.
37.4 Refunds of fees in the event of termination or prepayment of the 
          covered loan.
37.5 Method of payment of fees.
37.6 Disclosures.
37.7 Affirmative election to purchase and acknowledgment of receipt of 
          disclosures required.
37.8 Safety and soundness requirement.

Appendix A to Part 37--Short Form Disclosures
Appendix B to Part 37--Long Form Disclosures

    Authority: 12 U.S.C. 1 et seq., 24(Seventh), 93a, 1818.

    Source: 67 FR 58976, Sept. 19, 2002, unless otherwise noted.



Sec. 37.1  Authority, purpose, and scope.

    (a) Authority. A national bank is authorized to enter into debt 
cancellation contracts and debt suspension agreements and charge a fee 
therefor, in connection with extensions of credit that it makes, 
pursuant to 12 U.S.C. 24(Seventh).
    (b) Purpose. This part sets forth the standards that apply to debt 
cancellation contracts and debt suspension agreements entered into by 
national banks. The purpose of these standards is to ensure that 
national banks offer and implement such contracts and agreements 
consistent with safe and sound banking practices, and subject to 
appropriate consumer protections.
    (c) Scope. This part applies to debt cancellation contracts and debt 
suspension agreements entered into by national banks in connection with 
extensions of credit they make. National banks' debt cancellation 
contracts and debt suspension agreements are governed by this part and 
applicable Federal law and regulations, and not by part 14 of this 
chapter or by State law.



Sec. 37.2  Definitions.

    For purposes of this part:
    (a) Actuarial method means the method of allocating payments made on 
a debt between the amount financed and the finance charge pursuant to 
which a payment is applied first to the accumulated finance charge and 
any remainder is subtracted from, or any deficiency is added to, the 
unpaid balance of the amount financed.
    (b) Bank means a national bank and a Federal branch or Federal 
agency of a foreign bank as those terms are defined in part 28 of this 
chapter.
    (c) Closed-end credit means consumer credit other than open-end 
credit as defined in this section.
    (d) Contract means a debt] cancellation contract or a debt 
suspension agreement.
    (e) Customer means an individual who obtains an extension of credit 
from a bank primarily for personal, family or household purposes.
    (f) Debt cancellation contract means a loan term or contractual 
arrangement modifying loan terms under which a bank agrees to cancel all 
or part of a customer's obligation to repay an extension of credit from 
that bank upon the occurrence of a specified event. The agreement may be 
separate from or a part of other loan documents.
    (g) Debt suspension agreement means a loan term or contractual 
arrangement modifying loan terms under which a bank agrees to suspend 
all or part of a customer's obligation to repay an extension of credit 
from that bank upon the occurrence of a specified event. The agreement 
may be separate from or a

[[Page 415]]

part of other loan documents. The term debt suspension agreement does 
not include loan payment deferral arrangements in which the triggering 
event is the borrower's unilateral election to defer repayment, or the 
bank's unilateral decision to allow a deferral of repayment.
    (h) Open-end credit means consumer credit extended by a bank under a 
plan in which:
    (1) The bank reasonably contemplates repeated transactions;
    (2) The bank may impose a finance charge from time to time on an 
outstanding unpaid balance; and
    (3) The amount of credit that may be extended to the customer during 
the term of the plan (up to any limit set by the bank) is generally made 
available to the extent that any outstanding balance is repaid.
    (i) Residential mortgage loan means a loan secured by 1-4 family, 
residential real property.



Sec. 37.3  Prohibited practices.

    (a) Anti-tying. A national bank may not extend credit nor alter the 
terms or conditions of an extension of credit conditioned upon the 
customer entering into a debt cancellation contract or debt suspension 
agreement with the bank.
    (b) Misrepresentations generally. A national bank may not engage in 
any practice or use any advertisement that could mislead or otherwise 
cause a reasonable person to reach an erroneous belief with respect to 
information that must be disclosed under this part.
    (c) Prohibited contract terms. A national bank may not offer debt 
cancellation contracts or debt suspension agreements that contain terms:
    (1) Giving the bank the right unilaterally to modify the contract 
unless:
    (i) The modification is favorable to the customer and is made 
without additional charge to the customer; or
    (ii) The customer is notified of any proposed change and is provided 
a reasonable opportunity to cancel the contract without penalty before 
the change goes into effect; or
    (2) Requiring a lump sum, single payment for the contract payable at 
the outset of the contract, where the debt subject to the contract is a 
residential mortgage loan.



Sec. 37.4  Refunds of fees in the event of termination or prepayment of the covered loan.

    (a) Refunds. If a debt cancellation contract or debt suspension 
agreement is terminated (including, for example, when the customer 
prepays the covered loan), the bank shall refund to the customer any 
unearned fees paid for the contract unless the contract provides 
otherwise. A bank may offer a customer a contract that does not provide 
for a refund only if the bank also offers that customer a bona fide 
option to purchase a comparable contract that provides for a refund.
    (b) Method of calculating refund. The bank shall calculate the 
amount of a refund using a method at least as favorable to the customer 
as the actuarial method.



Sec. 37.5  Method of payment of fees.

    Except as provided in Sec. 37.3(c)(2), a bank may offer a customer 
the option of paying the fee for a contract in a single payment, 
provided the bank also offers the customer a bona fide option of paying 
the fee for that contract in monthly or other periodic payments. If the 
bank offers the customer the option to finance the single payment by 
adding it to the amount the customer is borrowing, the bank must also 
disclose to the customer, in accordance with Sec. 37.6, whether and, if 
so, the time period during which, the customer may cancel the agreement 
and receive a refund.



Sec. 37.6  Disclosures.

    (a) Content of short form of disclosures. The short form of 
disclosures required by this part must include the information described 
in appendix A to this part that is appropriate to the product offered. 
Short form disclosures made in a form that is substantially similar to 
the disclosures in appendix A to this part will satisfy the short form 
disclosure requirements of this section.
    (b) Content of long form of disclosures. The long form of 
disclosures required by this part must include the information described 
in appendix B to this part that is appropriate to the product

[[Page 416]]

offered. Long form disclosures made in a form that is substantially 
similar to the disclosures in appendix B to this part will satisfy the 
long form disclosure requirements of this section.
    (c) Disclosure requirements; timing and method of disclosures--(1) 
Short form disclosures. The bank shall make the short form disclosures 
orally at the time the bank first solicits the purchase of a contract.
    (2) Long form disclosures. The bank shall make the long form 
disclosures in writing before the customer completes the purchase of the 
contract. If the initial solicitation occurs in person, then the bank 
shall provide the long form disclosures in writing at that time.
    (3) Special rule for transactions by telephone. If the contract is 
solicited by telephone, the bank shall provide the short form 
disclosures orally and shall mail the long form disclosures, and, if 
appropriate, a copy of the contract to the customer within 3 business 
days, beginning on the first business day after the telephone 
solicitation.
    (4) Special rule for solicitations using written mail inserts or 
``take one'' applications. If the contract is solicited through written 
materials such as mail inserts or ``take one'' applications, the bank 
may provide only the short form disclosures in the written materials if 
the bank mails the long form disclosures to the customer within 3 
business days, beginning on the first business day after the customer 
contacts the bank to respond to the solicitation, subject to the 
requirements of Sec. 37.7(c).
    (5) Special rule for electronic transactions. The disclosures 
described in this section may be provided through electronic media in a 
manner consistent with the requirements of the Electronic Signatures in 
Global and National Commerce Act, 15 U.S.C. 7001 et seq.
    (d) Form of disclosures--(1) Disclosures must be readily 
understandable. The disclosures required by this section must be 
conspicuous, simple, direct, readily understandable, and designed to 
call attention to the nature and significance of the information 
provided.
    (2) Disclosures must be meaningful. The disclosures required by this 
section must be in a meaningful form. Examples of methods that could 
call attention to the nature and significance of the information 
provided include:
    (i) A plain-language heading to call attention to the disclosures;
    (ii) A typeface and type size that are easy to read;
    (iii) Wide margins and ample line spacing;
    (iv) Boldface or italics for key words; and
    (v) Distinctive type style, and graphic devices, such as shading or 
sidebars, when the disclosures are combined with other information.
    (e) Advertisements and other promotional material for debt 
cancellation contracts and debt suspension agreements. The short form 
disclosures are required in advertisements and promotional material for 
contracts unless the advertisements and promotional materials are of a 
general nature describing or listing the services or products offered by 
the bank.



Sec. 37.7  Affirmative election to purchase and acknowledgment of receipt of disclosures required.

    (a) Affirmative election and acknowledgment of receipt of 
disclosures. Before entering into a contract the bank must obtain a 
customer's written affirmative election to purchase a contract and 
written acknowledgment of receipt of the disclosures required by Sec. 
37.6(b). The election and acknowledgment information must be 
conspicuous, simple, direct, readily understandable, and designed to 
call attention to their significance. The election and acknowledgment 
satisfy these standards if they conform with the requirements in Sec. 
37.6(b) of this part.
    (b) Special rule for telephone solicitations. If the sale of a 
contract occurs by telephone, the customer's affirmative election to 
purchase may be made orally, provided the bank:
    (1) Maintains sufficient documentation to show that the customer 
received the short form disclosures and then affirmatively elected to 
purchase the contract;
    (2) Mails the affirmative written election and written 
acknowledgment, together with the long form disclosures required by 
Sec. 37.6 of this part, to the customer within 3 business days after

[[Page 417]]

the telephone solicitation, and maintains sufficient documentation to 
show it made reasonable efforts to obtain the documents from the 
customer; and
    (3) Permits the customer to cancel the purchase of the contract 
without penalty within 30 days after the bank has mailed the long form 
disclosures to the customer.
    (c) Special rule for solicitations using written mail inserts or 
``take one'' applications. If the contract is solicited through written 
materials such as mail inserts or ``take one'' applications and the bank 
provides only the short form disclosures in the written materials, then 
the bank shall mail the acknowledgment of receipt of disclosures, 
together with the long form disclosures required by Sec. 37.6 of this 
part, to the customer within 3 business days, beginning on the first 
business day after the customer contacts the bank or otherwise responds 
to the solicitation. The bank may not obligate the customer to pay for 
the contract until after the bank has received the customer's written 
acknowledgment of receipt of disclosures unless the bank:
    (1) Maintains sufficient documentation to show that the bank 
provided the acknowledgment of receipt of disclosures to the customer as 
required by this section;
    (2) Maintains sufficient documentation to show that the bank made 
reasonable efforts to obtain from the customer a written acknowledgment 
of receipt of the long form disclosures; and
    (3) Permits the customer to cancel the purchase of the contract 
without penalty within 30 days after the bank has mailed the long form 
disclosures to the customer.
    (d) Special rule for electronic election. The affirmative election 
and acknowledgment may be made electronically in a manner consistent 
with the requirements of the Electronic Signatures in Global and 
National Commerce Act, 15 U.S.C. 7001 et seq.



Sec. 37.8  Safety and soundness requirements.

    A national bank must manage the risks associated with debt 
cancellation contracts and debt suspension agreements in accordance with 
safe and sound banking principles. Accordingly, a national bank must 
establish and maintain effective risk management and control processes 
over its debt cancellation contracts and debt suspension agreements. 
Such processes include appropriate recognition and financial reporting 
of income, expenses, assets and liabilities, and appropriate treatment 
of all expected and unexpected losses associated with the products. A 
bank also should assess the adequacy of its internal control and risk 
mitigation activities in view of the nature and scope of its debt 
cancellation contract and debt suspension agreement programs.



           Sec. Appendix A to Part 37--Short Form Disclosures

 This product is optional

    Your purchase of [PRODUCT NAME] is optional. Whether or not you 
purchase [PRODUCT NAME] will not affect your application for credit or 
the terms of any existing credit agreement you have with the bank.

 Lump sum payment of fee

[Applicable if a bank offers the option to pay the fee in a single 
payment]
[Prohibited where the debt subject to the contract is a residential 
mortgage loan]

    You may choose to pay the fee in a single lump sum or in [monthly/
quarterly] payments. Adding the lump sum of the fee to the amount you 
borrow will increase the cost of [PRODUCT NAME].

 Lump sum payment of fee with no refund

[Applicable if a bank offers the option to pay the fee in a single 
payment for a no-refund DCC]
[Prohibited where the debt subject to the contract is a residential 
mortgage loan]

    You may choose [PRODUCT NAME] with a refund provision or without a 
refund provision. Prices of refund and no-refund products are likely to 
differ.

 Refund of fee paid in lump sum

[Applicable where the customer pays the fee in a single payment and the 
fee is added to the amount borrowed]
[Prohibited where the debt subject to the contract is a residential 
mortgage loan]

    [Either:] (1) You may cancel [PRODUCT NAME] at any time and receive 
a refund; or (2) You may cancel [PRODUCT NAME] within ---- days and 
receive a full refund; or (3) If you cancel [PRODUCT NAME] you will not 
receive a refund.

 Additional disclosures


[[Page 418]]


    We will give you additional information before you are required to 
pay for [PRODUCT NAME]. [If applicable]: This information will include a 
copy of the contract containing the terms of [PRODUCT NAME].

 Eligibility requirements, conditions, and exclusions

    There are eligibility requirements, conditions, and exclusions that 
could prevent you from receiving benefits under [PRODUCT NAME].
    [Either:] You should carefully read our additional information for a 
full explanation of the terms of [PRODUCT NAME] or You should carefully 
read the contract for a full explanation of the terms of [PRODUCT NAME].



            Sec. Appendix B to Part 37--Long Form Disclosures

 This product is optional

    Your purchase of [PRODUCT NAME] is optional. Whether or not you 
purchase [PRODUCT NAME] will not affect your application for credit or 
the terms of any existing credit agreement you have with the bank.

 Explanation of debt suspension agreement

[Applicable if the contract has a debt suspension feature]

    If [PRODUCT NAME] is activated, your duty to pay the loan principal 
and interest to the bank is only suspended. You must fully repay the 
loan after the period of suspension has expired. [If applicable]: This 
includes interest accumulated during the period of suspension.

 Amount of fee

    [For closed-end credit]: The total fee for [PRODUCT NAME] is ----.
    [For open-end credit, either:] (1) The monthly fee for [PRODUCT 
NAME] is based on your account balance each month multiplied by the 
unit-cost, which is ------; or (2) The formula used to compute the fee 
is ----------].

 Lump sum payment of fee

[Applicable if a bank offers the option to pay the fee in a single 
payment]
[Prohibited where the debt subject to the contract is a residential 
mortgage loan]

    You may choose to pay the fee in a single lump sum or in [monthly/
quarterly] payments. Adding the lump sum of the fee to the amount you 
borrow will increase the cost of [PRODUCT NAME].

 Lump sum payment of fee with no refund

[Applicable if a bank offers the option to pay the fee in a single 
payment for a no-refund DCC]
[Prohibited where the debt subject to the contract is a residential 
mortgage loan]

    You have the option to purchase [PRODUCT NAME] that includes a 
refund of the unearned portion of the fee if you terminate the contract 
or prepay the loan in full prior to the scheduled termination date. 
Prices of refund and no-refund products may differ.

 Refund of fee paid in lump sum

[Applicable where the customer pays the fee in a single payment and the 
fee is added to the amount borrowed]
[Prohibited where the debt subject to the contract is a residential 
mortgage loan]

    [Either:] (1) You may cancel [PRODUCT NAME] at any time and receive 
a refund; or (2) You may cancel [PRODUCT NAME] within ---- days and 
receive a full refund; or (3) If you cancel [PRODUCT NAME] you will not 
receive a refund.

 Use of card or credit line restricted

[Applicable if the contract restricts use of card or credit line when 
customer activates protection]

    If [PRODUCT NAME] is activated, you will be unable to incur 
additional charges on the credit card or use the credit line.

 Termination of [PRODUCT NAME]

    [Either]: (1) You have no right to cancel [PRODUCT NAME]; or (2) You 
have the right to cancel [PRODUCT NAME] in the following circumstances: 
----------.
    [And either]: (1) The bank has no right to cancel [PRODUCT NAME]; or 
(2)The bank has the right to cancel [PRODUCT NAME] in the following 
circumstances: ----------.

 Eligibility requirements, conditions, and exclusions

    There are eligibility requirements, conditions, and exclusions that 
could prevent you from receiving benefits under [PRODUCT NAME].
    [Either]: (1) The following is a summary of the eligibility 
requirements, conditions, and exclusions. [The bank provides a summary 
of any eligibility requirements, conditions, and exclusions]; or (2) You 
may find a complete explanation of the eligibility requirements, 
conditions, and exclusions in paragraphs ------ of the [PRODUCT NAME] 
agreement.

                         PARTS 38	39 [RESERVED]



PART 40_PRIVACY OF CONSUMER FINANCIAL INFORMATION--Table of Contents




Sec.
40.1 Purpose and scope.
40.2 Rule of construction.
40.3 Definitions.

                  Subpart A_Privacy and Opt Out Notices

40.4 Initial privacy notice to consumers required.
40.5 Annual privacy notice to customers required.

[[Page 419]]

40.6 Information to be included in privacy notices.
40.7 Form of opt out notice to consumers; opt out methods.
40.8 Revised privacy notices.
40.9 Delivering privacy and opt out notices.

                     Subpart B_Limits on Disclosures

40.10 Limitation on disclosure of nonpublic personal information to 
          nonaffiliated third parties.
40.11 Limits on redisclosure and reuse of information.
40.12 Limits on sharing account number information for marketing 
          purposes.

                          Subpart C_Exceptions

40.13 Exception to opt out requirements for service providers and joint 
          marketing.
40.14 Exceptions to notice and opt out requirements for processing and 
          servicing transactions.
40.15 Other exceptions to notice and opt out requirements.

            Subpart D_Relation to Other Laws; Effective Date

40.16 Protection of Fair Credit Reporting Act.
40.17 Relation to State laws.
40.18 Effective date; transition rule.

Appendix A to Part 40--Sample Clauses

    Authority: 12 U.S.C. 93a; 15 U.S.C. 6801 et seq.

    Source: 65 FR 35196, June 1, 2000, unless otherwise noted.



Sec. 40.1  Purpose and scope.

    (a) Purpose. This part governs the treatment of nonpublic personal 
information about consumers by the financial institutions listed in 
paragraph (b) of this section. This part:
    (1) Requires a financial institution to provide notice to customers 
about its privacy policies and practices;
    (2) Describes the conditions under which a financial institution may 
disclose nonpublic personal information about consumers to nonaffiliated 
third parties; and
    (3) Provides a method for consumers to prevent a financial 
institution from disclosing that information to most nonaffiliated third 
parties by ``opting out'' of that disclosure, subject to the exceptions 
in Sec. Sec. 40.13, 40.14, and 40.15.
    (b) Scope. (1) This part applies only to nonpublic personal 
information about individuals who obtain financial products or services 
primarily for personal, family, or household purposes from the 
institutions listed below. This part does not apply to information about 
companies or about individuals who obtain financial products or services 
for business, commercial, or agricultural purposes. This part applies to 
United States offices of entities for which the Office of the 
Comptroller of the Currency has primary supervisory authority. They are 
referred to in this part as ``the bank.'' These are national banks, 
District of Columbia banks, Federal branches and Federal agencies of 
foreign banks, and any subsidiaries of such entities except a broker or 
dealer that is registered under the Securities Exchange Act of 1934, a 
registered investment adviser (with respect to the investment advisory 
activities of the adviser and activities incidental to those investment 
advisory activities), an investment company registered under the 
Investment Company Act of 1940, an insurance company that is subject to 
supervision by a State insurance regulator (with respect to insurance 
activities of the company and activities incidental to those insurance 
activities), and an entity that is subject to regulation by the 
Commodity Futures Trading Commission.
    (2) Nothing in this part modifies, limits, or supersedes the 
standards governing individually identifiable health information 
promulgated by the Secretary of Health and Human Services under the 
authority of sections 262 and 264 of the Health Insurance Portability 
and Accountability Act of 1996 (42 U.S.C. 1320d-1320d-8).



Sec. 40.2  Rule of construction.

    The examples in this part and the sample clauses in appendix A of 
this part are not exclusive. Compliance with an example or use of a 
sample clause, to the extent applicable, constitutes compliance with 
this part.



Sec. 40.3  Definitions.

    As used in this part, unless the context requires otherwise:
    (a) Affiliate means any company that controls, is controlled by, or 
is under common control with another company.

[[Page 420]]

    (b)(1) Clear and conspicuous means that a notice is reasonably 
understandable and designed to call attention to the nature and 
significance of the information in the notice.
    (2) Examples. (i) Reasonably understandable. A bank makes its notice 
reasonably understandable if it:
    (A) Presents the information in the notice in clear, concise 
sentences, paragraphs, and sections;
    (B) Uses short explanatory sentences or bullet lists whenever 
possible;
    (C) Uses definite, concrete, everyday words and active voice 
whenever possible;
    (D) Avoids multiple negatives;
    (E) Avoids legal and highly technical business terminology whenever 
possible; and
    (F) Avoids explanations that are imprecise and readily subject to 
different interpretations.
    (ii) Designed to call attention. A bank designs its notice to call 
attention to the nature and significance of the information in it if the 
bank:
    (A) Uses a plain-language heading to call attention to the notice;
    (B) Uses a typeface and type size that are easy to read;
    (C) Provides wide margins and ample line spacing;
    (D) Uses boldface or italics for key words; and
    (E) In a form that combines the bank's notice with other 
information, uses distinctive type size, style, and graphic devices, 
such as shading or sidebars, when you combine your notice with other 
information.
    (iii) Notices on web sites. If a bank provides a notice on a web 
page, the bank designs its notice to call attention to the nature and 
significance of the information in it if the bank uses text or visual 
cues to encourage scrolling down the page if necessary to view the 
entire notice and ensure that other elements on the web site (such as 
text, graphics, hyperlinks, or sound) do not distract attention from the 
notice, and the bank either:
    (A) Places the notice on a screen that consumers frequently access, 
such as a page on which transactions are conducted; or
    (B) Places a link on a screen that consumers frequently access, such 
as a page on which transactions are conducted, that connects directly to 
the notice and is labeled appropriately to convey the importance, 
nature, and relevance of the notice.
    (c) Collect means to obtain information that the bank organizes or 
can retrieve by the name of an individual or by identifying number, 
symbol, or other identifying particular assigned to the individual, 
irrespective of the source of the underlying information.
    (d) Company means any corporation, limited liability company, 
business trust, general or limited partnership, association, or similar 
organization.
    (e)(1) Consumer means an individual who obtains or has obtained a 
financial product or service from a bank that is to be used primarily 
for personal, family, or household purposes, or that individual's legal 
representative.
    (2) Examples. (i) An individual who applies to a bank for credit for 
personal, family, or household purposes is a consumer of a financial 
service, regardless of whether the credit is extended.
    (ii) An individual who provides nonpublic personal information to a 
bank in order to obtain a determination about whether he or she may 
qualify for a loan to be used primarily for personal, family, or 
household purposes is a consumer of a financial service, regardless of 
whether the loan is extended.
    (iii) An individual who provides nonpublic personal information to a 
bank in connection with obtaining or seeking to obtain financial, 
investment, or economic advisory services is a consumer regardless of 
whether the bank establishes a continuing advisory relationship.
    (iv) If a bank holds ownership or servicing rights to an 
individual's loan that is used primarily for personal, family, or 
household purposes, the individual is the bank's consumer, even if the 
bank holds those rights in conjunction with one or more other 
institutions. (The individual is also a consumer with respect to the 
other financial institutions involved.) An individual who has a loan in 
which a bank has ownership or servicing rights is the bank's consumer, 
even if the bank, or

[[Page 421]]

another institution with those rights, hires an agent to collect on the 
loan.
    (v) An individual who is a consumer of another financial institution 
is not a bank's consumer solely because the bank acts as agent for, or 
provides processing or other services to, that financial institution.
    (vi) An individual is not a bank's consumer solely because he or she 
has designated the bank as trustee for a trust.
    (vii) An individual is not a bank's consumer solely because he or 
she is a beneficiary of a trust for which the bank is a trustee.
    (viii) An individual is not a bank's consumer solely because he or 
she is a participant or a beneficiary of an employee benefit plan that 
the bank sponsors or for which the bank acts as a trustee or fiduciary.
    (f) Consumer reporting agency has the same meaning as in section 
603(f) of the Fair Credit Reporting Act (15 U.S.C. 1681a(f)).
    (g) Control of a company means:
    (1) Ownership, control, or power to vote 25 percent or more of the 
outstanding shares of any class of voting security of the company, 
directly or indirectly, or acting through one or more other persons;
    (2) Control in any manner over the election of a majority of the 
directors, trustees, or general partners (or individuals exercising 
similar functions) of the company; or
    (3) The power to exercise, directly or indirectly, a controlling 
influence over the management or policies of the company, as the OCC 
determines.
    (h) Customer means a consumer who has a customer relationship with a 
bank.
    (i)(1) Customer relationship means a continuing relationship between 
a consumer and a bank under which the bank provides one or more 
financial products or services to the consumer that are to be used 
primarily for personal, family, or household purposes.
    (2) Examples. (i) Continuing relationship. A consumer has a 
continuing relationship with a bank if the consumer:
    (A) Has a deposit or investment account with the bank;
    (B) Obtains a loan from the bank;
    (C) Has a loan for which you own the servicing rights;
    (D) Purchases an insurance product from the bank;
    (E) Holds an investment product through the bank, such as when the 
bank acts as a custodian for securities or for assets in an Individual 
Retirement Arrangement;
    (F) Enters into an agreement or understanding with the bank whereby 
the bank undertakes to arrange or broker a home mortgage loan for the 
consumer;
    (G) Enters into a lease of personal property with the bank; or
    (H) Obtains financial, investment, or economic advisory services 
from the bank for a fee.
    (ii) No continuing relationship. A consumer does not, however, have 
a continuing relationship with a bank if:
    (A) The consumer obtains a financial product or service only in 
isolated transactions, such as using the bank's ATM to withdraw cash 
from an account at another financial institution or purchasing a 
cashier's check or money order;
    (B) The bank sells the consumer's loan and does not retain the 
rights to service that loan; or
    (C) The bank sells the consumer airline tickets, travel insurance, 
or traveler's checks in isolated transactions.
    (j) Federal functional regulator means:
    (1) The Board of Governors of the Federal Reserve System;
    (2) The Office of the Comptroller of the Currency;
    (3) The Board of Directors of the Federal Deposit Insurance 
Corporation;
    (4) The Director of the Office of Thrift Supervision;
    (5) The National Credit Union Administration Board; and
    (6) The Securities and Exchange Commission.
    (k)(1) Financial institution means any institution the business of 
which is engaging in activities that are financial in nature or 
incidental to such financial activities as described in section 4(k) of 
the Bank Holding Company Act of 1956 (12 U.S.C. 1843(k)).
    (2) Financial institution does not include:
    (i) Any person or entity with respect to any financial activity that 
is subject to the jurisdiction of the Commodity Futures Trading 
Commission under the

[[Page 422]]

Commodity Exchange Act (7 U.S.C. 1 et seq.);
    (ii) The Federal Agricultural Mortgage Corporation or any entity 
chartered and operating under the Farm Credit Act of 1971 (12 U.S.C. 
2001 et seq.); or
    (iii) Institutions chartered by Congress specifically to engage in 
securitizations, secondary market sales (including sales of servicing 
rights), or similar transactions related to a transaction of a consumer, 
as long as such institutions do not sell or transfer nonpublic personal 
information to a nonaffiliated third party.
    (l)(1) Financial product or service means any product or service 
that a financial holding company could offer by engaging in an activity 
that is financial in nature or incidental to such a financial activity 
under section 4(k) of the Bank Holding Company Act of 1956 (12 U.S.C. 
1843(k)).
    (2) Financial service includes a bank's evaluation or brokerage of 
information that the bank collects in connection with a request or an 
application from a consumer for a financial product or service.
    (m)(1) Nonaffiliated third party means any person except:
    (i) A bank's affiliate; or
    (ii) A person employed jointly by a bank and any company that is not 
the bank's affiliate (but nonaffiliated third party includes the other 
company that jointly employs the person).
    (2) Nonaffiliated third party includes any company that is an 
affiliate solely by virtue of a bank's (or its affiliate's) direct or 
indirect ownership or control of the company in conducting merchant 
banking or investment banking activities of the type described in 
section 4(k)(4)(H) or insurance company investment activities of the 
type described in section 4(k)(4)(I) of the Bank Holding Company Act of 
1956 (12 U.S.C. 1843(k)(4)(H) and (I)).
    (n)(1) Nonpublic personal information means:
    (i) Personally identifiable financial information; and
    (ii) Any list, description, or other grouping of consumers (and 
publicly available information pertaining to them) that is derived using 
any personally identifiable financial information that is not publicly 
available.
    (2) Nonpublic personal information does not include:
    (i) Publicly available information, except as included on a list 
described in paragraph (n)(1)(ii) of this section; or
    (ii) Any list, description, or other grouping of consumers (and 
publicly available information pertaining to them) that is derived 
without using any personally identifiable financial information that is 
not publicly available.
    (3) Examples of lists. (i) Nonpublic personal information includes 
any list of individuals' names and street addresses that is derived in 
whole or in part using personally identifiable financial information 
that is not publicly available, such as account numbers.
    (ii) Nonpublic personal information does not include any list of 
individuals' names and addresses that contains only publicly available 
information, is not derived in whole or in part using personally 
identifiable financial information that is not publicly available, and 
is not disclosed in a manner that indicates that any of the individuals 
on the list is a consumer of a financial institution.
    (o)(1) Personally identifiable financial information means any 
information:
    (i) A consumer provides to a bank to obtain a financial product or 
service from the bank;
    (ii) About a consumer resulting from any transaction involving a 
financial product or service between a bank and a consumer; or
    (iii) The bank otherwise obtains about a consumer in connection with 
providing a financial product or service to that consumer.
    (2) Examples. (i) Information included. Personally identifiable 
financial information includes:
    (A) Information a consumer provides to a bank on an application to 
obtain a loan, credit card, or other financial product or service;
    (B) Account balance information, payment history, overdraft history, 
and credit or debit card purchase information;
    (C) The fact that an individual is or has been one of the bank's 
customers

[[Page 423]]

or has obtained a financial product or service from the bank;
    (D) Any information about the bank's consumer if it is disclosed in 
a manner that indicates that the individual is or has been the bank's 
consumer;
    (E) Any information that a consumer provides to a bank or that the 
bank or its agent otherwise obtains in connection with collecting on a 
loan or servicing a loan;
    (F) Any information the bank collects through an Internet ``cookie'' 
(an information collecting device from a web server); and
    (G) Information from a consumer report.
    (ii) Information not included. Personally identifiable financial 
information does not include:
    (A) A list of names and addresses of customers of an entity that is 
not a financial institution; and
    (B) Information that does not identify a consumer, such as aggregate 
information or blind data that does not contain personal identifiers 
such as account numbers, names, or addresses.
    (p)(1) Publicly available information means any information that a 
bank has a reasonable basis to believe is lawfully made available to the 
general public from:
    (i) Federal, State, or local government records;
    (ii) Widely distributed media; or
    (iii) Disclosures to the general public that are required to be made 
by Federal, State, or local law.
    (2) Reasonable basis. A bank has a reasonable basis to believe that 
information is lawfully made available to the general public if the bank 
has taken steps to determine:
    (i) That the information is of the type that is available to the 
general public; and
    (ii) Whether an individual can direct that the information not be 
made available to the general public and, if so, that the bank's 
consumer has not done so.
    (3) Examples. (i) Government records. Publicly available information 
in government records includes information in government real estate 
records and security interest filings.
    (ii) Widely distributed media. Publicly available information from 
widely distributed media includes information from a telephone book, a 
television or radio program, a newspaper, or a web site that is 
available to the general public on an unrestricted basis. A web site is 
not restricted merely because an Internet service provider or a site 
operator requires a fee or a password, so long as access is available to 
the general public.
    (iii) Reasonable basis. (A) A bank has a reasonable basis to believe 
that mortgage information is lawfully made available to the general 
public if the bank has determined that the information is of the type 
included on the public record in the jurisdiction where the mortgage 
would be recorded.
    (B) A bank has a reasonable basis to believe that an individual's 
telephone number is lawfully made available to the general public if the 
bank has located the telephone number in the telephone book or the 
consumer has informed you that the telephone number is not unlisted.



                  Subpart A_Privacy and Opt Out Notices



Sec. 40.4  Initial privacy notice to consumers required.

    (a) Initial notice requirement. A bank must provide a clear and 
conspicuous notice that accurately reflects its privacy policies and 
practices to:
    (1) Customer. An individual who becomes the bank's customer, not 
later than when the bank establishes a customer relationship, except as 
provided in paragraph (e) of this section; and
    (2) Consumer. A consumer, before the bank discloses any nonpublic 
personal information about the consumer to any nonaffiliated third 
party, if the bank makes such a disclosure other than as authorized by 
Sec. Sec. 40.14 and 40.15.
    (b) When initial notice to a consumer is not required. A bank is not 
required to provide an initial notice to a consumer under paragraph (a) 
of this section if:
    (1) The bank does not disclose any nonpublic personal information 
about the consumer to any nonaffiliated third party, other than as 
authorized by Sec. Sec. 40.14 and 40.15; and

[[Page 424]]

    (2) The bank does not have a customer relationship with the 
consumer.
    (c) When the bank establishes a customer relationship--(1) General 
rule. A bank establishes a customer relationship when it and the 
consumer enter into a continuing relationship.
    (2) Special rule for loans. A bank establishes a customer 
relationship with a consumer when the bank originates a loan to the 
consumer for personal, family, or household purposes. If the bank 
subsequently transfers the servicing rights to that loan to another 
financial institution, the customer relationship transfers with the 
servicing rights.
    (3)(i) Examples of establishing customer relationship. A bank 
establishes a customer relationship when the consumer:
    (A) Opens a credit card account with the bank;
    (B) Executes the contract to open a deposit account with the bank, 
obtains credit from the bank, or purchases insurance from the bank;
    (C) Agrees to obtain financial, economic, or investment advisory 
services from the bank for a fee; or
    (D) Becomes the bank's client for the purpose of the bank's 
providing credit counseling or tax preparation services.
    (ii) Examples of loan rule. A bank establishes a customer 
relationship with a consumer who obtains a loan for personal, family, or 
household purposes when the bank:
    (A) Originates the loan to the consumer; or
    (B) Purchases the servicing rights to the consumer's loan.
    (d) Existing customers. When an existing customer obtains a new 
financial product or service from a bank that is to be used primarily 
for personal, family, or household purposes, the bank satisfies the 
initial notice requirements of paragraph (a) of this section as follows:
    (1) The bank may provide a revised privacy notice, under Sec. 40.8, 
that covers the customer's new financial product or service; or
    (2) If the initial, revised, or annual notice that the bank most 
recently provided to that customer was accurate with respect to the new 
financial product or service, the bank does not need to provide a new 
privacy notice under paragraph (a) of this section.
    (e) Exceptions to allow subsequent delivery of notice. (1) A bank 
may provide the initial notice required by paragraph (a)(1) of this 
section within a reasonable time after the bank establishes a customer 
relationship if:
    (i) Establishing the customer relationship is not at the customer's 
election; or
    (ii) Providing notice not later than when the bank establishes a 
customer relationship would substantially delay the customer's 
transaction and the customer agrees to receive the notice at a later 
time.
    (2) Examples of exceptions. (i) Not at customer's election. 
Establishing a customer relationship is not at the customer's election 
if a bank acquires a customer's deposit liability or the servicing 
rights to a customer's loan from another financial institution and the 
customer does not have a choice about the bank's acquisition.
    (ii) Substantial delay of customer's transaction. Providing notice 
not later than when a bank establishes a customer relationship would 
substantially delay the customer's transaction when:
    (A) The bank and the individual agree over the telephone to enter 
into a customer relationship involving prompt delivery of the financial 
product or service; or
    (B) The bank establishes a customer relationship with an individual 
under a program authorized by Title IV of the Higher Education Act of 
1965 (20 U.S.C. 1070 et seq.) or similar student loan programs where 
loan proceeds are disbursed promptly without prior communication between 
the bank and the customer.
    (iii) No substantial delay of customer's transaction. Providing 
notice not later than when a bank establishes a customer relationship 
would not substantially delay the customer's transaction when the 
relationship is initiated in person at the bank's office or through 
other means by which the customer may view the notice, such as on a web 
site.
    (f) Delivery. When a bank is required to deliver an initial privacy 
notice by this section, the bank must deliver it according to Sec. 
40.9. If the bank uses a short-form initial notice for non-customers 
according to Sec. 40.6(d), the bank

[[Page 425]]

may deliver its privacy notice according to Sec. 40.6(d)(3).



Sec. 40.5  Annual privacy notice to customers required.

    (a)(1) General rule. A bank must provide a clear and conspicuous 
notice to customers that accurately reflects its privacy policies and 
practices not less than annually during the continuation of the customer 
relationship. Annually means at least once in any period of 12 
consecutive months during which that relationship exists. A bank may 
define the 12-consecutive-month period, but the bank must apply it to 
the customer on a consistent basis.
    (2) Example. A bank provides a notice annually if it defines the 12-
consecutive-month period as a calendar year and provides the annual 
notice to the customer once in each calendar year following the calendar 
year in which the bank provided the initial notice. For example, if a 
customer opens an account on any day of year 1, the bank must provide an 
annual notice to that customer by December 31 of year 2.
    (b)(1) Termination of customer relationship. A bank is not required 
to provide an annual notice to a former customer.
    (2) Examples. A bank's customer becomes a former customer when:
    (i) In the case of a deposit account, the account is inactive under 
the bank's policies;
    (ii) In the case of a closed-end loan, the customer pays the loan in 
full, the bank charges off the loan, or the bank sells the loan without 
retaining servicing rights;
    (iii) In the case of a credit card relationship or other open-end 
credit relationship, the bank no longer provides any statements or 
notices to the customer concerning that relationship or the bank sells 
the credit card receivables without retaining servicing rights; or
    (iv) The bank has not communicated with the customer about the 
relationship for a period of 12 consecutive months, other than to 
provide annual privacy notices or promotional material.
    (c) Special rule for loans. If a bank does not have a customer 
relationship with a consumer under the special rule for loans in Sec. 
40.4(c)(2), then the bank need not provide an annual notice to that 
consumer under this section.
    (d) Delivery. When a bank is required to deliver an annual privacy 
notice by this section, the bank must deliver it according to Sec. 
40.9.



Sec. 40.6  Information to be included in privacy notices.

    (a) General rule. The initial, annual, and revised privacy notices 
that a bank provides under Sec. Sec. 40.4, 40.5, and 40.8 must include 
each of the following items of information, in addition to any other 
information the bank wishes to provide, that applies to the bank and to 
the consumers to whom the bank sends its privacy notice:
    (1) The categories of nonpublic personal information that the bank 
collects;
    (2) The categories of nonpublic personal information that the bank 
discloses;
    (3) The categories of affiliates and nonaffiliated third parties to 
whom the bank discloses nonpublic personal information, other than those 
parties to whom the bank discloses information under Sec. Sec. 40.14 
and 40.15;
    (4) The categories of nonpublic personal information about the 
bank's former customers that the bank discloses and the categories of 
affiliates and nonaffiliated third parties to whom the bank discloses 
nonpublic personal information about the bank's former customers, other 
than those parties to whom the bank discloses information under 
Sec. Sec. 40.14 and 40.15;
    (5) If a bank discloses nonpublic personal information to a 
nonaffiliated third party under Sec. 40.13 (and no other exception in 
Sec. Sec. 40.14 or 40.15 applies to that disclosure), a separate 
statement of the categories of information the bank discloses and the 
categories of third parties with whom the bank has contracted;
    (6) An explanation of the consumer's right under Sec. 40.10(a) to 
opt out of the disclosure of nonpublic personal information to 
nonaffiliated third parties, including the method(s) by which the 
consumer may exercise that right at that time;
    (7) Any disclosures that the bank makes under section 
603(d)(2)(A)(iii) of the Fair Credit Reporting Act (15

[[Page 426]]

U.S.C. 1681a(d)(2)(A)(iii)) (that is, notices regarding the ability to 
opt out of disclosures of information among affiliates);
    (8) The bank's policies and practices with respect to protecting the 
confidentiality and security of nonpublic personal information; and
    (9) Any disclosure that the bank makes under paragraph (b) of this 
section.
    (b) Description of nonaffiliated third parties subject to 
exceptions. If a bank discloses nonpublic personal information to third 
parties as authorized under Sec. Sec. 40.14 and 40.15, the bank is not 
required to list those exceptions in the initial or annual privacy 
notices required by Sec. Sec. 40.4 and 40.5. When describing the 
categories with respect to those parties, the bank is required to state 
only that it makes disclosures to other nonaffiliated third parties as 
permitted by law.
    (c) Examples--(1) Categories of nonpublic personal information that 
the bank collects. A bank satisfies the requirement to categorize the 
nonpublic personal information that it collects if it lists the 
following categories, as applicable:
    (i) Information from the consumer;
    (ii) Information about the consumer's transactions with the bank or 
its affiliates;
    (iii) Information about the consumer's transactions with 
nonaffiliated third parties; and
    (iv) Information from a consumer reporting agency.
    (2) Categories of nonpublic personal information the bank discloses. 
(i) A bank satisfies the requirement to categorize the nonpublic 
personal information that it discloses if the bank lists the categories 
described in paragraph (e)(1) of this section, as applicable, and a few 
examples to illustrate the types of information in each category.
    (ii) If a bank reserves the right to disclose all of the nonpublic 
personal information about consumers that it collects, it may simply 
state that fact without describing the categories or examples of the 
nonpublic personal information it discloses.
    (3) Categories of affiliates and nonaffiliated third parties to whom 
the bank discloses. A bank satisfies the requirement to categorize the 
affiliates and nonaffiliated third parties to whom it discloses 
nonpublic personal information if the bank lists the following 
categories, as applicable, and a few examples to illustrate the types of 
third parties in each category:
    (i) Financial service providers;
    (ii) Non-financial companies; and
    (iii) Others.
    (4) Disclosures under exception for service providers and joint 
marketers. If a bank discloses nonpublic personal information under the 
exception in Sec. 40.13 to a nonaffiliated third party to market 
products or services that it offers alone or jointly with another 
financial institution, the bank satisfies the disclosure requirement of 
paragraph (a)(5) of this section if it:
    (i) Lists the categories of nonpublic personal information it 
discloses, using the same categories and examples the bank used to meet 
the requirements of paragraph (a)(2) of this section, as applicable; and
    (ii) States whether the third party is:
    (A) A service provider that performs marketing services on the 
bank's behalf or on behalf of the bank and another financial 
institution; or
    (B) A financial institution with whom the bank has a joint marketing 
agreement.
    (5) Simplified notices. If a bank does not disclose, and does not 
wish to reserve the right to disclose, nonpublic personal information 
about customers or former customers to affiliates or nonaffiliated third 
parties except as authorized under Sec. Sec. 40.14 and 40.15, the bank 
may simply state that fact, in addition to the information it must 
provide under paragraphs (a)(1), (a)(8), (a)(9), and (b) of this 
section.
    (6) Confidentiality and security. A bank describes its policies and 
practices with respect to protecting the confidentiality and security of 
nonpublic personal information if it does both of the following:
    (i) Describes in general terms who is authorized to have access to 
the information; and
    (ii) States whether the bank has security practices and procedures 
in place to ensure the confidentiality of the information in accordance 
with the bank's policy. The bank is not required

[[Page 427]]

to describe technical information about the safeguards it uses.
    (d) Short-form initial notice with opt out notice for non-customers. 
(1) A bank may satisfy the initial notice requirements in Sec. Sec. 
40.4(a)(2), 40.7(b), and 40.7(c) for a consumer who is not a customer by 
providing a short-form initial notice at the same time as the bank 
delivers an opt out notice as required in Sec. 40.7.
    (2) A short-form initial notice must:
    (i) Be clear and conspicuous;
    (ii) State that the bank's privacy notice is available upon request; 
and
    (iii) Explain a reasonable means by which the consumer may obtain 
that notice.
    (3) The bank must deliver its short-form initial notice according to 
Sec. 40.9. The bank is not required to deliver its privacy notice with 
its short-form initial notice. The bank instead may simply provide the 
consumer a reasonable means to obtain its privacy notice. If a consumer 
who receives the bank's short-form notice requests the bank's privacy 
notice, the bank must deliver its privacy notice according to Sec. 
40.9.
    (4) Examples of obtaining privacy notice. The bank provides a 
reasonable means by which a consumer may obtain a copy of its privacy 
notice if the bank:
    (i) Provides a toll-free telephone number that the consumer may call 
to request the notice; or
    (ii) For a consumer who conducts business in person at the bank's 
office, maintain copies of the notice on hand that the bank provides to 
the consumer immediately upon request.
    (e) Future disclosures. The bank's notice may include:
    (1) Categories of nonpublic personal information that the bank 
reserves the right to disclose in the future, but do not currently 
disclose; and
    (2) Categories of affiliates or nonaffiliated third parties to whom 
the bank reserves the right in the future to disclose, but to whom the 
bank does not currently disclose, nonpublic personal information.
    (f) Sample clauses. Sample clauses illustrating some of the notice 
content required by this section are included in Appendix A of this 
part.



Sec. 40.7  Form of opt out notice to consumers; opt out methods.

    (a) (1) Form of opt out notice. If a bank is required to provide an 
opt out notice under Sec. 40.10(a), it must provide a clear and 
conspicuous notice to each of its consumers that accurately explains the 
right to opt out under that section. The notice must state:
    (i) That the bank discloses or reserves the right to disclose 
nonpublic personal information about its consumer to a nonaffiliated 
third party;
    (ii) That the consumer has the right to opt out of that disclosure; 
and
    (iii) A reasonable means by which the consumer may exercise the opt 
out right.
    (2) Examples. (i) Adequate opt out notice. A bank provides adequate 
notice that the consumer can opt out of the disclosure of nonpublic 
personal information to a nonaffiliated third party if the bank:
    (A) Identifies all of the categories of nonpublic personal 
information that it discloses or reserves the right to disclose, and all 
of the categories of nonaffiliated third parties to which the bank 
discloses the information, as described in Sec. 40.6(a)(2) and (3), and 
states that the consumer can opt out of the disclosure of that 
information; and
    (B) Identifies the financial products or services that the consumer 
obtains from the bank, either singly or jointly, to which the opt out 
direction would apply.
    (ii) Reasonable opt out means. A bank provides a reasonable means to 
exercise an opt out right if it:
    (A) Designates check-off boxes in a prominent position on the 
relevant forms with the opt out notice;
    (B) Includes a reply form together with the opt out notice;
    (C) Provides an electronic means to opt out, such as a form that can 
be sent via electronic mail or a process at the bank's web site, if the 
consumer agrees to the electronic delivery of information; or
    (D) Provides a toll-free telephone number that consumers may call to 
opt out.
    (iii) Unreasonable opt out means. A bank does not provide a 
reasonable means of opting out if:

[[Page 428]]

    (A) The only means of opting out is for the consumer to write his or 
her own letter to exercise that opt out right; or
    (B) The only means of opting out as described in any notice 
subsequent to the initial notice is to use a check-off box that the bank 
provided with the initial notice but did not include with the subsequent 
notice.
    (iv) Specific opt out means. A bank may require each consumer to opt 
out through a specific means, as long as that means is reasonable for 
that consumer.
    (b) Same form as initial notice permitted. A bank may provide the 
opt out notice together with or on the same written or electronic form 
as the initial notice the bank provides in accordance with Sec. 40.4.
    (c) Initial notice required when opt out notice delivered subsequent 
to initial notice. If a bank provides the opt out notice later than 
required for the initial notice in accordance with Sec. 40.4, the bank 
must also include a copy of the initial notice with the opt out notice 
in writing or, if the consumer agrees, electronically.
    (d) Joint relationships. (1) If two or more consumers jointly obtain 
a financial product or service from a bank, the bank may provide a 
single opt out notice. The bank's opt out notice must explain how the 
bank will treat an opt out direction by a joint consumer (as explained 
in paragraph (d)(5) of this section).
    (2) Any of the joint consumers may exercise the right to opt out. 
The bank may either:
    (i) Treat an opt out direction by a joint consumer as applying to 
all of the associated joint consumers; or
    (ii) Permit each joint consumer to opt out separately.
    (3) If a bank permits each joint consumer to opt out separately, the 
bank must permit one of the joint consumers to opt out on behalf of all 
of the joint consumers.
    (4) A bank may not require all joint consumers to opt out before it 
implements any opt out direction.
    (5) Example. If John and Mary have a joint checking account with a 
bank and arranges for the bank to send statements to John's address, the 
bank may do any of the following, but it must explain in its opt out 
notice which opt out policy the bank will follow:
    (i) Send a single opt out notice to John's address, but the bank 
must accept an opt out direction from either John or Mary.
    (ii) Treat an opt out direction by either John or Mary as applying 
to the entire account. If the bank does so and John opts out, the bank 
may not require Mary to opt out as well before implementing John's opt 
out direction.
    (iii) Permit John and Mary to make different opt out directions. If 
the bank does so:
    (A) It must permit John and Mary to opt out for each other;
    (B) If both opt out, the bank must permit both of them to notify it 
in a single response (such as on a form or through a telephone call); 
and
    (C) If John opts out and Mary does not, the bank may only disclose 
nonpublic personal information about Mary, but not about John and not 
about John and Mary jointly.
    (e) Time to comply with opt out. A bank must comply with a 
consumer's opt out direction as soon as reasonably practicable after the 
bank receives it.
    (f) Continuing right to opt out. A consumer may exercise the right 
to opt out at any time.
    (g) Duration of consumer's opt out direction. (1) A consumer's 
direction to opt out under this section is effective until the consumer 
revokes it in writing or, if the consumer agrees, electronically.
    (2) When a customer relationship terminates, the customer's opt out 
direction continues to apply to the nonpublic personal information that 
the bank collected during or related to that relationship. If the 
individual subsequently establishes a new customer relationship with the 
bank, the opt out direction that applied to the former relationship does 
not apply to the new relationship.
    (h) Delivery. When a bank is required to deliver an opt out notice 
by this section, the bank must deliver it according to Sec. 40.9.

[[Page 429]]



Sec. 40.8  Revised privacy notices.

    (a) General rule. Except as otherwise authorized in this part, a 
bank must not, directly or through any affiliate, disclose any nonpublic 
personal information about a consumer to a nonaffiliated third party 
other than as described in the initial notice that the bank provided to 
that consumer under Sec. 40.4, unless:
    (1) The bank has provided to the consumer a clear and conspicuous 
revised notice that accurately describes its policies and practices;
    (2) The bank has provided to the consumer a new opt out notice;
    (3) The bank has given the consumer a reasonable opportunity, before 
the bank discloses the information to the nonaffiliated third party, to 
opt out of the disclosure; and
    (4) The consumer does not opt out.
    (b) Examples. (1) Except as otherwise permitted by Sec. Sec. 40.13, 
40.14, and 40.15, a bank must provide a revised notice before it:
    (i) Discloses a new category of nonpublic personal information to 
any nonaffiliated third party;
    (ii) Discloses nonpublic personal information to a new category of 
nonaffiliated third party; or
    (iii) Disclose nonpublic personal information about a former 
customer to a nonaffiliated third party, if that former customer has not 
had the opportunity to exercise an opt out right regarding that 
disclosure.
    (2) A revised notice is not required if the bank discloses nonpublic 
personal information to a new nonaffiliated third party that the bank 
adequately described in its prior notice.
    (c) Delivery. When a bank is required to deliver a revised privacy 
notice by this section, the bank must deliver it according to Sec. 
40.9.



Sec. 40.9  Delivering privacy and opt out notices.

    (a) How to provide notices. A bank must provide any privacy notices 
and opt out notices, including short-form initial notices, that this 
part requires so that each consumer can reasonably be expected to 
receive actual notice in writing or, if the consumer agrees, 
electronically.
    (b) (1) Examples of reasonable expectation of actual notice. A bank 
may reasonably expect that a consumer will receive actual notice if the 
bank:
    (i) Hand-delivers a printed copy of the notice to the consumer;
    (ii) Mails a printed copy of the notice to the last known address of 
the consumer;
    (iii) For the consumer who conducts transactions electronically, 
posts the notice on the electronic site and requires the consumer to 
acknowledge receipt of the notice as a necessary step to obtaining a 
particular financial product or service;
    (iv) For an isolated transaction with the consumer, such as an ATM 
transaction, posts the notice on the ATM screen and requires the 
consumer to acknowledge receipt of the notice as a necessary step to 
obtaining the particular financial product or service.
    (2) Examples of unreasonable expectation of actual notice. A bank 
may not, however, reasonably expect that a consumer will receive actual 
notice of its privacy policies and practices if it:
    (i) Only posts a sign in its branch or office or generally publish 
advertisements of its privacy policies and practices;
    (ii) Sends the notice via electronic mail to a consumer who does not 
obtain a financial product or service from the bank electronically.
    (c) Annual notices only. A bank may reasonably expect that a 
customer will receive actual notice of the bank's annual privacy notice 
if:
    (1) The customer uses the bank's web site to access financial 
products and services electronically and agrees to receive notices at 
the web site and the bank posts its current privacy notice continuously 
in a clear and conspicuous manner on the web site; or
    (2) The customer has requested that the bank refrain from sending 
any information regarding the customer relationship, and the bank's 
current privacy notice remains available to the customer upon request.
    (d) Oral description of notice insufficient. A bank may not provide 
any notice required by this part solely by orally explaining the notice, 
either in person or over the telephone.

[[Page 430]]

    (e) Retention or accessibility of notices for customers. (1) For 
customers only, a bank must provide the initial notice required by Sec. 
40.4(a)(1), the annual notice required by Sec. 40.5(a), and the revised 
notice required by Sec. 40.8 so that the customer can retain them or 
obtain them later in writing or, if the customer agrees, electronically.
    (2) Examples of retention or accessibility. A bank provides a 
privacy notice to the customer so that the customer can retain it or 
obtain it later if the bank:
    (i) Hand-delivers a printed copy of the notice to the customer;
    (ii) Mails a printed copy of the notice to the last known address of 
the customer; or
    (iii) Makes its current privacy notice available on a web site (or a 
link to another web site) for the customer who obtains a financial 
product or service electronically and agrees to receive the notice at 
the web site.
    (f) Joint notice with other financial institutions. A bank may 
provide a joint notice from it and one or more of its affiliates or 
other financial institutions, as identified in the notice, as long as 
the notice is accurate with respect to the bank and the other 
institutions.
    (g) Joint relationships. If two or more consumers jointly obtain a 
financial product or service from a bank, the bank may satisfy the 
initial, annual, and revised notice requirements of Sec. Sec. 40.4(a), 
40.5(a), and 40.8(a), respectively, by providing one notice to those 
consumers jointly.



                     Subpart B_Limits on Disclosures



Sec. 40.10  Limits on disclosure of non-public personal information to nonaffiliated third parties.

    (a)(1) Conditions for disclosure. Except as otherwise authorized in 
this part, a bank may not, directly or through any affiliate, disclose 
any nonpublic personal information about a consumer to a nonaffiliated 
third party unless:
    (i) The bank has provided to the consumer an initial notice as 
required under Sec. 40.4;
    (ii) The bank has provided to the consumer an opt out notice as 
required in Sec. 40.7;
    (iii) The bank has given the consumer a reasonable opportunity, 
before it discloses the information to the nonaffiliated third party, to 
opt out of the disclosure; and
    (iv) The consumer does not opt out.
    (2) Opt out definition. Opt out means a direction by the consumer 
that the bank not disclose nonpublic personal information about that 
consumer to a nonaffiliated third party, other than as permitted by 
Sec. Sec. 40.13, 40.14, and 40.15.
    (3) Examples of reasonable opportunity to opt out. A bank provides a 
consumer with a reasonable opportunity to opt out if:
    (i) By mail. The bank mails the notices required in paragraph (a)(1) 
of this section to the consumer and allows the consumer to opt out by 
mailing a form, calling a toll-free telephone number, or any other 
reasonable means within 30 days from the date the bank mailed the 
notices.
    (ii) By electronic means. A customer opens an on-line account with a 
bank and agrees to receive the notices required in paragraph (a)(1) of 
this section electronically, and the bank allows the customer to opt out 
by any reasonable means within 30 days after the date that the customer 
acknowledges receipt of the notices in conjunction with opening the 
account.
    (iii) Isolated transaction with consumer. For an isolated 
transaction, such as the purchase of a cashier's check by a consumer, a 
bank provides the consumer with a reasonable opportunity to opt out if 
the bank provides the notices required in paragraph (a)(1) of this 
section at the time of the transaction and requests that the consumer 
decide, as a necessary part of the transaction, whether to opt out 
before completing the transaction.
    (b) Application of opt out to all consumers and all nonpublic 
personal information. (1) A bank must comply with this section, 
regardless of whether the bank and the consumer have established a 
customer relationship.
    (2) Unless a bank complies with this section, the bank may not, 
directly or through any affiliate, disclose any nonpublic personal 
information about a consumer that the bank has collected, regardless of 
whether the bank collected it before or after receiving the

[[Page 431]]

direction to opt out from the consumer.
    (c) Partial opt out. A bank may allow a consumer to select certain 
nonpublic personal information or certain nonaffiliated third parties 
with respect to which the consumer wishes to opt out.



Sec. 40.11  Limits on redisclosure and reuse of information.

    (a)(1) Information the bank receives under an exception. If a bank 
receives nonpublic personal information from a nonaffiliated financial 
institution under an exception in Sec. Sec. 40.14 or 40.15 of this 
part, the bank's disclosure and use of that information is limited as 
follows:
    (i) The bank may disclose the information to the affiliates of the 
financial institution from which the bank received the information;
    (ii) The bank may disclose the information to its affiliates, but 
the bank's affiliates may, in turn, disclose and use the information 
only to the extent that the bank may disclose and use the information; 
and
    (iii) The bank may disclose and use the information pursuant to an 
exception in Sec. Sec. 40.14 or 40.15 in the ordinary course of 
business to carry out the activity covered by the exception under which 
the bank received the information.
    (2) Example. If a bank receives a customer list from a nonaffiliated 
financial institution in order to provide account processing services 
under the exception in Sec. 40.14(a), the bank may disclose that 
information under any exception in Sec. Sec. 40.14 or 40.15 in the 
ordinary course of business in order to provide those services. For 
example, the bank could disclose the information in response to a 
properly authorized subpoena or to its attorneys, accountants, and 
auditors. The bank could not disclose that information to a third party 
for marketing purposes or use that information for its own marketing 
purposes.
    (b)(1) Information a bank receives outside of an exception. If a 
bank receives nonpublic personal information from a nonaffiliated 
financial institution other than under an exception in Sec. Sec. 40.14 
or 40.15 of this part, the bank may disclose the information only:
    (i) To the affiliates of the financial institution from which the 
bank received the information;
    (ii) To its affiliates, but its affiliates may, in turn, disclose 
the information only to the extent that the bank can disclose the 
information; and
    (iii) To any other person, if the disclosure would be lawful if made 
directly to that person by the financial institution from which the bank 
received the information.
    (2) Example. If a bank obtains a customer list from a nonaffiliated 
financial institution outside of the exceptions in Sec. Sec. 40.14 and 
40.15:
    (i) The bank may use that list for its own purposes; and
    (ii) The bank may disclose that list to another nonaffiliated third 
party only if the financial institution from which the bank purchased 
the list could have lawfully disclosed the list to that third party. 
That is, the bank may disclose the list in accordance with the privacy 
policy of the financial institution from which the bank received the 
list, as limited by the opt out direction of each consumer whose 
nonpublic personal information the bank intends to disclose and the bank 
may disclose the list in accordance with an exception in Sec. Sec. 
40.14 or 40.15, such as to the bank's attorneys or accountants.
    (c) Information a bank discloses under an exception. If a bank 
discloses nonpublic personal information to a nonaffiliated third party 
under an exception in Sec. Sec. 40.14 or 40.15 of this part, the third 
party may disclose and use that information only as follows:
    (1) The third party may disclose the information to the bank's 
affiliates;
    (2) The third party may disclose the information to its affiliates, 
but its affiliates may, in turn, disclose and use the information only 
to the extent that the third party may disclose and use the information; 
and
    (3) The third party may disclose and use the information pursuant to 
an exception in Sec. Sec. 40.14 or 40.15 in the ordinary course of 
business to carry out the activity covered by the exception under which 
it received the information.

[[Page 432]]

    (d) Information a bank discloses outside of an exception. If a bank 
discloses nonpublic personal information to a nonaffiliated third party 
other than under an exception in Sec. Sec. 40.14 or 40.15 of this part, 
the third party may disclose the information only:
    (1) To the bank's affiliates;
    (2) To the third party's affiliates, but the third party's 
affiliates, in turn, may disclose the information only to the extent the 
third party can disclose the information; and
    (3) To any other person, if the disclosure would be lawful if the 
bank made it directly to that person.



Sec. 40.12  Limits on sharing account number information for marketing purposes.

    (a) General prohibition on disclosure of account numbers. A bank 
must not, directly or through an affiliate, disclose, other than to a 
consumer reporting agency, an account number or similar form of access 
number or access code for a consumer's credit card account, deposit 
account, or transaction account to any nonaffiliated third party for use 
in telemarketing, direct mail marketing, or other marketing through 
electronic mail to the consumer.
    (b) Exceptions. Paragraph (a) of this section does not apply if a 
bank discloses an account number or similar form of access number or 
access code:
    (1) To the bank's agent or service provider solely in order to 
perform marketing for the bank's own products or services, as long as 
the agent or service provider is not authorized to directly initiate 
charges to the account; or
    (2) To a participant in a private label credit card program or an 
affinity or similar program where the participants in the program are 
identified to the customer when the customer enters into the program.
    (c) Examples--(1) Account number. An account number, or similar form 
of access number or access code, does not include a number or code in an 
encrypted form, as long as the bank does not provide the recipient with 
a means to decode the number or code.
    (2) Transaction account. A transaction account is an account other 
than a deposit account or a credit card account. A transaction account 
does not include an account to which third parties cannot initiate 
charges.



                          Subpart C_Exceptions



Sec. 40.13  Exception to opt out requirements for service providers and joint marketing.

    (a) General rule. (1) The opt out requirements in Sec. Sec. 40.7 
and 40.10 do not apply when a bank provides nonpublic personal 
information to a nonaffiliated third party to perform services for the 
bank or functions on the bank's behalf, if the bank:
    (i) Provides the initial notice in accordance with Sec. 40.4; and
    (ii) Enters into a contractual agreement with the third party that 
prohibits the third party from disclosing or using the information other 
than to carry out the purposes for which the bank disclosed the 
information, including use under an exception in Sec. 40.14 or 40.15 in 
the ordinary course of business to carry out those purposes.
    (2) Example. If a bank discloses nonpublic personal information 
under this section to a financial institution with which the bank 
performs joint marketing, the bank's contractual agreement with that 
institution meets the requirements of paragraph (a)(1)(ii) of this 
section if it prohibits the institution from disclosing or using the 
nonpublic personal information except as necessary to carry out the 
joint marketing or under an exception in Sec. Sec. 40.14 or 40.15 in 
the ordinary course of business to carry out that joint marketing.
    (b) Service may include joint marketing. The services a 
nonaffiliated third party performs for a bank under paragraph (a) of 
this section may include marketing of the bank's own products or 
services or marketing of financial products or services offered pursuant 
to joint agreements between the bank and one or more financial 
institutions.
    (c) Definition of joint agreement. For purposes of this section, 
joint agreement means a written contract pursuant to which a bank and 
one or more financial institutions jointly offer, endorse, or sponsor a 
financial product or service.

[[Page 433]]



Sec. 40.14  Exceptions to notice and opt out requirements for processing and servicing transactions.

    (a) Exceptions for processing transactions at consumer's request. 
The requirements for initial notice in Sec. 40.4(a)(2), the opt out in 
Sec. Sec. 40.7 and 40.10 and service providers and joint marketing in 
Sec. 40.13 do not apply if the bank discloses nonpublic personal 
information as necessary to effect, administer, or enforce a transaction 
that a consumer requests or authorizes, or in connection with:
    (1) Servicing or processing a financial product or service that a 
consumer requests or authorizes;
    (2) Maintaining or servicing the consumer's account with a bank, or 
with another entity as part of a private label credit card program or 
other extension of credit on behalf of such entity; or
    (3) A proposed or actual securitization, secondary market sale 
(including sales of servicing rights), or similar transaction related to 
a transaction of the consumer.
    (b) Necessary to effect, administer, or enforce a transaction means 
that the disclosure is:
    (1) Required, or is one of the lawful or appropriate methods, to 
enforce the bank's rights or the rights of other persons engaged in 
carrying out the financial transaction or providing the product or 
service; or
    (2) Required, or is a usual, appropriate or acceptable method:
    (i) To carry out the transaction or the product or service business 
of which the transaction is a part, and record, service, or maintain the 
consumer's account in the ordinary course of providing the financial 
service or financial product;
    (ii) To administer or service benefits or claims relating to the 
transaction or the product or service business of which it is a part;
    (iii) To provide a confirmation, statement, or other record of the 
transaction, or information on the status or value of the financial 
service or financial product to the consumer or the consumer's agent or 
broker;
    (iv) To accrue or recognize incentives or bonuses associated with 
the transaction that are provided by a bank or any other party;
    (v) To underwrite insurance at the consumer's request or for 
reinsurance purposes, or for any of the following purposes as they 
relate to a consumer's insurance: account administration, reporting, 
investigating, or preventing fraud or material misrepresentation, 
processing premium payments, processing insurance claims, administering 
insurance benefits (including utilization review activities), 
participating in research projects, or as otherwise required or 
specifically permitted by Federal or State law;
    (vi) In connection with:
    (A) The authorization, settlement, billing, processing, clearing, 
transferring, reconciling or collection of amounts charged, debited, or 
otherwise paid using a debit, credit, or other payment card, check, or 
account number, or by other payment means;
    (B) The transfer of receivables, accounts, or interests therein; or
    (C) The audit of debit, credit, or other payment information.



Sec. 40.15  Other exceptions to notice and opt out requirements.

    (a) Exceptions to opt out requirements. The requirements for initial 
notice to consumers in Sec. 40.4(a)(2), the opt out in Sec. Sec. 40.7 
and 40.10, and service providers and joint marketing in Sec. 40.13 do 
not apply when a bank discloses nonpublic personal information:
    (1) With the consent or at the direction of the consumer, provided 
that the consumer has not revoked the consent or direction;
    (2) (i) To protect the confidentiality or security of a bank's 
records pertaining to the consumer, service, product, or transaction;
    (ii) To protect against or prevent actual or potential fraud, 
unauthorized transactions, claims, or other liability;
    (iii) For required institutional risk control or for resolving 
consumer disputes or inquiries;
    (iv) To persons holding a legal or beneficial interest relating to 
the consumer; or
    (v) To persons acting in a fiduciary or representative capacity on 
behalf of the consumer;

[[Page 434]]

    (3) To provide information to insurance rate advisory organizations, 
guaranty funds or agencies, agencies that are rating a bank, persons 
that are assessing the bank's compliance with industry standards, and 
the bank's attorneys, accountants, and auditors;
    (4) To the extent specifically permitted or required under other 
provisions of law and in accordance with the Right to Financial Privacy 
Act of 1978 (12 U.S.C. 3401 et seq.), to law enforcement agencies 
(including a federal functional regulator, the Secretary of the 
Treasury, with respect to 31 U.S.C. Chapter 53, Subchapter II (Records 
and Reports on Monetary Instruments and Transactions) and 12 U.S.C. 
Chapter 21 (Financial Recordkeeping), a State insurance authority, with 
respect to any person domiciled in that insurance authority's State that 
is engaged in providing insurance, and the Federal Trade Commission), 
self-regulatory organizations, or for an investigation on a matter 
related to public safety;
    (5)(i) To a consumer reporting agency in accordance with the Fair 
Credit Reporting Act (15 U.S.C. 1681 et seq.); or
    (ii) From a consumer report reported by a consumer reporting agency;
    (6) In connection with a proposed or actual sale, merger, transfer, 
or exchange of all or a portion of a business or operating unit if the 
disclosure of nonpublic personal information concerns solely consumers 
of such business or unit; or
    (7)(i) To comply with Federal, State, or local laws, rules and other 
applicable legal requirements;
    (ii) To comply with a properly authorized civil, criminal, or 
regulatory investigation, or subpoena or summons by Federal, State, or 
local authorities; or
    (iii) To respond to judicial process or government regulatory 
authorities having jurisdiction over a bank for examination, compliance, 
or other purposes as authorized by law.
    (b) Examples of consent and revocation of consent. (1) A consumer 
may specifically consent to a bank's disclosure to a nonaffiliated 
insurance company of the fact that the consumer has applied to the bank 
for a mortgage so that the insurance company can offer homeowner's 
insurance to the consumer.
    (2) A consumer may revoke consent by subsequently exercising the 
right to opt out of future disclosures of nonpublic personal information 
as permitted under Sec. 40.7(f).



            Subpart D_Relation to Other Laws; Effective Date



Sec. 40.16  Protection of Fair Credit Reporting Act.

    Nothing in this part shall be construed to modify, limit, or 
supersede the operation of the Fair Credit Reporting Act (15 U.S.C. 1681 
et seq.), and no inference shall be drawn on the basis of the provisions 
of this part regarding whether information is transaction or experience 
information under section 603 of that Act.



Sec. 40.17  Relation to State laws.

    (a) In general. This part shall not be construed as superseding, 
altering, or affecting any statute, regulation, order, or interpretation 
in effect in any State, except to the extent that such State statute, 
regulation, order, or interpretation is inconsistent with the provisions 
of this part, and then only to the extent of the inconsistency.
    (b) Greater protection under State law. For purposes of this 
section, a State statute, regulation, order, or interpretation is not 
inconsistent with the provisions of this part if the protection such 
statute, regulation, order, or interpretation affords any consumer is 
greater than the protection provided under this part, as determined by 
the Federal Trade Commission, after consultation with the OCC, on the 
Federal Trade Commission's own motion, or upon the petition of any 
interested party.



Sec. 40.18  Effective date; transition rule.

    (a) Effective date. This part is effective November 13, 2000. In 
order to provide sufficient time for banks to establish policies and 
systems to comply with the requirements of this part, the OCC has 
extended the time for compliance with this part until July 1, 2001.
    (b)(1) Notice requirement for consumers who are the bank's customers 
on the compliance date. By July 1, 2001, a bank must have provided an 
initial notice, as required by Sec. 40.4, to consumers who

[[Page 435]]

are the bank's customers on July 1, 2001.
    (2) Example. A bank provides an initial notice to consumers who are 
its customers on July 1, 2001, if, by that date, the bank has 
established a system for providing an initial notice to all new 
customers and has mailed the initial notice to all the bank's existing 
customers.
    (c) Two-year grandfathering of service agreements. Until July 1, 
2002, a contract that a bank has entered into with a nonaffiliated third 
party to perform services for the bank or functions on the bank's behalf 
satisfies the provisions of Sec. 40.13(a)(1)(ii) of this part, even if 
the contract does not include a requirement that the third party 
maintain the confidentiality of nonpublic personal information, as long 
as the bank entered into the agreement on or before July 1, 2000.



               Sec. Appendix A to Part 40--Sample Clauses

    Financial institutions, including a group of financial holding 
company affiliates that use a common privacy notice, may use the 
following sample clauses, if the clause is accurate for each institution 
that uses the notice. (Note that disclosure of certain information, such 
as assets, income, and information from a consumer reporting agency, may 
give rise to obligations under the Fair Credit Reporting Act, such as a 
requirement to permit a consumer to opt out of disclosures to affiliates 
or designation as a consumer reporting agency if disclosures are made to 
nonaffiliated third parties.)

    A-1--Categories of information a bank collects (all institutions)

    A bank may use this clause, as applicable, to meet the requirement 
of Sec. 40.6(a)(1) to describe the categories of nonpublic personal 
information the bank collects.
    Sample Clause A-1:
    We collect nonpublic personal information about you from the 
following sources:
     Information we receive from you on applications 
or other forms;
     Information about your transactions with us, our 
affiliates, or others; and
     Information we receive from a consumer reporting 
agency.

   A-2--Categories of information a bank discloses (institutions that 
                   disclose outside of the exceptions)

    A bank may use one of these clauses, as applicable, to meet the 
requirement of Sec. 40.6(a)(2) to describe the categories of nonpublic 
personal information the bank discloses. The bank may use these clauses 
if it discloses nonpublic personal information other than as permitted 
by the exceptions in Sec. Sec. 40.13, 40.14, and 40.15.
    Sample Clause A-2, Alternative 1:
    We may disclose the following kinds of nonpublic personal 
information about you:
     Information we receive from you on applications 
or other forms, such as [provide illustrative examples, such as ``your 
name, address, social security number, assets, and income''];
     Information about your transactions with us, our 
affiliates, or others, such as [provide illustrative examples, such as 
``your account balance, payment history, parties to transactions, and 
credit card usage'']; and
     Information we receive from a consumer reporting 
agency, such as [provide illustrative examples, such as ``your 
creditworthiness and credit history''].
    Sample Clause A-2, Alternative 2:
    We may disclose all of the information that we collect, as described 
[describe location in the notice, such as ``above'' or ``below''].

A-3--Categories of information a bank discloses and parties to whom the 
    bank discloses (institutions that do not disclose outside of the 
                               exceptions)

    A bank may use this clause, as applicable, to meet the requirements 
of Sec. Sec. 40.6(a)(2), (3), and (4) to describe the categories of 
nonpublic personal information about customers and former customers that 
the bank discloses and the categories of affiliates and nonaffiliated 
third parties to whom the bank discloses. A bank may use this clause if 
the bank does not disclose nonpublic personal information to any party, 
other than as permitted by the exceptions in Sec. Sec. 40.14, and 
40.15.
    Sample Clause A-3:
    We do not disclose any nonpublic personal information about our 
customers or former customers to anyone, except as permitted by law.

 A-4--Categories of parties to whom a bank discloses (institutions that 
                   disclose outside of the exceptions)

    A bank may use this clause, as applicable, to meet the requirement 
of Sec. 40.6(a)(3) to describe the categories of affiliates and 
nonaffiliated third parties to whom the bank discloses nonpublic 
personal information. The bank may use this clause if the bank discloses 
nonpublic personal information other than as permitted by the exceptions 
in Sec. Sec. 40.13, 40.14, and 40.15, as well as when permitted by the 
exceptions in Sec. Sec. 40.14 and 40.15.
    Sample Clause A-4:
    We may disclose nonpublic personal information about you to the 
following types of third parties:

[[Page 436]]

     Financial service providers, such as [provide 
illustrative examples, such as ``mortgage bankers, securities broker-
dealers, and insurance agents''];
     Non-financial companies, such as [provide 
illustrative examples, such as ``retailers, direct marketers, airlines, 
and publishers'']; and
     Others, such as [provide illustrative examples, 
such as ``non-profit organizations''].
    We may also disclose nonpublic personal information about you to 
nonaffiliated third parties as permitted by law.

             A-5--Service provider/joint marketing exception

    A bank may use one of these clauses, as applicable, to meet the 
requirements of Sec. 40.6(a)(5) related to the exception for service 
providers and joint marketers in Sec. 40.13. If a bank discloses 
nonpublic personal information under this exception, the bank must 
describe the categories of nonpublic personal information the bank 
discloses and the categories of third parties with whom the bank has 
contracted.
    Sample Clause A-5, Alternative 1:
    We may disclose the following information to companies that perform 
marketing services on our behalf or to other financial institutions with 
whom we have joint marketing agreements:
     Information we receive from you on applications 
or other forms, such as [provide illustrative examples, such as ``your 
name, address, social security number, assets, and income''];
     Information about your transactions with us, our 
affiliates, or others, such as [provide illustrative examples, such as 
``your account balance, payment history, parties to transactions, and 
credit card usage'']; and
     Information we receive from a consumer reporting 
agency, such as [provide illustrative examples, such as ``your 
creditworthiness and credit history''].
    Sample Clause A-5, Alternative 2:
    We may disclose all of the information we collect, as described 
[describe location in the notice, such as ``above'' or ``below''] to 
companies that perform marketing services on our behalf or to other 
financial institutions with whom we have joint marketing agreements.

A-6--Explanation of opt out right (institutions that disclose outside of 
                             the exceptions)

    A bank may use this clause, as applicable, to meet the requirement 
of Sec. 40.6(a)(6) to provide an explanation of the consumer's right to 
opt out of the disclosure of nonpublic personal information to 
nonaffiliated third parties, including the method(s) by which the 
consumer may exercise that right. The bank may use this clause if the 
bank discloses nonpublic personal information other than as permitted by 
the exceptions in Sec. Sec. 40.13, 40.14, and 40.15.
    Sample Clause A-6:
    If you prefer that we not disclose nonpublic personal information 
about you to nonaffiliated third parties, you may opt out of those 
disclosures, that is, you may direct us not to make those disclosures 
(other than disclosures permitted by law). If you wish to opt out of 
disclosures to nonaffiliated third parties, you may [describe a 
reasonable means of opting out, such as ``call the following toll-free 
number: (insert number)].

          A-7--Confidentiality and security (all institutions)

    A bank may use this clause, as applicable, to meet the requirement 
of Sec. 40.6(a)(8) to describe its policies and practices with respect 
to protecting the confidentiality and security of nonpublic personal 
information.
    Sample Clause A-7:
    We restrict access to nonpublic personal information about you to 
[provide an appropriate description, such as ``those employees who need 
to know that information to provide products or services to you'']. We 
maintain physical, electronic, and procedural safeguards that comply 
with federal standards to guard your nonpublic personal information.



PART 41_FAIR CREDIT REPORTING--Table of Contents




                      Subpart A_General Provisions

Sec.
41.1 Purpose.
41.2 Examples.
41.3 Definitions.

Subpart B [Reserved]

                      Subpart C_Affiliate Marketing

41.20 Scope and definitions.
41.21 Affiliate marketing opt-out and exceptions.
41.22 Scope and duration of opt-out.
41.23 Contents of opt-out notice; consolidated and equivalent notices.
41.24 Reasonable opportunity to opt out.
41.25 Reasonable and simple methods of opting out.
41.26 Delivery of opt-out notices.
41.27 Renewal of opt-out.
41.28 Effective date, compliance date, and prospective application.

                      Subpart D_Medical Information

41.30 Obtaining or using medical information in connection with a 
          determination of eligibility for credit.
41.31 Limits on redisclosure of information.
41.32 Sharing medical information with affiliates.

[[Page 437]]

Subparts E-H [Reserved]

    Subpart I_Duties of Users of Consumer Reports Regarding Address 
                   Discrepancies and Records Disposal

41.80-81 [Reserved]
41.82 Duties of users regarding address discrepancies.
41.83 Disposal of consumer information.

                   Subpart J_Identity Theft Red Flags

41.90 Duties regarding the detection, prevention, and mitigation of 
          identity theft.
41.91 Duties of card issuers regarding changes of address.

Appendices A-B to Part 41 [Reserved]
Appendix C To Part 41--Model Forms for Opt-Out Notices
Appendices D-I to Part 41 [Reserved]
Appendix J to Part 41--Interagency Guidelines on Identity Theft 
          Detection, Prevention, and Mitigation

    Authority: 12 U.S.C. 1 et seq., 24 (Seventh), 93a, 481, 484, and 
1818; 15 U.S.C. 1681a, 1681b, 1681c, 1681m, 1681s, 1681s-3, 1681t, 
1681w, 6801, and 6805; Sec. 214, Pub. L. 108-159, 117 Stat. 1952.

    Source: 69 FR 77616, Dec. 28, 2004, unless otherwise noted.



                      Subpart A_General Provisions

    Source: 70 FR 70675, Nov. 22, 2005, unless otherwise noted.



Sec. 41.1  Purpose.

    (a) Purpose. The purpose of this part is to establish standards for 
national banks regarding consumer report information. In addition, the 
purpose of this part is to specify the extent to which national banks 
may obtain, use, or share certain information. This part also contains a 
number of measures national banks must take to combat consumer fraud and 
related crimes, including identity theft.
    (b) [Reserved]

[72 FR 63753, Nov. 9, 2007]



Sec. 41.2  Examples.

    The examples in this part are not exclusive. Compliance with an 
example, to the extent applicable, constitutes compliance with this 
part. Examples in a paragraph illustrate only the issue described in the 
paragraph and do not illustrate any other issue that may arise in this 
part.



Sec. 41.3  Definitions.

    For purposes of this part, unless explicitly stated otherwise:
    (a) Act means the Fair Credit Reporting Act (15 U.S.C. 1681 et 
seq.).
    (b) Affiliate means any company that is related by common ownership 
or common corporate control with another company.
    (c) [Reserved]
    (d) Company means any corporation, limited liability company, 
business trust, general or limited partnership, association, or similar 
organization.
    (e) Consumer means an individual.
    (f)-(h) [Reserved]
    (i) Common ownership or common corporate control means a 
relationship between two companies under which:
    (1) One company has, with respect to the other company:
    (i) Ownership, control, or power to vote 25 percent or more of the 
outstanding shares of any class of voting security of a company, 
directly or indirectly, or acting through one or more other persons;
    (ii) Control in any manner over the election of a majority of the 
directors, trustees, or general partners (or individuals exercising 
similar functions) of a company; or
    (iii) The power to exercise, directly or indirectly, a controlling 
influence over the management or policies of a company, as the OCC 
determines; or
    (2) Any other person has, with respect to both companies, a 
relationship described in paragraphs (i)(1)(i)-(i)(1)(iii) of this 
section.
    (j) [Reserved]
    (k) Medical information means:
    (1) Information or data, whether oral or recorded, in any form or 
medium, created by or derived from a health care provider or the 
consumer, that relates to:
    (i) The past, present, or future physical, mental, or behavioral 
health or condition of an individual;
    (ii) The provision of health care to an individual; or
    (iii) The payment for the provision of health care to an individual.
    (2) The term does not include:
    (i) The age or gender of a consumer;
    (ii) Demographic information about the consumer, including a 
consumer's residence address or e-mail address;

[[Page 438]]

    (iii) Any other information about a consumer that does not relate to 
the physical, mental, or behavioral health or condition of a consumer, 
including the existence or value of any insurance policy; or
    (iv) Information that does not identify a specific consumer.
    (l) Person means any individual, partnership, corporation, trust, 
estate cooperative, association, government or governmental subdivision 
or agency, or other entity.

[70 FR 70675, Nov. 22, 2005, as amended at 72 FR 63753, Nov. 9, 2007]

Subpart B [Reserved]



                      Subpart C_Affiliate Marketing

    Source: 72 FR 62946, Nov. 7, 2007, unless otherwise noted.



Sec. 41.20  Scope and definitions.

    (a) Scope. This subpart applies to national banks, Federal branches 
and agencies of foreign banks, and any of their operating subsidiaries 
that are not functionally regulated within the meaning of section 
5(c)(5) of the Bank Holding Company Act of 1956, as amended (12 U.S.C. 
1844(c)(5)). These entities are referred to in this subpart as 
``banks.''
    (b) Definitions. For purposes of this subpart:
    (1) Clear and conspicuous. The term ``clear and conspicuous'' means 
reasonably understandable and designed to call attention to the nature 
and significance of the information presented.
    (2) Concise. (i) In general. The term ``concise'' means a reasonably 
brief expression or statement.
    (ii) Combination with other required disclosures. A notice required 
by this subpart may be concise even if it is combined with other 
disclosures required or authorized by federal or state law.
    (3) Eligibility information. The term ``eligibility information'' 
means any information the communication of which would be a consumer 
report if the exclusions from the definition of ``consumer report'' in 
section 603(d)(2)(A) of the Act did not apply. Eligibility information 
does not include aggregate or blind data that does not contain personal 
identifiers such as account numbers, names, or addresses.
    (4) Pre-existing business relationship. (i) In general. The term 
``pre-existing business relationship'' means a relationship between a 
person, or a person's licensed agent, and a consumer based on--
    (A) A financial contract between the person and the consumer which 
is in force on the date on which the consumer is sent a solicitation 
covered by this subpart;
    (B) The purchase, rental, or lease by the consumer of the person's 
goods or services, or a financial transaction (including holding an 
active account or a policy in force or having another continuing 
relationship) between the consumer and the person, during the 18-month 
period immediately preceding the date on which the consumer is sent a 
solicitation covered by this subpart; or
    (C) An inquiry or application by the consumer regarding a product or 
service offered by that person during the three-month period immediately 
preceding the date on which the consumer is sent a solicitation covered 
by this subpart.
    (ii) Examples of pre-existing business relationships. (A) If a 
consumer has a time deposit account, such as a certificate of deposit, 
at a depository institution that is currently in force, the depository 
institution has a pre-existing business relationship with the consumer 
and can use eligibility information it receives from its affiliates to 
make solicitations to the consumer about its products or services.
    (B) If a consumer obtained a certificate of deposit from a 
depository institution, but did not renew the certificate at maturity, 
the depository institution has a pre-existing business relationship with 
the consumer and can use eligibility information it receives from its 
affiliates to make solicitations to the consumer about its products or 
services for 18 months after the date of maturity of the certificate of 
deposit.
    (C) If a consumer obtains a mortgage, the mortgage lender has a pre-
existing business relationship with the consumer. If the mortgage lender 
sells the

[[Page 439]]

consumer's entire loan to an investor, the mortgage lender has a pre-
existing business relationship with the consumer and can use eligibility 
information it receives from its affiliates to make solicitations to the 
consumer about its products or services for 18 months after the date it 
sells the loan, and the investor has a pre-existing business 
relationship with the consumer upon purchasing the loan. If, however, 
the mortgage lender sells a fractional interest in the consumer's loan 
to an investor but also retains an ownership interest in the loan, the 
mortgage lender continues to have a pre-existing business relationship 
with the consumer, but the investor does not have a pre-existing 
business relationship with the consumer. If the mortgage lender retains 
ownership of the loan, but sells ownership of the servicing rights to 
the consumer's loan, the mortgage lender continues to have a pre-
existing business relationship with the consumer. The purchaser of the 
servicing rights also has a pre-existing business relationship with the 
consumer as of the date it purchases ownership of the servicing rights, 
but only if it collects payments from or otherwise deals directly with 
the consumer on a continuing basis.
    (D) If a consumer applies to a depository institution for a product 
or service that it offers, but does not obtain a product or service from 
or enter into a financial contract or transaction with the institution, 
the depository institution has a pre-existing business relationship with 
the consumer and can therefore use eligibility information it receives 
from an affiliate to make solicitations to the consumer about its 
products or services for three months after the date of the application.
    (E) If a consumer makes a telephone inquiry to a depository 
institution about its products or services and provides contact 
information to the institution, but does not obtain a product or service 
from or enter into a financial contract or transaction with the 
institution, the depository institution has a pre-existing business 
relationship with the consumer and can therefore use eligibility 
information it receives from an affiliate to make solicitations to the 
consumer about its products or services for three months after the date 
of the inquiry.
    (F) If a consumer makes an inquiry to a depository institution by e-
mail about its products or services, but does not obtain a product or 
service from or enter into a financial contract or transaction with the 
institution, the depository institution has a pre-existing business 
relationship with the consumer and can therefore use eligibility 
information it receives from an affiliate to make solicitations to the 
consumer about its products or services for three months after the date 
of the inquiry.
    (G) If a consumer has an existing relationship with a depository 
institution that is part of a group of affiliated companies, makes a 
telephone call to the centralized call center for the group of 
affiliated companies to inquire about products or services offered by 
the insurance affiliate, and provides contact information to the call 
center, the call constitutes an inquiry to the insurance affiliate that 
offers those products or services. The insurance affiliate has a pre-
existing business relationship with the consumer and can therefore use 
eligibility information it receives from its affiliated depository 
institution to make solicitations to the consumer about its products or 
services for three months after the date of the inquiry.
    (iii) Examples where no pre-existing business relationship is 
created. (A) If a consumer makes a telephone call to a centralized call 
center for a group of affiliated companies to inquire about the 
consumer's existing account at a depository institution, the call does 
not constitute an inquiry to any affiliate other than the depository 
institution that holds the consumer's account and does not establish a 
pre-existing business relationship between the consumer and any 
affiliate of the account-holding depository institution.
    (B) If a consumer who has a deposit account with a depository 
institution makes a telephone call to an affiliate of the institution to 
ask about the affiliate's retail locations and hours, but does not make 
an inquiry about the affiliate's products or services, the call does not 
constitute an inquiry and does

[[Page 440]]

not establish a pre-existing business relationship between the consumer 
and the affiliate. Also, the affiliate's capture of the consumer's 
telephone number does not constitute an inquiry and does not establish a 
pre-existing business relationship between the consumer and the 
affiliate.
    (C) If a consumer makes a telephone call to a depository institution 
in response to an advertisement that offers a free promotional item to 
consumers who call a toll-free number, but the advertisement does not 
indicate that the depository institution's products or services will be 
marketed to consumers who call in response, the call does not create a 
pre-existing business relationship between the consumer and the 
depository institution because the consumer has not made an inquiry 
about a product or service offered by the institution, but has merely 
responded to an offer for a free promotional item.
    (5) Solicitation. (i) In general. The term ``solicitation'' means 
the marketing of a product or service initiated by a person to a 
particular consumer that is--
    (A) Based on eligibility information communicated to that person by 
its affiliate as described in this subpart; and
    (B) Intended to encourage the consumer to purchase or obtain such 
product or service.
    (ii) Exclusion of marketing directed at the general public. A 
solicitation does not include marketing communications that are directed 
at the general public. For example, television, general circulation 
magazine, and billboard advertisements do not constitute solicitations, 
even if those communications are intended to encourage consumers to 
purchase products and services from the person initiating the 
communications.
    (iii) Examples of solicitations. A solicitation would include, for 
example, a telemarketing call, direct mail, e-mail, or other form of 
marketing communication directed to a particular consumer that is based 
on eligibility information received from an affiliate.



Sec. 41.21  Affiliate marketing opt-out and exceptions.

    (a) Initial notice and opt-out requirement. (1) In general. A bank 
may not use eligibility information about a consumer that it receives 
from an affiliate to make a solicitation for marketing purposes to the 
consumer, unless--
    (i) It is clearly and conspicuously disclosed to the consumer in 
writing or, if the consumer agrees, electronically, in a concise notice 
that the bank may use eligibility information about that consumer 
received from an affiliate to make solicitations for marketing purposes 
to the consumer;
    (ii) The consumer is provided a reasonable opportunity and a 
reasonable and simple method to ``opt out,'' or prohibit the bank from 
using eligibility information to make solicitations for marketing 
purposes to the consumer; and
    (iii) The consumer has not opted out.
    (2) Example. A consumer has a homeowner's insurance policy with an 
insurance company. The insurance company furnishes eligibility 
information about the consumer to its affiliated depository institution. 
Based on that eligibility information, the depository institution wants 
to make a solicitation to the consumer about its home equity loan 
products. The depository institution does not have a pre-existing 
business relationship with the consumer and none of the other exceptions 
apply. The depository institution is prohibited from using eligibility 
information received from its insurance affiliate to make solicitations 
to the consumer about its home equity loan products unless the consumer 
is given a notice and opportunity to opt out and the consumer does not 
opt out.
    (3) Affiliates who may provide the notice. The notice required by 
this paragraph must be provided:
    (i) By an affiliate that has or has previously had a pre-existing 
business relationship with the consumer; or
    (ii) As part of a joint notice from two or more members of an 
affiliated group of companies, provided that at least one of the 
affiliates on the joint notice has or has previously had a pre-existing 
business relationship with the consumer.
    (b) Making solicitations. (1) In general. For purposes of this 
subpart, a bank makes a solicitation for marketing purposes if--

[[Page 441]]

    (i) The bank receives eligibility information from an affiliate;
    (ii) The bank uses that eligibility information to do one or more of 
the following:
    (A) Identify the consumer or type of consumer to receive a 
solicitation;
    (B) Establish criteria used to select the consumer to receive a 
solicitation; or
    (C) Decide which of the bank's products or services to market to the 
consumer or tailor the bank's solicitation to that consumer; and
    (iii) As a result of the bank's use of the eligibility information, 
the consumer is provided a solicitation.
    (2) Receiving eligibility information from an affiliate, including 
through a common database. A bank may receive eligibility information 
from an affiliate in various ways, including when the affiliate places 
that information into a common database that the bank may access.
    (3) Receipt or use of eligibility information by a bank's service 
provider. Except as provided in paragraph (b)(5) of this section, a bank 
receives or uses an affiliate's eligibility information if a service 
provider acting on the bank's behalf (whether an affiliate or a 
nonaffiliated third party) receives or uses that information in the 
manner described in paragraphs (b)(1)(i) or (b)(1)(ii) of this section. 
All relevant facts and circumstances will determine whether a person is 
acting as a bank's service provider when it receives or uses an 
affiliate's eligibility information in connection with marketing the 
bank's products and services.
    (4) Use by an affiliate of its own eligibility information. Unless a 
bank has used eligibility information that it receives from an affiliate 
in the manner described in paragraph (b)(1)(ii) of this section, the 
bank does not make a solicitation subject to this subpart if the bank's 
affiliate:
    (i) Uses its own eligibility information that it obtained in 
connection with a pre-existing business relationship it has or had with 
the consumer to market the bank's products or services to the consumer; 
or
    (ii) Directs its service provider to use the affiliate's own 
eligibility information that it obtained in connection with a pre-
existing business relationship it has or had with the consumer to market 
the bank's products or services to the consumer, and the bank does not 
communicate directly with the service provider regarding that use.
    (5) Use of eligibility information by a service provider. (i) In 
general. A bank does not make a solicitation subject to Subpart C of 
this part if a service provider (including an affiliated or third-party 
service provider that maintains or accesses a common database that the 
bank may access) receives eligibility information from the bank's 
affiliate that the bank's affiliate obtained in connection with a pre-
existing business relationship it has or had with the consumer and uses 
that eligibility information to market the bank's products or services 
to the consumer, so long as--
    (A) The bank's affiliate controls access to and use of its 
eligibility information by the service provider (including the right to 
establish the specific terms and conditions under which the service 
provider may use such information to market the bank's products or 
services);
    (B) The bank's affiliate establishes specific terms and conditions 
under which the service provider may access and use the affiliate's 
eligibility information to market the bank's products and services (or 
those of affiliates generally) to the consumer, such as the identity of 
the affiliated companies whose products or services may be marketed to 
the consumer by the service provider, the types of products or services 
of affiliated companies that may be marketed, and the number of times 
the consumer may receive marketing materials, and periodically evaluates 
the service provider's compliance with those terms and conditions;
    (C) The bank's affiliate requires the service provider to implement 
reasonable policies and procedures designed to ensure that the service 
provider uses the affiliate's eligibility information in accordance with 
the terms and conditions established by the bank's affiliate relating to 
the marketing of the bank's products or services;

[[Page 442]]

    (D) The bank's affiliate is identified on or with the marketing 
materials provided to the consumer; and
    (E) The bank does not directly use its affiliate's eligibility 
information in the manner described in paragraph (b)(1)(ii) of this 
section.
    (ii) Writing requirements. (A) The requirements of paragraphs 
(b)(5)(i)(A) and (C) of this section must be set forth in a written 
agreement between the bank's affiliate and the service provider; and
    (B) The specific terms and conditions established by the bank's 
affiliate as provided in paragraph (b)(5)(i)(B) of this section must be 
set forth in writing.
    (6) Examples of making solicitations. (i) A consumer has a deposit 
account with a depository institution, which is affiliated with an 
insurance company. The insurance company receives eligibility 
information about the consumer from the depository institution. The 
insurance company uses that eligibility information to identify the 
consumer to receive a solicitation about insurance products, and, as a 
result, the insurance company provides a solicitation to the consumer 
about its insurance products. Pursuant to paragraph (b)(1) of this 
section, the insurance company has made a solicitation to the consumer.
    (ii) The same facts as in the example in paragraph (b)(6)(i) of this 
section, except that after using the eligibility information to identify 
the consumer to receive a solicitation about insurance products, the 
insurance company asks the depository institution to send the 
solicitation to the consumer and the depository institution does so. 
Pursuant to paragraph (b)(1) of this section, the insurance company has 
made a solicitation to the consumer because it used eligibility 
information about the consumer that it received from an affiliate to 
identify the consumer to receive a solicitation about its products or 
services, and, as a result, a solicitation was provided to the consumer 
about the insurance company's products.
    (iii) The same facts as in the example in paragraph (b)(6)(i) of 
this section, except that eligibility information about consumers that 
have deposit accounts with the depository institution is placed into a 
common database that all members of the affiliated group of companies 
may independently access and use. Without using the depository 
institution's eligibility information, the insurance company develops 
selection criteria and provides those criteria, marketing materials, and 
related instructions to the depository institution. The depository 
institution reviews eligibility information about its own consumers 
using the selection criteria provided by the insurance company to 
determine which consumers should receive the insurance company's 
marketing materials and sends marketing materials about the insurance 
company's products to those consumers. Even though the insurance company 
has received eligibility information through the common database as 
provided in paragraph (b)(2) of this section, it did not use that 
information to identify consumers or establish selection criteria; 
instead, the depository institution used its own eligibility 
information. Therefore, pursuant to paragraph (b)(4)(i) of this section, 
the insurance company has not made a solicitation to the consumer.
    (iv) The same facts as in the example in paragraph (b)(6)(iii) of 
this section, except that the depository institution provides the 
insurance company's criteria to the depository institution's service 
provider and directs the service provider to use the depository 
institution's eligibility information to identify depository institution 
consumers who meet the criteria and to send the insurance company's 
marketing materials to those consumers. The insurance company does not 
communicate directly with the service provider regarding the use of the 
depository institution's information to market its products to the 
depository institution's consumers. Pursuant to paragraph (b)(4)(ii) of 
this section, the insurance company has not made a solicitation to the 
consumer.
    (v) An affiliated group of companies includes a depository 
institution, an insurance company, and a service provider. Each 
affiliate in the group places information about its consumers into a 
common database. The service provider has access to all information in 
the

[[Page 443]]

common database. The depository institution controls access to and use 
of its eligibility information by the service provider. This control is 
set forth in a written agreement between the depository institution and 
the service provider. The written agreement also requires the service 
provider to establish reasonable policies and procedures designed to 
ensure that the service provider uses the depository institution's 
eligibility information in accordance with specific terms and conditions 
established by the depository institution relating to the marketing of 
the products and services of all affiliates, including the insurance 
company. In a separate written communication, the depository institution 
specifies the terms and conditions under which the service provider may 
use the depository institution's eligibility information to market the 
insurance company's products and services to the depository 
institution's consumers. The specific terms and conditions are: A list 
of affiliated companies (including the insurance company) whose products 
or services may be marketed to the depository institution's consumers by 
the service provider; the specific products or types of products that 
may be marketed to the depository institution's consumers by the service 
provider; the categories of eligibility information that may be used by 
the service provider in marketing products or services to the depository 
institution's consumers; the types or categories of the depository 
institution's consumers to whom the service provider may market products 
or services of depository institution affiliates; the number and/or 
types of marketing communications that the service provider may send to 
the depository institution's consumers; and the length of time during 
which the service provider may market the products or services of the 
depository institution's affiliates to its consumers. The depository 
institution periodically evaluates the service provider's compliance 
with these terms and conditions. The insurance company asks the service 
provider to market insurance products to certain consumers who have 
deposit accounts with the depository institution. Without using the 
depository institution's eligibility information, the insurance company 
develops selection criteria and provides those criteria, marketing 
materials, and related instructions to the service provider. The service 
provider uses the depository institution's eligibility information from 
the common database to identify the depository institution's consumers 
to whom insurance products will be marketed. When the insurance 
company's marketing materials are provided to the identified consumers, 
the name of the depository institution is displayed on the insurance 
marketing materials, an introductory letter that accompanies the 
marketing materials, an account statement that accompanies the marketing 
materials, or the envelope containing the marketing materials. The 
requirements of paragraph (b)(5) of this section have been satisfied, 
and the insurance company has not made a solicitation to the consumer.
    (vi) The same facts as in the example in paragraph (b)(6)(v) of this 
section, except that the terms and conditions permit the service 
provider to use the depository institution's eligibility information to 
market the products and services of other affiliates to the depository 
institution's consumers whenever the service provider deems it 
appropriate to do so. The service provider uses the depository 
institution's eligibility information in accordance with the discretion 
afforded to it by the terms and conditions. Because the terms and 
conditions are not specific, the requirements of paragraph (b)(5) of 
this section have not been satisfied.
    (c) Exceptions. The provisions of this subpart do not apply to a 
bank if it uses eligibility information that it receives from an 
affiliate:
    (1) To make a solicitation for marketing purposes to a consumer with 
whom the bank has a pre-existing business relationship;
    (2) To facilitate communications to an individual for whose benefit 
the bank provides employee benefit or other services pursuant to a 
contract with an employer related to and arising out of the current 
employment relationship or status of the individual as a participant or 
beneficiary of an employee benefit plan;

[[Page 444]]

    (3) To perform services on behalf of an affiliate, except that this 
subparagraph shall not be construed as permitting the bank to send 
solicitations on behalf of an affiliate if the affiliate would not be 
permitted to send the solicitation as a result of the election of the 
consumer to opt out under this subpart;
    (4) In response to a communication about the bank's products or 
services initiated by the consumer;
    (5) In response to an authorization or request by the consumer to 
receive solicitations; or
    (6) If the bank's compliance with this subpart would prevent it from 
complying with any provision of State insurance laws pertaining to 
unfair discrimination in any State in which the bank is lawfully doing 
business.
    (d) Examples of exceptions. (1) Example of the pre-existing business 
relationship exception. A consumer has a deposit account with a 
depository institution. The consumer also has a relationship with the 
depository institution's securities affiliate for management of the 
consumer's securities portfolio. The depository institution receives 
eligibility information about the consumer from its securities affiliate 
and uses that information to make a solicitation to the consumer about 
the depository institution's wealth management services. The depository 
institution may make this solicitation even if the consumer has not been 
given a notice and opportunity to opt out because the depository 
institution has a pre-existing business relationship with the consumer.
    (2) Examples of service provider exception. (i) A consumer has an 
insurance policy issued by an insurance company. The insurance company 
furnishes eligibility information about the consumer to its affiliated 
depository institution. Based on that eligibility information, the 
depository institution wants to make a solicitation to the consumer 
about its deposit products. The depository institution does not have a 
pre-existing business relationship with the consumer and none of the 
other exceptions in paragraph (c) of this section apply. The consumer 
has been given an opt-out notice and has elected to opt out of receiving 
such solicitations. The depository institution asks a service provider 
to send the solicitation to the consumer on its behalf. The service 
provider may not send the solicitation on behalf of the depository 
institution because, as a result of the consumer's opt-out election, the 
depository institution is not permitted to make the solicitation.
    (ii) The same facts as in paragraph (d)(2)(i) of this section, 
except the consumer has been given an opt-out notice, but has not 
elected to opt out. The depository institution asks a service provider 
to send the solicitation to the consumer on its behalf. The service 
provider may send the solicitation on behalf of the depository 
institution because, as a result of the consumer's not opting out, the 
depository institution is permitted to make the solicitation.
    (3) Examples of consumer-initiated communications. (i) A consumer 
who has a deposit account with a depository institution initiates a 
communication with the depository institution's credit card affiliate to 
request information about a credit card. The credit card affiliate may 
use eligibility information about the consumer it obtains from the 
depository institution or any other affiliate to make solicitations 
regarding credit card products in response to the consumer-initiated 
communication.
    (ii) A consumer who has a deposit account with a depository 
institution contacts the institution to request information about how to 
save and invest for a child's college education without specifying the 
type of product in which the consumer may be interested. Information 
about a range of different products or services offered by the 
depository institution and one or more affiliates of the institution may 
be responsive to that communication. Such products or services may 
include the following: Mutual funds offered by the institution's mutual 
fund affiliate; section 529 plans offered by the institution, its mutual 
fund affiliate, or another securities affiliate; or trust services 
offered by a different financial institution in the affiliated group. 
Any affiliate offering investment products or services that would be 
responsive to the consumer's request for information about saving and 
investing for a child's college education may use eligibility

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information to make solicitations to the consumer in response to this 
communication.
    (iii) A credit card issuer makes a marketing call to the consumer 
without using eligibility information received from an affiliate. The 
issuer leaves a voice-mail message that invites the consumer to call a 
toll-free number to apply for the issuer's credit card. If the consumer 
calls the toll-free number to inquire about the credit card, the call is 
a consumer-initiated communication about a product or service and the 
credit card issuer may now use eligibility information it receives from 
its affiliates to make solicitations to the consumer.
    (iv) A consumer calls a depository institution to ask about retail 
locations and hours, but does not request information about products or 
services. The institution may not use eligibility information it 
receives from an affiliate to make solicitations to the consumer about 
its products or services because the consumer-initiated communication 
does not relate to the depository institution's products or services. 
Thus, the use of eligibility information received from an affiliate 
would not be responsive to the communication and the exception does not 
apply.
    (v) A consumer calls a depository institution to ask about retail 
locations and hours. The customer service representative asks the 
consumer if there is a particular product or service about which the 
consumer is seeking information. The consumer responds that the consumer 
wants to stop in and find out about certificates of deposit. The 
customer service representative offers to provide that information by 
telephone and mail additional information and application materials to 
the consumer. The consumer agrees and provides or confirms contact 
information for receipt of the materials to be mailed. The depository 
institution may use eligibility information it receives from an 
affiliate to make solicitations to the consumer about certificates of 
deposit because such solicitations would respond to the consumer-
initiated communication about products or services.
    (4) Examples of consumer authorization or request for solicitations. 
(i) A consumer who obtains a mortgage from a mortgage lender authorizes 
or requests information about homeowner's insurance offered by the 
mortgage lender's insurance affiliate. Such authorization or request, 
whether given to the mortgage lender or to the insurance affiliate, 
would permit the insurance affiliate to use eligibility information 
about the consumer it obtains from the mortgage lender or any other 
affiliate to make solicitations to the consumer about homeowner's 
insurance.
    (ii) A consumer completes an online application to apply for a 
credit card from a credit card issuer. The issuer's online application 
contains a blank check box that the consumer may check to authorize or 
request information from the credit card issuer's affiliates. The 
consumer checks the box. The consumer has authorized or requested 
solicitations from the card issuer's affiliates.
    (iii) A consumer completes an online application to apply for a 
credit card from a credit card issuer. The issuer's online application 
contains a pre-selected check box indicating that the consumer 
authorizes or requests information from the issuer's affiliates. The 
consumer does not deselect the check box. The consumer has not 
authorized or requested solicitations from the card issuer's affiliates.
    (iv) The terms and conditions of a credit card account agreement 
contain preprinted boilerplate language stating that by applying to open 
an account the consumer authorizes or requests to receive solicitations 
from the credit card issuer's affiliates. The consumer has not 
authorized or requested solicitations from the card issuer's affiliates.
    (e) Relation to affiliate-sharing notice and opt-out. Nothing in 
this subpart limits the responsibility of a person to comply with the 
notice and opt-out provisions of section 603(d)(2)(A)(iii) of the Act 
where applicable.



Sec. 41.22  Scope and duration of opt-out.

    (a) Scope of opt-out. (1) In general. Except as otherwise provided 
in this section, the consumer's election to opt out prohibits any 
affiliate covered by

[[Page 446]]

the opt-out notice from using eligibility information received from 
another affiliate as described in the notice to make solicitations to 
the consumer.
    (2) Continuing relationship. (i) In general. If the consumer 
establishes a continuing relationship with a bank or its affiliate, an 
opt-out notice may apply to eligibility information obtained in 
connection with--
    (A) A single continuing relationship or multiple continuing 
relationships that the consumer establishes with the bank or its 
affiliates, including continuing relationships established subsequent to 
delivery of the opt-out notice, so long as the notice adequately 
describes the continuing relationships covered by the opt-out; or
    (B) Any other transaction between the consumer and the bank or its 
affiliates as described in the notice.
    (ii) Examples of continuing relationships. A consumer has a 
continuing relationship with a bank or its affiliate if the consumer--
    (A) Opens a deposit or investment account with the bank or its 
affiliate;
    (B) Obtains a loan for which the bank or its affiliate owns the 
servicing rights;
    (C) Purchases an insurance product from the bank or its affiliate;
    (D) Holds an investment product through the bank or its affiliate, 
such as when the bank acts or its affiliate acts as a custodian for 
securities or for assets in an individual retirement arrangement;
    (E) Enters into an agreement or understanding with the bank or its 
affiliate whereby the bank or its affiliate undertakes to arrange or 
broker a home mortgage loan for the consumer;
    (F) Enters into a lease of personal property with the bank or its 
affiliate; or
    (G) Obtains financial, investment, or economic advisory services 
from the bank or its affiliate for a fee.
    (3) No continuing relationship. (i) In general. If there is no 
continuing relationship between a consumer and a bank or its affiliate, 
and the bank or its affiliate obtains eligibility information about the 
consumer in connection with a transaction with the consumer, such as an 
isolated transaction or a credit application that is denied, an opt-out 
notice provided to the consumer only applies to eligibility information 
obtained in connection with that transaction.
    (ii) Examples of isolated transactions. An isolated transaction 
occurs if--
    (A) The consumer uses a bank's or its affiliate's ATM to withdraw 
cash from an account at another financial institution; or
    (B) A bank or its affiliate sells the consumer a cashier's check or 
money order, airline tickets, travel insurance, or traveler's checks in 
isolated transactions.
    (4) Menu of alternatives. A consumer may be given the opportunity to 
choose from a menu of alternatives when electing to prohibit 
solicitations, such as by electing to prohibit solicitations from 
certain types of affiliates covered by the opt-out notice but not other 
types of affiliates covered by the notice, electing to prohibit 
solicitations based on certain types of eligibility information but not 
other types of eligibility information, or electing to prohibit 
solicitations by certain methods of delivery but not other methods of 
delivery. However, one of the alternatives must allow the consumer to 
prohibit all solicitations from all of the affiliates that are covered 
by the notice.
    (5) Special rule for a notice following termination of all 
continuing relationships. (i) In general. A consumer must be given a new 
opt-out notice if, after all continuing relationships with a bank or its 
affiliate(s) are terminated, the consumer subsequently establishes 
another continuing relationship with the bank or its affiliate(s) and 
the consumer's eligibility information is to be used to make a 
solicitation. The new opt-out notice must apply, at a minimum, to 
eligibility information obtained in connection with the new continuing 
relationship. Consistent with paragraph (b) of this section, the 
consumer's decision not to opt out after receiving the new opt-out 
notice would not override a prior opt-out election by the consumer that 
applies to eligibility information obtained in connection with a 
terminated relationship, regardless of whether the new opt-out notice

[[Page 447]]

applies to eligibility information obtained in connection with the 
terminated relationship.
    (ii) Example. A consumer has a checking account with a depository 
institution that is part of an affiliated group. The consumer closes the 
checking account. One year after closing the checking account, the 
consumer opens a savings account with the same depository institution. 
The consumer must be given a new notice and opportunity to opt out 
before the depository institution's affiliates may make solicitations to 
the consumer using eligibility information obtained by the depository 
institution in connection with the new savings account relationship, 
regardless of whether the consumer opted out in connection with the 
checking account.
    (b) Duration of opt-out. The election of a consumer to opt out must 
be effective for a period of at least five years (the ``opt-out 
period'') beginning when the consumer's opt-out election is received and 
implemented, unless the consumer subsequently revokes the opt-out in 
writing or, if the consumer agrees, electronically. An opt-out period of 
more than five years may be established, including an opt-out period 
that does not expire unless revoked by the consumer.
    (c) Time of opt-out. A consumer may opt out at any time.



Sec. 41.23  Contents of opt-out notice; consolidated and equivalent notices.

    (a) Contents of opt-out notice. (1) In general. A notice must be 
clear, conspicuous, and concise, and must accurately disclose:
    (i) The name of the affiliate(s) providing the notice. If the notice 
is provided jointly by multiple affiliates and each affiliate shares a 
common name, such as ``ABC,'' then the notice may indicate that it is 
being provided by multiple companies with the ABC name or multiple 
companies in the ABC group or family of companies, for example, by 
stating that the notice is provided by ``all of the ABC companies,'' 
``the ABC banking, credit card, insurance, and securities companies,'' 
or by listing the name of each affiliate providing the notice. But if 
the affiliates providing the joint notice do not all share a common 
name, then the notice must either separately identify each affiliate by 
name or identify each of the common names used by those affiliates, for 
example, by stating that the notice is provided by ``all of the ABC and 
XYZ companies'' or by ``the ABC banking and credit card companies and 
the XYZ insurance companies''
    (ii) A list of the affiliates or types of affiliates whose use of 
eligibility information is covered by the notice, which may include 
companies that become affiliates after the notice is provided to the 
consumer. If each affiliate covered by the notice shares a common name, 
such as ``ABC,'' then the notice may indicate that it applies to 
multiple companies with the ABC name or multiple companies in the ABC 
group or family of companies, for example, by stating that the notice is 
provided by ``all of the ABC companies,'' ``the ABC banking, credit 
card, insurance, and securities companies,'' or by listing the name of 
each affiliate providing the notice. But if the affiliates covered by 
the notice do not all share a common name, then the notice must either 
separately identify each covered affiliate by name or identify each of 
the common names used by those affiliates, for example, by stating that 
the notice applies to ``all of the ABC and XYZ companies'' or to ``the 
ABC banking and credit card companies and the XYZ insurance companies'';
    (iii) A general description of the types of eligibility information 
that may be used to make solicitations to the consumer;
    (iv) That the consumer may elect to limit the use of eligibility 
information to make solicitations to the consumer;
    (v) That the consumer's election will apply for the specified period 
of time stated in the notice and, if applicable, that the consumer will 
be allowed to renew the election once that period expires;
    (vi) If the notice is provided to consumers who may have previously 
opted out, such as if a notice is provided to consumers annually, that 
the consumer who has chosen to limit solicitations does not need to act 
again until the consumer receives a renewal notice; and

[[Page 448]]

    (vii) A reasonable and simple method for the consumer to opt out.
    (2) Joint relationships. (i) If two or more consumers jointly obtain 
a product or service, a single opt-out notice may be provided to the 
joint consumers. Any of the joint consumers may exercise the right to 
opt out.
    (ii) The opt-out notice must explain how an opt-out direction by a 
joint consumer will be treated. An opt-out direction by a joint consumer 
may be treated as applying to all of the associated joint consumers, or 
each joint consumer may be permitted to opt-out separately. If each 
joint consumer is permitted to opt out separately, one of the joint 
consumers must be permitted to opt out on behalf of all of the joint 
consumers and the joint consumers must be permitted to exercise their 
separate rights to opt out in a single response.
    (iii) It is impermissible to require all joint consumers to opt out 
before implementing any opt-out direction.
    (3) Alternative contents. If the consumer is afforded a broader 
right to opt out of receiving marketing than is required by this 
subpart, the requirements of this section may be satisfied by providing 
the consumer with a clear, conspicuous, and concise notice that 
accurately discloses the consumer's opt-out rights.
    (4) Model notices. Model notices are provided in Appendix C of this 
part.
    (b) Coordinated and consolidated notices. A notice required by this 
subpart may be coordinated and consolidated with any other notice or 
disclosure required to be issued under any other provision of law by the 
entity providing the notice, including but not limited to the notice 
described in section 603(d)(2)(A)(iii) of the Act and the Gramm-Leach-
Bliley Act privacy notice.
    (c) Equivalent notices. A notice or other disclosure that is 
equivalent to the notice required by this subpart, and that is provided 
to a consumer together with disclosures required by any other provision 
of law, satisfies the requirements of this section.



Sec. 41.24  Reasonable opportunity to opt out.

    (a) In general. A bank must not use eligibility information about a 
consumer that it receives from an affiliate to make a solicitation to 
the consumer about the bank's products or services, unless the consumer 
is provided a reasonable opportunity to opt out, as required by Sec. 
41.21(a)(1)(ii) of this part.
    (b) Examples of a reasonable opportunity to opt out. The consumer is 
given a reasonable opportunity to opt out if:
    (1) By mail. The opt-out notice is mailed to the consumer. The 
consumer is given 30 days from the date the notice is mailed to elect to 
opt out by any reasonable means.
    (2) By electronic means. (i) The opt-out notice is provided 
electronically to the consumer, such as by posting the notice at an 
Internet Web site at which the consumer has obtained a product or 
service. The consumer acknowledges receipt of the electronic notice. The 
consumer is given 30 days after the date the consumer acknowledges 
receipt to elect to opt out by any reasonable means.
    (ii) The opt-out notice is provided to the consumer by e-mail where 
the consumer has agreed to receive disclosures by e-mail from the person 
sending the notice. The consumer is given 30 days after the e-mail is 
sent to elect to opt out by any reasonable means.
    (3) At the time of an electronic transaction. The opt-out notice is 
provided to the consumer at the time of an electronic transaction, such 
as a transaction conducted on an Internet Web site. The consumer is 
required to decide, as a necessary part of proceeding with the 
transaction, whether to opt out before completing the transaction. There 
is a simple process that the consumer may use to opt out at that time 
using the same mechanism through which the transaction is conducted.
    (4) At the time of an in-person transaction. The opt-out notice is 
provided to the consumer in writing at the time of an in-person 
transaction. The consumer is required to decide, as a necessary part of 
proceeding with the transaction, whether to opt out before completing 
the transaction, and is not permitted to complete the transaction 
without making a choice. There is a

[[Page 449]]

simple process that the consumer may use during the course of the in-
person transaction to opt out, such as completing a form that requires 
consumers to write a ``yes'' or ``no'' to indicate their opt-out 
preference or that requires the consumer to check one of two blank check 
boxes--one that allows consumers to indicate that they want to opt out 
and one that allows consumers to indicate that they do not want to opt 
out.
    (5) By including in a privacy notice. The opt-out notice is included 
in a Gramm-Leach-Bliley Act privacy notice. The consumer is allowed to 
exercise the opt-out within a reasonable period of time and in the same 
manner as the opt-out under that privacy notice.



Sec. 41.25  Reasonable and simple methods of opting out.

    (a) In general. A bank must not use eligibility information about a 
consumer that it receives from an affiliate to make a solicitation to 
the consumer about its products or services, unless the consumer is 
provided a reasonable and simple method to opt out, as required by Sec. 
41.21(a)(1)(ii) of this part.
    (b) Examples. (1) Reasonable and simple opt-out methods. Reasonable 
and simple methods for exercising the opt-out right include--
    (i) Designating a check-off box in a prominent position on the opt-
out form;
    (ii) Including a reply form and a self-addressed envelope together 
with the opt-out notice;
    (iii) Providing an electronic means to opt out, such as a form that 
can be electronically mailed or processed at an Internet Web site, if 
the consumer agrees to the electronic delivery of information;
    (iv) Providing a toll-free telephone number that consumers may call 
to opt out; or
    (v) Allowing consumers to exercise all of their opt-out rights 
described in a consolidated opt-out notice that includes the privacy 
opt-out under the Gramm-Leach-Bliley Act, 15 U.S.C. 6801 et seq., the 
affiliate sharing opt-out under the Act, and the affiliate marketing 
opt-out under the Act, by a single method, such as by calling a single 
toll-free telephone number.
    (2) Opt-out methods that are not reasonable and simple. Reasonable 
and simple methods for exercising an opt-out right do not include--
    (i) Requiring the consumer to write his or her own letter;
    (ii) Requiring the consumer to call or write to obtain a form for 
opting out, rather than including the form with the opt-out notice;
    (iii) Requiring the consumer who receives the opt-out notice in 
electronic form only, such as through posting at an Internet Web site, 
to opt out solely by paper mail or by visiting a different Web site 
without providing a link to that site.
    (c) Specific opt-out means. Each consumer may be required to opt out 
through a specific means, as long as that means is reasonable and simple 
for that consumer.



Sec. 41.26  Delivery of opt-out notices.

    (a) In general. The opt-out notice must be provided so that each 
consumer can reasonably be expected to receive actual notice. For opt-
out notices provided electronically, the notice may be provided in 
compliance with either the electronic disclosure provisions in this 
subpart or the provisions in section 101 of the Electronic Signatures in 
Global and National Commerce Act, 15 U.S.C. 7001 et seq.
    (b) Examples of reasonable expectation of actual notice. A consumer 
may reasonably be expected to receive actual notice if the affiliate 
providing the notice:
    (1) Hand-delivers a printed copy of the notice to the consumer;
    (2) Mails a printed copy of the notice to the last known mailing 
address of the consumer;
    (3) Provides a notice by e-mail to a consumer who has agreed to 
receive electronic disclosures by e-mail from the affiliate providing 
the notice; or
    (4) Posts the notice on the Internet Web site at which the consumer 
obtained a product or service electronically and requires the consumer 
to acknowledge receipt of the notice.
    (c) Examples of no reasonable expectation of actual notice. A 
consumer may not reasonably be expected to receive actual notice if the 
affiliate providing the notice:

[[Page 450]]

    (1) Only posts the notice on a sign in a branch or office or 
generally publishes the notice in a newspaper;
    (2) Sends the notice via e-mail to a consumer who has not agreed to 
receive electronic disclosures by e-mail from the affiliate providing 
the notice; or
    (3) Posts the notice on an Internet Web site without requiring the 
consumer to acknowledge receipt of the notice.



Sec. 41.27  Renewal of opt-out.

    (a) Renewal notice and opt-out requirement. (1) In general. After 
the opt-out period expires, a bank may not make solicitations based on 
eligibility information it receives from an affiliate to a consumer who 
previously opted out, unless:
    (i) The consumer has been given a renewal notice that complies with 
the requirements of this section and Sec. Sec. 41.24 through 41.26 of 
this part, and a reasonable opportunity and a reasonable and simple 
method to renew the opt-out, and the consumer does not renew the opt-
out; or
    (ii) An exception in Sec. 41.21(c) of this part applies.
    (2) Renewal period. Each opt-out renewal must be effective for a 
period of at least five years as provided in Sec. 41.22(b) of this 
part.
    (3) Affiliates who may provide the notice. The notice required by 
this paragraph must be provided:
    (i) By the affiliate that provided the previous opt-out notice, or 
its successor; or (ii) As part of a joint renewal notice from two or 
more members of an affiliated group of companies, or their successors, 
that jointly provided the previous opt-out notice.
    (b) Contents of renewal notice. The renewal notice must be clear, 
conspicuous, and concise, and must accurately disclose:
    (1) The name of the affiliate(s) providing the notice. If the notice 
is provided jointly by multiple affiliates and each affiliate shares a 
common name, such as ``ABC,'' then the notice may indicate that it is 
being provided by multiple companies with the ABC name or multiple 
companies in the ABC group or family of companies, for example, by 
stating that the notice is provided by ``all of the ABC companies,'' 
``the ABC banking, credit card, insurance, and securities companies,'' 
or by listing the name of each affiliate providing the notice. But if 
the affiliates providing the joint notice do not all share a common 
name, then the notice must either separately identify each affiliate by 
name or identify each of the common names used by those affiliates, for 
example, by stating that the notice is provided by ``all of the ABC and 
XYZ companies'' or by ``the ABC banking and credit card companies and 
the XYZ insurance companies'';
    (2) A list of the affiliates or types of affiliates whose use of 
eligibility information is covered by the notice, which may include 
companies that become affiliates after the notice is provided to the 
consumer. If each affiliate covered by the notice shares a common name, 
such as ``ABC,'' then the notice may indicate that it applies to 
multiple companies with the ABC name or multiple companies in the ABC 
group or family of companies, for example, by stating that the notice is 
provided by ``all of the ABC companies,'' ``the ABC banking, credit 
card, insurance, and securities companies,'' or by listing the name of 
each affiliate providing the notice. But if the affiliates covered by 
the notice do not all share a common name, then the notice must either 
separately identify each covered affiliate by name or identify each of 
the common names used by those affiliates, for example, by stating that 
the notice applies to ``all of the ABC and XYZ companies'' or to ``the 
ABC banking and credit card companies and the XYZ insurance companies'';
    (3) A general description of the types of eligibility information 
that may be used to make solicitations to the consumer;
    (4) That the consumer previously elected to limit the use of certain 
information to make solicitations to the consumer;
    (5) That the consumer's election has expired or is about to expire;
    (6) That the consumer may elect to renew the consumer's previous 
election;
    (7) If applicable, that the consumer's election to renew will apply 
for the

[[Page 451]]

specified period of time stated in the notice and that the consumer will 
be allowed to renew the election once that period expires; and
    (8) A reasonable and simple method for the consumer to opt out.
    (c) Timing of the renewal notice. (1) In general. A renewal notice 
may be provided to the consumer either--
    (i) A reasonable period of time before the expiration of the opt-out 
period; or
    (ii) Any time after the expiration of the opt-out period but before 
solicitations that would have been prohibited by the expired opt-out are 
made to the consumer.
    (2) Combination with annual privacy notice. If a bank provides an 
annual privacy notice under the Gramm-Leach-Bliley Act, 15 U.S.C. 6801 
et seq., providing a renewal notice with the last annual privacy notice 
provided to the consumer before expiration of the opt-out period is a 
reasonable period of time before expiration of the opt-out in all cases.
    (d) No effect on opt-out period. An opt-out period may not be 
shortened by sending a renewal notice to the consumer before expiration 
of the opt-out period, even if the consumer does not renew the opt out.



Sec. 41.28  Effective date, compliance date, and prospective application.

    (a) Effective date. This subpart is effective January 1, 2008.
    (b) Mandatory compliance date. Compliance with this subpart is 
required not later than October 1, 2008.
    (c) Prospective application. The provisions of this subpart shall 
not prohibit a bank from using eligibility information that it receives 
from an affiliate to make solicitations to a consumer if the bank 
receives such information prior to October 1, 2008. For purposes of this 
section, a bank is deemed to receive eligibility information when such 
information is placed into a common database and is accessible by the 
bank.



                      Subpart D_Medical Information

    Source: 70 FR 70675, Nov. 22, 2005; 70 FR 75931, Dec. 22, 2005, 
unless otherwise noted.



Sec. 41.30  Obtaining or using medical information in connection with a determination of eligibility for credit.

    (a) Scope. This section applies to:
    (1) Any person that participates as a creditor in a transaction and 
that is a national bank, a Federal branch or agency of a foreign bank, 
and their respective subsidiaries; or
    (2) Any other person that participates as a creditor in a 
transaction involving a person described in paragraph (a)(1) of this 
section.
    (b) General prohibition on obtaining or using medical information--
(1) In general. A creditor may not obtain or use medical information 
pertaining to a consumer in connection with any determination of the 
consumer's eligibility, or continued eligibility, for credit, except as 
provided in this section.
    (2) Definitions. (i) Credit has the same meaning as in section 702 
of the Equal Credit Opportunity Act, 15 U.S.C. 1691a.
    (ii) Creditor has the same meaning as in section 702 of the Equal 
Credit Opportunity Act, 15 U.S.C. 1691a.
    (iii) Eligibility, or continued eligibility, for credit means the 
consumer's qualification or fitness to receive, or continue to receive, 
credit, including the terms on which credit is offered. The term does 
not include:
    (A) Any determination of the consumer's qualification or fitness for 
employment, insurance (other than a credit insurance product), or other 
non-credit products or services;
    (B) Authorizing, processing, or documenting a payment or transaction 
on behalf of the consumer in a manner that does not involve a 
determination of the consumer's eligibility, or continued eligibility, 
for credit; or
    (C) Maintaining or servicing the consumer's account in a manner that 
does not involve a determination of the consumer's eligibility, or 
continued eligibility, for credit.
    (c) Rule of construction for obtaining and using unsolicited medical 
information--(1) In general. A creditor does not obtain medical 
information in violation of the prohibition if it receives medical 
information pertaining to a consumer in connection with any 
determination of the consumer's eligibility, or continued eligibility, 
for

[[Page 452]]

credit without specifically requesting medical information.
    (2) Use of unsolicited medical information. A creditor that receives 
unsolicited medical information in the manner described in paragraph 
(c)(1) of this section may use that information in connection with any 
determination of the consumer's eligibility, or continued eligibility, 
for credit to the extent the creditor can rely on at least one of the 
exceptions in Sec. 41.30(d) or (e).
    (3) Examples. A creditor does not obtain medical information in 
violation of the prohibition if, for example:
    (i) In response to a general question regarding a consumer's debts 
or expenses, the creditor receives information that the consumer owes a 
debt to a hospital.
    (ii) In a conversation with the creditor's loan officer, the 
consumer informs the creditor that the consumer has a particular medical 
condition.
    (iii) In connection with a consumer's application for an extension 
of credit, the creditor requests a consumer report from a consumer 
reporting agency and receives medical information in the consumer report 
furnished by the agency even though the creditor did not specifically 
request medical information from the consumer reporting agency.
    (d) Financial information exception for obtaining and using medical 
information--(1) In general. A creditor may obtain and use medical 
information pertaining to a consumer in connection with any 
determination of the consumer's eligibility, or continued eligibility, 
for credit so long as:
    (i) The information is the type of information routinely used in 
making credit eligibility determinations, such as information relating 
to debts, expenses, income, benefits, assets, collateral, or the purpose 
of the loan, including the use of proceeds;
    (ii) The creditor uses the medical information in a manner and to an 
extent that is no less favorable than it would use comparable 
information that is not medical information in a credit transaction; and
    (iii) The creditor does not take the consumer's physical, mental, or 
behavioral health, condition or history, type of treatment, or prognosis 
into account as part of any such determination.
    (2) Examples. (i) Examples of the types of information routinely 
used in making credit eligibility determinations. Paragraph (d)(1)(i) of 
this section permits a creditor, for example, to obtain and use 
information about:
    (A) The dollar amount, repayment terms, repayment history, and 
similar information regarding medical debts to calculate, measure, or 
verify the repayment ability of the consumer, the use of proceeds, or 
the terms for granting credit;
    (B) The value, condition, and lien status of a medical device that 
may serve as collateral to secure a loan;
    (C) The dollar amount and continued eligibility for disability 
income, workers' compensation income, or other benefits related to 
health or a medical condition that is relied on as a source of 
repayment; or
    (D) The identity of creditors to whom outstanding medical debts are 
owed in connection with an application for credit, including but not 
limited to, a transaction involving the consolidation of medical debts.
    (ii) Examples of uses of medical information consistent with the 
exception. (A) A consumer includes on an application for credit 
information about two $20,000 debts. One debt is to a hospital; the 
other debt is to a retailer. The creditor contacts the hospital and the 
retailer to verify the amount and payment status of the debts. The 
creditor learns that both debts are more than 90 days past due. Any two 
debts of this size that are more than 90 days past due would disqualify 
the consumer under the creditor's established underwriting criteria. The 
creditor denies the application on the basis that the consumer has a 
poor repayment history on outstanding debts. The creditor has used 
medical information in a manner and to an extent no less favorable than 
it would use comparable non-medical information.
    (B) A consumer indicates on an application for a $200,000 mortgage 
loan that she receives $15,000 in long-term disability income each year 
from her former employer and has no other income. Annual income of 
$15,000, regardless of source, would not be sufficient

[[Page 453]]

to support the requested amount of credit. The creditor denies the 
application on the basis that the projected debt-to-income ratio of the 
consumer does not meet the creditor's underwriting criteria. The 
creditor has used medical information in a manner and to an extent that 
is no less favorable than it would use comparable non-medical 
information.
    (C) A consumer includes on an application for a $10,000 home equity 
loan that he has a $50,000 debt to a medical facility that specializes 
in treating a potentially terminal disease. The creditor contacts the 
medical facility to verify the debt and obtain the repayment history and 
current status of the loan. The creditor learns that the debt is 
current. The applicant meets the income and other requirements of the 
creditor's underwriting guidelines. The creditor grants the application. 
The creditor has used medical information in accordance with the 
exception.
    (iii) Examples of uses of medical information inconsistent with the 
exception. (A) A consumer applies for $25,000 of credit and includes on 
the application information about a $50,000 debt to a hospital. The 
creditor contacts the hospital to verify the amount and payment status 
of the debt, and learns that the debt is current and that the consumer 
has no delinquencies in her repayment history. If the existing debt were 
instead owed to a retail department store, the creditor would approve 
the application and extend credit based on the amount and repayment 
history of the outstanding debt. The creditor, however, denies the 
application because the consumer is indebted to a hospital. The creditor 
has used medical information, here the identity of the medical creditor, 
in a manner and to an extent that is less favorable than it would use 
comparable non-medical information.
    (B) A consumer meets with a loan officer of a creditor to apply for 
a mortgage loan. While filling out the loan application, the consumer 
informs the loan officer orally that she has a potentially terminal 
disease. The consumer meets the creditor's established requirements for 
the requested mortgage loan. The loan officer recommends to the credit 
committee that the consumer be denied credit because the consumer has 
that disease. The credit committee follows the loan officer's 
recommendation and denies the application because the consumer has a 
potentially terminal disease. The creditor has used medical information 
in a manner inconsistent with the exception by taking into account the 
consumer's physical, mental, or behavioral health, condition, or 
history, type of treatment, or prognosis as part of a determination of 
eligibility or continued eligibility for credit.
    (C) A consumer who has an apparent medical condition, such as a 
consumer who uses a wheelchair or an oxygen tank, meets with a loan 
officer to apply for a home equity loan. The consumer meets the 
creditor's established requirements for the requested home equity loan 
and the creditor typically does not require consumers to obtain a debt 
cancellation contract, debt suspension agreement, or credit insurance 
product in connection with such loans. However, based on the consumer's 
apparent medical condition, the loan officer recommends to the credit 
committee that credit be extended to the consumer only if the consumer 
obtains a debt cancellation contract, debt suspension agreement, or 
credit insurance product from a nonaffiliated third party. The credit 
committee agrees with the loan officer's recommendation. The loan 
officer informs the consumer that the consumer must obtain a debt 
cancellation contract, debt suspension agreement, or credit insurance 
product from a nonaffiliated third party to qualify for the loan. The 
consumer obtains one of these products and the creditor approves the 
loan. The creditor has used medical information in a manner inconsistent 
with the exception by taking into account the consumer's physical, 
mental, or behavioral health, condition, or history, type of treatment, 
or prognosis in setting conditions on the consumer's eligibility for 
credit.
    (e) Specific exceptions for obtaining and using medical 
information--(1) In general. A creditor may obtain and use medical 
information pertaining to a consumer in connection with any 
determination of the consumer's eligibility, or continued eligibility, 
for credit:

[[Page 454]]

    (i) To determine whether the use of a power of attorney or legal 
representative that is triggered by a medical condition or event is 
necessary and appropriate or whether the consumer has the legal capacity 
to contract when a person seeks to exercise a power of attorney or act 
as legal representative for a consumer based on an asserted medical 
condition or event;
    (ii) To comply with applicable requirements of local, state, or 
Federal laws;
    (iii) To determine, at the consumer's request, whether the consumer 
qualifies for a legally permissible special credit program or credit-
related assistance program that is:
    (A) Designed to meet the special needs of consumers with medical 
conditions; and
    (B) Established and administered pursuant to a written plan that:
    (1) Identifies the class of persons that the program is designed to 
benefit; and
    (2) Sets forth the procedures and standards for extending credit or 
providing other credit-related assistance under the program;
    (iv) To the extent necessary for purposes of fraud prevention or 
detection;
    (v) In the case of credit for the purpose of financing medical 
products or services, to determine and verify the medical purpose of a 
loan and the use of proceeds;
    (vi) Consistent with safe and sound practices, if the consumer or 
the consumer's legal representative specifically requests that the 
creditor use medical information in determining the consumer's 
eligibility, or continued eligibility, for credit, to accommodate the 
consumer's particular circumstances, and such request is documented by 
the creditor;
    (vii) Consistent with safe and sound practices, to determine whether 
the provisions of a forbearance practice or program that is triggered by 
a medical condition or event apply to a consumer;
    (viii) To determine the consumer's eligibility for, the triggering 
of, or the reactivation of a debt cancellation contract or debt 
suspension agreement if a medical condition or event is a triggering 
event for the provision of benefits under the contract or agreement; or
    (ix) To determine the consumer's eligibility for, the triggering of, 
or the reactivation of a credit insurance product if a medical condition 
or event is a triggering event for the provision of benefits under the 
product.
    (2) Example of determining eligibility for a special credit program 
or credit assistance program. A not-for-profit organization establishes 
a credit assistance program pursuant to a written plan that is designed 
to assist disabled veterans in purchasing homes by subsidizing the down 
payment for the home purchase mortgage loans of qualifying veterans. The 
organization works through mortgage lenders and requires mortgage 
lenders to obtain medical information about the disability of any 
consumer that seeks to qualify for the program, use that information to 
verify the consumer's eligibility for the program, and forward that 
information to the organization. A consumer who is a veteran applies to 
a creditor for a home purchase mortgage loan. The creditor informs the 
consumer about the credit assistance program for disabled veterans and 
the consumer seeks to qualify for the program. Assuming that the program 
complies with all applicable law, including applicable fair lending 
laws, the creditor may obtain and use medical information about the 
medical condition and disability, if any, of the consumer to determine 
whether the consumer qualifies for the credit assistance program.
    (3) Examples of verifying the medical purpose of the loan or the use 
of proceeds. (i) If a consumer applies for $10,000 of credit for the 
purpose of financing vision correction surgery, the creditor may verify 
with the surgeon that the procedure will be performed. If the surgeon 
reports that surgery will not be performed on the consumer, the creditor 
may use that medical information to deny the consumer's application for 
credit, because the loan would not be used for the stated purpose.
    (ii) If a consumer applies for $10,000 of credit for the purpose of 
financing cosmetic surgery, the creditor may confirm the cost of the 
procedure with the surgeon. If the surgeon reports that the

[[Page 455]]

cost of the procedure is $5,000, the creditor may use that medical 
information to offer the consumer only $5,000 of credit.
    (iii) A creditor has an established medical loan program for 
financing particular elective surgical procedures. The creditor receives 
a loan application from a consumer requesting $10,000 of credit under 
the established loan program for an elective surgical procedure. The 
consumer indicates on the application that the purpose of the loan is to 
finance an elective surgical procedure not eligible for funding under 
the guidelines of the established loan program. The creditor may deny 
the consumer's application because the purpose of the loan is not for a 
particular procedure funded by the established loan program.
    (4) Examples of obtaining and using medical information at the 
request of the consumer. (i) If a consumer applies for a loan and 
specifically requests that the creditor consider the consumer's medical 
disability at the relevant time as an explanation for adverse payment 
history information in his credit report, the creditor may consider such 
medical information in evaluating the consumer's willingness and ability 
to repay the requested loan to accommodate the consumer's particular 
circumstances, consistent with safe and sound practices. The creditor 
may also decline to consider such medical information to accommodate the 
consumer, but may evaluate the consumer's application in accordance with 
its otherwise applicable underwriting criteria. The creditor may not 
deny the consumer's application or otherwise treat the consumer less 
favorably because the consumer specifically requested a medical 
accommodation, if the creditor would have extended the credit or treated 
the consumer more favorably under the creditor's otherwise applicable 
underwriting criteria.
    (ii) If a consumer applies for a loan by telephone and explains that 
his income has been and will continue to be interrupted on account of a 
medical condition and that he expects to repay the loan by liquidating 
assets, the creditor may, but is not required to, evaluate the 
application using the sale of assets as the primary source of repayment, 
consistent with safe and sound practices, provided that the creditor 
documents the consumer's request by recording the oral conversation or 
making a notation of the request in the consumer's file.
    (iii) If a consumer applies for a loan and the application form 
provides a space where the consumer may provide any other information or 
special circumstances, whether medical or non-medical, that the consumer 
would like the creditor to consider in evaluating the consumer's 
application, the creditor may use medical information provided by the 
consumer in that space on that application to accommodate the consumer's 
application for credit, consistent with safe and sound practices, or may 
disregard that information.
    (iv) If a consumer specifically requests that the creditor use 
medical information in determining the consumer's eligibility, or 
continued eligibility, for credit and provides the creditor with medical 
information for that purpose, and the creditor determines that it needs 
additional information regarding the consumer's circumstances, the 
creditor may request, obtain, and use additional medical information 
about the consumer as necessary to verify the information provided by 
the consumer or to determine whether to make an accommodation for the 
consumer. The consumer may decline to provide additional information, 
withdraw the request for an accommodation, and have the application 
considered under the creditor's otherwise applicable underwriting 
criteria.
    (v) If a consumer completes and signs a credit application that is 
not for medical purpose credit and the application contains boilerplate 
language that routinely requests medical information from the consumer 
or that indicates that by applying for credit the consumer authorizes or 
consents to the creditor obtaining and using medical information in 
connection with a determination of the consumer's eligibility, or 
continued eligibility, for credit, the consumer has not specifically 
requested that the creditor obtain and use medical information to 
accommodate the consumer's particular circumstances.

[[Page 456]]

    (5) Example of a forbearance practice or program. After an 
appropriate safety and soundness review, a creditor institutes a program 
that allows consumers who are or will be hospitalized to defer payments 
as needed for up to three months, without penalty, if the credit account 
has been open for more than one year and has not previously been in 
default, and the consumer provides confirming documentation at an 
appropriate time. A consumer is hospitalized and does not pay her bill 
for a particular month. This consumer has had a credit account with the 
creditor for more than one year and has not previously been in default. 
The creditor attempts to contact the consumer and speaks with the 
consumer's adult child, who is not the consumer's legal representative. 
The adult child informs the creditor that the consumer is hospitalized 
and is unable to pay the bill at that time. The creditor defers payments 
for up to three months, without penalty, for the hospitalized consumer 
and sends the consumer a letter confirming this practice and the date on 
which the next payment will be due. The creditor has obtained and used 
medical information to determine whether the provisions of a medically-
triggered forbearance practice or program apply to a consumer.



Sec. 41.31  Limits on redisclosure of information.

    (a) Scope. This section applies to national banks, Federal branches 
and agencies of foreign banks, and their respective operating 
subsidiaries.
    (b) Limits on redisclosure. If a person described in paragraph (a) 
of this section receives medical information about a consumer from a 
consumer reporting agency or its affiliate, the person must not disclose 
that information to any other person, except as necessary to carry out 
the purpose for which the information was initially disclosed, or as 
otherwise permitted by statute, regulation, or order.



Sec. 41.32  Sharing medical information with affiliates.

    (a) Scope. This section applies to national banks, Federal branches 
and agencies of foreign banks, and their respective operating 
subsidiaries.
    (b) In general. The exclusions from the term ``consumer report'' in 
section 603(d)(2) of the Act that allow the sharing of information with 
affiliates do not apply if a person described in paragraph (a) of this 
section communicates to an affiliate:
    (1) Medical information;
    (2) An individualized list or description based on the payment 
transactions of the consumer for medical products or services; or
    (3) An aggregate list of identified consumers based on payment 
transactions for medical products or services.
    (c) Exceptions. A person described in paragraph (a) may rely on the 
exclusions from the term ``consumer report'' in section 603(d)(2) of the 
Act to communicate the information in paragraph (b) to an affiliate:
    (1) In connection with the business of insurance or annuities 
(including the activities described in section 18B of the model Privacy 
of Consumer Financial and Health Information Regulation issued by the 
National Association of Insurance Commissioners, as in effect on January 
1, 2003);
    (2) For any purpose permitted without authorization under the 
regulations promulgated by the Department of Health and Human Services 
pursuant to the Health Insurance Portability and Accountability Act of 
1996 (HIPAA);
    (3) For any purpose referred to in section 1179 of HIPAA;
    (4) For any purpose described in section 502(e) of the Gramm-Leach-
Bliley Act;
    (5) In connection with a determination of the consumer's 
eligibility, or continued eligibility, for credit consistent with Sec. 
41.30; or
    (6) As otherwise permitted by order of the OCC.

Subparts E-H [Reserved]

[[Page 457]]



    Subpart I_Duties of Users of Consumer Reports Regarding Address 
                   Discrepancies and Records Disposal



Sec. 41.80-81  [Reserved]



Sec. 41.82  Duties of users regarding address discrepancies.

    (a) Scope. This section applies to a user of consumer reports (user) 
that receives a notice of address discrepancy from a consumer reporting 
agency, and that is a national bank, Federal branch or agency of a 
foreign bank, or any of their operating subsidiaries that are not 
functionally regulated within the meaning of section 5(c)(5) of the Bank 
Holding Company Act of 1956, as amended (12 U.S.C. 1844(c)(5)).
    (b) Definition. For purposes of this section, a notice of address 
discrepancy means a notice sent to a user by a consumer reporting agency 
pursuant to 15 U.S.C. 1681c(h)(1), that informs the user of a 
substantial difference between the address for the consumer that the 
user provided to request the consumer report and the address(es) in the 
agency's file for the consumer.
    (c) Reasonable belief. (1) Requirement to form a reasonable belief. 
A user must develop and implement reasonable policies and procedures 
designed to enable the user to form a reasonable belief that a consumer 
report relates to the consumer about whom it has requested the report, 
when the user receives a notice of address discrepancy.
    (2) Examples of reasonable policies and procedures. (i) Comparing 
the information in the consumer report provided by the consumer 
reporting agency with information the user:
    (A) Obtains and uses to verify the consumer's identity in accordance 
with the requirements of the Customer Information Program (CIP) rules 
implementing 31 U.S.C. 5318(l) (31 CFR 103.121);
    (B) Maintains in its own records, such as applications, change of 
address notifications, other customer account records, or retained CIP 
documentation; or
    (C) Obtains from third-party sources; or
    (ii) Verifying the information in the consumer report provided by 
the consumer reporting agency with the consumer.
    (d) Consumer's address. (1) Requirement to furnish consumer's 
address to a consumer reporting agency. A user must develop and 
implement reasonable policies and procedures for furnishing an address 
for the consumer that the user has reasonably confirmed is accurate to 
the consumer reporting agency from whom it received the notice of 
address discrepancy when the user:
    (i) Can form a reasonable belief that the consumer report relates to 
the consumer about whom the user requested the report;
    (ii) Establishes a continuing relationship with the consumer; and
    (iii) Regularly and in the ordinary course of business furnishes 
information to the consumer reporting agency from which the notice of 
address discrepancy relating to the consumer was obtained.
    (2) Examples of confirmation methods. The user may reasonably 
confirm an address is accurate by:
    (i) Verifying the address with the consumer about whom it has 
requested the report;
    (ii) Reviewing its own records to verify the address of the 
consumer;
    (iii) Verifying the address through third-party sources; or
    (iv) Using other reasonable means.
    (3) Timing. The policies and procedures developed in accordance with 
paragraph (d)(1) of this section must provide that the user will furnish 
the consumer's address that the user has reasonably confirmed is 
accurate to the consumer reporting agency as part of the information it 
regularly furnishes for the reporting period in which it establishes a 
relationship with the consumer.

[72 FR 63753, Nov. 9, 2007]



Sec. 41.83  Disposal of consumer information.

    (a) Definitions as used in this section. (1) Bank means national 
banks, Federal branches and agencies of foreign banks, and their 
respective operating subsidiaries.
    (b) In general. Each bank must properly dispose of any consumer 
information that it maintains or otherwise

[[Page 458]]

possesses in accordance with the Interagency Guidelines Establishing 
Information Security Standards, as set forth in appendix B to 12 CFR 
part 30, to the extent that the bank is covered by the scope of the 
Guidelines.
    (c) Rule of construction. Nothing in this section shall be construed 
to:
    (1) Require a bank to maintain or destroy any record pertaining to a 
consumer that is not imposed under any other law; or
    (2) Alter or affect any requirement imposed under any other 
provision of law to maintain or destroy such a record.



                   Subpart J_Identity Theft Red Flags

    Source: 72 FR 63753, Nov. 9, 2007, unless otherwise noted.



Sec. 41.90  Duties regarding the detection, prevention, and mitigation of identity theft.

    (a) Scope. This section applies to a financial institution or 
creditor that is a national bank, Federal branch or agency of a foreign 
bank, and any of their operating subsidiaries that are not functionally 
regulated within the meaning of section 5(c)(5) of the Bank Holding 
Company Act of 1956, as amended (12 U.S.C. 1844(c)(5)).
    (b) Definitions. For purposes of this section and Appendix J, the 
following definitions apply:
    (1) Account means a continuing relationship established by a person 
with a financial institution or creditor to obtain a product or service 
for personal, family, household or business purposes. Account includes:
    (i) An extension of credit, such as the purchase of property or 
services involving a deferred payment; and
    (ii) A deposit account.
    (2) The term board of directors includes:
    (i) In the case of a branch or agency of a foreign bank, the 
managing official in charge of the branch or agency; and
    (ii) In the case of any other creditor that does not have a board of 
directors, a designated employee at the level of senior management.
    (3) Covered account means:
    (i) An account that a financial institution or creditor offers or 
maintains, primarily for personal, family, or household purposes, that 
involves or is designed to permit multiple payments or transactions, 
such as a credit card account, mortgage loan, automobile loan, margin 
account, cell phone account, utility account, checking account, or 
savings account; and
    (ii) Any other account that the financial institution or creditor 
offers or maintains for which there is a reasonably foreseeable risk to 
customers or to the safety and soundness of the financial institution or 
creditor from identity theft, including financial, operational, 
compliance, reputation, or litigation risks.
    (4) Credit has the same meaning as in 15 U.S.C. 1681a(r)(5).
    (5) Creditor has the same meaning as in 15 U.S.C. 1681a(r)(5), and 
includes lenders such as banks, finance companies, automobile dealers, 
mortgage brokers, utility companies, and telecommunications companies.
    (6) Customer means a person that has a covered account with a 
financial institution or creditor.
    (7) Financial institution has the same meaning as in 15 U.S.C. 
1681a(t).
    (8) Identity theft has the same meaning as in 16 CFR 603.2(a).
    (9) Red Flag means a pattern, practice, or specific activity that 
indicates the possible existence of identity theft.
    (10) Service provider means a person that provides a service 
directly to the financial institution or creditor.
    (c) Periodic Identification of Covered Accounts. Each financial 
institution or creditor must periodically determine whether it offers or 
maintains covered accounts. As a part of this determination, a financial 
institution or creditor must conduct a risk assessment to determine 
whether it offers or maintains covered accounts described in paragraph 
(b)(3)(ii) of this section, taking into consideration:
    (1) The methods it provides to open its accounts;
    (2) The methods it provides to access its accounts; and
    (3) Its previous experiences with identity theft.

[[Page 459]]

    (d) Establishment of an Identity Theft Prevention Program. (1) 
Program requirement. Each financial institution or creditor that offers 
or maintains one or more covered accounts must develop and implement a 
written Identity Theft Prevention Program (Program) that is designed to 
detect, prevent, and mitigate identity theft in connection with the 
opening of a covered account or any existing covered account. The 
Program must be appropriate to the size and complexity of the financial 
institution or creditor and the nature and scope of its activities.
    (2) Elements of the Program. The Program must include reasonable 
policies and procedures to:
    (i) Identify relevant Red Flags for the covered accounts that the 
financial institution or creditor offers or maintains, and incorporate 
those Red Flags into its Program;
    (ii) Detect Red Flags that have been incorporated into the Program 
of the financial institution or creditor;
    (iii) Respond appropriately to any Red Flags that are detected 
pursuant to paragraph (d)(2)(ii) of this section to prevent and mitigate 
identity theft; and
    (iv) Ensure the Program (including the Red Flags determined to be 
relevant) is updated periodically, to reflect changes in risks to 
customers and to the safety and soundness of the financial institution 
or creditor from identity theft.
    (e) Administration of the Program. Each financial institution or 
creditor that is required to implement a Program must provide for the 
continued administration of the Program and must:
    (1) Obtain approval of the initial written Program from either its 
board of directors or an appropriate committee of the board of 
directors;
    (2) Involve the board of directors, an appropriate committee 
thereof, or a designated employee at the level of senior management in 
the oversight, development, implementation and administration of the 
Program;
    (3) Train staff, as necessary, to effectively implement the Program; 
and
    (4) Exercise appropriate and effective oversight of service provider 
arrangements.
    (f) Guidelines. Each financial institution or creditor that is 
required to implement a Program must consider the guidelines in Appendix 
J of this part and include in its Program those guidelines that are 
appropriate.



Sec. 41.91  Duties of card issuers regarding changes of address.

    (a) Scope. This section applies to an issuer of a debit or credit 
card (card issuer) that is a national bank, Federal branch or agency of 
a foreign bank, and any of their operating subsidiaries that are not 
functionally regulated within the meaning of section 5(c)(5) of the Bank 
Holding Company Act of 1956, as amended (12 U.S.C. 1844(c)(5)).
    (b) Definitions. For purposes of this section:
    (1) Cardholder means a consumer who has been issued a credit or 
debit card.
    (2) Clear and conspicuous means reasonably understandable and 
designed to call attention to the nature and significance of the 
information presented.
    (c) Address validation requirements. A card issuer must establish 
and implement reasonable policies and procedures to assess the validity 
of a change of address if it receives notification of a change of 
address for a consumer's debit or credit card account and, within a 
short period of time afterwards (during at least the first 30 days after 
it receives such notification), the card issuer receives a request for 
an additional or replacement card for the same account. Under these 
circumstances, the card issuer may not issue an additional or 
replacement card, until, in accordance with its reasonable policies and 
procedures and for the purpose of assessing the validity of the change 
of address, the card issuer:
    (1)(i) Notifies the cardholder of the request:
    (A) At the cardholder's former address; or
    (B) By any other means of communication that the card issuer and the 
cardholder have previously agreed to use; and
    (ii) Provides to the cardholder a reasonable means of promptly 
reporting incorrect address changes; or
    (2) Otherwise assesses the validity of the change of address in 
accordance with the policies and procedures the

[[Page 460]]

card issuer has established pursuant to Sec. 41.90 of this part.
    (d) Alternative timing of address validation. A card issuer may 
satisfy the requirements of paragraph (c) of this section if it 
validates an address pursuant to the methods in paragraph (c)(1) or 
(c)(2) of this section when it receives an address change notification, 
before it receives a request for an additional or replacement card.
    (e) Form of notice. Any written or electronic notice that the card 
issuer provides under this paragraph must be clear and conspicuous and 
provided separately from its regular correspondence with the cardholder.



                Sec. Appendices A-B to Part 41 [Reserved]





       Sec. Appendix C To Part 41--Model Forms for Opt-Out Notices

    a. Although use of the model forms is not required, use of the model 
forms in this Appendix (as applicable) complies with the requirement in 
section 624 of the Act for clear, conspicuous, and concise notices.
    b. Certain changes may be made to the language or format of the 
model forms without losing the protection from liability afforded by use 
of the model forms. These changes may not be so extensive as to affect 
the substance, clarity, or meaningful sequence of the language in the 
model forms. Persons making such extensive revisions will lose the safe 
harbor that this Appendix provides. Acceptable changes include, for 
example:
    1. Rearranging the order of the references to ``your income,'' 
``your account history,'' and ``your credit score.''
    2. Substituting other types of information for ``income,'' ``account 
history,'' or ``credit score'' for accuracy, such as ``payment 
history,'' ``credit history,'' ``payoff status,'' or ``claims history.''
    3. Substituting a clearer and more accurate description of the 
affiliates providing or covered by the notice for phrases such as ``the 
[ABC] group of companies,'' including without limitation a statement 
that the entity providing the notice recently purchased the consumer's 
account.
    4. Substituting other types of affiliates covered by the notice for 
``credit card,'' ``insurance,'' or ``securities'' affiliates.
    5. Omitting items that are not accurate or applicable. For example, 
if a person does not limit the duration of the opt-out period, the 
notice may omit information about the renewal notice.
    6. Adding a statement informing consumers how much time they have to 
opt out before shared eligibility information may be used to make 
solicitations to them.
    7. Adding a statement that the consumer may exercise the right to 
opt out at any time.
    8. Adding the following statement, if accurate: ``If you previously 
opted out, you do not need to do so again.''
    9. Providing a place on the form for the consumer to fill in 
identifying information, such as his or her name and address:

C-1 Model Form for Initial Opt-out Notice (Single-Affiliate Notice)
C-2 Model Form for Initial Opt-out Notice (Joint Notice)
C-3 Model Form for Renewal Notice (Single-Affiliate Notice)
C-4 Model Form for Renewal Notice (Joint Notice)
C-5 Model Form for Voluntary ``No Marketing'' Notice

 C-1--Model Form for Initial Opt-out Notice (Single-Affiliate Notice)--
          [Your Choice To Limit Marketing]/[Marketing Opt-out]

     [Name of Affiliate] is providing this notice.
     [Optional: Federal law gives you the right to 
limit some but not all marketing from our affiliates. Federal law also 
requires us to give you this notice to tell you about your choice to 
limit marketing from our affiliates.]
     You may limit our affiliates in the [ABC] group 
of companies, such as our [credit card, insurance, and securities] 
affiliates, from marketing their products or services to you based on 
your personal information that we collect and share with them. This 
information includes your [income], your [account history with us], and 
your [credit score].
     Your choice to limit marketing offers from our 
affiliates will apply [until you tell us to change your choice]/[for x 
years from when you tell us your choice]/[for at least 5 years from when 
you tell us your choice]. [Include if the opt-out period expires.] Once 
that period expires, you will receive a renewal notice that will allow 
you to continue to limit marketing offers from our affiliates for 
[another x years]/[at least another 5 years].
     [Include, if applicable, in a subsequent notice, 
including an annual notice, for consumers who may have previously opted 
out.] If you have already made a choice to limit marketing offers from 
our affiliates, you do not need to act again until you receive the 
renewal notice.
    To limit marketing offers, contact us [include all that apply]:
     By telephone: 1-877--

     On the Web: www.---.com

[[Page 461]]

     By mail: Check the box and complete the form 
below, and send the form to:

[Company name]
[Company address]

    --Do not allow your affiliates to use my personal information to 
market to me.

C-2--Model Form for Initial Opt-out Notice (Joint Notice)--[Your Choice 
                 To Limit Marketing]/[Marketing Opt-out]

     The [ABC group of companies] is providing this 
notice.
     [Optional: Federal law gives you the right to 
limit some but not all marketing from the [ABC] companies. Federal law 
also requires us to give you this notice to tell you about your choice 
to limit marketing from the [ABC] companies.]
     You may limit the [ABC] companies, such as the 
[ABC credit card, insurance, and securities] affiliates, from marketing 
their products or services to you based on your personal information 
that they receive from other [ABC] companies. This information includes 
your [income], your [account history], and your [credit score].
     Your choice to limit marketing offers from the 
[ABC] companies will apply [until you tell us to change your choice]/
[for x years from when you tell us your choice]/[for at least 5 years 
from when you tell us your choice]. [Include if the opt-out period 
expires.] Once that period expires, you will receive a renewal notice 
that will allow you to continue to limit marketing offers from the [ABC] 
companies for [another x years]/[at least another 5 years].
     [Include, if applicable, in a subsequent notice, 
including an annual notice, for consumers who may have previously opted 
out.] If you have already made a choice to limit marketing offers from 
the [ABC] companies, you do not need to act again until you receive the 
renewal notice.
    To limit marketing offers, contact us [include all that apply]:
     By telephone: 1-877--

     On the Web: www.---.com
     By mail: Check the box and complete the form 
below, and send the form to:
[Company name]
[Company address]

    --Do not allow any company [in the ABC group of companies] to use my 
personal information to market to me.

C-3--Model Form for Renewal Notice (Single-Affiliate Notice)--[Renewing 
    Your Choice to Limit Marketing]/[Renewing Your Marketing Opt-out]

     [Name of Affiliate] is providing this notice.
     [Optional: Federal law gives you the right to 
limit some but not all marketing from our affiliates. Federal law also 
requires us to give you this notice to tell you about your choice to 
limit marketing from our affiliates.]
     You previously chose to limit our affiliates in 
the [ABC] group of companies, such as our [credit card, insurance, and 
securities] affiliates, from marketing their products or services to you 
based on your personal information that we share with them. This 
information includes your [income], your [account history with us], and 
your [credit score].
     Your choice has expired or is about to expire.
    To renew your choice to limit marketing for [x] more years, contact 
us [include all that apply]:
     By telephone: 1-877--

     On the Web: www.---.com
     By mail: Check the box and complete the form 
below, and send the form to:

[Company name]
[Company address]

    --Renew my choice to limit marketing for [x] more years.

C-4--Model Form for Renewal Notice (Joint Notice)--[Renewing Your Choice 
          To Limit Marketing]/[Renewing Your Marketing Opt-out]

     The [ABC group of companies] is providing this 
notice.
     [Optional: Federal law gives you the right to 
limit some but not all marketing from the [ABC] companies. Federal law 
also requires us to give you this notice to tell you about your choice 
to limit marketing from the [ABC] companies.]
     You previously chose to limit the [ABC] 
companies, such as the [ABC credit card, insurance, and securities] 
affiliates, from marketing their products or services to you based on 
your personal information that they receive from other ABC companies. 
This information includes your [income], your [account history], and 
your [credit score].
     Your choice has expired or is about to expire.
    To renew your choice to limit marketing for [x] more years, contact 
us [include all that apply]:
     By telephone: 1-877--

     On the Web: www.---.com
     By mail: Check the box and complete the form 
below, and send the form to:

[Company name]
[Company address]

    --Renew my choice to limit marketing for [x] more years.

 C-5--Model Form for Voluntary ``No Marketing'' Notice--Your Choice to 
                             Stop Marketing

     [Name of Affiliate] is providing this notice.

[[Page 462]]

     You may choose to stop all marketing from us and 
our affiliates.
    To stop all marketing, contact us [include all that apply]:
     By telephone: 1-877---

     On the Web: www.---.com
     By mail: Check the box and complete the form 
below, and send the form to:

[Company name]
[Company address]

    --Do not market to me.

[72 FR 62953, Nov. 7, 2007]



                Sec. Appendices D-I to Part 41[Reserved]





  Sec. Appendix J to Part 41--Interagency Guidelines on Identity Theft 
                  Detection, Prevention, and Mitigation

    Section 41.90 of this part requires each financial institution and 
creditor that offers or maintains one or more covered accounts, as 
defined in Sec. 41.90(b)(3) of this part, to develop and provide for 
the continued administration of a written Program to detect, prevent, 
and mitigate identity theft in connection with the opening of a covered 
account or any existing covered account. These guidelines are intended 
to assist financial institutions and creditors in the formulation and 
maintenance of a Program that satisfies the requirements of Sec. 41.90 
of this part.

                             I. The Program

    In designing its Program, a financial institution or creditor may 
incorporate, as appropriate, its existing policies, procedures, and 
other arrangements that control reasonably foreseeable risks to 
customers or to the safety and soundness of the financial institution or 
creditor from identity theft.

                   II. Identifying Relevant Red Flags

    (a) Risk Factors. A financial institution or creditor should 
consider the following factors in identifying relevant Red Flags for 
covered accounts, as appropriate:
    (1) The types of covered accounts it offers or maintains;
    (2) The methods it provides to open its covered accounts;
    (3) The methods it provides to access its covered accounts; and
    (4) Its previous experiences with identity theft.
    (b) Sources of Red Flags. Financial institutions and creditors 
should incorporate relevant Red Flags from sources such as:
    (1) Incidents of identity theft that the financial institution or 
creditor has experienced;
    (2) Methods of identity theft that the financial institution or 
creditor has identified that reflect changes in identity theft risks; 
and
    (3) Applicable supervisory guidance.
    (c) Categories of Red Flags. The Program should include relevant Red 
Flags from the following categories, as appropriate. Examples of Red 
Flags from each of these categories are appended as Supplement A to this 
Appendix J.
    (1) Alerts, notifications, or other warnings received from consumer 
reporting agencies or service providers, such as fraud detection 
services;
    (2) The presentation of suspicious documents;
    (3) The presentation of suspicious personal identifying information, 
such as a suspicious address change;
    (4) The unusual use of, or other suspicious activity related to, a 
covered account; and
    (5) Notice from customers, victims of identity theft, law 
enforcement authorities, or other persons regarding possible identity 
theft in connection with covered accounts held by the financial 
institution or creditor.

                        III. Detecting Red Flags

    The Program's policies and procedures should address the detection 
of Red Flags in connection with the opening of covered accounts and 
existing covered accounts, such as by:
    (a) Obtaining identifying information about, and verifying the 
identity of, a person opening a covered account, for example, using the 
policies and procedures regarding identification and verification set 
forth in the Customer Identification Program rules implementing 31 
U.S.C. 5318(l) (31 CFR 103.121); and
    (b) Authenticating customers, monitoring transactions, and verifying 
the validity of change of address requests, in the case of existing 
covered accounts.

              IV. Preventing and Mitigating Identity Theft

    The Program's policies and procedures should provide for appropriate 
responses to the Red Flags the financial institution or creditor has 
detected that are commensurate with the degree of risk posed. In 
determining an appropriate response, a financial institution or creditor 
should consider aggravating factors that may heighten the risk of 
identity theft, such as a data security incident that results in 
unauthorized access to a customer's account records held by the 
financial institution, creditor, or third party, or notice that a 
customer has provided information related to a covered account held by 
the financial institution or creditor to someone fraudulently claiming 
to represent the financial institution or creditor or to a fraudulent 
website. Appropriate responses may include the following:

[[Page 463]]

    (a) Monitoring a covered account for evidence of identity theft;
    (b) Contacting the customer;
    (c) Changing any passwords, security codes, or other security 
devices that permit access to a covered account;
    (d) Reopening a covered account with a new account number;
    (e) Not opening a new covered account;
    (f) Closing an existing covered account;
    (g) Not attempting to collect on a covered account or not selling a 
covered account to a debt collector;
    (h) Notifying law enforcement; or
    (i) Determining that no response is warranted under the particular 
circumstances.

                         V. Updating the Program

    Financial institutions and creditors should update the Program 
(including the Red Flags determined to be relevant) periodically, to 
reflect changes in risks to customers or to the safety and soundness of 
the financial institution or creditor from identity theft, based on 
factors such as:
    (a) The experiences of the financial institution or creditor with 
identity theft;
    (b) Changes in methods of identity theft;
    (c) Changes in methods to detect, prevent, and mitigate identity 
theft;
    (d) Changes in the types of accounts that the financial institution 
or creditor offers or maintains; and
    (e) Changes in the business arrangements of the financial 
institution or creditor, including mergers, acquisitions, alliances, 
joint ventures, and service provider arrangements.

                VI. Methods for Administering the Program

    (a) Oversight of Program. Oversight by the board of directors, an 
appropriate committee of the board, or a designated employee at the 
level of senior management should include:
    (1) Assigning specific responsibility for the Program's 
implementation;
    (2) Reviewing reports prepared by staff regarding compliance by the 
financial institution or creditor with Sec. 41.90 of this part; and
    (3) Approving material changes to the Program as necessary to 
address changing identity theft risks.
    (b) Reports. (1) In general. Staff of the financial institution or 
creditor responsible for development, implementation, and administration 
of its Program should report to the board of directors, an appropriate 
committee of the board, or a designated employee at the level of senior 
management, at least annually, on compliance by the financial 
institution or creditor with Sec. 41.90 of this part.
    (2) Contents of report. The report should address material matters 
related to the Program and evaluate issues such as: the effectiveness of 
the policies and procedures of the financial institution or creditor in 
addressing the risk of identity theft in connection with the opening of 
covered accounts and with respect to existing covered accounts; service 
provider arrangements; significant incidents involving identity theft 
and management's response; and recommendations for material changes to 
the Program.
    (c) Oversight of service provider arrangements. Whenever a financial 
institution or creditor engages a service provider to perform an 
activity in connection with one or more covered accounts the financial 
institution or creditor should take steps to ensure that the activity of 
the service provider is conducted in accordance with reasonable policies 
and procedures designed to detect, prevent, and mitigate the risk of 
identity theft. For example, a financial institution or creditor could 
require the service provider by contract to have policies and procedures 
to detect relevant Red Flags that may arise in the performance of the 
service provider's activities, and either report the Red Flags to the 
financial institution or creditor, or to take appropriate steps to 
prevent or mitigate identity theft.

                VII. Other Applicable Legal Requirements

    Financial institutions and creditors should be mindful of other 
related legal requirements that may be applicable, such as:
    (a) For financial institutions and creditors that are subject to 31 
U.S.C. 5318(g), filing a Suspicious Activity Report in accordance with 
applicable law and regulation;
    (b) Implementing any requirements under 15 U.S.C. 1681c-1(h) 
regarding the circumstances under which credit may be extended when the 
financial institution or creditor detects a fraud or active duty alert;
    (c) Implementing any requirements for furnishers of information to 
consumer reporting agencies under 15 U.S.C. 1681s-2, for example, to 
correct or update inaccurate or incomplete information, and to not 
report information that the furnisher has reasonable cause to believe is 
inaccurate; and
    (d) Complying with the prohibitions in 15 U.S.C. 1681m on the sale, 
transfer, and placement for collection of certain debts resulting from 
identity theft.

                       Supplement A to Appendix J

    In addition to incorporating Red Flags from the sources recommended 
in section II.b. of the Guidelines in Appendix J of this part, each 
financial institution or creditor may consider incorporating into its 
Program, whether singly or in combination, Red Flags from the following 
illustrative examples in connection with covered accounts:

   Alerts, Notifications or Warnings from a Consumer Reporting Agency

    1. A fraud or active duty alert is included with a consumer report.

[[Page 464]]

    2. A consumer reporting agency provides a notice of credit freeze in 
response to a request for a consumer report.
    3. A consumer reporting agency provides a notice of address 
discrepancy, as defined in Sec. 41.82(b) of this part.
    4. A consumer report indicates a pattern of activity that is 
inconsistent with the history and usual pattern of activity of an 
applicant or customer, such as:
    a. A recent and significant increase in the volume of inquiries;
    b. An unusual number of recently established credit relationships;
    c. A material change in the use of credit, especially with respect 
to recently established credit relationships; or
    d. An account that was closed for cause or identified for abuse of 
account privileges by a financial institution or creditor.

                          Suspicious Documents

    5. Documents provided for identification appear to have been altered 
or forged.
    6. The photograph or physical description on the identification is 
not consistent with the appearance of the applicant or customer 
presenting the identification.
    7. Other information on the identification is not consistent with 
information provided by the person opening a new covered account or 
customer presenting the identification.
    8. Other information on the identification is not consistent with 
readily accessible information that is on file with the financial 
institution or creditor, such as a signature card or a recent check.
    9. An application appears to have been altered or forged, or gives 
the appearance of having been destroyed and reassembled.

               Suspicious Personal Identifying Information

    10. Personal identifying information provided is inconsistent when 
compared against external information sources used by the financial 
institution or creditor. For example:
    a. The address does not match any address in the consumer report; or
    b. The Social Security Number (SSN) has not been issued, or is 
listed on the Social Security Administration's Death Master File.
    11. Personal identifying information provided by the customer is not 
consistent with other personal identifying information provided by the 
customer. For example, there is a lack of correlation between the SSN 
range and date of birth.
    12. Personal identifying information provided is associated with 
known fraudulent activity as indicated by internal or third-party 
sources used by the financial institution or creditor. For example:
    a. The address on an application is the same as the address provided 
on a fraudulent application; or
    b. The phone number on an application is the same as the number 
provided on a fraudulent application.
    13. Personal identifying information provided is of a type commonly 
associated with fraudulent activity as indicated by internal or third-
party sources used by the financial institution or creditor. For 
example:
    a. The address on an application is fictitious, a mail drop, or a 
prison; or
    b. The phone number is invalid, or is associated with a pager or 
answering service.
    14. The SSN provided is the same as that submitted by other persons 
opening an account or other customers.
    15. The address or telephone number provided is the same as or 
similar to the account number or telephone number submitted by an 
unusually large number of other persons opening accounts or other 
customers.
    16. The person opening the covered account or the customer fails to 
provide all required personal identifying information on an application 
or in response to notification that the application is incomplete.
    17. Personal identifying information provided is not consistent with 
personal identifying information that is on file with the financial 
institution or creditor.
    18. For financial institutions and creditors that use challenge 
questions, the person opening the covered account or the customer cannot 
provide authenticating information beyond that which generally would be 
available from a wallet or consumer report.

 Unusual Use of, or Suspicious Activity Related to, the Covered Account

    19. Shortly following the notice of a change of address for a 
covered account, the institution or creditor receives a request for a 
new, additional, or replacement card or a cell phone, or for the 
addition of authorized users on the account.
    20. A new revolving credit account is used in a manner commonly 
associated with known patterns of fraud patterns. For example:
    a. The majority of available credit is used for cash advances or 
merchandise that is easily convertible to cash (e.g., electronics 
equipment or jewelry); or
    b. The customer fails to make the first payment or makes an initial 
payment but no subsequent payments.
    21. A covered account is used in a manner that is not consistent 
with established patterns of activity on the account. There is, for 
example:
    a. Nonpayment when there is no history of late or missed payments;
    b. A material increase in the use of available credit;
    c. A material change in purchasing or spending patterns;

[[Page 465]]

    d. A material change in electronic fund transfer patterns in 
connection with a deposit account; or
    e. A material change in telephone call patterns in connection with a 
cellular phone account.
    22. A covered account that has been inactive for a reasonably 
lengthy period of time is used (taking into consideration the type of 
account, the expected pattern of usage and other relevant factors).
    23. Mail sent to the customer is returned repeatedly as 
undeliverable although transactions continue to be conducted in 
connection with the customer's covered account.
    24. The financial institution or creditor is notified that the 
customer is not receiving paper account statements.
    25. The financial institution or creditor is notified of 
unauthorized charges or transactions in connection with a customer's 
covered account.

   Notice From Customers, Victims of Identity Theft, Law Enforcement 
   Authorities, or Other Persons Regarding Possible Identity Theft in 
 Connection With Covered Accounts Held by the Financial Institution or 
                                Creditor

    26. The financial institution or creditor is notified by a customer, 
a victim of identity theft, a law enforcement authority, or any other 
person that it has opened a fraudulent account for a person engaged in 
identity theft.

[72 FR 63754, Nov. 9, 2007]

                         PARTS 42	199 [RESERVED]


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                              FINDING AIDS




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  A list of CFR titles, subtitles, chapters, subchapters and parts and 
an alphabetical list of agencies publishing in the CFR are included in 
the CFR Index and Finding Aids volume to the Code of Federal Regulations 
which is published separately and revised annually.

  Table of CFR Titles and Chapters
  Alphabetical List of Agencies Appearing in the CFR
  List of CFR Sections Affected

[[Page 469]]



                    Table of CFR Titles and Chapters




                     (Revised as of January 1, 2008)

                      Title 1--General Provisions

         I  Administrative Committee of the Federal Register 
                (Parts 1--49)
        II  Office of the Federal Register (Parts 50--299)
        IV  Miscellaneous Agencies (Parts 400--500)

                    Title 2--Grants and Agreements

            Subtitle A--Office of Management and Budget Guidance 
                for Grants and Agreements
         I  Office of Management and Budget Governmentwide 
                Guidance for Grants and Agreements (Parts 100--
                199)
        II  Office of Management and Budget Circulars and Guidance 
                (200--299)
            Subtitle B--Federal Agency Regulations for Grants and 
                Agreements
       III  Department of Health and Human Services (Parts 300-- 
                399)
        VI  Department of State (Parts 600--699)
      VIII  Department of Veterans Affairs (Parts 800--899)
        IX  Department of Energy (Parts 900--999)
        XI  Department of Defense (Parts 1100--1199)
       XIV  Department of the Interior (Parts 1400--1499)
        XV  Environmental Protection Agency (Parts 1500--1599)
     XVIII  National Aeronautics and Space Administration (Parts 
                1880--1899)
      XXII  Corporation for National and Community Service (Parts 
                2200--2299)
      XXIV  Housing and Urban Development (Parts 2400--2499)
       XXV  National Science Foundation (Parts 2500--2599)
      XXVI  National Archives and Records Administration (Parts 
                2600--2699)
     XXVII  Small Business Administration (Parts 2700--2799)
    XXVIII  Department of Justice (Parts 2800--2899)
     XXXII  National Endowment for the Arts (Parts 3200--3299)
    XXXIII  National Endowment for the Humanities (Parts 3300--
                3399)
      XXXV  Export-Import Bank of the United States (Parts 3500--
                3599)
    XXXVII  Peace Corps (Parts 3700--3799)

[[Page 470]]

                        Title 3--The President

         I  Executive Office of the President (Parts 100--199)

                           Title 4--Accounts

         I  Government Accountability Office (Parts 1--99)

                   Title 5--Administrative Personnel

         I  Office of Personnel Management (Parts 1--1199)
        II  Merit Systems Protection Board (Parts 1200--1299)
       III  Office of Management and Budget (Parts 1300--1399)
         V  The International Organizations Employees Loyalty 
                Board (Parts 1500--1599)
        VI  Federal Retirement Thrift Investment Board (Parts 
                1600--1699)
      VIII  Office of Special Counsel (Parts 1800--1899)
        IX  Appalachian Regional Commission (Parts 1900--1999)
        XI  Armed Forces Retirement Home (Parts 2100--2199)
       XIV  Federal Labor Relations Authority, General Counsel of 
                the Federal Labor Relations Authority and Federal 
                Service Impasses Panel (Parts 2400--2499)
        XV  Office of Administration, Executive Office of the 
                President (Parts 2500--2599)
       XVI  Office of Government Ethics (Parts 2600--2699)
       XXI  Department of the Treasury (Parts 3100--3199)
      XXII  Federal Deposit Insurance Corporation (Parts 3200--
                3299)
     XXIII  Department of Energy (Parts 3300--3399)
      XXIV  Federal Energy Regulatory Commission (Parts 3400--
                3499)
       XXV  Department of the Interior (Parts 3500--3599)
      XXVI  Department of Defense (Parts 3600-- 3699)
    XXVIII  Department of Justice (Parts 3800--3899)
      XXIX  Federal Communications Commission (Parts 3900--3999)
       XXX  Farm Credit System Insurance Corporation (Parts 4000--
                4099)
      XXXI  Farm Credit Administration (Parts 4100--4199)
    XXXIII  Overseas Private Investment Corporation (Parts 4300--
                4399)
      XXXV  Office of Personnel Management (Parts 4500--4599)
        XL  Interstate Commerce Commission (Parts 5000--5099)
       XLI  Commodity Futures Trading Commission (Parts 5100--
                5199)
      XLII  Department of Labor (Parts 5200--5299)
     XLIII  National Science Foundation (Parts 5300--5399)
       XLV  Department of Health and Human Services (Parts 5500--
                5599)
      XLVI  Postal Rate Commission (Parts 5600--5699)
     XLVII  Federal Trade Commission (Parts 5700--5799)
    XLVIII  Nuclear Regulatory Commission (Parts 5800--5899)
         L  Department of Transportation (Parts 6000--6099)
       LII  Export-Import Bank of the United States (Parts 6200--
                6299)
      LIII  Department of Education (Parts 6300--6399)

[[Page 471]]

       LIV  Environmental Protection Agency (Parts 6400--6499)
        LV  National Endowment for the Arts (Parts 6500--6599)
       LVI  National Endowment for the Humanities (Parts 6600--
                6699)
      LVII  General Services Administration (Parts 6700--6799)
     LVIII  Board of Governors of the Federal Reserve System 
                (Parts 6800--6899)
       LIX  National Aeronautics and Space Administration (Parts 
                6900--6999)
        LX  United States Postal Service (Parts 7000--7099)
       LXI  National Labor Relations Board (Parts 7100--7199)
      LXII  Equal Employment Opportunity Commission (Parts 7200--
                7299)
     LXIII  Inter-American Foundation (Parts 7300--7399)
      LXIV  Merit Systems Protection Board (Parts 7400--7499)
       LXV  Department of Housing and Urban Development (Parts 
                7500--7599)
      LXVI  National Archives and Records Administration (Parts 
                7600--7699)
     LXVII  Institute of Museum and Library Services (Parts 7700--
                7799)
      LXIX  Tennessee Valley Authority (Parts 7900--7999)
      LXXI  Consumer Product Safety Commission (Parts 8100--8199)
    LXXIII  Department of Agriculture (Parts 8300--8399)
     LXXIV  Federal Mine Safety and Health Review Commission 
                (Parts 8400--8499)
     LXXVI  Federal Retirement Thrift Investment Board (Parts 
                8600--8699)
    LXXVII  Office of Management and Budget (Parts 8700--8799)
     XCVII  Department of Homeland Security Human Resources 
                Management System (Department of Homeland 
                Security--Office of Personnel Management) (Parts 
                9700--9799)
      XCIX  Department of Defense Human Resources Management and 
                Labor Relations Systems (Department of Defense--
                Office of Personnel Management) (Parts 9900--9999)

                      Title 6--Domestic Security

         I  Department of Homeland Security, Office of the 
                Secretary (Parts 0--99)
         X  Privacy and Civil Liberties Oversight Board (Parts 
                1000--1099)

                         Title 7--Agriculture

            Subtitle A--Office of the Secretary of Agriculture 
                (Parts 0--26)
            Subtitle B--Regulations of the Department of 
                Agriculture
         I  Agricultural Marketing Service (Standards, 
                Inspections, Marketing Practices), Department of 
                Agriculture (Parts 27--209)
        II  Food and Nutrition Service, Department of Agriculture 
                (Parts 210--299)
       III  Animal and Plant Health Inspection Service, Department 
                of Agriculture (Parts 300--399)

[[Page 472]]

        IV  Federal Crop Insurance Corporation, Department of 
                Agriculture (Parts 400--499)
         V  Agricultural Research Service, Department of 
                Agriculture (Parts 500--599)
        VI  Natural Resources Conservation Service, Department of 
                Agriculture (Parts 600--699)
       VII  Farm Service Agency, Department of Agriculture (Parts 
                700--799)
      VIII  Grain Inspection, Packers and Stockyards 
                Administration (Federal Grain Inspection Service), 
                Department of Agriculture (Parts 800--899)
        IX  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Fruits, Vegetables, Nuts), Department 
                of Agriculture (Parts 900--999)
         X  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Milk), Department of Agriculture 
                (Parts 1000--1199)
        XI  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Miscellaneous Commodities), Department 
                of Agriculture (Parts 1200--1299)
       XIV  Commodity Credit Corporation, Department of 
                Agriculture (Parts 1400--1499)
        XV  Foreign Agricultural Service, Department of 
                Agriculture (Parts 1500--1599)
       XVI  Rural Telephone Bank, Department of Agriculture (Parts 
                1600--1699)
      XVII  Rural Utilities Service, Department of Agriculture 
                (Parts 1700--1799)
     XVIII  Rural Housing Service, Rural Business-Cooperative 
                Service, Rural Utilities Service, and Farm Service 
                Agency, Department of Agriculture (Parts 1800--
                2099)
        XX  Local Television Loan Guarantee Board (Parts 2200--
                2299)
      XXVI  Office of Inspector General, Department of Agriculture 
                (Parts 2600--2699)
     XXVII  Office of Information Resources Management, Department 
                of Agriculture (Parts 2700--2799)
    XXVIII  Office of Operations, Department of Agriculture (Parts 
                2800--2899)
      XXIX  Office of Energy Policy and New Uses, Department of 
                Agriculture (Parts 2900--2999)
       XXX  Office of the Chief Financial Officer, Department of 
                Agriculture (Parts 3000--3099)
      XXXI  Office of Environmental Quality, Department of 
                Agriculture (Parts 3100--3199)
     XXXII  Office of Procurement and Property Management, 
                Department of Agriculture (Parts 3200--3299)
    XXXIII  Office of Transportation, Department of Agriculture 
                (Parts 3300--3399)
     XXXIV  Cooperative State Research, Education, and Extension 
                Service, Department of Agriculture (Parts 3400--
                3499)
      XXXV  Rural Housing Service, Department of Agriculture 
                (Parts 3500--3599)

[[Page 473]]

     XXXVI  National Agricultural Statistics Service, Department 
                of Agriculture (Parts 3600--3699)
    XXXVII  Economic Research Service, Department of Agriculture 
                (Parts 3700--3799)
   XXXVIII  World Agricultural Outlook Board, Department of 
                Agriculture (Parts 3800--3899)
       XLI  [Reserved]
      XLII  Rural Business-Cooperative Service and Rural Utilities 
                Service, Department of Agriculture (Parts 4200--
                4299)

                    Title 8--Aliens and Nationality

         I  Department of Homeland Security (Immigration and 
                Naturalization) (Parts 1--499)
         V  Executive Office for Immigration Review, Department of 
                Justice (Parts 1000--1399)

                 Title 9--Animals and Animal Products

         I  Animal and Plant Health Inspection Service, Department 
                of Agriculture (Parts 1--199)
        II  Grain Inspection, Packers and Stockyards 
                Administration (Packers and Stockyards Programs), 
                Department of Agriculture (Parts 200--299)
       III  Food Safety and Inspection Service, Department of 
                Agriculture (Parts 300--599)

                           Title 10--Energy

         I  Nuclear Regulatory Commission (Parts 0--199)
        II  Department of Energy (Parts 200--699)
       III  Department of Energy (Parts 700--999)
         X  Department of Energy (General Provisions) (Parts 
                1000--1099)
      XIII  Nuclear Waste Technical Review Board (Parts 1303--
                1399)
      XVII  Defense Nuclear Facilities Safety Board (Parts 1700--
                1799)
     XVIII  Northeast Interstate Low-Level Radioactive Waste 
                Commission (Parts 1800--1899)

                      Title 11--Federal Elections

         I  Federal Election Commission (Parts 1--9099)

                      Title 12--Banks and Banking

         I  Comptroller of the Currency, Department of the 
                Treasury (Parts 1--199)
        II  Federal Reserve System (Parts 200--299)
       III  Federal Deposit Insurance Corporation (Parts 300--399)
        IV  Export-Import Bank of the United States (Parts 400--
                499)

[[Page 474]]

         V  Office of Thrift Supervision, Department of the 
                Treasury (Parts 500--599)
        VI  Farm Credit Administration (Parts 600--699)
       VII  National Credit Union Administration (Parts 700--799)
      VIII  Federal Financing Bank (Parts 800--899)
        IX  Federal Housing Finance Board (Parts 900--999)
        XI  Federal Financial Institutions Examination Council 
                (Parts 1100--1199)
       XIV  Farm Credit System Insurance Corporation (Parts 1400--
                1499)
        XV  Department of the Treasury (Parts 1500--1599)
      XVII  Office of Federal Housing Enterprise Oversight, 
                Department of Housing and Urban Development (Parts 
                1700--1799)
     XVIII  Community Development Financial Institutions Fund, 
                Department of the Treasury (Parts 1800--1899)

               Title 13--Business Credit and Assistance

         I  Small Business Administration (Parts 1--199)
       III  Economic Development Administration, Department of 
                Commerce (Parts 300--399)
        IV  Emergency Steel Guarantee Loan Board, Department of 
                Commerce (Parts 400--499)
         V  Emergency Oil and Gas Guaranteed Loan Board, 
                Department of Commerce (Parts 500--599)

                    Title 14--Aeronautics and Space

         I  Federal Aviation Administration, Department of 
                Transportation (Parts 1--199)
        II  Office of the Secretary, Department of Transportation 
                (Aviation Proceedings) (Parts 200--399)
       III  Commercial Space Transportation, Federal Aviation 
                Administration, Department of Transportation 
                (Parts 400--499)
         V  National Aeronautics and Space Administration (Parts 
                1200--1299)
        VI  Air Transportation System Stabilization (Parts 1300--
                1399)

                 Title 15--Commerce and Foreign Trade

            Subtitle A--Office of the Secretary of Commerce (Parts 
                0--29)
            Subtitle B--Regulations Relating to Commerce and 
                Foreign Trade
         I  Bureau of the Census, Department of Commerce (Parts 
                30--199)
        II  National Institute of Standards and Technology, 
                Department of Commerce (Parts 200--299)
       III  International Trade Administration, Department of 
                Commerce (Parts 300--399)

[[Page 475]]

        IV  Foreign-Trade Zones Board, Department of Commerce 
                (Parts 400--499)
       VII  Bureau of Industry and Security, Department of 
                Commerce (Parts 700--799)
      VIII  Bureau of Economic Analysis, Department of Commerce 
                (Parts 800--899)
        IX  National Oceanic and Atmospheric Administration, 
                Department of Commerce (Parts 900--999)
        XI  Technology Administration, Department of Commerce 
                (Parts 1100--1199)
      XIII  East-West Foreign Trade Board (Parts 1300--1399)
       XIV  Minority Business Development Agency (Parts 1400--
                1499)
            Subtitle C--Regulations Relating to Foreign Trade 
                Agreements
        XX  Office of the United States Trade Representative 
                (Parts 2000--2099)
            Subtitle D--Regulations Relating to Telecommunications 
                and Information
     XXIII  National Telecommunications and Information 
                Administration, Department of Commerce (Parts 
                2300--2399)

                    Title 16--Commercial Practices

         I  Federal Trade Commission (Parts 0--999)
        II  Consumer Product Safety Commission (Parts 1000--1799)

             Title 17--Commodity and Securities Exchanges

         I  Commodity Futures Trading Commission (Parts 1--199)
        II  Securities and Exchange Commission (Parts 200--399)
        IV  Department of the Treasury (Parts 400--499)

          Title 18--Conservation of Power and Water Resources

         I  Federal Energy Regulatory Commission, Department of 
                Energy (Parts 1--399)
       III  Delaware River Basin Commission (Parts 400--499)
        VI  Water Resources Council (Parts 700--799)
      VIII  Susquehanna River Basin Commission (Parts 800--899)
      XIII  Tennessee Valley Authority (Parts 1300--1399)

                       Title 19--Customs Duties

         I  Bureau of Customs and Border Protection, Department of 
                Homeland Security; Department of the Treasury 
                (Parts 0--199)
        II  United States International Trade Commission (Parts 
                200--299)
       III  International Trade Administration, Department of 
                Commerce (Parts 300--399)

[[Page 476]]

        IV  Bureau of Immigration and Customs Enforcement, 
                Department of Homeland Security (Parts 400--599)

                     Title 20--Employees' Benefits

         I  Office of Workers' Compensation Programs, Department 
                of Labor (Parts 1--199)
        II  Railroad Retirement Board (Parts 200--399)
       III  Social Security Administration (Parts 400--499)
        IV  Employees Compensation Appeals Board, Department of 
                Labor (Parts 500--599)
         V  Employment and Training Administration, Department of 
                Labor (Parts 600--699)
        VI  Employment Standards Administration, Department of 
                Labor (Parts 700--799)
       VII  Benefits Review Board, Department of Labor (Parts 
                800--899)
      VIII  Joint Board for the Enrollment of Actuaries (Parts 
                900--999)
        IX  Office of the Assistant Secretary for Veterans' 
                Employment and Training Service, Department of 
                Labor (Parts 1000--1099)

                       Title 21--Food and Drugs

         I  Food and Drug Administration, Department of Health and 
                Human Services (Parts 1--1299)
        II  Drug Enforcement Administration, Department of Justice 
                (Parts 1300--1399)
       III  Office of National Drug Control Policy (Parts 1400--
                1499)

                      Title 22--Foreign Relations

         I  Department of State (Parts 1--199)
        II  Agency for International Development (Parts 200--299)
       III  Peace Corps (Parts 300--399)
        IV  International Joint Commission, United States and 
                Canada (Parts 400--499)
         V  Broadcasting Board of Governors (Parts 500--599)
       VII  Overseas Private Investment Corporation (Parts 700--
                799)
        IX  Foreign Service Grievance Board (Parts 900--999)
         X  Inter-American Foundation (Parts 1000--1099)
        XI  International Boundary and Water Commission, United 
                States and Mexico, United States Section (Parts 
                1100--1199)
       XII  United States International Development Cooperation 
                Agency (Parts 1200--1299)
      XIII  Millenium Challenge Corporation (Parts 1300--1399)
       XIV  Foreign Service Labor Relations Board; Federal Labor 
                Relations Authority; General Counsel of the 
                Federal Labor Relations Authority; and the Foreign 
                Service Impasse Disputes Panel (Parts 1400--1499)

[[Page 477]]

        XV  African Development Foundation (Parts 1500--1599)
       XVI  Japan-United States Friendship Commission (Parts 
                1600--1699)
      XVII  United States Institute of Peace (Parts 1700--1799)

                          Title 23--Highways

         I  Federal Highway Administration, Department of 
                Transportation (Parts 1--999)
        II  National Highway Traffic Safety Administration and 
                Federal Highway Administration, Department of 
                Transportation (Parts 1200--1299)
       III  National Highway Traffic Safety Administration, 
                Department of Transportation (Parts 1300--1399)

                Title 24--Housing and Urban Development

            Subtitle A--Office of the Secretary, Department of 
                Housing and Urban Development (Parts 0--99)
            Subtitle B--Regulations Relating to Housing and Urban 
                Development
         I  Office of Assistant Secretary for Equal Opportunity, 
                Department of Housing and Urban Development (Parts 
                100--199)
        II  Office of Assistant Secretary for Housing-Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Parts 200--299)
       III  Government National Mortgage Association, Department 
                of Housing and Urban Development (Parts 300--399)
        IV  Office of Housing and Office of Multifamily Housing 
                Assistance Restructuring, Department of Housing 
                and Urban Development (Parts 400--499)
         V  Office of Assistant Secretary for Community Planning 
                and Development, Department of Housing and Urban 
                Development (Parts 500--599)
        VI  Office of Assistant Secretary for Community Planning 
                and Development, Department of Housing and Urban 
                Development (Parts 600--699) [Reserved]
       VII  Office of the Secretary, Department of Housing and 
                Urban Development (Housing Assistance Programs and 
                Public and Indian Housing Programs) (Parts 700--
                799)
      VIII  Office of the Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Section 8 Housing Assistance 
                Programs, Section 202 Direct Loan Program, Section 
                202 Supportive Housing for the Elderly Program and 
                Section 811 Supportive Housing for Persons With 
                Disabilities Program) (Parts 800--899)
        IX  Office of Assistant Secretary for Public and Indian 
                Housing, Department of Housing and Urban 
                Development (Parts 900--1699)
         X  Office of Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Interstate Land Sales 
                Registration Program) (Parts 1700--1799)

[[Page 478]]

       XII  Office of Inspector General, Department of Housing and 
                Urban Development (Parts 2000--2099)
        XX  Office of Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Parts 3200--3899)
       XXV  Neighborhood Reinvestment Corporation (Parts 4100--
                4199)

                           Title 25--Indians

         I  Bureau of Indian Affairs, Department of the Interior 
                (Parts 1--299)
        II  Indian Arts and Crafts Board, Department of the 
                Interior (Parts 300--399)
       III  National Indian Gaming Commission, Department of the 
                Interior (Parts 500--599)
        IV  Office of Navajo and Hopi Indian Relocation (Parts 
                700--799)
         V  Bureau of Indian Affairs, Department of the Interior, 
                and Indian Health Service, Department of Health 
                and Human Services (Part 900)
        VI  Office of the Assistant Secretary-Indian Affairs, 
                Department of the Interior (Parts 1000--1199)
       VII  Office of the Special Trustee for American Indians, 
                Department of the Interior (Parts 1200--1299)

                      Title 26--Internal Revenue

         I  Internal Revenue Service, Department of the Treasury 
                (Parts 1--899)

           Title 27--Alcohol, Tobacco Products and Firearms

         I  Alcohol and Tobacco Tax and Trade Bureau, Department 
                of the Treasury (Parts 1--399)
        II  Bureau of Alcohol, Tobacco, Firearms, and Explosives, 
                Department of Justice (Parts 400--699)

                   Title 28--Judicial Administration

         I  Department of Justice (Parts 0--299)
       III  Federal Prison Industries, Inc., Department of Justice 
                (Parts 300--399)
         V  Bureau of Prisons, Department of Justice (Parts 500--
                599)
        VI  Offices of Independent Counsel, Department of Justice 
                (Parts 600--699)
       VII  Office of Independent Counsel (Parts 700--799)
      VIII  Court Services and Offender Supervision Agency for the 
                District of Columbia (Parts 800--899)
        IX  National Crime Prevention and Privacy Compact Council 
                (Parts 900--999)

[[Page 479]]

        XI  Department of Justice and Department of State (Parts 
                1100--1199)

                            Title 29--Labor

            Subtitle A--Office of the Secretary of Labor (Parts 
                0--99)
            Subtitle B--Regulations Relating to Labor
         I  National Labor Relations Board (Parts 100--199)
        II  Office of Labor-Management Standards, Department of 
                Labor (Parts 200--299)
       III  National Railroad Adjustment Board (Parts 300--399)
        IV  Office of Labor-Management Standards, Department of 
                Labor (Parts 400--499)
         V  Wage and Hour Division, Department of Labor (Parts 
                500--899)
        IX  Construction Industry Collective Bargaining Commission 
                (Parts 900--999)
         X  National Mediation Board (Parts 1200--1299)
       XII  Federal Mediation and Conciliation Service (Parts 
                1400--1499)
       XIV  Equal Employment Opportunity Commission (Parts 1600--
                1699)
      XVII  Occupational Safety and Health Administration, 
                Department of Labor (Parts 1900--1999)
        XX  Occupational Safety and Health Review Commission 
                (Parts 2200--2499)
       XXV  Employee Benefits Security Administration, Department 
                of Labor (Parts 2500--2599)
     XXVII  Federal Mine Safety and Health Review Commission 
                (Parts 2700--2799)
        XL  Pension Benefit Guaranty Corporation (Parts 4000--
                4999)

                      Title 30--Mineral Resources

         I  Mine Safety and Health Administration, Department of 
                Labor (Parts 1--199)
        II  Minerals Management Service, Department of the 
                Interior (Parts 200--299)
       III  Board of Surface Mining and Reclamation Appeals, 
                Department of the Interior (Parts 300--399)
        IV  Geological Survey, Department of the Interior (Parts 
                400--499)
       VII  Office of Surface Mining Reclamation and Enforcement, 
                Department of the Interior (Parts 700--999)

                 Title 31--Money and Finance: Treasury

            Subtitle A--Office of the Secretary of the Treasury 
                (Parts 0--50)
            Subtitle B--Regulations Relating to Money and Finance
         I  Monetary Offices, Department of the Treasury (Parts 
                51--199)
        II  Fiscal Service, Department of the Treasury (Parts 
                200--399)

[[Page 480]]

        IV  Secret Service, Department of the Treasury (Parts 
                400--499)
         V  Office of Foreign Assets Control, Department of the 
                Treasury (Parts 500--599)
        VI  Bureau of Engraving and Printing, Department of the 
                Treasury (Parts 600--699)
       VII  Federal Law Enforcement Training Center, Department of 
                the Treasury (Parts 700--799)
      VIII  Office of International Investment, Department of the 
                Treasury (Parts 800--899)
        IX  Federal Claims Collection Standards (Department of the 
                Treasury--Department of Justice) (Parts 900--999)

                      Title 32--National Defense

            Subtitle A--Department of Defense
         I  Office of the Secretary of Defense (Parts 1--399)
         V  Department of the Army (Parts 400--699)
        VI  Department of the Navy (Parts 700--799)
       VII  Department of the Air Force (Parts 800--1099)
            Subtitle B--Other Regulations Relating to National 
                Defense
       XII  Defense Logistics Agency (Parts 1200--1299)
       XVI  Selective Service System (Parts 1600--1699)
      XVII  Office of the Director of National Intelligence (Parts 
                1700--1799)
     XVIII  National Counterintelligence Center (Parts 1800--1899)
       XIX  Central Intelligence Agency (Parts 1900--1999)
        XX  Information Security Oversight Office, National 
                Archives and Records Administration (Parts 2000--
                2099)
       XXI  National Security Council (Parts 2100--2199)
      XXIV  Office of Science and Technology Policy (Parts 2400--
                2499)
     XXVII  Office for Micronesian Status Negotiations (Parts 
                2700--2799)
    XXVIII  Office of the Vice President of the United States 
                (Parts 2800--2899)

               Title 33--Navigation and Navigable Waters

         I  Coast Guard, Department of Homeland Security (Parts 
                1--199)
        II  Corps of Engineers, Department of the Army (Parts 
                200--399)
        IV  Saint Lawrence Seaway Development Corporation, 
                Department of Transportation (Parts 400--499)

                          Title 34--Education

            Subtitle A--Office of the Secretary, Department of 
                Education (Parts 1--99)
            Subtitle B--Regulations of the Offices of the 
                Department of Education
         I  Office for Civil Rights, Department of Education 
                (Parts 100--199)

[[Page 481]]

        II  Office of Elementary and Secondary Education, 
                Department of Education (Parts 200--299)
       III  Office of Special Education and Rehabilitative 
                Services, Department of Education (Parts 300--399)
        IV  Office of Vocational and Adult Education, Department 
                of Education (Parts 400--499)
         V  Office of Bilingual Education and Minority Languages 
                Affairs, Department of Education (Parts 500--599)
        VI  Office of Postsecondary Education, Department of 
                Education (Parts 600--699)
        XI  National Institute for Literacy (Parts 1100--1199)
            Subtitle C--Regulations Relating to Education
       XII  National Council on Disability (Parts 1200--1299)

                          Title 35 [Reserved]

             Title 36--Parks, Forests, and Public Property

         I  National Park Service, Department of the Interior 
                (Parts 1--199)
        II  Forest Service, Department of Agriculture (Parts 200--
                299)
       III  Corps of Engineers, Department of the Army (Parts 
                300--399)
        IV  American Battle Monuments Commission (Parts 400--499)
         V  Smithsonian Institution (Parts 500--599)
       VII  Library of Congress (Parts 700--799)
      VIII  Advisory Council on Historic Preservation (Parts 800--
                899)
        IX  Pennsylvania Avenue Development Corporation (Parts 
                900--999)
         X  Presidio Trust (Parts 1000--1099)
        XI  Architectural and Transportation Barriers Compliance 
                Board (Parts 1100--1199)
       XII  National Archives and Records Administration (Parts 
                1200--1299)
        XV  Oklahoma City National Memorial Trust (Parts 1500--
                1599)
       XVI  Morris K. Udall Scholarship and Excellence in National 
                Environmental Policy Foundation (Parts 1600--1699)

             Title 37--Patents, Trademarks, and Copyrights

         I  United States Patent and Trademark Office, Department 
                of Commerce (Parts 1--199)
        II  Copyright Office, Library of Congress (Parts 200--299)
       III  Copyright Royalty Board, Library of Congress (Parts 
                301--399)
        IV  Assistant Secretary for Technology Policy, Department 
                of Commerce (Parts 400--499)
         V  Under Secretary for Technology, Department of Commerce 
                (Parts 500--599)

           Title 38--Pensions, Bonuses, and Veterans' Relief

         I  Department of Veterans Affairs (Parts 0--99)

[[Page 482]]

                       Title 39--Postal Service

         I  United States Postal Service (Parts 1--999)
       III  Postal Regulatory Commission (Parts 3000--3099)

                  Title 40--Protection of Environment

         I  Environmental Protection Agency (Parts 1--1099)
        IV  Environmental Protection Agency and Department of 
                Justice (Parts 1400--1499)
         V  Council on Environmental Quality (Parts 1500--1599)
        VI  Chemical Safety and Hazard Investigation Board (Parts 
                1600--1699)
       VII  Environmental Protection Agency and Department of 
                Defense; Uniform National Discharge Standards for 
                Vessels of the Armed Forces (Parts 1700--1799)

          Title 41--Public Contracts and Property Management

            Subtitle B--Other Provisions Relating to Public 
                Contracts
        50  Public Contracts, Department of Labor (Parts 50-1--50-
                999)
        51  Committee for Purchase From People Who Are Blind or 
                Severely Disabled (Parts 51-1--51-99)
        60  Office of Federal Contract Compliance Programs, Equal 
                Employment Opportunity, Department of Labor (Parts 
                60-1--60-999)
        61  Office of the Assistant Secretary for Veterans' 
                Employment and Training Service, Department of 
                Labor (Parts 61-1--61-999)
            Subtitle C--Federal Property Management Regulations 
                System
       101  Federal Property Management Regulations (Parts 101-1--
                101-99)
       102  Federal Management Regulation (Parts 102-1--102-299)
       105  General Services Administration (Parts 105-1--105-999)
       109  Department of Energy Property Management Regulations 
                (Parts 109-1--109-99)
       114  Department of the Interior (Parts 114-1--114-99)
       115  Environmental Protection Agency (Parts 115-1--115-99)
       128  Department of Justice (Parts 128-1--128-99)
            Subtitle D--Other Provisions Relating to Property 
                Management [Reserved]
            Subtitle E--Federal Information Resources Management 
                Regulations System
            Subtitle F--Federal Travel Regulation System
       300  General (Parts 300-1--300-99)
       301  Temporary Duty (TDY) Travel Allowances (Parts 301-1--
                301-99)
       302  Relocation Allowances (Parts 302-1--302-99)
       303  Payment of Expenses Connected with the Death of 
                Certain Employees (Part 303-1--303-99)
       304  Payment of Travel Expenses from a Non-Federal Source 
                (Parts 304-1--304-99)

[[Page 483]]

                        Title 42--Public Health

         I  Public Health Service, Department of Health and Human 
                Services (Parts 1--199)
        IV  Centers for Medicare & Medicaid Services, Department 
                of Health and Human Services (Parts 400--499)
         V  Office of Inspector General-Health Care, Department of 
                Health and Human Services (Parts 1000--1999)

                   Title 43--Public Lands: Interior

            Subtitle A--Office of the Secretary of the Interior 
                (Parts 1--199)
            Subtitle B--Regulations Relating to Public Lands
         I  Bureau of Reclamation, Department of the Interior 
                (Parts 200--499)
        II  Bureau of Land Management, Department of the Interior 
                (Parts 1000--9999)
       III  Utah Reclamation Mitigation and Conservation 
                Commission (Parts 10000--10010)

             Title 44--Emergency Management and Assistance

         I  Federal Emergency Management Agency, Department of 
                Homeland Security (Parts 0--399)
        IV  Department of Commerce and Department of 
                Transportation (Parts 400--499)

                       Title 45--Public Welfare

            Subtitle A--Department of Health and Human Services 
                (Parts 1--199)
            Subtitle B--Regulations Relating to Public Welfare
        II  Office of Family Assistance (Assistance Programs), 
                Administration for Children and Families, 
                Department of Health and Human Services (Parts 
                200--299)
       III  Office of Child Support Enforcement (Child Support 
                Enforcement Program), Administration for Children 
                and Families, Department of Health and Human 
                Services (Parts 300--399)
        IV  Office of Refugee Resettlement, Administration for 
                Children and Families, Department of Health and 
                Human Services (Parts 400--499)
         V  Foreign Claims Settlement Commission of the United 
                States, Department of Justice (Parts 500--599)
        VI  National Science Foundation (Parts 600--699)
       VII  Commission on Civil Rights (Parts 700--799)
      VIII  Office of Personnel Management (Parts 800--899)
         X  Office of Community Services, Administration for 
                Children and Families, Department of Health and 
                Human Services (Parts 1000--1099)
        XI  National Foundation on the Arts and the Humanities 
                (Parts 1100--1199)

[[Page 484]]

       XII  Corporation for National and Community Service (Parts 
                1200--1299)
      XIII  Office of Human Development Services, Department of 
                Health and Human Services (Parts 1300--1399)
       XVI  Legal Services Corporation (Parts 1600--1699)
      XVII  National Commission on Libraries and Information 
                Science (Parts 1700--1799)
     XVIII  Harry S. Truman Scholarship Foundation (Parts 1800--
                1899)
       XXI  Commission on Fine Arts (Parts 2100--2199)
     XXIII  Arctic Research Commission (Part 2301)
      XXIV  James Madison Memorial Fellowship Foundation (Parts 
                2400--2499)
       XXV  Corporation for National and Community Service (Parts 
                2500--2599)

                          Title 46--Shipping

         I  Coast Guard, Department of Homeland Security (Parts 
                1--199)
        II  Maritime Administration, Department of Transportation 
                (Parts 200--399)
       III  Coast Guard (Great Lakes Pilotage), Department of 
                Homeland Security (Parts 400--499)
        IV  Federal Maritime Commission (Parts 500--599)

                      Title 47--Telecommunication

         I  Federal Communications Commission (Parts 0--199)
        II  Office of Science and Technology Policy and National 
                Security Council (Parts 200--299)
       III  National Telecommunications and Information 
                Administration, Department of Commerce (Parts 
                300--399)

           Title 48--Federal Acquisition Regulations System

         1  Federal Acquisition Regulation (Parts 1--99)
         2  Defense Acquisition Regulations System, Department of 
                Defense (Parts 200--299)
         3  Department of Health and Human Services (Parts 300--
                399)
         4  Department of Agriculture (Parts 400--499)
         5  General Services Administration (Parts 500--599)
         6  Department of State (Parts 600--699)
         7  Agency for International Development (Parts 700--799)
         8  Department of Veterans Affairs (Parts 800--899)
         9  Department of Energy (Parts 900--999)
        10  Department of the Treasury (Parts 1000--1099)
        12  Department of Transportation (Parts 1200--1299)
        13  Department of Commerce (Parts 1300--1399)
        14  Department of the Interior (Parts 1400--1499)

[[Page 485]]

        15  Environmental Protection Agency (Parts 1500--1599)
        16  Office of Personnel Management, Federal Employees 
                Health Benefits Acquisition Regulation (Parts 
                1600--1699)
        17  Office of Personnel Management (Parts 1700--1799)
        18  National Aeronautics and Space Administration (Parts 
                1800--1899)
        19  Broadcasting Board of Governors (Parts 1900--1999)
        20  Nuclear Regulatory Commission (Parts 2000--2099)
        21  Office of Personnel Management, Federal Employees 
                Group Life Insurance Federal Acquisition 
                Regulation (Parts 2100--2199)
        23  Social Security Administration (Parts 2300--2399)
        24  Department of Housing and Urban Development (Parts 
                2400--2499)
        25  National Science Foundation (Parts 2500--2599)
        28  Department of Justice (Parts 2800--2899)
        29  Department of Labor (Parts 2900--2999)
        30  Department of Homeland Security, Homeland Security 
                Acquisition Regulation (HSAR) (Parts 3000--3099)
        34  Department of Education Acquisition Regulation (Parts 
                3400--3499)
        51  Department of the Army Acquisition Regulations (Parts 
                5100--5199)
        52  Department of the Navy Acquisition Regulations (Parts 
                5200--5299)
        53  Department of the Air Force Federal Acquisition 
                Regulation Supplement [RESERVED]
        54  Defense Logistics Agency, Department of Defense (Parts 
                5400--5499)
        57  African Development Foundation (Parts 5700--5799)
        61  General Services Administration Board of Contract 
                Appeals (Parts 6100--6199)
        63  Department of Transportation Board of Contract Appeals 
                (Parts 6300--6399)
        99  Cost Accounting Standards Board, Office of Federal 
                Procurement Policy, Office of Management and 
                Budget (Parts 9900--9999)

                       Title 49--Transportation

            Subtitle A--Office of the Secretary of Transportation 
                (Parts 1--99)
            Subtitle B--Other Regulations Relating to 
                Transportation
         I  Pipeline and Hazardous Materials Safety 
                Administration, Department of Transportation 
                (Parts 100--199)
        II  Federal Railroad Administration, Department of 
                Transportation (Parts 200--299)
       III  Federal Motor Carrier Safety Administration, 
                Department of Transportation (Parts 300--399)
        IV  Coast Guard, Department of Homeland Security (Parts 
                400--499)

[[Page 486]]

         V  National Highway Traffic Safety Administration, 
                Department of Transportation (Parts 500--599)
        VI  Federal Transit Administration, Department of 
                Transportation (Parts 600--699)
       VII  National Railroad Passenger Corporation (AMTRAK) 
                (Parts 700--799)
      VIII  National Transportation Safety Board (Parts 800--999)
         X  Surface Transportation Board, Department of 
                Transportation (Parts 1000--1399)
        XI  Research and Innovative Technology Administration, 
                Department of Transportation [RESERVED]
       XII  Transportation Security Administration, Department of 
                Homeland Security (Parts 1500--1699)

                   Title 50--Wildlife and Fisheries

         I  United States Fish and Wildlife Service, Department of 
                the Interior (Parts 1--199)
        II  National Marine Fisheries Service, National Oceanic 
                and Atmospheric Administration, Department of 
                Commerce (Parts 200--299)
       III  International Fishing and Related Activities (Parts 
                300--399)
        IV  Joint Regulations (United States Fish and Wildlife 
                Service, Department of the Interior and National 
                Marine Fisheries Service, National Oceanic and 
                Atmospheric Administration, Department of 
                Commerce); Endangered Species Committee 
                Regulations (Parts 400--499)
         V  Marine Mammal Commission (Parts 500--599)
        VI  Fishery Conservation and Management, National Oceanic 
                and Atmospheric Administration, Department of 
                Commerce (Parts 600--699)

                      CFR Index and Finding Aids

            Subject/Agency Index
            List of Agency Prepared Indexes
            Parallel Tables of Statutory Authorities and Rules
            List of CFR Titles, Chapters, Subchapters, and Parts
            Alphabetical List of Agencies Appearing in the CFR

[[Page 487]]





           Alphabetical List of Agencies Appearing in the CFR




                     (Revised as of January 1, 2008)

                                                  CFR Title, Subtitle or 
                     Agency                               Chapter

Administrative Committee of the Federal Register  1, I
Advanced Research Projects Agency                 32, I
Advisory Council on Historic Preservation         36, VIII
African Development Foundation                    22, XV
  Federal Acquisition Regulation                  48, 57
Agency for International Development              22, II
  Federal Acquisition Regulation                  48, 7
Agricultural Marketing Service                    7, I, IX, X, XI
Agricultural Research Service                     7, V
Agriculture Department                            5, LXXIII
  Agricultural Marketing Service                  7, I, IX, X, XI
  Agricultural Research Service                   7, V
  Animal and Plant Health Inspection Service      7, III; 9, I
  Chief Financial Officer, Office of              7, XXX
  Commodity Credit Corporation                    7, XIV
  Cooperative State Research, Education, and      7, XXXIV
       Extension Service
  Economic Research Service                       7, XXXVII
  Energy, Office of                               2, IX; 7, XXIX
  Environmental Quality, Office of                7, XXXI
  Farm Service Agency                             7, VII, XVIII
  Federal Acquisition Regulation                  48, 4
  Federal Crop Insurance Corporation              7, IV
  Food and Nutrition Service                      7, II
  Food Safety and Inspection Service              9, III
  Foreign Agricultural Service                    7, XV
  Forest Service                                  36, II
  Grain Inspection, Packers and Stockyards        7, VIII; 9, II
       Administration
  Information Resources Management, Office of     7, XXVII
  Inspector General, Office of                    7, XXVI
  National Agricultural Library                   7, XLI
  National Agricultural Statistics Service        7, XXXVI
  Natural Resources Conservation Service          7, VI
  Operations, Office of                           7, XXVIII
  Procurement and Property Management, Office of  7, XXXII
  Rural Business-Cooperative Service              7, XVIII, XLII
  Rural Development Administration                7, XLII
  Rural Housing Service                           7, XVIII, XXXV
  Rural Telephone Bank                            7, XVI
  Rural Utilities Service                         7, XVII, XVIII, XLII
  Secretary of Agriculture, Office of             7, Subtitle A
  Transportation, Office of                       7, XXXIII
  World Agricultural Outlook Board                7, XXXVIII
Air Force Department                              32, VII
  Federal Acquisition Regulation Supplement       48, 53
Air Transportation Stabilization Board            14, VI
Alcohol and Tobacco Tax and Trade Bureau          27, I
Alcohol, Tobacco, Firearms, and Explosives,       27, II
     Bureau of
AMTRAK                                            49, VII
American Battle Monuments Commission              36, IV
American Indians, Office of the Special Trustee   25, VII
Animal and Plant Health Inspection Service        7, III; 9, I
Appalachian Regional Commission                   5, IX

[[Page 488]]

Architectural and Transportation Barriers         36, XI
     Compliance Board
Arctic Research Commission                        45, XXIII
Armed Forces Retirement Home                      5, XI
Army Department                                   32, V
  Engineers, Corps of                             33, II; 36, III
  Federal Acquisition Regulation                  48, 51
Benefits Review Board                             20, VII
Bilingual Education and Minority Languages        34, V
     Affairs, Office of
Blind or Severely Disabled, Committee for         41, 51
     Purchase From People Who Are
Broadcasting Board of Governors                   22, V
  Federal Acquisition Regulation                  48, 19
Census Bureau                                     15, I
Centers for Medicare & Medicaid Services          42, IV
Central Intelligence Agency                       32, XIX
Chief Financial Officer, Office of                7, XXX
Child Support Enforcement, Office of              45, III
Children and Families, Administration for         45, II, III, IV, X
Civil Rights, Commission on                       45, VII
Civil Rights, Office for                          34, I
Coast Guard                                       33, I; 46, I; 49, IV
Coast Guard (Great Lakes Pilotage)                46, III
Commerce Department                               44, IV
  Census Bureau                                   15, I
  Economic Affairs, Under Secretary               37, V
  Economic Analysis, Bureau of                    15, VIII
  Economic Development Administration             13, III
  Emergency Management and Assistance             44, IV
  Federal Acquisition Regulation                  48, 13
  Fishery Conservation and Management             50, VI
  Foreign-Trade Zones Board                       15, IV
  Industry and Security, Bureau of                15, VII
  International Trade Administration              15, III; 19, III
  National Institute of Standards and Technology  15, II
  National Marine Fisheries Service               50, II, IV, VI
  National Oceanic and Atmospheric                15, IX; 50, II, III, IV, 
       Administration                             VI
  National Telecommunications and Information     15, XXIII; 47, III
       Administration
  National Weather Service                        15, IX
  Patent and Trademark Office, United States      37, I
  Productivity, Technology and Innovation,        37, IV
       Assistant Secretary for
  Secretary of Commerce, Office of                15, Subtitle A
  Technology, Under Secretary for                 37, V
  Technology Administration                       15, XI
  Technology Policy, Assistant Secretary for      37, IV
Commercial Space Transportation                   14, III
Commodity Credit Corporation                      7, XIV
Commodity Futures Trading Commission              5, XLI; 17, I
Community Planning and Development, Office of     24, V, VI
     Assistant Secretary for
Community Services, Office of                     45, X
Comptroller of the Currency                       12, I
Construction Industry Collective Bargaining       29, IX
     Commission
Consumer Product Safety Commission                5, LXXI; 16, II
Cooperative State Research, Education, and        7, XXXIV
     Extension Service
Copyright Office                                  37, II
Copyright Royalty Board                           37, III
Corporation for National and Community Service    2, XXII; 45, XII, XXV
Cost Accounting Standards Board                   48, 99
Council on Environmental Quality                  40, V
Court Services and Offender Supervision Agency    28, VIII
     for the District of Columbia
Customs and Border Protection Bureau              19, I
Defense Contract Audit Agency                     32, I
Defense Department                                5, XXVI; 32, Subtitle A; 
                                                  40, VII

[[Page 489]]

  Advanced Research Projects Agency               32, I
  Air Force Department                            32, VII
  Army Department                                 32, V; 33, II; 36, III, 
                                                  48, 51
  Defense Acquisition Regulations System          48, II
  Defense Intelligence Agency                     32, I
  Defense Logistics Agency                        32, I, XII; 48, 54
  Engineers, Corps of                             33, II; 36, III
  National Imagery and Mapping Agency             32, I
  Navy Department                                 32, VI; 48, 52
  Secretary of Defense, Office of                 2, XI; 32, I
Defense Contract Audit Agency                     32, I
Defense Intelligence Agency                       32, I
Defense Logistics Agency                          32, XII; 48, 54
Defense Nuclear Facilities Safety Board           10, XVII
Delaware River Basin Commission                   18, III
District of Columbia, Court Services and          28, VIII
     Offender Supervision Agency for the
Drug Enforcement Administration                   21, II
East-West Foreign Trade Board                     15, XIII
Economic Affairs, Under Secretary                 37, V
Economic Analysis, Bureau of                      15, VIII
Economic Development Administration               13, III
Economic Research Service                         7, XXXVII
Education, Department of                          5, LIII
  Bilingual Education and Minority Languages      34, V
       Affairs, Office of
  Civil Rights, Office for                        34, I
  Educational Research and Improvement, Office    34, VII
       of
  Elementary and Secondary Education, Office of   34, II
  Federal Acquisition Regulation                  48, 34
  Postsecondary Education, Office of              34, VI
  Secretary of Education, Office of               34, Subtitle A
  Special Education and Rehabilitative Services,  34, III
       Office of
  Vocational and Adult Education, Office of       34, IV
Educational Research and Improvement, Office of   34, VII
Elementary and Secondary Education, Office of     34, II
Emergency Oil and Gas Guaranteed Loan Board       13, V
Emergency Steel Guarantee Loan Board              13, IV
Employee Benefits Security Administration         29, XXV
Employees' Compensation Appeals Board             20, IV
Employees Loyalty Board                           5, V
Employment and Training Administration            20, V
Employment Standards Administration               20, VI
Endangered Species Committee                      50, IV
Energy, Department of                             5, XXIII; 10, II, III, X
  Federal Acquisition Regulation                  48, 9
  Federal Energy Regulatory Commission            5, XXIV; 18, I
  Property Management Regulations                 41, 109
Energy, Office of                                 7, XXIX
Engineers, Corps of                               33, II; 36, III
Engraving and Printing, Bureau of                 31, VI
Environmental Protection Agency                   2, XV; 5, LIV; 40, I, IV, 
                                                  VII
  Federal Acquisition Regulation                  48, 15
  Property Management Regulations                 41, 115
Environmental Quality, Office of                  7, XXXI
Equal Employment Opportunity Commission           5, LXII; 29, XIV
Equal Opportunity, Office of Assistant Secretary  24, I
     for
Executive Office of the President                 3, I
  Administration, Office of                       5, XV
  Environmental Quality, Council on               40, V
  Management and Budget, Office of                5, III, LXXVII; 14, VI; 
                                                  48, 99
  National Drug Control Policy, Office of         21, III
  National Security Council                       32, XXI; 47, 2
  Presidential Documents                          3

[[Page 490]]

  Science and Technology Policy, Office of        32, XXIV; 47, II
  Trade Representative, Office of the United      15, XX
       States
Export-Import Bank of the United States           2, XXXV; 5, LII; 12, IV
Family Assistance, Office of                      45, II
Farm Credit Administration                        5, XXXI; 12, VI
Farm Credit System Insurance Corporation          5, XXX; 12, XIV
Farm Service Agency                               7, VII, XVIII
Federal Acquisition Regulation                    48, 1
Federal Aviation Administration                   14, I
  Commercial Space Transportation                 14, III
Federal Claims Collection Standards               31, IX
Federal Communications Commission                 5, XXIX; 47, I
Federal Contract Compliance Programs, Office of   41, 60
Federal Crop Insurance Corporation                7, IV
Federal Deposit Insurance Corporation             5, XXII; 12, III
Federal Election Commission                       11, I
Federal Emergency Management Agency               44, I
Federal Employees Group Life Insurance Federal    48, 21
     Acquisition Regulation
Federal Employees Health Benefits Acquisition     48, 16
     Regulation
Federal Energy Regulatory Commission              5, XXIV; 18, I
Federal Financial Institutions Examination        12, XI
     Council
Federal Financing Bank                            12, VIII
Federal Highway Administration                    23, I, II
Federal Home Loan Mortgage Corporation            1, IV
Federal Housing Enterprise Oversight Office       12, XVII
Federal Housing Finance Board                     12, IX
Federal Labor Relations Authority, and General    5, XIV; 22, XIV
     Counsel of the Federal Labor Relations 
     Authority
Federal Law Enforcement Training Center           31, VII
Federal Management Regulation                     41, 102
Federal Maritime Commission                       46, IV
Federal Mediation and Conciliation Service        29, XII
Federal Mine Safety and Health Review Commission  5, LXXIV; 29, XXVII
Federal Motor Carrier Safety Administration       49, III
Federal Prison Industries, Inc.                   28, III
Federal Procurement Policy Office                 48, 99
Federal Property Management Regulations           41, 101
Federal Railroad Administration                   49, II
Federal Register, Administrative Committee of     1, I
Federal Register, Office of                       1, II
Federal Reserve System                            12, II
  Board of Governors                              5, LVIII
Federal Retirement Thrift Investment Board        5, VI, LXXVI
Federal Service Impasses Panel                    5, XIV
Federal Trade Commission                          5, XLVII; 16, I
Federal Transit Administration                    49, VI
Federal Travel Regulation System                  41, Subtitle F
Fine Arts, Commission on                          45, XXI
Fiscal Service                                    31, II
Fish and Wildlife Service, United States          50, I, IV
Fishery Conservation and Management               50, VI
Food and Drug Administration                      21, I
Food and Nutrition Service                        7, II
Food Safety and Inspection Service                9, III
Foreign Agricultural Service                      7, XV
Foreign Assets Control, Office of                 31, V
Foreign Claims Settlement Commission of the       45, V
     United States
Foreign Service Grievance Board                   22, IX
Foreign Service Impasse Disputes Panel            22, XIV
Foreign Service Labor Relations Board             22, XIV
Foreign-Trade Zones Board                         15, IV
Forest Service                                    36, II
General Services Administration                   5, LVII; 41, 105
  Contract Appeals, Board of                      48, 61
  Federal Acquisition Regulation                  48, 5
  Federal Management Regulation                   41, 102

[[Page 491]]

  Federal Property Management Regulations         41, 101
  Federal Travel Regulation System                41, Subtitle F
  General                                         41, 300
  Payment From a Non-Federal Source for Travel    41, 304
       Expenses
  Payment of Expenses Connected With the Death    41, 303
       of Certain Employees
  Relocation Allowances                           41, 302
  Temporary Duty (TDY) Travel Allowances          41, 301
Geological Survey                                 30, IV
Government Accountability Office                  4, I
Government Ethics, Office of                      5, XVI
Government National Mortgage Association          24, III
Grain Inspection, Packers and Stockyards          7, VIII; 9, II
     Administration
Harry S. Truman Scholarship Foundation            45, XVIII
Health and Human Services, Department of          2, III; 5, XLV; 45, 
                                                  Subtitle A,
  Centers for Medicare & Medicaid Services        42, IV
  Child Support Enforcement, Office of            45, III
  Children and Families, Administration for       45, II, III, IV, X
  Community Services, Office of                   45, X
  Family Assistance, Office of                    45, II
  Federal Acquisition Regulation                  48, 3
  Food and Drug Administration                    21, I
  Human Development Services, Office of           45, XIII
  Indian Health Service                           25, V
  Inspector General (Health Care), Office of      42, V
  Public Health Service                           42, I
  Refugee Resettlement, Office of                 45, IV
Homeland Security, Department of                  6, I
  Coast Guard                                     33, I; 46, I; 49, IV
  Coast Guard (Great Lakes Pilotage)              46, III
  Customs and Border Protection Bureau            19, I
  Federal Emergency Management Agency             44, I
  Immigration and Customs Enforcement Bureau      19, IV
  Immigration and Naturalization                  8, I
  Transportation Security Administration          49, XII
Housing and Urban Development, Department of      5, LXV; 24, Subtitle B, 2, 
                                                  XXIV; 2424
  Community Planning and Development, Office of   24, V, VI
       Assistant Secretary for
  Equal Opportunity, Office of Assistant          24, I
       Secretary for
  Federal Acquisition Regulation                  48, 24
  Federal Housing Enterprise Oversight, Office    12, XVII
       of
  Government National Mortgage Association        24, III
  Housing--Federal Housing Commissioner, Office   24, II, VIII, X, XX
       of Assistant Secretary for
  Housing, Office of, and Multifamily Housing     24, IV
       Assistance Restructuring, Office of
  Inspector General, Office of                    24, XII
  Public and Indian Housing, Office of Assistant  24, IX
       Secretary for
  Secretary, Office of                            24, Subtitle A, VII
Housing--Federal Housing Commissioner, Office of  24, II, VIII, X, XX
     Assistant Secretary for
Housing, Office of, and Multifamily Housing       24, IV
     Assistance Restructuring, Office of
Human Development Services, Office of             45, XIII
Immigration and Customs Enforcement Bureau        19, IV
Immigration and Naturalization                    8, I
Immigration Review, Executive Office for          8, V
Independent Counsel, Office of                    28, VII
Indian Affairs, Bureau of                         25, I, V
Indian Affairs, Office of the Assistant           25, VI
     Secretary
Indian Arts and Crafts Board                      25, II
Indian Health Service                             25, V
Industry and Security, Bureau of                  15, VII
Information Resources Management, Office of       7, XXVII
Information Security Oversight Office, National   32, XX
   Archives and Records Administration
[[Page 492]]

Inspector General
  Agriculture Department                          7, XXVI
  Health and Human Services Department            42, V
  Housing and Urban Development Department        24, XII
Institute of Peace, United States                 22, XVII
Inter-American Foundation                         5, LXIII; 22, X
Interior Department
  American Indians, Office of the Special         25, VII
       Trustee
  Endangered Species Committee                    50, IV
  Federal Acquisition Regulation                  48, 14
  Federal Property Management Regulations System  41, 114
  Fish and Wildlife Service, United States        50, I, IV
  Geological Survey                               30, IV
  Indian Affairs, Bureau of                       25, I, V
  Indian Affairs, Office of the Assistant         25, VI
       Secretary
  Indian Arts and Crafts Board                    25, II
  Land Management, Bureau of                      43, II
  Minerals Management Service                     30, II
  National Indian Gaming Commission               25, III
  National Park Service                           36, I
  Reclamation, Bureau of                          43, I
  Secretary of the Interior, Office of            2, XIV; 43, Subtitle A
  Surface Mining and Reclamation Appeals, Board   30, III
       of
  Surface Mining Reclamation and Enforcement,     30, VII
       Office of
Internal Revenue Service                          26, I
International Boundary and Water Commission,      22, XI
     United States and Mexico, United States 
     Section
International Development, United States Agency   22, II
     for
  Federal Acquisition Regulation                  48, 7
International Development Cooperation Agency,     22, XII
     United States
International Fishing and Related Activities      50, III
International Investment, Office of               31, VIII
International Joint Commission, United States     22, IV
     and Canada
International Organizations Employees Loyalty     5, V
     Board
International Trade Administration                15, III; 19, III
International Trade Commission, United States     19, II
Interstate Commerce Commission                    5, XL
James Madison Memorial Fellowship Foundation      45, XXIV
Japan-United States Friendship Commission         22, XVI
Joint Board for the Enrollment of Actuaries       20, VIII
Justice Department                                2, XXVII; 5, XXVIII; 28, 
                                                  I, XI; 40, IV
  Alcohol, Tobacco, Firearms, and Explosives,     27, II
       Bureau of
  Drug Enforcement Administration                 21, II
  Federal Acquisition Regulation                  48, 28
  Federal Claims Collection Standards             31, IX
  Federal Prison Industries, Inc.                 28, III
  Foreign Claims Settlement Commission of the     45, V
       United States
  Immigration Review, Executive Office for        8, V
  Offices of Independent Counsel                  28, VI
  Prisons, Bureau of                              28, V
  Property Management Regulations                 41, 128
Labor Department                                  5, XLII
  Benefits Review Board                           20, VII
  Employee Benefits Security Administration       29, XXV
  Employees' Compensation Appeals Board           20, IV
  Employment and Training Administration          20, V
  Employment Standards Administration             20, VI
  Federal Acquisition Regulation                  48, 29
  Federal Contract Compliance Programs, Office    41, 60
       of
  Federal Procurement Regulations System          41, 50
  Labor-Management Standards, Office of           29, II, IV
  Mine Safety and Health Administration           30, I
  Occupational Safety and Health Administration   29, XVII
  Public Contracts                                41, 50

[[Page 493]]

  Secretary of Labor, Office of                   29, Subtitle A
  Veterans' Employment and Training Service,      41, 61; 20, IX
       Office of the Assistant Secretary for
  Wage and Hour Division                          29, V
  Workers' Compensation Programs, Office of       20, I
Labor-Management Standards, Office of             29, II, IV
Land Management, Bureau of                        43, II
Legal Services Corporation                        45, XVI
Library of Congress                               36, VII
  Copyright Office                                37, II
  Copyright Royalty Board                         37, III
Local Television Loan Guarantee Board             7, XX
Management and Budget, Office of                  5, III, LXXVII; 14, VI; 
                                                  48, 99
Marine Mammal Commission                          50, V
Maritime Administration                           46, II
Merit Systems Protection Board                    5, II, LXIV
Micronesian Status Negotiations, Office for       32, XXVII
Millenium Challenge Corporation                   22, XIII
Mine Safety and Health Administration             30, I
Minerals Management Service                       30, II
Minority Business Development Agency              15, XIV
Miscellaneous Agencies                            1, IV
Monetary Offices                                  31, I
Morris K. Udall Scholarship and Excellence in     36, XVI
     National Environmental Policy Foundation
National Aeronautics and Space Administration     2, XVIII; 5, LIX; 14, V
  Federal Acquisition Regulation                  48, 18
National Agricultural Library                     7, XLI
National Agricultural Statistics Service          7, XXXVI
National and Community Service, Corporation for   45, XII, XXV
National Archives and Records Administration      2, XXVI; 5, LXVI; 36, XII
  Information Security Oversight Office           32, XX
National Capital Planning Commission              1, IV
National Commission for Employment Policy         1, IV
National Commission on Libraries and Information  45, XVII
     Science
National Council on Disability                    34, XII
National Counterintelligence Center               32, XVIII
National Credit Union Administration              12, VII
National Crime Prevention and Privacy Compact     28, IX
     Council
National Drug Control Policy, Office of           21, III
National Endowment for the Arts                   2, XXXII
National Endowment for the Humanities             2, XXXIII
National Foundation on the Arts and the           45, XI
     Humanities
National Highway Traffic Safety Administration    23, II, III; 49, V
National Imagery and Mapping Agency               32, I
National Indian Gaming Commission                 25, III
National Institute for Literacy                   34, XI
National Institute of Standards and Technology    15, II
National Intelligence, Office of Director of      32, XVII
National Labor Relations Board                    5, LXI; 29, I
National Marine Fisheries Service                 50, II, IV, VI
National Mediation Board                          29, X
National Oceanic and Atmospheric Administration   15, IX; 50, II, III, IV, 
                                                  VI
National Park Service                             36, I
National Railroad Adjustment Board                29, III
National Railroad Passenger Corporation (AMTRAK)  49, VII
National Science Foundation                       2, XXV; 5, XLIII; 45, VI
  Federal Acquisition Regulation                  48, 25
National Security Council                         32, XXI
National Security Council and Office of Science   47, II
     and Technology Policy
National Telecommunications and Information       15, XXIII; 47, III
     Administration
National Transportation Safety Board              49, VIII
Natural Resources Conservation Service            7, VI

[[Page 494]]

Navajo and Hopi Indian Relocation, Office of      25, IV
Navy Department                                   32, VI
  Federal Acquisition Regulation                  48, 52
Neighborhood Reinvestment Corporation             24, XXV
Northeast Interstate Low-Level Radioactive Waste  10, XVIII
     Commission
Nuclear Regulatory Commission                     5, XLVIII; 10, I
  Federal Acquisition Regulation                  48, 20
Occupational Safety and Health Administration     29, XVII
Occupational Safety and Health Review Commission  29, XX
Offices of Independent Counsel                    28, VI
Oklahoma City National Memorial Trust             36, XV
Operations Office                                 7, XXVIII
Overseas Private Investment Corporation           5, XXXIII; 22, VII
Patent and Trademark Office, United States        37, I
Payment From a Non-Federal Source for Travel      41, 304
     Expenses
Payment of Expenses Connected With the Death of   41, 303
     Certain Employees
Peace Corps                                       22, III
Pennsylvania Avenue Development Corporation       36, IX
Pension Benefit Guaranty Corporation              29, XL
Personnel Management, Office of                   5, I, XXXV; 45, VIII
  Federal Acquisition Regulation                  48, 17
  Federal Employees Group Life Insurance Federal  48, 21
       Acquisition Regulation
  Federal Employees Health Benefits Acquisition   48, 16
       Regulation
Pipeline and Hazardous Materials Safety           49, I
     Administration
Postal Regulatory Commission                      5, XLVI; 39, III
Postal Service, United States                     5, LX; 39, I
Postsecondary Education, Office of                34, VI
President's Commission on White House             1, IV
     Fellowships
Presidential Documents                            3
Presidio Trust                                    36, X
Prisons, Bureau of                                28, V
Privacy and Civil Liberties Oversight Board       6, X
Procurement and Property Management, Office of    7, XXXII
Productivity, Technology and Innovation,          37, IV
     Assistant Secretary
Public Contracts, Department of Labor             41, 50
Public and Indian Housing, Office of Assistant    24, IX
     Secretary for
Public Health Service                             42, I
Railroad Retirement Board                         20, II
Reclamation, Bureau of                            43, I
Refugee Resettlement, Office of                   45, IV
Relocation Allowances                             41, 302
Research and Innovative Technology                49, XI
     Administration
Rural Business-Cooperative Service                7, XVIII, XLII
Rural Development Administration                  7, XLII
Rural Housing Service                             7, XVIII, XXXV
Rural Telephone Bank                              7, XVI
Rural Utilities Service                           7, XVII, XVIII, XLII
Saint Lawrence Seaway Development Corporation     33, IV
Science and Technology Policy, Office of          32, XXIV
Science and Technology Policy, Office of, and     47, II
     National Security Council
Secret Service                                    31, IV
Securities and Exchange Commission                17, II
Selective Service System                          32, XVI
Small Business Administration                     2, XXVII; 13, I
Smithsonian Institution                           36, V
Social Security Administration                    20, III; 48, 23
Soldiers' and Airmen's Home, United States        5, XI
Special Counsel, Office of                        5, VIII
Special Education and Rehabilitative Services,    34, III
     Office of
State Department                                  2, VI; 22, I; 28, XI
  Federal Acquisition Regulation                  48, 6
Surface Mining and Reclamation Appeals, Board of  30, III

[[Page 495]]

Surface Mining Reclamation and Enforcement,       30, VII
     Office of
Surface Transportation Board                      49, X
Susquehanna River Basin Commission                18, VIII
Technology Administration                         15, XI
Technology Policy, Assistant Secretary for        37, IV
Technology, Under Secretary for                   37, V
Tennessee Valley Authority                        5, LXIX; 18, XIII
Thrift Supervision Office, Department of the      12, V
     Treasury
Trade Representative, United States, Office of    15, XX
Transportation, Department of                     5, L
  Commercial Space Transportation                 14, III
  Contract Appeals, Board of                      48, 63
  Emergency Management and Assistance             44, IV
  Federal Acquisition Regulation                  48, 12
  Federal Aviation Administration                 14, I
  Federal Highway Administration                  23, I, II
  Federal Motor Carrier Safety Administration     49, III
  Federal Railroad Administration                 49, II
  Federal Transit Administration                  49, VI
  Maritime Administration                         46, II
  National Highway Traffic Safety Administration  23, II, III; 49, V
  Pipeline and Hazardous Materials Safety         49, I
       Administration
  Saint Lawrence Seaway Development Corporation   33, IV
  Secretary of Transportation, Office of          14, II; 49, Subtitle A
  Surface Transportation Board                    49, X
  Transportation Statistics Bureau                49, XI
Transportation, Office of                         7, XXXIII
Transportation Security Administration            49, XII
Transportation Statistics Bureau                  49, XI
Travel Allowances, Temporary Duty (TDY)           41, 301
Treasury Department                               5, XXI; 12, XV; 17, IV; 
                                                  31, IX
  Alcohol and Tobacco Tax and Trade Bureau        27, I
  Community Development Financial Institutions    12, XVIII
       Fund
  Comptroller of the Currency                     12, I
  Customs and Border Protection Bureau            19, I
  Engraving and Printing, Bureau of               31, VI
  Federal Acquisition Regulation                  48, 10
  Federal Claims Collection Standards             31, IX
  Federal Law Enforcement Training Center         31, VII
  Fiscal Service                                  31, II
  Foreign Assets Control, Office of               31, V
  Internal Revenue Service                        26, I
  International Investment, Office of             31, VIII
  Monetary Offices                                31, I
  Secret Service                                  31, IV
  Secretary of the Treasury, Office of            31, Subtitle A
  Thrift Supervision, Office of                   12, V
Truman, Harry S. Scholarship Foundation           45, XVIII
United States and Canada, International Joint     22, IV
     Commission
United States and Mexico, International Boundary  22, XI
     and Water Commission, United States Section
Utah Reclamation Mitigation and Conservation      43, III
     Commission
Veterans Affairs Department                       2, VIII; 38, I
  Federal Acquisition Regulation                  48, 8
Veterans' Employment and Training Service,        41, 61; 20, IX
     Office of the Assistant Secretary for
Vice President of the United States, Office of    32, XXVIII
Vocational and Adult Education, Office of         34, IV
Wage and Hour Division                            29, V
Water Resources Council                           18, VI
Workers' Compensation Programs, Office of         20, I
World Agricultural Outlook Board                  7, XXXVIII

[[Page 497]]



List of CFR Sections Affected



All changes in this volume of the Code of Federal Regulations that were 
made by documents published in the Federal Register since January 1, 
2001, are enumerated in the following list. Entries indicate the nature 
of the changes effected. Page numbers refer to Federal Register pages. 
The user should consult the entries for chapters and parts as well as 
sections for revisions.
For the period before January 1, 2001, see the ``List of CFR Sections 
Affected, 1949-1963, 1964-1972, 1973-1985, and 1986-2000'' published in 
11 separate volumes.

                                  2001

12 CFR
                                                                   66 FR
                                                                    Page
Chapter I
1 Technical correction.............................................36834
1.2 (g) through (m) redesignated as (h) through (n); new (g) 
        added; new (j)(4), (k)(1) and (l) revised..................34791
3.4 Existing text designated as (a) and amended; new (a) heading 
        and (b) added..............................................59630
3 Appendix A amended...............................................59630
5 Authority citation revised.......................................49097
    Authority citation corrected...................................62914
5.26 (e)(5) revised................................................34797
5.34 (a), (c), (d)(2), (3) and (e)(4) revised......................49097
    (d)(2) and (3)(ii) corrected...................................62914
    (d)(2) and (3)(ii) corrected...................................62914
7 Authority citation revised.......................................34791
    Technical correction...........................................36834
7.1021 Added.......................................................34791
7.3000 (b) amended.................................................34791
7.4001 (a) amended.................................................34791
7.4002 revised.....................................................34791
7.4006 Added.......................................................34791
8 Heading and authority citation revised...........................23153
8.2 (a)(7) and (b)(5) removed; (c) and (d) added...................29893
    (a) revised....................................................57647
    (a) table corrected............................................58786
8.6 Heading and (a) revised........................................23153
    (c)(3)(ii) and (iii) redesignated as (c)(3)(iii) and (iv); 
(c)(1)(iii) and new (3)(ii) added..................................29894
9.2 (g) amended; (j) and (k) added.................................34797
9.3 (b) revised; (c) added.........................................34798
9.7 Added..........................................................34798
9.14 (b) revised...................................................34798
14 Regulation at 65 FR 75839 eff. date delayed.....................15345
23 Technical correction............................................36834
23.21 (a)(2) revised...............................................34792
28.15 (b) revised..................................................49098
30 Authority citation revised.......................................8633
30.1 Revised........................................................8633
30.2 Amended........................................................8633
30.3 (a) revised....................................................8633
30 Appendix B revised...............................................8633
    Appendix C removed..............................................8634
32.2 (i) through (n), (o) and (p) redesignated as (j) through (o), 
        (q) and (s); new (i), (p) and (r) added....................31120
    (f)(1)(iii), (iv) and (m)(1) revised...........................55072
32.3 (c)(5) revised................................................31120
    (a) and (b)(5) introductory text revised; (b)(1)(i) amended....55072
32.7 Added.........................................................31120
35 Added............................................................2085

                                  2002

12 CFR
                                                                   67 FR
                                                                    Page
Chapter I
3 Technical correction.............................................34991
3.2 (a) amended.....................................................3795
3 Appendix A amended.........................................3795, 16976
7.1002 Revised.....................................................35004
7.1013 Removed; eff. 6-16-03.......................................58962
7.1019 Removed.....................................................35004

[[Page 498]]

7.5000--7.5010 (Subpart E) Added...................................35004
8.1 Revised........................................................37655
8.2 (a)(1) through (7) added.......................................57509
    (a)(7) correctly removed.......................................62873
8.6 (c)(1) amended; (c)(1)(ii) and (3)(iv) revised.................37665
25.62 (b), (d) and (e) revised; (g) and (h) redesignated as (h) 
        and (i); new (g) added.....................................38847
    (d)(1) and (2) corrected.......................................46842
25.63 (a) revised..................................................38848
28 Authority citation amended.......................................4326
28.15 (d)(1) and (2) revised; interim...............................4326
    (d)(1) and (2) revised.........................................41620
37 Added; eff. 6-16-03.............................................58976

                                  2003

12 CFR
                                                                   68 FR
                                                                    Page
Chapter I
3 Appendix A amended; interim......................................56534
    Appendix A amended; eff. 1-16-04...............................70128
    Appendix A corrected...........................................74467
5 Authority citation revised.......................................70128
5.2 (b) and (c) revised; (d) added.................................17892
    5.2 (b) and (c) revised; (d) correctly added...................38425
5.3 (c)(1) and (4) revised; eff. 1-20-04...........................70698
5.20 (e)(1) amended; eff. 1-16-04..................................70129
5.32 Added; eff. 1-16-04...........................................70129
5.33 (b), (c), (d)(1), (2), (3) and (4) redesignated as new (c), 
        new (b), (d)(2), (3), (6) and (7); (a), new (b), (d)(2) 
        and (e)(3)(ii) revised; new (c), (f)(1), (j)(1)(ii) and 
        (iii) amended; new (d)(1), (4), (5), (8), (e)(1)(v), 
        (g)(4), (5) and (j)(1)(iv) added; eff. 1-16-04.............70129
5.34 (e)(5)(v)(L) revised; eff. 1-16-04............................70131
5.36 (f) redesignated as (g); new (f) added; eff. 1-20-04..........70698
5.70 (c)(1) removed; (c)(2)(i) through (v) redesignated as 
        (c)(1)(i) through (v); new (c)(1)(i), (iv), (v) and 
        (d)(2)(i) revised; (c)(1)(vi) and new (2) added; eff. 1-
        20-04......................................................70698
6.4 (c)(1)(i) and (ii) revised; eff. 1-16-04.......................70131
7 Authority citation revised.......................................70131
7.1008 Revised; eff. 1-16-04.......................................70131
7.1016 (a) footnote 30 redesignated as footnote 1; eff. 1-16-04....70131
7.2024 Added; eff. 1-16-04.........................................70131
9.18 (b)(4)(i) revised; eff. 1-16-04...............................70131
9.20 (b) amended; eff. 1-16-04.....................................70131
11 Authority citation revised...............................54984, 68492
11.2 Revised; eff. 1-8-04..........................................68492
11.3 (a) revised; interim..........................................54984
16.20 Revised; eff. 1-8-04.........................................68492
19 Authority citation revised......................................48265
19.100 Revised.....................................................48265
19.111 Amended.....................................................48265
19.196 Introductory text, (a), (b) and (g) revised.................48265
19.241--19.246 (Subpart P) Added...................................48265
21.21 Heading and (b) revised......................................25111
24 Heading revised; nomenclature change............................48775
24.2 (c) and (h) revised...........................................48775
24.3 Revised.......................................................48776
24.4 (a) revised...................................................48776
24.5 Heading, (a), (b)(1) and (2) revised..........................48776
24.6 Revised.......................................................48776
24.7 (b) revised...................................................48777
24 Appendix 1 added................................................48777
28.3 (a)(1)(i) and (2) revised; eff. 1-20-04.......................70699
28.5 (a) and (b) revised; eff. 1-20-04.............................70699
28.10 (b) heading revised; (c) added; eff. 1-20-04.................70699
28.11 (d) removed; (e) through (z) redesignated as (d) through 
        (y); new (f)(1), (4), (5) and (u) revised; (f)(6) added; 
        new (h) amended; eff. 1-20-04..............................70699
28.12 (e)(2), (3), (4) and (h) redesignated as (e)(4), (5), (6) 
        and (j); (a), (b)(5), new (e)(4), (f) introductory text, 
        (i) and new (j) revised; new (e)(2), (3), (h) and (k) 
        added; eff. 1-20-04........................................70699
28.15 (a)(1)(iv) and (e) redesignated as (a)(1)(v) and (f); 
        (a)(1)(ii) and new (v) revised; (a)(1)(iii) amended; new 
        (a)(1)(iv), (3) and (e) added; eff. 1-20-04................70700

[[Page 499]]

28.16 (e) amended; eff. 1-16-04....................................70131
    (b)(8) revised; eff. 1-20-04...................................70700
28.18 (c)(3) added; eff. 1-20-04...................................70700
28.20 (a)(2) amended; eff. 1-20-04.................................70700
28.22 (a) and (b) revised; eff. 1-20-04............................70700
28.23 Redesignated as 28.24; new 28.23 added; eff. 1-20-04.........70700
28.24 Redesignated from 28.23; eff. 1-20-04........................70700
28.25 Added; eff. 1-20-04..........................................70701
28.26 Added; eff. 1-20-04..........................................70701
34.3 Revised; eff. 1-16-04.........................................70131
37 Compliance notification.........................................35283

                                  2004

12 CFR
                                                                   69 FR
                                                                    Page
Chapter I
3 Appendix A amended; interim......................................22384
    Appendix A amended.............................................44914
    Appendix B amended.............................................44916
5 Authority citation revised................................50297, 64481
5.2 Regulation at 68 FR 17892 confirmed................................2
5.20 Amended.......................................................50297
5.34 (e)(6) added..................................................64481
5.53 Added.........................................................50297
7 Authority citation revised........................................1916
7.4000 (a)(3) added; (b) revised....................................1904
7.4007 Added........................................................1916
7.4008 Added........................................................1916
7.4009 Added........................................................1917
19 Authority citation revised......................................65068
19.240 Revised.....................................................65068
19.241 Removed.....................................................65068
25.12 (g) removed; (h) through (q) and (s) through (w) 
        redesignated as (g) through (p) and (t) through (x); new 
        (q) and (s) added; (b)(1), new (k), (l) and (r) revised; 
        interim....................................................41186
25.27 (g)(1) amended; interim......................................41186
25.41 (b), (c)(1) and (e)(4) revised; interim......................41186
25.42 (i) revised; interim.........................................41186
30 Authority citation revised......................................77616
30 Appendix B amended; eff. 7-1-05.................................77616
32.2 (s) redesignated as (t); new (s) added........................51357
32.7 (e) revised; interim..........................................32436
    Nomenclature change; (a) heading revised; (a)(3) and (4) 
redesignated as (a)(4) and (5); new (a)(3) added; (c), (d) and (e) 
amended............................................................51357
34.3 Existing text designated as (a); (b) and (c) added.............1917
34.4 Revised........................................................1917
41 Added; eff. 7-1-05..............................................77616

                                  2005

12 CFR
                                                                   70 FR
                                                                    Page
Chapter I
4 Heading revised..................................................69636
    Authority citation revised.....................................69637
4.72--4.76 (Subpart E) Added.......................................69637
8 Authority citation revised.......................................69643
8.1 Revised; interim...............................................69643
8.2 (a) introductory text, (2), (5), (b)(1) and (3) revised; 
        interim....................................................69643
8.6 (a)(1), (2), (4) and (c)(1)(i) amended; interim................69643
8.7 (a), (b) introductory text and (2) amended; interim............69643
8.8 (b) amended; interim...........................................69644
11.3 (a) revised...................................................40404
19.1 (f) amended; (g) redesignated as (h); new (g) added...........69638
25.12 Regulation at 69 FR 41186 confirmed..........................15574
    (g)(4) and (u) revised.........................................44266
25.26 Revised......................................................44266
25.27 Regulation at 69 FR 41186 confirmed..........................15574
25.28 (c) revised..................................................44266
25.41 Regulation at 69 FR 41186 confirmed..........................15574
25.42 Regulation at 69 FR 41186 confirmed..........................15574
25 Appendix A amended..............................................44267
30 Authority citation revised.......................................6332
30.1 (a) amended....................................................6332
30.2 Amended........................................................6332
30.3 (a) amended....................................................6332
30 Appendix C added.................................................6332
    Appendix B amended.............................................15753
34 Policy statement................................................59987
41 Authority citation revised...............................33975, 70675
41.2--41.3 (Subpart A) Revised; interim; eff. 3-7-06...............33975
    Regulation at 70 FR 33975 eff. date delayed to 4-1-06..........70664
    Revised; eff. 4-1-06...........................................70675

[[Page 500]]

41.30--41.32 (Subpart D) Added; interim; eff. 3-7-06...............33975
    Regulation at 70 FR 33975 eff. date delayed to 4-1-06..........70664
    Added; eff. 4-1-06.............................................70675
    Correctly revised..............................................75931

                                  2006

12 CFR
                                                                   71 FR
                                                                    Page
Chapter I
3 Regulation at 65 FR 75858 confirmed; Appendix B amended...........8936
8.1 Regulation at 70 FR 69643 confirmed............................42018
8.2 Regulation at 70 FR 69643 confirmed............................42018
8.6 Regulation at 70 FR 69643 confirmed............................42018
8.7 Regulation at 70 FR 69643 confirmed............................42018
8.8 Regulation at 70 FR 69644 confirmed............................42018
25.12 (u)(1) revised...............................................78336
25.26 (d) added....................................................78336
30 Appendix B correctly amended.....................................5780

                                  2007

12 CFR
                                                                   72 FR
                                                                    Page
Chapter I
3 Appendix C added and amended; eff. 4-1-08........................69429
4.6 (b) revised; interim...........................................17802
    Regulation at 72 FR 17802 confirmed............................54349
4.7 (b)(1)(i) revised; interim.....................................17802
    Regulation at 72 FR 17802 confirmed............................54349
25.12 (u)(1) correctly revised.....................................72573
25.26 (a)(1) heading correctly revised.............................72573
26.2 (k)(1)(vi) amended; interim....................................1276
    egulation at 72 FR 1276 confirmed..............................38755
26.3 (b) amended; interim...........................................1276
    Regulation at 72 FR 1276 confirmed.............................38755
32.7 Heading and (c) revised; (a)(1), (2) and (3) amended; (e) 
        removed; (f) redesignated as new (e); interim..............31444
41 Authority citation revised......................................62946
41.1 Added.........................................................63753
41.3 Introductory text revised.....................................63753
41.20--41.28 (Subpart C) Added.....................................62946
41.80--41.83 (Subpart I) Heading revised...........................63753
41.82 Added........................................................63753
41.90--41.91 (Subpart J) Added.....................................63753
41 Appendix J added................................................63754


                                  [all]