[Title 12 CFR ]
[Code of Federal Regulations (annual edition) - January 1, 2012 Edition]
[From the U.S. Government Printing Office]



[[Page i]]

          

          Title 12

Banks and Banking


________________________

Parts 1 to 199

                         Revised as of January 1, 2012

          Containing a codification of documents of general 
          applicability and future effect

          As of January 1, 2012
                    Published by the Office of the Federal Register 
                    National Archives and Records Administration as a 
                    Special Edition of the Federal Register

[[Page ii]]

          U.S. GOVERNMENT OFFICIAL EDITION NOTICE

          Legal Status and Use of Seals and Logos
          
          
          The seal of the National Archives and Records Administration 
              (NARA) authenticates the Code of Federal Regulations (CFR) as 
              the official codification of Federal regulations established 
              under the Federal Register Act. Under the provisions of 44 
              U.S.C. 1507, the contents of the CFR, a special edition of the 
              Federal Register, shall be judicially noticed. The CFR is 
              prima facie evidence of the original documents published in 
              the Federal Register (44 U.S.C. 1510).

          It is prohibited to use NARA's official seal and the stylized Code 
              of Federal Regulations logo on any republication of this 
              material without the express, written permission of the 
              Archivist of the United States or the Archivist's designee. 
              Any person using NARA's official seals and logos in a manner 
              inconsistent with the provisions of 36 CFR part 1200 is 
              subject to the penalties specified in 18 U.S.C. 506, 701, and 
              1017.

          Use of ISBN Prefix

          This is the Official U.S. Government edition of this publication 
              and is herein identified to certify its authenticity. Use of 
              the 0-16 ISBN prefix is for U.S. Government Printing Office 
              Official Editions only. The Superintendent of Documents of the 
              U.S. Government Printing Office requests that any reprinted 
              edition clearly be labeled as a copy of the authentic work 
              with a new ISBN.

              
              
          U . S . G O V E R N M E N T P R I N T I N G O F F I C E

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

          U.S. Superintendent of Documents  Washington, DC 
              20402-0001

          http://bookstore.gpo.gov

          Phone: toll-free (866) 512-1800; DC area (202) 512-1800

[[Page iii]]




                            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........................     949
      Alphabetical List of Agencies Appearing in the CFR......     969
      List of CFR Sections Affected...........................     979

[[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 
issues of the Federal Register. These two publications must be used 
together to determine the latest version of any given rule.
    To determine whether a Code volume has been amended since its 
revision date (in this case, January 1, 2012), consult the ``List of CFR 
Sections Affected (LSA),'' which is issued monthly, and the ``Cumulative 
List of Parts Affected,'' which appears in the Reader Aids section of 
the daily Federal Register. These two lists will identify the Federal 
Register page number of the latest amendment of any given rule.

EFFECTIVE AND EXPIRATION DATES

    Each volume of the Code contains amendments published in the Federal 
Register since the last revision of that volume of the Code. Source 
citations for the regulations are referred to by volume number and page 
number of the Federal Register and date of publication. Publication 
dates and effective dates are usually not the same and care must be 
exercised by the user in determining the actual effective date. In 
instances where the effective date is beyond the cut-off date for the 
Code a note has been inserted to reflect the future effective date. In 
those instances where a regulation published in the Federal Register 
states a date certain for expiration, an appropriate note will be 
inserted following the text.

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 
requirements.

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 
appropriate numerical list of sections affected. For the period before 
April 1, 2001, consult either the List of CFR Sections Affected, 1949-
1963, 1964-1972, 1973-1985, or 1986-2000, published in eleven separate 
volumes. For the period beginning April 1, 2001, a ``List of CFR 
Sections Affected'' is published at the end of each CFR volume.

``[RESERVED]'' TERMINOLOGY

    The term ``[Reserved]'' is used as a place holder within the Code of 
Federal Regulations. An agency may add regulatory information at a 
``[Reserved]'' location at any time. Occasionally ``[Reserved]'' is used 
editorially to indicate that a portion of the CFR was left vacant and 
not accidentally dropped due to a printing or computer error.

INCORPORATION BY REFERENCE

    What is incorporation by reference? Incorporation by reference was 
established by statute and allows Federal agencies to meet the 
requirement to publish regulations in the Federal Register by referring 
to materials already published elsewhere. For an incorporation to be 
valid, the Director of the Federal Register must approve it. The legal 
effect of incorporation by reference is that the material is treated as 
if it were published in full in the Federal Register (5 U.S.C. 552(a)). 
This material, like any other properly issued regulation, has the force 
of law.
    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.
    What if the material incorporated by reference cannot be found? If 
you have any problem locating or obtaining a copy of material listed as 
an approved incorporation by reference, please contact the agency that 
issued the regulation containing that incorporation. If, after 
contacting the agency, you find the material is not available, please 
notify the Director of the Federal Register, National Archives and 
Records Administration, 8601 Adelphi Road, College Park, MD 20740-6001, 
or call 202-741-6010.

CFR INDEXES AND TABULAR GUIDES

    A subject index to the Code of Federal Regulations is contained in a 
separate volume, revised annually as of January 1, entitled CFR Index 
and Finding Aids. This volume contains the Parallel Table of Authorities 
and Rules. A list of CFR titles, chapters, subchapters, and parts and an 
alphabetical list of agencies publishing in the CFR are also included in 
this volume.
    An index to the text of ``Title 3--The President'' is carried within 
that volume.

[[Page vii]]

    The Federal Register Index is issued monthly in cumulative form. 
This index is based on a consolidation of the ``Contents'' entries in 
the daily Federal Register.
    A List of CFR Sections Affected (LSA) is published monthly, keyed to 
the revision dates of the 50 CFR titles.

REPUBLICATION OF MATERIAL

    There are no restrictions on the republication of material appearing 
in the Code of Federal Regulations.

INQUIRIES

    For a legal interpretation or explanation of any regulation in this 
volume, contact the issuing agency. The issuing agency's name appears at 
the top of odd-numbered pages.
    For inquiries concerning CFR reference assistance, call 202-741-6000 
or write to the Director, Office of the Federal Register, National 
Archives and Records Administration, 8601 Adelphi Road, College Park, MD 
20740-6001 or e-mail [email protected].

SALES

    The Government Printing Office (GPO) processes all sales and 
distribution of the CFR. For payment by credit card, call toll-free, 
866-512-1800, or DC area, 202-512-1800, M-F 8 a.m. to 4 p.m. e.s.t. or 
fax your order to 202-512-2104, 24 hours a day. For payment by check, 
write to: US Government Printing Office - New Orders, P.O. Box 979050, 
St. Louis, MO 63197-9000.

ELECTRONIC SERVICES

    The full text of the Code of Federal Regulations, the LSA (List of 
CFR Sections Affected), The United States Government Manual, the Federal 
Register, Public Laws, Public Papers of the Presidents of the United 
States, Compilation of Presidential Documents and the Privacy Act 
Compilation are available in electronic format via www.ofr.gov. For more 
information, contact the GPO Customer Contact Center, U.S. Government 
Printing Office. Phone 202-512-1800, or 866-512-1800 (toll-free). E-
mail, [email protected].
    The Office of the Federal Register also offers a free service on the 
National Archives and Records Administration's (NARA) World Wide Web 
site for public law numbers, Federal Register finding aids, and related 
information. Connect to NARA's web site at www.archives.gov/federal-
register.

    Raymond A. Mosley,
    Director,
    Office of the Federal Register.
    January 1, 2012.







[[Page ix]]



                               THIS TITLE

    Title 12--Banks and Banking is composed of eight volumes. The parts 
in these volumes are arranged in the following order: Parts 1-199, 200-
219, 220-229, 230-299, 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, 
third and fourth volumes containing parts 200-299 are comprised of 
chapter II--Federal Reserve System. The fifth 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 
sixth volume containing parts 500-599 is comprised of chapter V--Office 
of Thrift Supervision, Department of the Treasury. The seventh 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 eighth 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, 2012.

    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.......................           7
2               Sales of credit life insurance..............          14
3               Minimum capital ratios; issuance of 
                    directives..............................          15
4               Organization and functions, availability and 
                    release of information, contracting 
                    outreach program, post-employment 
                    restrictions for senior examiners.......         101
5               Rules, policies, and procedures for 
                    corporate activities....................         125
6               Prompt corrective action....................         180
7               Bank activities and operations..............         187
8               Assessment of fees..........................         210
9               Fiduciary activities of national banks......         216
10              Municipal securities dealers................         226
11              Securities Exchange Act disclosure rules....         227
12              Recordkeeping and confirmation requirements 
                    for securities transactions.............         228
13              Government securities sales practices.......         236
14              Consumer protection in sales of insurance...         239
15              [Reserved]

16              Securities offering disclosure rules........         243
18              Disclosure of financial and other 
                    information by national banks...........         249
19              Rules of practice and procedure.............         251
21              Minimum security devices and procedures, 
                    reports of suspicious activities, and 
                    Bank Secrecy Act Compliance Program.....         293
22              Loans in areas having special flood hazards.         298
23              Leasing.....................................         302
24              Community and economic development entities, 
                    community development projects, and 
                    other public welfare investments........         305
25              Community Reinvestment Act and interstate 
                    deposit production regulations..........         315
26              Management official interlocks..............         338

[[Page 4]]

27              Fair housing home loan data system..........         342
28              International banking activities............         353
29              [Reserved]

30              Safety and soundness standards..............         367
31              Extensions of credit to insiders and 
                    transactions with affiliates............         381
32              Lending limits..............................         385
33              [Reserved]

34              Real estate lending and appraisals..........         397
35              Disclosure and reporting of CRA-related 
                    agreements..............................         418
36              [Reserved]

37              Debt cancellation contracts and debt 
                    suspension agreements...................         431
38-39           [Reserved]

40              Privacy of consumer financial information...         436
41              Fair credit reporting.......................         463
42-47           [Reserved]

48              Retail foreign exchange transactions........         496
49-99           [Reserved]

100             Rules applicable to savings associations....         510
101-107         [Reserved]

108             Removals, suspensions, and prohibitions 
                    where a crime is charged or proven......         510
109             Rules of practice and procedure in 
                    adjudicatory proceedings................         513
110-111         [Reserved]

112              Rules for investigative proceedings and 
                    formal examination proceedings..........         536
113-115         [Reserved]

116             Application processing procedures...........         538
117-127         [Reserved]

128             Nondiscrimination requirements..............         548
129-132         [Reserved]

133             Disclosure and reporting of CRA-related 
                    agreements..............................         553
134-135         [Reserved]

136             Consumer protection in sales of insurance...         565
137-140         [Reserved]

141             Definitions for regulations affecting 
                    Federal savings associations............         569
142             [Reserved]

143             Federal mutual savings associations--
                    incorporation, organization, and 
                    conversion..............................         571
144             Federal mutual savings associations--charter 
                    and bylaws..............................         578
145             Federal savings associations--operations....         585

[[Page 5]]

146             Federal mutual savings associations--merger, 
                    dissolution, reorganization, and 
                    conversion..............................         590
147-149         [Reserved]

150             Fiduciary powers of Federal savings 
                    associations............................         592
151             Recordkeeping and confirmation requirements 
                    for securities transactions.............         602
152             Federal stock associations--incorporation, 
                    organization, and conversion............         611
153-154         [Reserved]

155             Electronic operations.......................         630
156             [Reserved]

157             Deposits....................................         631
158             [Reserved]

159             Subordinate organizations...................         631
160             Lending and investment......................         639
161             Definitions for regulations affecting all 
                    savings associations....................         660
162             Regulatory reporting standards..............         666
163             Savings associations--operations............         668
164             Appraisals..................................         694
165             Prompt corrective action....................         698
166             [Reserved]

167             Capital.....................................         708
168             Security procedures.........................         820
169             Proxies.....................................         821
170             Safety and soundness guidelines and 
                    compliance procedures...................         822
171             Fair credit reporting.......................         836
172             Loans in areas having special flood hazards.         842
173             [Reserved]

174             Acquisition of control of Federal savings 
                    associations............................         846
175-189         [Reserved]

190             Preemption of State usury laws..............         861
191             Preemption of State due-on-sale laws........         866
192             Conversions from mutual to stock form.......         871
193             Accounting requirements.....................         899
194             Securities of Federal savings associations..         908
195             Community reinvestment......................         910
196             Management official interlocks..............         933
197             Securities offerings........................         937
198-199         [Reserved]

[[Page 7]]



PART 1_INVESTMENT SECURITIES--Table of Contents



Sec.
1.1 Authority, purpose, scope, and reservation of authority.
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, scope, and reservation of authority.

    (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 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.
    (d) Reservation of authority. The OCC may determine, on a case-by-
case basis, that a national bank may acquire an investment security 
other than an investment security of a type set forth in this part, 
provided the OCC determines that the bank's investment is consistent 
with 12 U.S.C. section 24 (Seventh) and with safe and sound banking 
practices. The OCC will consider all relevant factors, including the 
risk characteristics of the particular investment in comparison with the 
risk characteristics of investments that the OCC has previously 
authorized, and the bank's ability effectively to manage such risks. The 
OCC may impose limits or conditions in connection with approval of an 
investment security under this subsection. Investment securities that 
the OCC determines are permissible in accordance with this paragraph 
constitute eligible investments for purposes of 12 U.S.C. 24.

[61 FR 63982, Dec. 2, 1996, as amended at 73 FR 22235, Apr. 24, 2008]



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,

[[Page 8]]

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:
    (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).

[[Page 9]]

    (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 
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.

[[Page 10]]

    (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 
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) Pooled investments--(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; 
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.
    (3) Investments made under this paragraph (h) must comply with Sec. 
1.5 of this part, conform with applicable published OCC precedent, and 
must be:
    (i) Marketable and rated investment grade or the credit equivalent 
of a security rated investment grade, or
    (ii) Satisfy the requirements of Sec. 1.3(i).
    (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 
security is marketable and 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.
    (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; 73 
FR 22235, Apr. 24, 2008]



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

[[Page 11]]

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 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.

[[Page 12]]



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 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.

[[Page 13]]

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.



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.

[[Page 14]]

    (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.
    (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.
    (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

[[Page 15]]

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.

[61 FR 51781, Oct. 4, 1996, as amended at 73 FR 22235, Apr. 24, 2008]



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 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.

[[Page 16]]

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
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.
    (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; 73 FR 22236, Apr. 24, 2008]



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

[[Page 17]]

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 
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.
    (c) The OCC may find that the capital treatment for an exposure not 
subject to consolidation on the bank's balance sheet does not 
appropriately reflect the risks imposed on the bank. Accordingly, the 
OCC may require the bank to treat the exposure as if it were 
consolidated onto the bank's balance sheet for the purpose of 
determining compliance with the bank's minimum risk-based capital 
requirements set forth in Appendix A or Appendix C to this part . The 
OCC will look to the substance of and risk associated with the 
transaction as well as other relevant factors the OCC deems appropriate 
in determining whether to require such treatment and in determining the 
bank's compliance with minimum risk-based capital requirements.

[55 FR 38800, Sept. 21, 1990, as amended at 66 FR 59630, Nov. 29, 2001; 
75 FR 4645, Jan. 28, 2010]



                    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

[[Page 18]]

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 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:

[[Page 19]]

    (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 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

[[Page 20]]

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 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

[[Page 21]]

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.

                             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;

[[Page 22]]

    (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 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

[[Page 23]]

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. 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)(10) 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

[[Page 24]]

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 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

[[Page 25]]

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 is an intangible asset that represents the excess of 
the cost of an acquired entity over the net of the amounts assigned to 
assets acquired and liabilities assumed.
    (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 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

[[Page 26]]

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.
---------------------------------------------------------------------------

    (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.

[[Page 27]]

    (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) [Reserved]
    (b) Tier 2 Capital. The following elements comprise a national 
bank's Tier 2 capital:
    (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

[[Page 28]]

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) and 
(2)(c)(6) 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
    (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)(2) 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)(18) 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)(2) 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.
    (3) Deferred tax assets--(i) Net unrealized gains and losses on 
available-for-sale securities. 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

[[Page 29]]

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) 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 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.
    (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

[[Page 30]]

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 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) Netting of Deferred Tax Liability. (i) Banks may elect to deduct 
the following assets from Tier 1 capital on a basis that is net of any 
associated deferred tax liability:
    (A) Goodwill;
    (B) Intangible assets acquired due to a nontaxable purchase business 
combination, except banks may not elect to deduct from Tier 1 capital on 
a basis that is net of any associated deferred tax liability, regardless 
of the method by which they were acquired:
    (1) Purchased credit card relationships; and
    (2) Servicing assets that are includable in Tier 1 capital;
    (C) Disallowed servicing assets;
    (D) Disallowed credit-enhancing interest-only strips; and
    (E) Nonfinancial equity investments, as defined in section 1(c)(1) 
of this appendix A.
    (ii) Deferred tax liabilities netted in this manner cannot also be 
netted against deferred tax assets when determining the

[[Page 31]]

amount of deferred tax assets that are dependent upon future taxable 
income as calculated under section 2(c)(1)(iii) of this appendix A.
    (7) Deductions from total capital. The following assets 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 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 liabilities in that currency. Any amount of such claims 
that exceeds the amount of the bank's liabilities in that currency 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.

[[Page 32]]

    (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 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.
    (ix) Asset-backed commercial paper (ABCP) that is:
    (A) Purchased by the bank on or after September 19, 2008, from a 
Securities and Exchange Commission (SEC)-registered open-end investment 
company that holds itself out as a money market mutual fund under SEC 
Rule 2a-7 (17 CFR 270.2a-7); and
    (B) Pledged by the bank to a Federal Reserve Bank to secure 
financing from the ABCP lending facility (AMLF) established by the 
Federal Reserve Board on September 19, 2008.
    (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.

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

[[Page 33]]

    (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 
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

[[Page 34]]

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 the prudent 
underwriting standards. For the purposes of the risk-based capital 
guidelines, a loan modified on a permanent or trial basis solely 
pursuant to the U.S. Department of Treasury's Home Affordable Mortgage 
Program will not be considered to have been restructured. 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 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;

[[Page 35]]

    (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
    (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.

[[Page 36]]

    (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. [Reserved]
    (xi) Subject to the requirements below, a bank may assign an asset 
not included in the categories above to the risk weight category 
applicable under the capital guidelines for bank holding companies (see 
12 CFR part 225, appendix A), provided that all of the following 
conditions apply:
    (A) The bank is not authorized to hold the asset under applicable 
law other than debt previously contracted or similar authority; and
    (B) The risks associated with the asset are substantially similar to 
the risks of assets that are otherwise assigned to a risk weight 
category less than 100 percent under this appendix.
    (6) Other variable interest entities subject to consolidation. If a 
bank is required to consolidate the assets of a variable interest entity 
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 a 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.

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

[[Page 37]]

    (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.
---------------------------------------------------------------------------

    (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

[[Page 38]]

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 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.

[[Page 39]]



                                      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-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.

[[Page 40]]

    (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:
    (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;

[[Page 41]]

    (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:
    (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

[[Page 42]]

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, 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

[[Page 43]]

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.
------------------------------------------------------------------------


                                 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

[[Page 44]]

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.

                                 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

[[Page 45]]

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 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

[[Page 46]]

12 U.S.C. 1831o(g) regardless of the bank's capital level.

Section 5. Optional transition provisions related to the implementation 
              of consolidation requirements under FAS 167.

    (a) This section 5 provides optional transition provisions for a 
national bank that is required for financial and regulatory reporting 
purposes, as a result of its implementation of Statement of Financial 
Accounting Standards No. 167, Amendments to FASB Interpretation No. 
46(R) (FAS 167), to consolidate certain variable interest entities 
(VIEs) as defined under United States generally accepted accounting 
principles (GAAP). These transition provisions apply through the end of 
the fourth quarter following the date of a bank's implementation of FAS 
167 (implementation date).
    (b) Exclusion period. (1) Exclusion of risk-weighted assets for the 
first and second quarters. For the first two quarters after the 
implementation date (exclusion period), including for the two calendar 
quarter-end regulatory report dates within those quarters, a bank may 
exclude from risk-weighted assets:
    (i) Subject to the limitations in paragraph (d) of this section 5, 
assets held by a VIE, provided that the following conditions are met:
    (A) The VIE existed prior to the implementation date;
    (B) The bank did not consolidate the VIE on its balance sheet for 
calendar quarter-end regulatory report dates prior to the implementation 
date;
    (C) The bank must consolidate the VIE on its balance sheet beginning 
as of the implementation date as a result of its implementation of FAS 
167; and
    (D) The bank excludes all assets held by VIEs described in 
paragraphs (b)(1)(i)(A) through (C) of this section 5; and
    (ii) Subject to the limitations of paragraph (d) of this section 5, 
assets held by a VIE that is a consolidated asset-backed commercial 
paper (ABCP) program, provided that the following conditions are met:
    (A) The bank is the sponsor of the ABCP program;
    (B) Prior to the implementation date, the bank consolidated the VIE 
onto its balance sheet under GAAP and excluded the VIE's assets from the 
bank's risk-weighted assets; and
    (C) The bank chooses to exclude all assets held by ABCP program VIEs 
described in paragraphs (b)(1)(ii)(A) and (B) of this section 5.
    (2) Risk-weighted assets during exclusion period. During the 
exclusion period, including the two calendar quarter-end regulatory 
report dates within the exclusion period, a bank adopting the optional 
provisions of this paragraph (b) of this section 5 must calculate risk-
weighted assets for its contractual exposures to the VIEs referenced in 
paragraph (b)(1) of this section 5 on the implementation date and 
include this calculated amount in its risk-weighted assets. Such 
contractual exposures may include direct-credit substitutes, recourse 
obligations, residual interests, liquidity facilities, and loans.
    (3) Inclusion of ALLL in Tier 2 capital for the first and second 
quarters. During the exclusion period, including for the two calendar 
quarter-end regulatory report dates within the exclusion period, a bank 
that excludes VIE assets from risk-weighted assets pursuant to paragraph 
(b)(1) of this section may include in Tier 2 capital the full amount of 
the allowance for loan and lease losses (ALLL) calculated as of the 
implementation date that is attributable to the assets it excludes 
pursuant to paragraph (b)(1) of this section 5 (inclusion amount). The 
amount of ALLL includable in Tier 2 capital in accordance with this 
paragraph shall not be subject to the limitations set forth in section 
2(b)(1) of this Appendix A.
    (c) Phase-in period. (1) Exclusion amount. For purposes of this 
paragraph (c), exclusion amount is defined as the amount of risk-
weighted assets excluded in paragraph (b)(1) of this section as of the 
implementation date.
    (2) Risk-weighted assets during the third and fourth quarters. A 
bank that excludes assets of consolidated VIEs from risk-weighted assets 
pursuant to paragraph (b)(1) of this section may, for the third and 
fourth quarters after the implementation date (phase-in period), 
including for the two calendar quarter-end regulatory report dates 
within those quarters, exclude from risk-weighted assets 50 percent of 
the exclusion amount, provided that the bank may not include in risk-
weighted assets pursuant to this paragraph an amount less than the 
aggregate risk-weighted assets calculated pursuant to paragraph (b)(2) 
of this section.
    (3) Inclusion of ALLL in Tier 2 capital during the third and fourth 
quarters. A bank that excludes assets of consolidated VIEs from risk-
weighted assets pursuant to paragraph (c)(2) of this section may, for 
the phase-in period, include in Tier 2 capital 50 percent of the 
inclusion amount it included in Tier 2 capital during the exclusion 
period, notwithstanding the limit on including ALLL in Tier 2 capital in 
section 2(b)(1) of this Appendix A.
    (d) Implicit recourse limitation. Notwithstanding any other 
provision in this section 5, assets held by a VIE to which the bank has 
provided recourse through credit enhancement beyond any contractual 
obligation to support assets it has sold may not be excluded from risk-
weighted assets.

[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,

[[Page 47]]

which appears in the Finding Aids section of the printed volume and at 
www.fdsys.gov.



 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 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

[[Page 48]]

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).
---------------------------------------------------------------------------

    (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.)

[[Page 49]]

    (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 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

[[Page 50]]

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 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,

[[Page 51]]

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.
---------------------------------------------------------------------------

    (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.

[[Page 52]]

    (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

    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 IX Transition Provisions
    Section 81 Optional Transition Provisions Related to the 
Implementation of Consolidation Requirements Under FAS 167

                       Part I. General Provisions

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

    (a) (1) Except as modified by paragraph (c) of this section or by 
section 23 of this appendix, each bank must meet a minimum:
    (i) Total risk-based capital ratio of 8.0 percent; and
    (ii) Tier 1 risk-based capital ratio of 4.0 percent.
    (2) A bank's total risk-based capital ratio is the lower of:
    (i) Its total qualifying capital to total risk-weighted assets; and
    (ii) Its total risk-based capital ratio as calculated under Appendix 
A of this part.
    (3) A bank's tier 1 risk-based capital ratio is the lower of:
    (i) Its tier 1 capital to total risk-weighted assets; and
    (ii) Its tier 1 risk-based capital ratio as calculated under 
Appendix A of this part.
    (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 12 CFR part 3, appendix B, calculates its 
risk-based capital requirements under this appendix, the bank must also 
refer to 12 CFR part 3, appendix B, for supplemental rules to calculate 
risk-

[[Page 53]]

based capital requirements adjusted for market risk.

                         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.
    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.

[[Page 54]]

    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:
    (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 OCC 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.

[[Page 55]]

    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 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 OCC, 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;

[[Page 56]]

    (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;
    (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

[[Page 57]]

    (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 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
---------------------------------------------------------------------------

    \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:

[[Page 58]]

    (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;
    (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 and 12 CFR part 3, appendix 
A, section 3(a)(3)(iii).
    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-

[[Page 59]]

related contingency, EAD means the bank's 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) 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 OCC's real estate lending 
standards at 12 CFR part 34, Subpart D;

[[Page 60]]

    (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 OCC that the equities represented in the index have 
comparable liquidity, depth of market, and size of bid-ask spreads as 
equities in the

[[Page 61]]

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 
OCC 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 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.

[[Page 62]]

    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 OCC 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 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:

[[Page 63]]

    (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
    (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.

[[Page 64]]

    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 12 CFR part 3, appendix A, as modified 
in part II of this appendix.
    Tier 2 capital is defined in 12 CFR part 3, appendix A, 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 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

[[Page 65]]

risk-weighted assets for unsettled transactions (as determined in 
section 35 of this appendix) minus the amounts deducted from capital 
pursuant to 12 CFR part 3, appendix A (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 OCC 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 OCC 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 12 
CFR part 3, appendix B 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) (1) Except as modified by paragraph (c) of this section or by 
section 23 of this appendix, each bank must meet a minimum:
    (i) Total risk-based capital ratio of 8.0 percent; and
    (ii) Tier 1 risk-based capital ratio of 4.0 percent.
    (2) A bank's total risk-based capital ratio is the lower of:
    (i) Its total qualifying capital to total risk-weighted assets; and
    (ii) Its total risk-based capital ratio as calculated under Appendix 
A of this part.
    (3) A bank's tier 1 risk-based capital ratio is the lower of:
    (i) Its tier 1 capital to total risk-weighted assets; and
    (ii) Its tier 1 risk-based capital ratio as calculated under 
Appendix A of this part.
    (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 12 CFR part 3, appendix B, calculates its 
risk-based capital requirements under this appendix, the bank must also 
refer to 12 CFR part 3, appendix B,

[[Page 66]]

for supplemental rules to calculate risk-based capital requirements 
adjusted for market risk.

                       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 12 CFR 
part 3, appendix A, 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).
    (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).

                  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 12 CFR part 3, appendix A, 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 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 OCC 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.

[[Page 67]]

    (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 OCC'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 OCC'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 OCC at 
least 60 days before the bank proposes to begin its parallel run, unless 
the OCC 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 
OCC. During the parallel run, the bank must report to the OCC on a 
calendar quarterly basis its risk-based capital ratios using 12 CFR part 
3, appendix A and the risk-based capital requirements described in this 
appendix. During this period, the bank is subject to 12 CFR part 3, 
appendix A.
    (d) Approval to calculate risk-based capital requirements under this 
appendix. The OCC will notify the bank of the date that the bank may 
begin its first floor period if the OCC 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.

                 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

[[Page 68]]

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 
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 OCC under section 32 of this appendix to use the 
internal models methodology for counterparty credit risk.

[[Page 69]]

    (e) Double default treatment. A bank must obtain the prior written 
approval of the OCC 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 OCC 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 OCC 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:
    (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 OCC 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 
OCC 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 OCC 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

[[Page 70]]

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 OCC, 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 OCC. In determining 
whether to approve a bank's proposal to use an alternative operational 
risk quantification system, the OCC 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 OCC 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 
OCC 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 OCC 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 
OCC to return to compliance with the qualification requirements.
    (3) In addition, if the OCC determines that the bank's risk-based 
capital requirements are not commensurate with the bank's credit, 
market, operational, or other risks, the OCC may require such a bank to 
calculate its risk-based capital requirements:
    (i) Under 12 CFR part 3, appendix A; or
    (ii) Under this appendix with any modifications provided by the OCC.

[[Page 71]]

      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 
12 CFR part 3, appendix A 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 OCC 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 
OCC an implementation plan for using its advanced systems for the 
acquired company. During the period when 12 CFR part 3, appendix A 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 12 CFR part 3, appendix A 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 OCC 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 OCC 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 12 CFR part 3, appendix A 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,

[[Page 72]]

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.
    (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 12 
CFR part 3, appendix B 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:

[[Page 73]]

    (i) Has a legal and practical ability not to renew or roll over the 
exposure in the event of credit deterioration of the obligor;
    (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 74]]


    (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 OCC'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 12 CFR part 3, appendix 
B. 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 12 CFR part 3, appendix B), 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 12 CFR part 3, appendix B, and determine the EAD 
of the exposure using:

[[Page 75]]

    (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 deposi0 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 76]]

    (iii) Own internal estimates for haircuts. With the prior written 
approval of the OCC, 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 OCC 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 
OCC, 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 subject to a qualifying master netting agreement 
using the current exposure methodology in paragraph (c)(6) of this 
section or

[[Page 77]]

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 12 CFR 
part 3, appendix B 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 12 CFR part 3, appendix B, 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 
12 CFR part 3, appendix B). In addition, if the bank is treating the 
contract as a covered position under 12 CFR part 3, appendix B 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.

                                           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       Other
                                                                               and gold       reference     reference                (except
                                                                                            obligor) \3\    obligor)                  gold)
--------------------------------------------------------------------------------------------------------------------------------------------------------
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 OCC, 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 OCC. A bank 
that uses the internal models methodology for a transaction type must 
receive approval from the OCC 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 OCC 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 OCC 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 collateral (but may not include other forms of 
collateral) when calculating EE.

[[Page 79]]

    (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 OCC approval to calculate the distributions of 
exposures upon which the EAD calculation is based, the bank must 
demonstrate to the satisfaction of the OCC 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 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

[[Page 80]]

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 OCC, 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 OCC, 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 OCC:
    (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 OCC, 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 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.

[[Page 81]]

 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), 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

[[Page 82]]

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;
    (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

[[Page 83]]

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 OCC) 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) 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.

[[Page 84]]

    (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).
    (c) System-wide failures. In the case of a system-wide failure of a 
settlement or clearing system, the OCC 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

[[Page 85]]

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:
    (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

[[Page 86]]

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 OCC, 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
    (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

[[Page 87]]

(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 OCC's prompt 
corrective action regulation at 12 CFR part 6. 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 
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.
    (l) Nth-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.

[[Page 88]]

    (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 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.

[[Page 89]]



                         Table 6--Long-Term Credit Rating Risk Weights Under RBA and IAA
----------------------------------------------------------------------------------------------------------------
                                                                     Column 1        Column 2        Column 3
                                                                 -----------------------------------------------
                                                                   Risk weights    Risk weights    Risk weights
  Applicable external or inferred rating  (Illustrative rating      for senior    for non-senior        for
                            example)                              securitization  securitization  securitization
                                                                     exposures       exposures       exposures
                                                                     backed by       backed by    backed by non-
                                                                  granular pools  granular pools  granular pools
----------------------------------------------------------------------------------------------------------------
Highest investment grade (for example, AAA).....................              7%             12%             20%
Second highest investment grade (for example, AA)...............              8%             15%             25%
Third-highest investment grade--positive designation (for                    10%             18%             35%
 example, A+)...................................................
Third-highest investment grade (for example, A).................             12%             20%
Third-highest investment grade--negative designation (for                    20%             35%
 example, A-)...................................................
                                                                                 -------------------------------
Lowest investment grade--positive designation (for example,                  35%                50%
 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
                                                                 -----------------------------------------------
                                                                   Risk weights    Risk weights    Risk weights
  Applicable external or inferred rating  (Illustrative rating      for senior    for non-senior        for
                            example)                              securitization  securitization  securitization
                                                                     exposures       exposures       exposures
                                                                     backed by       backed by    backed by non-
                                                                  granular pools  granular pools  granular pools
----------------------------------------------------------------------------------------------------------------
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 OCC. To 
receive such approval, the bank must demonstrate to the OCC'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.

[[Page 90]]

    (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.
    (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 91]]

[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 92]]

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 93]]


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 OCC, 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 94]]

    (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 95]]



            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 96]]

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 OCC'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 OCC'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 97]]

[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 OCC. To receive such approval, 
the bank must demonstrate to the OCC'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 98]]

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 99]]

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 operational risk mitigants) and an estimate 
of

[[Page 100]]

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 
OCC has given prior written approval. In evaluating an operational risk 
mitigant other than insurance, the OCC 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.
---------------------------------------------------------------------------

    (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.

                     Part IX--Transition Provisions

Section 81--Optional Transition Provisions Related to the Implementation 
               of Consolidation Requirements Under FAS 167

    (a) Scope, applicability, and purpose. This section 81 provides 
optional transition provisions for a bank that is required for financial 
and regulatory reporting purposes, as a result of its implementation of 
Statement of Financial Accounting Standards No. 167, Amendments to FASB 
Interpretation No. 46(R) (FAS 167), to consolidate certain variable 
interest entities (VIEs) as defined under GAAP. These transition 
provisions apply through the end of the fourth quarter following the 
date of a bank's implementation of FAS 167 (implementation date).
    (b) Exclusion period. (1) Exclusion of risk-weighted assets for the 
first and second quarters. For the first two quarters after the 
implementation date (exclusion period), including for the two calendar 
quarter-end regulatory report dates within those quarters, a bank may 
exclude from risk-weighted assets:
    (i) Subject to the limitations in paragraph (d) of this section 81, 
assets held by a VIE, provided that the following conditions are met:
    (A) The VIE existed prior to the implementation date;
    (B) The bank did not consolidate the VIE on its balance sheet for 
calendar quarter-end regulatory report dates prior to the implementation 
date;
    (C) The bank must consolidate the VIE on its balance sheet beginning 
as of the implementation date as a result of its implementation of FAS 
167; and

[[Page 101]]

    (D) The bank chooses to exclude all assets held by VIEs described in 
paragraphs (b)(1)(i)(A) through (C) of this section 81; and
    (ii) Subject to the limitations in paragraph (d) of this section 81, 
assets held by a VIE that is a consolidated asset-backed commercial 
paper (ABCP) program, provided that the following conditions are met:
    (A) The bank is the sponsor of the ABCP program;
    (B) Prior to the implementation date, the bank consolidated the VIE 
onto its balance sheet under GAAP and excluded the VIE's assets from the 
bank's risk-weighted assets; and
    (C) The bank excludes all assets held by ABCP program VIEs described 
in paragraphs (b)(1)(ii)(A) and (B) of this section 81.
    (2) Risk-weighted assets during exclusion period. During the 
exclusion period, including for the two calendar quarter-end regulatory 
report dates within the exclusion period, a bank adopting the optional 
provisions in paragraph (b) of this section must calculate risk-weighted 
assets for its contractual exposures to the VIEs referenced in paragraph 
(b)(1) of this section 81 on the implementation date and include this 
calculated amount in risk-weighted assets. Such contractual exposures 
may include direct-credit substitutes, recourse obligations, residual 
interests, liquidity facilities, and loans.
    (3) Inclusion of ALLL in Tier 2 capital for the first and second 
quarters. During the exclusion period, including for the two calendar 
quarter-end regulatory report dates within the exclusion period, a bank 
that excludes VIE assets from risk-weighted assets pursuant to paragraph 
(b)(1) of this section 81 may include in Tier 2 capital the full amount 
of the ALLL calculated as of the implementation date that is 
attributable to the assets it excludes pursuant to paragraph (b)(1) of 
this section 81 (inclusion amount). The amount of ALLL includable in 
Tier 2 capital in accordance with this paragraph shall not be subject to 
the limitations set forth in section 13(a)(2) and (b) of this Appendix 
C.
    (c) Phase-in period. (1) Exclusion amount. For purposes of this 
paragraph (c), exclusion amount is defined as the amount of risk-
weighted assets excluded in paragraph (b)(1) of this section as of the 
implementation date.
    (2) Risk-weighted assets for the third and fourth quarters. A bank 
that excludes assets of consolidated VIEs from risk-weighted assets 
pursuant to paragraph (b)(1) of this section may, for the third and 
fourth quarters after the implementation date (phase-in period), 
including for the two calendar quarter-end regulatory report dates 
within those quarters, exclude from risk-weighted assets 50 percent of 
the exclusion amount, provided that the bank may not include in risk-
weighted assets pursuant to this paragraph an amount less than the 
aggregate risk-weighted assets calculated pursuant to paragraph (b)(2) 
of this section 81.
    (3) Inclusion of ALLL in Tier 2 capital for the third and fourth 
quarters. A bank that excludes assets of consolidated VIEs from risk-
weighted assets pursuant to paragraph (c)(2) of this section may, for 
the phase-in period, include in Tier 2 capital 50 percent of the 
inclusion amount it included in Tier 2 capital during the exclusion 
period, notwithstanding the limit on including ALLL in Tier 2 capital in 
section 13(a)(2) and (b) of this Appendix.
    (d) Implicit recourse limitation. Notwithstanding any other 
provision in this section 81, assets held by a VIE to which the bank has 
provided recourse through credit enhancement beyond any contractual 
obligation to support assets it has sold may not be excluded from risk-
weighted assets.

[72 FR 69396, 69429, Dec. 7, 2007, 73 FR 21690, Apr. 22, 2008; 75 FR 
4646, Jan. 28, 2010; 76 FR 37628, June 28, 2011]



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 and web site.
4.5 District and field offices.
4.6 Frequency of examination of national banks and Federal savings 
          associations.
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 How to request records.
4.16 Predisclosure notice for confidential commercial information.
4.17 FOIA request fees.
4.18 How to track a FOIA request.

             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.

[[Page 102]]

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 Waivers.
4.76 Penalties.

    Authority: 12 U.S.C. 1, 12 U.S.C. 93a, 12 U.S.C. 5321, 12 U.S.C. 
5412, and 12 U.S.C. 5414. 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, 1462a, 1463, 1464 1817(a)(2) and (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. 5318(g)(2), 9701; 42 U.S.C. 3601; 
44 U.S.C. 3506, 3510. Subpart D also issued under 12 U.S.C. 1833e. 
Subpart E is also issued under 12 U.S.C. 1820(k).

    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 is charged with assuring the safety and soundness of, and 
compliance with laws and regulations, fair access to financial services, 
and fair treatment of customers by, the institutions and other persons 
subject to its jurisdiction. The OCC examines, supervises, and regulates 
national banks, Federal branches and agencies of foreign banks, and 
Federal savings associations to carry out this mission. The OCC also 
issues rules and regulations applicable to state savings associations.

[76 FR 43561, July 21, 2011]



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 
Financial Stability Oversight Council, 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.

[60 FR 57322, Nov. 15, 1995, as amended at 76 FR 43561, July 21, 2011]



Sec. 4.4  Washington office and web site.

    The Washington office of the OCC is the main office and headquarters 
of the OCC. The Washington office directs OCC policy, oversees OCC 
operations, and is responsible for the direct supervision of certain 
national banks and Federal savings associations, including the largest 
national banks and the largest Federal savings associations (through the 
Large Bank Supervision Department); other national banks and Federal 
savings associations requiring special supervision; and Federal branches 
and agencies of foreign banks (through the Large Bank Supervision 
Department). The Washington office is

[[Page 103]]

located at 250 E Street, SW., Washington, DC 20219. The OCC's Web site 
is at http://www.occ.gov.

[76 FR 43561, July 21, 2011]



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 savings 
associations in its district, with the exception of the national banks 
and Federal savings associations supervised by the Washington office. 
The four 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:

------------------------------------------------------------------------
     District             Office address        Geographical composition
------------------------------------------------------------------------
Northeastern        Office of the Comptroller  Connecticut, Delaware,
 District.           of the Currency, 340       District of Columbia,
                     Madison Avenue, 5th        northeast Kentucky,
                     Floor, New York, NY        Maine, Maryland,
                     10173-0002.                Massachusetts, New
                                                Hampshire, New Jersey,
                                                New York, North
                                                Carolina, Pennsylvania,
                                                Puerto Rico, Rhode
                                                Island, South Carolina,
                                                Vermont, the Virgin
                                                Islands, Virginia, and
                                                West Virginia.
Central District..  Office of the Comptroller  Illinois, Indiana,
                     of the Currency, One       central and southern
                     Financial Place, Suite     Kentucky, Michigan,
                     2700, 440 South LaSalle    Minnesota, eastern
                     Street, Chicago, IL        Missouri, North Dakota,
                     60605.                     Ohio, and Wisconsin.
Southern District.  Office of the Comptroller  Alabama, Arkansas,
                     of the Currency, 500       Florida, Georgia,
                     North Akard Street,        Louisiana, Mississippi,
                     Suite 1600, Dallas, TX     Oklahoma, Tennessee, and
                     75201.                     Texas.
Western District..  Office of the Comptroller  Alaska, Arizona,
                     of the Currency, 1225      California, Colorado,
                     17th Street, Suite 300,    Hawaii, Idaho, Iowa,
                     Denver, CO 80202.          Kansas, western
                                                Missouri, Montana,
                                                Nebraska, Nevada, New
                                                Mexico, Northern Mariana
                                                Islands, Oregon, South
                                                Dakota, Utah,
                                                Washington, Wyoming, and
                                                Guam.
------------------------------------------------------------------------

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

[60 FR 57322, Nov. 15, 1995, as amended at 73 FR 22236, Apr. 24, 2008; 
76 FR 43561, July 21, 2011]



Sec. 4.6  Frequency of examination of national banks and Federal savings 

associations.

    (a) General. The OCC examines national banks and Federal savings 
associations pursuant to authority conferred by 12 U.S.C. 481 (with 
respect to national banks) and 1463(a)(1) and 1464 (with respect to 
Federal savings associations) and the requirements of 12 U.S.C. 1820(d) 
(with respect to national banks and Federal savings associations). The 
OCC is required to conduct a full-scope, on-site examination of every 
national bank and Federal savings association 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 or a 
Federal savings association 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 or Federal savings association has total assets of less 
than $500 million;
    (2) The bank or Federal savings association is well capitalized as 
defined in part 6 of this chapter;
    (3) At the most recent examination,:
    (i) The bank or Federal savings association was assigned a rating of 
1 or 2 for management as part of the bank's or association's rating 
under the Uniform Financial Institutions Rating System; and
    (ii) The bank or Federal savings association was assigned a 
composite rating of 1 or 2 under the Uniform Financial Institutions 
Rating System.
    (4) The bank or Federal savings association currently is not subject 
to a formal enforcement proceeding or order by the FDIC, OCC, OTS or the 
Federal Reserve System; and
    (5) No person acquired control of the bankor Federal savings 
association during the preceding 12-month period in which a full-scope, 
on-site examination would have been required but for this section.

[[Page 104]]

    (c) Authority to conduct more frequent examinations. This section 
does not limit the authority of the OCC to examine any national bank or 
Federal savings association as frequently as the agency deems necessary.

[63 FR 16380, Apr. 2, 1998, as amended at 72 FR 17802, Apr. 10, 2007; 76 
FR 43561, July 21, 2011]



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 (g) and (h), 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; 76 FR 43561, July 21, 2011]



 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 and savings association industries 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

[[Page 105]]

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 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.
    (4) This subpart does not apply to FOIA requests filed with the 
Office of Thrift Supervision (OTS) before July 21, 2011. These requests 
are subject to the rules of the OTS in effect on July 20, 2011.

[60 FR 57322, Nov. 15, 1995, as amended at 76 FR 43561, July 21, 2011]



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

[[Page 106]]

agency responsible for regulating or supervising financial institutions;
    (9) A record containing or relating to geological and geophysical 
information and data, including maps, concerning wells; and
    (10) Any OTS information similar to that listed in paragraphs (b)(1) 
through (9) of this section, to the extent this information is in the 
possession of the OCC.
    (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 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. The OCC will note the location and extent 
of any deletion, and identify the FOIA exemption under which material 
has been deleted, on the released portion of the material, unless doing 
so would harm an interest protected by the exemption under paragraph (b) 
of this section pursuant to which the deletion was made. Where 
technically feasible, the amount of information redacted and the 
exemption pursuant to which the redaction was made will be indicated at 
the site(s) of the deletion.

[60 FR 57322, Nov. 15, 1995, as amended at 75 FR 17850, Apr. 8, 2010; 76 
FR 43561, July 21, 2011]



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 and Federal 
savings associations use, 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 parts 11, 
16, 194 or 197 or 16 of this chapter;
    (10) Any public comment letter regarding a proposed rule;
    (11) The public file (as defined in 12 CFR 5.9) with respect to a 
pending application described in part 5 of this chapter; and
    (12) Any OTS information similar to that listed in paragraphs (a)(1) 
through (a)(12) of this section, to the extent this information is in 
the possession of the OCC.
    (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

[[Page 107]]

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.
    (c) Addresses. The information described in paragraphs (a)(1) 
through (10) and (a)(11) 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 in the case 
of both banks and Federal savings associations 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 and savings associations 
supervised by Large Bank Supervision, from the Large Bank Licensing 
Expert, Licensing Department, Office of the Comptroller of the Currency, 
250 E Street, SW., Washington, DC 20219.

[60 FR 57322, Nov. 15, 1995, as amended at 76 FR 43561, July 21, 2011]



Sec. 4.15  How to request 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 through the OCC's FOIA Web 
portal at https://appsec.occ.gov/publicaccesslink/palMain.aspx or under 
this section must submit the request or appeal to the 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) Contact information and what the 
request for records must include. A person requesting records under this 
section must state, in writing:
    (i) The requester's full name, address, telephone number and, at the 
requester's option, electronic mail address.
    (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 Comptroller or the Comptroller'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

[[Page 108]]

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 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 for responding to FOIA requests.--(1) The OCC makes 
an initial determination to grant or deny a request for records within 
20 days (excluding Saturday, Sundays, and holidays) 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

[[Page 109]]

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;
    (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, or
    (iv) Tolling of time limits. (A) The OCC may toll the 20-day time 
period to:
    (1) Make one request for additional information from the requester; 
or
    (2) Clarify the applicability or amount of any fees, if necessary, 
with the requester.
    (B) The tolling period ends upon the OCC's receipt of requested 
information from the requester or resolution of the fee issue.
    (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).

[60 FR 57322, Nov. 15, 1995, as amended at 75 FR 17850, Apr. 8, 2010; 76 
FR 43562, July 21, 2011]



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 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 or to the Federal Home Loan Bank Board, the predecessor of the 
OTS 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 commitment of 
confidentiality from the OCC or the Federal Home Loan Bank Board, the 
predecessor of the OTS; and
    (ii) With respect to confidential commercial information submitted 
to the OCC or to the OTS (or the Federal Home Loan Bank Board, its 
predecessor agency) on or after January 1, 1988, if:
    (A) The submitter in good faith designated the information as 
confidential commercial information;

[[Page 110]]

    (B) The OCC or the OTS (or the Federal Home Loan Bank Board, its 
predecessor agency) 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 or the OTS (or the Federal Home Loan Bank Board, its 
predecessor agency) 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 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;

[[Page 111]]

    (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.

[60 FR 57322, Nov. 15, 1995, as amended at 76 FR 43561, July 21, 2011]



Sec. 4.17  FOIA request fees.

    (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 any 
person who, or entity that, gathers information of potential interest to 
a segment of the public, uses editorial skills to turn the raw materials 
into a distinct work, and distributes that work to an audience. A 
freelance journalist shall be regarded as working for a news media 
entity if the person can demonstrate a solid basis for expecting 
publication through that entity, whether or not the journalist is 
actually employed by that entity. A publication contract is one example 
of a basis for expecting publication that ordinarily would satisfy this 
standard. The OCC also may consider the past publication record of the 
requester in determining whether she or he qualifies as a 
``representative of the news media.''
    (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. 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

[[Page 112]]

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.
    (6) No fee if the time limit passes and the OCC has not responded to 
the request. The OCC will not assess search or duplication fees, as 
applicable, if it fails to respond to a requester's FOIA request within 
the time limits specified under 12 CFR 4.15, and no ``unusual'' 
circumstances (as defined in 5 U.S.C. 552(a)(6)(B) and Sec. 
4.15(f)(3)(i)) or ``exceptional'' circumstances (as defined in 5 U.S.C. 
552(a)(6)(C)) apply to the processing of the request.
    (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.
    (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., 20

[[Page 113]]

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.

[60 FR 57322, Nov. 15, 1995, as amended at 75 FR 17850, Apr. 8, 2010]



Sec. 4.18  How to track a FOIA request.

    (a) Tracking number. (1) Internet requests. The OCC will issue a 
tracking number to all FOIA requesters automatically upon receipt of the 
request (as described in Sec. 4.15(g)) by the OCC's Communications 
Department via the OCC's Freedom of Information Request Portal, https://
appsec.occ.gov/publicaccesslink/palMain.aspx. The tracking number will 
be sent via electronic mail to the requester.
    (2) If a requester does not have Internet access. The OCC will issue 
a tracking number to FOIA requesters without Internet access within 5 
days of the receipt of the request (as described in Sec. 4.15(g)) in 
the OCC's Communications Department. The OCC will mail the tracking 
number to the requester's physical address, as provided in the FOIA 
request.
    (b) Status of request. FOIA requesters may track the progress of 
their requests via the OCC's Freedom of Information Request Portal, 
https://appsec.occ.gov/publicaccesslink/palMain.aspx. Requesters without 
Internet access may continue to contact the Disclosure Officer, 
Communications Division, Office of the Comptroller of the Currency, at 
(202) 874-4700 to check the status of their FOIA request(s).

[76 FR 43562, July 21, 2011]



             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 Federal savings associations, 
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.

[[Page 114]]

    (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 or state savings association regulatory 
agency is governed solely by Sec. 4.37(c).
    (4) For purposes of Sec. Sec. 4.35(a)(1), 4.36(a) and 4.37(c) of 
this part, the OCC's decision to disclose records or testimony involving 
a Suspicious Activity Report (SAR) filed pursuant to the regulations 
implementing 12 U.S.C. 5318(g), or any information that would reveal the 
existence of a SAR, is governed by 12 CFR 21.11(k).
    (5) This subpart does not apply to requests for non-public 
information filed with the Office of Thrift Supervision (OTS) before 
July 21, 2011. These requests are subject to the rules of the OTS in 
effect on July 20, 2011.

[60 FR 57322, Nov. 15, 1995, as amended at 63 FR 62929, Nov. 10, 1998; 
64 FR 29216, June 1, 1999; 75 FR 75576, Dec. 3, 2010; 76 FR 43562, July 
21, 2011]



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:
    (A) By the OCC in connection with the OCC's performance of its 
responsibilities, such as a record concerning supervision, licensing, 
regulation, and examination of a national bank, a Federal savings 
association, a bank holding company, a savings and loan holding company, 
or an affiliate; or
    (B) By the OTS in connection with the OTS's performance of its 
responsibilities, such as a record concerning supervision, licensing, 
regulation, and examination of a Federal savings association, a savings 
and loan holding company, or an affiliate;
    (ii) A record compiled by the OCC or the OTS in connection with 
either agency's enforcement responsibilities;
    (iii) A report of examination, supervisory correspondence, an 
investigatory file compiled by the OCC or OTS 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 or a former OTS 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 OTS or due to that 
person's official status at the OCC or OTS; and
    (vi) Confidential information relating to operating and no longer 
operating national banks, Federal savings associations, and savings and 
loan holding companies as well as their subsidiaries and their 
affiliates.
    (2) Is the property of the Comptroller.
    (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 or Federal savings 
association, a subsidiary of a national bank or Federal savings 
association, or a Federal branch or agency of a foreign bank licensed by 
the OCC as defined under 12 CFR 28.11(g) and (h), or any other entity 
supervised by the OCC.

[[Page 115]]

    (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; 75 FR 75576, Dec. 3, 2010; 76 FR 43562, July 
21, 2011]



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;
    (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]

[[Page 116]]



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;
    (v) The production of the information would be contrary to the 
public interest or unduly burdensome to the OCC; or
    (vi) When prohibited by law.
    (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 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 and Federal savings 
associations. Following receipt of a request for non-public OCC 
information, the OCC generally notifies the national bank or Federal 
savings association 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.

[60 FR 57322, Nov. 15, 1995, 75 FR 75576, Dec. 3, 2010; 76 FR 43563, 
July 21, 2011]



Sec. 4.36  Disclosure of non-public OCC information.

    (a) Discretionary disclosure of non-public OCC information. The OCC 
may

[[Page 117]]

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; former OTS employees 
or agents--(1) Generally. Except as authorized by this subpart or 
otherwise by the OCC, no current or or former OTS employee or agent may, 
in any manner, disclose or permit the disclosure of 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 or former OTS 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 or 
former OTS 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 or former 
OTS 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 
and former OTS employees or agents.
    (b) Non-OCC employees or entities--(1) Generally. (i) Without OCC 
approval, no person, national bank, Federal savings association 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

[[Page 118]]

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 and Federal savings associations. 
When necessary or appropriate for business purposes, a national bank, 
Federal savings association, 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 or Federal savings association as officer, director, employee, 
attorney, auditor, or independent auditor. A national bank, Federal 
savings association, 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 or Federal savings association 
and the consultant has a written agreement with the bank or Federal 
savings association 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 or Federal savings association.
    (3) Duty of person or entity served. Any person, national bank, 
Federal savings association, 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 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 
and state savings association 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. 4.38.
    (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; 75 FR 75576, Dec. 3, 2010; 76 
FR 43563, July 21, 2011]



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

[[Page 119]]

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 OCC or OTS 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 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; 
76 FR 43563, July 21, 2011]



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

[[Page 120]]

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.
    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


[[Page 121]]


    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.
    (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

[[Page 122]]

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 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

[[Page 123]]

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, savings association, bank holding company, savings and 
loan holding company, or other company shall include only an individual 
who works directly on matters for, or on behalf of, such bank, savings 
association, 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)) or in section 10 of the Home Owners' 
Loan Act (12 U.S.C. 1467a), as applicable under the circumstances. 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.
    Savings association has the meaning given in section 3 of the FDI 
Act (12 U.S.C. 1813(b)(1)).
    Savings and loan holding company means any company that controls a 
savings association or any other company that is a savings and loan 
holding company (as provided in section 10 of the Home Owners' Loan Act 
(12 U.S.C. 1467a)).
    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 or savings association if--
    (1) The officer or employee has been authorized by the OCC to 
conduct examinations on behalf of the OCC or had been authorized by the 
Office of Thrift Supervision (OTS) to conduct examinations on behalf of 
the OTS;
    (2) The officer or employee has been assigned continuing, broad, and 
lead responsibility for examining the national bank or savings 
association; and
    (3) The officer's or employee's responsibilities for examining the 
national bank or savings association--
    (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 savings association, or 
its affiliates.

[70 FR 69637, Nov. 17, 2005, as amended at 76 FR 43563, July 21, 2011]

    Effective Date Note: At 76 FR 43563, July 21, 2011, Sec. 4.73 was 
amended by revising the definition of Senior examiner, effective July 
21, 2012. For the convenience of the user, the revised text is set forth 
as follows:



Sec. 4.73  Definitions.

                                * * * * *

    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 or savings association if--

[[Page 124]]

    (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 or savings 
association; and
    (3) The officer's or employee's responsibilities for examining the 
national bank or savings association--
    (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 savings association, or 
its affiliates.''



Sec. 4.74  One-year post-employment restrictions.

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

[76 FR 43564, July 21, 2011]

    Effective Date Note: At 76 FR 43564, July 21, 2011, Sec. 4.74 was 
revised, effective July 21, 2012. For the convenience of the user, the 
revised text is set forth as follows:



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 or savings association 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, savings association, or any company (including a bank 
holding company or savings and loan holding company) that controls the 
national bank or savings association.



Sec. 4.75  Waivers.

    The post-employment restrictions set forth in section 10(k) of the 
FDI Act (12 U.S.C. 1820(k)) and Sec. 4.74 do not apply to any officer 
or employee of the OCC, or any former officer or employee of the OCC or 
OTS, if 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.

[76 FR 43564, July 21, 2011]

    Effective Date Note: At 76 FR 43564, July 21, 2011, Sec. 4.75 was 
revised, effective July 21, 2012. For the convenience of the user, the 
revised text is set forth as follows:



Sec. 4.75  Waivers.

    The post-employment restrictions set forth in section 10(k) of the 
FDI Act (12 U.S.C. 1820(k)) 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 
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 (12 U.S.C. 1820(k)). If 
a senior examiner of a national bank or savings association, after 
leaving the employment of the OCC or OTS, accepts compensation as an 
employee, officer, director, or consultant from that bank, savings 
association, or any company (including a bank holding company or savings 
and loan holding company) that controls that bank or savings association 
in violation of Sec. 4.74, then the examiner shall, in accordance with 
section 10(k)(6) of the FDI Act (12 U.S.C. 1820(k)(6)), 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, savings association, bank holding company, savings and 
loan 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.

[[Page 125]]

    (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.

[60 FR 57322, Nov. 15, 1995, as amended at 76 FR 43564, July 21, 2011]

    Effective Date Note: At 76 FR 43564, July 21, 2011, Sec. 4.76 was 
amended by revising (a), effective July 21, 2012. For the convenience of 
the user, the added and revised text is set forth as follows:



Sec. 4.76  Penalties.

    (a) Penalties under section 10(k) of FDI Act (12 U.S.C. 1820(k)). If 
a senior examiner of a national bank or savings association, after 
leaving the employment of the OCC, accepts compensation as an employee, 
officer, director, or consultant from that bank, savings association, or 
any company (including a bank holding company or savings and loan 
holding company) that controls that bank or savings association in 
violation of Sec. 4.74, then the examiner shall, in accordance with 
section 10(k)(6) of the FDI Act (12 U.S.C. 1820(k)(6)), 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, savings association, bank holding company, savings and 
loan 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.

                                * * * * *



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.

[[Page 126]]

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 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.

[[Page 127]]

    (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) Notice means a submission notifying the OCC that a national bank 
intends to engage in or has commenced certain corporate activities or 
transactions.
    (k) 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; 73 FR 22236, Apr. 24, 2008]



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 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 Director for District 
Licensing 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 Licensing 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.

[61 FR 60363, Nov. 27, 1996, as amended at 73 FR 22236, Apr. 24, 2008]



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.

[[Page 128]]



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.



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

[[Page 129]]

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 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

[[Page 130]]

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 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).

[[Page 131]]

    (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. The OCC may return an application without a 
decision if it finds the filing to be materially deficient. A filing is 
materially deficient if it lacks sufficient information for the OCC to 
make a determination under the applicable statutory or regulatory 
criteria.
    (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 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 Licensing or with the Ombudsman. Relevant 
addresses and telephone numbers are located in the Manual. In the event 
the Deputy Comptroller for Licensing was the deciding official of the 
matter appealed, or was involved personally and substantially in the 
matter, the appeal may be referred instead to the Chief Counsel.
    (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

[[Page 132]]

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.

[61 FR 60363, Nov. 27, 1996, as amended at 73 FR 22236, Apr. 24, 2008]



                      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 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

[[Page 133]]

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 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.

[[Page 134]]

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, 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

[[Page 135]]

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) Contact person. The organizing group shall designate a contact 
person to represent the organizing group in all contacts with the OCC. 
The contact person shall be an organizer and proposed director of the 
new bank, except a representative of the sponsor or sponsors may serve 
as contact person 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.
    (5) 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. A proposed 
national bank may offer and sell securities prior to OCC preliminary 
approval of the proposed national bank's charter application, provided 
that the proposed national bank has filed articles of association, an 
organization certificate, and a completed charter application and the 
bank complies with the OCC's securities offering regulations, 12 CFR 
part 16.
    (ii)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.
    (iii) 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.
    (iv) 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.

[[Page 136]]

    (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; 73 FR 22236, Apr. 24, 2008]



Sec. 5.24  Conversion.

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

[[Page 137]]

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.
    (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.

[[Page 138]]

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;
    (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) 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;
    (C) Sufficient biographical information on proposed trust management 
personnel to enable the OCC to assess their qualifications;
    (D) A description of the locations where the bank will conduct 
fiduciary activities; and
    (E) If requested by the OCC, an opinion of counsel that the proposed 
activities do not violate applicable Federal

[[Page 139]]

or State law, including citations to applicable law.
    (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. 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).
    (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; 73 
FR 22237, Apr. 24, 2008]



                    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, intermittent 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

[[Page 140]]

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) Intermittent branch means a branch that is operated for one or 
more limited periods of time to provide branch banking services at a 
specified recurring event, on the grounds or premises where the event is 
held or at a fixed site adjacent to the grounds or premises where the 
event is held, and exclusively during the occurrence of the event. 
Examples of an intermittent branch include the operation of a branch on 
the campus of, or at a fixed site adjacent to the campus of, a specific 
college during school registration periods; or the operation of a branch 
during a State fair on State fairgrounds or at a fixed site adjacent to 
the fairgrounds.
    (4) Messenger service has the meaning set forth in 12 CFR 7.1012.
    (5) 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.
    (6) 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 
proposing to share the branch. The application must include the name and 
main office address of each national bank in the group.
    (4) Intermittent branches. Prior to operating an intermittent 
branch, a national bank shall file a branch application and publish 
notice in accordance with Sec. 5.8, both of which shall identify the 
event at which the branch will be operated; designate a location for 
operation of the branch which shall be on the grounds or premises at 
which the event is held or on a fixed site adjacent to those grounds or 
premises; and specify the approximate time period during which the event 
will be held and during which the branch will operate, including whether 
operation of the branch will be on an annual or otherwise recurring 
basis. If the branch is approved, then the bank need not obtain approval 
each time it seeks to operate the branch in accordance with the original 
application and approval.

[[Page 141]]

    (5) Authorization. The OCC authorizes operation of the branch when 
all requirements and conditions for opening are satisfied.
    (6) 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.

[61 FR 60363, Nov. 27, 1996, as amended at 73 FR 22237, Apr. 24, 2008]



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 142]]

    (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--For purposes of this Sec. 5.33:
    (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.

[[Page 143]]

    (3) Business reorganization means either:
    (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. (i) Bank Merger Act. When the OCC evaluates 
an application for a business combination under the Bank Merger Act, the 
OCC considers the following factors:
    (A) Competition. (1) 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.
    (2) 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.
    (B) Financial and managerial resources and future prospects. The OCC 
considers the financial and managerial resources and future prospects of 
the existing or proposed institutions.
    (C) 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

[[Page 144]]

also considers additional relevant factors, including the resulting 
national bank's ability and plans to provide expanded or less costly 
services to the community.
    (ii) Community Reinvestment Act. When the OCC evaluates an 
application for a business combination under the Community Reinvestment 
Act, 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.
    (iii) 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,

[[Page 145]]

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.
    (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. 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) Provisions governing consolidations and mergers with different 
types of entities. (1) Consolidations and mergers under 12 U.S.C. 215 or 
215a of a national bank 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 with a 
Federal savings association if all parties agree that the determination 
is final and binding on each party.
    (3) Consolidation or merger of a national bank resulting in a State 
bank as defined in 12 U.S.C. 214(a) under 12

[[Page 146]]

U.S.C. 214a or a Federal savings association under 12 U.S.C. 215c--(i) 
Policy. Prior OCC approval is not required for the merger or 
consolidation of a national 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. 214b, 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'

[[Page 147]]

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 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 under 12 U.S.C. 1831u. A business 
combination between insured banks with different home States under the 
authority of 12 U.S.C. 1831u must satisfy the standards and requirements 
and comply with the procedures of 12 U.S.C. 1831u and either 12 U.S.C. 
215, 215a, and 215a-1, as applicable, if the resulting bank is a 
national bank, or 12 U.S.C. 214a, 214b, and 214c if the resulting bank 
is a State bank. For purposes of 12 U.S.C. 1831u, 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

[[Page 148]]

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 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; 73 FR 22237, Apr. 
24, 2008]



Sec. 5.34  Operating subsidiaries.

    (a) Authority. 12 U.S.C. 24 (Seventh), 24a, 25b, 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:

[[Page 149]]

    (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 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. (i) An operating subsidiary in which a 
national bank may invest includes a corporation, limited liability 
company, limited partnership, or similar entity if:
    (A) The bank has the ability to control the management and 
operations of the subsidiary;
    (B) The parent bank owns and controls 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; and
    (C) The operating subsidiary is consolidated with the bank under 
Generally Accepted Accounting Principles (GAAP).
    (ii) However, the following subsidiaries are not operating 
subsidiaries subject to this section:
    (A) 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
    (B) 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.

[[Page 150]]

    (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, except as otherwise provided 
with respect to the application of state law under sections 1044(e) and 
1045 of the Dodd-Frank Wall Street Reform and Consumer Protection Act 
(12 U.S.C. 25b). 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 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) Notice required. (A) Except for operating 
subsidiaries subject to the application procedures set forth in 
paragraph (e)(5)(ii) of this section or exempt from notice or 
application procedures under paragraph (e)(5)(vi) of this section, a 
national bank that is ``well capitalized'' and ``well managed'' may 
establish or acquire 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 new activity, if:
    (1) The activity is listed in paragraph (e)(5)(v) of this section;
    (2) The entity is a corporation, limited liability company, or 
limited partnership; and
    (3) The bank:
    (i) Has the ability to control the management and operations of the 
subsidiary by holding voting interests sufficient to select the number 
of directors needed to control the subsidiary's board and to select and 
terminate senior management (or, in the case of a limited partnership, 
has the ability to control the management and operations of the 
subsidiary by controlling the selection and termination of senior 
management);
    (ii) Holds more than 50 percent of the voting, or equivalent, 
interests in the subsidiary, and, in the case of a limited partnership, 
the bank or an operating subsidiary thereof is the sole general partner 
of the limited partnership, provided that under the partnership 
agreement, limited partners have no authority to bind the partnership by 
virtue solely of their status as limited partners; and
    (iii) Is required to consolidate its financial statements with those 
of the subsidiary under Generally Accepted Accounting Principles.
    (B) 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 that 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 in 
which the company is engaged and has present plans to conduct. The bank 
also must 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

[[Page 151]]

is deemed to have agreed that the subsidiary will conduct the activity 
in a manner consistent with published OCC guidance.
    (ii) Application required. (A) Except where the operating subsidiary 
is exempt from notice or application requirements under paragraph 
(e)(5)(vi) of this section, or subject to the notice procedures in 
paragraph (e)(5)(i), a national bank must first submit an application 
to, and receive approval from, the OCC with respect to the establishment 
or acquisition of an operating subsidiary, or the performance of a new 
activity in an existing operating subsidiary.
    (B) The application must explain, as appropriate, how the bank 
``controls'' the enterprise, describing in full detail structural 
arrangements where control is based on factors other than bank ownership 
of more than 50 percent of the voting interest of the subsidiary and the 
ability to control the management and operations of the subsidiary by 
holding voting interests sufficient to select the number of directors 
needed to control the subsidiary's board and to select and terminate 
senior management. In the case of a limited partnership that does not 
qualify for the notice procedures set forth in paragraph (e)(5)(i), the 
bank should provide a statement explaining why it is not eligible. The 
application also 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 that 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 in which the company is engaged 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 an 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. 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.
    (iii) 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.
    (iv) 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.
    (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;

[[Page 152]]

    (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;
    (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;
    (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;
    (Z) Providing data processing, and data transmission services, 
facilities (including equipment, technology, and

[[Page 153]]

personnel), databases, advice and access to such services, facilities, 
databases and advice, for the parent bank and for others, pursuant to 12 
CFR 7.5006 to the extent permitted by published OCC precedent;
    (AA) Providing bill presentment, billing, collection, and claims-
processing services;
    (BB) Providing safekeeping for personal information or valuable 
confidential trade or business information, such as encryption keys, to 
the extent permitted by published OCC precedent;
    (CC) Providing payroll processing;
    (DD) Providing branch management services;
    (EE) Providing merchant processing services except when the activity 
involves the use of third parties to solicit or underwrite merchants; 
and
    (FF) Performing administrative tasks involved in benefits 
administration.
    (vi) No application or notice required. A national bank may acquire 
or establish an operating subsidiary, or engage in the performance of a 
new activity in an existing operating subsidiary, without filing an 
application or providing notice to the OCC, if the bank is well managed 
and 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;
    (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;
    (D) The standards set forth in paragraphs (e)(5)(i)(A)(2) and (3) of 
this section are satisfied.
    (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) Grandfathered operating subsidiaries. Notwithstanding the 
requirements for a qualifying operating subsidiary in Sec. 5.34(e)(2) 
and unless otherwise notified by the OCC with respect to a particular 
operating subsidiary, an entity that a national bank lawfully acquired 
or established as an operating subsidiary before April 24, 2008 may 
continue to operate as a national bank operating subsidiary under this 
section, provided that the bank and the operating subsidiary were, and 
continue to be, conducting authorized activities in compliance with the 
standards and requirements applicable when the bank established or 
acquired the operating subsidiary.
    (7) 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

[[Page 154]]

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 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; 73 FR 22238, Apr. 24, 2008; 76 FR 43564, July 21, 2011]



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 depository institutions in 
the case of a corporation, or all of the members of which are one or 
more insured depository institutions 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, 
except when such term appears in connection with the term `insured 
depository institution' 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) Insured depository institution, for purposes of this section, 
has the same meaning as in section 3 of the Federal Deposit Insurance 
Act.
    (5) 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.
    (6) Principal investor means the insured depository institution that 
has the largest amount invested in the equity of a bank service company. 
In any case where two or more insured depository institution have equal 
amounts invested, the bank service company shall designate one of the 
insured depository institutions as its principal investor.

[[Page 155]]

    (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 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

[[Page 156]]

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; and
    (4) Information demonstrating that the bank service company will 
perform only those services that each insured depository institution 
shareholder or member is authorized to perform under applicable Federal 
or State law and will perform such services only at locations in a State 
in which each such shareholder or member is authorized to perform such 
services unless performing services that are authorized by the Federal 
Reserve Board under the authority of 12 U.S.C. 1865(b).
    (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 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.

[61 FR 60363, Nov. 27, 1996, as amended at 64 FR 60098, Nov. 4, 1999; 65 
FR 12913, Mar. 10, 2000; 73 FR 22239, Apr. 24, 2008]



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 application or notice that the OCC requires in connection 
with certain of these investments. Other permissible equity investments 
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; notice procedure. Unless the 
procedures governing a national bank's non-controlling investment are 
prescribed by OCC rules implementing a separate legal authorization of 
the investment and except as provided in paragraphs (f) and (g) of this 
section, 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 bank must file this written notice with the 
appropriate district office no later than 10 days after making the 
investment. The written notice 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.

[[Page 157]]

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 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) 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;
    (6) Certify that the bank's loss exposure is limited as a legal 
matter and that the bank does not have unlimited liability for the 
obligations of the enterprise; and
    (7) 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 investment; application procedure. Unless the 
procedures governing a national bank's non-controlling investment are 
prescribed by OCC rules implementing a separate legal authorization of 
the investment, a national bank must file an application and obtain 
prior approval before making or acquiring, either directly or through an 
operating subsidiary, a non-controlling investment in an enterprise if 
the non-controlling investment does not qualify for the notice procedure 
set forth in paragraph (e) of this section because the bank is unable to 
make the representation required by paragraph (e)(2) or the 
certification required by paragraph (e)(3) of this section. The 
application must include the information required in paragraphs (e)(1) 
and (e)(4) through (e)(7) of this section and (e)(2) or (e)(3), as 
appropriate. If the bank is unable to make the representation set forth 
in paragraph (e)(2) of this section, the bank's application must explain 
why the activity in which the enterprise engages is a permissible 
activity for a national bank and why the applicant should be permitted 
to hold a non-controlling investment in an enterprise engaged in that 
activity. A bank may not make a non-controlling investment if it is 
unable to make the representations and certifications specified in 
paragraphs (e)(1) and (e)(4) through (e)(7) of this section.
    (g) Non-controlling investments in entities holding assets in 
satisfaction of debts previously contracted. Certain non-controlling 
investments may be eligible for expedited treatment where the bank's 
investment is in an entity holding assets in satisfaction of debts 
previously contracted or the bank acquires shares of a company in 
satisfaction of debts previously contracted.
    (1) Notice required. A national bank that is well capitalized and 
well managed may acquire a non-controlling investment, directly or 
through its operating subsidiary, in an enterprise that engages in the 
activities of holding and managing assets acquired by the parent bank 
through foreclosure or otherwise in good faith to compromise a doubtful 
claim, or in the ordinary course of collecting a debt previously 
contracted, by filing a written notice in accordance with this paragraph 
(g)(i). The activities of the enterprise must be conducted pursuant to 
the same terms and conditions as would be applicable if the activity 
were conducted directly by a national bank. The bank must file the 
written notice with the appropriate district office no later than 10 
days after making the

[[Page 158]]

non-controlling investment. This notice must include a complete 
description of the bank's investment in the enterprise and the 
activities conducted, a description of how the bank plans to divest the 
non-controlling investment or the underlying assets within applicable 
statutory time frames, and a representation and undertaking that the 
bank will conduct the activities in accordance with OCC policies 
contained in guidance issued by the OCC regarding the activities. Any 
national bank receiving approval under this paragraph (g)(i) is deemed 
to have agreed that the enterprise will conduct the activity in a manner 
consistent with published OCC guidance.
    (2) No notice or application required. A national bank is not 
required to file a notice or application under this Sec. 5.36 if it 
acquires a non-controlling investment in shares of a company through 
foreclosure or otherwise in good faith to compromise a doubtful claim, 
or in the ordinary course of collecting a debt previously contracted.
    (h) 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).
    (i) 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; 73 FR 22239, Apr. 
24, 2008]



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.
    (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

[[Page 159]]

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 implemented by Regulation W, 12 CFR 
part 223, 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), 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).

[[Page 160]]

    (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 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

[[Page 161]]

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) Except for a subsidiary of a bank that is considered a financial 
subsidiary under paragraph (a)(6) of this section solely because the 
subsidiary engages in the sale of insurance as agent or broker in a 
manner that is not permitted for national banks, sections 23A and 23B of 
the Federal Reserve Act (12 U.S.C. 371c and 371c-1), as implemented by 
Regulation W, 12 CFR part 223, 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) A bank's purchase of or investment in a security issued by a 
financial subsidiary of the bank must be valued at the greater of:
    (A) The total amount of consideration given (including liabilities 
assumed) by the bank, reduced to reflect amortization of the security to 
the extent consistent with GAAP, or
    (B) The carrying value of the security (adjusted so as not to 
reflect the bank's pro rata portion of any earnings retained or losses 
incurred by the financial subsidiary after the bank's acquisition of the 
security).

[[Page 162]]

    (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;
    (v) Any extension of credit to a financial subsidiary of a bank by 
an affiliate of the bank is treated as an extension of credit by the 
bank to the financial subsidiary if the extension of credit is treated 
as capital of the financial subsidiary under any Federal or State law, 
regulation, or interpretation applicable to the subsidiary; and
    (vi) Any other 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:

[[Page 163]]

    (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 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.

[[Page 164]]

    (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 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, as amended at 73 FR 22240, Apr. 24, 2008]



          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.

[[Page 165]]

    (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 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; 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.

[[Page 166]]

    (ii) Application and notice. 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 notice under paragraph (i)(3) of 
this section. A national bank not required to obtain prior approval 
under paragraph (g)(1)(i) of this section for an increase in capital 
shall file only the notice 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 15 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 15 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) Notice. After a bank completes an increase in capital it shall 
submit a notice to the appropriate district office. The proposed change 
is deemed approved by the OCC and certified seven days after the date on 
which the OCC receives the notice. The notice 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.

[[Page 167]]

    (k) Shareholder approval. A national bank shall obtain the necessary 
shareholder approval required by statute for any change in its permanent 
capital.

[61 FR 60363, Nov. 27, 1996, as amended at 73 FR 22240, Apr. 24, 2008]



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 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;

[[Page 168]]

    (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 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, 1817(j), and 12 U.S.C. 1831aa.
    (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.

[[Page 169]]

    (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
    (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

[[Page 170]]

    (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.
    (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) Immediate family includes a person's spouse, father, mother, 
stepfather, stepmother, brother, sister, stepbrother, stepsister, 
children, stepchildren, grandparent, grandchildren, father-in-law, 
mother-in-law, brother-in-law, sister-in-law, son-in-law, daughter-in-
law, and the spouse of any of the forgoing.
    (5) Notice means a filing by a person in accordance with paragraph 
(f) of this section.
    (6) 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.
    (7) 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

[[Page 171]]

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 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 a person is acting in 
concert with his or her immediate family.
    (iii) 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.
    (iv) 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.
    (v) 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.
    (vi) An acquiring person may seek to rebut the presumption 
established in paragraph (f)(2)(ii) and (iii) 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, information regarding the future 
prospects of the institution, 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.

[[Page 172]]

    (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 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) Conditional actions. The OCC may impose conditions on its action 
not to disapprove a notice to assure satisfaction of the relevant 
statutory criteria for non-objection to a notice.
    (5) 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) Either the financial condition of any acquiring person or the 
future prospects of the institution 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.
    (6) Disapproval of notice involving credit card banks or trust 
banks. (i) In general. The OCC shall disapprove a notice if the proposed 
change in control occurs before July 21, 2013 and would result in the 
direct or indirect control of a credit card bank or trust bank, as 
defined in section 2(c)(2)(F) and (D) of the Bank Holding Company Act of 
1956 (12 U.S.C. 1841(c)(2)(F) and (D)), by a commercial firm. For 
purposes of this paragraph a company is a ``commercial firm'' if the 
annual gross revenues derived by the company and all of its affiliates 
from activities that are financial in nature (as defined in section 4(k) 
of the Bank Holding Company Act of 1956 (12 U.S.C. 1843(k)) and, if 
applicable, from the ownership or control of one or more insured 
depository institutions, represent less than 15 percent of the 
consolidated annual gross revenues of the company.
    (ii) Exception to disapproval. Paragraph (f)(6)(i) of this section 
shall not apply to a proposed change in control of a credit card bank or 
trust bank that:
    (A)(1) Is in danger of default, as determined by the OCC;
    (2) Results from the merger or whole acquisition of a commercial 
firm that directly or indirectly controls the credit card bank or trust 
bank in a bona

[[Page 173]]

fide merger with or acquisition by another commercial firm, as 
determined by the OCC; or
    (3) Results from the acquisition of voting shares of a publicly 
traded company that controls a credit card bank or trust bank, if, after 
the acquisition, the acquiring shareholder (or group of shareholders 
acting in concert) holds less than 25 percent of any class of the voting 
shares of the company; and
    (B) Has obtained all regulatory approvals otherwise required for 
such change of control under any applicable Federal or state law, 
including review pursuant to section 7(j) of the Federal Deposit 
Insurance Act (12 U.S.C. 1817(j)) and 12 CFR 5.50.
    (7) 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 requirement. After the consummation of the change in 
control, the national bank shall notify the OCC in writing of any 
changes or replacements of its chief executive officer or of any 
director occurring during the 12-month period beginning on the date of 
consummation. This notice must be filed within 10 days of such change or 
replacement and must include a statement of the past and current 
business and professional affiliations of the new chief executive 
officers or directors.
    (i) Reporting of stock loans--(1) Requirements. (i) Any foreign 
bank, or any 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.

[[Page 174]]

    (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.

[61 FR 60363, Nov. 27, 1996, as amended at 73 FR 22240, Apr. 24, 2008; 
76 FR 43564, July 21, 2011]

    Effective Date Note: At 76 FR 43564, July 21, 2011, Sec. 5.50 was 
amended by removing paragraph (f)(6) and redesignating paragraph (f)(7) 
as paragraph (f)(6), effective July 21, 2013.



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
    (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

[[Page 175]]

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.
    (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

[[Page 176]]

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 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.

[[Page 177]]

    (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]



                     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.

[[Page 178]]



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) Definitions. As used in this section, the term ``current year'' 
means the calendar year in which a national bank declared, or proposes 
to declare, a dividend. The term ``current year minus one'' means the 
year immediately preceding the current year. The term ``current year 
minus two'' means the year that is two years prior to the current year. 
The term ``current year minus three'' means the year that is three years 
prior to the current year. The term ``current year minus four'' means 
the year that is four years prior to the current year.
    (b) Dividends from undivided profits. Subject to 12 U.S.C. 56 and 
this subpart, the directors of a national bank may declare and pay 
dividends of so much of the undivided profits as they judge to be 
expedient.
    (c) Earnings limitations under 12 U.S.C. 60--(1) General rule. For 
purposes of 12 U.S.C. 60, unless approved by the OCC in accordance with 
paragraph (c)(3) of this section, 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 
current year exceeds the total of the national bank's net income for the 
current year to date, combined with its retained net income of current 
year minus one and current year minus two, less the sum of any transfers 
required by the OCC and any transfers required to be made to a fund for 
the retirement of any preferred stock.
    (2) Excess dividends in prior periods. (i) If in current year minus 
one or current year minus two the bank declared dividends in excess of 
that year's net income, the excess shall not reduce retained net income 
for the three-year period specified in paragraph (c)(1) of this section, 
provided that the amount of excess dividends can be offset by retained 
net income in current year minus three or current year minus four. If 
the bank declared dividends in excess of net income in current year 
minus one, the excess is offset by retained net income in current year 
minus three and then by retained net income in current year minus two. 
If the bank declared dividends in excess of net income in current year 
minus two, the excess is first offset by retained net income in current 
year minus four and then by retained net income in current year minus 
three.
    (ii) If the bank's retained net income in current year minus three 
and current year minus four was insufficient to offset the full amount 
of the excess dividends declared, as calculated in accordance with 
paragraph (c)(2)(i) of this section, then the amount that is not offset 
will reduce the retained net income available to pay dividends in the 
current year.
    (iii) The calculation in paragraph (c)(2) of this section shall 
apply only to retained net loss that results from dividends declared in 
excess of a single year's net income and does not apply to other types 
of current earnings deficits.

[[Page 179]]

    (3) Prior approval required. A national bank may declare a dividend 
in excess of the amount described in paragraph (c) of this section, 
provided that the dividend is approved by the OCC. A national bank shall 
submit a request for prior approval of a dividend under 12 U.S.C. 60 to 
the appropriate district office.
    (d) Surplus surplus. Any amount in capital surplus in excess of 
capital stock (referred to as ``surplus surplus'') may be transferred to 
undivided profits and available as dividends, provided:
    (1) The bank can demonstrate that the amount came from earnings in 
prior periods, excluding the effect of any stock dividend; and
    (2) The board of directors of the bank approves the transfer of the 
amount from capital surplus to undivided profits.

[73 FR 22241, Apr. 24, 2008]



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.



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

[[Page 180]]

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
    (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

[[Page 181]]

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 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.

[[Page 182]]

    (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:
    (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

[[Page 183]]

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
    (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,

[[Page 184]]

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.
    (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

[[Page 185]]

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 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

[[Page 186]]

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 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

[[Page 187]]

    (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.



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.

[[Page 188]]

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.
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 [Reserved]
7.4007 Deposit-taking.
7.4008 Lending.
7.4009 [Reserved]
7.4010 Applicability of state law and visitorial powers to Federal 
          savings associations and subsidiaries.

                     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., 25b, 71, 71a, 92, 92a, 93, 93a, 371, 
371a, 481, 484, 1465, 1818 and 5412(b)(2)(B).

    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;

[[Page 189]]

    (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.
    (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

[[Page 190]]

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:
    (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

[[Page 191]]

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.



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

[[Page 192]]

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
    (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.

[[Page 193]]



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 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. 600 or any applicable prior version) 
(available from ICC Publishing, Inc., 212/206-1150; http://
www.iccwbo.org); the Supplements to UCP 500 & 600 for Electronic 
Presentation (eUCP v. 1.0 & 1.1) (Supplements to the Uniform Customs and 
Practices for Documentary Credits for Electronic Presentation) 
(available from ICC Publishing, Inc., 212/206-1150; http://
www.iccwbo.org) 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

[[Page 194]]

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; 73 FR 22241, Apr. 24, 2008]



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

    (a) 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:
    (1) The bank has a substantial interest in the performance of the 
transaction involved (for example, a bank, as fiduciary, has a 
sufficient interest in the faithful performance by a cofiduciary of its 
duties to act as surety on the bond of such cofiduciary); or
    (2) 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:
    (i) 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
    (ii) That has a market value, at the close of each business day, 
equal to the bank's total potential liability and is composed of:
    (A) Cash;
    (B) Obligations of the United States or its agencies;
    (C) Obligations fully guaranteed by the United States or its 
agencies as to principal and interest; or
    (D) Notes, drafts, or bills of exchange or bankers' acceptances that 
are eligible for rediscount or purchase by a Federal Reserve Bank; or
    (iii) 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.
    (b) In addition to paragraph (a) of this section, a national bank 
may guarantee obligations of a customer, subsidiary or affiliate that 
are financial in character, provided the amount of the bank's financial 
obligation is reasonably ascertainable and otherwise consistent with 
applicable law.

[61 FR 4862, Feb. 9, 1996, as amended at 64 FR 60099, Nov. 4, 1999; 73 
FR 22241, Apr. 24, 2008]



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.

[[Page 195]]



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 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.

[[Page 196]]



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 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]

[[Page 197]]



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. If permitted by the national bank's articles of 
association, 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.

[61 FR 4862, Feb. 9, 1996, as amended at 73 FR 22241, Apr. 24, 2008]



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 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

[[Page 198]]

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 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

[[Page 199]]

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.



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

[[Page 200]]

    (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 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;

[[Page 201]]

    (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:
    (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) Under 12 U.S.C. 484, only the OCC or an 
authorized representative of the OCC may exercise visitorial powers with 
respect to national banks. 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, including through investigations that seek 
to ascertain compliance through production of non-public information by 
the bank, except as otherwise provided in paragraphs (a), (b), and (c) 
of this section.
    (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) Exclusion. In accordance with the decision of the Supreme Court 
in Cuomo v. Clearing House Assn., L. L. C., 129 S. Ct. 2710 (2009), an 
action against a national bank in a court of appropriate jurisdiction 
brought by a state attorney general (or other chief law enforcement 
officer) to enforce an applicable law against a national bank and to 
seek relief as authorized by such law is not an exercise of visitorial 
powers under 12 U.S.C. 484.
    (c) Exceptions to the general rule. Under 12 U.S.C. 484, the OCC's 
exclusive visitorial powers are subject to the following exceptions:

[[Page 202]]

    (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.
    (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.
    (d) 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 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; 76 FR 43565, July 21, 2011]



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

[[Page 203]]

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;
    (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

[[Page 204]]

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  [Reserved]



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.
    (b) Applicability of state law. A national bank may exercise its 
deposit-taking powers without regard to state law limitations 
concerning:
    (1) 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.
---------------------------------------------------------------------------

    (2) Checking accounts;
    (3) Disclosure requirements;
    (4) Funds availability;
    (5) Savings account orders of withdrawal;
    (6) State licensing or registration requirements (except for 
purposes of service of process); and
    (7) 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 consistent with the 
decision of the Supreme Court in Barnett Bank of Marion County, N.A. v. 
Nelson, Florida Insurance Commissioner, et al. 517 U.S. 25 (1996):
    (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), where 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 that the OCC determines to be applicable to 
national banks in accordance with the decision of the Supreme Court in 
Barnett Bank of Marion County, N.A. v. Nelson, Florida Insurance 
Commissioner, et al. 517 U.S. 25 (1996), or that is made applicable by 
Federal law.

[69 FR 1916, Jan. 13, 2004, as amended at 76 FR 43565, July 21, 2011]

[[Page 205]]



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. A national bank may make non-real 
estate loans 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 insurance for 
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 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;
    (5) Escrow accounts, impound accounts, and similar accounts;
    (6) Security property, including leaseholds;
    (7) Access to, and use of, credit reports;
    (8) 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;
    (9) Disbursements and repayments; and
    (10) 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 consistent with 
the decision of the Supreme Court in Barnett Bank of Marion County, N.A. 
v. Nelson, Florida Insurance Commissioner, et al., 517 U.S. 25 (1996):
    (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).
---------------------------------------------------------------------------

    (4) Rights to collect debts;
    (5) Acquisition and transfer of property;
    (6) Taxation;
    (7) Zoning; and
    (8) Any other law that the OCC determines to be applicable to 
national banks in accordance with the decision of the Supreme Court in 
Barnett Bank of Marion County, N.A. v. Nelson, Florida Insurance 
Commissioner, et al., 517 U.S. 25 (1996) or that is made applicable by 
Federal law.

[69 FR 1916, Jan. 13, 2004, as amended at 76 FR 43565, July 21, 2011]

[[Page 206]]



Sec. 7.4009  [Reserved]



Sec. 7.4010  Applicability of state law and visitorial powers to Federal 

savings associations and subsidiaries.

    (a) In accordance with section 1046 of the Dodd-Frank Wall Street 
Reform and Consumer Protection Act (12 U.S.C. 25b), Federal savings 
associations and their subsidiaries shall be subject to the same laws 
and legal standards, including regulations of the OCC, as are applicable 
to national banks and their subsidiaries, regarding the preemption of 
state law.
    (b) In accordance with section 1047 of the Dodd-Frank Wall Street 
Reform and Consumer Protection Act (12 U.S.C. 1465), the provisions of 
section 5136C(i) of the Revised Statutes regarding visitorial powers 
apply to Federal savings associations and their subsidiaries to the same 
extent and in the same manner as if they were national banks or national 
bank subsidiaries.

[ 76 FR 43566, July 21, 2011]



                     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.

[[Page 207]]

    (3) In addition to the electronic activities specifically permitted 
in Sec. 7.5004 (sale of excess electronic capacity and by-products) and 
Sec. 7.5006 (incidental non-financial data processing), the OCC has 
determined that the following electronic activities are incidental to 
the business of banking, pursuant to this section. This list of 
activities is illustrative and not exclusive; the OCC may determine that 
other activities are permissible pursuant to this authority.
    (i) Web site development where incidental to other banking services;
    (ii) Internet access and e-mail provided on a non-profit basis as a 
promotional activity;
    (iii) Advisory and consulting services on electronic activities 
where the services are incidental to customer use of electronic banking 
services; and
    (iv) Sale of equipment that is convenient or useful to customer's 
use of related electronic banking services, such as specialized 
terminals for scanning checks that will be deposited electronically by 
wholesale customers of banks under the Check Clearing for the 21st 
Century Act, Public Law 108-100 (12 U.S.C. 5001-5018) (the Check 21 
Act).

[61 FR 4862, Feb. 9, 1996, as amended at 73 FR 22242, Apr. 24, 2008]



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:
    (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;
    (4) Safekeeping for personal information or valuable confidential 
trade or business information, such as encryption keys; and
    (5) Issuing electronic letters of credit within the scope of 12 CFR 
7.1016.
    (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

[[Page 208]]

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.

[61 FR 4862, Feb. 9, 1996, as amended at 73 FR 22242, Apr. 24, 2008]



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 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

[[Page 209]]

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 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.
    (c) Software for performance of authorized banking functions. A 
national bank may produce, market, or sell software that performs 
services or functions that the bank could perform directly, as part of 
the business of banking.

[61 FR 4862, Feb. 9, 1996, as amended at 73 FR 22242, Apr. 24, 2008]



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,

[[Page 210]]

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. 16, 93a, 481, 482, 1467, 1831c, 1867, 3102, 
3108, and 5412(b)(1)(B); 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. 16, 93a, 481, 482, 1467, 1831c, 1867, 
3102, and 3108; and 15 U.S.C. 78c and 78l.

[ 76 FR 43566, July 21, 2011]



Sec. 8.2  Semiannual assessment.

    (a) Each national bank and each Federal savings association 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 and 
each Federal savings association 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 or Federal           The semiannual assessment is:
 savings association's total -------------------------------------------
    assets (consolidated
    domestic and foreign
     subsidiaries) are:        This amount--      Plus        Of excess
-----------------------------   base amount     marginal       over--
               But not over--                     rates
    Over--
------------------------------------------------------------------------
   Column A       Column B       Column C       Column D      Column E
------------------------------------------------------------------------
   Million        Million                                      Million
  (dollars)      (dollars)       (dollars)                    (dollars)
------------------------------------------------------------------------
           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        250,000             X10             Y9        40,000
     250,000   .............            X11            Y10       250,000
------------------------------------------------------------------------

    (1) Every national bank and every Federal savings association falls 
into one of the asset-size brackets denoted by Columns A and B. A bank's 
or Federal savings association's semiannual assessment is composed of 
two parts. The first part is the calculation of a base amount of the 
assessment, which

[[Page 211]]

is computed on the assets of the bank or Federal savings association 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 or Federal savings association 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 or Federal savings association'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 or Federal 
savings association's most recent ``Consolidated Reports of Condition 
and Income'' (Call Report) or ``Thrift Financial Report,'' as 
appropriate, preceding the payment date. Each bank or Federal savings 
association subject to the jurisdiction of the Comptroller of the 
Currency on the date of the second or fourth quarterly Call Report or 
Thrift Financial Report, as appropriate, required by the Office under 12 
U.S.C. 161 and 12 U.S.C. 1464(v) 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 or non-lead 
Federal savings association 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 or lead Federal savings association means the largest 
national bank or Federal savings association controlled by a company, 
based on a comparison of the total assets held by each national bank or 
Federal savings association controlled by that company as reported in 
each bank's or Federal savings association's Call Report or Thrift 
Financial Report, as appropriate, filed for the quarter immediately 
preceding the payment of a semiannual assessment.
    (B) Non-lead bank or non-lead Federal savings association means a 
national bank or Federal savings association that is not the lead bank 
or lead Federal savings association controlled by a company that 
controls two or more national banks or Federal savings associations.
    (C) Control and company with respect to national banks 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)).
    (D) Control and company with respect to Federal savings associations 
have the same meanings as these terms have in section 10(a) of the Home 
Owners' Loan Act (12 U.S.C. 1467a(a).
    (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 agency shall be subject to assessment.

[[Page 212]]

    (3) Each semiannual assessment of each Federal branch or agency is 
based upon the total assets shown in the Federal branch's or agency's 
Call Report most recently preceding the payment date. Each Federal 
branch or 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 
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 and 
independent credit card Federal savings associations--(1) General rule. 
In addition to the assessment calculated according to paragraph (a) of 
this section, each independent credit card bank and independent credit 
card Federal savings association will pay an assessment based on 
receivables attributable to credit card accounts owned by the bank or 
Federal savings association. 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 of Fees,'' described at Sec. 8.8.
    (2) Independent credit card banks and independent credit card 
Federal savings associations affiliated with full-service national banks 
or Federal savings associations. The OCC will assess an independent 
credit card bank and an independent credit card Federal savings 
association in accordance with paragraph (c)(1) of this section, 
notwithstanding that the bank or Federal savings association is 
affiliated with a full-service national bank or full service Federal 
savings association, 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, with respect to national banks, has the same meaning 
as this term has in 12 U.S.C. 221a(b).
    (ii) Affiliate, with respect to Federal savings associations, has 
the same meaning as in 12 U.S.C. 1462(9).
    (iii) 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 a bank or a Federal savings association whose ratio of 
total gross receivables attributable to the bank's or Federal savings 
association's balance sheet assets exceeds 50%.
    (iv) 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.
    (v) Full-service Federal savings association is a Federal savings 
association 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 activities permissible for Federal savings associations.
    (vi) 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.
    (vii) Independent credit card Federal savings association is a 
Federal savings association that engages primarily in credit card 
operations and is not affiliated with a full-service Federal savings 
association.
    (viii) Receivables attributable is the total amount of outstanding 
balances

[[Page 213]]

due on credit card accounts owned by an independent credit card bank or 
an independent credit card Federal savings association (the receivables 
attributable to those accounts) on the last day of the assessment 
period, minus receivables retained on the bank's or Federal savings 
association's balance sheet as of that day.
    (4) Reports of receivables attributable. Independent credit card 
banks and independent credit card Federal savings associations will 
report receivables attributable data to the OCC semiannually at a time 
specified by the OCC.
    (d) Surcharge based on the condition of the bank or Federal savings 
association. Subject to any limit that the OCC prescribes in the 
``Notice of 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 or Federal savings association 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 or Federal savings association 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.

[76 FR 43566, July 21, 2011]



Sec. 8.6  Fees for special examinations and investigations.

    (a) Fees. Pursuant to the authority contained in 12 U.S.C. 16, 481, 
482, 1467, and 1831c, the Office of the Comptroller of the Currency may 
assess a fee for:
    (1) Examining the fiduciary activities of national banks and Federal 
savings associations and related entities;
    (2) Conducting special examinations and investigations of national 
banks, Federal branches or agencies of foreign banks, and Federal 
savings associations;
    (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 or Federal savings association because of the high risk 
or unusual nature of the activities performed; the significance to the 
bank's or Federal saving association's operations and income of the 
activities performed; or the extent to which the bank or Federal savings 
association 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, Federal savings associations, and Federal branches or 
agencies of foreign banks;
    (5) Conducting examinations and investigations made pursuant to 12 
CFR part 5, Rules, Policies, and Procedures for Corporate Activities; 
and
    (6) Conducting examinations of depository-institution permissible 
activities of nondepository institution subsidiaries of depository 
institution holding companies pursuant to section 605(a) of the Dodd-
Frank Wall Street Reform and Consumer Protection Act (12 U.S.C. 1831c).
    (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 and trust Federal savings 
associations--(1) Independent trust banks and independent trust Federal 
savings associations. The assessment of independent trust banks and 
independent trust Federal savings associations will include a fiduciary 
and related asset component,

[[Page 214]]

in addition to the assessment calculated according to Sec. 8.2 of this 
part, as follows:
    (i) Minimum fee. All independent trust banks and independent trust 
Federal savings associations will pay a minimum fee, to be provided in 
the ``Notice of Comptroller of the Currency Fees.''
    (ii) Additional amount for independent trust banks and independent 
trust Federal savings associations with fiduciary and related assets in 
excess of $1 billion. Independent trust banks and independent trust 
Federal savings associations 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 or of the Federal 
savings association. Subject to any limit that the OCC prescribes in the 
``Notice of 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 and independent trust Federal savings association 
that receives a composite rating of 3 under the Uniform Financial 
Institutions 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 and 
trust Federal savings associations affiliated with full-service Federal 
savings associations. The OCC will assess a trust bank and a trust 
Federal savings association in accordance with paragraph (c)(1) of this 
section, notwithstanding that the bank is affiliated with a full-service 
national bank, or that the Federal savings association is affiliated 
with a full-service Federal savings association, 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, with respect to a national bank, has the same meaning 
as this term has in 12 U.S.C. 221a(b);
    (ii) Affiliate, with respect to Federal savings associations, has 
the same meaning as in 12 U.S.C. 1462(9).
    (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) Full-service trust Federal savings association is a Federal 
savings association 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 activities permissible for Federal savings associations.
    (v) 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;
    (vi) Independent trust Federal savings association is a Federal 
savings association that has trust powers, does not primarily offer 
full-service banking, and is not affiliated with a full-service Federal 
savings association; and
    (vii) Fiduciary and related assets are those assets reported on 
Schedule RC-T of FFIEC Forms 031 and 041, Line 10 (columns A and B) and 
Line 11 (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.''
    (viii) Fiduciary and related assets for Federal savings associations 
are those assets reported on Schedule FS of OTS Form 1313, Line FS21, 
any successor form issued by the OCC, and any other fiduciary and 
related assets defined in the ``Notice of Comptroller of the Currency 
Fees.''

[76 FR 43568, July 21, 2011, as amended at 76 FR 43568, July 7, 2011]



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

investigation fees.

    (a) Each national bank, each Federal branch, each Federal agency , 
and each Federal savings association shall pay

[[Page 215]]

to the Comptroller of the Currency interest on its delinquent payments 
of semiannual assessments. In addition, each national bank, each Federal 
savings association 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 
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; 76 FR 43568, July 21, 2011]



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

[[Page 216]]

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:
    (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

[[Page 217]]

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).
    (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;

[[Page 218]]

    (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 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.

[[Page 219]]

    (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.



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.

[[Page 220]]

    (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 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

[[Page 221]]

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 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

[[Page 222]]

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;
    (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.

[[Page 223]]

    (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 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

[[Page 224]]

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 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

[[Page 225]]

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
    (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)(1) Registration. An application for registration under Section 
17A(c) of the Securities Exchange Act of 1934 of a transfer agent for 
which the OCC is the appropriate regulatory agency, as defined in 
section 3(a)(34)(B) of the Securities Exchange Act of 1934, shall be 
filed with the OCC on FFIEC Form TA-1, in accordance with the 
instructions contained therein. Registration shall become effective 30 
days after the date an application on Form TA-1 is filed unless the OCC 
accelerates, denies, or postpones such registration in accordance with 
section 17A(c) of the Securities Exchange Act of 1934.
    (2) Amendments to registration. Within 60 days following the date on 
which any information reported on Form TA-1 becomes inaccurate, 
misleading, or incomplete, the registrant shall file an amendment on 
FFIEC Form TA-1 correcting the inaccurate, misleading, or incomplete 
information. The filing of an amendment to an application for 
registration as a transfer agent under this section, which registration 
has not become effective, shall postpone the effective date of the 
registration for 30 days following the date on which the amendment is 
filed unless the OCC accelerates, denies, or postpones the registration 
in accordance with Section 17A(c) of the Securities Exchange Act of 
1934.
    (3) Withdrawal from registration. Any registered national bank 
transfer agent that ceases to engage in activities that require 
registration under Section 17A(c) of the Securities Exchange Act of 1934 
may file a written notice of withdrawal from registration with the OCC. 
Deregistration shall be effective 60 days after filing.
    (4) Reports. Every registration or amendment filed under this 
section shall constitute a report or application within the meaning of 
Sections 17, 17A(c), and 32(a) of the Securities Exchange Act of 1934.

[[Page 226]]

    (b) Operational and reporting requirements. The rules adopted by the 
Securities and Exchange Commission pursuant to Section 17A of the 
Securities Exchange Act of 1934 prescribing operational and reporting 
requirements for transfer agents apply to the domestic activities of 
registered national bank transfer agents.

[73 FR 22242, Apr. 24, 2008]

                             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]



PART 10_MUNICIPAL SECURITIES DEALERS--Table of Contents



Sec.
10.1 Scope.
10.2 Filing requirements.

    Authority: 12 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 and separately identifiable department or 
division of a national bank (collectively, a national bank) that acts as 
a municipal securities dealer, as that term is defined in

[[Page 227]]

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.

[63 FR 29094, May 28, 1998, as amended at 73 FR 22242, Apr. 24, 2008]



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 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.
    (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; 73 FR 22242, Apr. 24, 2008]



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).

[[Page 228]]

    (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.

                             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,

[[Page 229]]

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 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

[[Page 230]]

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)) 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

[[Page 231]]

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
    (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.

[[Page 232]]



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
    (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

[[Page 233]]

    (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 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:

[[Page 234]]

    (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 the deadline specified in SEC rule 17j-1 (17 CFR 270.17j-1) for 
quarterly transaction reports, 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.
    (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:

[[Page 235]]

    (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.

[61 FR 63965, Dec. 2, 1996, as amended at 73 FR 22243, Apr. 24, 2008]



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 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

[[Page 236]]

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 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

[[Page 237]]

    (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).
---------------------------------------------------------------------------

    (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

[[Page 238]]

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 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

[[Page 239]]

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 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

[[Page 240]]

    (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 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

[[Page 241]]

    (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 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).

[[Page 242]]

    (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 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

[[Page 243]]

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.
16.9 Securities offered and sold in holding company dissolution.
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.
16.30 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, 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., 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

[[Page 244]]

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.

[59 FR 54798, Nov. 2, 1994, as amended at 73 FR 22243, Apr. 24, 2008]



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);
    (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

[[Page 245]]

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), 
section 3(a)(11) (exemption for intrastate offerings), and section 
3(a)(12) of the Securities Act (exemption for bank holding company 
formation).
    (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);
    (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); or
    (h) In a transaction that satisfies the requirements of Sec. 16.9 
of this part.

[59 FR 54798, Nov. 2, 1994; 59 FR 67153, Dec. 29, 1994, as amended at 73 
FR 22243, Apr. 24, 2008]



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 and 16.15(a) and (b) 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, if issued in certificate form, 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 240.12g3-2(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

[[Page 246]]

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.

[59 FR 54798, Nov. 2, 1994, as amended at 73 FR 22243, Apr. 24, 2008]



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); and
    (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.
    (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.

[59 FR 54798, Nov. 2, 1994, as amended at 73 FR 22243, Apr. 24, 2008]



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. 16.9  Securities offered and sold in holding company dissolution.

    Offers and sales of bank issued securities in connection with the 
dissolution of the holding company of the bank are exempt from the 
registration and prospectus requirements of Sec. 16.3 pursuant to Sec. 
16.5(h), provided all of the following requirements are met:
    (a) The offer and sale of bank-issued securities occurs solely as 
part of a dissolution in which the security holders exchange their 
shares of stock in a holding company that had no significant assets 
other than securities of the bank, for bank stock;
    (b) The security holders receive, after the dissolution, 
substantially the same proportional share interests in the bank as they 
held in the holding company;
    (c) The rights and interests of the security holders in the bank are 
substantially the same as those in the holding company prior to the 
transaction; and

[[Page 247]]

    (d) The bank has substantially the same assets and liabilities as 
the holding company had on a consolidated basis prior to the 
transaction.

[73 FR 22243, Apr. 24, 2008]



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 (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.
    (e) Notwithstanding paragraph (a) of this section, a national bank 
in organization pursuant to Sec. 5.20 of this chapter shall not be 
required to include audited financial statements as part of its 
registration statement for the offer and sale of its securities, unless 
the OCC determines that factors particular to the proposal indicate that 
inclusion of such statements would be in the interest of investors or 
would further the safe and sound operation of a national bank.

[59 FR 54798, Nov. 2, 1994, as amended at 73 FR 12010, Mar. 6, 2008]



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

[[Page 248]]

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 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. 16.30  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.

[[Page 249]]

    (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.
    (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

[[Page 250]]

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:
    (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

[[Page 251]]

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 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.

[[Page 252]]

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.
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.

[[Page 253]]

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.

           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

[[Page 254]]

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 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 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.

[[Page 255]]

    (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.
    (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.

[56 FR 38028, Aug. 9, 1991, as amended at 73 FR 22243, Apr. 24, 2008]



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

[[Page 256]]

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 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-

[[Page 257]]

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 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.

[[Page 258]]

    (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.
    (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

[[Page 259]]

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, 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.

[[Page 260]]



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 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

[[Page 261]]

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 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.

[[Page 262]]



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.
    (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]

[[Page 263]]



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 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

[[Page 264]]

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 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.

[[Page 265]]



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:
    (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

[[Page 266]]

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 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.

[[Page 267]]

    (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 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.

[[Page 268]]

    (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 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

[[Page 269]]

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 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.

[[Page 270]]

    (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 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

[[Page 271]]

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.
    (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

[[Page 272]]

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 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; 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, as amended at 73 FR 22243, Apr. 24, 2008]



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 the affairs of any 
depository institution pursuant to 12 U.S.C. 1818(g) by a notice or 
order issued by the Comptroller.

[56 FR 38028, Aug. 9, 1991, as amended at 73 FR 22243, Apr. 24, 2008]



Sec. 19.111  Suspension, removal, or prohibition.

    The Comptroller may serve a notice of suspension or order of removal 
or prohibition pursuant to 12 U.S.C. 1818(g) on an institution-
affiliated party. A copy of such notice or order will be served on any 
depository institution that the subject of the notice or order is 
affiliated with at the time the notice or order is issued, whereupon the 
institution-affiliated party involved must immediately cease service to, 
or participation in the affairs of, that depository institution and, if 
so determined by the OCC, any other depository institution. 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

[[Page 273]]

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 
any depository institution has not posed, does not pose, or is not 
likely to pose a threat to the interests of the depositors of, or has 
not threatened, does not threaten, or is not likely to threaten to 
impair public confidence in, any relevant depository institution. 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 in question is located; if the bank is 
supervised by Large Bank Supervision, to the Senior Deputy Comptroller 
for Large Bank Supervision for the Office of the Comptroller of the 
Currency; if the bank is supervised by Mid-Size/Community Bank 
Supervision, to the Senior Deputy Comptroller for Mid-Size/Community 
Bank Supervision for the Office of the Comptroller of the Currency; or 
if the institution-affiliated party is no longer affiliated with a 
particular national bank, to the Deputy Comptroller for Special 
Supervision, Washington, DC 20219. The request must state specifically 
the relief desired and the grounds on which that relief is based. For 
purposes of this section, the term depository institution means any 
depository institution of which the petitioner is or was an institution-
affiliated party at the time at which the notice or order was issued by 
the Comptroller.

[73 FR 22243, Apr. 24, 2008]



Sec. 19.112  Informal hearing.

    (a) Issuance of hearing order. After receipt of a request for 
hearing, the District Deputy Comptroller, the Senior Deputy Comptroller 
for Large Bank Supervision, the Senior Deputy Comptroller for Mid-Size/
Community Bank Supervision, or the Deputy Comptroller 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, the Senior Deputy Comptroller for Large 
Bank Supervision, the Senior Deputy Comptroller for Mid-Size/Community 
Bank Supervision, or the Deputy Comptroller 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, the Senior Deputy Comptroller for Large Bank Supervision, 
the Senior Deputy Comptroller for Mid-Size/Community Bank Supervision, 
or the Deputy Comptroller 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, the Senior 
Deputy Comptroller for Large Bank Supervision, the Senior Deputy 
Comptroller for Mid-Size/Community Bank Supervision, or the Deputy 
Comptroller 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.

[[Page 274]]

    (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 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; 73 
FR 22244, Apr. 24, 2008]



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

[[Page 275]]

any manner in the affairs of any depository institution, 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; 73 
FR 22244, Apr. 24, 2008]



   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).

[[Page 276]]

    (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.
    (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

[[Page 277]]

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 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

[[Page 278]]

``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 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

[[Page 279]]

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 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.

[[Page 280]]

    (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]



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

[[Page 281]]

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 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

[[Page 282]]

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 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.

[[Page 283]]

    (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 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.

[[Page 284]]

    (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 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

[[Page 285]]

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 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

[[Page 286]]

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 
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.

[[Page 287]]



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 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.

[[Page 288]]

    (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.



           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:

[[Page 289]]

[GRAPHIC] [TIFF OMITTED] TR10NO08.001


[[Page 290]]


    (b) The adjustments in paragraph (a) of this section apply to 
violations that occur after December 10, 2008.

[73 FR 66495, Dec. 10, 2008]



    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 (FDI Act) (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 
FDI Act (12 U.S.C. 1831m) for insured national banks and Federal 
branches and agencies of foreign banks.

[73 FR 22244, Apr. 24, 2008]



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 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

[[Page 291]]

(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 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

[[Page 292]]

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 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

[[Page 293]]

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.

               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. 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).

[56 FR 29564, June 28, 1991, as ameded at 73 FR 22244, Apr. 24, 2008]

[[Page 294]]



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;
    (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.

[[Page 295]]

    (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.
    (c) SARs required. A national bank shall file a SAR with the 
appropriate Federal law enforcement agencies and the Department of the 
Treasury on the form prescribed by the OCC and in accordance with the 
form's instructions. The bank shall send the 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 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

[[Page 296]]

    (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), 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. A SAR, and any information that would 
reveal the existence of a SAR, are confidential, and shall not be 
disclosed except as authorized in this paragraph (k).
    (1) Prohibition on disclosure by national banks. (i) General rule. 
No national bank, and no director, officer, employee, or agent of a 
national bank, shall disclose a SAR or any information that would reveal 
the existence of a SAR. Any national bank, and any director, officer, 
employee, or agent of any national bank that is subpoenaed or otherwise 
requested to disclose a SAR, or any information that would reveal the 
existence of a SAR, shall decline to produce the SAR or such 
information, citing this section and 31 U.S.C. 5318(g)(2)(A)(i), and 
shall notify the following of any such request and the response thereto:
    (A) Director, Litigation Division, Office of the Comptroller of the 
Currency; and
    (B) The Financial Crimes Enforcement Network (FinCEN).
    (ii) Rules of construction. Provided that no person involved in any 
reported suspicious transaction is notified that the transaction has 
been reported, this

[[Page 297]]

paragraph (k)(1) shall not be construed as prohibiting:
    (A) The disclosure by a national bank, or any director, officer, 
employee or agent of a national bank of:
    (1) A SAR, or any information that would reveal the existence of a 
SAR, to the OCC, FinCEN, or any Federal, State, or local law enforcement 
agency; or
    (2) The underlying facts, transactions, and documents upon which a 
SAR is based, including, but not limited to, disclosures:
    (i) To another financial institution, or any director, officer, 
employee or agent of a financial institution, for the preparation of a 
joint SAR; or
    (ii) In connection with certain employment references or termination 
notices, to the full extent authorized in 31 U.S.C. 5318(g)(2)(B); or
    (B) The sharing by a national bank, or any director, officer, 
employee, or agent of a national bank, of a SAR, or any information that 
would reveal the existence of a SAR, within the bank's corporate 
organizational structure for purposes consistent with Title II of the 
Bank Secrecy Act as determined by regulation or in guidance.
    (2) Prohibition on disclosure by the OCC. The OCC will not, and no 
officer, employee or agent of the OCC, shall disclose a SAR, or any 
information that would reveal the existence of a SAR, except as 
necessary to fulfill official duties consistent with Title II of the 
Bank Secrecy Act. For purposes of this section, official duties shall 
not include the disclosure of a SAR, or any information that would 
reveal the existence of a SAR, in response to a request for use in a 
private legal proceeding or in response to a request for disclosure of 
non-public OCC information under 12 CFR 4.33.
    (l) Limitation on liability. A national bank and any director, 
officer, employee or agent of a national bank that makes a voluntary 
disclosure of any possible violation of law or regulation to a 
government agency or makes a disclosure pursuant to this section or any 
other authority, including a disclosure made jointly with another 
financial institution, shall be protected from liability to any person 
for any such disclosure, or for failure to provide notice of such 
disclosure to any person identified in the disclosure, or both, to the 
full extent provided by 31 U.S.C. 5318(g)(3).

[61 FR 4337, Feb. 5, 1996, as amended at 75 FR 75583, Dec. 3, 2010]



     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 the Treasury at 
31 CFR Chapter X.
    (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 Chapter X. 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 regulations 
jointly promulgated by the OCC and the Department of the Treasury at 31 
CFR 1020.220, 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

[[Page 298]]

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; 76 
FR 6687, Feb. 8, 2011]



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.
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.
    (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

[[Page 299]]

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.

[61 FR 45702, Aug. 29, 1996, as amended at 73 FR 22244, Apr. 24, 2008]



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 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

[[Page 300]]

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 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.

[[Page 301]]

    (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 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.

[[Page 302]]

    ------ 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.

                          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

[[Page 303]]

    (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 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.

[[Page 304]]



Sec. 23.6  Application of lending limits; restrictions on transactions with affiliates.

    All lease entered into pursuant to this part is subject to the 
lending limits prescribed by 12 U.S.C. 84 , as implemented by 12 CFR 
part 32, 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 and Regulation W, 12 CFR part 223, as 
implemented by Regulation W, 12 CFR part 223,'' before as applicable. 
For the purpose of measuring compliance with the lending limits 
prescribed by 12 U.S.C. 84 as implemented by part 32, 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.

[61 FR 66560, Dec. 18, 1996, as amended at 73 FR 22244, Apr. 24, 2008]



                          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

[[Page 305]]

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 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). It is the 
OCC's policy to encourage a national bank to make investments described 
in Sec. 24.3, consistent with safety and soundness. This part provides 
the standards and 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) A national bank that makes loans or investments that are 
authorized under both 12 U.S.C. 24 (Eleventh) and

[[Page 306]]

other provisions of the Federal banking laws may do so under such other 
provisions without regard to the provisions of 12 U.S.C. 24 (Eleventh) 
or this part.
    (e) Investments made, or written commitments to make investments 
made, prior to October 13, 2006, pursuant to 12 U.S.C. 24 (Eleventh) and 
this part, continue to be subject to the statutes and regulations in 
effect prior to the enactment of the Financial Services Regulatory 
Relief Act of 2006 (Pub. L. 109-351).

[61 FR 49660, Sept. 23, 1996, as amended at 64 FR 70990, Dec. 20, 1999; 
68 FR 48775, Aug. 15, 2003; 73 FR 22244, Apr. 24, 2008]



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(m).
    (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; 
73 FR 22244, Apr. 24, 2008; 73 FR 46534, Aug. 11, 2008]

[[Page 307]]



Sec. 24.3  Public welfare investments.

    A national bank or national bank subsidiary may make an investment 
directly or indirectly 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 would receive consideration under 12 
CFR 25.23 as a ``qualified investment.''

[73 FR 46534, Aug. 11, 2008]



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 a 
written request by the bank to exceed the 5 percent limit, that a higher 
amount of investments will not pose a significant risk to the deposit 
insurance fund. In no case may a bank's aggregate outstanding 
investments under this part exceed 15 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; 73 FR 22244, Apr. 24, 2008]



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 Community Affairs Department, Office of the Comptroller of the 
Currency, Washington, DC 20219. The after-the-fact notification may also 
be e-mailed to [email protected], faxed to (202) 874-4652, 
or provided electronically via National BankNet at http://
www.occ.treas.gov.
    (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 Affairs Department 
requesting authority to submit after-the-fact notices of its 
investments. The Community Affairs Department 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

[[Page 308]]

investment proposal to the Community Affairs Department, Office of the 
Comptroller of the Currency, Washington, DC 20219. The investment 
proposal may also be e-mailed to [email protected], faxed 
to (202) 874-4652, or submitted electronically via National BankNet at 
http://www.occ.treas.gov. 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 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; 73 FR 22245, Apr. 24, 2008]



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, 
including minority- and women-owned 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- and 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

[[Page 309]]

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, financial literacy, 
job training, community development research, and similar technical 
assistance for non-profit community development organizations, low- and 
moderate-income individuals or areas or targeted redevelopment areas, or 
small businesses, including minority- and women-owned 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;
    (3) Investments of a type determined by the OCC to be permissible 
under this part; and
    (4) Investments in minority- and women-owned depository institutions 
that serve primarily low- and moderate-income individuals or low- and 
moderate-income areas or targeted redevelopment areas.

[68 FR 48776, Aug. 15, 2003, as amended at 73 FR 22245, Apr. 24, 2008; 
73 FR 46534, Aug. 11, 2008]



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 310]]



 Sec. Appendix 1 To Part 24--CD-1--National Bank Community Development 

                          (Part 24) Investments

[GRAPHIC] [TIFF OMITTED] TR07AP09.000


[[Page 311]]


[GRAPHIC] [TIFF OMITTED] TR07AP09.001


[[Page 312]]


[GRAPHIC] [TIFF OMITTED] TR07AP09.002


[[Page 313]]


[GRAPHIC] [TIFF OMITTED] TR07AP09.003


[[Page 314]]


[GRAPHIC] [TIFF OMITTED] TR07AP09.004


[[Page 315]]



[74 FR 15659, Apr. 7, 2009]



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 2908, 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 316]]

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;
    (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; or
    (5) Loans, investments, and services that--
    (i) Support, enable or facilitate projects or activities that meet 
the ``eligible uses'' criteria described in Section 2301(c) of the 
Housing and Economic Recovery Act of 2008 (HERA), Public Law 110-289, 
122 Stat. 2654, as amended, and are conducted in designated target areas 
identified in plans approved by the United States Department of Housing 
and Urban Development in accordance with the Neighborhood Stabilization 
Program (NSP);
    (ii) Are provided no later than two years after the last date funds 
appropriated for the NSP are required to be spent by grantees; and

[[Page 317]]

    (iii) Benefit low-, moderate-, and middle-income individuals and 
geographies in the bank's assessment area(s) or areas outside the bank's 
assessment area(s) provided the bank has adequately addressed the 
community development needs of its assessment area(s).
    (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).
    (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.

[[Page 318]]

    (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 $1.160 billion. Intermediate small bank means a small bank 
with assets of at least $290 million as of December 31 of both of the 
prior two calendar years and less than $1.160 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; 73 FR 
78154, Dec. 22, 2008; 74 FR 68663, Dec. 29, 2009; 75 FR 79285, Dec. 20, 
2010; 75 FR 82218, Dec. 30, 2010; 76 FR 79530, Dec. 22, 2011]



              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:

[[Page 319]]

    (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.
    (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.
    (e) Low-cost education loans provided to low-income borrowers. In 
assessing and taking into account the record of a bank under this part, 
the OCC considers, as a factor, low-cost education loans originated by 
the bank to borrowers, particularly in its assessment area(s), who have 
an individual income that is less than 50 percent of the area median 
income. For purposes of this paragraph, ``low-cost education loans'' 
means any education loan, as defined in section 140(a)(7) of the Truth 
in Lending Act (15 U.S.C. 1650(a)(7)) (including a loan under a state or 
local education loan program), originated by the bank for a student at 
an ``institution of higher education,'' as that term is generally 
defined in sections 101 and 102 of the Higher Education Act of 1965 (20 
U.S.C. 1001 and 1002) and the implementing regulations published by the 
U.S. Department of Education, with interest rates and fees no greater 
than those of comparable education loans offered directly by the U.S. 
Department of Education. Such rates and fees are specified in section 
455 of the Higher Education Act of 1965 (20 U.S.C. 1087e).
    (f) Activities in cooperation with minority- or women-owned 
financial institutions and low-income credit unions. In assessing and 
taking into account the record of a nonminority-owned and nonwomen-owned 
bank under this part, the OCC considers as a factor capital investment, 
loan participation, and other ventures undertaken by the bank in 
cooperation with minority- and women-owned financial institutions and 
low-income credit unions. Such activities must help meet the credit 
needs of local communities in which the minority- and women-owned 
financial institutions and low-income credit unions are chartered. To be 
considered, such activities need not also benefit the bank's assessment 
area(s) or the broader statewide or regional area that includes the 
bank's assessment area(s).

[60 FR 22180, May 4, 1995, as amended at 75 FR 61044, Oct. 4, 2010]

[[Page 320]]



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 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.

[[Page 321]]

    (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 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

[[Page 322]]

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 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

[[Page 323]]

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 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

[[Page 324]]

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:
    (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

[[Page 325]]

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 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

[[Page 326]]

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;
    (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

[[Page 327]]

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
    (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

[[Page 328]]

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;
    (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

[[Page 329]]

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 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

[[Page 330]]

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.



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.

[[Page 331]]

    (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 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

[[Page 332]]

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.
    (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. This includes 
consideration of low-cost education loans provided to low-income 
borrowers and activities in cooperation with minority- or women-owned 
financial institutions and low-income credit unions, as well as 
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

[[Page 333]]

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.
    (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

[[Page 334]]

    (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 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),

[[Page 335]]

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
    (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;

[[Page 336]]

    (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.''
    (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

[[Page 337]]

``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; 75 
FR 61044, Oct. 4, 2010]



                 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 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

[[Page 338]]

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 and their affiliates.

[73 FR 22251, Apr. 24, 2008]



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
    (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.

[[Page 339]]

    (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) 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.
    (j) 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).
    (k) 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.
    (l) Person means a natural person, corporation, or other business 
entity.
    (m) 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.
    (n) 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.
    (o) 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.
    (p) United States means the United States of America, any State or 
territory of the United States of America, the District of Columbia, 
Puerto Rico,

[[Page 340]]

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; 73 FR 22251, Apr. 24, 2008]



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 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;

[[Page 341]]

    (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 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 and their affiliates, 
and may

[[Page 342]]

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 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.

[73 FR 22251, Apr. 24, 2008]



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 
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, as amended at 73 FR 22251, Apr. 24, 2008]



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 and any subsidiaries of a national 
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 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

[[Page 343]]

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.

[44 FR 63089, Nov. 2, 1979, as amended at 73 FR 22251, Apr. 24, 2008]



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 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.

[[Page 344]]

    (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;
    (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

[[Page 345]]

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 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

[[Page 346]]

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 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.

[[Page 347]]

    (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 348]]



      Sec. Appendix I to Part 27--Monthly Home Loan Activity Format

[GRAPHIC] [TIFF OMITTED] TC22SE91.001


[[Page 349]]





   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 350]]



 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 351]]



         Sec. Appendix IV to Part 27--Home Loan Data Submission

[GRAPHIC] [TIFF OMITTED] TR21JN94.003


[[Page 352]]


[GRAPHIC] [TIFF OMITTED] TR21JN94.004


[59 FR 31925, June 21, 1994]

[[Page 353]]



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 354]]

    (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 355]]

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 356]]

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 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; 73 FR 22251, Apr. 24, 2008]



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:
    (1) The financial and managerial resources and future prospects of 
the applicant foreign bank and the Federal branch or agency;

[[Page 357]]

    (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 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 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.
    (4) Conversions. An application submitted by an eligible foreign 
bank to

[[Page 358]]

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; 73 
FR 22251, Apr. 24, 2008]

[[Page 359]]



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 360]]

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 the standard maximum deposit insurance amount as defined in 
12 U.S.C. 1821(a)(1)(E) 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

[[Page 361]]

branch or foreign bank has a written agreement to extend credit or 
provide 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; 76 FR 43569, July 21, 2011]

[[Page 362]]



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;
    (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

[[Page 363]]

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:
    (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]

[[Page 364]]



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 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 to establish 
reserves

[[Page 365]]

against the risks presented in certain international assets and sets 
forth the accounting for various fees received by the banks when making 
international loans.

[61 FR 19532, May 2, 1996, as amended at 73 FR 22251, Apr. 24, 2008]



Sec. 28.51  Definitions.

    For the purposes of this subpart:
    (a) Banking institution means a national 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; 73 
FR 22251, Apr. 24, 2008]



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

[[Page 366]]

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.
    (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

[[Page 367]]

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 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

[[Page 368]]

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]



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

[[Page 369]]

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, 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,

[[Page 370]]

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 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.

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

[[Page 371]]

    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 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;

[[Page 372]]

    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 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

[[Page 373]]

    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
    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.

[[Page 374]]

    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 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;

[[Page 375]]

    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, 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.
---------------------------------------------------------------------------

    \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.''
---------------------------------------------------------------------------

                   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

[[Page 376]]

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
    c. The sufficiency of policies, procedures, customer information 
systems, and other arrangements in place to control risks. \3\
---------------------------------------------------------------------------

    \3\ See Security Guidelines, III.B.
---------------------------------------------------------------------------

    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:
---------------------------------------------------------------------------

    \4\ See Security Guidelines, III.C.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \5\ See Security Guidelines, III.C.
---------------------------------------------------------------------------

                          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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

                          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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    In addition, each institution should be able to address incidents of 
unauthorized access

[[Page 377]]

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 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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

                   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;
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

    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

[[Page 378]]

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.

                    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:
---------------------------------------------------------------------------

    \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\
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

    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

[[Page 379]]

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]



 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

[[Page 380]]

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 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.

[[Page 381]]

    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 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: Deposits Between Affiliated 
          Banks

[[Page 382]]

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), and 1817(k).

    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 1817(k), as amended.

[61 FR 54536, Oct. 21, 1996, as amended at 73 FR 22251, Apr. 24, 2008]



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: Deposits Between Affiliated 

                                  Banks

    a. General rule. A deposit made by a bank in an affiliated bank is 
treated as a loan or extension of credit to the affiliate bank under 12 
U.S.C. 371c, as this statute is implemented by the Federal Reserve 
Board's Regulation W, 12 CFR part 223. Thus, unless an exemption from 
Regulation W is available, these deposits must be secured in accordance 
with 12 CFR 223.14. 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 CFR part 223 noted in 
paragraph b. of this interpretation applies, unless another exception 
applies that enables a bank to meet the collateral requirements of Sec. 
223.14, or unless a party other than the bank in which the deposit is 
made can legally offer and does post the required collateral, 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 CFR 223.14; or
    3. Receive deposits from an affiliated bank.
    b. Exceptions. The restrictions of 12 CFR part 223 (other than 12 
CFR 223.13, which requires affiliate transactions to be consistent with 
safe and sound banking practices) do not apply to deposits:
    1. Made in an affiliated depository institution or affiliated 
foreign bank provided that the deposit represents an ongoing, working 
balance maintained in the ordinary course of correspondent business. See 
12 CFR 223.42(a); or
    2. Made in an affiliated, insured depository institution that meets 
the requirements of the ``sister bank'' exemption under 12 CFR 223.41(a) 
or (b).

[73 FR 22251, Apr. 24, 2008]

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 383]]

 
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. 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 384]]

 
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 385]]


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, as amended at 73 FR 22251, Apr. 24, 2008]



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.
32.8 Temporary funding arrangements in emergency situations.

    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) and (e), as implemented by 
section 223.2(a) of Regulation W, 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.

[60 FR 8532, Feb. 15, 1995, as amended at 73 FR 22251, Apr. 24, 2008]



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--

[[Page 386]]

    (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 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;

[[Page 387]]

    (ii) A maker or endorser's obligation arising from a bank's discount 
of commercial paper;
    (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

[[Page 388]]

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.
    (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

[[Page 389]]

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.
    (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

[[Page 390]]

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 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

[[Page 391]]

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 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).

[[Page 392]]

    (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 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

[[Page 393]]

company, savings association, or credit union.
    (8) Loans to the Student Loan Marketing Association. Loans or 
extensions 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

[[Page 394]]

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 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.

[[Page 395]]

    (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 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

[[Page 396]]

    (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 (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

[[Page 397]]

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 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]



Sec. 32.8  Temporary funding arrangements in emergency situations.

    In addition to the amount that a national bank may lend to one 
borrower under Sec. 32.3 of this part, an eligible bank with the 
written approval of the OCC may make loans and extensions of credit to 
one borrower subject to a special temporary lending limit established by 
the OCC, where the OCC determines that such loans and extensions of 
credit are essential to address an emergency situation, such as critical 
financial markets stability, will be of short duration, will be reduced 
in amount in a timeframe and manner acceptable to the OCC, and do not 
present unacceptable risk. In granting approval for such a special 
temporary lending limit, the OCC will impose supervisory oversight and 
reporting measures that it determines are appropriate to monitor 
compliance with the foregoing standards as set forth in this paragraph.

[73 FR 14924, Mar. 20, 2008]

                           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.

[[Page 398]]

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.

     Subpart F_Registration of Residential Mortgage Loan Originators

34.101 Authority, purpose, and scope.
34.102 Definitions.
34.103 Registration of mortgage loan originators.
34.104 Policies and procedures.
34.105 Use of unique identifier.

Appendix A to Subpart F of Part 34-- Examples of Mortgage Loan 
          Originator Activities

    Authority: 12 U.S.C. 1 et seq., 25b, 29, 93a, 371, 1465, 1701j-3, 
1828(o), 3331 et seq., 5101 et seq., and 5412(b)(2)(B).



                            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-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,

[[Page 399]]

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) 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;
    (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 consistent with the decision of the Supreme Court in 
Barnett Bank of Marion County, N.A. v. Nelson, Florida Insurance 
Commissioner, et al., 517 U.S. 25 (1996):
    (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), where 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 that the OCC determines to be applicable to 
national banks in accordance with the decision of the Supreme Court in 
Barnett Bank of Marion County, N.A. v. Nelson, Florida Insurance 
Commissioner, et al., 517 U.S. 25 (1996), or that is made applicable by 
Federal law.

[69 FR 1917, Jan. 13, 2004, as amended at 76 FR 43569, July 21, 2011]

[[Page 400]]



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.



Sec. 34.6  Applicability of state law to Federal savings associations and 

subsidiaries.

    In accordance with section 1046 of the Dodd-Frank Wall Street Reform 
and Consumer Protection Act (12 U.S.C. 25b), Federal savings 
associations and their subsidiaries shall be subject to the same laws 
and legal standards, including regulations of the OCC, as are applicable 
to national banks and their subsidiaries, regarding the preemption of 
state law.

[76 FR 43569, July 21, 2011]



                   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, 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. Except as provided in 
paragraph (c) of this section, a national bank may purchase or 
participate in ARM loans that were not made in accordance with this 
part, provided such purchases are consistent with safe and sound banking 
practices as described in published OCC guidance, including appropriate 
diligence regarding the quality and characteristics of the loans, and 
other applicable regulations.
    (c) Purchase of loans from a subsidiary or affiliate. ARM loans 
purchased, in whole or in part, from a subsidiary or affiliate must 
comply with this part and with other applicable regulations, and be 
consistent with safe and sound banking practices as described in 
published OCC guidance, including appropriate diligence regarding the 
quality and characteristics of the loans. For purposes of this 
paragraph, the terms affiliate and subsidiary have the same meaning as 
in 12 U.S.C. 371c.

[61 FR 11300, Mar. 20, 1996, as amended at 73 FR 22251, Apr. 24, 2008]



Sec. 34.22  Index.

    (a) In general. 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 or combination of indices 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

[[Page 401]]

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.
    (b) Exception. Thirty days after filing a notice with the OCC, a 
national bank may use an index other than one described in paragraph (a) 
of this section unless, within that 30-day period, the OCC has notified 
the bank that the notice presents supervisory concerns or raises 
significant issues of law or policy. If the OCC provides such notice to 
the bank, the bank may not use that index unless it applies for and 
receives the OCC's prior written approval.

[61 FR 11300, Mar. 20, 1996, as amended at 73 FR 22251, Apr. 24, 2008]



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 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

[[Page 402]]

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 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

[[Page 403]]

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
    (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

[[Page 404]]

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
    (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

[[Page 405]]

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;
    (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.

[[Page 406]]

    (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 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.

[[Page 407]]

     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.

    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

[[Page 408]]

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.
     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

[[Page 409]]

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.
    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.

[[Page 410]]

    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:
    (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.

[[Page 411]]

    (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 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

[[Page 412]]

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.



     Subpart F_Registration of Residential Mortgage Loan Originators

    Source: 75 FR 44684, July 28, 2010, unless otherwise noted.



Sec. 34.101  Authority, purpose, and scope.

    (a) Authority. This subpart is issued pursuant to the Secure and 
Fair Enforcement for Mortgage Licensing Act of 2008, title V of the 
Housing and Economic Recovery Act of 2008 (S.A.F.E. Act) (Pub. L. 110-
289, 122 Stat. 2654, 12 U.S.C. 5101 et seq.).
    (b) Purpose. This subpart implements the S.A.F.E. Act's Federal 
registration requirement for mortgage loan originators. The S.A.F.E. Act 
provides that the objectives of this registration include aggregating 
and improving the flow of information to and between regulators; 
providing increased accountability and tracking of mortgage loan 
originators; enhancing consumer protections; supporting anti-fraud 
measures; and providing consumers with easily accessible information at 
no charge regarding the employment history of, and publicly adjudicated 
disciplinary and enforcement actions against, mortgage loan originators.
    (c) Scope. (1) In general. This subpart applies to national banks, 
Federal branches and agencies of foreign banks, their operating 
subsidiaries (collectively referred to in this subpart as national 
banks), and their employees who act as mortgage loan originators.
    (2) De minimis exception. (i) This subpart and the requirements of 
12 U.S.C. 5103(a)(1)(A) and (2) of the S.A.F.E. Act do not apply to any 
employee of a national bank who has never been registered or licensed 
through the Registry as a mortgage loan originator if during the past 12 
months the employee acted as a mortgage loan originator for 5 or fewer 
residential mortgage loans.
    (ii) Prior to engaging in mortgage loan origination activity that 
exceeds the exception limit in paragraph (c)(2)(i) of this section, a 
national bank

[[Page 413]]

employee must register with the Registry pursuant to this subpart.
    (iii) Evasion. National banks are prohibited from engaging in any 
act or practice to evade the limits of the de minimis exception set 
forth in paragraph (c)(2)(i) of this section.



Sec. 34.102  Definitions.

    For purposes of this subpart F, the following definitions apply:
    (a) Annual renewal period means November 1 through December 31 of 
each year.
    (b)(1) Mortgage loan originator \3\ means an individual who:
---------------------------------------------------------------------------

    \3\ Appendix A of this subpart provides examples of activities that 
would, and would not, cause an employee to fall within this definition 
of mortgage loan originator.
---------------------------------------------------------------------------

    (i) Takes a residential mortgage loan application; and
    (ii) Offers or negotiates terms of a residential mortgage loan for 
compensation or gain.
    (2) The term mortgage loan originator does not include:
    (i) An individual who performs purely administrative or clerical 
tasks on behalf of an individual who is described in paragraph (b)(1) of 
this section;
    (ii) An individual who only performs real estate brokerage 
activities (as defined in 12 U.S.C. 5102(3)(D)) and is licensed or 
registered as a real estate broker in accordance with applicable State 
law, unless the individual is compensated by a lender, a mortgage 
broker, or other mortgage loan originator or by any agent of such 
lender, mortgage broker, or other mortgage loan originator, and meets 
the definition of mortgage loan originator in paragraph (b)(1) of this 
section; or
    (iii) An individual or entity solely involved in extensions of 
credit related to timeshare plans, as that term is defined in 11 U.S.C. 
101(53D).
    (3) Administrative or clerical tasks means the receipt, collection, 
and distribution of information common for the processing or 
underwriting of a loan in the residential mortgage industry and 
communication with a consumer to obtain information necessary for the 
processing or underwriting of a residential mortgage loan.
    (c) Nationwide Mortgage Licensing System and Registry or Registry 
means the system developed and maintained by the Conference of State 
Bank Supervisors and the American Association of Residential Mortgage 
Regulators for the State licensing and registration of State-licensed 
mortgage loan originators and the registration of mortgage loan 
originators pursuant to 12 U.S.C. 5107.
    (d) Registered mortgage loan originator or registrant means any 
individual who:
    (1) Meets the definition of mortgage loan originator and is an 
employee of a national bank; and
    (2) Is registered pursuant to this subpart with, and maintains a 
unique identifier through, the Registry.
    (e) Residential mortgage loan means any loan primarily for personal, 
family, or household use that is secured by a mortgage, deed of trust, 
or other equivalent consensual security interest on a dwelling (as 
defined in section 103(v) of the Truth in Lending Act, 15 U.S.C. 
1602(v)) or residential real estate upon which is constructed or 
intended to be constructed a dwelling, and includes refinancings, 
reverse mortgages, home equity lines of credit and other first and 
additional lien loans that meet the qualifications listed in this 
definition.
    (f) Unique identifier means a number or other identifier that:
    (1) Permanently identifies a registered mortgage loan originator;
    (2) Is assigned by protocols established by the Nationwide Mortgage 
Licensing System and Registry, the Federal banking agencies, and the 
Farm Credit Administration to facilitate:
    (i) Electronic tracking of mortgage loan originators; and
    (ii) Uniform identification of, and public access to, the employment 
history of and the publicly adjudicated disciplinary and enforcement 
actions against mortgage loan originators; and
    (3) Must not be used for purposes other than those set forth under 
the S.A.F.E. Act.



Sec. 34.103  Registration of mortgage loan originators.

    (a) Registration requirement--(1) Employee registration. Each 
employee of a national bank who acts as a mortgage

[[Page 414]]

loan originator must register with the Registry, obtain a unique 
identifier, and maintain this registration in accordance with the 
requirements of this subpart. Any such employee who is not in compliance 
with the registration and unique identifier requirements set forth in 
this subpart is in violation of the S.A.F.E. Act and this subpart.
    (2) National bank requirement--(i) In general. A national bank that 
employs one or more individuals who act as a residential mortgage loan 
originator must require each such employee to register with the 
Registry, maintain this registration, and obtain a unique identifier in 
accordance with the requirements of this subpart.
    (ii) Prohibition. A national bank must not permit an employee of the 
bank who is subject to the registration requirements of this subpart to 
act as a mortgage loan originator for the bank unless such employee is 
registered with the Registry pursuant to this subpart.
    (3) Implementation period for initial registration. An employee of a 
national bank who is a mortgage loan originator must complete an initial 
registration with the Registry pursuant to this subpart within 180 days 
from the date that the OCC provides in a public notice that the Registry 
is accepting registrations.
    (4) Employees previously registered or licensed through the 
Registry--(i) In general. If an employee of a national bank was 
registered or licensed through, and obtained a unique identifier from, 
the Registry and has maintained this registration or license before the 
employee becomes subject to this subpart at this bank, then the 
registration requirements of the S.A.F.E. Act and this subpart are 
deemed to be met, provided that:
    (A) The employment information in paragraphs (d)(1)(i)(C) and 
(d)(1)(ii) of this section is updated and the requirements of paragraph 
(d)(2) of this section are met;
    (B) New fingerprints of the employee are submitted to the Registry 
for a background check, as required by paragraph (d)(1)(ix) of this 
section, unless the employee has fingerprints on file with the Registry 
that are less than 3 years old;
    (C) The national bank information required in paragraphs (e)(1)(i) 
(to the extent the bank has not previously met these requirements) and 
(e)(2)(i) of this section is submitted to the Registry; and
    (D) The registration is maintained pursuant to paragraphs (b) and 
(e)(1)(ii) of this section, as of the date that the employee becomes 
subject to this subpart.
    (ii) Rule for certain acquisitions, mergers, or reorganizations. 
When registered or licensed mortgage loan originators become national 
bank employees as a result of an acquisition, merger, or reorganization, 
only the requirements of paragraphs (a)(4)(i)(A), (C), and (D) of this 
section must be met, and these requirements must be met within 60 days 
from the effective date of the acquisition, merger, or reorganization.
    (b) Maintaining registration. (1) A mortgage loan originator who is 
registered with the Registry pursuant to paragraph (a) of this section 
must:
    (i) Except as provided in paragraph (b)(3) of this section, renew 
the registration during the annual renewal period, confirming the 
responses set forth in paragraphs (d)(1)(i) through (viii) of this 
section remain accurate and complete, and updating this information, as 
appropriate; and
    (ii) Update the registration within 30 days of any of the following 
events:
    (A) A change in the name of the registrant;
    (B) The registrant ceases to be an employee of the national bank; or
    (C) The information required under paragraphs (d)(1)(iii) through 
(viii) of this section becomes inaccurate, incomplete, or out-of-date.
    (2) A registered mortgage loan originator must maintain his or her 
registration, unless the individual is no longer engaged in the activity 
of a mortgage loan originator.
    (3) The annual registration renewal requirement set forth in 
paragraph (b)(1) of this section does not apply to a registered mortgage 
loan originator who has completed his or her registration with the 
Registry pursuant to paragraph (a)(1) of this section less than 6 months 
prior to the end of the annual renewal period.

[[Page 415]]

    (c) Effective dates--(1) Registration. A registration pursuant to 
paragraph (a)(1) of this section is effective on the date the Registry 
transmits notification to the registrant that the registrant is 
registered.
    (2) Renewals or updates. A renewal or update pursuant to paragraph 
(b) of this section is effective on the date the Registry transmits 
notification to the registrant that the registration has been renewed or 
updated.
    (d) Required employee information--(1) In general. For purposes of 
the registration required by this section, a national bank must require 
each employee who is a mortgage loan originator to submit to the 
Registry, or must submit on behalf of the employee, the following 
categories of information, to the extent this information is collected 
by the Registry:
    (i) Identifying information, including the employee's:
    (A) Name and any other names used;
    (B) Home address and contact information;
    (C) Principal business location address and business contact 
information;
    (D) Social security number;
    (E) Gender; and
    (F) Date and place of birth;
    (ii) Financial services-related employment history for the 10 years 
prior to the date of registration or renewal, including the date the 
employee became an employee of the bank;
    (iii) Convictions of any criminal offense involving dishonesty, 
breach of trust, or money laundering against the employee or 
organizations controlled by the employee, or agreements to enter into a 
pretrial diversion or similar program in connection with the prosecution 
for such offense(s);
    (iv) Civil judicial actions against the employee in connection with 
financial services-related activities, dismissals with settlements, or 
judicial findings that the employee violated financial services-related 
statutes or regulations, except for actions dismissed without a 
settlement agreement;
    (v) Actions or orders by a State or Federal regulatory agency or 
foreign financial regulatory authority that:
    (A) Found the employee to have made a false statement or omission or 
been dishonest, unfair or unethical; to have been involved in a 
violation of a financial services-related regulation or statute; or to 
have been a cause of a financial services-related business having its 
authorization to do business denied, suspended, revoked, or restricted;
    (B) Are entered against the employee in connection with a financial 
services-related activity;
    (C) Denied, suspended, or revoked the employee's registration or 
license to engage in a financial services-related activity; disciplined 
the employee or otherwise by order prevented the employee from 
associating with a financial services-related business or restricted the 
employee's activities; or
    (D) Barred the employee from association with an entity or its 
officers regulated by the agency or authority or from engaging in a 
financial services-related business;
    (vi) Final orders issued by a State or Federal regulatory agency or 
foreign financial regulatory authority based on violations of any law or 
regulation that prohibits fraudulent, manipulative, or deceptive 
conduct;
    (vii) Revocation or suspension of the employee's authorization to 
act as an attorney, accountant, or State or Federal contractor;
    (viii) Customer-initiated financial services-related arbitration or 
civil action against the employee that required action, including 
settlements, or which resulted in a judgment; and
    (ix) Fingerprints of the employee, in digital form if practicable, 
and any appropriate identifying information for submission to the 
Federal Bureau of Investigation and any governmental agency or entity 
authorized to receive such information in connection with a State and 
national criminal history background check; however, fingerprints 
provided to the Registry that are less than 3 years old may be used to 
satisfy this requirement.
    (2) Employee authorizations and attestation. An employee registering 
as a mortgage loan originator or renewing or updating his or her 
registration under this subpart, and not the employing national bank or 
other employees of the national bank, must:

[[Page 416]]

    (i) Authorize the Registry and the employing institution to obtain 
information related to sanctions or findings in any administrative, 
civil, or criminal action, to which the employee is a party, made by any 
governmental jurisdiction;
    (ii) Attest to the correctness of all information required by 
paragraph (d) of this section, whether submitted by the employee or on 
behalf of the employee by the employing bank; and
    (iii) Authorize the Registry to make available to the public 
information required by paragraphs (d)(1)(i)(A) and (C), and (d)(1)(ii) 
through (viii) of this section.
    (3) Submission of information. A national bank may identify one or 
more employees of the bank who may submit the information required by 
paragraph (d)(1) of this section to the Registry on behalf of the bank's 
employees provided that this individual, and any employee delegated such 
authority, does not act as a mortgage loan originator, consistent with 
paragraph (e)(1)(i)(F) of this section. In addition, a national bank may 
submit to the Registry some or all of the information required by 
paragraphs (d)(1) and (e)(2) of this section for multiple employees in 
bulk through batch processing in a format to be specified by the 
Registry, to the extent such batch processing is made available by the 
Registry.
    (e) Required bank information. A national bank must submit the 
following categories of information to the Registry:
    (1) Bank record. (i) In connection with the registration of one or 
more mortgage loan originators:
    (A) Name, main office address, and business contact information;
    (B) Internal Revenue Service Employer Tax Identification Number 
(EIN);
    (C) Research Statistics Supervision and Discount (RSSD) number, as 
issued by the Board of Governors of the Federal Reserve System;
    (D) Identification of its primary Federal regulator;
    (E) Name(s) and contact information of the individual(s) with 
authority to act as the bank's primary point of contact for the 
Registry;
    (F) Name(s) and contact information of the individual(s) with 
authority to enter the information required by paragraphs (d)(1) and (e) 
of this section to the Registry and who may delegate this authority to 
other individuals. For the purpose of providing information required by 
paragraph (e) of this section, this individual and their delegates must 
not act as mortgage loan originators unless the bank has 10 or fewer 
full time or equivalent employees and is not a subsidiary; and
    (G) If a subsidiary of a national bank, indication that it is a 
subsidiary and the RSSD number of the parent bank.
    (ii) Attestation. The individual(s) identified in paragraphs 
(e)(1)(i)(E) and (F) of this section must comply with Registry protocols 
to verify their identity and must attest that they have the authority to 
enter data on behalf of the national bank, that the information provided 
to the Registry pursuant to this paragraph (e) is correct, and that the 
national bank will keep the information required by this paragraph (e) 
current and will file accurate supplementary information on a timely 
basis.
    (iii) A national bank must update the information required by this 
paragraph (e) of this section within 30 days of the date that this 
information becomes inaccurate.
    (iv) A national bank must renew the information required by 
paragraph (e) of this section on an annual basis.
    (2) Employee information. In connection with the registration of 
each employee who acts as a mortgage loan originator:
    (i) After the information required by paragraph (d) of this section 
has been submitted to the Registry, confirmation that it employs the 
registrant; and
    (ii) Within 30 days of the date the registrant ceases to be an 
employee of the bank, notification that it no longer employs the 
registrant and the date the registrant ceased being an employee.



Sec. 34.104  Policies and procedures.

    A national bank that employs one or more mortgage loan originators 
must adopt and follow written policies and procedures designed to assure 
compliance with this subpart. These policies

[[Page 417]]

and procedures must be appropriate to the nature, size, complexity, and 
scope of the mortgage lending activities of the bank, and apply only to 
those employees acting within the scope of their employment at the bank. 
At a minimum, these policies and procedures must:
    (a) Establish a process for identifying which employees of the bank 
are required to be registered mortgage loan originators;
    (b) Require that all employees of the national bank who are mortgage 
loan originators be informed of the registration requirements of the 
S.A.F.E. Act and this subpart and be instructed on how to comply with 
such requirements and procedures;
    (c) Establish procedures to comply with the unique identifier 
requirements in Sec. 34.105;
    (d) Establish reasonable procedures for confirming the adequacy and 
accuracy of employee registrations, including updates and renewals, by 
comparisons with its own records;
    (e) Establish reasonable procedures and tracking systems for 
monitoring compliance with registration and renewal requirements and 
procedures;
    (f) Provide for independent testing for compliance with this subpart 
to be conducted at least annually by bank personnel or by an outside 
party;
    (g) Provide for appropriate action in the case of any employee who 
fails to comply with the registration requirements of the S.A.F.E. Act, 
this subpart, or the bank's related policies and procedures, including 
prohibiting such employees from acting as mortgage loan originators or 
other appropriate disciplinary actions;
    (h) Establish a process for reviewing employee criminal history 
background reports received pursuant to this subpart, taking appropriate 
action consistent with applicable Federal law, including section 19 of 
the Federal Deposit Insurance Act (12 U.S.C. 1829) and implementing 
regulations with respect to these reports, and maintaining records of 
these reports and actions taken with respect to applicable employees; 
and
    (i) Establish procedures designed to ensure that any third party 
with which the bank has arrangements related to mortgage loan 
origination has policies and procedures to comply with the S.A.F.E. Act, 
including appropriate licensing and/or registration of individuals 
acting as mortgage loan originators.



Sec. 34.105  Use of unique identifier.

    (a) The national bank shall make the unique identifier(s) of its 
registered mortgage loan originator(s) available to consumers in a 
manner and method practicable to the institution.
    (b) A registered mortgage loan originator shall provide his or her 
unique identifier to a consumer:
    (1) Upon request;
    (2) Before acting as a mortgage loan originator; and
    (3) Through the originator's initial written communication with a 
consumer, if any, whether on paper or electronically.



   Sec. Appendix A to Subpart F of Part 34--Examples of Mortgage Loan 

                          Originator Activities

    This Appendix provides examples to aid in the understanding of 
activities that would cause an employee of a national bank to fall 
within or outside the definition of mortgage loan originator. The 
examples in this Appendix are not all inclusive. They illustrate only 
the issue described and do not illustrate any other issues that may 
arise under this subpart. For purposes of the examples below, the term 
``loan'' refers to a residential mortgage loan.
    (a) Taking a loan application. The following examples illustrate 
when an employee takes, or does not take, a loan application.
    (1) Taking an application includes: receiving information provided 
in connection with a request for a loan to be used to determine whether 
the consumer qualifies for a loan, even if the employee:
    (i) Has received the consumer's information indirectly in order to 
make an offer or negotiate a loan;
    (ii) Is not responsible for verifying information;
    (iii) Is inputting information into an online application or other 
automated system on behalf of the consumer; or
    (iv) Is not engaged in approval of the loan, including determining 
whether the consumer qualifies for the loan.
    (2) Taking an application does not include any of the following 
activities performed solely or in combination:

[[Page 418]]

    (i) Contacting a consumer to verify the information in the loan 
application by obtaining documentation, such as tax returns or payroll 
receipts;
    (ii) Receiving a loan application through the mail and forwarding 
it, without review, to loan approval personnel;
    (iii) Assisting a consumer who is filling out an application by 
clarifying what type of information is necessary for the application or 
otherwise explaining the qualifications or criteria necessary to obtain 
a loan product;
    (iv) Describing the steps that a consumer would need to take to 
provide information to be used to determine whether the consumer 
qualifies for a loan or otherwise explaining the loan application 
process;
    (v) In response to an inquiry regarding a prequalified offer that a 
consumer has received from a bank, collecting only basic identifying 
information about the consumer and forwarding the consumer to a mortgage 
loan originator; or
    (vi) Receiving information in connection with a modification to the 
terms of an existing loan to a borrower as part of the bank's loss 
mitigation efforts when the borrower is reasonably likely to default.
    (b) Offering or negotiating terms of a loan. The following examples 
are designed to illustrate when an employee offers or negotiates terms 
of a loan, and conversely, what does not constitute offering or 
negotiating terms of a loan.
    (1) Offering or negotiating the terms of a loan includes:
    (i) Presenting a loan offer to a consumer for acceptance, either 
verbally or in writing, including, but not limited to, providing a 
disclosure of the loan terms after application under the Truth in 
Lending Act, even if:
    (A) Further verification of information is necessary;
    (B) The offer is conditional;
    (C) Other individuals must complete the loan process; or
    (D) Only the rate approved by the bank's loan approval mechanism 
function for a specific loan product is communicated without authority 
to negotiate the rate.
    (ii) Responding to a consumer's request for a lower rate or lower 
points on a pending loan application by presenting to the consumer a 
revised loan offer, either verbally or in writing, that includes a lower 
interest rate or lower points than the original offer.
    (2) Offering or negotiating terms of a loan does not include solely 
or in combination:
    (i) Providing general explanations or descriptions in response to 
consumer queries regarding qualification for a specific loan product, 
such as explaining loan terminology (i.e., debt-to-income ratio); 
lending policies (i.e., the loan-to-value ratio policy of the national 
bank); or product-related services;
    (ii) In response to a consumer's request, informing a consumer of 
the loan rates that are publicly available, such as on the national 
bank's Web site, for specific types of loan products without 
communicating to the consumer whether qualifications are met for that 
loan product;
    (iii) Collecting information about a consumer in order to provide 
the consumer with information on loan products for which the consumer 
generally may qualify, without presenting a specific loan offer to the 
consumer for acceptance, either verbally or in writing;
    (iv) Arranging the loan closing or other aspects of the loan 
process, including communicating with a consumer about those 
arrangements, provided that communication with the consumer only 
verifies loan terms already offered or negotiated;
    (v) Providing a consumer with information unrelated to loan terms, 
such as the best days of the month for scheduling loan closings at the 
bank;
    (vi) Making an underwriting decision about whether the consumer 
qualifies for a loan;
    (vii) Explaining or describing the steps or process that a consumer 
would need to take in order to obtain a loan offer, including 
qualifications or criteria that would need to be met without providing 
guidance specific to that consumer's circumstances; or
    (viii) Communicating on behalf of a mortgage loan originator that a 
written offer, including disclosures provided pursuant to the Truth in 
Lending Act, has been sent to a consumer without providing any details 
of that offer.
    (c) Offering or negotiating a loan for compensation or gain. The 
following examples illustrate when an employee does or does not offer or 
negotiate terms of a loan ``for compensation or gain.''
    (1) Offering or negotiating terms of a loan for compensation or gain 
includes engaging in any of the activities in paragraph (b)(1) of this 
Appendix in the course of carrying out employment duties, even if the 
employee does not receive a referral fee or commission or other special 
compensation for the loan.
    (2) Offering or negotiating terms of a loan for compensation or gain 
does not include engaging in a seller-financed transaction for the 
employee's personal property that does not involve the national bank.



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.

[[Page 419]]

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, 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

[[Page 420]]

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 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

[[Page 421]]

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.
    (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

[[Page 422]]

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 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

[[Page 423]]

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 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

[[Page 424]]

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 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;

[[Page 425]]

    (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 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

[[Page 426]]

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 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

[[Page 427]]

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 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

[[Page 428]]

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 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

[[Page 429]]

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 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

[[Page 430]]

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).



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

[[Page 431]]

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;
    (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.

                           PART 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

[[Page 432]]

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 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

[[Page 433]]

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 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(d). 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

[[Page 434]]

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 
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.

[67 FR 58976, Sept. 19, 2002, as amended at 73 FR 22252, Apr. 24, 2008]



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


[[Page 435]]


[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

    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]

[[Page 436]]



PART 40_PRIVACY OF CONSUMER FINANCIAL INFORMATION--Table of Contents



Sec.
40.1 Purpose and scope.
40.2 Model privacy form and examples.
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.
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--Model Privacy Form

    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, 
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).

[65 FR 35196, June 1, 2000, as amended at 73 FR 22252, Apr. 24, 2008]

[[Page 437]]



Sec. 40.2  Model privacy form and examples.

    (a) Model privacy form. Use of the model privacy form in Appendix A 
of this part, consistent with the instructions in Appendix A, 
constitutes compliance with the notice content requirements of 
Sec. Sec. 40.6 and 40.7 of this part, although use of the model privacy 
form is not required.
    (b) Examples. The examples in this part are not exclusive. 
Compliance with an example, to the extent applicable, constitutes 
compliance with this part.

[74 FR 62916, Dec. 1, 2009]



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.
    (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

[[Page 438]]

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 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.

[[Page 439]]

    (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 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:

[[Page 440]]

    (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 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.

[[Page 441]]



                  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
    (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

[[Page 442]]

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 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

[[Page 443]]

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 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 you disclose nonpublic personal information to third 
parties as authorized under Sec. Sec. 40.14 and 40.15, you are 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, it is sufficient to state that 
you make disclosures to other nonaffiliated companies:
    (1) For your everyday business purposes, such as [include all that 
apply] to process transactions, maintain account(s), respond to court 
orders and legal investigations, or report to credit bureaus; or
    (2) 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:

[[Page 444]]

    (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 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) Model privacy form. Pursuant to Sec. 40.2(a) of this part, a 
model privacy form that meets the notice content requirements of this 
section is included in Appendix A of this part.

[65 FR 35196, June 1, 2000, as amended at 74 FR 62916, Dec. 1, 2009]



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.

[[Page 445]]

    (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:
    (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;

[[Page 446]]

    (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.
    (i) Model privacy form. Pursuant to Sec. 40.2(a) of this part, a 
model privacy form that meets the notice content requirements of this 
section is included in Appendix A of this part.

[65 FR 35196, June 1, 2000, as amended at 74 FR 62916, Dec. 1, 2009]



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

[[Page 447]]

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.
    (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

[[Page 448]]

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 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.

[[Page 449]]

    (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.
    (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

[[Page 450]]

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.



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

[[Page 451]]

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;
    (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

[[Page 452]]

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 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--Model Privacy Form

                        A. The Model Privacy Form


[[Page 453]]


[GRAPHIC] [TIFF OMITTED] TR01DE09.000


[[Page 454]]


[GRAPHIC] [TIFF OMITTED] TR01DE09.001


[[Page 455]]


[GRAPHIC] [TIFF OMITTED] TR01DE09.002


[[Page 456]]


[GRAPHIC] [TIFF OMITTED] TR01DE09.003


[[Page 457]]


[GRAPHIC] [TIFF OMITTED] TR01DE09.004


[[Page 458]]


[GRAPHIC] [TIFF OMITTED] TR01DE09.005


[[Page 459]]


[GRAPHIC] [TIFF OMITTED] TR01DE09.006

                         B. General Instructions

                  1. How the Model Privacy Form Is Used

    (a) The model form may be used, at the option of a financial 
institution, including a group of financial institutions that use a 
common privacy notice, to meet the content requirements of the privacy 
notice and opt-out notice set forth in Sec. Sec. 40.6 and 40.7 of this 
part.
    (b) The model form is a standardized form, including page layout, 
content, format, style, pagination, and shading. Institutions seeking to 
obtain the safe harbor through use of the model form may modify it only 
as described in these Instructions.
    (c) 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 [15 U.S.C. 1681-
1681x] (FCRA), 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.
    (d) The word ``customer'' may be replaced by the word ``member'' 
whenever it appears in the model form, as appropriate.

                2. The Contents of the Model Privacy Form

    The model form consists of two pages, which may be printed on both 
sides of a single sheet of paper, or may appear on two separate pages. 
Where an institution provides a long list of institutions at the end of 
the model form in accordance with Instruction C.3(a)(1), or provides 
additional information in accordance with Instruction C.3(c), and such 
list or additional information exceeds the space available on page two 
of the model form, such list or additional information may extend to a 
third page.
    (a) Page One. The first page consists of the following components:
    (1) Date last revised (upper right-hand corner).
    (2) Title.
    (3) Key frame (Why?, What?, How?).
    (4) Disclosure table (``Reasons we can share your personal 
information'').
    (5) ``To limit our sharing'' box, as needed, for the financial 
institution's opt-out information.
    (6) ``Questions'' box, for customer service contact information.
    (7) Mail-in opt-out form, as needed.
    (b) Page Two. The second page consists of the following components:
    (1) Heading (Page 2).
    (2) Frequently Asked Questions (``Who we are'' and ``What we do'').
    (3) Definitions.
    (4) ``Other important information'' box, as needed.

                 3. The Format of the Model Privacy Form

    The format of the model form may be modified only as described 
below.
    (a) Easily readable type font. Financial institutions that use the 
model form must use an easily readable type font. While a number of 
factors together produce easily readable type font, institutions are 
required to use a minimum of 10-point font (unless otherwise expressly 
permitted in these Instructions) and sufficient spacing between the 
lines of type.
    (b) Logo. A financial institution may include a corporate logo on 
any page of the notice, so long as it does not interfere with the

[[Page 460]]

readability of the model form or the space constraints of each page.
    (c) Page size and orientation. Each page of the model form must be 
printed on paper in portrait orientation, the size of which must be 
sufficient to meet the layout and minimum font size requirements, with 
sufficient white space on the top, bottom, and sides of the content.
    (d) Color. The model form must be printed on white or light color 
paper (such as cream) with black or other contrasting ink color. Spot 
color may be used to achieve visual interest, so long as the color 
contrast is distinctive and the color does not detract from the 
readability of the model form. Logos may also be printed in color.
    (e) Languages. The model form may be translated into languages other 
than English.

            C. Information Required in the Model Privacy Form

    The information in the model form may be modified only as described 
below:

1. Name of the Institution or Group of Affiliated Institutions Providing 
                               the Notice

    Insert the name of the financial institution providing the notice or 
a common identity of affiliated institutions jointly providing the 
notice on the form wherever [name of financial institution] appears.

                               2. Page One

    (a) Last revised date. The financial institution must insert in the 
upper right-hand corner the date on which the notice was last revised. 
The information shall appear in minimum 8-point font as ``rev. [month/
year]'' using either the name or number of the month, such as ``rev. 
July 2009'' or ``rev. 7/09''.
    (b) General instructions for the ``What?'' box.
    (1) The bulleted list identifies the types of personal information 
that the institution collects and shares. All institutions must use the 
term ``Social Security number'' in the first bullet.
    (2) Institutions must use five (5) of the following terms to 
complete the bulleted list: income; account balances; payment history; 
transaction history; transaction or loss history; credit history; credit 
scores; assets; investment experience; credit-based insurance scores; 
insurance claim history; medical information; overdraft history; 
purchase history; account transactions; risk tolerance; medical-related 
debts; credit card or other debt; mortgage rates and payments; 
retirement assets; checking account information; employment information; 
wire transfer instructions.
    (c) General instructions for the disclosure table. The left column 
lists reasons for sharing or using personal information. Each reason 
correlates to a specific legal provision described in paragraph C.2(d) 
of this Instruction. In the middle column, each institution must provide 
a ``Yes'' or ``No'' response that accurately reflects its information 
sharing policies and practices with respect to the reason listed on the 
left. In the right column, each institution must provide in each box one 
of the following three (3) responses, as applicable, that reflects 
whether a consumer can limit such sharing: ``Yes'' if it is required to 
or voluntarily provides an opt-out; ``No'' if it does not provide an 
opt-out; or ``We don't share'' if it answers ``No'' in the middle 
column. Only the sixth row (``For our affiliates to market to you'') may 
be omitted at the option of the institution. See paragraph C.2(d)(6) of 
this Instruction.
    (d) Specific disclosures and corresponding legal provisions.
    (1) For our everyday business purposes. This reason incorporates 
sharing information under Sec. Sec. 40.14 and 40.15 and with service 
providers pursuant to Sec. 40.13 of this part other than the purposes 
specified in paragraphs C.2(d)(2) or C.2(d)(3) of these Instructions.
    (2) For our marketing purposes. This reason incorporates sharing 
information with service providers by an institution for its own 
marketing pursuant to Sec. 40.13 of this part. An institution that 
shares for this reason may choose to provide an opt-out.
    (3) For joint marketing with other financial companies. This reason 
incorporates sharing information under joint marketing agreements 
between two or more financial institutions and with any service provider 
used in connection with such agreements pursuant to Sec. 40.13 of this 
part. An institution that shares for this reason may choose to provide 
an opt-out.
    (4) For our affiliates' everyday business purposes--information 
about transactions and experiences. This reason incorporates sharing 
information specified in sections 603(d)(2)(A)(i) and (ii) of the FCRA. 
An institution that shares for this reason may choose to provide an opt-
out.
    (5) For our affiliates' everyday business purposes--information 
about creditworthiness. This reason incorporates sharing information 
pursuant to section 603(d)(2)(A)(iii) of the FCRA. An institution that 
shares for this reason must provide an opt-out.
    (6) For our affiliates to market to you. This reason incorporates 
sharing information specified in section 624 of the FCRA. This reason 
may be omitted from the disclosure table when: the institution does not 
have affiliates (or does not disclose personal information to its 
affiliates); the institution's affiliates do not use personal 
information in a manner that requires an opt-out; or the institution 
provides the affiliate marketing notice separately. Institutions that 
include

[[Page 461]]

this reason must provide an opt-out of indefinite duration. An 
institution that is required to provide an affiliate marketing opt-out, 
but does not include that opt-out in the model form under this part, 
must comply with section 624 of the FCRA and 12 CFR part 41, subpart C, 
with respect to the initial notice and opt-out and any subsequent 
renewal notice and opt-out. An institution not required to provide an 
opt-out under this subparagraph may elect to include this reason in the 
model form.
    (7) For nonaffiliates to market to you. This reason incorporates 
sharing described in Sec. Sec. 40.7 and 40.10(a) of this part. An 
institution that shares personal information for this reason must 
provide an opt-out.
    (e) To limit our sharing: A financial institution must include this 
section of the model form only if it provides an opt-out. The word 
``choice'' may be written in either the singular or plural, as 
appropriate. Institutions must select one or more of the applicable opt-
out methods described: telephone, such as by a toll-free number; a Web 
site; or use of a mail-in opt-out form. Institutions may include the 
words ``toll-free'' before telephone, as appropriate. An institution 
that allows consumers to opt out online must provide either a specific 
Web address that takes consumers directly to the opt-out page or a 
general Web address that provides a clear and conspicuous direct link to 
the opt-out page. The opt-out choices made available to the consumer who 
contacts the institution through these methods must correspond 
accurately to the ``Yes'' responses in the third column of the 
disclosure table. In the part titled ``Please note'' institutions may 
insert a number that is 30 or greater in the space marked ``[30].'' 
Instructions on voluntary or state privacy law opt-out information are 
in paragraph C.2(g)(5) of these Instructions.
    (f) Questions box. Customer service contact information must be 
inserted as appropriate, where [phone number] or [Web site] appear. 
Institutions may elect to provide either a phone number, such as a toll-
free number, or a Web address, or both. Institutions may include the 
words ``toll-free'' before the telephone number, as appropriate.
    (g) Mail-in opt-out form. Financial institutions must include this 
mail-in form only if they state in the ``To limit our sharing'' box that 
consumers can opt out by mail. The mail-in form must provide opt-out 
options that correspond accurately to the ``Yes'' responses in the third 
column in the disclosure table. Institutions that require customers to 
provide only name and address may omit the section identified as 
``[account ].'' Institutions that require additional or 
different information, such as a random opt-out number or a truncated 
account number, to implement an opt-out election should modify the 
``[account ]'' reference accordingly. This includes 
institutions that require customers with multiple accounts to identify 
each account to which the opt-out should apply. An institution must 
enter its opt-out mailing address: In the far right of this form (see 
version 3); or below the form (see version 4). The reverse side of the 
mail-in opt-out form must not include any content of the model form.
    (1) Joint accountholder. Only institutions that provide their joint 
accountholders the choice to opt out for only one accountholder, in 
accordance with paragraph C.3(a)(5) of these Instructions, must include 
in the far left column of the mail-in form the following statement: ``If 
you have a joint account, your choice(s) will apply to everyone on your 
account unless you mark below. [squ] Apply my choice(s) only to me.'' 
The word ``choice'' may be written in either the singular or plural, as 
appropriate. Financial institutions that provide insurance products or 
services, provide this option, and elect to use the model form may 
substitute the word ``policy'' for ``account'' in this statement. 
Institutions that do not provide this option may eliminate this left 
column from the mail-in form.
    (2) FCRA Section 603(d)(2)(A)(iii) opt-out. If the institution 
shares personal information pursuant to section 603(d)(2)(A)(iii) of the 
FCRA, it must include in the mail-in opt-out form the following 
statement: ``[squ] Do not share information about my creditworthiness 
with your affiliates for their everyday business purposes.''
    (3) FCRA Section 624 opt-out. If the institution incorporates 
section 624 of the FCRA in accord with paragraph C.2(d)(6) of these 
Instructions, it must include in the mail-in opt-out form the following 
statement: ``[squ] Do not allow your affiliates to use my personal 
information to market to me.''
    (4) Nonaffiliate opt-out. If the financial institution shares 
personal information pursuant to Sec. 40.10(a) of this part, it must 
include in the mail-in opt-out form the following statement: ``[squ] Do 
not share my personal information with nonaffiliates to market their 
products and services to me.''
    (5) Additional opt-outs. Financial institutions that use the 
disclosure table to provide opt-out options beyond those required by 
Federal law must provide those opt-outs in this section of the model 
form. A financial institution that chooses to offer an opt-out for its 
own marketing in the mail-in opt-out form must include one of the two 
following statements: ``[squ] Do not share my personal information to 
market to me.'' or ``[squ] Do not use my personal information to market 
to me.'' A financial institution that chooses to offer an opt-out for 
joint marketing must include the following statement: ``[squ] Do not 
share my personal information with other financial institutions to 
jointly market to me.''

[[Page 462]]

    (h) Barcodes. A financial institution may elect to include a barcode 
and/or ``tagline'' (an internal identifier) in 6-point font at the 
bottom of page one, as needed for information internal to the 
institution, so long as these do not interfere with the clarity or text 
of the form.

                               3. Page Two

    (a) General Instructions for the Questions. Certain of the Questions 
may be customized as follows:
    (1) ``Who is providing this notice?'' This question may be omitted 
where only one financial institution provides the model form and that 
institution is clearly identified in the title on page one. Two or more 
financial institutions that jointly provide the model form must use this 
question to identify themselves as required by Sec. 40.9(f) of this 
part. Where the list of institutions exceeds four (4) lines, the 
institution must describe in the response to this question the general 
types of institutions jointly providing the notice and must separately 
identify those institutions, in minimum 8-point font, directly following 
the ``Other important information'' box, or, if that box is not included 
in the institution's form, directly following the ``Definitions.'' The 
list may appear in a multi-column format.
    (2) ``How does [name of financial institution] protect my personal 
information?'' The financial institution may only provide additional 
information pertaining to its safeguards practices following the 
designated response to this question. Such information may include 
information about the institution's use of cookies or other measures it 
uses to safeguard personal information. Institutions are limited to a 
maximum of 30 additional words.
    (3) ``How does [name of financial institution] collect my personal 
information?'' Institutions must use five (5) of the following terms to 
complete the bulleted list for this question: Open an account; deposit 
money; pay your bills; apply for a loan; use your credit or debit card; 
seek financial or tax advice; apply for insurance; pay insurance 
premiums; file an insurance claim; seek advice about your investments; 
buy securities from us; sell securities to us; direct us to buy 
securities; direct us to sell your securities; make deposits or 
withdrawals from your account; enter into an investment advisory 
contract; give us your income information; provide employment 
information; give us your employment history; tell us about your 
investment or retirement portfolio; tell us about your investment or 
retirement earnings; apply for financing; apply for a lease; provide 
account information; give us your contact information; pay us by check; 
give us your wage statements; provide your mortgage information; make a 
wire transfer; tell us who receives the money; tell us where to send the 
money; show your government-issued ID; show your driver's license; order 
a commodity futures or option trade. Institutions that collect personal 
information from their affiliates and/or credit bureaus must include 
after the bulleted list the following statement: ``We also collect your 
personal information from others, such as credit bureaus, affiliates, or 
other companies.'' Institutions that do not collect personal information 
from their affiliates or credit bureaus but do collect information from 
other companies must include the following statement instead: ``We also 
collect your personal information from other companies.'' Only 
institutions that do not collect any personal information from 
affiliates, credit bureaus, or other companies can omit both statements.
    (4) ``Why can't I limit all sharing?'' Institutions that describe 
state privacy law provisions in the ``Other important information'' box 
must use the bracketed sentence: ``See below for more on your rights 
under state law.'' Other institutions must omit this sentence.
    (5) ``What happens when I limit sharing for an account I hold 
jointly with someone else?'' Only financial institutions that provide 
opt-out options must use this question. Other institutions must omit 
this question. Institutions must choose one of the following two 
statements to respond to this question: ``Your choices will apply to 
everyone on your account.'' or ``Your choices will apply to everyone on 
your account--unless you tell us otherwise.'' Financial institutions 
that provide insurance products or services and elect to use the model 
form may substitute the word ``policy'' for ``account'' in these 
statements.
    (b) General Instructions for the Definitions.
    The financial institution must customize the space below the 
responses to the three definitions in this section. This specific 
information must be in italicized lettering to set off the information 
from the standardized definitions.
    (1) Affiliates. As required by Sec. 40.6(a)(3) of this part, where 
[affiliate information] appears, the financial institution must:
    (i) If it has no affiliates, state: ``[name of financial 
institution] has no affiliates;''
    (ii) If it has affiliates but does not share personal information, 
state: ``[name of financial institution] does not share with our 
affiliates;'' or
    (iii) If it shares with its affiliates, state, as applicable: ``Our 
affiliates include companies with a [common corporate identity of 
financial institution] name; financial companies such as [insert 
illustrative list of companies;] nonfinancial companies, such as [insert 
illustrative list of companies]; and others, such as [insert 
illustrative list].''
    (2) Nonaffiliates. As required by Sec. 40.6(c)(3) of this part, 
where [nonaffiliate information] appears, the financial institution 
must:

[[Page 463]]

    (i) If it does not share with nonaffiliated third parties, state: 
``[name of financial institution] does not share with nonaffiliates so 
they can market to you''; or
    (ii) If it shares with nonaffiliated third parties, state, as 
applicable: ``Nonaffiliates we share with can include [list categories 
of companies such as mortgage companies, insurance companies, direct 
marketing companies, and nonprofit organizations].''
    (3) Joint Marketing. As required by Sec. 40.13 of this part, where 
[joint marketing] appears, the financial institution must:
    (i) If it does not engage in joint marketing, state: ``[name of 
financial institution] doesn't jointly market''; or
    (ii) If it shares personal information for joint marketing, state, 
as applicable: ``Our joint marketing partners include [list categories 
of companies such as credit card companies].''
    (c) General instructions for the ``Other important information'' 
box. This box is optional. The space provided for information in this 
box is not limited. Only the following types of information can appear 
in this box.
    (1) State and/or international privacy law information; and/or
    (2) Acknowledgment of receipt form.



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.

              Subpart E_Duties of Furnishers of Information

41.40 Scope.
41.41 Definitions.
41.42 Reasonable policies and procedures concerning the accuracy and 
          integrity of furnished information.
41.43 Direct disputes.

Subparts F-H [Reserved]

    Subpart I_Duties of Users of Consumer Reports Regarding Address 
                   Discrepancies and Records Disposal

41.80-41.81 [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.

Appendixes A-B to Part 41 [Reserved]
Appendix C to Part 41--Model Forms for Opt-Out Notices
Appendix D to Part 41 [Reserved]
Appendix E to Part 41--Interagency Guidelines Concerning the Accuracy 
          and Integrity of Information Furnished to Consumer Reporting 
          Agencies
Appendixes F-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-2, 1681s-3, 
1681t, 1681w, 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.

[[Page 464]]

    (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;
    (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.

[[Page 465]]

    (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 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

[[Page 466]]

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 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

[[Page 467]]

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--
    (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

[[Page 468]]

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;
    (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

[[Page 469]]

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 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

[[Page 470]]

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;
    (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.

[[Page 471]]

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 
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

[[Page 472]]

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 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;

[[Page 473]]

    (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 
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

[[Page 474]]

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
    (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

[[Page 475]]

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 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;

[[Page 476]]

    (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:
    (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.

[[Page 477]]

    (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 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

[[Page 478]]

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 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

[[Page 479]]

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 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

[[Page 480]]

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:
    (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;

[[Page 481]]

    (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 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

[[Page 482]]

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.
    (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

[[Page 483]]

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.



              Subpart E_Duties of Furnishers of Information

    Source: 74 FR 31512, July 1, 2009, unless otherwise noted.



Sec. 41.40  Scope.

    This subpart applies to a national bank, Federal branch and agency 
of a foreign bank, and their respective 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)).



Sec. 41.41  Definitions.

    For purposes of this subpart and Appendix E of this part, the 
following definitions apply:
    (a) Accuracy means that information that a furnisher provides to a 
consumer reporting agency about an account or other relationship with 
the consumer correctly:
    (1) Reflects the terms of and liability for the account or other 
relationship;
    (2) Reflects the consumer's performance and other conduct with 
respect to the account or other relationship; and
    (3) Identifies the appropriate consumer.
    (b) Direct dispute means a dispute submitted directly to a furnisher 
(including a furnisher that is a debt collector) by a consumer 
concerning the accuracy of any information contained in a consumer 
report and pertaining to an account or other relationship that the 
furnisher has or had with the consumer.
    (c) Furnisher means an entity that furnishes information relating to 
consumers to one or more consumer reporting agencies for inclusion in a 
consumer report. An entity is not a furnisher when it:
    (1) Provides information to a consumer reporting agency solely to 
obtain a consumer report in accordance with sections 604(a) and (f) of 
the Fair Credit Reporting Act;
    (2) Is acting as a ``consumer reporting agency'' as defined in 
section 603(f) of the Fair Credit Reporting Act;
    (3) Is a consumer to whom the furnished information pertains; or
    (4) Is a neighbor, friend, or associate of the consumer, or another 
individual

[[Page 484]]

with whom the consumer is acquainted or who may have knowledge about the 
consumer, and who provides information about the consumer's character, 
general reputation, personal characteristics, or mode of living in 
response to a specific request from a consumer reporting agency.
    (d) Identity theft has the same meaning as in 16 CFR 603.2(a).
    (e) Integrity means that information that a furnisher provides to a 
consumer reporting agency about an account or other relationship with 
the consumer:
    (1) Is substantiated by the furnisher's records at the time it is 
furnished;
    (2) Is furnished in a form and manner that is designed to minimize 
the likelihood that the information may be incorrectly reflected in a 
consumer report; and
    (3) Includes the information in the furnisher's possession about the 
account or other relationship that the OCC has:
    (i) Determined that the absence of which would likely be materially 
misleading in evaluating a consumer's creditworthiness, credit standing, 
credit capacity, character, general reputation, personal 
characteristics, or mode of living; and
    (ii) Listed in section I.(b)(2)(iii) of Appendix E of this part.



Sec. 41.42  Reasonable policies and procedures concerning the accuracy and 

integrity of furnished information.

    (a) Policies and procedures. Each furnisher must establish and 
implement reasonable written policies and procedures regarding the 
accuracy and integrity of the information relating to consumers that it 
furnishes to a consumer reporting agency. The policies and procedures 
must be appropriate to the nature, size, complexity, and scope of each 
furnisher's activities.
    (b) Guidelines. Each furnisher must consider the guidelines in 
Appendix E of this part in developing its policies and procedures 
required by this section, and incorporate those guidelines that are 
appropriate.
    (c) Reviewing and updating policies and procedures. Each furnisher 
must review its policies and procedures required by this section 
periodically and update them as necessary to ensure their continued 
effectiveness.



Sec. 41.43  Direct disputes.

    (a) General rule. Except as otherwise provided in this section, a 
furnisher must conduct a reasonable investigation of a direct dispute if 
it relates to:
    (1) The consumer's liability for a credit account or other debt with 
the furnisher, such as direct disputes relating to whether there is or 
has been identity theft or fraud against the consumer, whether there is 
individual or joint liability on an account, or whether the consumer is 
an authorized user of a credit account;
    (2) The terms of a credit account or other debt with the furnisher, 
such as direct disputes relating to the type of account, principal 
balance, scheduled payment amount on an account, or the amount of the 
credit limit on an open-end account;
    (3) The consumer's performance or other conduct concerning an 
account or other relationship with the furnisher, such as direct 
disputes relating to the current payment status, high balance, date a 
payment was made, the amount of a payment made, or the date an account 
was opened or closed; or
    (4) Any other information contained in a consumer report regarding 
an account or other relationship with the furnisher that bears on the 
consumer's creditworthiness, credit standing, credit capacity, 
character, general reputation, personal characteristics, or mode of 
living.
    (b) Exceptions. The requirements of paragraph (a) of this section do 
not apply to a furnisher if:
    (1) The direct dispute relates to:
    (i) The consumer's identifying information (other than a direct 
dispute relating to a consumer's liability for a credit account or other 
debt with the furnisher, as provided in paragraph (a)(1) of this 
section) such as name(s), date of birth, Social Security Number, 
telephone number(s), or address(es);
    (ii) The identity of past or present employers;
    (iii) Inquiries or requests for a consumer report;
    (iv) Information derived from public records, such as judgments, 
bankruptcies, liens, and other legal matters

[[Page 485]]

(unless provided by a furnisher with an account or other relationship 
with the consumer);
    (v) Information related to fraud alerts or active duty alerts; or
    (vi) Information provided to a consumer reporting agency by another 
furnisher; or
    (2) The furnisher has a reasonable belief that the direct dispute is 
submitted by, is prepared on behalf of the consumer by, or is submitted 
on a form supplied to the consumer by, a credit repair organization, as 
defined in 15 U.S.C. 1679a(3), or an entity that would be a credit 
repair organization, but for 15 U.S.C. 1679a(3)(B)(i).
    (c) Direct dispute address. A furnisher is required to investigate a 
direct dispute only if a consumer submits a dispute notice to the 
furnisher at:
    (1) The address of a furnisher provided by a furnisher and set forth 
on a consumer report relating to the consumer;
    (2) An address clearly and conspicuously specified by the furnisher 
for submitting direct disputes that is provided to the consumer in 
writing or electronically (if the consumer has agreed to the electronic 
delivery of information from the furnisher); or
    (3) Any business address of the furnisher if the furnisher has not 
so specified and provided an address for submitting direct disputes 
under paragraphs (c)(1) or (2) of this section.
    (d) Direct dispute notice contents. A dispute notice must include:
    (1) Sufficient information to identify the account or other 
relationship that is in dispute, such as an account number and the name, 
address, and telephone number of the consumer, if applicable;
    (2) The specific information that the consumer is disputing and an 
explanation of the basis for the dispute; and
    (3) All supporting documentation or other information reasonably 
required by the furnisher to substantiate the basis of the dispute. This 
documentation may include, for example: A copy of the relevant portion 
of the consumer report that contains the allegedly inaccurate 
information; a police report; a fraud or identity theft affidavit; a 
court order; or account statements.
    (e) Duty of furnisher after receiving a direct dispute notice. After 
receiving a dispute notice from a consumer pursuant to paragraphs (c) 
and (d) of this section, the furnisher must:
    (1) Conduct a reasonable investigation with respect to the disputed 
information;
    (2) Review all relevant information provided by the consumer with 
the dispute notice;
    (3) Complete its investigation of the dispute and report the results 
of the investigation to the consumer before the expiration of the period 
under section 611(a)(1) of the Fair Credit Reporting Act (15 U.S.C. 
1681i(a)(1)) within which a consumer reporting agency would be required 
to complete its action if the consumer had elected to dispute the 
information under that section; and
    (4) If the investigation finds that the information reported was 
inaccurate, promptly notify each consumer reporting agency to which the 
furnisher provided inaccurate information of that determination and 
provide to the consumer reporting agency any correction to that 
information that is necessary to make the information provided by the 
furnisher accurate.
    (f) Frivolous or irrelevant disputes. (1) A furnisher is not 
required to investigate a direct dispute if the furnisher has reasonably 
determined that the dispute is frivolous or irrelevant. A dispute 
qualifies as frivolous or irrelevant if:
    (i) The consumer did not provide sufficient information to 
investigate the disputed information as required by paragraph (d) of 
this section;
    (ii) The direct dispute is substantially the same as a dispute 
previously submitted by or on behalf of the consumer, either directly to 
the furnisher or through a consumer reporting agency, with respect to 
which the furnisher has already satisfied the applicable requirements of 
the Act or this section; provided, however, that a direct dispute is not 
substantially the same as a dispute previously submitted if the dispute 
includes information listed in paragraph (d) of this section that had 
not previously been provided to the furnisher; or
    (iii) The furnisher is not required to investigate the direct 
dispute because

[[Page 486]]

one or more of the exceptions listed in paragraph (b) of this section 
applies.
    (2) Notice of determination. Upon making a determination that a 
dispute is frivolous or irrelevant, the furnisher must notify the 
consumer of the determination not later than five business days after 
making the determination, by mail or, if authorized by the consumer for 
that purpose, by any other means available to the furnisher.
    (3) Contents of notice of determination that a dispute is frivolous 
or irrelevant. A notice of determination that a dispute is frivolous or 
irrelevant must include the reasons for such determination and identify 
any information required to investigate the disputed information, which 
notice may consist of a standardized form describing the general nature 
of such information.

Subparts F-H [Reserved]



    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 described in 15 U.S.C. 1681a(p), 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 
described in 15 U.S.C. 1681a(p) 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 Identification Program (CIP) rules 
implementing 31 U.S.C. 5318(l) (31 CFR 1020.220);
    (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 described in 15 U.S.C. 1681a(p) 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;

[[Page 487]]

    (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 described in 15 U.S.C. 
1681a(p) 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, as amended at 74 FR 22642, May 14, 2009; 76 
FR 6688, Feb. 8, 2011]



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 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.

[[Page 488]]

    (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.
    (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

[[Page 489]]

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 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. Appendixes 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:
    10. Adding disclosures regarding the treatment of opt-outs by joint 
consumers to comply with Sec. 41.23(a)(2) of this part.

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--Your Choice To 
Stop Marketing

 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

[[Page 490]]

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
     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

[[Page 491]]

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.
     You may choose to stop all marketing from us and 
our affiliates.
     [Your choice to stop marketing from us and our 
affiliates will apply until you tell us to change your choice.]
    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, as amended at 74 FR 22642, May 14, 2009]



                  Sec. Appendix D to Part 41[Reserved]



   Sec. Appendix E to Part 41--Interagency Guidelines Concerning the 

 Accuracy and Integrity of Information Furnished to Consumer Reporting 

                                Agencies

    The OCC encourages voluntary furnishing of information to consumer 
reporting agencies. Section 41.42 of this part requires each furnisher 
to establish and implement reasonable written policies and procedures 
concerning the accuracy and integrity of the information it furnishes to 
consumer reporting agencies. Under Sec. 41.42(b), a furnisher must 
consider the guidelines set forth below in developing its policies and 
procedures. In establishing these policies and procedures, a furnisher 
may include any of its existing policies and procedures that are 
relevant and appropriate. Section 41.42(c) requires each furnisher to 
review its policies and procedures periodically and update them as 
necessary to ensure their continued effectiveness.

       I. Nature, Scope, and Objectives of Policies and Procedures

    (a) Nature and Scope. Section 41.42(a) of this part requires that a 
furnisher's policies and procedures be appropriate to the nature, size, 
complexity, and scope of the furnisher's activities. In developing its 
policies and procedures, a furnisher should consider, for example:
    (1) The types of business activities in which the furnisher engages;
    (2) The nature and frequency of the information the furnisher 
provides to consumer reporting agencies; and
    (3) The technology used by the furnisher to furnish information to 
consumer reporting agencies.
    (b) Objectives. A furnisher's policies and procedures should be 
reasonably designed to promote the following objectives:
    (1) To furnish information about accounts or other relationships 
with a consumer that is accurate, such that the furnished information:
    (i) Identifies the appropriate consumer;
    (ii) Reflects the terms of and liability for those accounts or other 
relationships; and
    (iii) Reflects the consumer's performance and other conduct with 
respect to the account or other relationship;
    (2) To furnish information about accounts or other relationships 
with a consumer that has integrity, such that the furnished information:
    (i) Is substantiated by the furnisher's records at the time it is 
furnished;
    (ii) Is furnished in a form and manner that is designed to minimize 
the likelihood that the information may be incorrectly reflected in a 
consumer report; thus, the furnished information should:
    (A) Include appropriate identifying information about the consumer 
to whom it pertains; and
    (B) Be furnished in a standardized and clearly understandable form 
and manner and with a date specifying the time period to which the 
information pertains; and
    (iii) Includes the credit limit, if applicable and in the 
furnisher's possession;
    (3) To conduct reasonable investigations of consumer disputes and 
take appropriate actions based on the outcome of such investigations; 
and
    (4) To update the information it furnishes as necessary to reflect 
the current status of the consumer's account or other relationship, 
including, for example:

[[Page 492]]

    (i) Any transfer of an account (e.g., by sale or assignment for 
collection) to a third party; and
    (ii) Any cure of the consumer's failure to abide by the terms of the 
account or other relationship.

        II. Establishing and Implementing Policies and Procedures

    In establishing and implementing its policies and procedures, a 
furnisher should:
    (a) Identify practices or activities of the furnisher that can 
compromise the accuracy or integrity of information furnished to 
consumer reporting agencies, such as by:
    (1) Reviewing its existing practices and activities, including the 
technological means and other methods it uses to furnish information to 
consumer reporting agencies and the frequency and timing of its 
furnishing of information;
    (2) Reviewing its historical records relating to accuracy or 
integrity or to disputes; reviewing other information relating to the 
accuracy or integrity of information provided by the furnisher to 
consumer reporting agencies; and considering the types of errors, 
omissions, or other problems that may have affected the accuracy or 
integrity of information it has furnished about consumers to consumer 
reporting agencies;
    (3) Considering any feedback received from consumer reporting 
agencies, consumers, or other appropriate parties;
    (4) Obtaining feedback from the furnisher's staff; and
    (5) Considering the potential impact of the furnisher's policies and 
procedures on consumers.
    (b) Evaluate the effectiveness of existing policies and procedures 
of the furnisher regarding the accuracy and integrity of information 
furnished to consumer reporting agencies; consider whether new, 
additional, or different policies and procedures are necessary; and 
consider whether implementation of existing policies and procedures 
should be modified to enhance the accuracy and integrity of information 
about consumers furnished to consumer reporting agencies.
    (c) Evaluate the effectiveness of specific methods (including 
technological means) the furnisher uses to provide information to 
consumer reporting agencies; how those methods may affect the accuracy 
and integrity of the information it provides to consumer reporting 
agencies; and whether new, additional, or different methods (including 
technological means) should be used to provide information to consumer 
reporting agencies to enhance the accuracy and integrity of that 
information.

           III. Specific Components of Policies and Procedures

    In developing its policies and procedures, a furnisher should 
address the following, as appropriate:
    (a) Establishing and implementing a system for furnishing 
information about consumers to consumer reporting agencies that is 
appropriate to the nature, size, complexity, and scope of the 
furnisher's business operations.
    (b) Using standard data reporting formats and standard procedures 
for compiling and furnishing data, where feasible, such as the 
electronic transmission of information about consumers to consumer 
reporting agencies.
    (c) Maintaining records for a reasonable period of time, not less 
than any applicable recordkeeping requirement, in order to substantiate 
the accuracy of any information about consumers it furnishes that is 
subject to a direct dispute.
    (d) Establishing and implementing appropriate internal controls 
regarding the accuracy and integrity of information about consumers 
furnished to consumer reporting agencies, such as by implementing 
standard procedures and verifying random samples of information provided 
to consumer reporting agencies.
    (e) Training staff that participates in activities related to the 
furnishing of information about consumers to consumer reporting agencies 
to implement the policies and procedures.
    (f) Providing for appropriate and effective oversight of relevant 
service providers whose activities may affect the accuracy or integrity 
of information about consumers furnished to consumer reporting agencies 
to ensure compliance with the policies and procedures.
    (g) Furnishing information about consumers to consumer reporting 
agencies following mergers, portfolio acquisitions or sales, or other 
acquisitions or transfers of accounts or other obligations in a manner 
that prevents re-aging of information, duplicative reporting, or other 
problems that may similarly affect the accuracy or integrity of the 
information furnished.
    (h) Deleting, updating, and correcting information in the 
furnisher's records, as appropriate, to avoid furnishing inaccurate 
information.
    (i) Conducting reasonable investigations of disputes.
    (j) Designing technological and other means of communication with 
consumer reporting agencies to prevent duplicative reporting of 
accounts, erroneous association of information with the wrong 
consumer(s), and other occurrences that may compromise the accuracy or 
integrity of information provided to consumer reporting agencies.

[[Page 493]]

    (k) Providing consumer reporting agencies with sufficient 
identifying information in the furnisher's possession about each 
consumer about whom information is furnished to enable the consumer 
reporting agency properly to identify the consumer.
    (l) Conducting a periodic evaluation of its own practices, consumer 
reporting agency practices of which the furnisher is aware, 
investigations of disputed information, corrections of inaccurate 
information, means of communication, and other factors that may affect 
the accuracy or integrity of information furnished to consumer reporting 
agencies.
    (m) Complying with applicable requirements under the Fair Credit 
Reporting Act and its implementing regulations.

[74 FR 31513, July 1, 2009]



                Sec. Appendixes F-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 1020.220); 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

[[Page 494]]

fraudulently claiming to represent the financial institution or creditor 
or to a fraudulent website. Appropriate responses may include the 
following:
    (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:

[[Page 495]]

   Alerts, Notifications or Warnings from a Consumer Reporting Agency

    1. A fraud or active duty alert is included with a consumer report.
    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 address or telephone number submitted by an unusually 
large number of other persons opening accounts or by 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. 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 496]]

    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, as amended at 74 FR 22642, May 14, 2009; 76 
FR 6688, Feb. 8, 2011]

                         PARTS 42-47 [RESERVED]



PART 48_RETAIL FOREIGN EXCHANGE TRANSACTIONS--Table of Contents



Sec.
48.1 Authority, purpose, and scope.
48.2 Definitions.
48.3 Prohibited transactions.
48.4 Supervisory non-objection.
48.5 Application and closing out of offsetting long and short positions.
48.6 Disclosure.
48.7 Recordkeeping.
48.8 Capital requirements.
48.9 Margin requirements.
48.10 Required reporting to customers.
48.11 Unlawful representations.
48.12 Authorization to trade.
48.13 Trading and operational standards.
48.14 Supervision.
48.15 Notice of transfers.
48.16 Customer dispute resolution.
48.17 Reservation of authority.

    Authority: 7 U.S.C. 27 et seq.; 12 U.S.C. 1 et seq., 24, 93a, 161, 
1461 et seq., 1462a, 1463, 1464, 1813(q), 1818, 1831o, 3101 et seq., 
3102, 3106a, 3108, and 5412.

    Source: 76 FR 41384, July 14, 2011, unless otherwise noted.



Sec. 48.1  Authority, purpose, and scope.

    (a) Authority. (1) National banks. A national bank may offer or 
enter into retail foreign exchange transactions. A national bank 
offering or entering into retail foreign exchange transactions must 
comply with the requirements of this part.
    (2) Federal savings associations. A Federal savings association may 
offer or enter into retail foreign exchange transactions. A Federal 
savings association offering or entering into retail foreign exchange 
transacions must comply with the requirements of this part as if each 
reference to a national bank were a reference to a Federal savings 
association.
    (b) Purpose. This part establishes rules applicable to retail 
foreign exchange transactions engaged in by national banks and applies 
on or after the effective date.
    (c) Scope. Except as provided in paragraph (d) of this section, this 
part applies to national banks.
    (d) International applicability. Sections 48.3 and 48.5 to 48.16 do 
not apply to retail foreign exchange transactions between a foreign 
branch of a national bank and a non-U.S. customer. With respect to those 
transactions, the foreign branch remains subject to any disclosure, 
recordkeeping, capital, margin, reporting, business conduct, 
documentation, and other requirements of foreign law applicable to the 
branch.

[76 FR 41384, July 14, 2011, as amended at 76 FR 56096, Sept. 12, 2011]



Sec. 48.2  Definitions.

    In addition to the definitions in this section, for purposes of this 
part, the following terms have the same meaning as in the Commodity 
Exchange Act: ``Affiliated person of a futures commission merchant''; 
``associated person''; ``contract of sale''; ``commodity''; ``eligible 
contract participant''; ``futures commission merchant''; ``future 
delivery''; ``option''; ``security''; and ``security futures product''.

[[Page 497]]

    Affiliate has the same meaning as in section 2(k) of the Bank 
Holding Company Act of 1956 (12 U.S.C. 1841(k)).
    Commodity Exchange Act means the Commodity Exchange Act (7 U.S.C. 1 
et seq.).
    Federal savings association means a Federal savings association or 
Federal savings bank chartered under section 5 of the Home Owners' Loan 
Act (12 U.S.C. 1464) or an operating subsidiary thereof.
    Forex means foreign exchange.
    Identified banking product has the same meaning as in section 401(b) 
of the Legal Certainty for Bank Products Act of 2000 (7 U.S.C. 27(b)).
    Institution-affiliated party or IAP has the same meaning as in 
section 3(u)(1), (2), or (3) of the Federal Deposit Insurance Act (12 
U.S.C. 1813(u)(1), (2), or (3)).
    Introducing broker means any person that solicits or accepts orders 
from a retail forex customer in connection with retail forex 
transactions.
    National bank means:
    (1) A national bank;
    (2) A Federal branch or agency of a foreign bank, each as defined in 
12 U.S.C. 3101; and
    (3) An operating subsidiary of a national bank or an operating 
subsidiary of a Federal branch or agency of a foreign bank.
    Related person, when used in reference to a retail forex 
counterparty, means:
    (1) Any general partner, officer, director, or owner of 10 percent 
or more of the capital stock of the retail forex counterparty;
    (2) An associated person or employee of the retail forex 
counterparty, if the retail forex counterparty is not a national bank;
    (3) An IAP of the retail forex counterparty, if the retail forex 
counterparty is a national bank; and
    (4) A relative or spouse of any of the foregoing persons, or a 
relative of such spouse, who shares the same home as any of the 
foregoing persons.
    Retail foreign exchange dealer means any person other than a retail 
forex customer that is, or that offers to be, the counterparty to a 
retail forex transaction, except for a person described in item (aa), 
(bb), (cc)(AA), (dd), or (ff) of section 2(c)(2)(B)(i)(II) of the 
Commodity Exchange Act (7 U.S.C. 2(c)(2)(B)(i)(II)).
    Retail forex account means the account of a retail forex customer, 
established with a national bank, in which retail forex transactions 
with the national bank as counterparty are undertaken, or the account of 
a retail forex customer that is established in order to enter into such 
transactions.
    Retail forex account agreement means the contractual agreement 
between a national bank and a retail forex customer that contains the 
terms governing the customer's retail forex account with the national 
bank.
    Retail forex business means engaging in one or more retail forex 
transactions with the intent to derive income from those transactions, 
either directly or indirectly.
    Retail forex counterparty includes, as appropriate:
    (1) A national bank;
    (2) A retail foreign exchange dealer;
    (3) A futures commission merchant; and
    (4) An affiliated person of a futures commission merchant.
    Retail forex customer means a customer that is not an eligible 
contract participant, acting on his, her, or its own behalf and engaging 
in retail forex transactions.
    Retail forex obligation means an obligation of a retail forex 
customer with respect to a retail forex transaction, including trading 
losses, fees, spreads, charges, and commissions.
    Retail forex proprietary account means: A retail forex account 
carried on the books of a national bank for one of the following 
persons; a retail forex account of which 10 percent or more is owned by 
one of the following persons; or a retail forex account of which an 
aggregate of 10 percent or more of which is owned by more than one of 
the following persons:
    (1) The national bank;
    (2) An officer, director, or owner of 10 percent or more of the 
capital stock of the national bank; or
    (3) An employee of the national bank, whose duties include:
    (i) The management of the national bank's business;
    (ii) The handling of the national bank's retail forex transactions;

[[Page 498]]

    (iii) The keeping of records, including without limitation the 
software used to make or maintain those records, pertaining to the 
national bank's retail forex transactions; or
    (iv) The signing or co-signing of checks or drafts on behalf of the 
national bank;
    (4) A spouse or minor dependent living in the same household as any 
of the foregoing persons; or
    (5) An affiliate of the national bank.
    Retail forex transaction means an agreement, contract, or 
transaction in foreign currency, other than an identified banking 
product or a part of an identified banking product, that is offered or 
entered into by a national bank with a person that is not an eligible 
contract participant and that is:
    (1) A contract of sale of a commodity for future delivery or an 
option on such a contract;
    (2) An option, other than an option executed or traded on a national 
securities exchange registered pursuant to section 6(a) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78(f)(a)); or
    (3) Offered or entered into on a leveraged or margined basis, or 
financed by a national bank, its affiliate, or any person acting in 
concert with the national bank or its affiliate on a similar basis, 
other than:
    (i) A security that is not a security futures product as defined in 
section 1a(47) of the Commodity Exchange Act (7 U.S.C. 1a(47)); or
    (ii) A contract of sale that:
    (A) Results in actual delivery within two days; or
    (B) Creates an enforceable obligation to deliver between a seller 
and buyer that have the ability to deliver and accept delivery, 
respectively, in connection with their line of business; or
    (iii) An agreement, contract, or transaction that the OCC determines 
is not functionally or economically similar to:
    (A) A contract of sale of a commodity for future delivery or an 
option on such a contract; or
    (B) An option, other than an option executed or traded on a national 
securities exchange registered pursuant to section 6(a) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78(f)(a)).

[76 FR 41384, July 14, 2011, as amended at 76 FR 56096, Sept. 12, 2011]



Sec. 48.3  Prohibited transactions.

    (a) Fraudulent conduct prohibited. No national bank or its IAPs may, 
directly or indirectly, in or in connection with any retail forex 
transaction:
    (1) Cheat or defraud or attempt to cheat or defraud any person;
    (2) Willfully make or cause to be made to any person any false 
report or statement or cause to be entered for any person any false 
record; or
    (3) Willfully deceive or attempt to deceive any person by any means 
whatsoever.
    (b) Acting as counterparty and exercising discretion prohibited. If 
a national bank can cause retail forex transactions to be effected for a 
retail forex customer without the retail forex customer's specific 
authorization, then neither the national bank nor its affiliates may act 
as the counterparty for any retail forex transaction with that retail 
forex customer.



Sec. 48.4  Supervisory non-objection.

    (a) Supervisory non-objection required. Before commencing a retail 
forex business, a national bank must provide the OCC with prior notice 
and obtain from the OCC a written supervisory non-objection.
    (b) Requirements for obtaining supervisory non-objection.
    (1) In order to obtain a written supervisory non-objection, a 
national bank must:
    (i) Establish to the satisfaction of the OCC that the national bank 
has established and implemented written policies, procedures, and risk 
measurement and management systems and controls for the purpose of 
ensuring that it conducts retail forex transactions in a safe and sound 
manner and in compliance with this part; and
    (ii) Provide such other information as the OCC may require.
    (2) The information provided under paragraph (b)(1) of this section 
must include, without limitation, information regarding:
    (i) Customer due diligence, including without limitation credit 
evaluations,

[[Page 499]]

customer appropriateness, and ``know your customer'' documentation;
    (ii) New product approvals;
    (iii) The haircuts that the national bank will apply to noncash 
margin as provided in Sec. 48.9(b)(2); and
    (iv) Conflicts of interest.
    (c) Treatment of existing retail forex businesses. A national bank 
that is engaged in a retail forex business on July 15, 2011 or September 
12, 2011 for Federal savings associations, may continue to do so for up 
to six months, subject to an extension of time by the OCC, if it 
requests the supervisory non-objection required by paragraph (a) of this 
section within 30 days of July 15, 2011 or September 12, 2011 for 
Federal savings associations, and submits the information required to be 
submitted under paragraph (b) of this section.
    (d) Compliance with the Commodity Exchange Act. A national bank that 
is engaged in a retail forex business on July 15, 2011 or September 12, 
2011 for Federal savings associations and complies with paragraph (c) of 
this section will be deemed, during the six-month or extended period 
described in paragraph (c) of this section, to be acting pursuant to a 
rule or regulation described in section 2(c)(2)(E)(ii)(I) of the 
Commodity Exchange Act (7 U.S.C. 2(c)(2)(E)(ii)(I)).

[76 FR 41384, July 14, 2011, as amended at 76 FR 56096, Sept. 12, 2011]



Sec. 48.5  Application and closing out of offsetting long and short positions.

    (a) Application of purchases and sales. Any national bank that--
    (1) Engages in a retail forex transaction involving the purchase of 
any currency for the account of any retail forex customer when the 
account of such retail forex customer at the time of such purchase has 
an open retail forex transaction for the sale of the same currency;
    (2) Engages in a retail forex transaction involving the sale of any 
currency for the account of any retail forex customer when the account 
of such retail forex customer at the time of such sale has an open 
retail forex transaction for the purchase of the same currency;
    (3) Purchases a put or call option involving foreign currency for 
the account of any retail forex customer when the account of such retail 
forex customer at the time of such purchase has a short put or call 
option position with the same underlying currency, strike price, and 
expiration date as that purchased; or
    (4) Sells a put or call option involving foreign currency for the 
account of any retail forex customer when the account of such retail 
forex customer at the time of such sale has a long put or call option 
position with the same underlying currency, strike price, and expiration 
date as that sold must:
    (i) Immediately apply such purchase or sale against such previously 
held opposite transaction; and
    (ii) Promptly furnish such retail forex customer with a statement 
showing the financial result of the transactions involved and the name 
of any introducing broker to the account.
    (b) Close-out against oldest open position. In all instances in 
which the short or long position in a customer's retail forex account 
immediately prior to an offsetting purchase or sale is greater than the 
quantity purchased or sold, the national bank must apply such offsetting 
purchase or sale to the oldest portion of the previously held short or 
long position.
    (c) Transactions to be applied as directed by customer. 
Notwithstanding paragraphs (a) and (b) of this section, to the extent 
the national bank allows retail forex customers to use other methods of 
offsetting retail forex transactions, the offsetting transaction must be 
applied as directed by a retail forex customer's specific instructions. 
These instructions may not be made by the national bank or an IAP of the 
national bank.



Sec. 48.6  Disclosure.

    (a) Risk disclosure statement required. No national bank may open or 
maintain open an account that will engage in retail forex transactions 
for a retail forex customer unless the national bank has furnished the 
retail forex customer with a separate written disclosure statement 
containing only the language set forth in paragraph (d) of this section 
and the disclosures required by paragraphs (e) and (f) of this section.

[[Page 500]]

    (b) Acknowledgment of risk disclosure statement required. The 
national bank must receive from the retail forex customer a written 
acknowledgment signed and dated by the customer that the customer 
received and understood the written disclosure statement required by 
paragraph (a) of this section.
    (c) Placement of risk disclosure statement. The disclosure statement 
may be attached to other documents as the initial page(s) of such 
documents and as the only material on such page(s).
    (d) Content of risk disclosure statement. The language set forth in 
the written disclosure statement required by paragraph (a) of this 
section is as follows:

                        Risk Disclosure Statement

    Retail forex transactions involve the leveraged trading of contracts 
denominated in foreign currency with [name of entity] as your 
counterparty. Because of the leverage and the other risks disclosed 
here, you can rapidly lose all of the funds or property you pledge to 
[name of entity] as margin for retail forex trading. You may lose more 
than you pledge as margin.
    If your margin falls below the required amount, and you fail to 
provide the required additional margin, [name of entity] is required to 
liquidate your retail forex transactions. [Name of entity] cannot apply 
your retail forex losses to any of your assets or liabilities at [name 
of entity] other than funds or property that you have pledged as margin 
for retail forex transactions. However, if you lose more money than you 
have pledged as margin, [name of entity] may seek to recover that 
deficiency in an appropriate forum, such as a court of law.
    You should be aware of and carefully consider the following points 
before determining whether retail forex trading is appropriate for you.
    (1) Trading is not on a regulated market or exchange--[name of 
entity] is your trading counterparty and has conflicting interests. The 
retail forex transaction you are entering into is not conducted on an 
interbank market nor is it conducted on a futures exchange subject to 
regulation as a designated contract market by the Commodity Futures 
Trading Commission. The foreign currency trades you transact are trades 
with [name of entity] as the counterparty. When you sell, [name of 
entity] is the buyer. When you buy, [name of entity] is the seller. As a 
result, when you lose money trading, [name of entity] is making money on 
such trades, in addition to any fees, commissions, or spreads [name of 
entity] may charge.
    (2) An electronic trading platform for retail foreign currency 
transactions is not an exchange. It is an electronic connection for 
accessing [name of entity]. The terms of availability of such a platform 
are governed only by your contract with [name of entity]. Any trading 
platform that you may use to enter into off-exchange foreign currency 
transactions is only connected to [name of entity]. You are accessing 
that trading platform only to transact with [name of entity]. You are 
not trading with any other entities or customers of [name of entity] by 
accessing such platform. The availability and operation of any such 
platform, including the consequences of the unavailability of the 
trading platform for any reason, is governed only by the terms of your 
account agreement with [name of entity].
    (3) You may be able to offset or liquidate any trading positions 
only through [name of national bank] because the transactions are not 
made on an exchange or regulated contract market, and [name of entity] 
may set its own prices. Your ability to close your transactions or 
offset positions is limited to what [name of entity] will offer to you, 
as there is no other market for these transactions. [Name of entity] may 
offer any prices it wishes, including prices derived from outside 
sources or not in its discretion. [Name of entity] may establish its 
prices by offering spreads from third-party prices, but it is under no 
obligation to do so or to continue to do so. [Name of entity] may offer 
different prices to different customers at any point in time on its own 
terms. The terms of your account agreement alone govern the obligations 
[name of entity] has to you to offer prices and offer offset or 
liquidating transactions in your account and make any payments to you. 
The prices offered by [name of entity] may or may not reflect prices 
available elsewhere at any exchange, interbank, or other market for 
foreign currency.
    (4) Paid solicitors may have undisclosed conflicts. [Name of entity] 
may compensate introducing brokers for introducing your account in ways 
that are not disclosed to you. Such paid solicitors are not required to 
have, and may not have, any special expertise in trading and may have 
conflicts of interest based on the method by which they are compensated. 
You should thoroughly investigate the manner in which all such 
solicitors are compensated and be very cautious in granting any person 
or entity authority to trade on your behalf. You should always consider 
obtaining dated written confirmation of any information you are relying 
on from [name of entity] in making any trading or account decisions.
    (5) Retail forex transactions are not insured by the Federal Deposit 
Insurance Corporation.
    (6) Retail forex transactions are not a deposit in, or guaranteed 
by, [name of entity].

[[Page 501]]

    (7) Retail forex transactions are subject to investment risks, 
including possible loss of all amounts invested.
    Finally, you should thoroughly investigate any statements by [name 
of entity] that minimize the importance of, or contradict, any of the 
terms of this risk disclosure. These statements may indicate sales 
fraud.
    This brief statement cannot, of course, disclose all the risks and 
other aspects of trading off-exchange foreign currency with [name of 
entity].
    I hereby acknowledge that I have received and understood this risk 
disclosure statement.
________________________________________________________________________
Date
________________________________________________________________________
Signature of Customer

                                * * * * *

    (e)(1) Disclosure of profitable accounts ratio. Immediately 
following the language set forth in paragraph (d) of this section, the 
statement required by paragraph (a) of this section must include, for 
each of the most recent four calendar quarters during which the national 
bank maintained retail forex customer accounts:
    (i) The total number of retail forex customer accounts maintained by 
the national bank over which the national bank does not exercise 
investment discretion;
    (ii) The percentage of such accounts that were profitable for retail 
forex customer accounts during the quarter; and
    (iii) The percentage of such accounts that were not profitable for 
retail forex customer accounts during the quarter.
    (2) The national bank's statement of profitable trades must include 
the following legend: ``Past performance is not necessarily indicative 
of future results.'' Each national bank must provide, upon request, to 
any retail forex customer or prospective retail forex customer the total 
number of retail forex accounts maintained by the national bank for 
which the national bank does not exercise investment discretion, the 
percentage of such accounts that were profitable, and the percentage of 
such accounts that were not profitable for each calendar quarter during 
the most recent five-year period during which the national bank 
maintained such accounts.
    (f) Disclosure of fees and other charges. Immediately following the 
language required by paragraph (e) of this section, the statement 
required by paragraph (a) of this section must include:
    (1) The amount of any fee, charge, spread, or commission that the 
national bank may impose on the retail forex customer in connection with 
a retail forex account or retail forex transaction;
    (2) An explanation of how the national bank will determine the 
amount of such fees, charges, spreads, or commissions; and
    (3) The circumstances under which the national bank may impose such 
fees, charges, spreads, or commissions.
    (g) Future disclosure requirements. If, with regard to a retail 
forex customer, the national bank changes any fee, charge, or commission 
required to be disclosed under paragraph (f) of this section, then the 
national bank must mail or deliver to the retail forex customer a notice 
of the changes at least 15 days prior to the effective date of the 
change.
    (h) Form of disclosure requirements. The disclosures required by 
this section must be clear and conspicuous and designed to call 
attention to the nature and significance of the information provided.
    (i) Other disclosure requirements unaffected. This section does not 
relieve a national bank from any other disclosure obligation it may have 
under applicable law.

[76 FR 41384, July 14, 2011, as amended at 76 FR 56096, Sept. 12, 2011]



Sec. 48.7  Recordkeeping.

    (a) General rule. A national bank engaging in retail forex 
transactions must keep full, complete, and systematic records, together 
with all pertinent data and memoranda, pertaining to its retail forex 
business, including the following 6 types of records:
    (1) Retail forex account records. For each retail forex account:
    (i) The name and address of the person for whom the account is 
carried or introduced and the principal occupation or business of the 
person;
    (ii) The name of any other person guaranteeing the account or 
exercising

[[Page 502]]

trading control with respect to the account;
    (iii) The establishment or termination of the account;
    (iv) A means to identify the person that has solicited and is 
responsible for the account;
    (v) The funds in the account, net of any commissions and fees;
    (vi) The account's net profits and losses on open trades;
    (vii) The funds in the account plus or minus the net profits and 
losses on open trades, adjusted for the net option value in the case of 
open options positions;
    (viii) Financial ledger records that show all charges against and 
credits to the account, including deposits, withdrawals, and transfers, 
and charges or credits resulting from losses or gains on closed 
transactions; and
    (ix) A list of all retail forex transactions executed for the 
account, with the details specified in paragraph (a)(2) of this section.
    (2) Retail forex transaction records. For each retail forex 
transaction:
    (i) The date and time the national bank received the order;
    (ii) The price at which the national bank placed the order, or, in 
the case of an option, the premium that the retail forex customer paid;
    (iii) The customer account identification information;
    (iv) The currency pair;
    (v) The size or quantity of the order;
    (vi) Whether the order was a buy or sell order;
    (vii) The type of order, if the order was not a market order;
    (viii) The size and price at which the order is executed, or in the 
case of an option, the amount of the premium paid for each option 
purchased, or the amount credited for each option sold;
    (ix) For options, whether the option is a put or call, expiration 
date, quantity, underlying contract for future delivery or underlying 
physical, strike price, and details of the purchase price of the option, 
including premium, mark-up, commission, and fees; and
    (x) For futures, the delivery date; and
    (xi) If the order was made on a trading platform:
    (A) The price quoted on the trading platform when the order was 
placed, or, in the case of an option, the premium quoted;
    (B) The date and time the order was transmitted to the trading 
platform; and
    (C) The date and time the order was executed.
    (3) Price changes on a trading platform. If a trading platform is 
used, daily logs showing each price change on the platform, the time of 
the change to the nearest second, and the trading volume at that time 
and price.
    (4) Methods or algorithms. Any method or algorithm used to determine 
the bid or asked price for any retail forex transaction or the prices at 
which customer orders are executed, including, but not limited to, any 
markups, fees, commissions or other items which affect the profitability 
or risk of loss of a retail forex customer's transaction.
    (5) Daily records which show for each business day complete details 
of:
    (i) All retail forex transactions that are futures transactions 
executed on that day, including the date, price, quantity, market, 
currency pair, delivery date, and the person for whom such transaction 
was made;
    (ii) All retail forex transactions that are option transactions 
executed on that day, including the date, whether the transaction 
involved a put or call, the expiration date, quantity, currency pair, 
delivery date, strike price, details of the purchase price of the 
option, including premium, mark-up, commission and fees, and the person 
for whom the transaction was made; and
    (iii) All other retail forex transactions executed on that day for 
such account, including the date, price, quantity, currency and the 
person for whom such transaction was made.
    (6) Other records. Written acknowledgments of receipt of the risk 
disclosure statement required by Sec. 48.6(b), offset instructions 
pursuant to Sec. 48.5(c), records required under paragraphs (b) through 
(f) of this section, trading cards, signature cards, street books, 
journals, ledgers, payment records, copies of statements of purchase, 
and all other records, data, and memoranda that have been prepared in 
the course of the national bank's retail forex business.
    (b) Ratio of profitable accounts.

[[Page 503]]

    (1) With respect to its active retail forex customer accounts over 
which it did not exercise investment discretion and that are not retail 
forex proprietary accounts open for any period of time during the 
quarter, a national bank must prepare and maintain on a quarterly basis 
(calendar quarter):
    (i) A calculation of the percentage of such accounts that were 
profitable;
    (ii) A calculation of the percentage of such accounts that were not 
profitable; and
    (iii) Data supporting the calculations described in paragraphs 
(b)(1)(i) and (ii) of this section.
    (2) In calculating whether a retail forex account was profitable or 
not profitable during the quarter, the national bank must compute the 
realized and unrealized gains or losses on all retail forex transactions 
carried in the retail forex account at any time during the quarter, 
subtract all fees, commissions, and any other charges posted to the 
retail forex account during the quarter, and add any interest income and 
other income or rebates credited to the retail forex account during the 
quarter. All deposits and withdrawals of funds made by the retail forex 
customer during the quarter must be excluded from the computation of 
whether the retail forex account was profitable or not profitable during 
the quarter. Computations that result in a zero or negative number must 
be considered a retail forex account that was not profitable. 
Computations that result in a positive number must be considered a 
retail forex account that was profitable.
    (3) A retail forex account must be considered ``active'' for 
purposes of paragraph (b)(1) of this section if and only if for the 
relevant calendar quarter a retail forex transaction was executed in 
that account or the retail forex account contained an open position 
resulting from a retail forex transaction.
    (c) Records related to violations of law. A national bank engaging 
in retail forex transactions must make a record of all communications 
received by the national bank or its IAPs concerning facts giving rise 
to possible violations of law related to the national bank's retail 
forex business. The record must contain: The name of the complainant, if 
provided; the date of the communication; the relevant agreement, 
contract, or transaction; the substance of the communication; the name 
of the person that received the communication; and the final disposition 
of the matter.
    (d) Records for noncash margin. A national bank must maintain a 
record of all noncash margin collected pursuant to Sec. 48.9. The 
record must show separately for each retail forex customer:
    (1) A description of the securities or property received;
    (2) The name and address of such retail forex customer;
    (3) The dates when the securities or property were received;
    (4) The identity of the depositories or other places where such 
securities or property are segregated or held, if applicable;
    (5) The dates in which the national bank placed or removed such 
securities or property into or from such depositories; and
    (6) The dates of return of such securities or property to such 
retail forex customer, or other disposition thereof, together with the 
facts and circumstances of such other disposition.
    (e) Order Tickets.
    (1) Except as provided in paragraph (e)(2) of this section, 
immediately upon the receipt of a retail forex transaction order, a 
national bank must prepare an order ticket for the order (whether 
unfulfilled, executed, or canceled). The order ticket must include:
    (i) Account identification (account or customer name with which the 
retail forex transaction was effected);
    (ii) Order number;
    (iii) Type of order (market order, limit order, or subject to 
special instructions);
    (iv) Date and time, to the nearest minute, that the retail forex 
transaction order was received (as evidenced by time-stamp or other 
timing device);
    (v) Time, to the nearest minute, that the retail forex transaction 
order was executed; and
    (vi) Price at which the retail forex transaction was executed.
    (2) Post-execution allocation of bunched orders. Specific 
identifiers for retail forex accounts included in bunched orders need 
not be recorded at time of

[[Page 504]]

order placement or upon report of execution as required under paragraph 
(e)(1) of this section if the following requirements are met:
    (i) The national bank placing and directing the allocation of an 
order eligible for post-execution allocation has been granted written 
investment discretion with regard to participating customer accounts and 
makes the following information available to retail forex customers upon 
request:
    (A) The general nature of the post-execution allocation methodology 
the national bank will use;
    (B) Whether the national bank has any interest in accounts that may 
be included with customer accounts in bunched orders eligible for post-
execution allocation; and
    (C) Summary or composite data sufficient for that customer to 
compare the customer's results with those of other comparable customers 
and, if applicable, any account in which the national bank has an 
interest.
    (ii) Post-execution allocations are made as soon as practicable 
after the entire transaction is executed;
    (iii) Post-execution allocations are fair and equitable, with no 
account or group of accounts receiving consistently favorable or 
unfavorable treatment; and
    (iv) The post-execution allocation methodology is sufficiently 
objective and specific to permit the OCC to verify the fairness of the 
allocations using that methodology.
    (f) Record of monthly statements and confirmations. A national bank 
must retain a copy of each monthly statement and confirmation required 
by Sec. 48.10.
    (g) Form of record and 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. 
A national bank must create and maintain audio recordings of oral orders 
and oral offset instructions. Record maintenance may include the use of 
automated or electronic records provided that the records are easily 
retrievable and readily available for inspection.
    (h) Length of maintenance. A national bank must keep each record 
required by this section for at least five years from the date the 
record is created.



Sec. 48.8  Capital requirements.

    A national bank offering or entering into retail forex transactions 
must be well capitalized as defined by 12 CFR part 6.



Sec. 48.9  Margin requirements.

    (a) Margin required. A national bank engaging, or offering to 
engage, in retail forex transactions must collect from each retail forex 
customer an amount of margin not less than:
    (1) Two percent of the notional value of the retail forex 
transaction for major currency pairs and 5 percent of the notional value 
of the retail forex transaction for all other currency pairs;
    (2) For short options, 2 percent for major currency pairs and 5 
percent for all other currency pairs of the notional value of the retail 
forex transaction, plus the premium received by the retail forex 
customer; or
    (3) For long options, the full premium charged and received by the 
national bank.
    (b)(1) Form of margin. Margin collected under paragraph (a) of this 
section or pledged by a retail forex customer for retail forex 
transactions must be in the form of cash or the following financial 
instruments:
    (i) Obligations of the United States and obligations fully 
guaranteed as to principal and interest by the United States;
    (ii) General obligations of any State or of any political 
subdivision thereof;
    (iii) General obligations issued or guaranteed by any enterprise, as 
defined in 12 U.S.C. 4502(10);
    (iv) Certificates of deposit issued by an insured depository 
institution, as defined in section 3(c)(2) of the Federal Deposit 
Insurance Act (12 U.S.C. 1813(c)(2));
    (v) Commercial paper;
    (vi) Corporate notes or bonds;
    (vii) General obligations of a sovereign nation;
    (viii) Interests in money market mutual funds; and
    (ix) Such other financial instruments as the OCC deems appropriate.

[[Page 505]]

    (2) Haircuts. A national bank must establish written policies and 
procedures that include:
    (i) Haircuts for noncash margin collected under this section; and
    (ii) Annual evaluation, and, if appropriate, modification, of the 
haircuts.
    (c) Separate margin account. Margin collected by the national bank 
from a retail forex customer for retail forex transactions or pledged by 
a retail forex customer for retail forex transactions must be placed 
into a separate account.
    (d) Margin calls; liquidation of position.
    (1) For each retail forex customer, at least once per day, a 
national bank must:
    (i) Mark the value of the retail forex customer's open retail forex 
positions to market;
    (ii) Mark the value of the margin collected under this section from 
the retail forex customer to market; and
    (iii) Determine whether, based on the marks in paragraphs (d)(1)(i) 
and (ii) of this section, the national bank has collected margin from 
the retail forex customer sufficient to satisfy the requirements of this 
section.
    (2) If, pursuant to paragraph (d)(1)(iii) of this section, the 
national bank determines that it has not collected margin from the 
retail forex customer sufficient to satisfy the requirements of this 
section then, within a reasonable period of time, the national bank must 
either:
    (i) Collect margin from the retail forex customer sufficient to 
satisfy the requirements of this section; or
    (ii) Liquidate the retail forex customer's retail forex 
transactions.
    (e) Set-off prohibited. A national bank may not:
    (1) Apply a retail forex customer's retail forex obligations against 
any funds or other asset of the retail forex customer other than margin 
in the separate margin account described in paragraph (c) of this 
section;
    (2) Apply a retail forex customer's retail forex obligations to 
increase the amount owed by the retail forex customer to the national 
bank under any loan; or
    (3) Collect the margin required under this section by use of any 
right of set-off.



Sec. 48.10  Required reporting to customers.

    (a) Monthly statements. Each national bank must promptly furnish to 
each retail forex customer, as of the close of the last business day of 
each month or as of any regular monthly date selected, except for 
accounts in which there are neither open positions at the end of the 
statement period nor any changes to the account balance since the prior 
statement period but, in any event, not less frequently than once every 
three months, a statement that clearly shows:
    (1) For each retail forex customer:
    (i) The open retail forex transactions with prices at which 
acquired;
    (ii) The net unrealized profits or losses in all open retail forex 
transactions marked to the market;
    (iii) Any money, securities, or other property in the separate 
margin account required by Sec. 48.9(c); and
    (iv) A detailed accounting of all financial charges and credits to 
the retail forex customer's retail forex accounts during the monthly 
reporting period, including: Money, securities, or property received 
from or disbursed to such customer; realized profits and losses; and 
fees, charges, spreads, and commissions.
    (2) For each retail forex customer engaging in retail forex 
transactions that are options:
    (i) All such options purchased, sold, exercised, or expired during 
the monthly reporting period, identified by underlying retail forex 
transaction or underlying currency, strike price, transaction date, and 
expiration date;
    (ii) The open option positions carried for such customer and arising 
as of the end of the monthly reporting period, identified by underlying 
retail forex transaction or underlying currency, strike price, 
transaction date, and expiration date;
    (iii) All such option positions marked to the market and the amount 
each position is in the money, if any;
    (iv) Any money, securities, or other property in the separate margin 
account required by Sec. 48.9(c); and
    (v) A detailed accounting of all financial charges and credits to 
the retail forex customer's retail forex accounts during the monthly 
reporting period,

[[Page 506]]

including: Money, securities, or property received from or disbursed to 
such customer; realized profits and losses; premiums and mark-ups; and 
fees, charges, and commissions.
    (b) Confirmation statement. Each national bank must, not later than 
the next business day after any retail forex transaction, send:
    (1) To each retail forex customer, a written confirmation of each 
retail forex transaction caused to be executed by it for the customer, 
including offsetting transactions executed during the same business day 
and the rollover of an open retail forex transaction to the next 
business day;
    (2) To each retail forex customer engaging in forex option 
transactions, a written confirmation of each forex option transaction, 
containing at least the following information:
    (i) The retail forex customer's account identification number;
    (ii) A separate listing of the actual amount of the premium, as well 
as each markup thereon, if applicable, and all other commissions, costs, 
fees, and other charges incurred in connection with the forex option 
transaction;
    (iii) The strike price;
    (iv) The underlying retail forex transaction or underlying currency;
    (v) The final exercise date of the forex option purchased or sold; 
and
    (vi) The date that the forex option transaction was executed.
    (3) To each retail forex customer engaging in forex option 
transactions, upon the expiration or exercise of any option, a written 
confirmation statement thereof, which statement must include the date of 
such occurrence, a description of the option involved, and, in the case 
of exercise, the details of the retail forex or physical currency 
position that resulted therefrom including, if applicable, the final 
trading date of the retail forex transaction underlying the option.
    (c) Notwithstanding paragraph (b) of this section, a retail forex 
transaction that is caused to be executed for a pooled investment 
vehicle that engages in retail forex transactions need be confirmed only 
to the operator of such pooled investment vehicle.
    (d) Controlled accounts. With respect to any account controlled by 
any person other than the retail forex customer for whom such account is 
carried, each national bank must promptly furnish in writing to such 
other person the information required by paragraphs (a) and (b) of this 
section.
    (e) Introduced accounts. Each statement provided pursuant to the 
provisions of this section must, if applicable, show that the account 
for which the national bank was introduced by an introducing broker and 
the name of the introducing broker.



Sec. 48.11  Unlawful representations.

    (a) No implication or representation of limiting losses. No national 
bank engaged in retail foreign exchange transactions or its IAPs may 
imply or represent that it will, with respect to any retail customer 
forex account, for or on behalf of any person:
    (1) Guarantee such person or account against loss;
    (2) Limit the loss of such person or account; or
    (3) Not call for or attempt to collect margin as established for 
retail forex customers.
    (b) No implication of representation of engaging in prohibited acts. 
No national bank or its IAPs may in any way imply or represent that it 
will engage in any of the acts or practices described in paragraph (a) 
of this section.
    (c) No Federal government endorsement. No national bank or its IAPs 
may represent or imply in any manner whatsoever that any retail forex 
transaction or retail forex product has been sponsored, recommended, or 
approved by the OCC, the Federal government, or any agency thereof.
    (d) Assuming or sharing of liability from bank error. This section 
does not prevent a national bank from assuming or sharing in the losses 
resulting from the national bank's error or mishandling of a retail 
forex transaction.
    (e) Certain guaranties unaffected. This section does not affect any 
guarantee entered into prior to the effective date of this part, but 
this section does apply to any extension, modification, or renewal 
thereof entered into after such date.

[[Page 507]]



Sec. 48.12  Authorization to trade.

    (a) Specific authorization required. No national bank may directly 
or indirectly effect a retail forex transaction for the account of any 
retail forex customer unless, before the retail forex transaction 
occurs, the retail forex customer specifically authorized the national 
bank to effect the retail forex transaction.
    (b) Requirements for specific authorization. A retail forex 
transaction is ``specifically authorized'' for purposes of this section 
if the retail forex customer specifies:
    (1) The precise retail forex transaction to be effected;
    (2) The exact amount of the foreign currency to be purchased or 
sold; and
    (3) In the case of an option, the identity of the foreign currency 
or contract that underlies the option.



Sec. 48.13  Trading and operational standards.

    (a) Internal rules, procedures, and controls required. A national 
bank engaging in retail forex transactions must establish and implement 
internal policies, procedures, and controls designed, at a minimum, to:
    (1) Ensure, to the extent reasonable, that each retail forex 
transaction that is executable at or near the price that the national 
bank has quoted to the retail forex customer is entered for execution 
before any retail forex transaction for:
    (i) A proprietary account;
    (ii) An account for which a related person may originate orders 
without the prior specific consent of the account owner, if the related 
person has gained knowledge of the retail forex customer's order prior 
to the transmission of an order for a proprietary account;
    (iii) An account in which a related person has an interest, if the 
related person has gained knowledge of the retail forex customer's order 
prior to the transmission of an order for a proprietary account; or
    (iv) An account in which a related person may originate orders 
without the prior specific consent of the account owner, if the related 
person has gained knowledge of the retail forex customer's order prior 
to the transmission of an order for a proprietary account;
    (2) Prevent national-bank related persons from placing orders, 
directly or indirectly, with another person in a manner designed to 
circumvent the provisions of paragraph (a)(1) of this section; and
    (3) Fairly and objectively establish settlement prices for retail 
forex transactions.
    (b) Disclosure of retail forex transactions. No national bank 
engaging in retail forex transactions may disclose that an order of 
another person is being held by the national bank, unless the disclosure 
is necessary to the effective execution of such order or the disclosure 
is made at the request of the OCC.
    (c) Handling of retail forex accounts of related persons of retail 
forex counterparties. No national bank engaging in retail forex 
transactions may knowingly handle the retail forex account of an 
employee of another retail forex counterparty's retail forex business 
unless the national bank:
    (1) Receives written authorization from a person designated by the 
other retail forex counterparty with responsibility for the surveillance 
over the account pursuant to paragraph (a)(2) of this section;
    (2) Prepares immediately upon receipt of an order for the account a 
written record of the order, including the account identification and 
order number, and records thereon to the nearest minute, by time-stamp 
or other timing device, the date and time the order was received; and
    (3) Transmits on a regular basis to the other retail forex 
counterparty copies of all statements for the account and of all written 
records prepared upon the receipt of orders for the account pursuant to 
paragraph (c)(2) of this section.
    (d) Related person of national bank establishing account at another 
retail forex counterparty. No related person of a national bank working 
in the national bank's retail forex business may have an account, 
directly or indirectly, with another retail forex counterparty unless 
the other retail forex counterparty:

[[Page 508]]

    (1) Receives written authorization to open and maintain the account 
from a person designated by the national bank with responsibility for 
the surveillance over the account pursuant to paragraph (a)(2) of this 
section; and
    (2) Transmits on a regular basis to the national bank copies of all 
statements for the account and of all written records prepared by the 
other retail forex counterparty upon receipt of orders for the account 
pursuant to paragraph (a)(2) of this section.
    (e) Prohibited trading practices. No national bank engaging in 
retail forex transactions may:
    (1) Enter into a retail forex transaction, to be executed pursuant 
to a market or limit order at a price that is not at or near the price 
at which other retail forex customers, during that same time period, 
have executed retail forex transactions with the national bank;
    (2) Adjust or alter prices for a retail forex transaction after the 
transaction has been confirmed to the retail forex customer;
    (3) Provide to a retail forex customer a new bid price for a retail 
forex transaction that is higher than its previous bid without providing 
a new asked price that is also higher than its previous asked price by a 
similar amount;
    (4) Provide to a retail forex customer a new bid price for a retail 
forex transaction that is lower than its previous bid without providing 
a new asked price that is also lower than its previous asked price by a 
similar amount; or
    (5) Establish a new position for a retail forex customer (except one 
that offsets an existing position for that retail forex customer) where 
the national bank holds outstanding orders of other retail forex 
customers for the same currency pair at a comparable price.



Sec. 48.14  Supervision.

    (a) Supervision by the national bank. A national bank engaging in 
retail forex transactions must diligently supervise the handling by its 
officers, employees, and agents (or persons occupying a similar status 
or performing a similar function) of all retail forex accounts carried, 
operated, or advised by at the national bank and all activities of its 
officers, employees, and agents (or persons occupying a similar status 
or performing a similar function) relating to its retail forex business.
    (b) Supervision by officers, employees, or agents. An officer, 
employee, or agent of a national bank must diligently supervise his or 
her subordinates' handling of all retail forex accounts at the national 
bank and all the subordinates' activities relating to the national 
bank's retail forex business.



Sec. 48.15  Notice of transfers.

    (a) Prior notice generally required. Except as provided in paragraph 
(b) of this section, a national bank must provide a retail forex 
customer with 30 days' prior notice of any assignment of any position or 
transfer of any account of the retail forex customer. The notice must 
include a statement that the retail forex customer is not required to 
accept the proposed assignment or transfer and may direct the national 
bank to liquidate the positions of the retail forex customer or transfer 
the account to a retail forex counterparty of the retail forex 
customer's selection.
    (b) Exceptions. The requirements of paragraph (a) of this section do 
not apply to transfers:
    (1) Requested by the retail forex customer;
    (2) Made by the Federal Deposit Insurance Corporation as receiver or 
conservator under the Federal Deposit Insurance Act; or
    (3) Otherwise authorized by applicable law.
    (c) Obligations of transferee national bank. A national bank to 
which retail forex accounts or positions are assigned or transferred 
under paragraph (a) of this section must provide to the affected retail 
forex customers the risk disclosure statements and forms of 
acknowledgment required by this part and receive the required signed 
acknowledgments within 60 days of such assignments or transfers. This 
requirement does not apply if the national bank has clear written 
evidence that the retail forex customer has received and acknowledged 
receipt of the required disclosure statements.

[[Page 509]]



Sec. 48.16  Customer dispute resolution.

    (a) Voluntary submission of claims to dispute or settlement 
procedures. No national bank may enter into any agreement or 
understanding with a retail forex customer in which the customer agrees, 
prior to the time a claim or grievance arises, to submit such claim or 
grievance to any settlement procedure unless the following conditions 
are satisfied:
    (1) Signing the agreement is not a condition for the customer to use 
the services offered by the national bank.
    (2) If the agreement is contained as a clause or clauses of a 
broader agreement, the customer separately endorses the clause or 
clauses.
    (3) The agreement advises the retail forex customer that, at such 
time as the customer notifies the national bank that the customer 
intends to submit a claim to arbitration, or at such time the national 
bank notifies the customer of its intent to submit a claim to 
arbitration, the customer will have the opportunity to choose a person 
qualified in dispute resolution to conduct the proceeding.
    (4) The agreement must acknowledge that the national bank will pay 
any incremental fees that may be assessed in connection with the dispute 
resolution, unless it is determined in the proceeding that the retail 
forex customer has acted in bad faith in initiating the proceeding.
    (5) The agreement must include the following language printed in 
large boldface type:

    Two forums exist for the resolution of disputes related to retail 
forex transactions: civil court litigation and arbitration conducted by 
a private organization. The opportunity to settle disputes by 
arbitration may in some cases provide benefits to customers, including 
the ability to obtain an expeditious and final resolution of disputes 
without incurring substantial cost. Each customer must individually 
examine the relative merits of arbitration and consent to this 
arbitration agreement must be voluntary.
    By signing this agreement, you: (1) May be waving your right to sue 
in a court of law; and (2) are agreeing to be bound by arbitration of 
any claims or counterclaims that you or [name of entity] may submit to 
arbitration under this agreement. In the event a dispute arises, you 
will be notified if [name of entity] intends to submit the dispute to 
arbitration.
    You need not sign this agreement to open or maintain a retail forex 
account with [name of entity].

                                * * * * *

    (b) Election of forum.
    (1) Within 10 business days after receipt of notice from the retail 
forex customer that the customer intends to submit a claim to 
arbitration, the national bank must provide the customer with a list of 
persons qualified in dispute resolution.
    (2) The customer must, within 45 days after receipt of such list, 
notify the national bank of the person selected. The customer's failure 
to provide such notice must give the national bank the right to select a 
person from the list.
    (c) Enforceability. A dispute settlement procedure may require 
parties using the procedure to agree, under applicable state law, 
submission agreement, or otherwise, to be bound by an award rendered in 
the procedure if the agreement to submit the claim or grievance to the 
procedure complies with paragraph (a) of this section or the agreement 
to submit the claim or grievance to the procedure was made after the 
claim or grievance arose. Any award so rendered by the procedure will be 
enforceable in accordance with applicable law.
    (d) Time limits for submission of claims. The dispute settlement 
procedure used by the parties may not include any unreasonably short 
limitation period foreclosing submission of a customer's claims or 
grievances or counterclaims.
    (e) Counterclaims. A procedure for the settlement of a retail forex 
customer's claims or grievances against a national bank or employee 
thereof may permit the submission of a counterclaim in the procedure by 
a person against whom a claim or grievance is brought if the 
counterclaim:
    (1) Arises out of the transaction or occurrence that is the subject 
of the retail forex customer's claim or grievance; and
    (2) Does not require for adjudication the presence of essential 
witnesses,

[[Page 510]]

parties, or third persons over which the settlement process lacks 
jurisdiction.

[76 FR 41384, July 14, 2011, as amended at 76 FR 56097, Sept. 12, 2011]



Sec. 48.17  Reservation of authority.

    The OCC may modify the disclosure, recordkeeping, capital and 
margin, reporting, business conduct, documentation, or other standards 
or requirements under this part for a specific retail forex transaction 
or a class of retail forex transactions if the OCC determines that the 
modification is consistent with safety and soundness and the protection 
of retail forex customers.

                         PARTS 49-99 [RESERVED]



PART 100_RULES APPLICABLE TO SAVINGS ASSOCIATIONS--Table of Contents



    Authority: 12 U.S.C. 1462a, 1463, 5412(b)(2)(B), 5414(b)(2).

    Source: 76 FR 48956, Aug. 9, 2011, unless otherwise noted.



Sec. 100.1  Certain regulations superseded.

    Effective on July 21, 2011, section 312(b)(2)(B) of the Dodd-Frank 
Wall Street Reform and Consumer Protection Act (Pub. L. 111-203, 124 
Stat. 1376 (2010)) (12 U.S.C. 5412(b)(2)(B)) transferred rulemaking 
authority of the Office of Thrift Supervision (OTS) relating to all 
savings associations, both state and Federal to the OCC. The regulations 
set forth in parts 100 through 197 of this Chapter I applying to Federal 
savings associations and state savings associations, as those terms are 
defined in section 3(b) of the Federal Deposit Insurance Act (12 U.S.C. 
1813(b)), supersede corresponding regulations set forth in parts 500 
through 591 of Chapter V of the Code of Federal Regulations that were 
applicable to such entities prior to July 21, 2011.



Sec. 100.2  Waiver authority.

    The Comptroller of the Currency may, for good cause and to the 
extent permitted by statute, waive the applicability of any provision of 
parts 100 through 197.

                        PARTS 101-107 [RESERVED]



PART 108_REMOVALS, SUSPENSIONS, AND PROHIBITIONS WHERE A CRIME IS CHARGED OR 

PROVEN--Table of Contents



Sec.
108.1 Scope.
108.2 Definitions.
108.3 Issuance of Notice or Order.
108.4 Contents and service of the Notice or Order.
108.5 Petition for hearing.
108.6 Initiation of hearing.
108.7 Conduct of hearings.
108.8 Default.
108.9 Rules of evidence.
108.10 Burden of persuasion.
108.11 Relevant considerations.
108.12 Proposed findings and conclusions and recommended decision.
108.13 Decision of the OCC.
108.14 Miscellaneous.

    Authority: 12 U.S.C. 1464, 1818, 5412(b)(2)(B).

    Source: 76 FR 48956, Aug. 9, 2011, unless otherwise noted.



Sec. 108.1  Scope.

    The rules in this part apply to hearings, which are exempt from the 
adjudicative provisions of the Administrative Procedure Act, afforded to 
any officer, director, or other person participating in the conduct of 
the affairs of a Federal savings association, Federal savings 
association subsidiary, or affiliate service corporation, where such 
person has been suspended or removed from office or prohibited from 
further participation in the conduct of the affairs of one of the 
aforementioned entities by a Notice or Order served by the OCC upon the 
grounds set forth in section 8(g) of the Federal Deposit Insurance Act, 
(12 U.S.C. 1818(g)).



Sec. 108.2  Definitions.

    As used in this part--
    (a) The term OCC means the Office of the Comptroller of the 
Currency.
    (b) [Reserved]
    (c) The term Notice means a Notice of Suspension or Notice of 
Prohibition issued by the OCC pursuant to section 8(g) of the Federal 
Deposit Insurance Act.
    (d) The term Order means an Order of Removal or Order of Prohibition 
issued

[[Page 511]]

by the OCC pursuant to section 8(g) of the Federal Deposit Insurance 
Act.
    (e) The term association means a Federal savings association within 
the meaning of section 2(5) of the Home Owners' Loan Act of 1933, as 
amended, 12 U.S.C. 1462(5) (``HOLA''), Federal savings association 
subsidiary and an affiliate service corporation within the meaning of 
section 8(b)(8) of the Federal Deposit Insurance Act, as amended, 12 
U.S.C. 1818(b)(8) (``FDIA'').
    (f) The term subject individual means a person served with a Notice 
or Order.
    (g) The term petitioner means a subject individual who has filed a 
petition for informal hearing under this part.



Sec. 108.3  Issuance of Notice or Order.

    (a) The OCC may issue and serve a Notice upon an officer, director, 
or other person participating in the conduct of the affairs of an 
association, where the individual is charged in any information, 
indictment, or complaint with the commission of or participation in a 
crime involving dishonesty or breach of trust that is punishable by 
imprisonment for a term exceeding one year under state or Federal law, 
if the OCC, upon due deliberation, determines that continued service or 
participation by the individual may pose a threat to the interests of 
the association's depositors or may threaten to impair public confidence 
in the association. The Notice shall remain in effect until the 
information, indictment, or complaint is finally disposed of or until 
terminated by the OCC.
    (b) The OCC may issue and serve an Order upon a subject individual 
against whom a judgment of conviction, or an agreement to enter a 
pretrial diversion or other similar program has been rendered, where 
such judgment is not subject to further appellate review, and the OCC, 
upon the deliberation, has determined that continued service or 
participation by the subject individual may pose a threat to the 
interests of the association's depositors or may threaten to impair 
public confidence in the association.



Sec. 108.4  Contents and service of the Notice or Order.

    (a) The Notice or Order shall set forth the basis and facts in 
support of the OCC's issuance of such Notice or Order, and shall inform 
the subject individual of his right to a hearing, in accordance with 
this part, for the purpose of determining whether the Notice or Order 
should be continued, terminated, or otherwise modified.
    (b) The OCC shall serve a copy of the Notice or Order upon the 
subject individual and the related association in the manner set forth 
in Sec. 109.11 of this chapter.
    (c) Upon receipt of the Notice or Order, the subject individual 
shall immediately comply with the requirements thereof.



Sec. 108.5  Petition for hearing.

    (a) To obtain a hearing, the subject individual must file two copies 
of a petition with the OCC within 30 days of being served with the 
Notice or Order.
    (b) The petition filed under this section shall admit or deny 
specifically each allegation in the Notice or Order, unless the 
petitioner is without knowledge or information, in which case the 
petition shall so state and the statement shall have the effect of a 
denial. Any allegation not denied shall be deemed to be admitted. When a 
petitioner intends in good faith to deny only a part of or to qualify an 
allegation, he shall specify so much of it as is true and shall deny 
only the remainder.
    (c) The petition shall state whether the petitioner is requesting 
termination or modification of the Notice or Order, and shall state with 
particularity how the petitioner intends to show that his continued 
service to or participation in the conduct of the affairs of the 
association would not, or is not likely to, pose a threat to the 
interests of the association's depositors or to impair public confidence 
in the association.



Sec. 108.6  Initiation of hearing.

    (a) Within 10 days of the filing of a petition for hearing, the OCC 
shall notify the petitioner of the time and place fixed for hearing, and 
it shall designate one or more OCC employees to serve as presiding 
officer.
    (b) The hearing shall be scheduled to be held no later than 30 days 
from the date the petition was filed, unless the

[[Page 512]]

time is extended at the request of the petitioner.
    (c) A petitioner may appear personally or through counsel, but if 
represented by counsel, said counsel is required to comply with Sec. 
109.6 of this chapter.
    (d) A representative(s) of the OCC's Enforcement and Compliance 
Division also may attend the hearing and participate therein as a party.



Sec. 108.7  Conduct of hearings.

    (a) Hearings provided by this section are not subject to the 
adjudicative provisions of the Administrative Procedure Act (5 U.S.C. 
554-557). The presiding officer is, however, authorized to exercise all 
of the powers enumerated in Sec. 109.5 of this chapter.
    (b) Witnesses may be presented, within time limits specified by the 
presiding officer, provided that at least 10 days prior to the hearing 
date, the party presenting the witnesses furnishes the presiding officer 
and the opposing party with a list of such witnesses and a summary of 
the proposed testimony. However, the requirement for furnishing such a 
witness list and summary of testimony shall not apply to the 
presentation of rebuttal witnesses. The presiding officer may ask 
questions of any witness, and each party shall have an opportunity to 
cross-examine any witness presented by an opposing party.
    (c) Upon the request of either the petitioner or a representative of 
the Enforcement and Compliance Division, the record shall remain open 
for a period of 5 business days following the hearing, during which time 
the parties may make any additional submissions for the record. 
Thereafter, the record shall be closed.
    (d) Following the introduction of all evidence, the petitioner and 
the representative of the Enforcement and Compliance Division shall have 
an opportunity for oral argument; however, the parties may jointly waive 
the right to oral argument, and, in lieu thereof, elect to submit 
written argument.
    (e) All oral testimony and oral argument shall be recorded, and 
transcripts made available to the petitioner upon payment of the cost 
thereof. A copy of the transcript shall be sent directly to the 
presiding officer, who shall have authority to correct the record sua 
sponte or upon the motion of any party.
    (f) The parties may, in writing, jointly waive an oral hearing and 
instead elect a hearing upon a written record in which all evidence and 
argument would be submitted to the presiding officer in documentary form 
and statements of individuals would be made by affidavit.



Sec. 108.8  Default.

    If the subject individual fails to file a petition for a hearing, or 
fails to appear at a hearing, either in person or by attorney, or fails 
to submit a written argument where oral argument has been waived 
pursuant to Sec. 108.7(d) or (f) of this part, the Notice shall remain 
in effect until the information, indictment, or complaint is finally 
disposed of and the Order shall remain in effect until terminated by the 
OCC.



Sec. 108.9  Rules of evidence.

    (a) Formal rules of evidence shall not apply to a hearing, but the 
presiding officer may limit the introduction of irrelevant, immaterial, 
or unduly repetitious evidence.
    (b) All matters officially noticed by the presiding officer shall 
appear on the record.



Sec. 108.10  Burden of persuasion.

    The petitioner has the burden of showing, by a preponderance of the 
evidence, that his or her continued service to or participation in the 
conduct of the affairs of the association does not, or is not likely to, 
pose a threat to the interests of the association's depositors or 
threaten to impair public confidence in the association.



Sec. 108.11  Relevant considerations.

    (a) In determining whether the petitioner has shown that his or her 
continued service to or participation in the conduct of the affairs of 
the association would not, or is not likely to, pose a threat to the 
interests of the association's depositors or threaten to impair public 
confidence in the association, in order to decide whether the Notice or 
Order should be continued, terminated, or otherwise modified, the OCC 
will consider:

[[Page 513]]

    (1) The nature and extent of the petitioner's participation in the 
affairs of the association;
    (2) The nature of the offense with which the petitioner has been 
charged;
    (3) The extent of the publicity accorded the indictment and trial; 
and
    (4) Such other relevant factors as may be entered on the record.
    (b) When considering a request for the termination or modification 
of a Notice, the OCC will not consider the ultimate guilt or innocence 
of the petitioner with respect to the criminal charge that is 
outstanding.
    (c) When considering a request for the termination or modification 
of an Order which has been issued following a final judgment of 
conviction against a subject individual, the OCC will not collaterally 
review such final judgment of conviction.



Sec. 108.12  Proposed findings and conclusions and recommended decision.

    (a) Within 30 days after completion of oral argument or the 
submission of written argument where oral argument has been waived, the 
presiding officer shall file with and certify to the OCC for decision 
the entire record of the hearing, which shall include a recommended 
decision, the Notice or Order, and all other documents filed in 
connection with the hearing.
    (b) The recommended decision shall contain:
    (1) A statement of the issue(s) presented,
    (2) A statement of findings and conclusions, and the reasons or 
basis therefor, on all material issues of fact, law, or discretion 
presented on the record, and
    (3) An appropriate recommendation as to whether the suspension, 
removal, or prohibition should be continued, modified, or terminated.



Sec. 108.13  Decision of the OCC.

    (a) Within 30 days after the recommended decision has been certified 
to the OCC, the OCC shall issue a final decision.
    (b) The OCC's final decision shall contain a statement of the basis 
therefor. The OCC may satisfy this requirement where it adopts the 
recommended decision of the presiding officer upon finding that the 
recommended decision satisfies the requirements of Sec. 109.38 of this 
chapter.
    (c) The OCC shall serve upon the petitioner and the representative 
of the Enforcement and Compliance Division a copy of the OCC's final 
decision and the related recommended decision.



Sec. 108.14  Miscellaneous.

    The provisions of Sec. Sec. 109.10, 109.11, and 109.12 of this 
chapter shall apply to proceedings under this part.



PART 109_RULES OF PRACTICE AND PROCEDURE IN ADJUDICATORY PROCEEDINGS--Table of 

Contents



            Subpart A_Uniform Rules of Practice and Procedure

Sec.
109.1 Scope.
109.2 Rules of construction.
109.3 Definitions.
109.4 Authority of the Comptroller.
109.5 Authority of the administrative law judge.
109.6 Appearance and practice in adjudicatory proceedings.
109.7 Good faith certification.
109.8 Conflicts of interest.
109.9 Ex parte communications.
109.10 Filing of papers.
109.11 Service of papers.
109.12 Construction of time limits.
109.13 Change of time limits.
109.14 Witness fees and expenses.
109.15 Opportunity for informal settlement.
109.16 OCC's right to conduct examination.
109.17 Collateral attacks on adjudicatory proceeding.
109.18 Commencement of proceeding and contents of notice.
109.19 Answer.
109.20 Amended pleadings.
109.21 Failure to appear.
109.22 Consolidation and severance of actions.
109.23 Motions.
109.24 Scope of document discovery.
109.25 Request for document discovery from parties.
109.26 Document subpoenas to nonparties.
109.27 Deposition of witness unavailable for hearing.
109.28 Interlocutory review.
109.29 Summary disposition.
109.30 Partial summary disposition.
109.31 Scheduling and prehearing conferences.
109.32 Prehearing submissions.
109.33 Public hearings.
109.34 Hearing subpoenas.

[[Page 514]]

109.35 Conduct of hearings.
109.36 Evidence.
109.37 Post-hearing filings.
109.38 Recommended decision and filing of record.
109.39 Exceptions to recommended decision.
109.40 Review by the Comptroller.
109.41 Stays pending judicial review.

                          Subpart B_Local Rules

109.100 Scope.
109.101 Appointment of Office of Financial Institution Adjudication.
109.102 Discovery.
109.103 Civil money penalties.
109.104 Additional procedures.

Subpart C-D [Reserved]

    Authority: 5 U.S.C. 504, 554-557; 12 U.S.C. 1464, 1467, 1467a, 1468, 
1817(j), 1818, 1820(k), 1829(e), 3349, 4717, 5412(b)(2)(B); 15 U.S.C. 
78l, 78o-5, 78u-2; 28 U.S.C. 2461 note; 31 U.S.C. 5321; 42 U.S.C. 4012a.

    Source: 76 FR 48957, Aug. 9, 2011, unless otherwise noted.



            Subpart A_Uniform Rules of Practice and Procedure



Sec. 109.1  Scope.

    This subpart prescribes Uniform Rules of practice and procedure with 
regard to Federal savings associations applicable to adjudicatory 
proceedings as to which hearings on the record are provided for by 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 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) Section 5 of the Home Owners' Loan Act (HOLA) or any regulation 
or order issued thereunder, pursuant to 12 U.S.C. 1464 (d), (s) and (v);
    (2) Section 9 of the HOLA or any regulation or order issued 
thereunder, pursuant to 12 U.S.C. 1467(d);
    (3) Section 10 of the HOLA, pursuant to 12 U.S.C. 1467a (i) and (r);
    (4) Any provisions of the Change in Bank Control Act, any regulation 
or order issued thereunder or certain unsafe or unsound practices or 
breaches of fiduciary duty, pursuant to 12 U.S.C. 1817(j)(16);
    (5) Sections 22(h) and 23 of the Federal Reserve Act, or any 
regulation issued thereunder or certain unsafe or unsound practices or 
breaches of fiduciary duty, pursuant to 12 U.S.C. 1468;
    (6) Certain provisions of the Exchange Act, pursuant to section 21B 
of the Exchange Act (15 U.S.C. 78u-2);
    (7) Section 1120 of Financial Institutions Reform, Recovery and 
Enforcement Act of 1989 (12 U.S.C. 3349), or any order or regulation 
issued thereunder;
    (8) The terms of any final or temporary order issued or enforceable 
pursuant to section 8 of the FDIA or of any written agreement executed 
by the OCC, the terms of any conditions imposed in writing by the OCC in 
connection with the grant of an application or request, certain unsafe 
or unsound practices or breaches of fiduciary duty, or any law or 
regulation not otherwise provided herein pursuant to 12 U.S.C. 
1818(i)(2);
    (9) Any provision of law referenced in section 102 of the Flood 
Disaster Protection Act of 1973 (42 U.S.C. 4012a(f)) or any order or 
regulation issued thereunder; and
    (10) Any provision of law referenced in 31 U.S.C. 5321 or any order 
or regulation issued thereunder;
    (f) Remedial action under section 102 of the Flood Disaster 
Protection Act of 1973 (42 U.S.C. 4012a(g));

[[Page 515]]

    (g) Proceedings under section 10(k) of the FDIA (12 U.S.C. 1820(k)) 
to impose penalties on senior examiners for violation of post-employment 
prohibitions; 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.
    (i) [Reserved]



Sec. 109.2  Rules of construction.

    For purposes of this subpart:
    (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. 109.3  Definitions.

    For purposes of this subpart, 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) Decisional employee means any member of the OCC'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 OCC or the 
administrative law judge, respectively, in preparing orders, recommended 
decisions, decisions, and other documents under the Uniform Rules.
    (d) Comptroller means the Comptroller of the Currency or his or her 
designee.
    (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 OCC 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 Federal savings association as that 
term is defined in section 3(b) of the FDIA (12 U.S.C. 1813(b)).
    (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 found in subpart B of this part.
    (j) OCC means the Office of the Comptroller of the Currency.
    (k) Office of Financial Institution Adjudication (OFIA) means the 
executive body charged with overseeing the administration of 
administrative enforcement proceedings for the OCC, the Board of 
Governors of the Federal Reserve Board, the Federal Deposit Insurance 
Corporation, and the National Credit Union Administration.
    (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.
    (o) Uniform Rules means those rules in subpart A of this part.
    (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. 109.4  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. 109.5  Authority of the administrative law judge.

    (a) General rule. All proceedings governed by this part shall be 
conducted in

[[Page 516]]

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. 109.31 of this subpart;
    (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.



Sec. 109.6  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 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 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.



Sec. 109.7  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

[[Page 517]]

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. 109.8  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. 109.6(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.



Sec. 109.9  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 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 
the final decision pursuant to Sec. 109.40(c) of this subpart:
    (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

[[Page 518]]

communication is received by the administrative law judge, the 
Comptroller or 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. 109.40 of this subpart, except as witness or 
counsel in public proceedings.



Sec. 109.10  Filing of papers.

    (a) Filing. Any papers required to be filed, excluding documents 
produced in response to a discovery request pursuant to Sec. Sec. 
109.25 and 109.26 of this subpart, shall be filed with the 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 as to form.
    (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\ x 11 inch paper, and must be clear and legible.
    (2) Signature. All papers must be dated and signed as provided in 
Sec. 109.7 of this subpart.
    (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. 109.11  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;

[[Page 519]]

    (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. 109.10(c) of this 
subpart as to form.
    (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 through a 
counsel of record, 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. 109.6 of this subpart, 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.



Sec. 109.12  Construction of time limits.

    (a) General rule. In computing any period of time prescribed by this 
subpart, 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

[[Page 520]]

certified mail, upon deposit in or delivery to an appropriate point of 
collection; or
    (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.



Sec. 109.13  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 any notice or order issued in the proceedings. After 
the referral of the case to the Comptroller pursuant to Sec. 109.38 of 
this subpart, the Comptroller may grant extensions of the time limits 
for good cause shown. Extensions may be granted at the motion of a party 
or on the Comptroller's or the administrative law judge's own motion 
after notice and opportunity to respond is afforded all non-moving 
parties.



Sec. 109.14  Witness fees and expenses.

    Witnesses subpoenaed for testimony or deposition 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. 109.15  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 offer or 
proposal, or any subsequent negotiation or resolution, is admissible as 
evidence in any proceeding.



Sec. 109.16  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. 109.17  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.

[[Page 521]]



Sec. 109.18  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 the 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) The answer and/or request for a hearing shall be filed with 
OFIA.



Sec. 109.19  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 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. 109.20  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

[[Page 522]]

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.



Sec. 109.21  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. 109.22  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. 109.23  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.
    (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, but upon 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. 109.29 and 109.30 of this subpart.

[[Page 523]]



Sec. 109.24  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 Sec. 109.102 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. 109.25 of 
this subpart.
    (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.



Sec. 109.25  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 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 under 12 CFR 4.17 for requests under 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

[[Page 524]]

    (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. 109.23 
of this subpart to revoke 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. 109.23 of this subpart are 
waived.
    (2) The party who served the request that is the subject of a motion 
to revoke 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. 109.23 of this subpart 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 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.



Sec. 109.26  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

[[Page 525]]

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. 109.24(d) of this subpart. 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. 109.25(d) of this 
subpart, 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. 109.27  Deposition of witness unavailable for hearing.

    (a) General rules. (1) If a witness will not be available for the 
hearing, a party 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:
    (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

[[Page 526]]

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)(2) 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 comply with, a subpoena issued under this section.



Sec. 109.28  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. 109.23 of this subpart.
    (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.

[[Page 527]]

    (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. 109.23 of this subpart. 
Any party may file a response to a request for interlocutory review in 
accordance with Sec. 109.23(d) of this subpart. 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. 109.29  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 that 
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 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. 109.30  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. 109.31  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

[[Page 528]]

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 its 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. 109.32  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. 109.33  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 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. 109.23 of this subpart. 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.

[[Page 529]]



Sec. 109.34  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. 
109.26(c) of this subpart.



Sec. 109.35  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 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.

[[Page 530]]

    (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.



Sec. 109.36  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 APA 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 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 the appropriate Federal banking 
agency, as defined in section 3(q) of the FDIA (12 U.S.C. 1813(q)), or 
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 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

[[Page 531]]

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. 109.37  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.



Sec. 109.38  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. 
109.37(b) of this subpart, 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.
    (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.

[[Page 532]]



Sec. 109.39  Exceptions to recommended decision.

    (a) Filing exceptions. Within 30 days after service of the 
recommended decision, findings, conclusions, and proposed order under 
Sec. 109.38 of this subpart, 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. 109.40  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 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. 109.41  Stays pending judicial review.

    The commencement of proceedings for judicial review of a final 
decision and order of the OCC 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 its discretion, and 
on such terms as it finds just, stay the effectiveness of all or any 
part of its order pending a final decision on a petition for review of 
the order.

[[Page 533]]



                          Subpart B_Local Rules



Sec. 109.100  Scope.

    The rules and procedures in this subpart B shall apply to those 
proceedings covered by subpart A of this part. In addition, subpart A of 
this part and this subpart shall apply to adjudicatory proceedings for 
which hearings on the record are provided for by the following statutory 
provisions:
    (a) Proceedings under section 10(a)(2)(D) of the HOLA (12 U.S.C. 
1467a(a)(2)(D)) to determine whether any person directly or indirectly 
exercises a controlling influence over the management or policies of a 
savings association or any other company; and
    (b) [Reserved]
    (c) Proceedings under section 15(c)(4) of the Securities and 
Exchange Act of 1934 (15 U.S.C. 78o(c)(4)) (Exchange Act) to determine 
whether any Federal savings association or person subject to the 
jurisdiction of the OCC pursuant to section 12(i) of the Exchange Act 
(15 U.S.C. 78 l (i)) has failed to comply with the provisions of 
sections 12, 13, 14(a), 14(c), 14(d) or 14(f) of the Exchange Act.



Sec. 109.101  Appointment of Office of Financial Institution Adjudication.

    Unless otherwise directed by the OCC, all hearings under subpart A 
of this part and this subpart shall be conducted by administrative law 
judges under the direction of the Office of Financial Institution 
Adjudication.



Sec. 109.102  Discovery.

    (a) In general. 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 a 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 shall 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 shall be in short form, stating the grounds for 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. The court reporter shall transcribe or 
otherwise record the witness's testimony, as agreed among the parties.
    (e) 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, investigative, trial preparation, 
irrelevant or immaterial matters; or
    (3) Is being conducted in bad faith or in such manner as to 
unreasonably annoy, embarrass, or oppress the deponent.
    (f) 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 Government is a party. Expenses in accordance with this paragraph 
shall be paid by the party seeking to take the deposition.
    (g) Deposition subpoenas--(1) Issuance. At the request of a party, 
the administrative law judge shall issue a subpoena requiring the 
attendance of a

[[Page 534]]

witness at a deposition. 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.
    (2) Service. The party requesting the subpoena must serve it on the 
person named therein or upon that person's counsel, by any of the 
methods identified in Sec. 109.11(d) of this part. The party serving 
the subpoena must file proof of service with the administrative law 
judge.
    (3) Motion to quash. A person named in the subpoena or a party 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 that 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.
    (4) Enforcement of deposition subpoena. Enforcement of a deposition 
subpoena shall be in accordance with the procedures of Sec. 109.27(d) 
of this part.



Sec. 109.103  Civil money penalties.

    (a) Assessment. In the event of consent, or if upon the record 
developed at the hearing the OCC finds that any of the grounds specified 
in the notice issued pursuant to Sec. 109.18 of this part have been 
established, the OCC may serve an order of assessment of civil money 
penalty upon the party concerned. The assessment order shall be 
effective immediately upon service or upon such other date as may be 
specified therein and shall remain effective and enforceable until it is 
stayed, modified, terminated, or set aside by the OCC or by a reviewing 
court.
    (b) Payment. (1) Civil penalties assessed pursuant to subpart A of 
this part and this subpart B are payable and to be collected within 60 
days after the issuance of the notice of assessment, unless the OCC 
fixes a different time for payment where it determines that the purpose 
of the civil money penalty would be better served thereby; however, if a 
party has made a timely request for a hearing to challenge the 
assessment of the penalty, the party may not be required to pay such 
penalty until the OCC has issued a final order of assessment following 
the hearing. In such instances, the penalty shall be paid within 60 days 
of service of such order unless the OCC fixes a different time for 
payment. Notwithstanding the foregoing, the OCC may seek to attach the 
party's assets or to have a receiver appointed to secure payment of the 
potential civil money penalty or other obligation in advance of the 
hearing in accordance with section 8(i)(4) of the FDIA (12 U.S.C. 
1818(i)(4)).
    (2) Checks in payment of civil penalties shall be made payable to 
the Treasurer of the United States and sent to the OCC. Upon receipt, 
the OCC shall forward the check to the Treasury of the United States.
    (c) Inflation adjustment. Under the Federal Civil Monetary Penalties 
Inflation Adjustment Act of 1990 (28 U.S.C. 2461 note), the OCC must 
adjust for inflation the civil money penalties in statutes that it 
administers. The following chart displays the adjusted civil money 
penalties. The amounts in this chart apply to violations that occur 
after October 27, 2008:

------------------------------------------------------------------------
                                                           New maximum
      U.S. Code citation            CMP description          amount
------------------------------------------------------------------------
12 U.S.C. 1464(v)(4)..........  Reports of Condition--            $2,200
                                 1st Tier.
12 U.S.C. 1464(v)(5)..........  Reports of Condition--            32,500
                                 2nd Tier.
12 U.S.C. 1464(v)(6)..........  Reports of Condition--         1,375,000
                                 3rd Tier.
12 U.S.C. 1467(d).............  Refusal to Cooperate               7,500
                                 in Exam.
12 U.S.C. 1467a(r)(1).........  Late/Inaccurate                    2,200
                                 Reports--1st Tier.
12 U.S.C. 1467a(r)(2).........  Late/Inaccurate                   32,500
                                 Reports--2nd Tier.
12 U.S.C. 1467a(r)(3).........  Late/Inaccurate                1,375,000
                                 Reports--3rd Tier.
12 U.S.C. 1817(j)(16)(A)......  Change in Control--1st             7,500
                                 Tier.
12 U.S.C. 1817(j)(16)(B)......  Change in Control--2nd            37,500
                                 Tier.
12 U.S.C. 1817(j)(16)(C)......  Change in Control--3rd         1,375,000
                                 Tier.
12 U.S.C. 1818(i)(2)(A).......  Violation of Law or                7,500
                                 Unsafe or Unsound
                                 Practice--1st Tier.
12 U.S.C. 1818(i)(2)(B).......  Violation of Law or               37,500
                                 Unsafe or Unsound
                                 Practice--2nd Tier.
12 U.S.C. 1818(i)(2)(C).......  Violation of Law or            1,375,000
                                 Unsafe or Unsound
                                 Practice--3rd Tier.

[[Page 535]]

 
12 U.S.C. 1820(k)(6)(A)(ii)...  Violation of Post                275,000
                                 Employment
                                 Restrictions.
12 U.S.C. 1884................  Violation of Security                110
                                 Rules.
12 U.S.C. 3349(b).............  Appraisals Violation--             7,500
                                 1st Tier.
12 U.S.C. 3349(b).............  Appraisals Violation--            37,500
                                 2nd Tier.
12 U.S.C. 3349(b).............  Appraisals Violation--         1,375,000
                                 3rd Tier.
42 U.S.C. 4012a(f)............  Flood Insurance.......           \1\ 385
                                                             \2\ 135,000
------------------------------------------------------------------------
\1\ Per day.
\2\ Per year.



Sec. 109.104  Additional procedures.

    (a) Replies to exceptions. Replies to written exceptions to the 
administrative law judge's recommended decision, findings, conclusions 
or proposed order pursuant to Sec. 109.39 of this part shall be filed 
within 10-days of the date such written exceptions were required to be 
filed.
    (b) Motions. All motions shall be filed with the administrative law 
judge and an additional copy shall be filed with the OCC Hearing Clerk 
who receives adjudicatory filings; provided, however, that once the 
administrative law judge has certified the record to the Comptroller 
pursuant to Sec. 109.38 of this part, all motions must be filed with 
the Comptroller to the attention of the Hearing Clerk within the 10-day 
period following the filing of exceptions allowed for the filing of 
replies to exceptions. Responses to such motions filed in a timely 
manner with the Comptroller, other than motions for oral argument before 
the Comptroller, shall be allowed pursuant to the procedures at Sec. 
109.23(d) of this part. No response is required for the Comptroller to 
make a determination on a motion for oral argument.
    (c) Authority of administrative law judge. In addition to the powers 
listed in Sec. 109.5 of this part, the administrative law judge shall 
have the authority to deny any dispositive motion and shall follow the 
procedures set forth for motions for summary disposition at Sec. 109.29 
of this part and partial summary disposition at Sec. 109.30 of this 
part in making determinations on such motions.
    (d) Notification of submission of proceeding to the Comptroller. 
Upon the expiration of the time for filing any exceptions, any replies 
to such exceptions or any motions and any ruling thereon, and after 
receipt of certified record, the OCC shall notify the parties within ten 
days of the submission of the proceeding to the Comptroller for final 
determination.
    (e) Extensions of time for final determination. The Comptroller may, 
sua sponte, extend the time for final determination by signing an order 
of extension of time within the 90-day time period and notifying the 
parties of such extension thereafter.
    (f) Service upon the OCC. Service of any document upon the OCC shall 
be made by filing with the Hearing Clerk, in addition to the individuals 
and/or offices designated by the OCC in its Notice issued pursuant to 
Sec. 109.18 of this part, or such other means reasonably suited to 
provide notice of the person and/or offices designated to receive 
filings.
    (g) Filings with the Comptroller. An additional copy of all 
materials required or permitted to be filed with or referred to the 
administrative law judge pursuant to subpart A and B of this part shall 
be filed with the Hearing Clerk. This rule shall not apply to the 
transcript of testimony and exhibits adduced at the hearing or to 
proposed exhibits submitted in advance of the hearing pursuant to an 
order of the administrative law judge under Sec. 109.32 of this part. 
Materials required or permitted to be filed with or referred to the 
Comptroller pursuant to subparts A and B of this part shall be filed 
with the Comptroller, to the attention of the Hearing Clerk.
    (h) Presence of cameras and other recording devices. The use of 
cameras and other recording devices, other than those used by the court 
reporter, shall be prohibited and excluded from the proceedings.

[[Page 536]]

Subpart C-D [Reserved]

                        PARTS 110-111 [RESERVED]



PART 112_RULES FOR INVESTIGATIVE PROCEEDINGS AND FORMAL EXAMINATION 

PROCEEDINGS--Table of Contents



Sec.
112.1 Scope of part.
112.2 Definitions.
112.3 Confidentiality of proceedings.
112.4 Transcripts.
112.5 Rights of witnesses.
112.6 Obstruction of the proceedings.
112.7 Subpoenas.

    Authority: 12 U.S.C. 1462a, 1463, 1464, 1467, 1467a, 1813, 1817(j), 
1818(n), 1820(c), 5412(b)(2)(B); 15 U.S.C. 78l.

    Source: 76 FR 48970, Aug. 9, 2011, unless otherwise noted.



Sec. 112.1  Scope of part.

    This part prescribes rules of practice and procedure applicable to 
the conduct of formal examination proceedings with respect to Federal 
savings associations and their affiliates under section 5(d)(1)(B) of 
the HOLA, as amended, 12 U.S.C. 1464(d)(1)(B) or section 7(j)(15) of the 
Federal Deposit Insurance Act, as amended, 12 U.S.C. 1817(j)(15) 
(``FDIA''), section 8(n) of the FDIA, 12 U.S.C. 1818(n), or section 
10(c) of the FDIA, 12 U.S.C. 1820(c). This part does not apply to 
adjudicatory proceedings as to which hearings are required by statute, 
the rules for which are contained in part 109 of this chapter.



Sec. 112.2  Definitions.

    As used in this part:
    (a) OCC means the Office of the Comptroller of the Currency;
    (b) [Reserved]
    (c) Formal examination proceeding means the administration of oaths 
and affirmations, taking and preserving of testimony, requiring the 
production of books, papers, correspondence, memoranda, and all other 
records, the issuance of subpoenas, and all related activities in 
connection with examination of savings associations and their affiliates 
conducted pursuant to section 5(d)(1)(B) of the HOLA, section 7(j)(15) 
of the FDIA, section 8(n) of the FDIA or section 10(c) of the FDIA; and
    (d) Designated representative means the person or persons empowered 
by the OCC to conduct an investigative proceeding or a formal 
examination proceeding.



Sec. 112.3  Confidentiality of proceedings.

    All formal examination proceedings shall be private and, unless 
otherwise ordered by the OCC, all investigative proceedings shall also 
be private. Unless otherwise ordered or permitted by the OCC, or 
required by law, and except as provided in Sec. Sec. 112.4 and 112.5, 
the entire record of any investigative proceeding or formal examination 
proceeding, including the resolution of the OCC or its delegate(s) 
authorizing the proceeding, the transcript of such proceeding, and all 
documents and information obtained by the designated representative(s) 
during the course of said proceedings shall be confidential.



Sec. 112.4  Transcripts.

    Transcripts or other recordings, if any, of investigative 
proceedings or formal examination proceedings shall be prepared solely 
by an official reporter or by any other person or means authorized by 
the designated representative. A person who has submitted documentary 
evidence or given testimony in an investigative proceeding or formal 
examination proceeding may procure a copy of his own documentary 
evidence or transcript of his own testimony upon payment of the cost 
thereof; provided, that a person seeking a transcript of his own 
testimony must file a written request with the OCC's Director for 
Enforcement and Compliance stating the reason he desires to procure such 
transcript, and said persons may for good cause deny such request. In 
any event, any witness (or his counsel) shall have the right to inspect 
the transcript of the witness' own testimony.



Sec. 112.5  Rights of witnesses.

    (a) Any person who is compelled or requested to furnish documentary 
evidence or give testimony at an investigative proceeding or formal 
examination proceeding shall have the right to

[[Page 537]]

examine, upon request, the OCC resolution authorizing such proceeding. 
Copies of such resolution shall be furnished, for their retention, to 
such persons only with the written approval of the OCC.
    (b) Any witness at an investigative proceeding or formal examination 
proceeding may be accompanied and advised by an attorney personally 
representing that witness.
    (1) Such attorney shall be a member in good standing of the bar of 
the highest court of any state, Commonwealth, possession, territory, or 
the District of Columbia, who has not been suspended or debarred from 
practice by the bar of any such political entity or before the OCC in 
accordance with the provisions of part 19 of this chapter and has not 
been excluded from the particular investigative proceeding or formal 
examination proceeding in accordance with paragraph (b)(3) of this 
section.
    (2) Such attorney may advise the witness before, during, and after 
the taking of his testimony and may briefly question the witness, on the 
record, at the conclusion of his testimony, for the sole purpose of 
clarifying any of the answers the witness has given. During the taking 
of the testimony of a witness, such attorney may make summary notes 
solely for his use in representing his client. All witnesses shall be 
sequestered, and, unless permitted in the discretion of the designated 
representative, no witness or accompanying attorney may be permitted to 
be present during the taking of testimony of any other witness called in 
such proceeding. Neither attorney(s) for the association(s) that are the 
subjects of the investigative proceedings or formal examination 
proceedings, nor attorneys for any other interested persons, shall have 
any right to be present during the testimony of any witness not 
personally being represented by such attorney.
    (3) The OCC, for good cause, may exclude a particular attorney from 
further participation in any investigation in which the OCC has found 
the attorney to have engaged in dilatory, obstructionist, egregious, 
contemptuous or contumacious conduct. The person conducting an 
investigation may report to the OCC instances of apparently dilatory, 
obstructionist, egregious, contemptuous or contumacious conduct on the 
part of an attorney. After due notice to the attorney, the OCC may take 
such action as the circumstances warrant based upon a written record 
evidencing the conduct of the attorney in that investigation or such 
other or additional written or oral presentation as the OCC may permit 
or direct.



Sec. 112.6  Obstruction of the proceedings.

    The designated representative shall report to the Comptroller any 
instances where any witness or counsel has engaged in dilatory, 
obstructionist, or contumacious conduct or has otherwise violated any 
provision of this part during the course of an investigative proceeding 
or formal examination proceeding; and the OCC may take such action as 
the circumstances warrant, including the exclusion of counsel from 
further participation in such proceeding.



Sec. 112.7  Subpoenas.

    (a) Service. Service of a subpoena in connection with any 
investigative proceeding or formal examination proceeding shall be 
effected in the following manner:
    (1) Service upon a natural person. Service of a subpoena upon a 
natural person may be effected by handing it to such person; by leaving 
it at his office with the person in charge thereof, or, if there is no 
one in charge, by leaving it in a conspicuous place therein; by leaving 
it at his dwelling place or usual place of abode with some person of 
suitable age and discretion then residing therein; by mailing it to him 
by registered or certified mail or by an express delivery service at his 
last known address; or by any method whereby actual notice is given to 
him.
    (2) Service upon other persons. When the person to be served is not 
a natural person, service of the subpoena may be effected by handing the 
subpoena to a registered agent for service, or to any officer, director, 
or agent in charge of any office of such person; by mailing it to any 
such representative by registered or certified mail or by an express 
delivery service at his last known

[[Page 538]]

address; or by any method whereby actual notice is given to such person.
    (b) Motions to quash. Any person to whom a subpoena is directed may, 
prior to the time specified therein for compliance, but in no event more 
than 10 days after the date of service of such subpoena, apply to the 
Deputy Chief Counsel or his designee to quash or modify such subpoena, 
accompanying such application with a statement of the reasons therefor. 
The Deputy Chief Counsel or his designee, as appropriate, may:
    (1) Deny the application;
    (2) Quash or revoke the subpoena;
    (3) Modify the subpoena; or
    (4) Condition the granting of the application on such terms as the 
Deputy Chief Counsel or his designee determines to be just, reasonable, 
and proper.
    (c) Attendance of witnesses. Subpoenas issued in connection with an 
investigative proceeding or formal examination proceeding may require 
the attendance and/or testimony of witnesses from any state or territory 
of the United States and the production by such witnesses of documentary 
or other tangible evidence at any designated place where the proceeding 
is being (or is to be) conducted. Foreign nationals are subject to such 
subpoenas if such service is made upon a duly authorized agent located 
in the United States.
    (d) Witness fees and mileage. Witnesses summoned in any proceeding 
under this part shall be paid the same fees and mileage that are paid 
witnesses in the district courts of the United States. Such fees and 
mileage need not be tendered when the subpoena is issued on behalf of 
the OCC by any of its designated representatives.

                        PARTS 113-115 [RESERVED]



PART 116_APPLICATION PROCESSING PROCEDURES--Table of Contents



Sec.
116.1 What does this part do?
116.5 Do the same procedures apply to all applications under this part?
116.10 How does the OCC compute time periods under this part?

               Subpart A_Pre-Filing and Filing Procedures

                          Pre-Filing Procedures

116.15 Must I meet with the OCC before I file my application?
116.20 What information must I include in my draft business plan?

                            Filing Procedures

116.25 What type of application must I file?
116.30 What information must I provide with my application?
116.35 May I keep portions of my application confidential?
116.40 Where do I file my application?
116.45 What is the filing date of my application?
116.47 How do I amend or supplement my application?

                   Subpart B_Publication Requirements

116.50 Who must publish a public notice of an application?
116.55 What information must I include in my public notice?
116.60 When must I publish the public notice?
116.70 Where must I publish the public notice?
116.80 What language must I use in my publication?

                      Subpart C_Comment Procedures

116.100 What does this subpart do?
116.110 Who may submit a written comment?
116.120 What information should a comment include?
116.130 Where are comments filed?
116.140 How long is the comment period?

                      Subpart D_Meeting Procedures

116.160 What does this subpart do?
116.170 When will the OCC conduct a meeting on an application?
116.180 What procedures govern the conduct of the meeting?
116.185 Will the OCC approve or disapprove an application at a meeting?
116.190 Will a meeting affect application processing time frames?

                          Subpart E_OCC Review

                           Expedited Treatment

116.200 If I file a notice under expedited treatment, when may I engage 
          in the proposed activities?

                           Standard Treatment

116.210 What will the OCC do after I file my application?

[[Page 539]]

116.220 If the OCC requests additional information to complete my 
          application, how will it process my application?
116.230 Will the OCC conduct an eligibility examination?
116.240 What may the OCC require me to do after my application is deemed 
          complete?
116.250 Will the OCC require me to publish a new public notice?
116.260 May the OCC suspend processing of my application?
116.270 How long is the OCC review period?
116.280 How will I know if my application has been approved?
116.290 What will happen if the OCC does not approve or disapprove my 
          application within two calendar years after the filing date?

    Authority: 5 U.S.C. 552, 559; 12 U.S.C. 1462a, 1463, 1464, 2901 et 
seq., 5412(b)(2)(B).

    Source: 76 FR 48972, Aug. 9, 2011, unless otherwise noted.



Sec. 116.1  What does this part do?

    (a) This part explains OCC procedures for processing applications, 
notices, or filings (applications) for Federal savings associations. 
Except as provided in paragraph (b) of this section, subparts A and E of 
this part apply whenever an OCC regulation requires any person (you) to 
file an application pertaining to a Federal savings association with the 
OCC. Subparts B, C, and D, however, only apply when an OCC regulation 
incorporates the procedures in the subpart or where otherwise required 
by the OCC.
    (b) This part does not apply to any of the following:
    (1) An application related to a transaction under section 13(c) or 
(k) of the Federal Deposit Insurance Act, 12 U.S.C. 1823(c) or (k).
    (2) A request for reconsideration, modification, or appeal of a 
final OCC or OTS action.
    (3) A request related to litigation, an enforcement proceeding, a 
supervisory directive or supervisory agreement. Such requests include a 
request seeking approval under, modification of, or termination of an 
order issued under part 108 or 109 of this chapter, a supervisory 
agreement, a supervisory directive, a consent merger agreement or a 
document negotiated in settlement of an enforcement matter or other 
litigation, unless an applicable OCC regulation specifically requires an 
application under this part.
    (4) An application filed under an OCC regulation that prescribes 
other application processing procedures and time frames for the approval 
of applications.
    (c) If an OCC regulation for a specific type of application 
prescribes some application processing procedures, or time frames, the 
OCC will apply this part to the extent necessary to process the 
application. For example, if an OCC regulation for a specific type of 
application does not identify time periods for the processing of an 
application, the time periods in this part apply.



Sec. 116.5  Do the same procedures apply to all applications under this part?

    The OCC processes applications under this part using two procedures, 
expedited treatment and standard treatment. To determine which treatment 
applies, you may use the following chart:

------------------------------------------------------------------------
                                      Then the OCC will  process your
             If . . .                     application under . . .
------------------------------------------------------------------------
(a) The applicable regulation      Standard treatment.
 does not specifically state that
 expedited treatment is available.
(b) [Reserved]
(c) Your composite rating is 3,    Standard treatment.
 4, or 5. The composite rating is
 the composite numeric rating
 that the OCC or the other
 Federal banking regulator
 assigned to you under the
 Uniform Financial Institutions
 Rating System \1\ or under a
 comparable rating system. The
 composite rating refers to the
 rating assigned and provided to
 you, in writing, as a result of
 the most recent examination.
(d) Your Community Reinvestment    Standard treatment.
 Act (CRA) rating is Needs to
 Improve or Substantial
 Noncompliance. The CRA rating is
 the Community Reinvestment Act
 performance rating that the OCC
 or the other Federal banking
 regulator assigned and provided
 to you, in writing, as a result
 of the most recent compliance
 examination. See, for example,
 Sec.  195.28 of this chapter.

[[Page 540]]

 
(e) Your compliance rating is 3,   Standard treatment.
 4, or 5. The compliance rating
 is the numeric rating that the
 OCC or the other Federal banking
 regulator assigned to you under
 the OCC compliance rating
 system, or a comparable rating
 system used by the other Federal
 banking regulator. The
 compliance rating refers to the
 rating assigned and provided to
 you, in writing, as a result of
 the most recent compliance
 examination.
(f) You fail any one of your       Standard treatment.
 capital requirements under part
 167 of this chapter.
(g) The OCC or OTS has notified    Standard treatment.
 you that you are an association
 in troubled condition.
(h) Neither the OCC nor any other  Standard treatment.
 Federal banking regulator has
 assigned you a composite rating,
 a CRA rating or a compliance
 rating.
(i) You do not meet any of the     Expedited treatment.
 criteria listed in paragraphs
 (a) through (h) of this section.
------------------------------------------------------------------------
\1\ A savings association may obtain a copy of its composite rating from
  the appropriate Federal banking agency.



Sec. 116.10  How does the OCC compute time periods under this part?

    In computing time periods under this part, the OCC does not include 
the day of the act or event that commences the time period. When the 
last day of a time period is a Saturday, Sunday, or Federal holiday, the 
time period runs until the end of the next day that is not a Saturday, 
Sunday, or Federal holiday.



               Subpart A_Pre-Filing and Filing Procedures

                          Pre-Filing Procedures



Sec. 116.15  Must I meet with the OCC before I file my application?

    (a) Chart. To determine whether you must attend a pre-filing meeting 
before you file an application, please consult the following chart:

------------------------------------------------------------------------
           If you file . . .                        Then . . .
------------------------------------------------------------------------
(1) An application for permission to     You must meet with the OCC
 organize a de novo Federal savings       before filing your
 association.                             application. You must submit a
                                          draft business plan before
                                          this meeting.
(2) An application to convert an         You must meet with the OCC
 existing insured depository              before filing your
 institution (other than a state-         application. The OCC may
 chartered savings association or a       require you to submit a draft
 state-chartered savings bank) or a       business plan or other
 credit union to a Federal savings        relevant information before
 association.                             this meeting.
(3) An application to acquire control    The OCC may require you to meet
 of a Federal savings association.        with the OCC before filing
                                          your application and may
                                          require you to submit a draft
                                          business plan or other
                                          relevant information before
                                          this meeting.
------------------------------------------------------------------------

    (b) Contacting the OCC. (1) You must contact the appropriate OCC 
licensing office a reasonable time before you file an application 
described in paragraph (a) of this section. Unless paragraph (a) already 
requires a pre-filing meeting or a draft business plan, the appropriate 
OCC licensing office will determine whether it will require a pre-filing 
meeting, and whether you must submit a business plan or other relevant 
information before the meeting. The appropriate OCC licensing office 
will also establish a schedule for any meeting and the submission of any 
information.
    (2) All other applicants are encouraged to contact the appropriate 
OCC licensing office to determine whether a pre-filing meeting or the 
submission of a draft business plan or other relevant information would 
expedite the application review process.



Sec. 116.20  What information must I include in my draft business plan?

    If you must submit a draft business plan under Sec. 116.15, your 
plan must:
    (a) Clearly and completely describe the savings association's 
projected operations and activities;
    (b) Describe the risks associated with the transaction and the 
impact of this transaction on any existing activities and operations of 
the savings association, including financial projections for a minimum 
of three years;
    (c) Identify the majority of the proposed board of directors and the 
key senior executive officers (as defined in Sec. 163.555 of this 
chapter) of the savings association and demonstrate that these

[[Page 541]]

individuals have the expertise to prudently manage the activities and 
operations described in the savings association's draft business plan; 
and
    (d) Demonstrate how applicable requirements regarding serving the 
credit and lending needs in the market areas served by the savings 
association will be met.

                            Filing Procedures



Sec. 116.25  What type of application must I file?

    (a) Expedited treatment. If you are eligible for expedited treatment 
under Sec. 116.5, you may file your application in the form of a notice 
that includes all information required by the applicable substantive 
regulation. If the OCC has designated a form for your notice, you must 
file that form. Your notice is an application for the purposes of all 
statutory and regulatory references to ``applications.''
    (b) Standard treatment. If you are subject to standard treatment 
under Sec. 116.5, you must file your application following all 
applicable substantive regulations and guidelines governing the filing 
of applications. If the OCC has a designated form for your application, 
you must file that form.
    (c) Waiver requests. If you want the OCC to waive a requirement that 
you provide certain information with the notice or application, you must 
include a written waiver request:
    (1) Describing the requirement to be waived and
    (2) Explaining why the information is not needed to enable the OCC 
to evaluate your notice or application under applicable standards.



Sec. 116.30  What information must I provide with my application?

    (a) Required information. You may obtain information about required 
certifications, other regulations and guidelines affecting particular 
notices and applications, appropriate forms, and instructions from any 
OCC office. You may also obtain forms and instructions on the OCC's web 
page at www.occ.gov.
    (b) Captions and exhibits. You must caption the original application 
and required copies with the type of filing, and must include all 
exhibits and other pertinent documents with the original application and 
all required copies. You are not required to include original signatures 
on copies if you include a copy of the signed signature page or the copy 
otherwise indicates that the original was signed.



Sec. 116.35  May I keep portions of my application confidential?

    (a) Confidentiality. The OCC makes submissions under this part 
available to the public, but may keep portions of your application 
confidential based on the rules in this section.
    (b) Confidentiality request. (1) You may request the OCC to keep 
portions of your application confidential. You must submit your request 
in writing with your application and must explain in detail how your 
request is consistent with the standards under the Freedom of 
Information Act (5 U.S.C. 552) and part 4 of this chapter. For example, 
you should explain how you will be substantially harmed by public 
disclosure of the information. You must separately bind and mark the 
portions of the application you consider confidential and the portions 
you consider non-confidential.
    (2) The OCC will not treat as confidential the portion of your 
application describing how you plan to meet your Community Reinvestment 
Act (CRA) objectives. The OCC will make information in your CRA plan, 
including any information incorporated by reference from other parts of 
your application, available to the public upon request.
    (c) OCC determination on confidentiality. The OCC will determine 
whether information that you designate as confidential may be withheld 
from the public under the Freedom of Information Act (5 U.S.C. 552) and 
part 54 of this chapter. The OCC will advise you before it makes 
information you designate as confidential available to the public.



Sec. 116.40  Where do I file my application?

    (a) OCC Office. (1) You must file the original application and the 
number of copies indicated on the applicable form

[[Page 542]]

to the attention of the Director for Licensing at the appropriate OCC 
licensing office listed in paragraph (a)(2) of this section or with the 
OCC licensing office at OCC headquarters. If the form does not indicate 
the number of copies you must file or if the OCC has not prescribed a 
form for your application, you must file the original application and 
two copies.
    (2) The addresses of appropriate OCC licensing offices and the 
states covered by each office are listed in 12 CFR 4.5.
    (b) Additional filings with OCC headquarters. (1) In addition to 
filing in the appropriate OCC licensing office, if your application 
involves a significant issue of law or policy or if an applicable 
regulation or form directs you to file with OCC headquarters, you must 
also file copies of your application at the OCC licensing office at 
headquarters. You must file the number of copies indicated on the 
applicable form. If the form does not indicate the number of copies you 
must file or if the OCC has not prescribed a form for your application, 
you must file three copies.
    (2)(i) You may obtain a list of applications involving significant 
issues of law or policy at the OCC website at www.occ.gov or by 
contacting the OCC.
    (ii) The OCC reserves the right to identify significant issues of 
law or policy in a particular application. The OCC will advise you, in 
writing, if it makes this determination.



Sec. 116.45  What is the filing date of my application?

    (a) Your application's filing date is the date that you complete all 
of the following requirements.
    (1) You attend a pre-filing meeting and submit a draft business plan 
or relevant information, if the OCC requires you to do so under Sec. 
116.15.
    (2) You file your application and all required copies with the OCC, 
as described under Sec. 116.40.
    (i) If you are required to file with an OCC licensing office and 
with OCC headquarters, you have not filed with the OCC until you file 
with both offices.
    (ii) You have not filed with an OCC licensing office or with OCC 
headquarters until you file the application and the required number of 
copies with that office.
    (iii) If you file after the close of business established by an OCC 
licensing office or OCC headquarters, you have filed with that office on 
the next business day.
    (3) You pay the applicable fee. You have not paid the fee until you 
submit the fee to the appropriate OCC licensing office, or the OCC 
waives the fee. You may pay by check, money order, cashier's check or 
wire transfer payable to the OCC.
    (b) The OCC may notify you that it has adjusted your application 
filing date if you fail to meet any applicable publication requirements.
    (c) If, after you properly file your application with the 
appropriate OCC licensing office, the OCC determines that a significant 
issue of law or policy exists under Sec. 116.40(b)(2)(ii), the filing 
date of your application is the day you filed with the appropriate OCC 
licensing office. The 30-day review period under Sec. Sec. 116.200 or 
116.210 of this part will restart in its entirety when the OCC licensing 
office forwards the appropriate number of copies of your application to 
OCC headquarters.



Sec. 116.47  How do I amend or supplement my application?

    To amend or supplement your application, you must file the amendment 
or supplemental information at the appropriate OCC office(s) along with 
the number of copies required under Sec. 116.40. Your amendment or 
supplemental information also must meet the caption and exhibit 
requirements at Sec. 116.30(b).



                   Subpart B_Publication Requirements



Sec. 116.50  Who must publish a public notice of an application?

    This subpart applies whenever an OCC regulation requires an 
applicant (``you'') to follow the public notice procedures in this 
subpart.



Sec. 116.55  What information must I include in my public notice?

    Your public notice must include the following:
    (a) Your name and address.

[[Page 543]]

    (b) The type of application.
    (c) The name of the depository institution(s) that is the subject 
matter of the application.
    (d) A statement indicating that the public may submit comments to 
the appropriate OCC licensing office(s).
    (e) The address of the appropriate OCC offices where the public may 
submit comments.
    (f) The date that the comment period closes.
    (g) A statement indicating that the nonconfidential portions of the 
application are on file with the OCC, and are available for public 
inspection during regular business hours.
    (h) Any other information that the OCC requires you to publish.



Sec. 116.60  When must I publish the public notice?

    You must publish a public notice of the application no earlier than 
seven days before and no later than the date of filing of the 
application.



Sec. 116.70  Where must I publish the public notice?

    You must publish the notice in a newspaper having a general 
circulation in the communities indicated in the following chart:

------------------------------------------------------------------------
                                             You must publish in the
           If you file . . .               following communities . . .
------------------------------------------------------------------------
(a) An application for permission to     The community in which your
 organize under Sec.  143.2 of this      home office is located.
 chapter, a Bank Merger Act application
 under Sec.  163.22(a) of this
 chapter, an application to convert to
 a Federal charter under Sec.  143.8
 or Sec.  152.18 of this chapter, or
 an application for a mutual to stock
 conversion under part 192 of this
 chapter * * *.
(b) An application to establish a        The community to be served by
 branch office under Sec.  145.95 of     the branch office.
 this chapter * * *.
(c) An application for the change of     The community in which the
 permanent location of a home or branch   existing office is located and
 office under Sec.  145.95 of this       the community to be served by
 chapter * * *.                           the new office.
(d) A change of control notice under     The community in which the home
 part 174 of this chapter * * *           office of the savings
                                          association whose stock is to
                                          be acquired is located and, if
                                          applicable, the community in
                                          which the home office of the
                                          acquiror's largest subsidiary
                                          savings association is
                                          located.
------------------------------------------------------------------------



Sec. 116.80  What language must I use in my publication?

    (a) English. You must publish the notice in a newspaper printed in 
the English language.
    (b) Other than English. If the OCC determines that the primary 
language of a significant number of adult residents of the community is 
a language other than English, the OCC may require that you 
simultaneously publish additional notice(s) in the community in the 
appropriate language(s).



                      Subpart C_Comment Procedures



Sec. 116.100  What does this subpart do?

    This subpart contains the procedures governing the submission of 
public comments on certain types of applications or notices 
(``applications'') pending before the OCC. It applies whenever a 
regulation incorporates the procedures in this subpart, or where 
otherwise required by the OCC.



Sec. 116.110  Who may submit a written comment?

    Any person may submit a written comment supporting or opposing an 
application.



Sec. 116.120  What information should a comment include?

    (a) A comment should recite relevant facts, including any 
demographic, economic, or financial data, supporting the commenter's 
position. A comment opposing an application should also:
    (1) Address at least one of the reasons why the OCC may deny the 
application under the relevant statute or regulation;
    (2) Recite any relevant facts and supporting data addressing these 
reasons; and
    (3) Address how the approval of the application could harm the 
commenter or any community.
    (b) A commenter must include any request for a meeting under Sec. 
116.170 in

[[Page 544]]

its comment. The commenter must describe the nature of the issues or 
facts to be discussed and the reasons why written submissions are 
insufficient to adequately address these facts or issues.



Sec. 116.130  Where are comments filed?

    A commenter must file with the appropriate OCC licensing office (see 
Sec. 116.40(a)(2)). The commenter must simultaneously send a copy of 
the comment to the applicant.



Sec. 116.140  How long is the comment period?

    (a) General. Except as provided in paragraph (b) of this section, a 
commenter must file a written comment with the OCC within 30 calendar 
days after the date of publication of the initial public notice.
    (b) Late-filed comments. The OCC may consider late-filed comments if 
the OCC determines that the comment will assist in the disposition of 
the application.



                      Subpart D_Meeting Procedures



Sec. 116.160  What does this subpart do?

    This subpart contains meeting procedures. It applies whenever a 
regulation incorporates the procedures in this subpart, or when 
otherwise required by the OCC.



Sec. 116.170  When will the OCC conduct a meeting on an application?

    (a) The OCC will grant a meeting request or conduct a meeting on its 
own initiative, if it finds that written submissions are insufficient to 
address facts or issues raised in an application, or otherwise 
determines that a meeting will benefit the decision-making process. The 
OCC may limit the issues considered at the meeting to issues that the 
OCC decides are relevant or material.
    (b) The OCC will inform the applicant and all commenters requesting 
a meeting of its decision to grant or deny a meeting request, or of its 
decision to conduct a meeting on its own initiative.
    (c) If the OCC decides to conduct a meeting, the OCC will invite the 
applicant and any commenters requesting a meeting and raising an issue 
that the OCC intends to consider at the meeting. The OCC may also invite 
other interested persons to attend. The OCC will inform the participants 
of the date, time, location, issues to be considered, and format for the 
meeting a reasonable time before the meeting.



Sec. 116.180  What procedures govern the conduct of the meeting?

    (a) The OCC may conduct meetings in any format including, but not 
limited to, a telephone conference, a face-to-face meeting, or a more 
formal meeting.
    (b) 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.), the OCC Rules of Practice 
and Procedure in Adjudicatory Proceedings (12 CFR parts 19 and part 109) 
do not apply to meetings under this section.



Sec. 116.185  Will the OCC approve or disapprove an application at a meeting?

    The OCC will not approve or deny an application at a meeting under 
this subpart.



Sec. 116.190  Will a meeting affect application processing time frames?

    If the OCC decides to conduct a meeting, it may suspend applicable 
application processing time frames, including the time frames for 
deeming an application complete and the applicable approval time frames 
in subpart E of this part. If the OCC suspends applicable application 
processing time frames, the time period will resume when the OCC 
determines that a record has been developed that sufficiently supports a 
determination on the issues considered at the meeting.



                          Subpart E_OCC Review

                           Expedited Treatment



Sec. 116.200  If I file a notice under expedited treatment, when may I engage 

in the proposed activities?

    If you are eligible for expedited treatment and you have 
appropriately filed your notice with the OCC, you

[[Page 545]]

may engage in the proposed activities upon the expiration of 30 days 
after the filing date of your notice, unless the OCC takes one of the 
following actions before the expiration of that time period:
    (a) The OCC notifies you in writing that you must file additional 
information supplementing your notice. If you are required to file 
additional information, you may engage in the proposed activities upon 
the expiration of 30 calendar days after the date you file the 
additional information, unless the OCC takes one of the actions 
described in paragraphs (b) through (d) of this section before the 
expiration of that time period;
    (b) The OCC notifies you in writing that your notice is subject to 
standard treatment under this subpart. The OCC will subject your notice 
to standard treatment if it raises a supervisory concern, raises a 
significant issue of law or policy, or requires significant additional 
information;
    (c) The OCC notifies you in writing that it is suspending the 
applicable time frames under Sec. 116.190; or
    (d) The OCC notifies you that it disapproves your notice.

                           Standard Treatment



Sec. 116.210  What will the OCC do after I file my application?

    (a) OCC action. Within 30 calendar days after the filing date of 
your application, the OCC will take one of the following actions:

------------------------------------------------------------------------
            If the OCC . . .                        Then . . .
------------------------------------------------------------------------
(1) Notifies you, in writing, that your  The applicable review period
 application is complete * * *            will begin on the date that
                                          the OCC deems your application
                                          complete.
(2) Notifies you, in writing, that you   You must submit the required
 must submit additional information to    additional information under
 complete your application * * *.         Sec.  116.220.
(3) Notifies you, in writing, that your  The OCC will not process your
 application is materially deficient *    application.
 * *.
(4) Takes no action * * *                Your application is deemed
                                          complete. The applicable
                                          review period will begin on
                                          the day the 30-day time period
                                          expires.
------------------------------------------------------------------------

    (b) Waiver requests. If your application includes a request for 
waiver of an information requirement under Sec. 116.25(b), and the OCC 
has not notified you that you must submit additional information under 
paragraph (a)(2) of this section, your request for waiver is granted.



Sec. 116.220  If the OCC requests additional information to complete my 

application, how will it process my application?

    (a) You may use the following chart to determine the procedure that 
applies to your submission of additional information under Sec. 
116.210(a)(1):

------------------------------------------------------------------------
 If, within 30 calendar days
 after the date of the OCC's   Then, the OCC may .
   request for additional              . .                And . . .
      information . . .
------------------------------------------------------------------------
(1) You file a response to    (i) Notify you in     The applicable
 all information requests *    writing within 15     review period will
 * *.                          days after the        begin on the date
                               filing date of your   that the OCC deems
                               response that your    your application
                               application is        complete.
                               complete* * *.
                              (ii) Notify you in    You must respond to
                               writing within 15     the additional
                               calendar days after   information request
                               the filing date of    within the time
                               your response that    period required by
                               you must submit       the OCC. The OCC
                               additional            will review your
                               information           response under the
                               regarding matters     procedures
                               derived from or       described in this
                               prompted by           section.
                               information already
                               furnished or any
                               additional
                               information
                               necessary to
                               resolve the issues
                               presented in your
                               application * * *.
                              (iii) Notify you in   The OCC will not
                               writing within 15     process your
                               calendar days after   application.
                               the filing date of
                               your response that
                               your application is
                               materially
                               deficient * * *.
                              (iv) Take no action   Your application is
                               within 15 calendar    deemed complete.
                               days after the        The applicable
                               filing date of your   review period will
                               response * * *.       begin on the day
                                                     that the 15-day
                                                     time period
                                                     expires.

[[Page 546]]

 
(2) You request an extension  (i) Grant an          You must fully
 of time to file additional    extension, in         respond within the
 information * * *.            writing, specifying   extended time
                               the number of days    period specified by
                               for the extension *   the OCC. The OCC
                               * *.                  will review your
                                                     response under the
                                                     procedures
                                                     described under
                                                     this section.
                              (ii) Notify you in    The OCC will not
                               writing that your     process your
                               extension request     application
                               is disapproved * *    further. You may
                               *.                    resubmit the
                                                     application for
                                                     processing as a new
                                                     filing under the
                                                     applicable
                                                     regulation.
(3) You fail to respond       (i) Notify you in     The OCC will not
 completely * * *              writing that your     process your
                               application is        application
                               deemed withdrawn *    further. You may
                               * *.                  resubmit the
                                                     application for
                                                     processing as a new
                                                     filing under the
                                                     applicable
                                                     regulation.
                              (ii) Notify you, in   You must fully
                               writing, that your    respond within the
                               response is           extended time
                               incomplete and        period specified by
                               extend the response   the OCC. The OCC
                               period, specifying    will review your
                               the number of days    response under the
                               for the respond       procedures
                               extension * * *.      described under
                                                     this section.
------------------------------------------------------------------------

    (b) The OCC may extend the 15-day period referenced in paragraph 
(a)(1) of this section by up to 15 calendar days, if the OCC requires 
the additional time to review your response. The OCC will notify you 
that it has extended the period before the end of the initial 15-day 
period and will briefly explain why the extension is necessary.
    (c) If your response filed under paragraph (a)(1) of this section 
includes a request for a waiver of an informational requirement, your 
request for a waiver is granted if the OCC fails to act on it within 15 
calendar days after the filing of your response, unless the OCC extends 
the review period under paragraph (b). If the OCC extends the review 
period under paragraph (b), your request is granted if the OCC fails to 
act on it by the end of the extended review period.



Sec. 116.230  Will the OCC conduct an eligibility examination?

    (a) Eligibility examination. The OCC may notify you at any time 
before it deems your application complete that it will conduct an 
eligibility examination. If the OCC decides to conduct an eligibility 
examination, it will not deem your application complete until it 
concludes the examination.
    (b) Additional information. The OCC may, as a result of the 
eligibility examination, notify you that you must submit additional 
information to complete your application. If so, you must respond to the 
additional information request within the time period required by the 
OCC. The OCC will review your response under the procedures described in 
Sec. 116.220.



Sec. 116.240  What may the OCC require me to do after my application is deemed 

complete?

    After your application is deemed complete, but before the end of the 
applicable review period,
    (a) The OCC may require you to provide additional information if the 
information is necessary to resolve or clarify the issues presented by 
your application.
    (b) The OCC may determine that a major issue of law or a change in 
circumstances arose after you filed your application, and that the issue 
or changed circumstances will substantially effect your application. If 
the OCC identifies such an issue or changed circumstances, it may:
    (1) Notify you, in writing, that your application is now incomplete 
and require you to submit additional information to complete the 
application under the procedures described at Sec. 116.220; and
    (2) Require you to publish a new public notice of your application 
under Sec. 116.250.



Sec. 116.250  Will the OCC require me to publish a new public notice?

    (a) If your application was subject to a publication requirement, 
the OCC may require you to publish a new public notice of your 
application if:

[[Page 547]]

    (1) You submitted a revision to the application, you submitted new 
or additional information, or a major issue of law or a change in 
circumstances arose after the filing of your application; and
    (2) The OCC determines that additional comment on these matters is 
appropriate because of the significance of the new information or 
circumstances.
    (b) The OCC will notify you in writing if you must publish a new 
public notice of your revised application.
    (c) If you are required to publish a new public notice of your 
revised application, you must notify the OCC after you publish the new 
public notice.



Sec. 116.260  May the OCC suspend processing of my application?

    (a) Suspension. The OCC may, at any time, indefinitely suspend 
processing of your application if:
    (1) The OCC, another governmental entity, or a self-regulatory trade 
or professional organization initiates an investigation, examination, or 
administrative proceeding that is relevant to the OCC's evaluation of 
your application;
    (2) You request the suspension or there are other extraordinary 
circumstances that have a significant impact on the processing of your 
application.
    (b) Notice. The OCC will promptly notify you, in writing, if it 
suspends your application.



Sec. 116.270  How long is the OCC review period?

    (a) General. The applicable OCC review period is 60 calendar days 
after the date that your application is deemed complete, unless an 
applicable OCC regulation specifies a different review period.
    (b) Multiple applications. If you submit more than one application 
in connection with a proposed action or if two or more applicants submit 
related applications, the applicable review period for all applications 
is the review period for the application with the longest review period, 
subject to statutory review periods.
    (c) Extensions. (1) The OCC may extend the review period for up to 
30 calendar days beyond the period described in paragraph (a) or (b) of 
this section. The OCC must notify you in writing of the extension and 
the duration of the extension. The OCC must issue the written extension 
before the end of the review period.
    (2) The OCC may also extend the review period as needed until it 
acts on the application, if the application presents a significant issue 
of law or policy that requires additional time to resolve. The OCC must 
notify you in writing of the extension and the general reasons for the 
extension. The OCC must issue the written extension before the end of 
the review period, including any extension of that period under 
paragraph (c)(1) of this section. This section applies to notices filed 
under Sec. 174 of this chapter.



Sec. 116.280  How will I know if my application has been approved?

    (a) OCC approval or denial. (1) The OCC will approve or deny your 
application before the expiration of the applicable review period, 
including any extensions of the review period.
    (2) The OCC will promptly notify you in writing of its decision to 
approve or deny your application.
    (b) No OCC action. If the OCC fails to act under paragraph (a)(1) of 
this section, your application is approved.



Sec. 116.290  What will happen if the OCC does not approve or disapprove my 

application within two calendar years after the filing date?

    If the OCC has not approved or denied your pending application 
within two calendar years after the filing date under Sec. 116.45, the 
OCC will notify you, in writing, that your application is deemed 
withdrawn unless the OCC determines that you are actively pursuing a 
final OCC determination on your application. You are not actively 
pursuing a final OCC determination if you have failed to timely take an 
action required under this part, including filing required additional 
information, or the OCC has suspended processing of your application 
under Sec. 116.260 based on circumstances that are, in whole or in 
part, within your control and you have failed to take reasonable steps 
to resolve these circumstances.

[[Page 548]]

                        PARTS 117-127 [RESERVED]



PART 128_NONDISCRIMINATION REQUIREMENTS--Table of Contents



Sec.
128.1 Definitions.
128.2 Nondiscrimination in lending and other services.
128.3 Nondiscrimination in applications.
128.4 Nondiscriminatory advertising.
128.5 Equal Housing Lender Poster.
128.6 Loan application register.
128.7 Nondiscrimination in employment.
128.8 Complaints.
128.9 Guidelines relating to nondiscrimination in lending.
128.10 Supplementary guidelines.
128.11 Nondiscriminatory appraisal and underwriting.


    Authority: 12 U.S.C. 1464, 5412(b)(2)(B).

    Source: 76 FR 48978, August 9, 2011, unless otherwise noted.



Sec. 128.1  Definitions.

    As used in this part 128--
    (a) Application. For purposes of this part, an application for a 
loan or other service is as defined in Regulation C, 12 CFR 203.2(b).
    (b) Savings association. The term ``savings association'' means any 
Federal savings association as defined in 12 U.S.C. 1813(b)(2).
    (c) Dwelling. The term ``dwelling'' means a residential structure 
(whether or not it is attached to real property) located in a state of 
the United States of America, the District of Columbia, or the 
Commonwealth of Puerto Rico. The term includes an individual condominium 
unit, cooperative unit, or mobile or manufactured home.



Sec. 128.2  Nondiscrimination in lending and other services.

    (a) No savings association may deny a loan or other service, or 
discriminate in the purchase of loans or securities or discriminate in 
fixing the amount, interest rate, duration, application procedures, 
collection or enforcement procedures, or other terms or conditions of 
such loan or other service on the basis of the age or location of the 
dwelling, or on the basis of the race, color, religion, sex, handicap, 
familial status (having one or more children under the age of 18), 
marital status, age (provided the person has the capacity to contract) 
or national origin of:
    (1) An applicant or joint applicant;
    (2) Any person associated with an applicant or joint applicant 
regarding such loan or other service, or with the purposes of such loan 
or other service;
    (3) The present or prospective owners, lessees, tenants, or 
occupants of the dwelling(s) for which such loan or other service is to 
be made or given;
    (4) The present or prospective owners, lessees, tenants, or 
occupants of other dwellings in the vicinity of the dwelling(s) for 
which such loan or other service is to be made or given.
    (b) A savings association shall consider without prejudice the 
combined income of joint applicants for a loan or other service.
    (c) No savings association may discriminate against an applicant for 
a loan or other service on any prohibited basis (as defined in 12 CFR 
202.2(z) and 24 CFR part 100).
    Note to Sec. 128.2: See also, Sec. 128.9(b) and (c).



Sec. 128.3  Nondiscrimination in applications.

    (a) No savings association may discourage, or refuse to allow, 
receive, or consider, any application, request, or inquiry regarding a 
loan or other service, or discriminate in imposing conditions upon, or 
in processing, any such application, request, or inquiry on the basis of 
the age or location of the dwelling, or on the basis of the race, color, 
religion, sex, handicap, familial status (having one or more children 
under the age of 18), marital status, age (provided the person has the 
capacity to contract), national origin, or other characteristics 
prohibited from consideration in Sec. 128.2(c) of this part, of the 
prospective borrower or other person, who:
    (1) Makes application for any such loan or other service;
    (2) Requests forms or papers to be used to make application for any 
such loan or other service; or
    (3) Inquires about the availability of such loan or other service.
    (b) A savings association shall inform each inquirer of his or her 
right to file

[[Page 549]]

a written loan application, and to receive a copy of the association's 
underwriting standards.
    Note Sec. 128.3: See also, Sec. 128.9(a) through (d).



Sec. 128.4  Nondiscriminatory advertising.

    No savings association may directly or indirectly engage in any form 
of advertising that implies or suggests a policy of discrimination or 
exclusion in violation of title VIII of the Civil Rights Acts of 1968, 
the Equal Credit Opportunity Act, or this part 128. Advertisements for 
any loan for the purpose of purchasing, constructing, improving, 
repairing, or maintaining a dwelling or any loan secured by a dwelling 
shall include a facsimile of the following logotype and legend:
[GRAPHIC] [TIFF OMITTED] TR09AU11.000



Sec. 128.5  Equal Housing Lender Poster.

    (a) Each savings association shall post and maintain one or more 
Equal Housing Lender Posters, the text of which is prescribed in 
paragraph (b) of this section, in the lobby of each of its offices in a 
prominent place or places readily apparent to all persons seeking loans. 
The poster shall be at least 11 by 14 inches in size, and the text shall 
be easily legible. It is recommended that savings associations post a 
Spanish language version of the poster in offices serving areas with a 
substantial Spanish-speaking population.
    (b) The text of the Equal Housing Lender Poster shall be as follows:
    [GRAPHIC] [TIFF OMITTED] TR09AU11.001
    
    We Do Business In Accordance With Federal Fair Lending Laws.
    UNDER THE FEDERAL FAIR HOUSING ACT, IT IS ILLEGAL, ON THE BASIS OF 
RACE, COLOR, NATIONAL ORIGIN, RELIGION, SEX, HANDICAP, OR FAMILIAL 
STATUS (HAVING CHILDREN UNDER THE AGE OF 18) TO:
    [----] Deny a loan for the purpose of purchasing, constructing, 
improving, repairing or maintaining a dwelling or to deny any loan 
secured by a dwelling; or
    [----] Discriminate in fixing the amount, interest rate, duration, 
application procedures, or other terms or conditions of such a loan or 
in appraising property.
    IF YOU BELIEVE YOU HAVE BEEN DISCRIMINATED AGAINST, YOU SHOULD:
    SEND A COMPLAINT TO:
    Assistant Secretary for Fair Housing and Equal Opportunity, 
Department of Housing and Urban Development, Washington, DC 20410.
    For processing under the Federal Fair Housing Act
    AND TO:
    [Insert contact information for appropriate Federal regulator]
    For processing under applicable Regulations.
    UNDER THE EQUAL CREDIT OPPORTUNITY ACT, IT IS ILLEGAL TO 
DISCRIMINATE IN ANY CREDIT TRANSACTION:

[[Page 550]]

    [ ] On the basis of race, color, national origin, religion, sex, 
marital status, or age;
    [ ] Because income is from public assistance; or
    [ ] Because a right has been exercised under the Consumer Credit 
Protection Act.
    IF YOU BELIEVE YOU HAVE BEEN DISCRIMINATED AGAINST, YOU SHOULD SEND 
A COMPLAINT TO:
    [Insert contact information for appropriate Federal regulator]



Sec. 128.6  Loan application register.

    Savings associations and other lenders required to file Home 
Mortgage Disclosure Act Loan Application Registers with the OCC in 
accordance with 12 CFR part 203 must enter the reason for denial, using 
the codes provided in 12 CFR part 203, with respect to all loan denials.



Sec. 128.7  Nondiscrimination in employment.

    (a) No savings association shall, because of an individual's race, 
color, religion, sex, or national origin:
    (1) Fail or refuse to hire such individual;
    (2) Discharge such individual;
    (3) Otherwise discriminate against such individual with respect to 
such individual's compensation, promotion, or the terms, conditions, or 
privileges of such individual's employment; or
    (4) Discriminate in admission to, or employment in, any program of 
apprenticeship, training, or retraining, including on-the-job training.
    (b) No savings association shall limit, segregate, or classify its 
employees in any way which would deprive or tend to deprive any 
individual of employment opportunities or otherwise adversely affect 
such individual's status as an employee because of such individual's 
race, color, religion, sex, or national origin.
    (c) No savings association shall discriminate against any employee 
or applicant for employment because such employee or applicant has 
opposed any employment practice made unlawful by Federal, state, or 
local law or regulation or because he has in good faith made a charge of 
such practice or testified, assisted, or participated in any manner in 
an investigation, proceeding, or hearing of such practice by any 
lawfully constituted authority.
    (d) No savings association shall print or publish or cause to be 
printed or published any notice or advertisement relating to employment 
by such savings association indicating any preference, limitation, 
specification, or discrimination based on race, color, religion, sex, or 
national origin.
    (e) This regulation shall not apply in any case in which the Federal 
Equal Employment Opportunities law is made inapplicable by the 
provisions of section 2000e-1 or sections 2000e-2(e) through (j) of 
title 42, United States Code.
    (f) Any violation of the following laws or regulations by a savings 
association shall be deemed to be a violation of this part 128:
    (1) The Equal Employment Opportunity Act, as amended, 42 U.S.C. 
2000e-2000h-2, and Equal Employment Opportunity Commission (EEOC) 
regulations at 29 CFR part 1600;
    (2) The Age Discrimination in Employment Act, 29 U.S.C. 621-633, and 
EEOC and Department of Labor regulations;
    (3) Office of Federal Contract Compliance Programs (OFCCP) 
regulations at 41 CFR part 60;
    (4) The Veterans Employment and Readjustment Act of 1972, 38 U.S.C. 
2011-2012, and the Vietnam Era Veterans Readjustment Adjustment 
Assistance Act of 1974, 38 U.S.C. 2021-2026;
    (5) The Rehabilitation Act of 1973, 29 U.S.C. 701 et seq.; and
    (6) The Immigration and Nationality Act, 8 U.S.C. 1324b, and INS 
regulations at 8 CFR part 274a.



Sec. 128.8  Complaints.

    Complaints alleging violations of the Fair Housing Act by a savings 
association shall be referred to the Assistant Secretary for Fair 
Housing and Equal Opportunity, U.S. Department of Housing and Urban 
Development, Washington, DC 20410 for processing under the Fair Housing 
Act, and to the appropriate Federal regulator for processing under 
applicable regulations. Complaints regarding discrimination in 
employment by a savings association

[[Page 551]]

should be referred to the Equal Employment Opportunity Commission, 
Washington, DC 20506 and a copy, for information only, sent to the 
appropriate Federal regulator.



Sec. 128.9  Guidelines relating to nondiscrimination in lending.

    (a) General. Fair housing and equal opportunity in home financing is 
a policy of the United States established by Federal statutes and 
Presidential orders and proclamations. In furtherance of the Federal 
civil rights laws and the economical home financing purposes of the 
statutes administered by the OCC, the OCC has adopted, in part 128 of 
this chapter, nondiscrimination regulations that, among other things, 
prohibit arbitrary refusals to consider loan applications on the basis 
of the age or location of a dwelling, and prohibit discrimination based 
on race, color, religion, sex, handicap, familial status (having one or 
more children under the age of 18), marital status, age (provided the 
person has the capacity to contract), or national origin in fixing the 
amount, interest rate, duration, application procedures, collection or 
enforcement procedures, or other terms or conditions of housing related 
loans. Such discrimination is also prohibited in the purchase of loans 
and securities. This section provides supplementary guidelines to aid 
savings associations in developing and implementing nondiscriminatory 
lending policies. Each savings association should reexamine its 
underwriting standards at least annually in order to ensure equal 
opportunity.
    (b) Loan underwriting standards. The basic purpose of the 
nondiscrimination regulations is to require that every applicant be 
given an equal opportunity to obtain a loan. Each loan applicant's 
creditworthiness should be evaluated on an individual basis without 
reference to presumed characteristics of a group. The use of lending 
standards which have no economic basis and which are discriminatory in 
effect is a violation of law even in the absence of an actual intent to 
discriminate. However, a standard which has a discriminatory effect is 
not necessarily improper if its use achieves a genuine business need 
which cannot be achieved by means which are not discriminatory in effect 
or less discriminatory in effect.
    (c) Discriminatory practices--(1) Discrimination on the basis of sex 
or marital status. The Civil Rights Act of 1968 and the National Housing 
Act prohibit discrimination in lending on the basis of sex. The Equal 
Credit Opportunity Act, in addition to this prohibition, forbids 
discrimination on the basis of marital status. Refusing to lend to, 
requiring higher standards of creditworthiness of, or imposing different 
requirements on, members of one sex or individuals of one marital 
status, is discrimination based on sex or marital status. Loan 
underwriting decisions must be based on an applicant's credit history 
and present and reasonably foreseeable economic prospects, rather than 
on the basis of assumptions regarding comparative differences in 
creditworthiness between married and unmarried individuals, or between 
men and women.
    (2) Discrimination on the basis of language. Requiring fluency in 
the English language as a prerequisite for obtaining a loan may be a 
discriminatory practice based on national origin.
    (3) Income of husbands and wives. A practice of discounting all or 
part of either spouse's income where spouses apply jointly is a 
violation of section 527 of the National Housing Act. As with other 
income, when spouses apply jointly for a loan, the determination as to 
whether a spouse's income qualifies for credit purposes should depend 
upon a reasonable evaluation of his or her past, present, and reasonably 
foreseeable economic circumstances. Information relating to child-
bearing intentions of a couple or an individual may not be requested.
    (4) Supplementary income. Lending standards which consider as 
effective only the non-overtime income of the primary wage-earner may 
result in discrimination because they do not take account of variations 
in employment patterns among individuals and families. The favored 
method of loan underwriting reasonably evaluates the credit worthiness 
of each applicant based on a realistic appraisal of his or her own past, 
present, and foreseeable economic circumstances. The determination as

[[Page 552]]

to whether primary income or additional income qualifies as effective 
for credit purposes should depend upon whether such income may 
reasonably be expected to continue through the early period of the 
mortgage risk. Automatically discounting other income from bonuses, 
overtime, or part-time employment, will cause some applicants to be 
denied financing without a realistic analysis of their credit 
worthiness. Since statistics show that minority group members and low- 
and moderate-income families rely more often on such supplemental 
income, the practice may be racially discriminatory in effect, as well 
as artificially restrictive of opportunities for home financing.
    (5) Applicant's prior history. Loan decisions should be based upon a 
realistic evaluation of all pertinent factors respecting an individual's 
creditworthiness, without giving undue weight to any one factor. The 
savings association should, among other things, take into consideration 
that:
    (i) In some instances, past credit difficulties may have resulted 
from discriminatory practices;
    (ii) A policy favoring applicants who previously owned homes may 
perpetuate prior discrimination;
    (iii) A current, stable earnings record may be the most reliable 
indicator of credit-worthiness, and entitled to more weight than factors 
such as educational level attained;
    (iv) Job or residential changes may indicate upward mobility; and
    (v) Preferring applicants who have done business with the lender can 
perpetuate previous discriminatory policies.
    (6) Income level or racial composition of area. Refusing to lend or 
lending on less favorable terms in particular areas because of their 
racial composition is unlawful. Refusing to lend, or offering less 
favorable terms (such as interest rate, downpayment, or maturity) to 
applicants because of the income level in an area can discriminate 
against minority group persons.
    (7) Age and location factors. Sections 128.2, 128.11, and 128.3 of 
this chapter prohibit loan denials based upon the age or location of a 
dwelling. These restrictions are intended to prohibit use of unfounded 
or unsubstantiated assumptions regarding the effect upon loan risk of 
the age of a dwelling or the physical or economic characteristics of an 
area. Loan decisions should be based on the present market value of the 
property offered as security (including consideration of specific 
improvements to be made by the borrower) and the likelihood that the 
property will retain an adequate value over the term of the loan. 
Specific factors which may negatively affect its short-range future 
value (up to 3-5 years) should be clearly documented. Factors which in 
some cases may cause the market value of a property to decline are 
recent zoning changes or a significant number of abandoned homes in the 
immediate vicinity of the property. However, not all zoning changes will 
cause a decline in property values, and proximity to abandoned buildings 
may not affect the market value of a property because of rehabilitation 
programs or affirmative lending programs, or because the cause of 
abandonment is unrelated to high risk. Proper underwriting 
considerations include the condition and utility of the improvements, 
and various physical factors such as street conditions, amenities such 
as parks and recreation areas, availability of public utilities and 
municipal services, and exposure to flooding and land faults. However, 
arbitrary decisions based on age or location are prohibited, since many 
older, soundly constructed homes provide housing opportunities which may 
be precluded by an arbitrary lending policy.
    (8) Fair Housing Act (title VIII, Civil Rights Act of 1968, as 
amended). Savings associations must comply with all regulations 
promulgated by the Department of Housing and Urban Development to 
implement the Fair Housing Act, found at 24 CFR parts 100 through 125, 
except that they shall use the Equal Housing Lender logo and poster 
prescribed by OCC regulations at 12 CFR 128.4 and 128.5 rather than the 
Equal Housing Opportunity logo and poster required by 24 CFR part 110.
    (d) Marketing practices. Savings associations should review their 
advertising and marketing practices to ensure that their services are 
available

[[Page 553]]

without discrimination to the community they serve. Discrimination in 
lending is not limited to loan decisions and underwriting standards; a 
savings association does not meet its obligations to the community or 
implement its equal lending responsibility if its marketing practices 
and business relationships with developers and real estate brokers 
improperly restrict its clientele to segments of the community. A review 
of marketing practices could begin with an examination of an 
association's loan portfolio and applications to ascertain whether, in 
view of the demographic characteristics and credit demands of the 
community in which the institution is located, it is adequately serving 
the community on a nondiscriminatory basis. The OCC will systematically 
review marketing practices where evidence of discrimination in lending 
is discovered.



Sec. 128.10  Supplementary guidelines.

    The policy statement found at 12 CFR 128.9 supplements this part and 
should be read together with this part. Refer also to the HUD Fair 
Housing regulations at 24 CFR parts 100 through 125, Federal Reserve 
Regulation B at 12 CFR part 202, and Federal Reserve Regulation C at 12 
CFR part 203.



Sec. 128.11  Nondiscriminatory appraisal and underwriting.

    (a) Appraisal. No savings association may use or rely upon an 
appraisal of a dwelling which the savings association knows, or 
reasonably should know, is discriminatory on the basis of the age or 
location of the dwelling, or is discriminatory per se or in effect under 
the Fair Housing Act of 1968 or the Equal Credit Opportunity Act.
    (b) Underwriting. Each savings association shall have clearly 
written, non-discriminatory loan underwriting standards, available to 
the public upon request, at each of its offices. Each association shall, 
at least annually, review its standards, and business practices 
implementing them, to ensure equal opportunity in lending.
    Note to Sec. 128.11: See also, Sec. 128.9(b), (c)(6), and (c)(7).

                        PARTS 129-132 [RESERVED]



PART 133_DISCLOSURE AND REPORTING OF CRA-RELATED AGREEMENTS--Table of Contents



Sec.
133.1 Purpose and scope of this part.
133.2 Definition of covered agreement.
133.3 CRA communications.
133.4 Fulfillment of the CRA.
133.5 Related agreements considered a single agreement.
133.6 Disclosure of covered agreements.
133.7 Annual reports.
133.8 Release of information under FOIA.
133.9 Compliance provisions.
133.10 [Reserved]
133.11 Other definitions and rules of construction used in this part.


    Authority: 12 U.S.C. 1462a, 1463, 1464, 1831y and 5412(b)(2)(B).

    Source: 76 FR 48981, Aug. 9, 2011, unless otherwise noted.



Sec. 133.1  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 (NGEP), insured depository institution, 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--
    (1) Federal savings associations and their subsidiaries;
    (2) [Reserved]
    (3) Affiliates of Federal savings associations; and
    (4) NGEPs that enter into covered agreements with any company listed 
in paragraphs (b)(1) and (b)(2) of this section.
    (c) Relation to Community Reinvestment Act. This part does not 
affect in any way the Community Reinvestment Act of 1977 (CRA) (12 
U.S.C. 2901 et seq.), the OCC's Community Reinvestment rule at 12 CFR 
part 195, or the OCC's interpretations or administration of the CRA or 
Community Reinvestment rule.
    (d) Examples. (1) The examples in this part are not exclusive. 
Compliance

[[Page 554]]

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. 133.2  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 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 CRA, as defined in Sec. 133.4 of this part.
    (5) The agreement is with a NGEP that has had a CRA communication as 
described in Sec. 133.3 of this part 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 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

[[Page 555]]

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.
    (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. 133.3  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.

[[Page 556]]

    (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 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 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

[[Page 557]]

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. 133.11(a) of this 
part.) 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 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.

[[Page 558]]

    (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 
requirements in Sec. Sec. 133.6 and 133.7 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. 133.4  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. 
195.22 of this chapter, including loan purchases, loan commitments, and 
letters of credit;
    (ii) Making investments, deposits, or grants, or acquiring 
membership shares, that have as their primary purpose community 
development, as described in Sec. 195.23 of this chapter;
    (iii) Delivering retail banking services, as described in Sec. 
195.24(d) of this chapter;
    (iv) Providing community development services, as described in Sec. 
195.24(e) of this chapter;
    (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. 195.25(c) of this chapter;
    (vi) In the case of a small insured depository institution, any 
lending or other activity described in Sec. 195.26(a) of this chapter; 
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. 195.27(f) of this chapter.
    (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,

[[Page 559]]

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. 133.5  Related agreements considered a single agreement.

    The following rules must be applied in determining whether an 
agreement is a covered agreement under Sec. 133.2 of this part.
    (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. 133.6  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 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 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 this chapter).
    (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. 
195.43 of this chapter.

[[Page 560]]

    (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 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 after the end of 
the term of the covered 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) of this section. Any joint 
filing must identify the insured depository institution(s) and 
affiliate(s) for whom the filings are being made.



Sec. 133.7  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

[[Page 561]]

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 
(e)(1)(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 the 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 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

[[Page 562]]

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 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 
(e)(1)(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

[[Page 563]]

    (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 (e)(1)(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. 133.8  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.), subpart B of part 4 of this chapter. A party to a covered 
agreement may request confidential treatment of proprietary and 
confidential information in a covered agreement or an annual report 
under those procedures.



Sec. 133.9  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. 133.6 or 133.7 of this part, 
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

[[Page 564]]

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. 133.6 or 133.7 of this part 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. 133.10  [Reserved]



Sec. 133.11  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. 133.2, 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. 133.3 of this part.
    (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. 
195.43 of this chapter.
    (e) Executive officer. The term executive officer has the same 
meaning as in Sec. 215.2(e)(1) of the Board of Governors of the Federal 
Reserve's Regulation O (12 CFR 215.2(e)(1)). In applying this definition 
under this part, the term savings association shall be used in place of 
the term bank.
    (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) Nongovernmental entity or person or NGEP--(1) General. A 
nongovernmental entity or person or NGEP 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,

[[Page 565]]

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), (i)(2)(ii), 
or (i)(2)(iii) of this section.
    (j) 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.
    (k) 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;
    (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.
    (l) 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 134-135 [RESERVED]



PART 136_CONSUMER PROTECTION IN SALES OF INSURANCE--Table of Contents



Sec.
136.10 Purpose and scope.
136.20 Definitions.
136.30 Prohibited practices.
136.40 What you must disclose.
136.50 Where insurance activities may take place.
136.60 Qualification and licensing requirements for insurance sales 
          personnel.

Appendix A to Part 136--Consumer Grievance Process

    Authority: 12 U.S.C. 1462a, 1463, 1464, 1831x, and 5412(b)(2)(B).

    Source: 76 FR 48987, Aug. 9, 2011, unless otherwise noted.



Sec. 136.10  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 Federal savings association; or
    (2) Any other person that is engaged in such activities at an office 
of a Federal savings association or on behalf of a Federal savings 
association.
    (b) Application to operating subsidiaries. For purposes of Sec. 
159.3(h) 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 Federal savings 
association or on behalf of a Federal savings association.



Sec. 136.20  Definitions.

    As used in this part:
    Affiliate means a company that controls, is controlled by, or is 
under common control with another company.
    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 Company Act of 1956, as amended (12 
U.S.C. 1841(o)(10)).
    Consumer means an individual who purchases, applies to purchase, or 
is solicited to purchase from a covered person insurance products or 
annuities

[[Page 566]]

primarily for personal, family, or household purposes.
    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)).
    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.
    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.
    Office means the premises of a Federal savings association where 
retail deposits are accepted from the public.
    Subsidiary has the same meaning as in section 3(w)(4) of the Federal 
Deposit Insurance Act (12 U.S.C. 1813(w)(4)).
    You means:
    (1) A Federal savings association, as defined in Sec. 141.11 of 
this chapter; or
    (2) Any other person only when the person sells, solicits, 
advertises, or offers an insurance product or annuity to a consumer at 
an office of a Federal savings association, or on behalf of a Federal 
savings association. For purposes of this definition, activities on 
behalf of a Federal savings association include activities where a 
person, whether at an office of the savings association 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 savings association;
    (ii) The savings association refers a consumer to a seller of 
insurance products and annuities and the savings association 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 
savings association.



Sec. 136.30  Prohibited practices.

    (a) Anticoercion and antitying rules. You may not engage in any 
practice that would lead a consumer to believe that an extension of 
credit, in violation of section 5(q) of the Home Owners' Loan Act (12 
U.S.C. 1464(q)), is conditional upon either:
    (1) The purchase of an insurance product or annuity from a Federal 
savings association 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. You may not engage 
in any practice or use any advertisement at any office of, or on behalf 
of, a Federal savings association or a subsidiary of a Federal savings 
association 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 you or any 
subsidiary of a Federal savings association sell or offer for sale is 
not backed by the Federal government or a Federal savings association, 
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 567]]

that principal may be lost and that the product may decline in value; or
    (3) In the case of a Federal savings association or subsidiary of a 
Federal savings association 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 
savings association or subsidiary may not be conditioned on the purchase 
of an insurance product or annuity by the consumer from the savings 
association or a subsidiary of a savings association; and
    (ii) The consumer is free to purchase the insurance product or 
annuity from another source.
    (c) Prohibition on domestic violence discrimination. You 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. 136.40  What you must disclose.

    (a) Insurance disclosures. In connection with the initial purchase 
of an insurance product or annuity by a consumer from you, you 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, a Federal savings association or an 
affiliate of a Federal savings association;
    (2) The insurance product or annuity is not insured by the Federal 
Deposit Insurance Corporation (FDIC) or any other agency of the United 
States, a Federal savings association, or (if applicable) an affiliate 
of a Federal savings association; 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 disclosures. In the case of an application for credit in 
connection with which an insurance product or annuity is solicited, 
offered, or sold, you must disclose that a Federal savings association 
may not condition an extension of credit on either:
    (1) The consumer's purchase of an insurance product or annuity from 
the savings association 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 you conduct an insurance 
product or annuity sale by mail, you are not required to make the oral 
disclosures required by paragraph (a) of this section. If you take an 
application for credit by mail, you are not required to make the oral 
disclosure required by paragraph (b) of this section.
    (3) Exception for transactions by telephone. If a sale of an 
insurance product or annuity is conducted by telephone, you 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, solicitation, or offer, excluding Sundays and the legal public 
holidays specified in 5 U.S.C. 6103(a). If you take an application for 
credit by telephone, you may provide the written disclosure required by 
paragraph (b) of this section by mail, provided you mail 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

[[Page 568]]

101(c) of the Electronic Signatures in Global and National Commerce Act 
(15 U.S.C. 7001(c)), you may 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) You are not required to provide orally any disclosures required 
by paragraphs (a) or (b) of this section that you provide by electronic 
media.
    (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, you 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 FEDERAL SAVINGS ASSOCIATION
     MAY GO DOWN IN VALUE
    (6) Disclosures must be meaningful. (i) You 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 size, style, and graphic devices, such as 
shading or sidebars, when the disclosures are combined with other 
information.
    (ii) You have not provided the disclosures in a meaningful form if 
you merely state to the consumer that the required disclosures are 
available in printed material, but do not provide the printed material 
when required and do 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. You 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. You 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, you 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 material are of a general nature describing or listing the 
services or products offered by a Federal savings association.



Sec. 136.50  Where insurance activities may take place.

    (a) General rule. A Federal savings association must, to the extent 
practicable:

[[Page 569]]

    (1) Keep the area where the savings association conducts 
transactions involving insurance products or annuities physically 
segregated from areas where retail deposits are routinely accepted from 
the general public;
    (2) Identify the areas where insurance product or annuity sales 
activities occur; and
    (3) Clearly delineate and distinguish those areas from the areas 
where the savings association'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 a Federal 
savings association 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. 136.60  Qualification and licensing requirements for insurance sales 

personnel.

    A Federal savings association may not permit any person to sell or 
offer for sale any insurance product or annuity in any part of the 
savings association's 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 136--Consumer Grievance Process

    Any consumer who believes that any Federal savings association or 
any other person selling, soliciting, advertising, or offering insurance 
products or annuities to the consumer at an office of the savings 
association or on behalf of the savings association 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.

                        PARTS 137-140 [RESERVED]



PART 141_DEFINITIONS FOR REGULATIONS AFFECTING FEDERAL SAVINGS ASSOCIATIONS--

Table of Contents



Sec.
141.1 When do the definitions in this part apply?
141.2 Act.
141.5 Commercial paper.
141.7 Corporate debt security.
141.8 Debit card.
141.10 Dwelling unit.
141.11 Federal savings association.
141.14 Home.
141.15 Improved nonresidential real estate.
141.16 Improved residential real estate.
141.18 Interim Federal savings association.
141.19 Interim state savings association.
141.20 Loans.
141.21 Nonresidential real estate.
141.22 [Reserved]
141.23 Residential real estate.
141.25 Single-family dwelling.
141.26 Surplus.
141.27 Unimproved real estate.
141.28 Withdrawal value of a savings account.

    Authority: 12 U.S.C. 1462a, 1463, 1464, 5412(b)(2)(B).

    Source: 76 FR 48990, Aug. 9, 2011, unless otherwise noted.



Sec. 141.1  When do the definitions in this part apply?

    The definitions in this part and in 12 CFR part 161 apply throughout 
parts 100 through 199 of this chapter, unless another definition is 
specifically provided.



Sec. 141.2  Act.

    The term Act means the Home Owners' Loan Act of 1933, as amended.



Sec. 141.5  Commercial paper.

    The term commercial paper means any note, draft, or bill of exchange 
which arises out of a current transaction or the proceeds of which have 
been or are to be used for current transactions, and which has a 
maturity at the time of issuance of not exceeding nine months, exclusive 
of days of grace, or any renewal thereof the maturity of which is 
likewise limited.



Sec. 141.7  Corporate debt security.

    The term corporate debt security means a marketable obligation, 
evidencing the indebtedness of any corporation in the form of a bond, 
note

[[Page 570]]

and/or debenture which is commonly regarded as a debt security and is 
not predominantly speculative in nature. A security is marketable if it 
may be sold with reasonable promptness at a price which corresponds 
reasonably to its fair value.



Sec. 141.8  Debit card.

    The term debit card means a card that enables an accountholder to 
obtain access to a savings account for the purpose of making withdrawals 
or of transferring funds to a third party by non-transferable order or 
authorization.



Sec. 141.10  Dwelling unit.

    The term dwelling unit means the unified combination of rooms 
designed for residential use by one family, other than a single-family 
dwelling.



Sec. 141.11  Federal savings association.

    The term Federal savings association means a Federal savings 
association or Federal savings bank chartered under section 5 of the 
Act.



Sec. 141.14  Home.

    The term home means real estate comprising a single-family 
dwelling(s) or a dwelling unit(s) for four or fewer families in the 
aggregate.



Sec. 141.15  Improved nonresidential real estate.

    The term improved nonresidential real estate means nonresidential 
real estate:
    (a) Containing a permanent structure(s) constituting at least 25 
percent of its value; or
    (b) Containing improvements which make it usable by a business or 
industrial enterprise; or
    (c) Used, or to be used within a reasonable time, for commercial 
farming, excluding hobby and vacation property.



Sec. 141.16  Improved residential real estate.

    The term improved residential real estate means residential real 
estate containing offsite or other improvements sufficient to make the 
property ready for primarily residential construction, and real estate 
in the process of being improved by a building or buildings to be 
constructed or in the process of construction for primarily residential 
use.



Sec. 141.18  Interim Federal savings association.

    The term interim Federal savings association means a Federal savings 
association chartered by the OCC or the OTS under section 5 of the Act 
to facilitate the acquisition of 100 percent of the voting shares of an 
existing Federal stock savings association or other insured stock 
savings association by a newly formed company or an existing savings and 
loan holding company or to facilitate any other transaction the OCC may 
approve.



Sec. 141.19  Interim state savings association.

    The term interim state savings association means a savings 
association, other than a Federal savings association, the accounts of 
which are insured by the FDIC to facilitate the acquisition of 100 
percent of the voting shares of an existing Federal stock savings 
association or other insured stock savings association by a newly formed 
company or an existing savings and loan holding company or to facilitate 
any other transaction the OCC may approve.



Sec. 141.20  Loans.

    The term loans means obligations and extensions or advances of 
credit; and any reference to a loan or investment includes an interest 
in such a loan or investment.



Sec. 141.21  Nonresidential real estate.

    The terms nonresidential real estate or nonresidential real property 
mean real estate that is not residential real estate, as that term is 
defined in Sec. 141.23 of this part.



Sec. 141.22  [Reserved]



Sec. 141.23  Residential real estate.

    The terms residential real estate or residential real property mean:
    (a) Homes (including a dwelling unit in a multi-family residential 
property such as a condominium or a cooperative);
    (b) Combinations of homes and business property (i.e., a home used 
in part for business);

[[Page 571]]

    (c) Other real estate used for primarily residential purposes other 
than a home (but which may include homes);
    (d) Combinations of such real estate and business property involving 
only minor business use (i.e., where no more than 20 percent of the 
total appraised value of the real estate is attributable to the business 
use);
    (e) Farm residences and combinations of farm residences and 
commercial farm real estate;
    (f) Property to be improved by the construction of such structures; 
or
    (g) Leasehold interests in the above real estate.



Sec. 141.25  Single-family dwelling.

    The term single-family dwelling means a structure designed for 
residential use by one family, or a unit so designed, whose owner owns, 
directly or through a non-profit cooperative housing organization, an 
undivided interest in the underling real estate, including property 
owned in common with others which contributes to the use and enjoyment 
of the structure or unit.



Sec. 141.26  Surplus.

    The term surplus means undistributed earnings held as unallocated 
reserves for general corporate use.



Sec. 141.27  Unimproved real estate.

    The term unimproved real estate means real estate that will be 
improved, as defined in Sec. 141.15 or Sec. 141.16 of this part.



Sec. 141.28  Withdrawal value of a savings account.

    The term withdrawal value of a savings account means the amount 
invested in a savings account plus earnings credited thereto, less 
lawful deductions therefrom.

                           PART 142 [RESERVED]



PART 143_FEDERAL MUTUAL SAVINGS ASSOCIATIONS_INCORPORATION, ORGANIZATION, AND CONVERSION--Table of Contents



Sec.
143.1 Corporate title.

                              Organization

143.2 Application for permission to organize.
143.3 ``De novo'' applications for a Federal savings association 
          charter.
143.4 Issuance of charter.
143.5 Completion of organization.
143.6 Limitations on transaction of business.
143.7 Federal savings association created in connection with an 
          association in default or in danger of default.

                               Conversion

143.8 Conversion of depository institutions to Federal mutual charter.
143.9 Application for conversion to Federal mutual charter.
143.10 Organization after conversion.
143.11 Organization plan for governance during first years after 
          issuance of Federal mutual savings bank charter.
143.12 Grandfathered authority.
143.14 Continuity of existence.

    Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 2901 et seq., 
5412(b)(2)(B).

    Source: 76 FR 48991, Aug. 9, 2011, unless otherwise noted.



Sec. 143.1  Corporate title.

    (a) General. A Federal savings association shall not adopt a title 
that misrepresents the nature of the institution or the services it 
offers.
    (b) Title change. Prior to changing its corporate title, an 
association must file with the appropriate OCC licensing office a 
written notice indicating the intended change. The OCC shall provide to 
the association a timely written acknowledgment stating when the notice 
was received. If, within 30 days of receipt of notice, the OCC does not 
notify the association of its objection on the grounds set forth in 
paragraph (a) of this section, the association may change its title by 
amending its charter in accordance with Sec. 144.2(b) or Sec. 152.4 of 
this chapter and the amendment provisions of its charter, except that an 
association chartered as a Federal Savings and Loan Association may 
change its title to indicate that it is a Federal Savings Bank, and an 
association chartered as a Federal Savings Bank may change its title to 
indicate that it is a Federal Savings and Loan Association.

[[Page 572]]

                              Organization



Sec. 143.2  Application for permission to organize.

    (a) General. Recommendations by employees of the OCC regarding 
applications for permission to organize a Federal savings association 
are privileged, confidential, and subject to part 4, subpart C of this 
chapter.
    (b) [Reserved]
    (c) [Reserved]
    (d) Public notice and inspection. (1) The applicant must publish a 
public notice of the application to organize in accordance with the 
procedures specified in subpart B of part 116 of this chapter.
    (2) Promptly after publication, the applicant(s) shall transmit 
copies of each notice and publisher's affidavit of publication in the 
same manner as the original filing.
    (3) The OCC shall give notice of the application to the state 
official who supervises savings associations in the state in which the 
new association is to be located.
    (4) Any person may inspect the application and all related 
communications at the address specified in 12 CFR 4.14(c) during regular 
business hours, unless such information is exempt from public 
disclosure.
    (e) Submission of comments. Commenters may submit comments on the 
application in accordance with the procedures specified in subpart C of 
part 116 of this chapter.
    (f) Meetings. The OCC may arrange a meeting in accordance with the 
procedures in subpart D of part 116 of this chapter.
    (g) Approval. (1) Factors that will be considered are:
    (i) Whether the applicants are persons of good character and 
responsibility;
    (ii) Whether a necessity exists for such association in the 
community to be served;
    (iii) Whether there is a reasonable probability of the association's 
usefulness and success;
    (iv) Whether the association can be established without undue injury 
to properly conducted existing local thrift and home financing 
institutions;
    (v) Whether the association will perform a role of providing credit 
for housing consistent with safe and sound operation of a Federal 
savings association; and
    (vi) Whether the factors set forth in Sec. 143.3 are met, in the 
case of an application that would result in the formation of a de novo 
association, as defined in Sec. 143.3(a).
    (2) Approvals of applications will be conditioned on the following:
    (i) Receipt by the OCC of written confirmation from the Federal 
Deposit Insurance Corporation that the accounts of the Federal savings 
association will be insured by the Federal Deposit Insurance 
Corporation;
    (ii) A minimum amount of capital to be paid into the association's 
accounts prior to commencing business;
    (iii) The submission of a statement that--
    (A) The applicants have complied in all respects with the Act and 
these rules and regulations regarding organization of a Federal savings 
association;
    (B) The applicants have incurred no expense in forming the 
association which is chargeable to it, and no such expense will be 
incurred;
    (C) No funds have been collected on account of the association 
before the OCC's approval;
    (D) An organization committee has been created (naming the committee 
and its officers);
    (E) The committee will organize the association and serve as 
temporary officers of the association until officers are elected by the 
association's board of directors under Sec. 143.5 of this part; and
    (F) No funds will be accepted for deposit by the association until 
organization has been completed; and
    (iv) The satisfaction of any other requirement the OCC may impose.
    (h) Alternative procedures for interim Federal savings associations. 
(1) Applications for permission to organize an interim Federal savings 
association are not subject to paragraphs (d), (e), (f) or (g)(2) of 
this section.
    (2) Approval of an application for permission to organize an interim 
Federal savings association shall be conditioned on approval by the OCC 
of an

[[Page 573]]

application to merge the interim Federal savings association and an 
existing insured stock association or on approval by the OCC of such 
other transaction which the interim was chartered to facilitate. In 
evaluating the application, the OCC will consider the purpose for which 
the association will be organized, the form of any proposed transactions 
involving the organizing association, the effect of the transactions on 
existing associations involved in the transactions, and the factors 
specified in Sec. 143.2(g)(1) to the extent relevant.



Sec. 143.3  ``De novo'' applications for a Federal savings association 

charter.

    (a) Definitions. For purposes of this section, the term ``de novo 
association'' means any Federal savings association chartered by the OTS 
prior to July 21, 2011 or by the OCC, the business of which has not been 
conducted previously under any charter or conducted in the previous 
three years in substantially the same form as is proposed by the de novo 
association. A ``de novo applicant'' means any person or persons who 
apply to establish a de novo association.
    (b) Minimum initial capitalization. (1) A de novo association must 
have at least two million dollars in initial capital stock (stock 
institutions) or initial pledged savings or cash (mutual institutions), 
except as provided in paragraph (b)(2) of this section. The minimum 
initial capitalization is the amount of proceeds net of all incurred and 
anticipated securities issuance expenses, organization expenses, pre-
opening expenses, or any expenses paid (or funds advanced) by organizers 
that are to be reimbursed from the proceeds of a securities offering. In 
securities offerings for a de novo association, all securities of a 
particular class in the initial offering shall be sold at the same 
price.
    (2) On a case by case basis, the OCC may, for good cause, approve a 
de novo association that has less than two million dollars in initial 
capital or may require a de novo association to have more than two 
million dollars in initial capital.
    (c) Business and investment plans of de novo associations. (1) To 
assist the OCC in making the determinations required under section 5(e) 
of the Home Owners' Loan Act, a de novo applicant shall submit a 
business plan describing, for the first three years of operation of the 
de novo association, the major areas of operation, including:
    (i) Lending, leasing and investment activity, including plans for 
meeting Qualified Thrift Lender requirements;
    (ii) Deposit, savings and borrowing activity;
    (iii) Interest-rate risk management;
    (iv) Internal controls and procedures;
    (v) Plans for meeting the credit needs of the proposed de novo 
association's community (including low- and moderate-income 
neighborhoods);
    (vi) Projected statements of condition;
    (vii) Projected statements of operations; and
    (viii) Any other information requested by the OCC.
    (2) The business plan shall:
    (i) Provide for the continuation or succession of competent 
management subject to the approval of the OCC;
    (ii) Provide that any material change in, or deviation from, the 
business plan must receive the prior approval of the OCC;
    (iii) Demonstrate the de novo association's ability to maintain 
required minimum regulatory capital under 12 CFR parts 165 and 167 for 
the duration of the plan.
    (d) Composition of the board of directors. (1) A majority of a de 
novo association's board of directors must be representative of the 
state in which the savings association is located. The OCC generally 
will consider a director to be representative of the state if the 
director resides, works or maintains a place of business in the state in 
which the savings association is located. If the association is located 
in a Metropolitan Statistical Area (MSA), Primary Metropolitan 
Statistical Area (PMSA) or Consolidated Metropolitan Statistical Area 
(CMSA) that incorporates portions of more than one state, a director 
will be considered representative of the association's state if he or 
she resides, works or maintains a place of business in the MSA, PMSA or 
CMSA in which the association is located.

[[Page 574]]

    (2) The de novo association's board of directors must be diversified 
and composed of individuals with varied business and professional 
experience. In addition, except in the case of a de novo association 
that is wholly-owned by a holding company, no more than one-third of a 
board of directors may be in closely related businesses. The background 
of each director must reflect a history of responsibility and personal 
integrity, and must show a level of competence and experience sufficient 
to demonstrate that such individual has the ability to direct the 
policies of the association in a safe and sound manner. Where a de novo 
association is owned by a holding company that does not have substantial 
independent economic substance, the board of directors of the holding 
company must satisfy the foregoing standards.
    (e) Management Officials. Proposed stockholders of ten percent or 
more of the stock of a de novo association will be considered management 
officials of the association for the purpose of the OCC's evaluation of 
the character and qualifications of the management of the association. 
In connection with the OCC's consideration of an application for 
permission to organize and subsequent to issuance of a Federal savings 
association charter to the association by the OCC, any individual or 
group of individuals acting in concert under 12 CFR part 174, who owns 
or proposes to acquire, directly or indirectly, ten percent or more of 
the stock of an association subject to this section, shall submit a 
Biographical and Financial Report, on forms prescribed by the OCC, to 
the appropriate OCC licensing office.
    (f) Supervisory transactions. This section does not apply to any 
application for a Federal savings association charter submitted in 
connection with a transfer or an acquisition of the business or accounts 
of a savings association if the OCC determines that such transfer or 
acquisition is instituted for supervisory purposes, or in connection 
with applications for Federal charters for interim de novo associations 
chartered for the purpose of facilitating mergers, holding company 
reorganizations, or similar transactions.



Sec. 143.4  Issuance of charter.

    Approval by the OCC of the organization of a Federal savings 
association or the conversion of an insured association to Federal 
savings association form shall constitute issuance of a charter and 
shall be final, provided that the association complies with the 
procedures set out at Sec. 144.2(a) of this chapter. The charter shall 
conform with the requirements of Sec. 144.1 of this chapter, the 
permissible provisions of Sec. 144.2, or other provisions specifically 
approved by the OCC.



Sec. 143.5  Completion of organization.

    (a)(1) Temporary officers. When the OCC approves an application for 
permission to organize a Federal savings association, the applicants 
shall constitute the organization committee and elect a chairperson, 
vice-chairperson, and a secretary, who shall act as the temporary 
officers of the association until their successors are duly elected and 
qualified. The temporary officers may effect compliance with any 
conditions prescribed by the OCC.
    (2) Organization meeting. Promptly upon receipt of a charter, the 
temporary officers shall call a meeting of the association's capital 
subscribers; notice of such meeting shall be mailed to each subscriber 
at least 5 days before the meeting day. Subscribers who have subscribed 
for a majority of the association's capital, present in person or by 
proxy, shall constitute a quorum. At such meeting, directors of the 
association shall be elected according to the association's charter and 
bylaws, and any other action permitted by such charter and bylaws may be 
taken; any such action shall be considered an acceptance by the 
association of such charter and of such bylaws, which shall be in the 
form provided in parts 144 and 152 of this chapter.
    (b) First meeting of directors. Upon election, the association's 
board of directors shall hold a meeting to elect officers of the 
association as provided by its charter and bylaws and to take any other 
action necessary to permit operation of the association in accordance 
with law, the association's charter and bylaws, and these rules and 
regulations. When such officers have been bonded under Sec. 163.190 of 
this chapter,

[[Page 575]]

they shall immediately collect the sums due on subscriptions to the 
association's capital.
    (c) Membership in Federal Home Loan Bank and insurance of accounts. 
When a Federal savings association's charter is issued it must promptly 
qualify as a member of a Federal Home Loan Bank and meet all 
requirements necessary to obtain insurance of its accounts by the 
Federal Deposit Insurance Corporation.
    (d) Failure to complete. Organization of a Federal savings 
association is completed when the organization meeting and the first 
meeting of its directors have been held, permanent officers have been 
bonded, the association holds the cash required to be paid on 
subscriptions to its capital, if required, Federal Home Loan Bank 
membership has been obtained and Federal Deposit Insurance Corporation 
insurance of accounts has been confirmed and any conditions imposed by 
the OTS prior to July 21, 2011 or by the OCC in connection with approval 
of the application have been met. If organization is not so completed 
within six months after issuance of a charter, or within such additional 
period granted for good cause, and in the case of an interim Federal 
savings association, if a merger, or other transaction facilitated by 
the existence of an interim association, has not been approved, the 
charter shall become void and all cash collected on subscriptions shall 
thereupon be returned.



Sec. 143.6  Limitations on transaction of business.

    No person may organize a Federal savings association, collect money 
from others for such purpose, or represent himself or herself as 
authorized to do so, and no Federal savings association shall transact 
any business prior to completion of its organization, except as provided 
in this part.



Sec. 143.7  Federal savings association created in connection with an association in default or in danger of default.

    The preceding sections of this part do not apply to a Federal 
savings association which is proposed by the Federal Deposit Insurance 
Corporation under section 11(c) of the Federal Deposit Insurance Act (12 
U.S.C. 1821(c)) or section 21A of the Federal Home Loan Bank Act (12 
U.S.C. 1441A), or is otherwise chartered by the OCC in connection with 
an association in default or in danger of default. Incorporation and 
organization of such associations are complete when the OCC so 
determines.

                               Conversion



Sec. 143.8  Conversion of depository institutions to Federal mutual charter.

    (a) With the approval of the OCC, any depository institution, as 
defined in Sec. 152.13 of this chapter, that is in mutual form, may 
convert into a Federal mutual savings association, provided that:
    (1) The depository institution, upon conversion, will have its 
deposits insured by the Federal Deposit Insurance Corporation;
    (2) The depository institution, in accomplishing the conversion, 
complies with all applicable state and Federal statutes and regulations, 
and OCC policies, and obtains all necessary regulatory and member 
approvals; and
    (3) The resulting Federal mutual association conforms, within the 
time prescribed by the OCC, to the requirements of section 5(c) of the 
Home Owners' Loan Act.
    (b) Recommendations regarding applications for issuance of Federal 
charters are privileged, confidential and subject to part 4, subpart C 
of this chapter.



Sec. 143.9  Application for conversion to Federal mutual charter.

    (a)(1) Filing. Any depository institution that proposes to convert 
to a Federal mutual association as provided in Sec. 143.8 must, after 
approval by its board of directors, file an application on forms 
obtained from the OCC with the appropriate licensing office. The 
applicant must submit any financial statements or other information the 
OCC may require.
    (2) Procedures. An application for conversion filed under this 
section is subject to the procedures for organization of a Federal 
mutual association at Sec. 143.2(d) through (f) of this chapter.
    (b) Plan of conversion. The applicant shall submit with its 
application a plan

[[Page 576]]

of conversion specifying the location of the home office and any branch 
offices to be maintained by the Federal savings association, and 
providing for:
    (1) Appropriate reserves and surplus for the Federal savings 
association;
    (2) Satisfaction in full or assumption by the Federal savings 
association of all creditor obligations of the applicant;
    (3) Issuance by the Federal savings association of savings accounts 
to current holders of withdrawable accounts in an amount equaling the 
value of such accounts; and
    (4) If applicable, issuance of additional savings accounts to 
current holders of nonwithdrawable capital stock of the applicant in an 
amount equaling the value of their nonwithdrawable capital stock, 
including the present value of any preference to which such holders are 
entitled.
    (c) Action on application. The OCC will consider such application 
and any information submitted with the application, and may approve the 
application in accordance with section 5(e) of the Home Owners' Loan Act 
and Sec. 143.2(g)(1). Converting depository institutions that have been 
in existence less than three years will be subject to all approval 
criteria and other requirements applicable to de novo Federal 
associations. Approval of an application and issuance by the OCC of a 
charter will be subject to:
    (1) Compliance by the applicant with all conditions prescribed in 
the approval;
    (2) Receipt by the applicant of approval of the plan of conversion 
by such vote as may be required by the laws of the applicant's 
jurisdiction to consider such action;
    (3) In the case of a converting association the accounts of which 
are not insured by the Federal Deposit Insurance Corporation, receipt by 
the OCC of written confirmation from the Federal Deposit Insurance 
Corporation that the accounts of the converting association will be 
insured by the Federal Deposit Insurance Corporation; and
    (4) Receipt by the OCC of written confirmation from the appropriate 
Federal Home Loan Bank of approval of the converting institution's 
application for Federal Home Loan Bank membership, if the institution is 
not a member.



Sec. 143.10  Organization after conversion.

    Except as provided in Sec. 143.11, after a Federal charter is 
issued under Sec. 143.9 the association's members shall, after due 
notice, or upon a valid adjournment of a previous legal meeting, hold a 
meeting to elect directors and take all other action necessary fully to 
effect the conversion and operate the association in accordance with law 
and these rules and regulations. Immediately thereafter the board of 
directors shall meet, elect officers, and transact any other appropriate 
business.



Sec. 143.11  Organization plan for governance during first years after 

issuance of Federal mutual savings bank charter.

    (a) Organizational meeting. Except as provided in paragraph (c)(1) 
of this section, promptly upon receipt of a charter, the officers of a 
Federal mutual savings bank which, immediately prior to conversion, was 
a state chartered mutual savings bank, shall call a meeting of the 
members. Notice for, and conduct of, such meeting shall be in accordance 
with the bank's Federal charter and bylaws. Business to be conducted at 
the organizational meeting shall include the election of trustees (who 
may also be known as a board of directors) and any other matters 
permitted by the charter and bylaws. Any action taken at such meeting 
shall be deemed an acceptance of the charter and bylaws approved by the 
OTS prior to July 21, 2011 or by the OCC pursuant to Sec. 144.1 of this 
chapter.
    (b) First meeting of trustees. Upon election or appointment, the 
board of trustees shall hold a meeting to elect the officers of the bank 
in accordance with its Federal charter and bylaws, and to take other 
action necessary to permit the operation of the bank in accordance with 
the Home Owners' Loan Act of 1933, as amended, the bank's charter and 
bylaws, these rules and regulations, and orders of the OCC.
    (c) Plan for governance of association during first six years after 
issuance of Federal charter. (1)(i) An applicant for a Federal mutual 
savings bank charter

[[Page 577]]

may submit a plan which provides that each member of its governing 
board, i.e., board of trustees, managers, or directors, may continue to 
serve, provided that within two years of the issuance of a Federal 
charter at least one-fifth of the members of such board shall have been 
elected by vote, either in person or by proxy, of the bank's membership 
as provided in its Federal charter, that within three years of the 
issuance of its Federal charter at least two-fifths of the members of 
such board shall have been elected by such a membership vote, that 
within four years of the issuance of its Federal charter at least three-
fifths of the members of such board shall have been elected by such a 
membership vote, that within five years of the issuance of its Federal 
charter at least four-fifths of the members of such board shall have 
been elected by such a membership vote, and that within six years of the 
issuance of its Federal charter all of the members of such board shall 
have been elected by such a membership vote.
    (ii) The plan:
    (A) Shall set forth the names of those persons who are being 
proposed for service on the applicant's governing board after conversion 
to a Federal charter,
    (B) Shall show how trustees not elected by the converted bank's 
membership will be appointed or otherwise selected, and
    (C) Shall provide that no trustees may be appointed or elected to 
terms of more than three years.
    (iii) The plan may provide that
    (A) After receipt of its Federal charter the bank will be organized 
by its existing governing board,
    (B) Within the first two years following receipt of its Federal 
charter, the bank's charter may be amended without a membership vote, 
provided any such amendment is first approved by a two-thirds vote of 
its board of trustees and is thereafter approved by the OCC, and
    (C) The bank's first annua1 membership meeting need not take place 
until two years after receipt of its Federal charter.
    (2) Except to the extent that the OTS prior to July 21, 2011 or by 
the OCC approves a plan under this paragraph (c) which is inconsistent 
with other provisions of this section, a Federal mutual savings bank 
shall in all respects comply with those other provisions.



Sec. 143.12  Grandfathered authority.

    (a) A Federal savings bank formerly chartered or designated as a 
mutual savings bank under state law may exercise any authority it was 
authorized to exercise as a mutual savings bank under state law at the 
time of its conversion from a state mutual savings bank to a Federal or 
other state charter. Except to the extent such authority may be 
exercised by Federal savings associations not enjoying grandfathered 
rights hereunder, such authority may be exercised only to the degree 
authorized under state law at the time of such conversion. Unless 
otherwise determined by the OTS prior to July 21, 2011 or by the OCC an 
association, in the exercise of grandfathered authority, may continue to 
follow applicable state laws and regulations in effect at the time of 
such conversion.
    (b) A Federal savings association that acquires, or has acquired, a 
Federal savings bank by merger or consolidation may itself exercise any 
grandfathered rights enjoyed by the disappearing institution, whether 
such rights were obtained directly through conversion or through merger 
or consolidation. The extent of the grandfathered rights of a Federal 
savings association that disappeared prior to the effective date of this 
section shall be determined exclusively pursuant to this section.
    (c) This section shall not be construed to prevent the exercise by a 
Federal savings association enjoying grandfathered rights hereunder of 
authority that is available under the applicable state law only upon the 
occurrence of specific preconditions, such as the attainment of a 
particular future date or specified level of regulatory capital, which 
have not occurred at the time of conversion from a state mutual savings 
bank, provided they occur thereafter.
    (d) This section shall not be construed to permit the exercise of 
any particular authority on a more liberal basis than is allowable under 
the most

[[Page 578]]

liberal construction of either state or Federal law or regulation.



Sec. 143.14  Continuity of existence.

    The corporate existence of an association converting under this part 
shall continue in its successor. Each savings or demand accountholder 
shall receive a savings account or accounts in the converted association 
equal in amount to the value of accounts held in the former association.



PART 144_FEDERAL MUTUAL SAVINGS ASSOCIATIONS_CHARTER AND BYLAWS--Table of 

Contents



Sec.

                                 Charter

144.1 Federal mutual charter.
144.2 Charter amendments.
144.4 Issuance of charter.

                                 Bylaws

144.5 Federal mutual savings association bylaws.
144.6 Effect of subsequent charter or bylaw change.

                              Availability

144.7 In association offices.
144.8 Communication between members of a Federal mutual savings 
          association.

    Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 2901 et seq., 
5412(b)(2)(B).

    Source: 76 FR 48995, Aug. 9, 2011, unless otherwise noted.

                                 Charter



Sec. 144.1  Federal mutual charter.

    A Federal mutual savings association shall have a charter in the 
following form, which may include any of the additional provisions set 
forth in Sec. 144.2 of this part, if such provisions are specifically 
requested. A charter for a Federal mutual savings bank shall substitute 
the term ``savings bank'' for ``association.'' The term ``trustee'' may 
be substituted for the term ``director.'' Associations adopting this 
charter with existing borrower members must grandfather those borrower 
members who were members as of the date of issuance of the new charter 
by the OCC. Such borrowers shall have one vote for the period of time 
such borrowings are in existence.

                         Federal Mutual Charter

    Section 1. Corporate title. The full corporate title of the Federal 
savings association is --------.
    Section 2. Office. The home office shall be located in -------- 
[city, state].
    Section 3. Duration. The duration of the association is perpetual.
    Section 4. Purpose and powers. The purpose of the association is to 
pursue any or all of the lawful objectives of a Federal mutual savings 
association chartered under section 5 of the Home Owners' Loan Act and 
to exercise all the express, implied, and incidental powers conferred 
thereby and by all acts amendatory thereof and supplemental thereto, 
subject to the Constitution and laws of the United States as they are 
now in effect, or as they may hereafter be amended, and subject to all 
lawful and applicable rules, regulations, and orders of the Office of 
the Comptroller of the Currency (``OCC'').
    Section 5. Capital. The association may raise capital by accepting 
payments on savings and demand accounts and by any other means 
authorized by the OCC.
    Section 6. Members. All holders of the association's savings, 
demand, or other authorized accounts are members of the association. In 
the consideration of all questions requiring action by the members of 
the association, each holder of an account shall be permitted to cast 
one vote for each $100, or fraction thereof, of the withdrawal value of 
the member's account. No member, however, shall cast more than 1000 
votes. All accounts shall be nonassessable.
    Section 7. Directors. The association shall be under the direction 
of a board of directors. The authorized number of directors shall not be 
fewer than five nor more than fifteen persons, as fixed in the 
association's bylaws, except that the number of directors may be 
decreased to a number less than five or increased to a number greater 
than fifteen with the prior approval of the OCC.
    Section 8. Capital, surplus, and distribution of earnings. The 
association shall maintain for the purpose of meeting losses the amount 
of capital required by section 5 of the Home Owners' Loan Act and by 
regulations of the OCC. The association shall distribute

[[Page 579]]

net earnings on its accounts on such basis and in accordance with such 
terms and conditions as may from time to time be authorized by the OCC: 
Provided, That the association may establish minimum-balance 
requirements for accounts to be eligible for distribution of earnings.
    All holders of accounts of the association shall be entitled to 
equal distribution of assets, pro rata to the value of their accounts, 
in the event of voluntary or involuntary liquidation, dissolution, or 
winding up of the association. Moreover, in any such event, or in any 
other situation in which the priority of such accounts is in 
controversy, all such accounts shall, to the extent of their withdrawal 
value, be debts of the association having the same priority as the 
claims of general creditors of the association not having priority 
(other than any priority arising or resulting from consensual 
subordination) over other general creditors of the association.
    Section 9. Amendment of charter. Adoption of any preapproved charter 
amendment shall be effective after such preapproved amendment has been 
approved by the members at a legal meeting. Any other amendment, 
addition, change, or repeal of this charter must be approved by the OCC 
prior to approval by the members at a legal meeting, and shall be 
effective upon filing with the OCC in accordance with regulatory 
procedures.
 Attest:________________________________________________________________

Secretary of the Association

 By:____________________________________________________________________

President or Chief Executive Officer of the Association

 Attest:________________________________________________________________

Deputy Comptroller for Licensing

 By:____________________________________________________________________

Comptroller of the Currency

 Effective Date:________________________________________________________



Sec. 144.2  Charter amendments.

    (a) General. In order to adopt a charter amendment, a Federal mutual 
savings association must comply with the following requirements:
    (1) Board of directors approval. The board of directors of the 
association must adopt a resolution proposing the charter amendment that 
states the text of such amendment;
    (2) Form of filing--(i) Application requirement. If the proposed 
charter amendment would: render more difficult or discourage a merger, 
proxy contest, the assumption of control by a mutual account holder of 
the association, or the removal of incumbent management; or involve a 
significant issue of law or policy; then, the association shall file the 
proposed amendment and obtain the prior approval of the OCC.
    (ii) Notice requirement. If the proposed charter amendment does not 
involve a provision that would be covered by paragraph (a)(2)(i) of this 
section and is permissible under all applicable laws, rules and 
regulations, then the association shall submit the proposed amendment to 
the appropriate OCC licensing office, at least 30 days prior to the 
effective date of the proposed charter amendment.
    (b) Approval. Any charter amendment filed pursuant to paragraph 
(a)(2)(ii) of this section shall automatically be approved 30 days from 
the date of filing of such amendment, provided that the association 
follows the requirements of its charter in adopting such amendment. This 
automatic approval does not apply if, prior to the expiration of such 
30-day period, the OCC notifies the association that such amendment is 
rejected or that such amendment is deemed to be filed under the 
provisions of paragraph (a)(2)(i) of this section. In addition, 
notwithstanding anything in paragraph (a) of this section to the 
contrary, the following charter amendments, including the adoption of 
the Federal mutual charter as set forth in Sec. 144.1 of this part, 
shall be effective and deemed approved at the time of adoption, if 
adopted without change and filed with the OCC, within 30 days after 
adoption, provided the association follows the requirements of its 
charter in adopting such amendments:
    (1) Purpose and powers. Add a second paragraph to section 4, as 
follows:
    Section 4. Purpose and powers. * * * The association shall have the 
express power: (i) To act as fiscal agent of the United States when 
designated for that purpose by the Secretary of the Treasury, under such 
regulations as the Secretary may prescribe, to perform all

[[Page 580]]

such reasonable duties as fiscal agent of the United States as may be 
required, and to act as agent for any other instrumentality of the 
United States when designated for that purpose by any such 
instrumentality; (ii) To sue and be sued, complain and defend in any 
court of law or equity; (iii) To have a corporate seal, affixed by 
imprint, facsimile or otherwise; (iv) To appoint officers and agents as 
its business shall require and allow them suitable compensation; (v) To 
adopt bylaws not inconsistent with the Constitution or laws of the 
United States and rules and regulations adopted thereunder and under 
this Charter; (vi) To raise capital, which shall be unlimited, by 
accepting payments on savings, demand, or other accounts, as are 
authorized by rules and regulations made by the OCC, and the holders of 
all such accounts or other accounts as shall, to such extent as may be 
provided by such rules and regulations, be members of the association 
and shall have such voting rights and such other rights as are thereby 
provided; (vii) To issue notes, bonds, debentures, or other obligations, 
or securities, provided by or under any provision of Federal statute as 
from time to time is in effect; (viii) To provide for redemption of 
insured accounts; (ix) To borrow money without limitation and pledge and 
otherwise encumber any of its assets to secure its debts; (x) To lend 
and otherwise invest its funds as authorized by statute and the rules 
and regulations of the OCC; (xi) To wind up and dissolve, merge, 
consolidate, convert, or reorganize; (xii) To purchase, hold, and convey 
real estate and personalty consistent with its objects, purposes, and 
powers; (xiii) To mortgage or lease any real estate and personalty and 
take such property by gift, devise, or bequest; and (xiv) To exercise 
all powers conferred by law. In addition to the foregoing powers 
expressly enumerated, this association shall have power to do all things 
reasonably incident to the accomplishment of its express objects and the 
performance of its express powers.
    (2) Title change. A Federal mutual savings association that has 
complied with Sec. 143.1(b) of this chapter may amend its charter by 
substituting a new corporate title in section 1.
    (3) Home office. A Federal mutual savings association may amend its 
charter by substituting a new home office in section 2, if it has 
complied with applicable requirements of Sec. 145.95 of this chapter.
    (4) Maximum number of votes. A Federal mutual savings association 
may amend its charter by substituting ---- votes per member in section 
6. [Fill in a number from 1 to 1000.]
    (c) Reissuance of charter. A Federal mutual savings association that 
has amended its charter may apply to have its charter, including the 
amendments, reissued by the OCC. Such request for reissuance should be 
filed at the appropriate OCC licensing office and contain signatures 
required under Sec. 144.1 of this part, together with such supporting 
documents as may be needed to demonstrate that the amendments were 
properly adopted.



Sec. 144.4  Issuance of charter.

    Issuance by the OCC of a charter to a Federal mutual savings 
association within the meaning of Sec. 143.4 of this chapter 
constitutes the incorporation of that association by the OCC.

                                 Bylaws



Sec. 144.5  Federal mutual savings association bylaws.

    (a) General. A Federal mutual savings association shall operate 
under bylaws that contain provisions that comply with all requirements 
specified by the OCC in this section and that are not otherwise 
inconsistent with the provisions of this section, the association's 
charter, and all other applicable laws, rules, and regulations provided 
that, a bylaw provision inconsistent with the provisions of this section 
may be adopted with the approval of the OCC. Bylaws may be adopted, 
amended or repealed by a majority of the votes cast by the members at a 
legal meeting or a majority of the association's board of directors. The 
bylaws for a Federal mutual savings bank shall substitute the term 
``savings bank'' for ``association''. The term ``trustee'' may be 
substituted for the term ``director''.

[[Page 581]]

    (b) The following requirements are applicable to Federal mutual 
savings associations:
    (1) Annual meetings of members. An association shall provide for and 
conduct an annual meeting of its members for the election of directors 
and at which any other business of the association may be conducted. 
Such meeting shall be held, as designated by its board of directors, at 
a location within the state that constitutes the principal place of 
business of the association, or at any other convenient place the board 
of directors may designate, and at a date and time within 150 days after 
the end of the association's fiscal year. At each annual meeting, the 
officers shall make a full report of the financial condition of the 
association and of its progress for the preceding year and shall outline 
a program for the succeeding year.
    (2) Special meetings of members. Procedures for calling any special 
meeting of the members and for conducting such a meeting shall be set 
forth in the bylaws. The subject matter of such special meeting must be 
established in the notice for such meeting. The board of directors of 
the association or the holders of 10 percent or more of the voting 
capital shall be entitled to call a special meeting. For purposes of 
this section, ``voting capital'' means FDIC-insured deposits as of the 
voting record date.
    (3) Notice of meeting of members. Notice specifying the date, time, 
and place of the annual or any special meeting and adequately describing 
any business to be conducted shall be published for two successive weeks 
immediately prior to the week in which such meeting shall convene in a 
newspaper of general circulation in the city or county in which the 
principal place of business of the association is located, or mailed 
postage prepaid at least 15 days and not more than 45 days prior to the 
date on which such meeting shall convene to each of its members of 
record at the last address appearing on the books of the association. A 
similar notice shall be posted in a conspicuous place in each of the 
offices of the association during the 14 days immediately preceding the 
date on which such meeting shall convene. The bylaws may permit a member 
to waive in writing any right to receive personal delivery of the 
notice. When any meeting is adjourned for 30 days or more, notice of the 
adjournment and reconvening of the meeting shall be given as in the case 
of the original meeting.
    (4) Fixing of record date. For the purpose of determining members 
entitled to notice of or to vote at any meeting of members or any 
adjournment thereof, or in order to make a determination of members for 
any other proper purpose, the bylaws shall provide for the fixing of a 
record date and a method for determining from the books of the 
association the members entitled to vote. Such date shall be not more 
than 60 days nor fewer than 10 days prior to the date on which the 
action, requiring such determination of members, is to be taken. The 
same determination shall apply to any adjourned meeting.
    (5) Member quorum. Any number of members present and voting, 
represented in person or by proxy, at a regular or special meeting of 
the members shall constitute a quorum. A majority of all votes cast at 
any meeting of the members shall determine any question, unless 
otherwise required by regulation. At any adjourned meeting, any business 
may be transacted that might have been transacted at the meeting as 
originally called. Members present at a duly constituted meeting may 
continue to transact business until adjournment.
    (6) Voting by proxy. Procedures shall be established for voting at 
any annual or special meeting of the members by proxy pursuant to the 
rules and regulations of the OCC, including the placing of such proxies 
on file with the secretary of the association, for verification, prior 
to the convening of such meeting. Proxies may be given telephonically or 
electronically as long as the holder uses a procedure for verifying the 
identity of the member. All proxies with a term greater than eleven 
months or solicited at the expense of the association must run to the 
board of directors as a whole, or to a committee appointed by a majority 
of such board.
    (7) Communications between members. Provisions relating to 
communications between members shall be consistent

[[Page 582]]

with Sec. 144.8 of this part. No member, however, shall have the right 
to inspect or copy any portion of any books or records of a Federal 
mutual savings association containing:
    (i) A list of depositors in or borrowers from such association;
    (ii) Their addresses;
    (iii) Individual deposit or loan balances or records; or
    (iv) Any data from which such information could be reasonably 
constructed.
    (8) Number of directors, membership. The bylaws shall set forth a 
specific number of directors, not a range. The number of directors shall 
be not fewer than five nor more than fifteen, unless a higher or lower 
number has been authorized by the OCC. Each director of the association 
shall be a member of the association. Directors may be elected for 
periods of one to three years and until their successors are elected and 
qualified, but if a staggered board is chosen, provision shall be made 
for the election of approximately one-third or one-half of the board 
each year, as appropriate. State-chartered savings banks converting to 
Federal savings banks may include alternative provisions for the 
election and term of office of directors so long as such provisions are 
authorized by the OCC, and provide for compliance with the standard 
provisions of this section no later than six years after the conversion 
to a Federal savings association.
    (9) Meetings of the board. The board of directors shall determine 
the place, frequency, time, procedure for notice, which shall be at 
least 24 hours unless waived by the directors, and waiver of notice for 
all regular and special meetings. The meetings shall be under the 
direction of a chairman, appointed annually by the board; or in the 
absence of the chairman, the meetings shall be under the direction of 
the president. The board also may permit telephonic participation at 
meetings. The bylaws may provide for action to be taken without a 
meeting if unanimous written consent is obtained for such action. A 
majority of the authorized directors shall constitute a quorum for the 
transaction of business. The act of a majority of the directors present 
at any meeting at which there is a quorum shall be the act of the board.
    (10) Officers, employees and agents. (i) The bylaws shall contain 
provisions regarding the officers of the association, their functions, 
duties, and powers. The officers of the association shall consist of a 
president, one or more vice presidents, a secretary, and a treasurer or 
comptroller, each of whom shall be elected annually by the board of 
directors. Such other officers and assistant officers and agents as may 
be deemed necessary may be elected or appointed by the board of 
directors or chosen in such other manner as may be prescribed in the 
bylaws. Any two or more offices may be held by the same person, except 
the offices of president and secretary.
    (ii) All officers and agents of the association, as between 
themselves and the association, shall have such authority and perform 
such duties in the management of the association as may be provided in 
the bylaws, or as may be determined by resolution of the board of 
directors not inconsistent with the bylaws. In the absence of any such 
provision, officers shall have such powers and duties as generally 
pertain to their respective offices. Any officer may be removed by the 
board of directors with or without cause, but such removal, other than 
for cause, shall be without prejudice to the contractual rights, if any, 
of the person so removed.
    (iii) Any indemnification provision must provide that any 
indemnification is subject to applicable Federal law, rules, and 
regulations.
    (11) Vacancies, resignation or removal of directors. Members of the 
association shall elect directors by ballot: Provided, that in the event 
of a vacancy on the board, the board of directors may, by their 
affirmative vote, fill such vacancy, even if the remaining directors 
constitute less than a quorum. A director elected to fill a vacancy 
shall be elected to serve only until the next election of directors by 
the members. The bylaws shall set out the procedure for the resignation 
of a director, which shall be by written notice or by any other 
procedure established in the bylaws. Directors may be removed only for 
cause as defined in Sec. 163.39 of this chapter, by a vote of the 
holders of a

[[Page 583]]

majority of the shares then entitled to vote at an election of 
directors.
    (12) Powers of the board. The board of directors shall have the 
power:
    (i) By resolution, to appoint from among its members and remove an 
executive committee and one or more other committees, which committee[s] 
shall have and may exercise all the powers of the board between the 
meetings or the board; but no such committee shall have the authority of 
the board to amend the charter or bylaws, adopt a plan of merger, 
consolidation, dissolution, or provide for the disposition of all or 
substantially all the property and assets of the association. Such 
committee shall not operate to relieve the board, or any member thereof, 
of any responsibility imposed by law;
    (ii) To fix the compensation of directors, officers, and employees; 
and to remove any officer or employee at any time with or without cause;
    (iii) To exercise any and all of the powers of the association not 
expressly reserved by the charter to the members.
    (13) Nominations for directors. The bylaws shall provide that 
nominations for directors may be made at the annual meeting by any 
member and shall be voted upon, except, however, the bylaws may require 
that nominations by a member must be submitted to the secretary and then 
prominently posted in the principal place of business, at least 10 days 
prior to the date of the annual meeting. However, if such provision is 
made for prior submission of nominations by a member, then the bylaws 
must provide for a nominating committee, which, except in the case of a 
nominee substituted as a result of death or other incapacity, must 
submit nominations to the secretary and have such nominations similarly 
posted at least 15 days prior to the date of the annual meeting.
    (14) New business. The bylaws shall provide procedures for the 
introduction of new business at the annual meeting. Those provisions may 
require that such new business be stated in writing and filed with the 
secretary prior to the annual meeting at least 30 days prior to the date 
of the annual meeting.
    (15) Amendment. Bylaws may include any provision for their amendment 
that would be consistent with applicable law, rules, and regulations and 
adequately addresses its subject and purpose.
    (i) Amendments shall be effective:
    (A) After approval by a majority vote of the authorized board, or by 
a majority of the vote cast by the members of the association at a legal 
meeting; and
    (B) After receipt of any applicable regulatory approval.
    (ii) When an association fails to meet its quorum requirement, 
solely due to vacancies on the board, the bylaws may be amended by an 
affirmative vote of a majority of the sitting board.
    (16) Miscellaneous. The bylaws may also address the subject of age 
limitations for directors or officers as long as they are consistent 
with applicable Federal law, rules or regulations, and any other 
subjects necessary or appropriate for effective operation of the 
association.
    (c) Form of filing--(1) Application requirement. (i) Any bylaw 
amendment shall be submitted to the appropriate OCC licensing office if 
it would:
    (A) Render more difficult or discourage a merger, proxy contest, the 
assumption of control by a mutual account holder of the association, or 
the removal of incumbent management;
    (B) Involve a significant issue of law or policy, including 
indemnification, conflicts of interest, and limitations on director or 
officer liability; or
    (C) Be inconsistent with the requirements of this section or with 
applicable laws, rules, regulations, or the association's charter.
    (ii) Applications submitted under paragraph (c)(1)(i) of this 
section are subject to standard treatment processing procedures at part 
116, subparts A and E of this chapter.
    (iii) For purposes of this paragraph (c), bylaw provisions that 
adopt the language of the OCC's model or optional bylaws, if adopted 
without change, and filed with the OCC within 30 days after adoption, 
are effective upon adoption.
    (2) Filing requirement. If the proposed bylaw amendment does not 
involve a provision that would be covered by paragraph (c)(1) or (c)(3) 
of this section, then the association shall submit the

[[Page 584]]

amendment to the appropriate OCC licensing office at least 30 days prior 
to the date the bylaw amendment is to be adopted by the association.
    (3) Corporate governance procedures. A Federal mutual association 
may elect to follow the corporate governance procedures of the laws of 
the state where the main office of the institution is located, provided 
that such procedures may be elected only to the extent not inconsistent 
with applicable Federal statutes, regulations, and safety and soundness, 
and such procedures are not of the type described in paragraph (c)(1) of 
this section. If this election is selected, a Federal mutual association 
shall designate in its bylaws the provision or provisions from the body 
of law selected for its corporate governance procedures, and shall file 
a copy of such bylaws, which are effective upon adoption, within 30 days 
after adoption. The submission shall indicate, where not obvious, why 
the bylaw provisions meet the requirements stated in paragraph (c)(1) of 
this section.
    (d) Effectiveness. Any bylaw amendment filed pursuant to paragraph 
(c)(2) of this section shall automatically be effective 30 days from the 
date of filing of such amendment, provided that the association follows 
the requirements of its charter and bylaws in adopting such amendment. 
This automatic effective date does not apply if, prior to the expiration 
of such 30-day period, the OCC notifies the association that such 
amendment is rejected or that such amendment requires an application to 
be filed pursuant to paragraph (c)(1) of this section.



Sec. 144.6  Effect of subsequent charter or bylaw change.

    Notwithstanding any subsequent change to its charter or bylaws, the 
authority of a Federal mutual savings association to engage in any 
transaction shall be determined only by the association's charter or 
bylaws then in effect.

                              Availability



Sec. 144.7  In association offices.

    A Federal mutual savings association shall make available to its 
members at all times in its offices a true copy of its charter and 
bylaws, including any amendments, and shall deliver such a copy to any 
member on request.



Sec. 144.8  Communication between members of a Federal mutual savings 

association.

    (a) Right of communication with other members. A member of a Federal 
mutual savings association has the right to communicate, as prescribed 
in paragraph (b) of this section, with other members of the Federal 
savings association regarding any matter related to the Federal savings 
association's affairs, except for ``improper'' communications, as 
defined in paragraph (c) of this section. The association may not defeat 
that right by redeeming a savings member's savings account in the 
Federal mutual savings association.
    (b) Member communication procedures. If a member of a Federal mutual 
savings association desires to communicate with other members, the 
following procedures shall be followed:
    (1) The member shall give the Federal mutual savings association a 
written request to communicate;
    (2) If the proposed communication is in connection with a meeting of 
the Federal savings association's members, the request shall be given at 
least thirty days before the annual meeting or 10 days before a special 
meeting;
    (3) The request shall contain--
    (i) The member's full name and address;
    (ii) The nature and extent of the member's interest in the Federal 
savings association at the time the information is given;
    (iii) A copy of the proposed communication; and
    (iv) If the communication is in connection with a meeting of the 
members, the date of the meeting;
    (4) The Federal savings association shall reply to the request 
within either--
    (i) Fourteen days;
    (ii) Ten days, if the communication is in connection with the annual 
meeting; or
    (iii) Three days, if the communication is in connection with a 
special meeting;
    (5) The reply shall provide either--

[[Page 585]]

    (i) The number of the Federal savings association's members and the 
estimated reasonable cost to the Federal savings association of mailing 
to them the proposed communication; or
    (ii) Notification that the Federal savings association has 
determined not to mail the communication because it is ``improper'', as 
defined in paragraph (c) of this section;
    (6) After receiving the amount of the estimated costs of mailing and 
sufficient copies of the communication, the Federal savings association 
shall mail the communication to all members, by a class of mail 
specified by the requesting member, either--
    (i) Within fourteen days;
    (ii) Within seven days, if the communication is in connection with 
the annual meeting;
    (iii) As soon as practicable before the meeting, if the 
communication is in connection with a special meeting; or
    (iv) On a later date specified by the member;
    (7) If the Federal savings association refuses to mail the proposed 
communication, it shall return the requesting member's materials 
together with a written statement of the specific reasons for refusal, 
and shall simultaneously send to the appropriate OCC licensing office 
two copies each of the requesting member's materials, the Federal 
savings association's written statement, and any other relevant 
material. The materials shall be sent within:
    (i) Fourteen days,
    (ii) Ten days if the communication is in connection with the annual 
meeting, or
    (iii) Three days, if the communication is in connection with a 
special meeting, after the Federal savings association receives the 
request for communication.
    (c) Improper communication. A communication is an ``improper 
communication'' if it contains material which:
    (1) At the time and in the light of the circumstances under which it 
is made:
    (i) Is false or misleading with respect to any material fact; or
    (ii) Omits a material fact necessary to make the statements therein 
not false or misleading, or necessary to correct a statement in an 
earlier communication on the same subject which has become false or 
misleading;
    (2) Relates to a personal claim or a personal grievance, or is 
solicitous of personal gain or business advantage by or on behalf of any 
party;
    (3) Relates to any matter, including a general economic, political, 
racial, religious, social, or similar cause, that is not significantly 
related to the business of the Federal savings association or is not 
within the control of the Federal savings association; or
    (4) Directly or indirectly and without expressed factual foundation:
    (i) Impugns character, integrity, or personal reputation,
    (ii) Makes charges concerning improper, illegal, or immoral conduct, 
or
    (iii) Makes statements impugning the stability and soundness of the 
Federal savings association.



PART 145_FEDERAL SAVINGS ASSOCIATIONS_OPERATIONS--Table of Contents



Sec.
145.1 General authority.
145.2 [Reserved]
145.16 Public deposits, depositaries, and fiscal agents.
145.17 Funds transfer services.
145.91 Home office.
145.92 Branch offices.
145.93 Application and notice requirements for branch and home offices.
145.95 What processing procedures apply to my home or branch office 
          application or notice?
145.96 Agency office.
145.101 Fiscal agency.
145.121 Indemnification of directors, officers and employees.

    Authority: 12 U.S.C. 1462a, 1463, 1464, 1828. 5412(b)(2)(B).

    Source: 76 FR 48999, Aug. 9, 2011, unless otherwise noted.



Sec. 145.1  General authority.

    A Federal savings association may exercise all authority granted it 
by the Home Owners' Loan Act of 1933 (``Act''), 12 U.S.C. 1464, as 
amended, and its charter and bylaws, whether or not implemented 
specifically by OCC regulations, subject to the limitations and 
interpretations contained in this part.

[[Page 586]]



Sec. 145.2  [Reserved]



Sec. 145.16  Public deposits, depositaries, and fiscal agents.

    (a) Definitions. As used in this section--
    (1) Moneys includes monies and has the same meaning it has in 
applicable state law;
    (2) State law includes actions by a governmental body which has a 
charter adopted under the constitution of the state with provisions 
respecting deposits of public money of that body;
    (3) Surety means surety under real and/or personal suretyship, and 
includes guarantor; and
    (4) Terms in paragraph (b) of this section have the meanings they 
have under applicable state law.
    (b) Authority to act as surety for public deposits. (1) A Federal 
savings association that is a deposit association may give bond or 
security for deposit in it of public moneys or investment in it by a 
governmental unit if required to do so by state law, either as an 
alternative condition or otherwise, regardless of the amount required. 
Any bond or security may be given and any substitution or increase 
thereof may be made under this section at any time.
    (2) If state law requires as a condition of such deposit or 
investment that the Federal savings association or its bond or security, 
or any combination thereof, be surety for or with respect to other 
deposits or instruments, whether of that depositor or investor or of any 
other(s), and whether in the Federal savings association or in any other 
institution(s) having, when the investments or deposits were made, 
insurance by the Federal Deposit Insurance Corporation, the same shall 
become, or if the state law is self-executing shall be, such surety.
    (c) Depositaries and fiscal agents. Subject to regulation of the 
United States Treasury Department, a Federal savings association may 
serve as a depositary for Federal taxes, as a Treasury tax and loan 
depositary, or as a depositary of public money and fiscal agent of the 
Government or any other instrumentality thereof when designated for that 
purpose by such instrumentality and approved by the OCC, and may satisfy 
any requirement in connection therewith, including maintaining accounts 
described in Sec. Sec. 161.33, 161.52, 161.53, and 161.54 of this 
chapter; pledging collateral; and performing the services outlined in 31 
CFR 202.3(b) or any section that supersedes or amends Sec. 202.3(b).



Sec. 145.17  Funds transfer services.

    A Federal savings association is authorized to transfer, with or 
without fee, its customers' funds from any account (including a line of 
credit) of the customer at the Federal savings association or at another 
financial intermediary to third parties or other accounts of the 
customer on the customer's order or authorization by any mechanism or 
device, including cashier's checks, conforming with applicable laws and 
established commercial practices.



Sec. 145.91  Home office.

    (a) All operations of a Federal savings association (``you'') are 
subject to direction from the home office.
    (b) You must notify the appropriate OCC licensing office if the 
permanent address of your home office changes, unless you have submitted 
an application or notice regarding the change under Sec. Sec. 145.93 
and 145.95 of this chapter.



Sec. 145.92  Branch offices.

    (a) Definition. A branch office of a Federal savings association 
(``you'') is any office other than your home office, agency office, 
administrative office, data processing office, or an electronic means or 
facility under part 155 of this chapter.
    (b) Branching. Subject to the application and notice requirements at 
Sec. Sec. 145.93 and 145.95 of this chapter, you may branch in any 
state or states of the United States and its territories unless the 
location would violate:
    (1) Section 5(r) of the HOLA (12 U.S.C. 1464(r));
    (2) Section 10(e)(3) of the HOLA (12 U.S.C. 1467a(e)(3)); or
    (3) Section 13(k)(4) of the FDIA (12 U.S.C. 1823(k)(4)).
    (c) Preemption. This exercise of the OCC's authority is preemptive 
of any state law purporting to address the

[[Page 587]]

subject of branching by a Federal savings association.



Sec. 145.93  Application and notice requirements for branch and home offices.

    (a) Application and notice requirements. A Federal savings 
association (``you'') must file an application or notice with the 
appropriate OCC licensing office and receive approval or non-objection 
under Sec. 145.95 before you change the permanent location of, or 
establish a new, home or branch office, except as provided in this 
section.
    (b) Exceptions. You are not required to submit an application or 
notice and receive OCC approval or non-objection under Sec. 145.95 
under the following circumstances:
    (1) Drive-in or pedestrian offices. You may establish a drive-in or 
pedestrian office that is located within 500 feet of a public entrance 
to your existing home or branch office, provided the functions performed 
at the office are limited to functions that are ordinarily performed at 
a teller window.
    (2) Short-distance relocation. You may change the permanent location 
of an existing home or branch office to a site that is within the market 
area and short-distance location area of the existing home or branch 
office. The short-distance relocation area of an existing office is the 
area that is within:
    (i) A 1000-foot radius of an existing office that is within a 
Principal City in a Metropolitan Statistical Area (MSA) designated by 
the U.S. Department of Commerce;
    (ii) A one-mile radius of an existing office that is within an MSA, 
but is not within a Principal City; or
    (iii) A two-mile radius of an existing office that is not in an MSA.
    (3) Highly-rated Federal savings associations. You may change the 
permanent location of, or establish a new, branch or home office if you 
meet all of the following requirements:
    (i) You are eligible for expedited treatment under Sec. 116.5 of 
this chapter. For the purposes of that section, you must meet the 
capital requirements under part 167 of this chapter before and 
immediately after you change the location of your home or branch office 
or establish a new branch office.
    (ii) You published a notice of your intent to change the location of 
your home or branch office or establish a new branch office. To satisfy 
this publication requirement, you must follow the procedures in subpart 
B of part 116 of this chapter except that:
    (A) Under Sec. 116.55(d) and (e) of this chapter, your public 
notice must state that the public may submit comments to you and to the 
appropriate OCC licensing office, and must provide addresses for you and 
for the appropriate OCC licensing office where the public may submit 
comments;
    (B) Section 4.14(c) of this chapter, which addresses public 
inspections of filings with the OCC, does not apply; and
    (C) Under Sec. 116.60 of this chapter, you must publish the public 
notice at least 35 days before you take the proposed action. If you 
publish a public notice more than 12 months before you take the proposed 
action, the publication is invalid.
    (iii) If you intend to change the location of an existing office, 
you must post a notice of your intent in a prominent location in the 
existing office to be relocated. You must post the notice for 30 days 
from the date of publication of the initial public notice described in 
paragraph (b)(3)(ii) of this section.
    (iv)(A) No person files a comment opposing the proposed action 
within 30 days after the date of the publication of the proposed notice; 
or
    (B) A person files a comment opposing the proposed action and the 
OCC determines that the comment raises issues that are not relevant to 
the approval standards in Sec. 145.95(b) of this chapter or that OCC 
action in response to the comment is not required.
    (4) Re-designations of home and branch offices. You may re-designate 
an existing branch office as a home office at the same time that you re-
designate your existing home office as a branch office.
    (c) Section 5(m) of the HOLA. If you are incorporated under the laws 
of, organized in, or do business in the District of Columbia and you 
satisfy the requirements of paragraph (b) of this section, the 
Comptroller has approved your home or branch office changes under 
section 5(m) of the HOLA.

[[Page 588]]

    (d) Maintenance of branch and home office following conversion, 
consolidation, purchase of bulk assets, merger, or purchase from 
receiver. An existing savings association that converts to a Federal 
savings association may maintain an existing office and a Federal 
savings association may maintain any office acquired through 
consolidation, purchase of bulk assets, merger or purchase from the 
receiver of an association, except to the extent that the approval of 
the conversion, consolidation, merger, or purchase specifies otherwise.
    (e) Prohibition. You may not file an application or notice (or 
utilize any exception described in paragraph (b) of this section) to 
establish a branch office, if you filed an application to merge or 
otherwise surrender your charter and the application has been pending 
for less than six months.



Sec. 145.95  What processing procedures apply to my home or branch office 

application or notice?

    (a) Processing procedures. Applications and notices under Sec. 
145.93 are subject to expedited or standard treatment under the 
application processing procedures at part 116 of this chapter.
    (1) Publication and posting requirements. (i) You must publish a 
public notice of your application or notice in accordance with the 
procedures in subpart B of part 116 of this chapter. Promptly after 
publication, you must transmit copies of the public notice and the 
publisher's affidavit to the appropriate OCC licensing office.
    (ii) If you propose to change the location of an existing office, 
you must also post a notice of the application in a prominent location 
in the office to be relocated. You must post the notice for 30 days from 
the date of publication of the initial public notice.
    (2) Comment procedures. Commenters may submit comments on your 
application or notice in accordance with the procedures in subpart C of 
part 116 of this chapter.
    (3) Meeting procedures. The OCC may arrange a meeting in accordance 
with the procedures in subpart D of part 116 of this chapter.
    (4) OCC Review. The OCC will process your application or notice in 
accordance with the procedures in subpart E of part 116 of this chapter. 
The applicable review period for applications filed under standard 
treatment is 30 days rather than the time period specified at Sec. 
116.270(a) of this chapter.
    (b) Approval standards. (1) The OCC will approve an application (or 
not object to a notice), if your overall policies, condition, and 
operations afford no basis for supervisory objection.
    (i) You should meet or exceed minimum capital requirements under 
part 167 of this chapter and should be at least adequately capitalized 
as described in Sec. 165.4(b)(2) of this chapter, before and 
immediately after the proposed action. If you are undercapitalized as 
described in Sec. 165.4(b)(3) of this chapter, the OCC will deny your 
application (or disapprove your notice), unless the proposed action is 
otherwise permitted under section 38(e)(4) of the FDIA.
    (ii) The OCC will evaluate your record of helping to meet the credit 
needs of your entire community, including low- and moderate-income 
neighborhoods, under part 195 of this chapter. The OCC may:
    (A) Deny your application or disapprove your notice based upon this 
evaluation; or
    (B) Impose a condition to the approval of your application (or non-
objection to your notice) requiring you to improve specific practices 
and/or aspects of your performance under part 195 of this chapter. In 
most cases, a commitment to improve will not be sufficient to overcome a 
seriously deficient record.
    (iii) The OCC will review the application or notice under the 
National Environmental Policy Act (42 U.S.C. 3421 et seq.) and the 
National Historic Preservation Act (16 U.S.C. 470).
    (2) In reviewing your application and notice, the OCC may consider 
information available from any source, including any comments submitted 
by interested parties or views expressed by interested parties at 
meetings with the OCC.
    (3) The OCC may approve an amendment to your charter in connection 
with a home office relocation under this section.

[[Page 589]]

    (c) Expiration of OCC approval. (1) You must open or relocate your 
office within twelve months of OCC approval of your application (or the 
date of OCC non-objection to your notice), unless the OCC prescribes 
another time period. The OCC may extend the time period if it determines 
that you are making a good-faith effort to promptly open or relocate the 
proposed office.
    (2) If you do not open or relocate the proposed office within this 
time period, you must comply with the application and notice 
requirements of this section before you may open or relocate the 
proposed office.



Sec. 145.96  Agency office.

    (a) General. A Federal savings association may establish or maintain 
an agency office to engage in one or more of the following activities:
    (1) Servicing, originating, or approving loans and contracts;
    (2) Managing or selling real estate owned by the Federal savings 
association; and
    (3) Conducting fiduciary activities or activities ancillary to the 
association's fiduciary business in compliance with subpart A of part 
150 of this chapter.
    (b) Additional services. A Federal savings association may request, 
and the OCC may approve, any service not listed in paragraph (a) of this 
section, except for payment on savings accounts.
    (c) Records. A Federal savings association must maintain records of 
all business it transacts at an agency office. It must maintain these 
records at the agency office, and must transmit copies to a home or 
branch office.



Sec. 145.101  Fiscal agency.

    A Federal savings association designated fiscal agent by the 
Secretary of the Treasury or with OCC approval by another 
instrumentality of the United States, shall, as such, perform such 
reasonable duties and exercise only such powers and privileges as the 
Secretary of the Treasury or such instrumentality may prescribe.



Sec. 145.121  Indemnification of directors, officers and employees.

    A Federal savings association shall indemnify its directors, 
officers, and employees in accordance with the following requirements:
    (a) Definitions and rules of construction. (1) Definitions for 
purposes of this section.
    (i) Action. The term ``action'' means any judicial or administrative 
proceeding, or threatened proceeding, whether civil, criminal, or 
otherwise, including any appeal or other proceeding for review;
    (ii) Court. The term ``court'' includes, without limitation, any 
court to which or in which any appeal or any proceeding for review is 
brought.
    (iii) Final judgment. The term ``final judgment'' means a judgment, 
decree, or order which is not appealable or as to which the period for 
appeal has expired with no appeal taken.
    (iv) Settlement. The term ``settlement'' includes entry of a 
judgment by consent or confession or a plea of guilty or nolo 
contendere.
    (2) References in this section to any individual or other person, 
including any association, shall include legal representatives, 
successors, and assigns thereof.
    (b) General. Subject to paragraphs (c) and (g) of this section, a 
Federal savings association shall indemnify any person against whom an 
action is brought or threatened because that person is or was a 
director, officer, or employee of the association, for:
    (1) Any amount for which that person becomes liable under a judgment 
if such action; and
    (2) Reasonable costs and expenses, including reasonable attorney's 
fees, actually paid or incurred by that person in defending or settling 
such action, or in enforcing his or her rights under this section if he 
or she attains a favorable judgment in such enforcement action.
    (c) Requirements. (1) Indemnification shall be made to such person 
under paragraph (b) of this section only if:
    (i) Final judgment on the merits is in his or her favor; or
    (ii) In case of:
    (A) Settlement,
    (B) Final judgment against him or her, or
    (C) Final judgment in his or her favor, other than on the merits, if 
a majority of the disinterested directors

[[Page 590]]

of the Federal savings association determine that he or she was acting 
in good faith within the scope of his or her employment or authority as 
he or she could reasonably have perceived it under the circumstances and 
for a purpose he or she could reasonably have believed under the 
circumstances was in the best interests of the savings association or 
its members.
    (2) However, no indemnification shall be made unless the association 
gives the OCC at least 60 days' notice of its intention to make such 
indemnification. Such notice shall state the facts on which the action 
arose, the terms of any settlement, and any disposition of the action by 
a court. Such notice, a copy thereof, and a certified copy of the 
resolution containing the required determination by the board of 
directors shall be sent to the association's supervisory office, which 
shall promptly acknowledge receipt thereof. The notice period shall run 
from the date of such receipt. No such indemnification shall be made if 
the OCC advises the association in writing, within such notice period, 
the OCC's objection thereto.
    (d) Insurance. A Federal savings association may obtain insurance to 
protect it and its directors, officers, and employees from potential 
losses arising from claims against any of them for alleged wrongful 
acts, or wrongful acts, committed in their capacity as directors, 
officers, or employees. However, no Federal savings association may 
obtain insurance which provides for payment of losses of any person 
incurred as a consequence of his or her willful or criminal misconduct.
    (e) Payment of expenses. If a majority of the directors of a Federal 
savings association concludes that, in connection with an action, any 
person ultimately may become entitled to indemnification under this 
section, the directors may authorize payment of reasonable costs and 
expenses, including reasonable attorneys' fees, arising from the defense 
or settlement of such action. Nothing in this paragraph (e) shall 
prevent the directors of the savings association from imposing such 
conditions on a payment of expenses as they deem warranted and in the 
interests of the savings association. Before making advance payment of 
expenses under this paragraph (e), the savings association shall obtain 
an agreement that the savings association will be repaid if the person 
on whose behalf payment is made is later determined not to be entitled 
to such indemnification.
    (f) Exclusiveness of provisions. No Federal savings association 
shall indemnify any person referred to in paragraph (b) of this section 
or obtain insurance referred to in paragraph (d) of the section other 
than in accordance with this section. However, an association which has 
a bylaw in effect relating to indemnification of its personnel shall be 
governed solely by that bylaw, except that its authority to obtain 
insurance shall be governed by paragraph (d) of this section.
    (g) The indemnification provided for in paragraph (b) of this 
section is subject to and qualified by 12 U.S.C. 1821(k).



PART 146_FEDERAL MUTUAL SAVINGS ASSOCIATIONS_MERGER, DISSOLUTION, 

REORGANIZATION, AND CONVERSION--Table of Contents



Sec.
146.1 Definitions.
146.2 Procedure; effective date.
146.3 Transfer of assets upon merger or consolidation.
146.4 Voluntary dissolution.

    Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 2901 et seq. 
5412(b)(2)(B).

    Source: 76 FR 49002, Aug. 9, 2011, unless otherwise noted.



Sec. 146.1  Definitions.

    The terms used in Sec. Sec. 146.2 and 146.3 shall have the same 
meaning as set forth in Sec. Sec. 152.13(b) and 163.22(g) of this 
chapter.



Sec. 146.2  Procedure; effective date.

    (a) A Federal mutual savings association may combine with any 
depository institution, provided that:
    (1) The combination is in compliance with, and receives all 
approvals required under, any applicable statutes and regulations;
    (2) Any resulting Federal savings association meets the requirements 
for Federal Home Loan Bank membership and insurance of accounts;

[[Page 591]]

    (3) Any resulting Federal savings association conforms within the 
time prescribed by the OCC to the requirements of sections 5(c) and 
10(m) of the Home Owners' Loan Act; and
    (4) The resulting institution shall be a mutually held savings 
association, unless:
    (i) The transaction involves a supervisory merger;
    (ii) The transaction is approved under part 192 of this chapter; or
    (iii) The transaction involves a transfer in the context of a mutual 
holding company reorganization under section 10(o) of the Home Owners' 
Loan Act.
    (b) Each Federal mutual savings association, by a two-thirds vote of 
its board of directors, shall approve a plan of combination evidenced by 
a combination agreement. The agreement shall state:
    (1) That the combination shall not be effective unless and until the 
combination receives any necessary approval from the OCC pursuant to 
Sec. 163.22 (a) or (c), or in the case of a transaction requiring a 
notice pursuant to Sec. 163.22(c), the notice has been filed, and the 
appropriate period of time has passed or the OCC has advised the parties 
that it will not disapprove the transaction;
    (2) Which constituent institution is to be the resulting 
institution;
    (3) The name of the resulting institution;
    (4) The location of the home office and any other offices of the 
resulting institution;
    (5) The terms and conditions of the combination and the method of 
effectuation;
    (6) Any charter amendments, or the new charter in the combination;
    (7) The basis upon which the resulting institution's savings 
accounts will be issued;
    (8) If the Federal mutual savings association is the resulting 
institution, the number, names, residence addresses, and terms of 
directors;
    (9) The effect upon and assumption of any liquidation account of a 
disappearing institution by the resulting institution; and
    (10) Such other provisions, agreements, or understandings as relate 
to the combination.
    (c) Prior written notification or notice to the appropriate OCC 
licensing office or prior written approval of the OCC, pursuant to Sec. 
163.22 of this chapter, is required for every combination. In the case 
of applications and notices pursuant to 163.22 (a) or (c), the OCC shall 
apply the criteria set out in Sec. 163.22 of this chapter and shall 
impose any conditions it deems necessary or appropriate to ensure 
compliance with those criteria and the requirements of this chapter.
    (d) Where the resulting institution is a Federal mutual savings 
association, the OCC may approve a temporary increase in the number of 
directors of the resulting institution provided that the association 
submits a plan for bringing the board of directors into compliance with 
the requirements of Sec. 144.1 of this chapter within a reasonable 
period of time.
    (e) Notwithstanding any other provision of this part, the OCC may 
require that a plan of combination be submitted to the voting members of 
any of the mutual savings associations that are constituent institutions 
at a duly called meeting(s), and that the plan, to be effective, be 
approved by such voting members.
    (f) A conservator or receiver for a Federal mutual savings 
association may combine the association with another insured depository 
institution without submitting the plan to the association's board of 
directors or members for their approval.
    (g) If a plan of combination provides for a resulting Federal mutual 
savings association's name or location to be changed, its charter shall 
be amended accordingly. If the resulting institution is a Federal mutual 
savings association, the effective date of the combination shall be the 
date specified in the approval; if the resulting institution is not a 
Federal savings association, the effective date shall be that prescribed 
under applicable law. Approval of a merger automatically cancels the 
Federal charter of a Federal association that is a disappearing 
institution as of the effective date of merger, and the association 
shall, on that date, surrender its charter to the OCC.

[[Page 592]]



Sec. 146.3  Transfer of assets upon merger or consolidation.

    On the effective date of a merger or consolidation in which the 
resulting institution is a Federal association, all assets and property 
of the disappearing institutions shall immediately, without any further 
act, become the property of the resulting institution to the same extent 
as they were the property of the disappearing institutions, and the 
resulting institution shall be a continuation of the entity which 
absorbed the disappearing institutions. All rights and obligations of 
the disappearing institutions shall remain unimpaired, and the resulting 
institution shall, on the effective date of the merger or consolidation, 
succeed to all those rights and obligations, subject to the Home Owners' 
Loan Act and other applicable statutes.



Sec. 146.4  Voluntary dissolution.

    (a) A Federal savings association's board of directors may propose a 
plan for dissolution of the association. The plan may provide for 
either:
    (1) Appointment of the Federal Deposit Insurance Corporation (under 
section 5 of the Act and section 11 of the Federal Deposit Insurance 
Act, as amended or section 21A of the Federal Home Loan Bank Act, as 
amended) as receiver for the purpose of liquidation;
    (2) Transfer of all the association's assets to another association 
or home-financing institution under Federal or state charter either for 
cash sufficient to pay all obligations of the association and retire all 
outstanding accounts or in exchange for that association's payment of 
all the association's outstanding obligations and issuance of share 
accounts or other evidence of interest to the association's members on a 
pro rata basis; or
    (3) Dissolution in a manner proposed by the directors which they 
consider best for all concerned.
    (b) The plan, and a statement of reasons for proposing dissolution 
and for proposing the plan, shall be submitted to the appropriate OCC 
licensing office for approval. The OCC will approve the plan if the OCC 
believes dissolution is advisable and the plan best for all concerned, 
but if the OCC considers the plan inadvisable, the OCC may either make 
recommendations to the association concerning the plan or disapprove it. 
When the plan is approved by the association's board of directors and by 
the OCC, it shall be submitted to the association's members at a duly 
called meeting and, when approved by a majority of votes cast at that 
meeting, shall become effective. After dissolution in accordance with 
the plan, a certificate evidencing dissolution, supported by such 
evidence as the may require, shall immediately be filed with the OCC. 
When the OCC receives such evidence satisfactory to the OCC, it will 
terminate the corporate existence of the dissolved association and the 
association's charter shall thereby be canceled. A Federal savings 
association is not required to obtain approval under this section where 
the Federal savings association transfers all of its assets and 
liabilities to a bank in a transaction that is subject to Sec. 
163.22(b) of this chapter.

                        PARTS 147-149 [RESERVED]



PART 150_FIDUCIARY POWERS OF FEDERAL SAVINGS ASSOCIATIONS--Table of Contents



Sec.
150.10 What regulations govern the fiduciary operations of Federal 
          savings associations?
150.20 What are fiduciary powers?
150.30 What fiduciary capacities does this part cover?
150.40 When do I have investment discretion?
150.50 What is a fiduciary account?
150.60 What other definitions apply to this part?

                  Subpart A_Obtaining Fiduciary Powers

150.70 Must I obtain OCC approval or file a notice before I exercise 
          fiduciary powers?
150.80 How do I obtain OCC approval?
150.90 What information must I include in my application?
150.100 What factors may the OCC consider in its review of my 
          application?
150.110 [Reserved]
150.120 What action will the OCC take on my application?
150.125 How do I file the notice under Sec. 150.70(c)?

                  Subpart B_Exercising Fiduciary Powers

150.130 How may I conduct multi-state operations?

[[Page 593]]

150.135 How do I determine which state's laws apply to my operations?
150.136 To what extent do state laws apply to my fiduciary operations?
150.140 Must I adopt and follow written policies and procedures in 
          exercising fiduciary powers?

                   Fiduciary Personnel and Facilities

150.150 Who is responsible for the exercise of fiduciary powers?
150.160 What personnel and facilities may I use to perform fiduciary 
          services?
150.170 May my other departments or affiliates use fiduciary personnel 
          and facilities to perform other services?
150.180 May I perform fiduciary services for, or purchase fiduciary 
          services from, another association or entity?
150.190 Must fiduciary officers and employees be bonded?

                      Review of a Fiduciary Account

150.200 Must I review a prospective account before I accept it?
150.210 Must I conduct another review of an account after I accept it?
150.220 Are any other account reviews required?

                      Custody and Control of Assets

150.230 Who must maintain custody or control of assets in a fiduciary 
          account?
150.240 May I hold investments of a fiduciary account off-premises?
150.250 Must I keep fiduciary assets separate from other assets?

                 Investing Funds of a Fiduciary Account

150.260 How may I invest funds of a fiduciary account?

                Funds Awaiting Investment or Distribution

150.290 What must I do with fiduciary funds awaiting investment or 
          distribution?
150.300 Where may I deposit fiduciary funds awaiting investment or 
          distribution?
150.310 What if the FDIC does not insure the deposits?
150.320 What is acceptable collateral for uninsured deposits?

                      Restrictions on Self Dealing

150.330 Are there investments in which I may not invest funds of a 
          fiduciary account?
150.340 May I exercise rights to purchase additional stock or fractional 
          shares of my stock or obligations or the stock or obligations 
          of my affiliates?
150.350 May I lend, sell, or transfer assets of a fiduciary account if I 
          have an interest in the transaction?
150.360 May I make a loan to a fiduciary account that is secured by an 
          interest in the assets of the account?
150.370 May I sell assets or lend money between fiduciary accounts?

                    Compensation, Gifts, and Bequests

150.380 May I earn compensation for acting in a fiduciary capacity?
150.390 May my officer or employee retain compensation for acting as a 
          co-fiduciary?
150.400 May my fiduciary officer or employee accept a gift or bequest?

                       Recordkeeping Requirements

150.410 What records must I keep?
150.420 How long must I keep these records?
150.430 Must I keep fiduciary records separate and distinct from other 
          records?

                           Audit Requirements

150.440 When do I have to audit my fiduciary activities?
150.450 What standards govern the conduct of the audit?
150.460 Who may conduct an audit?
150.470 Who directs the conduct of the audit?
150.480 How do I report the results of the audit?

         Subpart C_Depositing Securities With State Authorities

150.490 When must I deposit securities with state authorities?
150.500 How much must I deposit if I administer fiduciary assets in more 
          than one state?
150.510 What must I do if state authorities refuse my deposit?

 Subpart D_Terminating Fiduciary Activities Receivership or Liquidation

150.520 What happens if I am placed in receivership or voluntary 
          liquidation?

                      Surrender of Fiduciary Powers

150.530 How do I surrender fiduciary powers?
150.540 When will the OCC terminate my fiduciary powers?
150.550 May I recover my deposit from state authorities?

                     Revocation of Fiduciary Powers

150.560 When may the OCC revoke my fiduciary powers?
150.570 What procedures govern the revocation?

               Subpart E_Activities Exempt From This Part

150.580 When may I conduct fiduciary activities without obtaining OCC 
          approval?

[[Page 594]]

150.590 What standards must I observe when acting in exempt fiduciary 
          capacities?
150.600 How may funds be invested when I act in an exempt fiduciary 
          capacity?
150.610 What disclosures must I make when acting in exempt fiduciary 
          capacities?
150.620 May I receive compensation for acting in exempt fiduciary 
          capacities?

    Authority: 12 U.S.C. 1462a, 1463, 1464, 5412(b)(2)(B).

    Source: 76 FR 49003, Aug. 9, 2011, unless otherwise noted.



Sec. 150.10  What regulations govern the fiduciary operations of Federal 

savings associations?

    A Federal savings association (``you'') must conduct its fiduciary 
operations in accordance with 12 U.S.C. 1464(n) and this part.



Sec. 150.20  What are fiduciary powers?

    Fiduciary powers are the authority that the OCC permits you to 
exercise under 12 U.S.C. 1464(n).



Sec. 150.30  What fiduciary capacities does this part cover?

    You are subject to this part if you act in a fiduciary capacity, 
except as described in subpart E of this part. You act in a fiduciary 
capacity when you act in any of the following capacities:
    (a) Trustee.
    (b) Executor.
    (c) Administrator.
    (d) Registrar of stocks and bonds.
    (e) Transfer agent.
    (f) Assignee.
    (g) Receiver.
    (h) Guardian or conservator 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) A fiduciary in a relationship established under a state law that 
is substantially similar to the Uniform Gifts to Minors Act or the 
Uniform Transfers to Minors Act as published by the American Law 
Institute.
    (j) Investment adviser, if you receive a fee for your investment 
advice.
    (k) Any capacity in which you have investment discretion on behalf 
of another.
    (l) Any other similar capacity that the OCC may authorize under 12 
U.S.C. 1464(n).



Sec. 150.40  When do I have investment discretion?

    (a) General. You have investment discretion when you have, with 
respect to a fiduciary account, the sole or shared authority to 
determine what securities or other assets to purchase or sell on behalf 
of that account. It does not matter whether you have exercised this 
authority.
    (b) Delegations. You retain investment discretion if you delegate 
investment discretion to another. You also have investment discretion if 
you receive delegated authority to exercise investment discretion from 
another.



Sec. 150.50  What is a fiduciary account?

    A fiduciary account is an account that you administer acting in a 
fiduciary capacity.



Sec. 150.60  What other definitions apply to this part?

    Activities ancillary to your fiduciary business include advertising, 
marketing, or soliciting fiduciary business, contacting existing or 
potential customers, answering questions and providing information to 
customers related to their accounts, acting as liaison between you and 
your customer (for example, forwarding requests for distribution, 
changes in investment objectives, forms, or funds received from the 
customer), and 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 
purposes of this definition.
    Affiliate has the same meaning as in 12 U.S.C. 221a(b). For purposes 
of this part, substitute the term ``Federal savings association'' for 
the term ``member bank'' whenever it appears in 12 U.S.C. 221a(b).
    Applicable law means the law of a state or other jurisdiction 
governing your fiduciary relationships, any Federal law governing those 
relationships, the terms of the instrument governing a fiduciary 
relationship, and any court order pertaining to the relationship.
    Fiduciary activities include accepting a fiduciary appointment, 
executing fiduciary-related documents, providing investment advice for a 
fee regarding

[[Page 595]]

fiduciary assets, or making discretionary decisions regarding investment 
or distribution of assets.
    Fiduciary officers and employees means the officers and employees of 
a Federal savings association to whom the board of directors or its 
designee has assigned functions involving the exercise of the 
association's fiduciary powers.



                  Subpart A_Obtaining Fiduciary Powers



Sec. 150.70  Must I obtain OCC approval or file a notice before I exercise 

fiduciary powers?

    You should refer to the following chart to determine if you must 
obtain OCC approval or file a notice with the OCC before you exercise 
fiduciary powers. This chart does not apply to activities that are 
exempt under subpart E of this part.

 
------------------------------------------------------------------------
       If you will conduct . . .                    Then . . .
------------------------------------------------------------------------
(a) Fiduciary activities for the first   You must obtain prior approval
 time and the OCC has not previously      from the OCC under Sec. Sec.
 approved an application that you          150.80 through 150.120 before
 submitted under this part.               you conduct the activities
(b) Fiduciary activities that are        You must obtain prior approval
 materially different from the            from the OCC under Sec. Sec.
 activities that the OCC has previously    150.80 through 150.120 before
 approved for you, including fiduciary    you conduct the activities
 activities that the OCC has previously
 approved for you that you have not
 exercised for at least five years.
(c) Fiduciary activities that are not    You must file a written notice
 materially different from the            described at Sec.  150.125 if
 activities that the OCC has previously   you commence the activities in
 approved for you.                        a new state. You do not need
                                          to file a written notice if
                                          you commence the activities at
                                          a new location in a state
                                          where you already conduct
                                          these activities.
(d) Activities that are ancillary to     You do not have to obtain prior
 your fiduciary business.                 OCC approval or file a notice
                                          with the OCC.
------------------------------------------------------------------------



Sec. 150.80  How do I obtain OCC approval?

    You must file an application under part 116, subparts A and E of 
this chapter.



Sec. 150.90  What information must I include in my application?

    You must describe the fiduciary powers that you or your affiliate 
will exercise. You must also include information necessary to enable the 
OCC to make the determinations described in Sec. 150.100.



Sec. 150.100  What factors may the OCC consider in its review of my 

application?

    The OCC may consider the following factors when reviewing your 
application:
    (a) Your financial condition.
    (b) Your capital and whether that capital is sufficient under the 
circumstances.
    (c) Your overall performance.
    (d) The fiduciary powers you propose to exercise.
    (e) Your proposed supervision of those powers.
    (f) The availability of legal counsel.
    (g) The needs of the community to be served.
    (h) Any other facts or circumstances that the OCC considers proper.



Sec. 150.110  [Reserved]



Sec. 150.120  What action will the OCC take on my application?

    The OCC may approve or deny your application. If your application is 
approved, the OCC may impose conditions to ensure that the requirements 
of this part are met.



Sec. 150.125  How do I file the notice under Sec. 150.70(c)?

    (a) If you are required to file a notice under Sec. 150.70(c), 
within ten days after you commence the fiduciary activities in a new 
state, you must file a written notice that identifies each new state in 
which you conduct or will conduct fiduciary activities, describe the 
fiduciary activities that you conduct or will conduct in each new state, 
and

[[Page 596]]

provide sufficient information supporting a conclusion that the 
activities are permissible in the state.
    (b) You must file the notice with the appropriate OCC licensing 
office.



                  Subpart B_Exercising Fiduciary Powers



Sec. 150.130  How may I conduct multi-state operations?

    (a) Conducting fiduciary activities in more than one state. You may 
conduct fiduciary activities in any state, subject to the application 
and notice requirements in subpart A of this part.
    (b) Serving customers in more than one state. When you conduct 
fiduciary activities in a state:
    (1) You may market your fiduciary services to, and act as a 
fiduciary for, customers located in any state, may act as a fiduciary 
for relationships that include property located in other states, and may 
act as a testamentary trustee for a testator located in other states.
    (2) You may establish or utilize an office in any state to perform 
activities that are ancillary to your fiduciary business.



Sec. 150.135  How do I determine which state's laws apply to my operations?

    (a) The state laws that apply to you by virtue of 12 U.S.C. 1464(n) 
are the laws of the states in which you conduct fiduciary activities. 
For each individual state, you may conduct fiduciary activities in the 
capacity of trustee, executor, administrator, guardian, or in any other 
fiduciary capacity the state permits for its state banks, trust 
companies, or other corporations that compete with Federal savings 
associations in the state.
    (b) For each fiduciary relationship, the state referred to in 12 
U.S.C. 1464(n) is the state in which you conduct fiduciary activities 
for that relationship.



Sec. 150.136  To what extent do state laws apply to my fiduciary operations?

    (a) Application of state law. To enhance safety and soundness and to 
enable Federal savings associations to conduct their fiduciary 
activities in accordance with the best practices of thrift institutions 
in the United States (by efficiently delivering fiduciary services to 
the public free from undue regulatory duplication and burden), the OCC 
intends to give Federal savings associations maximum flexibility to 
exercise their fiduciary powers in accordance with a uniform scheme of 
Federal regulation. Accordingly, Federal savings associations may 
exercise fiduciary powers as authorized under Federal law, including 
this part, without regard to state laws that purport to regulate or 
otherwise affect their fiduciary activities, except to the extent 
provided in 12 U.S.C. 1464(n) (state laws regarding scope of fiduciary 
powers, access to examination reports regarding trust activities, 
deposits of securities, oaths and affidavits, and capital) or in 
paragraph (c) of this section. For purposes of this section, ``state 
law'' includes any state statute, regulation, ruling, order, or judicial 
decision.
    (b) Illustrative examples. Examples of state laws that are preempted 
by the HOLA and this section include those regarding:
    (1) Registration and licensing;
    (2) Recordkeeping;
    (3) Advertising and marketing;
    (4) The ability of a Federal savings association conducting 
fiduciary activities to maintain an action or proceeding in state court; 
and
    (5) Fiduciary-related fees.
    (c) State laws that are not preempted. State laws of the following 
types are not preempted to the extent that they only incidentally affect 
the fiduciary operations of Federal savings associations or are 
otherwise consistent with the purposes of paragraph (a) of this section:
    (1) Contract and commercial law;
    (2) Real property law;
    (3) Tort law;
    (4) Criminal law;
    (5) Probate law; and
    (6) Any other law that the OCC, upon review, finds:
    (i) Furthers a vital state interest; and
    (ii) Either has only an incidental effect on fiduciary operations or 
is not otherwise contrary to the purposes expressed in paragraph (a) of 
this section.

[[Page 597]]



Sec. 150.140  Must I adopt and follow written policies and procedures in 

exercising fiduciary powers?

    You must adopt and follow written policies and procedures adequate 
to maintain your fiduciary activities in compliance with applicable law. 
Among other relevant matters, the policies and procedures should 
address, where appropriate, the following areas:
    (a) Your brokerage placement practices.
    (b) Your methods for ensuring that your fiduciary officers and 
employees do not use material inside information in connection with any 
decision or recommendation to purchase or sell any security.
    (c) Your methods for preventing self-dealing and conflicts of 
interest.
    (d) Your selection and retention of legal counsel who is ready and 
available to advise you and your fiduciary officers and employees on 
fiduciary matters.
    (e) Your investment of funds held as fiduciary, including short-term 
investments and the treatment of fiduciary funds awaiting investment or 
distribution.

                   Fiduciary Personnel and Facilities



Sec. 150.150  Who is responsible for the exercise of fiduciary powers?

    The exercise of your fiduciary powers must be managed by or under 
the direction of your 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 of directors, officers, or employees.



Sec. 150.160  What personnel and facilities may I use to perform fiduciary 

services?

    You may use your qualified personnel and facilities or an 
affiliate's qualified personnel and facilities to perform services 
related to the exercise of fiduciary powers.



Sec. 150.170  May my other departments or affiliates use fiduciary personnel 

and facilities to perform other services?

    Your other departments or 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.



Sec. 150.180  May I perform fiduciary services for, or purchase fiduciary 

services from, another association or entity?

    You may perform services related to the exercise of fiduciary powers 
for another association or other entity under a written agreement. You 
may also purchase services related to the exercise of fiduciary powers 
from another association or other entity under a written agreement.



Sec. 150.190  Must fiduciary officers and employees be bonded?

    You must obtain an adequate bond for all fiduciary officers and 
employees.

                      Review of a Fiduciary Account



Sec. 150.200  Must I review a prospective account before I accept it?

    Before accepting a prospective fiduciary account, you must review it 
to determine whether you can properly administer the account.



Sec. 150.210  Must I conduct another review of an account after I accept it?

    After you accept a fiduciary account for which you have investment 
discretion, you must conduct a prompt review of all assets of the 
account to evaluate whether they are appropriate, individually and 
collectively, for the account.



Sec. 150.220  Are any other account reviews required?

    At least once every calendar year, you must conduct a review of all 
assets of each fiduciary account for which you have investment 
discretion. In this review, you must evaluate whether the assets are 
appropriate, individually and collectively, for the account.

[[Page 598]]

                      Custody and Control of Assets



Sec. 150.230  Who must maintain custody or control of assets in a fiduciary 

account?

    You must place assets of fiduciary accounts in the joint custody or 
control of not fewer than two fiduciary officers or employees designated 
for that purpose by the board of directors.



Sec. 150.240  May I hold investments of a fiduciary account off-premises?

    You may hold the investments of a fiduciary account off-premises, if 
this practice is consistent with applicable law, and you maintain 
adequate safeguards and controls.



Sec. 150.250  Must I keep fiduciary assets separate from other assets?

    You must keep the assets of fiduciary accounts separate from your 
other assets. You must also keep the assets of each fiduciary account 
separate from all other accounts, or you must identify the investments 
as the property of a particular account, except as provided in Sec. 
150.260.

                 Investing Funds of a Fiduciary Account



Sec. 150.260  How may I invest funds of a fiduciary account?

    (a) General. You must invest funds of a fiduciary account in a 
manner consistent with applicable law.
    (b) Collective investment funds. (1) You may invest funds of a 
fiduciary account in a collective investment fund, including a 
collective investment fund that you have established. In establishing 
and administering such funds, you must comply with 12 CFR 9.18.
    (2) If you must file a document with the OCC under 12 CFR 9.18, the 
OCC may review such documents for compliance with this part and other 
laws and regulations.
    (3) ``Bank'' and ``national bank'' as used in 12 CFR 9.18 shall be 
deemed to include a Federal savings association.

                Funds Awaiting Investment or Distribution



Sec. 150.290  What must I do with fiduciary funds awaiting investment or 

distribution?

    If you have investment discretion or discretion over distributions 
for a fiduciary account which contains funds awaiting investment or 
distribution, you must ensure that those funds do not remain uninvested 
and undistributed any longer than is reasonable for the proper 
management of the account and consistent with applicable law. You also 
must obtain a rate of return for those funds that is consistent with 
applicable law.



Sec. 150.300  Where may I deposit fiduciary funds awaiting investment or 

distribution?

    (a) Self deposits. You may deposit funds of a fiduciary account that 
are awaiting investment or distribution in your other departments, 
unless prohibited by applicable law.
    (b) Affiliate deposits. You may also deposit funds of a fiduciary 
account that are awaiting investment or distribution with an affiliated 
insured depository institution, unless prohibited by applicable law.



Sec. 150.310  What if the FDIC does not insure the deposits?

    If the FDIC does not insure the entire amount of a self deposit, you 
must set aside collateral as security. If the FDIC does not insure the 
entire amount of an affiliate deposit, you or your affiliate must set 
aside collateral as security. The market value of the collateral must at 
all times equal or exceed the amount of the uninsured fiduciary funds. 
You must place the collateral under the control of appropriate fiduciary 
officers and employees.



Sec. 150.320  What is acceptable collateral for uninsured deposits?

    Any of the following is acceptable collateral for self deposits or 
affiliate deposits under Sec. 150.310:
    (a) Direct obligations of the United States, or other obligations 
fully guaranteed by the United States as to principal and interest.

[[Page 599]]

    (b) Readily marketable securities of the classes in which state-
chartered corporate fiduciaries are permitted to invest fiduciary funds 
under applicable state law.
    (c) Other readily marketable securities as the OCC may determine.
    (d) Surety bonds, to the extent they provide adequate security, 
unless prohibited by applicable law.
    (e) Any other assets that qualify under applicable state law as 
appropriate security for deposits of fiduciary funds.

                      Restrictions on Self Dealing



Sec. 150.330  Are there investments in which I may not invest funds of a 

fiduciary account?

    You may not invest funds of a fiduciary account for which you have 
investment discretion in the following assets, unless authorized by 
applicable law:
    (a) The stock or obligations of, or assets acquired from, you or any 
of your directors, officers, or employees.
    (b) The stock or obligations of, or assets acquired from, your 
affiliates or any of their directors, officers, or employees.
    (c) The stock or obligations of, or assets acquired from, other 
individuals or organizations if you have an interest in the individual 
or organization that might affect the exercise of your best judgment.



Sec. 150.340  May I exercise rights to purchase additional stock or fractional 

shares of my stock or obligations or the stock or obligations of my 

affiliates?

    If the retention of investments in your stock or obligations or the 
stock or obligations of an affiliate in fiduciary accounts is consistent 
with applicable law, you may do either of the following:
    (a) Exercise rights to purchase additional stock (or securities 
convertible into additional stock) when these rights are offered pro 
rata to stockholders.
    (b) Purchase fractional shares to complement fractional shares 
acquired through the exercise of rights or through the receipt of a 
stock dividend resulting in fractional share holdings.



Sec. 150.350  May I lend, sell, or transfer assets of a fiduciary account if I 

have an interest in the transaction?

    (a) General restriction. Except as provided in paragraph (b) of this 
section, you may not lend, sell, or otherwise transfer assets of a 
fiduciary account for which you have investment discretion to yourself 
or any of your directors, officers, or employees; to your affiliates or 
any of their directors, officers, or employees; or to other individuals 
or organizations with whom you have an interest that might affect the 
exercise of your best judgment.
    (b) Exceptions--(1) Funds for which you have investment discretion. 
You may lend, sell or otherwise transfer assets of a fiduciary account 
for which you have investment discretion to yourself or any of your 
directors, officers, or employees; to your affiliates or any of their 
directors, officers, or employees; or to other individuals or 
organizations with whom you have an interest that might affect the 
exercise of your best judgment, if you meet one of the following 
conditions:
    (i) The transaction is authorized by applicable law.
    (ii) Legal counsel advises you in writing that you have incurred, in 
your fiduciary capacity, a contingent or potential liability. Upon the 
sale or transfer of assets, you must reimburse the fiduciary account in 
cash in an amount equal to the greater of book or market value of the 
assets.
    (iii) The transaction is permitted under 12 CFR 9.18(b)(8)(iii) for 
defaulted fixed-income investments.
    (iv) The OCC requires you to do so.
    (2) Funds held as trustee. You may make loans of funds held in trust 
to any of your directors, officers, or employees if the funds are held 
in an employee benefit plan and the loan is made in accordance with the 
exemptions found at section 408 of the Employee Retirement Income 
Security Act of 1974 (29 U.S.C. 1108).



Sec. 150.360  May I make a loan to a fiduciary account that is secured by an 

interest in the assets of the account?

    You may make a loan to a fiduciary account that is secured by an 
interest in the assets of the account, if the

[[Page 600]]

transaction is fair to the account and is not prohibited by applicable 
law.



Sec. 150.370  May I sell assets or lend money between fiduciary accounts?

    You may sell assets or lend money between fiduciary accounts, if the 
transaction is fair to both accounts and is not prohibited by applicable 
law.

                    Compensation, Gifts, and Bequests



Sec. 150.380  May I earn compensation for acting in a fiduciary capacity?

    If the amount of your compensation for acting in a fiduciary 
capacity is not set or governed by applicable law, you may charge a 
reasonable fee for your services.



Sec. 150.390  May my officer or employee retain compensation for acting as a 

co-fiduciary?

    You may not permit your officers or employees to retain any 
compensation for acting as a co-fiduciary with you in the administration 
of a fiduciary account, except with the specific approval of your board 
of directors.



Sec. 150.400  May my fiduciary officer or employee accept a gift or bequest?

    You may not permit any fiduciary officer or employee to accept a 
bequest or gift of fiduciary assets, unless the bequest or gift is 
directed or made by a relative of the officer or employee or is 
specifically approved by your board of directors.

                       Recordkeeping Requirements



Sec. 150.410  What records must I keep?

    You must keep adequate records for all fiduciary accounts. For 
example, you must keep documents on the establishment and termination of 
each fiduciary account.



Sec. 150.420  How long must I keep these records?

    You must keep fiduciary records for three years after the 
termination of the account or the termination of any litigation relating 
to the account, whichever is later.



Sec. 150.430  Must I keep fiduciary records separate and distinct from other 

records?

    You must keep fiduciary records separate and distinct from your 
other records.

                           Audit Requirements



Sec. 150.440  When do I have to audit my fiduciary activities?

    (a) Annual audit. If you do not use a continuous audit system 
described in paragraph (b) of this section, then you must arrange for a 
suitable audit of all significant fiduciary activities at least once 
during each calendar year.
    (b) Continuous audit. Instead of an annual audit, you may adopt a 
continuous audit system. Under a continuous audit system, you must 
arrange for a discrete audit of each significant fiduciary activity 
(i.e., on an activity-by-activity basis) at an interval commensurate 
with the nature and risk of that activity. Some fiduciary activities may 
receive audits at intervals greater or less than one year, as 
appropriate.



Sec. 150.450  What standards govern the conduct of the audit?

    Auditors must follow generally accepted standards for attestation 
engagements and other standards established by the OCC. An audit must 
ascertain whether your internal control policies and procedures provide 
reasonable assurance of three things:
    (a) You are administering fiduciary activities in accordance with 
applicable law.
    (b) You are properly safeguarding fiduciary assets.
    (c) You are accurately recording transactions in appropriate 
accounts in a timely manner.



Sec. 150.460  Who may conduct an audit?

    Internal auditors, external auditors, or other qualified persons who 
are responsible only to the board of directors, may conduct an audit.



Sec. 150.470  Who directs the conduct of the audit?

    Your fiduciary audit committee directs the conduct of the audit. 
Your fiduciary audit committee may consist of a committee of your 
directors or an

[[Page 601]]

audit committee of an affiliate. There are two restrictions on who may 
serve on the committee:
    (a) Your officers and officers of an affiliate who participate 
significantly in administering your fiduciary activities may not serve 
on the audit committee.
    (b) A majority of the members of the audit committee may not serve 
on any committee to which the board of directors has delegated power to 
manage and control your fiduciary activities.



Sec. 150.480  How do I report the results of the audit?

    (a) Annual audit. If you conduct an annual audit, you must 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. If you adopt a continuous audit system, you 
must note the results of all discrete audits conducted 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.



         Subpart C_Depositing Securities With State Authorities



Sec. 150.490  When must I deposit securities with state authorities?

    You must deposit securities with a state's authorities or, if 
applicable, a Federal Home Loan Bank under Sec. 150.510, if you meet 
all of the following:
    (a) You are located in the state.
    (b) You act as a private or court-appointed trustee.
    (c) The law of the state requires corporations acting in a fiduciary 
capacity to deposit securities with state authorities for the protection 
of private or court trusts.



Sec. 150.500  How much must I deposit if I administer fiduciary assets in more 

than one state?

    If you administer fiduciary assets in more than one state, you must 
compute the amount of deposit required for each state on the basis of 
fiduciary assets that you administer primarily from offices located in 
that state.



Sec. 150.510  What must I do if state authorities refuse my deposit?

    If state authorities refuse to accept your deposit under Sec. 
150.490, you must deposit the securities with the Federal Home Loan Bank 
of which you are a member. The Federal Home Loan Bank will hold the 
securities for the protection of private or court trusts to the same 
extent as if the securities had been deposited with state authorities.



 Subpart D_Terminating Fiduciary Activities Receivership or Liquidation



Sec. 150.520  What happens if I am placed in receivership or voluntary 

liquidation?

    If the OCC appoints a conservator or receiver, or if you place 
yourself in voluntary liquidation, the receiver, conservator, or 
liquidating agent must promptly close or transfer all fiduciary accounts 
to a substitute fiduciary, in accordance with OCC instructions and the 
orders of the court having jurisdiction.

                      Surrender of Fiduciary Powers



Sec. 150.530  How do I surrender fiduciary powers?

    If you want to surrender your fiduciary powers, you must file a 
certified copy of a resolution of your board of directors evidencing 
that intent. You must file the resolution with the appropriate OCC 
licensing office.



Sec. 150.540  When will the OCC terminate my fiduciary powers?

    If, after appropriate investigation, the OCC is satisfied that you 
have been discharged from all fiduciary duties, the appropriate OCC 
licensing office will issue a written notice indicating that you are no 
longer authorized to exercise fiduciary powers.



Sec. 150.550  May I recover my deposit from state authorities?

    Upon issuance of the OCC written notice under Sec. 150.540, you may 
recover any securities deposited with state authorities, or a Federal 
Home Loan Bank, under subpart C of this part.

[[Page 602]]

                     Revocation of Fiduciary Powers



Sec. 150.560  When may the OCC revoke my fiduciary powers?

    The OCC may revoke your fiduciary powers if it determines that you 
have done any of the following:
    (a) Exercised those fiduciary powers unlawfully or unsoundly.
    (b) Failed to exercise those fiduciary powers for five consecutive 
years.
    (c) Otherwise failed to follow the requirements of this part.



Sec. 150.570  What procedures govern the revocation?

    The procedures for revocation of fiduciary powers are set forth in 
12 U.S.C. 1464(n)(10). The OCC will conduct the hearing required under 
12 U.S.C. 1464(n)(10)(B) under part 109 of this chapter.



               Subpart E_Activities Exempt From This Part



Sec. 150.580  When may I conduct fiduciary activities without obtaining OCC 

approval?

    Subject to the requirements of this subpart E, you do not need OCC 
approval under subpart B if you conduct fiduciary activities in the 
following fiduciary capacities:
    (a) Trustee of a trust created or organized in the United States and 
forming part of a stock bonus, pension, or profit-sharing plan 
qualifying for specific tax treatment under section 401(d) of the 
Internal Revenue Code of 1954 (26 U.S.C. 401(d)).
    (b) Trustee or custodian of a Individual Retirement Account within 
the meaning of section 408(a) of the Internal Revenue Code of 1954 (26 
U.S.C. 408(a)).



Sec. 150.590  What standards must I observe when acting in exempt fiduciary 

capacities?

    You must observe principles of sound fiduciary administration, 
including those related to recordkeeping and segregation of assets.



Sec. 150.600  How may funds be invested when I act in an exempt fiduciary 

capacity?

    If you act in an exempt fiduciary capacity under Sec. 150.580, the 
funds of the fiduciary account may be invested only in the following:
    (a) Your accounts, deposits, obligations, or securities.
    (b) Other assets as the customer may direct, provided you do not 
exercise any investment discretion and do not directly or indirectly 
provide any investment advice for the fiduciary account.



Sec. 150.610  What disclosures must I make when acting in exempt fiduciary 

capacities?

    (a) If you act in an exempt fiduciary capacity under Sec. 150.580 
and fiduciary investments are not limited to accounts or deposits 
insured by the FDIC, you must include the following language in bold 
type on the first page of any contract documents:
    (b) Funds invested pursuant to this agreement are not insured by the 
FDIC merely because the trustee or custodian is a Federal savings 
association the accounts of which are covered by such insurance. Only 
investments in the accounts of a Federal savings association are insured 
by the FDIC, subject to its rules and regulations.



Sec. 150.620  May I receive compensation for acting in exempt fiduciary 

capacities?

    You may receive reasonable compensation.



PART 151_RECORDKEEPING AND CONFIRMATION REQUIREMENTS FOR SECURITIES 

TRANSACTIONS--Table of Contents



Sec.
151.10 What does this part do?
151.20 Must I comply with this part?
151.30 What requirements apply to all transactions?
151.40 What definitions apply to this part?

                  Subpart A_Recordkeeping Requirements

151.50 What records must I maintain for securities transactions?
151.60 How must I maintain my records?

[[Page 603]]

                 Subpart B_Content and Timing of Notice

151.70 What type of notice must I provide when I effect a securities 
          transaction for a customer?
151.80 How do I provide a registered broker-dealer confirmation?
151.90 How do I provide a written notice?
151.100 What are the alternate notice requirements?
151.110 May I provide a notice electronically?
151.120 May I charge a fee for a notice?

             Subpart C_Settlement of Securities Transactions

151.130 When must I settle a securities transaction?

          Subpart D_Securities Trading Policies and Procedures

151.140 What policies and procedures must I maintain and follow for 
          securities transactions?
151.150 How do my officers and employees file reports of personal 
          securities trading transactions?

    Authority: 12 U.S.C. 1462a, 1463, 1464, 5412(b)(2)(B).

    Source: 76 FR 49008, Aug. 9, 2011, unless otherwise noted.



Sec. 151.10  What does this part do?

    This part establishes recordkeeping and confirmation requirements 
that apply when a Federal savings association (``you'') effects certain 
securities transactions for customers.



Sec. 151.20  Must I comply with this part?

    (a) General. Except as provided under paragraph (b) of this section, 
you must comply with this part when:
    (1) You effect a securities transaction for a customer.
    (2) You effect a transaction in government securities.
    (3) You effect a transaction in municipal securities and are not 
registered as a municipal securities dealer with the SEC.
    (4) You effect a securities transaction as fiduciary. You also must 
comply with 12 CFR part 150 when you effect such a transaction.
    (b) Exceptions--(1) Small number of transactions. You are not 
required to comply with Sec. 151.50(b) through (d) (recordkeeping) and 
Sec. 151.140(a) through (c) (policies and procedures), if you effected 
an average of fewer than 500 securities transactions per year for 
customers over the three prior calendar years. You may exclude 
transactions in government securities when you calculate this average.
    (2) Government securities. If you effect fewer than 500 government 
securities brokerage transactions per year, you are not required to 
comply with Sec. 151.50 (recordkeeping) for those transactions. This 
exception does not apply to government securities dealer transactions. 
See 17 CFR 404.4(a).
    (3) Municipal securities. If you are registered with the SEC as a 
``municipal securities dealer,'' as defined in 15 U.S.C. 78c(a)(30) (see 
15 U.S.C. 78o-4), you are not required to comply with this part when you 
conduct municipal securities transactions.
    (4) Foreign branches. You are not required to comply with this part 
when you conduct a transaction at your foreign branch.
    (5) Transactions by registered broker-dealers. You are not required 
to comply with this part for securities transactions effected by a 
registered broker-dealer, if the registered broker-dealer directly 
provides the customer with a confirmation. These transactions include a 
transaction effected by your employee who also acts as an employee of a 
registered broker-dealer (``dual employee'').



Sec. 151.30  What requirements apply to all transactions?

    You must effect all transactions, including transactions excepted 
under Sec. 151.20, in a safe and sound manner. You must maintain 
effective systems of records and controls regarding your customers' 
securities transactions. These systems must clearly and accurately 
reflect all appropriate information and provide an adequate basis for an 
audit.



Sec. 151.40  What definitions apply to this part?

    Asset-backed security means a security that is primarily serviced by 
the cash flows 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. Asset-backed security includes any

[[Page 604]]

rights or other assets designed to ensure the servicing or timely 
distribution of proceeds to the security holders.
    Common or collective investment fund means any fund established 
under 12 CFR 150.260(b) or 12 CFR 9.18.
    Completion of the transaction means:
    (1) If the customer purchases a security through or from you, except 
as provided in paragraph (2) of this definition, the time the customer 
pays you any part of the purchase price. If payment is made by a 
bookkeeping entry, the time you make the bookkeeping entry for any part 
of the purchase price.
    (2) If the customer purchases a security through or from you and 
pays for the security before you request payment or notify the customer 
that payment is due, the time you deliver the security to or into the 
account of the customer.
    (3) If the customer sells a security through or to you, except as 
provided in paragraph (4) of this definition, the time the customer 
delivers the security to you. If you have custody of the security at the 
time of sale, the time you transfer the security from the customer's 
account.
    (4) If the customer sells a security through or to you and delivers 
the security to you before you request delivery or notify the customer 
that delivery is due, the time you pay the customer or pay into the 
customer's account.
    Customer means a person or account, including an agency, trust, 
estate, guardianship, or other fiduciary account for which you effect a 
securities transaction. Customer does not include a broker or dealer, or 
you when you: act as a broker or dealer; act as a fiduciary with 
investment discretion over an account; are a trustee that acts as the 
shareholder of record for the purchase or sale of securities; or are the 
issuer of securities that are the subject of the transaction.
    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). Debt security also includes a fractional or 
participation interest in these debt securities. Debt security 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.
    Government security means:
    (1) A security that is a direct obligation of, or an obligation that 
is 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 if the 
Secretary of the Treasury has designated the security 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 
a corporation if a statute specifically designates, by name, the 
corporation's securities as exempt securities within the meaning of the 
laws administered by the SEC; or
    (4) Any put, call, straddle, option, or privilege on a government 
security described in this definition, 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.
    Investment discretion means the same as under 12 CFR 150.40(a).
    Investment company plan means any plan under which:
    (1) A customer purchases securities issued by an open-end investment 
company or unit investment trust registered under the Investment Company 
Act of 1940, making the payments directly to, or made payable to, the 
registered investment company, or the principal underwriter, custodian, 
trustee, or other designated agent of the registered investment company; 
or
    (2) A customer sells securities issued by an open-end investment 
company or unit investment trust registered under the Investment Company 
Act of 1940 under:
    (i) An individual retirement or individual pension plan qualified 
under the Internal Revenue Code; or

[[Page 605]]

    (ii) A contractual or systematic agreement under which the customer 
purchases at the applicable public offering price, or redeems at the 
applicable redemption price, securities in specified amounts (calculated 
in security units or dollars) at specified time intervals, and stating 
the commissions or charges (or the means of calculating them) that the 
customer will pay in connection with the purchase.
    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, the interest 
on which is excludable from gross income under section 103(a) of the 
Code (26 U.S.C. 103(a)).
    Periodic plan means a written document that authorizes you to act as 
agent to purchase or sell for a customer a specific security or 
securities (other than securities issued by an open end investment 
company or unit investment trust registered under the Investment Company 
Act of 1940). The written document must authorize you to purchase or 
sell in specific amounts (calculated in security units or dollars) or to 
the extent of dividends and funds available, at specific time intervals, 
and must set forth the commission or charges to be paid by the customer 
or the manner of calculating them.
    SEC means the Securities and Exchange Commission.
    Security 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.
    Security does not include currency; any note, draft, bill of 
exchange, or banker's acceptance which has a maturity at the time of 
issuance of less than 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 (master) note 
of a borrower of prime credit; U.S. Savings Bonds; or any other 
instrument the OCC determines does not constitute a security for 
purposes of this part.
    Sweep account means any prearranged, automatic transfer or sweep of 
funds above a certain dollar level from a deposit account to purchase a 
security or securities, or any prearranged, automatic redemption or sale 
of a security or securities when a deposit account drops below a certain 
level with the proceeds being transferred into a deposit account.



                  Subpart A_Recordkeeping Requirements



Sec. 151.50  What records must I maintain for securities transactions?

    If you effect securities transactions for customers, you must 
maintain all of the following records for at least three years:
    (a) Chronological records. You must maintain an itemized daily 
record of each purchase and sale of securities in chronological order, 
including:
    (1) The account or customer name for which you effected each 
transaction;
    (2) The name and amount of the securities;
    (3) The unit and aggregate purchase or sale price;
    (4) The trade date; and
    (5) The name or other designation of the registered broker-dealer or 
other

[[Page 606]]

person from whom you purchased the securities or to whom you sold the 
securities.
    (b) Account records. You must maintain account records for each 
customer reflecting:
    (1) Purchases and sales of securities;
    (2) Receipts and deliveries of securities;
    (3) Receipts and disbursements of cash; and
    (4) Other debits and credits pertaining to transactions in 
securities.
    (c) Memorandum (order ticket). You must make and keep current a 
memorandum (order ticket) of each order or any other instruction given 
or received for the purchase or sale of securities (whether executed or 
not), including:
    (1) The account or customer name for which you effected each 
transaction;
    (2) Whether the transaction was a market order, limit order, or 
subject to special instructions;
    (3) The time the trader received the order;
    (4) The time the trader placed the order with the registered broker-
dealer, or if there was no registered broker-dealer, the time the trader 
executed or cancelled the order;
    (5) The price at which the trader executed the order;
    (6) The name of the registered broker-dealer you used.
    (d) Record of registered broker-dealers. You must maintain a record 
of all registered broker-dealers that you selected to effect securities 
transactions and the amount of commissions that you paid or allocated to 
each registered broker-dealer during each calendar year.
    (e) Notices. You must maintain a copy of the written notice required 
under subpart B of this part.



Sec. 151.60  How must I maintain my records?

    (a) You may maintain the records required under Sec. 151.50 in any 
manner, form, or format that you deem appropriate. However, your records 
must clearly and accurately reflect the required information and provide 
an adequate basis for an audit of the information.
    (b) You, or the person that maintains and preserves records on your 
behalf, must:
    (1) Arrange and index the records in a way that permits easy 
location, access, and retrieval of a particular record;
    (2) Separately store, for the time required for preservation of the 
original record, a duplicate copy of the record on any medium allowed by 
this section;
    (3) Provide promptly any of the following that OCC examiners or your 
directors may request:
    (i) A legible, true, and complete copy of the record in the medium 
and format in which it is stored;
    (ii) A legible, true, and complete printout of the record; and
    (iii) Means to access, view, and print the records.
    (4) In the case of records on electronic storage media, you, or the 
person that maintains and preserves records for you, must establish 
procedures:
    (i) To maintain, preserve, and reasonably safeguard the records from 
loss, alteration, or destruction;
    (ii) To limit access to the records to properly authorized 
personnel, your directors, and OCC examiners; and
    (iii) To reasonably ensure that any reproduction of a non-electronic 
original record on electronic storage media is complete, true, and 
legible when retrieved.
    (c) You may contract with third party service providers to maintain 
the records.



                 Subpart B_Content and Timing of Notice



Sec. 151.70  What type of notice must I provide when I effect a securities 

transaction for a customer?

    If you effect a securities transaction for a customer, you must give 
or send the customer the registered broker-dealer confirmation described 
at Sec. 151.80, or the written notice described at Sec. 151.90. For 
certain types of transactions, you may elect to provide the alternate 
notices described in Sec. 151.100.

[[Page 607]]



Sec. 151.80  How do I provide a registered broker-dealer confirmation?

    (a) If you elect to satisfy Sec. 151.70 by providing the customer 
with a registered broker-dealer confirmation, you must provide the 
confirmation by having the registered broker-dealer send the 
confirmation directly to the customer or by sending a copy of the 
registered broker-dealer's confirmation to the customer within one 
business day after you receive it.
    (b) If you have received or will receive remuneration from any 
source, including the customer, in connection with the transaction, you 
must provide a statement of the source and amount of the remuneration in 
addition to the registered broker-dealer confirmation described in 
paragraph (a) of this section.



Sec. 151.90  How do I provide a written notice?

    If you elect to satisfy Sec. 151.70 by providing the customer a 
written notice, you must give or send the written notice at or before 
the completion of the securities transaction. You must include all of 
the following information in a written notice:
    (a) Your name and the customer's name.
    (b) The capacity in which you acted (for example, as agent).
    (c) The date and time of execution of the securities transaction (or 
a statement that you will furnish this information within a reasonable 
time after the customer's written request), and the identity, price, and 
number of shares or units (or principal amount in the case of debt 
securities) of the security the customer purchased or sold.
    (d) The name of the person from whom you purchased or to whom you 
sold the security, or a statement that you will furnish this information 
within a reasonable time after the customer's written request.
    (e) The amount of any remuneration that you have received or will 
receive from the customer in connection with the transaction unless the 
remuneration paid by the customer is determined under a written 
agreement, other than on a transaction basis.
    (f) The source and amount of any other remuneration you have 
received or will receive in connection with the transaction. If, in the 
case of a purchase, you were not participating in a distribution, or in 
the case of a sale, were not participating in a tender offer, the 
written notice may state whether you have or will receive any other 
remuneration and state that you will furnish the source and amount of 
the other remuneration within a reasonable time after the customer's 
written request.
    (g) That you are not a member of the Securities Investor Protection 
Corporation, if that is the case. This does not apply to a transaction 
in shares of a registered open-end investment company or unit investment 
trust if the customer sends funds or securities directly to, or receives 
funds or securities directly from, the registered open-end investment 
company or unit investment trust, its transfer agent, its custodian, or 
a designated broker or dealer who sends the customer either a 
confirmation or the written notice in this section.
    (h) Additional disclosures. You must provide all of the additional 
disclosures described in the following chart for transactions involving 
certain debt securities:

------------------------------------------------------------------------
                                          You must provide the following
If you effect a transaction involving .   additional information in your
                  . .                          written notice . . .
------------------------------------------------------------------------
(1) A debt security subject to           A statement that the issuer may
 redemption before maturity.              redeem the debt security in
                                          whole or in part before
                                          maturity, that the redemption
                                          could affect the represented
                                          yield, and that additional
                                          redemption information is
                                          available upon request.
(2) A debt security that you effected    (i) The dollar price at which
 exclusively on the basis of a dollar     you effected the transaction;
 price.                                   and
                                         (ii) The yield to maturity
                                          calculated from the dollar
                                          price. You do not have to
                                          disclose the yield to maturity
                                          if:
                                         (A) The issuer may extend the
                                          maturity date of the security
                                          with a variable interest rate;
                                          or
                                         (B) The security is an asset-
                                          backed security that
                                          represents an interest in, or
                                          is secured by, a pool of
                                          receivables or other financial
                                          assets that are subject
                                          continuously to prepayment.

[[Page 608]]

 
(3) A debt security that you effected    (i) The yield at which the
 on basis of yield.                       transaction, including the
                                          percentage amount and its
                                          characterization (e.g.,
                                          current yield, yield to
                                          maturity, or yield to call).
                                          If you effected the
                                          transaction at yield to call,
                                          you must indicate the type of
                                          call, the call date, and the
                                          call price;
                                         (ii) The dollar price
                                          calculated from that yield;
                                          and
                                         (iii) The yield to maturity and
                                          the represented yield, if you
                                          effected the transaction on a
                                          basis other than yield to
                                          maturity and the yield to
                                          maturity is lower than the
                                          represented yield. You are not
                                          required to disclose this
                                          information if:
                                         (A) The issuer may extend the
                                          maturity date of the security
                                          with a variable interest rate;
                                          or
                                         (B) The security is an asset-
                                          backed security that
                                          represents an interest in, or
                                          is secured by, a pool of
                                          receivables or other financial
                                          assets that are subject
                                          continuously to prepayment.
(4) A debt security that is an asset-    (i) A statement that the actual
 backed security that represents an       yield of the asset-backed
 interest in, or is secured by, a pool    security may vary according to
 of receivables or other financial        the rate at which the
 assets that are subject continuously     underlying receivables or
 to prepayment.                           other financial assets are
                                          prepaid; and
                                         (ii) A statement that you will
                                          furnish information concerning
                                          the factors that affect yield
                                          (including at a minimum
                                          estimated yield, weighted
                                          average life, and the
                                          prepayment assumptions
                                          underlying yield) upon the
                                          customer's written request.
(5) A debt security, other than a        A statement that the security
 government security.                     is unrated by a nationally
                                          recognized statistical rating
                                          organization, if that is the
                                          case.
------------------------------------------------------------------------



Sec. 151.100  What are the alternate notice requirements?

    You may elect to satisfy Sec. 151.70 by providing the alternate 
notices described in the following chart for certain types of 
transactions.

------------------------------------------------------------------------
 If you effect a securities transaction
                 . . .                     Then you may elect to . . .
------------------------------------------------------------------------
(a) For or with the account of a         Give or send to the customer
 customer under a periodic plan, sweep    within five business days
 account, or investment company plan.     after the end of each
                                          quarterly period a written
                                          statement disclosing: (1) Each
                                          purchase and redemption that
                                          you effected for or with, and
                                          each dividend or distribution
                                          that you credited to or
                                          reinvested for, the customer's
                                          account during the period;
                                         (2) The date of each
                                          transaction;
                                         (3) The identity, number, and
                                          price of any securities that
                                          the customer purchased or
                                          redeemed in each transaction;
                                         (4) The total number of shares
                                          of the securities in the
                                          customer's account;
                                         (5) Any remuneration that you
                                          received or will receive in
                                          connection with the
                                          transaction; and
                                         (6) That you will give or send
                                          the registered broker-dealer
                                          confirmation described in Sec.
                                            151.80 or the written notice
                                          described in Sec.  151.90
                                          within a reasonable time after
                                          the customer's written
                                          request.
(b) For or with the account of a         Give or send to the customer
 customer in shares of an open-ended      the written statement
 management company registered under      described at paragraph (a) of
 the Investment Company Act of 1940       this section on a monthly
 that holds itself out as a money         basis. You may not use the
 market fund and attempts to maintain a   alternate notice, however, if
 stable net asset value per share.        you deduct sales loads upon
                                          the purchase or redemption of
                                          shares in the money market
                                          fund.
(c) For an account for which you do not  Give or send to the customer a
 exercise investment discretion, and      written notice at the agreed-
 for which you and the customer have      upon time and with the agreed-
 agreed in writing to an arrangement      upon content, and include a
 concerning the time and content of the   statement that you will
 written notice.                          furnish the registered broker-
                                          dealer confirmation described
                                          in Sec.  151.80 or the
                                          written notice described in
                                          Sec.  151.90 within a
                                          reasonable time after the
                                          customer's written request.
(d) For an account for which you         Give or send the registered
 exercise investment discretion other     broker-dealer confirmation
 than in an agency capacity, excluding    described in Sec.  151.80 or
 common or collective investment funds.   the written notice described
                                          in Sec.  151.90 within a
                                          reasonable time after a
                                          written request by the person
                                          with the power to terminate
                                          the account or, if there is no
                                          such person, any person
                                          holding a vested beneficial
                                          interest in the account.

[[Page 609]]

 
(e) For an account in which you          Give or send each customer a
 exercise investment discretion in an     written itemized statement
 agency capacity.                         specifying the funds and
                                          securities in your custody or
                                          possession and all debits,
                                          credits, and transactions in
                                          the customer's account. You
                                          must provide this information
                                          to the customer not less than
                                          once every three months. You
                                          must give or send the
                                          registered broker-dealer
                                          confirmation described in Sec.
                                            151.80 or the written notice
                                          described in Sec.  151.90
                                          within a reasonable time after
                                          a customer's written request.
(f) For a common or collective           (1) Give or send to a customer
 investment fund.                         who invests in the fund a copy
                                          of the annual financial report
                                          of the fund, or
                                         (2) Notify the customer that a
                                          copy of the report is
                                          available and that you will
                                          furnish the report within a
                                          reasonable time after a
                                          written request by a person to
                                          whom a regular periodic
                                          accounting would ordinarily be
                                          rendered with respect to each
                                          participating account.
------------------------------------------------------------------------



Sec. 151.110  May I provide a notice electronically?

    You may provide any written notice required under this subpart B 
electronically. If a customer has a facsimile machine, you may send the 
notice by facsimile transmission. You may use other electronic 
communications if:
    (a) The parties agree to use electronic instead of hard copy 
notices;
    (b) The parties are able to print or download the notice;
    (c) Your electronic communications system cannot automatically 
delete the electronic notice; and
    (d) Both parties are able to receive electronic messages.



Sec. 151.120  May I charge a fee for a notice?

    You may not charge a fee for providing a notice required under this 
subpart B, except that you may charge a reasonable fee for the notices 
provided under Sec. Sec. 151.100(a), (d), and (e).



             Subpart C_Settlement of Securities Transactions



Sec. 151.130  When must I settle a securities transaction?

    (a) You may not effect or enter into a contract for the purchase or 
sale of a security that provides for payment of funds and delivery of 
securities later than the latest of:
    (1) The third business day after the date of the contract. This 
deadline is no later than the fourth business day after the contract for 
contracts involving the sale for cash of securities that are priced 
after 4:30 p.m. Eastern Standard Time on the date the securities are 
priced and are sold by an issuer to an underwriter under a firm 
commitment underwritten offering registered under the Securities Act of 
1933, 15 U.S.C. 77a, et seq., or are sold by you to an initial purchaser 
participating in the offering;
    (2) Such other time as the SEC specifies by rule (see SEC Rule 15c6-
1, 17 CFR 240.15c6-1); or
    (3) Such time as the parties expressly agree at the time of the 
transaction. 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 under a firm commitment offering, if the managing 
underwriter and the issuer have agreed to the date for all securities 
sold under 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.
    (b) The deadlines in paragraph (a) of this section do not apply to 
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.

[[Page 610]]



          Subpart D_Securities Trading Policies and Procedures



Sec. 151.140  What policies and procedures must I maintain and follow for 

securities transactions?

    If you effect securities transactions for customers, you must 
maintain and follow policies and procedures that meet all of the 
following requirements:
    (a) Your policies and procedures must assign responsibility for the 
supervision of all officers or employees who:
    (1) Transmit orders to, or place orders with, registered broker-
dealers;
    (2) Execute transactions in securities for customers; or
    (3) Process orders for notice or settlement purposes, or perform 
other back office functions for securities transactions that you effect 
for customers. Policies and procedures for personnel described in this 
paragraph (a)(3) must provide supervision and reporting lines that are 
separate from supervision and reporting lines for personnel described in 
paragraphs (a)(1) and (2) of this section.
    (b) Your policies and procedures must provide for the fair and 
equitable allocation of securities and prices to accounts when you 
receive orders for the same security at approximately the same time and 
you place the orders for execution either individually or in 
combination.
    (c) Your policies and procedures must provide for securities 
transactions in which you act as agent for the buyer and seller 
(crossing of buy and sell orders) on a fair and equitable basis to the 
parties to the transaction, where permissible under applicable law.
    (d) Your policies and procedures must require your officers and 
employees to file the personal securities trading reports described at 
Sec. 151.150, if the officer or employee:
    (1) Makes investment recommendations or decisions for the accounts 
of customers;
    (2) Participates in the determination of these recommendations or 
decisions; or
    (3) In connection with their duties, obtains information concerning 
which securities you intend to purchase, sell, or recommend for purchase 
or sale.



Sec. 151.150  How do my officers and employees file reports of personal 

securities trading transactions?

    An officer or employee described in Sec. 151.140(d) must report all 
personal transactions in securities made by or on behalf of the officer 
or employee if he or she has a beneficial interest in the security.
    (a) Contents and filing of report. The officer or employee must file 
the report with you no later than 30 calendar days after the end of each 
calendar quarter. The report must include the following information:
    (1) The date of each transaction, the title and number of shares, 
the interest rate and maturity date (if applicable), and the principal 
amount of each security involved.
    (2) The nature of each transaction (i.e., purchase, sale, or other 
type of acquisition or disposition).
    (3) The price at which each transaction was effected.
    (4) The name of the broker, dealer, or other intermediary effecting 
the transaction.
    (5) The date the officer or employee submitted the report.
    (b) Report not required for certain transactions. Your officer or 
employee is not required to report a transaction if:
    (1) He or she has no direct or indirect influence or control over 
the account for which the transaction was effected or over the 
securities held in that account;
    (2) The transaction was in shares issued by an open-end investment 
company registered under the Investment Company Act of 1940;
    (3) The transaction was in direct obligations of the government of 
the United States;
    (4) The transaction was in bankers' acceptances, bank certificates 
of deposit, commercial paper or high quality short term debt 
instruments, including repurchase agreements; or
    (5) The officer or employee had an aggregate amount of purchases and 
sales of $10,000 or less during the calendar quarter.

[[Page 611]]

    (c) Alternate report. When you act as an investment adviser to an 
investment company registered under the Investment Company Act of 1940, 
an officer or employee that is an ``access person'' may fulfill his or 
her reporting requirements under this section by filing with you the 
``access person'' personal securities trading report required by SEC 
Rule 17j-1(d), 17 CFR 270.17j-1(d).



PART 152_FEDERAL STOCK ASSOCIATIONS_INCORPORATION, ORGANIZATION, AND 

CONVERSION--Table of Contents



Sec.
152.1 Procedure for organization of Federal stock association.
152.2 Procedures for organization of interim Federal stock association.
152.3 Charters for Federal stock associations.
152.4 Charter amendments.
152.5 Bylaws.
152.6 Shareholders.
152.7 Board of directors.
152.8 Officers.
152.9 Certificates for shares and their transfer.
152.10 Annual reports to stockholders.
152.11 Books and records.
152.12 [Reserved]
152.13 Combinations involving Federal stock associations.
152.14 Dissenter and appraisal rights.
152.15 Supervisory combinations.
152.16 Effect of subsequent charter or bylaw change.
152.17 Federal stock association created in connection with an 
          association in default or in danger of default.
152.18 Conversion from stock form depository institution to Federal 
          stock association.
152.19 Conversion to National banking association or state bank.

    Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 5412(b)(2)(B).

    Source: 76 FR 49013, Aug. 9, 2011, unless otherwise noted.



Sec. 152.1  Procedure for organization of Federal stock association.

    (a) Application for permission to organize. Applications for 
permission to organize a Federal stock association are subject to this 
section and to Sec. 143.3 of this chapter. Recommendations by employees 
of the OCC regarding applications for permission to organize are 
privileged, confidential, and subject to Part 4, subpart C of this 
chapter. The processing of an application under this section shall be 
subject to the following procedures:
    (1) Publication. (i) The applicant shall publish a public notice of 
the application to organize in accordance with the procedures specified 
in subpart B of part 116 of this chapter.
    (ii) Promptly after publication of the public notice, the applicant 
shall transmit copies of the public notice and publisher's affidavit of 
publication to the appropriate OCC licensing office in the same manner 
as the original filing.
    (iii) Any person may inspect the application and all related 
communications at the offices specified in 12 CFR 4.14(c) during regular 
business hours, unless such information is exempt from public 
disclosure.
    (2) Notification to interested parties. The OCC shall give notice of 
the application to the state official who supervises savings 
associations in the state in which the new association is to be located.
    (3) Submission of comments. Commenters may submit comments on the 
application in accordance with the procedures specified in subpart C of 
part 116 of this chapter.
    (4) Meetings. The OCC may arrange a meeting in accordance with the 
procedures in subpart D of part 116 of this chapter.
    (b) Conditions of approval. The OCC will decide all applications for 
permission to organize a Federal stock association.
    (1) Factors that will be considered on all applications for 
permission to organize a Federal stock association are:
    (i) Whether the applicants are persons of good character and 
responsibility;
    (ii) Whether a necessity exists for such association in the 
community to be served;
    (iii) Whether there is a reasonable probability of the association's 
usefulness and success;
    (iv) Whether the association can be established without undue injury 
to properly conducted existing local thrift and home financing 
institutions; and
    (v) Whether the association will perform a role of providing credit 
for

[[Page 612]]

housing consistent with safe and sound operation of a Federal savings 
association.
    (2) [Reserved]
    (3) Approvals of applications will be conditioned on the following:
    (i) Receipt by the OCC of written confirmation from the Federal 
Deposit Insurance Corporation that the accounts of the association will 
be insured by the Federal Deposit Insurance Corporation;
    (ii) The sale of a minimum amount of fully-paid capital stock of the 
association prior to commencing business;
    (iii) The submission of a statement that:
    (A) The applicants have incurred no expense in organization which is 
chargeable to the association, and that no such expense will be 
incurred, and
    (B) No funds will be accepted for deposit by the association until 
organization has been completed;
    (iv) Compliance with all applicable laws, rules, and regulations; 
and
    (v) The satisfaction of any other requirement or condition the OCC 
may impose.
    (c) Issuance of charter. Upon approval of an application, the OCC 
shall issue to the association a charter for a Federal stock savings 
association or for a Federal stock savings bank, as requested by the 
applicants, which shall be in the form provided in this part. Issuance 
of the charter shall be subject to the condition subsequent that the 
organization of the association is completed pursuant to this section.
    (d) Interim board of directors and officers. Upon approval of the 
application and the issuance of the charter, the applicants shall 
constitute the interim board of directors of the association until the 
board of directors of the association are elected by its stockholders at 
the organizational meeting required by paragraph (g) of this section, 
and the interim officers of the association shall be those persons set 
forth in the application for permission to organize.
    (e) Sale of capital stock. Upon the issuance of the charter, the 
association shall proceed to offer and sell its capital stock pursuant 
to the requirements of part 197 of this chapter.
    (f) Bank membership and insurance of accounts. Promptly upon the 
issuance of the charter, a Federal stock association must qualify as a 
member of the appropriate Federal Home Loan Bank and meet all 
requirements necessary to obtain insurance of accounts by the Federal 
Deposit Insurance Corporation.
    (g) Organizational meeting. Promptly upon the completion of the sale 
of its capital stock, the association shall provide notice, pursuant to 
Sec. 152.6(b), of a meeting of its stockholders to elect a board of 
directors. Immediately following such election, the directors shall meet 
to elect the officers of the association and to undertake any other 
action necessary under the charter or bylaws to complete corporate 
organization.
    (h) Completion of organization. Organization of a Federal stock 
association shall be deemed complete for the purposes of this part when:
    (1) The association has obtained Federal Home Loan Bank membership 
and insurance of its accounts from the Federal Deposit Insurance 
Corporation;
    (2) It has completed the sale of and received full payment for its 
capital stock;
    (3) It has complied with all requirements of part 197 of this 
chapter;
    (4) It has held its organizational meeting for the election of 
directors and all directors have been elected;
    (5) Its officers have been elected and bonded; and
    (6) It has met the requirements and conditions imposed by the OCC in 
connection with approval of the application.
    (i) Failure of completion. If organization of a Federal stock 
association is not completed within six months after approval of the 
application, or unless extended for an additional period for good cause 
shown, the charter shall become null and void and all subscriptions to 
capital stock shall be returned.



Sec. 152.2  Procedures for organization of interim Federal stock association.

    (a) Applications for permission to organize an interim Federal 
savings association are not subject to subparts B, C and D of part 116 
of this chapter or Sec. 152.1(b)(3) of this part.

[[Page 613]]

    (b) Approval of an application for permission to organize an interim 
Federal stock association shall be conditioned upon approval by the OCC 
of an application to merge the interim Federal stock association, or 
upon approval by the OCC of another transaction which the interim was 
chartered to facilitate. Applications for permission to organize an 
interim Federal stock association shall be submitted in the same manner 
as the related filing(s). In evaluating the application, the OCC will 
consider the purpose for which the association will be organized, the 
form of any proposed transactions involving the association, the effect 
of the transactions on existing associations involved in the 
transactions, and the factors specified in Sec. 152.1(b)(1) to the 
extent relevant.
    (c) If a merger or other transaction facilitated by the existence of 
the interim Federal stock association has not been approved within six 
months of the approval of the application for permission to organize, 
unless extended for good cause shown, the charter shall be void and all 
subscriptions for capital stock shall be returned.



Sec. 152.3  Charters for Federal stock associations.

    The charter of a Federal stock association shall be in the following 
form, except that an association that has converted from the mutual form 
pursuant to part 192 of this chapter shall include in its charter a 
section establishing a liquidation account as required by Sec. 
192.3(c)(13) of this chapter. A charter for a Federal stock savings bank 
shall substitute the term ``savings bank'' for ``association.'' Charters 
may also include any preapproved optional provision contained in Sec. 
152.4 of this part.
    Federal Stock Charter
    Section 1. Corporate title. The full corporate title of the 
association is ----.
    Section 2. Office. The home office shall be located in ---- [city, 
state].
    Section 3. Duration. The duration of the association is perpetual.
    Section 4. Purpose and powers. The purpose of the association is to 
pursue any or all of the lawful objectives of a Federal savings 
association chartered under section 5 of the Home Owners' Loan Act and 
to exercise all of the express, implied, and incidental powers conferred 
thereby and by all acts amendatory thereof and supplemental thereto, 
subject to the Constitution and laws of the United States as they are 
now in effect, or as they may hereafter be amended, and subject to all 
lawful and applicable rules, regulations, and orders of the Office of 
the Comptroller of the Currency (``OCC'').
    Section 5. Capital stock. The total number of shares of all classes 
of the capital stock that the association has the authority to issue is 
----, all of which shall be common stock of par [or if no par is 
specified then shares shall have a stated] value of ---- per share. The 
shares may be issued from time to time as authorized by the board of 
directors without the approval of its shareholders, except as otherwise 
provided in this Section 5 or to the extent that such approval is 
required by governing law, rule, or regulation. The consideration for 
the issuance of the shares shall be paid in full before their issuance 
and shall not be less than the par [or stated] value. Neither promissory 
notes nor future services shall constitute payment or part payment for 
the issuance of shares of the association. The consideration for the 
shares shall be cash, tangible or intangible property (to the extent 
direct investment in such property would be permitted to the 
association), labor, or services actually performed for the association, 
or any combination of the foregoing. In the absence of actual fraud in 
the transaction, the value of such property, labor, or services, as 
determined by the board of directors of the association, shall be 
conclusive. Upon payment of such consideration, such shares shall be 
deemed to be fully paid and nonassessable. In the case of a stock 
dividend, that part of the retained earnings of the association that is 
transferred to common stock or paid-in capital accounts upon the 
issuance of shares as a stock dividend shall be deemed to be the 
consideration for their issuance.
    Except for shares issued in the initial organization of the 
association or in connection with the conversion of the association from 
the mutual to stock form of capitalization, no shares of

[[Page 614]]

capital stock (including shares issuable upon conversion, exchange, or 
exercise of other securities) shall be issued, directly or indirectly, 
to officers, directors, or controlling persons of the association other 
than as part of a general public offering or as qualifying shares to a 
director, unless the issuance or the plan under which they would be 
issued has been approved by a majority of the total votes eligible to be 
cast at a legal meeting.
    The holders of the common stock shall exclusively possess all voting 
power. Each holder of shares of common stock shall be entitled to one 
vote for each share held by such holder, except as to the cumulation of 
votes for the election of directors, unless the charter provides that 
there shall be no such cumulative voting. Subject to any provision for a 
liquidation account, in the event of any liquidation, dissolution, or 
winding up of the association, the holders of the common stock shall be 
entitled, after payment or provision for payment of all debts and 
liabilities of the association, to receive the remaining assets of the 
association available for distribution, in cash or in kind. Each share 
of common stock shall have the same relative rights as and be identical 
in all respects with all the other shares of common stock.
    Section 6. Preemptive rights. Holders of the capital stock of the 
association shall not be entitled to preemptive rights with respect to 
any shares of the association which may be issued.
    Section 7. Directors. The association shall be under the direction 
of a board of directors. The authorized number of directors, as stated 
in the association's bylaws, shall not be fewer than five nor more than 
fifteen except when a greater or lesser number is approved by the OCC.
    Section 8. Amendment of charter. Except as provided in Section 5, no 
amendment, addition, alteration, change or repeal of this charter shall 
be made, unless such is proposed by the board of directors of the 
association, approved by the shareholders by a majority of the votes 
eligible to be cast at a legal meeting, unless a higher vote is 
otherwise required, and approved or preapproved by the OCC.
 Attest:________________________________________________________________
Secretary of the Association
 By:____________________________________________________________________
President or Chief Executive Officer of the Association
 Attest:________________________________________________________________
Deputy Comptroller for Licensing
 By:____________________________________________________________________
Comptroller of the Currency
 Effective Date:________________________________________________________



Sec. 152.4  Charter amendments.

    (a) General. In order to adopt a charter amendment, a Federal stock 
association must comply with the following requirements:
    (1) Board of directors approval. The board of directors of the 
association must adopt a resolution proposing the charter amendment that 
states the text of such amendment.
    (2) Form of filing--(i) Application requirement. If the proposed 
charter amendment would render more difficult or discourage a merger, 
tender offer, or proxy contest, the assumption of control by a holder of 
a block of the association's stock, the removal of incumbent management, 
or involve a significant issue of law or policy, the association shall 
file the proposed amendment and shall obtain the prior approval of the 
OCC; and
    (ii) Notice requirement. If the proposed charter amendment does not 
involve a provision that would be covered by paragraph (a)(2)(i) of this 
section and such amendment is permissible under all applicable laws, 
rules or regulations, then the association shall submit the proposed 
amendments to the appropriate OCC licensing office, at least 30 days 
prior to the date the proposed charter amendment is to be mailed for 
consideration by the association's shareholders.
    (b) Approval. Any charter amendment filed pursuant to paragraph 
(a)(2)(ii) of this section shall automatically be approved 30 days from 
the date of filing of such amendment, provided that the association 
follows the requirements of its charter in adopting such amendment, 
unless prior to the expiration of such 30-day period the OCC notifies 
the association that such amendment is rejected or that such amendment 
is deemed to be filed under the provisions of paragraph (a)(2)(i) of 
this section. In addition, the following charter amendments, including 
the adoption of the

[[Page 615]]

Federal stock charter as set forth in Sec. 152.3 of this part, shall be 
approved at the time of adoption, if adopted without change and filed 
with the OCC within 30 days after adoption, provided the association 
follows the requirements of its charter in adopting such amendments:
    (1) Title change. A Federal stock association that has complied with 
Sec. 143.1(b) of this chapter may amend its charter by substituting a 
new corporate title in section 1.
    (2) Home office. A Federal savings association may amend its charter 
by substituting a new home office in section 2, if it has complied with 
applicable requirements of Sec. 145.95 of this chapter.
    (3) Number of shares of stock and par value. A Federal stock 
association may amend Section 5 of its charter to change the number of 
authorized shares of stock, the number of shares within each class of 
stock, and the par or stated value of such shares.
    (4) Capital stock. A Federal stock association may amend its charter 
by revising Section 5 to read as follows:
    Section 5. Capital stock. The total number of shares of all classes 
of capital stock that the association has the authority to issue is ----
, of which ---- shall be common stock of par [or if no par value is 
specified the stated] value of ---- per share and of which [list the 
number of each class of preferred and the par or if no par value is 
specified the stated value per share of each such class]. The shares may 
be issued from time to time as authorized by the board of directors 
without further approval of shareholders, except as otherwise provided 
in this Section 5 or to the extent that such approval is required by 
governing law, rule, or regulation. The consideration for the issuance 
of the shares shall be paid in full before their issuance and shall not 
be less than the par [or stated] value. Neither promissory notes nor 
future services shall constitute payment or part payment for the 
issuance of shares of the association. The consideration for the shares 
shall be cash, tangible or intangible property (to the extent direct 
investment in such property would be permitted), labor, or services 
actually performed for the association, or any combination of the 
foregoing. In the absence of actual fraud in the transaction, the value 
of such property, labor, or services, as determined by the board of 
directors of the association, shall be conclusive. Upon payment of such 
consideration, such shares shall be deemed to be fully paid and 
nonassessable. In the case of a stock dividend, that part of the 
retained earnings of the association that is transferred to common stock 
or paid-in capital accounts upon the issuance of shares as a stock 
dividend shall be deemed to be the consideration for their issuance.
    Except for shares issued in the initial organization of the 
association or in connection with the conversion of the association from 
the mutual to the stock form of capitalization, no shares of capital 
stock (including shares issuable upon conversion, exchange, or exercise 
of other securities) shall be issued, directly or indirectly, to 
officers, directors, or controlling persons of the association other 
than as part of a general public offering or as qualifying shares to a 
director, unless their issuance or the plan under which they would be 
issued has been approved by a majority of the total votes eligible to be 
cast at a legal meeting.
    Nothing contained in this Section 5 (or in any supplementary 
sections hereto) shall entitle the holders of any class of a series of 
capital stock to vote as a separate class or series or to more than one 
vote per share, except as to the cumulation of votes for the election of 
directors, unless the charter otherwise provides that there shall be no 
such cumulative voting: Provided, That this restriction on voting 
separately by class or series shall not apply:
    (i) To any provision which would authorize the holders of preferred 
stock, voting as a class or series, to elect some members of the board 
of directors, less than a majority thereof, in the event of default in 
the payment of dividends on any class or series of preferred stock;
    (ii) To any provision that would require the holders of preferred 
stock, voting as a class or series, to approve the merger or 
consolidation of the association with another corporation or

[[Page 616]]

the sale, lease, or conveyance (other than by mortgage or pledge) of 
properties or business in exchange for securities of a corporation other 
than the association if the preferred stock is exchanged for securities 
of such other corporation: Provided, That no provision may require such 
approval for transactions undertaken with the assistance or pursuant to 
the direction of the OCC or the Federal Deposit Insurance Corporation;
    (iii) To any amendment which would adversely change the specific 
terms of any class or series of capital stock as set forth in this 
Section 5 (or in any supplementary sections hereto), including any 
amendment which would create or enlarge any class or series ranking 
prior thereto in rights and preferences. An amendment which increases 
the number of authorized shares of any class or series of capital stock, 
or substitutes the surviving association in a merger or consolidation 
for the association, shall not be considered to be such an adverse 
change.
    A description of the different classes and series (if any) of the 
association's capital stock and a statement of the designations, and the 
relative rights, preferences, and limitations of the shares of each 
class of and series (if any) of capital stock are as follows:
    A. Common stock. Except as provided in this Section 5 (or in any 
supplementary sections thereto) the holders of the common stock shall 
exclusively possess all voting power. Each holder of shares of the 
common stock shall be entitled to one vote for each share held by each 
holder, except as to the cumulation of votes for the election of 
directors, unless the charter otherwise provides that there shall be no 
such cumulative voting.
    Whenever there shall have been paid, or declared and set aside for 
payment, to the holders of the outstanding shares of any class of stock 
having preference over the common stock as to the payment of dividends, 
the full amount of dividends and of sinking fund, retirement fund, or 
other retirement payments, if any, to which such holders are 
respectively entitled in preference to the common stock, then dividends 
may be paid on the common stock and on any class or series of stock 
entitled to participate therewith as to dividends out of any assets 
legally available for the payment of dividends.
    In the event of any liquidation, dissolution, or winding up of the 
association, the holders of the common stock (and the holders of any 
class or series of stock entitled to participate with the common stock 
in the distribution of assets) shall be entitled to receive, in cash or 
in kind, the assets of the association available for distribution 
remaining after: (i) Payment or provision for payment of the 
association's debts and liabilities; (ii) distributions or provision for 
distributions in settlement of its liquidation account; and (iii) 
distributions or provision for distributions to holders of any class or 
series of stock having preference over the common stock in the 
liquidation, dissolution, or winding up of the association. Each share 
of common stock shall have the same relative rights as and be identical 
in all respects with all the other shares of common stock.
    B. Preferred stock. The association may provide in supplementary 
sections to its charter for one or more classes of preferred stock, 
which shall be separately identified. The shares of any class may be 
divided into and issued in series, with each series separately 
designated so as to distinguish the shares thereof from the shares of 
all other series and classes. The terms of each series shall be set 
forth in a supplementary section to the charter. All shares of the same 
class shall be identical except as to the following relative rights and 
preferences, as to which there may be variations between different 
series:
    (a) The distinctive serial designation and the number of shares 
constituting such series;
    (b) The dividend rate or the amount of dividends to be paid on the 
shares of such series, whether dividends shall be cumulative and, if so, 
from which date(s), the payment date(s) for dividends, and the 
participating or other special rights, if any, with respect to 
dividends;
    (c) The voting powers, full or limited, if any, of shares of such 
series;
    (d) Whether the shares of such series shall be redeemable and, if 
so, the

[[Page 617]]

price(s) at which, and the terms and conditions on which, such shares 
may be redeemed;
    (e) The amount(s) payable upon the shares of such series in the 
event of voluntary or involuntary liquidation, dissolution, or winding 
up of the association;
    (f) Whether the shares of such series shall be entitled to the 
benefit of a sinking or retirement fund to be applied to the purchase or 
redemption of such shares, and if so entitled, the amount of such fund 
and the manner of its application, including the price(s) at which such 
shares may be redeemed or purchased through the application of such 
fund;
    (g) Whether the shares of such series shall be convertible into, or 
exchangeable for, shares of any other class or classes of stock of the 
association and, if so, the conversion price(s) or the rate(s) of 
exchange, and the adjustments thereof, if any, at which such conversion 
or exchange may be made, and any other terms and conditions of such 
conversion or exchange.
    (h) The price or other consideration for which the shares of such 
series shall be issued; and
    (i) Whether the shares of such series which are redeemed or 
converted shall have the status of authorized but unissued shares of 
serial preferred stock and whether such shares may be reissued as shares 
of the same or any other series of serial preferred stock.
    Each share of each series of serial preferred stock shall have the 
same relative rights as and be identical in all respects with all the 
other shares of the same series.
    The board of directors shall have authority to divide, by the 
adoption of supplementary charter sections, any authorized class of 
preferred stock into series, and, within the limitations set forth in 
this section and the remainder of this charter, fix and determine the 
relative rights and preferences of the shares of any series so 
established.
    Prior to the issuance of any preferred shares of a series 
established by a supplementary charter section adopted by the board of 
directors, the association shall file with the OCC a dated copy of that 
supplementary section of this charter established and designating the 
series and fixing and determining the relative rights and preferences 
thereof.
    (5) Limitations on subsequent issuances. A Federal stock association 
may amend its charter to require shareholder approval of the issuance or 
reservation of common stock or securities convertible into common stock 
under circumstances which would require shareholder approval under the 
rules of the New York or American Stock Exchange if the shares were then 
listed on the New York or American Stock Exchange.
    (6) Cumulative voting. A Federal stock association may amend its 
charter by substituting the following sentence for the second sentence 
in the third paragraph of Section 5: ``Each holder of shares of common 
stock shall be entitled to one vote for each share held by such holder 
and there shall be no right to cumulate votes in an election of 
directors.''
    (7) [Reserved]
    (8) Anti-takeover provisions following mutual to stock conversion. 
Notwithstanding the law of the state in which the association is 
located, a Federal stock association may amend its charter by 
renumbering existing sections as appropriate and adding a new section 8 
as follows:
    Section 8. Certain Provisions Applicable for Five Years. 
Notwithstanding anything contained in the Association's charter or 
bylaws to the contrary, for a period of [specify number of years up to 
five] years from the date of completion of the conversion of the 
Association from mutual to stock form, the following provisions shall 
apply:
    A. Beneficial Ownership Limitation. No person shall directly or 
indirectly offer to acquire or acquire the beneficial ownership of more 
than 10 percent of any class of an equity security of the association. 
This limitation shall not apply to a transaction in which the 
association forms a holding company without change in the respective 
beneficial ownership interests of its stockholders other than pursuant 
to the exercise of any dissenter and appraisal rights, the purchase of 
shares by underwriters in connection with a public offering, or the 
purchase of shares by a tax-qualified employee stock benefit plan which 
is exempt from the approval

[[Page 618]]

requirements under Sec. 174.3(c)(2)(i)(D) of the OCC's regulations.
    In the event shares are acquired in violation of this section 8, all 
shares beneficially owned by any person in excess of 10% shall be 
considered ``excess shares'' and shall not be counted as shares entitled 
to vote and shall not be voted by any person or counted as voting shares 
in connection with any matters submitted to the stockholders for a vote.
    For purposes of this section 8, the following definitions apply:
    (1) The term ``person'' includes an individual, a group acting in 
concert, a corporation, a partnership, an association, a joint stock 
company, a trust, an unincorporated organization or similar company, a 
syndicate or any other group formed for the purpose of acquiring, 
holding or disposing of the equity securities of the association.
    (2) The term ``offer'' includes every offer to buy or otherwise 
acquire, solicitation of an offer to sell, tender offer for, or request 
or invitation for tenders of, a security or interest in a security for 
value.
    (3) The term ``acquire'' includes every type of acquisition, whether 
effected by purchase, exchange, operation of law or otherwise.
    (4) The term ``acting in concert'' means (a) knowing participation 
in a joint activity or conscious parallel action towards a common goal 
whether or not pursuant to an express agreement, or (b) 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 arrangements, whether written or otherwise.
    B. Cumulative Voting Limitation. Stockholders shall not be permitted 
to cumulate their votes for election of directors.
    C. Call for Special Meetings. Special meetings of stockholders 
relating to changes in control of the association or amendments to its 
charter shall be called only upon direction of the board of directors.
    (c) Anti-takeover provisions. The OCC may grant approval to a 
charter amendment not listed in paragraph (b) of this section regarding 
the acquisition by any person or persons of its equity securities 
provided that the association shall file as part of its application for 
approval an opinion, acceptable to the OCC, of counsel independent from 
the association that the proposed charter provision would be permitted 
to be adopted by a corporation chartered by the state in which the 
principal office of the association is located. Any such provision must 
be consistent with applicable statutes, regulations, and OCC policies. 
Further, any such provision that would have the effect of rendering more 
difficult a change in control of the association and would require for 
any corporate action (other than the removal of directors) the 
affirmative vote of a larger percentage of shareholders than is required 
by this part, shall not be effective unless adopted by a percentage of 
shareholder vote at least equal to the highest percentage that would be 
required to take any action under such provision.
    (d) Reissuance of charter. A Federal stock association that has 
amended its charter may apply to have its charter, including the 
amendments, reissued by the OCC. Such requests for reissuance should be 
filed with the appropriate OCC licensing office, and contain signatures 
required under Sec. 152.3 of this part, together with such supporting 
documents as needed to demonstrate that the amendments were properly 
adopted.



Sec. 152.5  Bylaws.

    (a) General. At its first organizational meeting, the board of 
directors of a Federal stock association shall adopt a set of bylaws for 
the administration and regulation of its affairs. Bylaws may be adopted, 
amended or repealed by either a majority of the votes cast by the 
shareholders at a legal meeting or a majority of the board of directors. 
The bylaws shall contain sufficient provisions to govern the association 
in accordance with the requirements of Sec. Sec. 152.6, 152.7, 152.8, 
and 152.9 of this part and shall not contain any provision that is 
inconsistent with those sections or with applicable laws, rules, 
regulations or the association's charter, except that a bylaw provision 
inconsistent with Sec. Sec. 152.6, 152.7, and 152.9, of

[[Page 619]]

this part may be adopted with the approval of the OCC.
    (b) Form of Filing--(1) Application requirement. (i) Any bylaw 
amendment shall be submitted to the OCC for approval if it would:
    (A) Render more difficult or discourage a merger, tender offer, or 
proxy contest, the assumption of control by a holder of a large block of 
the association's stock, or the removal of incumbent management; or
    (B) Be inconsistent with Sec. Sec. 152.6, 152.7, 152.8, and 152.9 
of this part, with applicable laws, rules, regulations or the 
association's charter or involve a significant issue of law or policy, 
including indemnification, conflicts of interest, and limitations on 
director or officer liability.
    (ii) Applications submitted under paragraph (b)(1)(i) of this 
section are subject to standard treatment processing procedures at part 
116, subparts A and E of this chapter.
    (iii) Bylaw provisions that adopt the language of the OCC's model or 
optional bylaws, if adopted without change, and filed with the OCC 
within 30 days after adoption, are effective upon adoption.
    (2) Filing requirement. If the proposed bylaw amendment does not 
involve a provision that would be covered by paragraph (b)(1) or (b)(3) 
of this section and is permissible under all applicable laws, rules, or 
regulations, then the association shall submit the amendment to the OCC 
at least 30 days prior to the date the bylaw amendment is to be adopted 
by the association.
    (3) Corporate governance procedures. A Federal stock association may 
elect to follow the corporate governance procedures of: The laws of the 
state where the main office of the association is located; the laws of 
the state where the association's holding company, if any, is 
incorporated or chartered; Delaware General Corporation law; or The 
Model Business Corporation Act, provided that such procedures may be 
elected to the extent not inconsistent with applicable Federal statutes 
and regulations and safety and soundness, and such procedures are not of 
the type described in paragraph (b)(1) of this section. If this election 
is selected, a Federal stock association shall designate in its bylaws 
the provision or provisions from the body or bodies of law selected for 
its corporate governance procedures, and shall file a copy of such 
bylaws, which are effective upon adoption, within 30 days after 
adoption. The submission shall indicate, where not obvious, why the 
bylaw provisions meet the requirements stated in paragraph (b)(1) of 
this section.
    (c) Effectiveness. Any bylaw amendment filed pursuant to paragraph 
(b)(2) of this section shall automatically be effective 30 days from the 
date of filing of such amendment, provided that the association follows 
the requirements of its charter and bylaws in adopting such amendment, 
unless prior to the expiration of such 30-day period the OCC notifies 
the association that such amendment is rejected or that such amendment 
requires an application to be filed pursuant to paragraph (b)(1) of this 
section.
    (d) Effect of subsequent charter or bylaw change. Notwithstanding 
any subsequent change to its charter or bylaws, the authority of a 
Federal stock association to engage in any transaction shall be 
determined only by the association's charter or bylaws then in effect, 
unless otherwise provided by Federal law or regulation.



Sec. 152.6  Shareholders.

    (a) Shareholder meetings. A meeting of the shareholders of the 
association for the election of directors and for the transaction of any 
other business of the association shall be held annually within 150 days 
after the end of the association's fiscal year. Unless otherwise 
provided in the association's charter, special meetings of the 
shareholders may be called by the board of directors or on the request 
of the holders of 10 percent or more of the shares entitled to vote at 
the meeting, or by such other persons as may be specified in the bylaws 
of the association. All annual and special meetings of shareholders 
shall be held at such place as the board of directors may determine in 
the state in which the association has its principal place of business, 
or at any other convenient place the board of directors may designate.
    (b) Notice of shareholder meetings. Written notice stating the 
place, day,

[[Page 620]]

and hour of the meeting and the purpose or purposes for which the 
meeting is called shall be delivered not fewer than 20 nor more than 50 
days before the date of the meeting, either personally or by mail, by or 
at the direction of the chairman of the board, the president, the 
secretary, or the directors, or other persons calling the meeting, to 
each shareholder of record entitled to vote at such meeting. If mailed, 
such notice shall be deemed to be delivered when deposited in the mail, 
addressed to the shareholder at the address appearing on the stock 
transfer books or records of the association as of the record date 
prescribed in paragraph (c) of this section, with postage thereon 
prepaid. When any shareholders' meeting, either annual or special, is 
adjourned for 30 days or more, notice of the adjourned meeting shall be 
given as in the case of an original meeting. Notwithstanding anything in 
this section, however, a Federal stock association that is wholly owned 
shall not be subject to the shareholder notice requirement.
    (c) Fixing of record date. For the purpose of determining 
shareholders entitled to notice of or to vote at any meeting of 
shareholders or any adjournment thereof, or shareholders entitled to 
receive payment of any dividend, or in order to make a determination of 
shareholders for any other proper purpose, the board of directors shall 
fix in advance a date as the record date for any such determination of 
shareholders. Such date in any case shall be not more than 60 days and, 
in case of a meeting of shareholders, not less than 10 days prior to the 
date on which the particular action, requiring such determination of 
shareholders, is to be taken. When a determination of shareholders 
entitled to vote at any meeting of shareholders has been made as 
provided in this section, such determination shall apply to any 
adjournment thereof.
    (d) Voting lists. (1) At least 20 days before each meeting of the 
shareholders, the officer or agent having charge of the stock transfer 
books for the shares of the association shall make a complete list of 
the stockholders of record entitled to vote at such meeting, or any 
adjournments thereof, arranged in alphabetical order, with the address 
and the number of shares held by each. This list of shareholders shall 
be kept on file at the home office of the association and shall be 
subject to inspection by any shareholder of record or the stockholder's 
agent during the entire time of the meeting. The original stock transfer 
book shall constitute prima facie evidence of the stockholders entitled 
to examine such list or transfer books or to vote at any meeting of 
stockholders. Notwithstanding anything in this section, however, a 
Federal stock association that is wholly owned shall not be subject to 
the voting list requirements.
    (2) In lieu of making the shareholders list available for inspection 
by any shareholders as provided in paragraph (d)(1) of this section, the 
board of directors may perform such acts as required by paragraphs (a) 
and (b) of Rule 14a-7 of the General Rules and Regulations under the 
Securities and Exchange Act of 1934 (17 CFR 240.14a-7) as may be duly 
requested in writing, with respect to any matter which may be properly 
considered at a meeting of shareholders, by any shareholder who is 
entitled to vote on such matter and who shall defray the reasonable 
expenses to be incurred by the association in performance of the act or 
acts required.
    (e) Shareholder quorum. A majority of the outstanding shares of the 
association entitled to vote, represented in person or by proxy, shall 
constitute a quorum at a meeting of shareholders. The shareholders 
present at a duly organized meeting may continue to transact business 
until adjournment, notwithstanding the withdrawal of enough shareholders 
to leave less than a quorum. If a quorum is present, the affirmative 
vote of the majority of the shares represented at the meeting and 
entitled to vote on the subject matter shall be the act of the 
stockholders, unless the vote of a greater number of stockholders voting 
together or voting by classes is required by law or the charter. 
Directors, however, are elected by a plurality of the votes cast at an 
election of directors.

[[Page 621]]

    (f) Shareholder voting--(1) Proxies. Unless otherwise provided in 
the association's charter, at all meetings of shareholders, a 
shareholder may vote in person or by proxy executed in writing by the 
shareholder or by a duly authorized attorney in fact. Proxies may be 
given telephonically or electronically as long as the holder uses a 
procedure for verifying the identity of the shareholder. A proxy may 
designate as holder a corporation, partnership or company as defined in 
part 174 of this chapter, or other person. Proxies solicited on behalf 
of the management shall be voted as directed by the shareholder or, in 
the absence of such direction, as determined by a majority of the board 
of directors. No proxy shall be valid more than eleven months from the 
date of its execution except for a proxy coupled with an interest.
    (2) Shares controlled by association. Neither treasury shares of its 
own stock held by the association nor shares held by another 
corporation, if a majority of the shares entitled to vote for the 
election of directors of such other corporation are held by the 
association, shall be voted at any meeting or counted in determining the 
total number of outstanding shares at any given time for purposes of any 
meeting.
    (g) Nominations and new business submitted by shareholders. 
Nominations for directors and new business submitted by shareholders 
shall be voted upon at the annual meeting if such nominations or new 
business are submitted in writing and delivered to the secretary of the 
association at least five days prior to the date of the annual meeting. 
Ballots bearing the names of all the persons nominated shall be provided 
for use at the annual meeting.
    (h) Informal action by stockholders. If the bylaws of the 
association so provide, any action required to be taken at a meeting of 
the stockholders, or any other action that may be taken at a meeting of 
the stockholders, may be taken without a meeting if consent in writing 
has been given by all the stockholders entitled to vote with respect to 
the subject matter.



Sec. 152.7  Board of directors.

    (a) General powers and duties. The business and affairs of the 
association shall be under the direction of its board of directors. The 
board of directors shall annually elect a chairman of the board from 
among its members and shall designate the chairman of the board, when 
present, to preside at its meeting. Directors need not be stockholders 
unless the bylaws so require.
    (b) Number and term. The bylaws shall set forth a specific number of 
directors, not a range. The number of directors shall be not fewer than 
five nor more than fifteen, unless a higher or lower number has been 
authorized by the OTS, prior to July 21, 2011 or the OCC. Directors 
shall be elected for a term of one to three years and until their 
successors are elected and qualified. If a staggered board is chosen, 
the directors shall be divided into two or three classes as nearly equal 
in number as possible and one class shall be elected by ballot annually. 
In the case of a converting or newly chartered association where all 
directors shall be elected at the first election of directors, if a 
staggered board is chosen, the terms shall be staggered in length from 
one to three years.
    (c) Regular meetings. A regular meeting of the board of directors 
shall be held immediately after, and at the same place as, the annual 
meeting of shareholders. The board of directors shall determine the 
place, frequency, time and procedure for notice of regular meetings.
    (d) Quorum. A majority of the number of directors shall constitute a 
quorum for the transaction of business at any meeting of the board of 
directors. The act of the majority of the directors present at a meeting 
at which a quorum is present shall be the act of the board of directors, 
unless a greater number is prescribed by regulation of the OCC.
    (e) Vacancies. Any vacancy occurring in the board of directors may 
be filled by the affirmative vote of a majority of the remaining 
directors although less than a quorum of the board of directors. A 
director elected to fill a vacancy shall be elected to serve only until 
the next election of directors by the shareholders. Any directorship to 
be filled by reason of an increase in the number of directors may be 
filled by election by the board of directors for a

[[Page 622]]

term of office continuing only until the next election of directors by 
the shareholders.
    (f) Removal or resignation of directors. (1) At a meeting of 
shareholders called expressly for that purpose, any director may be 
removed only for cause, as defined in Sec. 163.39 of this chapter, by a 
vote of the holders of a majority of the shares then entitled to vote at 
an election of directors. Associations may provide for procedures 
regarding resignations in the bylaws.
    (2) If less than the entire board is to be removed, no one of the 
directors may be removed if the votes cast against the removal would be 
sufficient to elect a director if then cumulatively voted at an election 
of the class of directors of which such director is a part.
    (3) Whenever the holders of the shares of any class are entitled to 
elect one or more directors by the provisions of the charter or 
supplemental sections thereto, the provisions of this section shall 
apply, in respect to the removal of a director or directors so elected, 
to the vote of the holders of the outstanding shares of that class and 
not to the vote of the outstanding shares as a whole.
    (g) Executive and other committees. The board of directors, by 
resolution adopted by a majority of the full board, may designate from 
among its members an executive committee and one or more other 
committees each of which, to the extent provided in the resolution or 
bylaws of the association, shall have and may exercise all of the 
authority of the board of directors, except no committee shall have the 
authority of the board of directors with reference to: the declaration 
of dividends; the amendment of the charter or bylaws of the association; 
recommending to the stockholders a plan of merger, consolidation, or 
conversion; the sale, lease, or other disposition of all, or 
substantially all, of the property and assets of the association 
otherwise than in the usual and regular course of its business; a 
voluntary dissolution of the association; a revocation of any of the 
foregoing; or the approval of a transaction in which any member of the 
executive committee, directly or indirectly, has any material beneficial 
interest. The designation of any committee and the delegation of 
authority thereto shall not operate to relieve the board of directors, 
or any director, of any responsibility imposed by law or regulation.
    (h) Notice of special meetings. Written notice of at least 24 hours 
regarding any special meeting of the board of directors or of any 
committee designated thereby shall be given to each director in 
accordance with the bylaws, although such notice may be waived by the 
director. The attendance of a director at a meeting shall constitute a 
waiver of notice of such meeting, except where a director attends a 
meeting for the express purpose of objecting to the transaction of any 
business because the meeting is not lawfully called or convened. Neither 
the business to be transacted at, nor the purpose of, any meeting need 
be specified in the notice or waiver of notice of such meeting. The 
bylaws may provide for telephonic participation at a meeting.
    (i) Action without a meeting. Any action required or permitted to be 
taken by the board of directors at a meeting may be taken without a 
meeting if a consent in writing, setting forth the actions so taken, 
shall be signed by all of the directors.
    (j) Presumption of assent. A director of the association who is 
present at a meeting of the board of directors at which action on any 
association matter is taken shall be presumed to have assented to the 
action taken unless his or her dissent or abstention shall be entered in 
the minutes of the meeting or unless a written dissent to such action 
shall be filed with the person acting as the secretary of the meeting 
before the adjournment thereof or shall be forwarded by registered mail 
to the secretary of the association within five days after the date on 
which a copy of the minutes of the meeting is received. Such right to 
dissent shall not apply to a director who voted in favor of such action.
    (k) Age limitation on directors. A Federal association may provide a 
bylaw on age limitation for directors. Bylaws on age limitations must 
comply with all Federal laws, rules and regulations.

[[Page 623]]



Sec. 152.8  Officers.

    (a) Positions. The officers of the association shall be a president, 
one or more vice presidents, a secretary, and a treasurer or 
comptroller, each of whom shall be elected by the board of directors. 
The board of directors may also designate the chairman of the board as 
an officer. The offices of the secretary and treasurer or comptroller 
may be held by the same person and the vice president may also be either 
the secretary or the treasurer or comptroller. The board of directors 
may designate one or more vice presidents as executive vice president or 
senior vice president. The board of directors may also elect or 
authorize the appointment of such other officers as the business of the 
association may require. The officers shall have such authority and 
perform such duties as the board of directors may from time to time 
authorize or determine. In the absence of action by the board of 
directors, the officers shall have such powers and duties as generally 
pertain to their respective offices.
    (b) Removal. Any officer may be removed by the board of directors 
whenever in its judgment the best interests of the association will be 
served thereby; but such removal, other than for cause, shall be without 
prejudice to the contractual rights, if any, of the person so removed. 
Employment contracts shall conform with Sec. 163.39 of this chapter.
    (c) Age limitation on officers. A Federal association may provide a 
bylaw on age limitation for officers. Bylaws on age limitations must 
comply with all Federal laws, rules, and regulations.



Sec. 152.9  Certificates for shares and their transfer.

    (a) Certificates for shares. Certificates representing shares of 
capital stock of the association shall be in such form as shall be 
determined by the board of directors and approved by the OCC. The 
certificates shall be signed by the chief executive officer or by any 
other officer of the association authorized by the board of directors, 
attested by the secretary or an assistant secretary, and sealed with the 
corporate seal or a facsimile thereof. The signatures of such officers 
upon a certificate may be facsimiles if the certificate is manually 
signed on behalf of a transfer agent or a registrar other than the 
association itself or one of its employees. Each certificate for shares 
of capital stock shall be consecutively numbered or otherwise 
identified. The name and address of the person to whom the shares are 
issued, with the number of shares and date of issue, shall be entered on 
the stock transfer books of the association. All certificates 
surrendered to the association for transfer shall be cancelled and no 
new certificate shall be issued until the former certificate for a like 
number of shares shall have been surrendered and cancelled, except that 
in the case of a lost or destroyed certificate a new certificate may be 
issued upon such terms and indemnity to the association as the board of 
directors may prescribe.
    (b) Transfer of shares. Transfer of shares of capital stock of the 
association shall be made only on its stock transfer books. Authority 
for such transfer shall be given only by the holder of record or by a 
legal representative, who shall furnish proper evidence of such 
authority, or by an attorney authorized by a duly executed power of 
attorney and filed with the association. The transfer shall be made only 
on surrender for cancellation of the certificate for the shares. The 
person in whose name shares of capital stock stand on the books of the 
association shall be deemed by the association to be the owner for all 
purposes.



Sec. 152.10  Annual reports to stockholders.

    A Federal stock association not wholly-owned by a holding company 
shall, within 130 days after the end of its fiscal year, mail to each of 
its stockholders entitled to vote at its annual meeting an annual report 
containing financial statements that satisfy the requirements of rule 
14a-3 under the Securities Exchange Act of 1934. (17 CFR 240.14a-3). 
Concurrently with such mailing a certification of such mailing signed by 
the chairman of the board, the president or a vice president of the 
association, together with copies of the report, shall be transmitted by 
the association to the OCC.

[[Page 624]]



Sec. 152.11  Books and records.

    (a) Each Federal stock association shall keep correct and complete 
books and records of account; shall keep minutes of the proceedings of 
its stockholders, board of directors, and committees of directors; and 
shall keep at its home office or at the office of its transfer agent or 
registrar, a record of its stockholders, giving the names and addresses 
of all stockholders, and the number, class and series, if any, of the 
shares held by each.
    (b)(1) Any stockholder or group of stockholders of a Federal stock 
association, holding of record the number of voting shares of such 
association specified below, upon making written demand stating a proper 
purpose, shall have the right to examine, in person or by agent or 
attorney, at any reasonable time or times, nonconfidential portions of 
its books and records of account, minutes and record of stockholders and 
to make extracts therefrom. Such right of examination is limited to a 
stockholder or group of stockholders holding of record:
    (i) Voting shares having a cost of not less than $100,000 or 
constituting not less than one percent of the total outstanding voting 
shares, provided in either case such stockholder or group of 
stockholders have held of record such voting shares for a period of at 
least six months before making such written demand, or
    (ii) Not less than five percent of the total outstanding voting 
shares.
    (2) No stockholder or group of stockholders of a Federal stock 
association shall have any other right under this section or common law 
to examine its books and records of account, minutes and record of 
stockholders, except as provided in its bylaws with respect to 
inspection of a list of stockholders.
    (c) The right to examination authorized by paragraph (b) of this 
section and the right to inspect the list of stockholders provided by a 
Federal stock association's bylaws may be denied to any stockholder or 
group of stockholders upon the refusal of any such stockholder or group 
of stockholders to furnish such association, its transfer agent or 
registrar an affidavit that such examination or inspection is not 
desired for any purpose which is in the interest of a business or object 
other than the business of the association, that such stockholder has 
not within the five years preceding the date of the affidavit sold or 
offered for sale, and does not now intend to sell or offer for sale, any 
list of stockholders of the association or of any other corporation, and 
that such stockholder has not within said five-year period aided or 
abetted any other person in procuring any list of stockholders for 
purposes of selling or offering for sale such list.
    (d) Notwithstanding any provision of this section or common law, no 
stockholder or group of stockholders shall have the right to obtain, 
inspect or copy any portion of any books or records of a Federal stock 
association containing:
    (1) A list of depositors in or borrowers from such association;
    (2) Their addresses;
    (3) Individual deposit or loan balances or records; or
    (4) Any data from which such information could be reasonably 
constructed.



Sec. 152.12  [Reserved]



Sec. 152.13  Combinations involving Federal stock associations.

    (a) Scope and authority. Federal stock associations may enter into 
combinations only in accordance with the provisions of this section, 
section 18(c) of the Federal Deposit Insurance Act, sections 5(d)(3)(A) 
and 10(s) of the Home Owners' Loan Act, and Sec. 163.22 of this part.
    (b) Definitions. The following definitions apply to Sec. Sec. 
152.13 and 152.14 of this part:
    (1) Combination. A merger or consolidation with another depository 
institution, or an acquisition of all or substantially all of the assets 
or assumption of all or substantially all of the liabilities of a 
depository institution by another depository institution. Combine means 
to be a constituent institution in a combination.
    (2) Consolidation. Fusion of two or more depository institutions 
into a newly-created depository institution.
    (3) Constituent institution. Resulting, disappearing, acquiring, or 
transferring

[[Page 625]]

depository institution in a combination.
    (4) Depository institution means any 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 in the 
United States and having its principal office located in the United 
States.
    (5) Disappearing institution. A depository institution whose 
corporate existence does not continue after a combination.
    (6) Merger. Uniting two or more depository institutions by the 
transfer of all property rights and franchises to the resulting 
depository institution, which retains its corporate identity.
    (7) Mutual savings association. Any savings association organized in 
a form not requiring non-withdrawable stock under Federal or state law.
    (8) Resulting institution. The depository institution whose 
corporate existence continues after a combination.
    (9) Savings association has the same meaning as defined in Sec. 
161.43 of this chapter.
    (10) State. Includes the District of Columbia, Commonwealth of 
Puerto Rico, and states, territories, and possessions of the United 
States.
    (11) Stock association. Any savings association organized in a form 
requiring non-withdrawable stock.
    (c) Forms of combination. A Federal stock association may combine 
with any depository institution, provided that:
    (1) The combination is in compliance with, and receives all 
approvals required under, any applicable statutes and regulations;
    (2) Any resulting Federal savings association meets the requirements 
for Federal Home Loan Bank membership and insurance of accounts;
    (3) Any resulting Federal savings association conforms within the 
time prescribed by the OCC to the requirements of sections 5(c) and 
10(m) of the Home Owners' Loan Act; and
    (4) If any constituent savings association is a mutual savings 
association, the resulting institution shall be mutually held, unless:
    (i) The transaction involves a supervisory merger;
    (ii) The transaction is approved under part 192 of this chapter;
    (iii) The transaction involves an interim Federal stock association 
or an interim state stock savings association; or
    (iv) The transaction involves a transfer in the context of a mutual 
holding company reorganization under section 10(o) of the Home Owners' 
Loan Act.
    (d) Combinations. Prior written notification to, notice to, or prior 
written approval of, the OCC pursuant to Sec. 163.22 of this chapter is 
required for every combination. In the case of applications and notices 
pursuant to Sec. 163.22 (a) or (c), the OCC shall apply the criteria 
set out in Sec. 163.22 of this chapter and shall impose any conditions 
it deems necessary or appropriate to ensure compliance with those 
criteria and the requirements of this chapter.
    (e) Approval of the board of directors. Before filing a notice or 
application for any combination involving a Federal stock association, 
the combination shall be approved:
    (1) By a two-thirds vote of the entire board of each constituent 
Federal savings association; and
    (2) As required by other applicable Federal or state law, for other 
constituent institutions.
    (f) Combination agreement. All terms, conditions, agreements or 
understandings, or other provisions with respect to a combination 
involving a Federal savings association shall be set forth fully in a 
written combination agreement. The combination agreement shall state:
    (1) That the combination shall not be effective unless and until:
    (i) The combination receives any necessary approval from the OCC 
pursuant to Sec. 163.22 (a) or (c);
    (ii) In the case of a transaction requiring a notification pursuant 
to Sec. 163.22(b), notification has been provided to the OCC; or
    (iii) In the case of a transaction requiring a notice pursuant to 
Sec. 163.22(c), the notice has been filed, and the appropriate period 
of time has passed or the OCC has advised the parties that it will not 
disapprove the transaction;

[[Page 626]]

    (2) Which constituent institution is to be the resulting 
institution;
    (3) The name of the resulting institution;
    (4) The location of the home office and any other offices of the 
resulting institution;
    (5) The terms and conditions of the combination and the method of 
effectuation;
    (6) Any charter amendments, or the new charter in the combination;
    (7) The basis upon which the savings accounts of the resulting 
institution shall be issued;
    (8) If a Federal association is the resulting institution, the 
number, names, residence addresses, and terms of directors;
    (9) The effect upon and assumption of any liquidation account of a 
disappearing institution by the resulting institution; and
    (10) Such other provisions, agreements, or understandings as relate 
to the combination.
    (g) [Reserved]
    (h) Approval by stockholders--(1) General rule. Except as otherwise 
provided in this section, an affirmative vote of two-thirds of the 
outstanding voting stock of any constituent Federal savings association 
shall be required for approval of the combination agreement. If any 
class of shares is entitled to vote as a class pursuant to Sec. 152.4 
of this part, an affirmative vote of a majority of the shares of each 
voting class and two-thirds of the total voting shares shall be 
required. The required vote shall be taken at a meeting of the savings 
association.
    (2) General exception. Stockholders of the resulting Federal stock 
association need not authorize a combination agreement if:
    (i) It does not involve an interim Federal savings association or an 
interim state savings association;
    (ii) The association's charter is not changed;
    (iii) Each share of stock outstanding immediately prior to the 
effective date of the combination is to be an identical outstanding 
share or a treasury share of the resulting Federal stock association 
after such effective date; and
    (iv) Either:
    (A) No shares of voting stock of the resulting Federal stock 
association and no securities convertible into such stock are to be 
issued or delivered under the plan of combination, or
    (B) The authorized unissued shares or the treasury shares of voting 
stock of the resulting Federal stock association to be issued or 
delivered under the plan of combination, plus those initially issuable 
upon conversion of any securities to be issued or delivered under such 
plan, do not exceed 15% of the total shares of voting stock of such 
association outstanding immediately prior to the effective date of the 
combination.
    (3) Exceptions for certain combinations involving an interim 
association. Stockholders of a Federal stock association need not 
authorize by a two-thirds affirmative vote combinations involving an 
interim Federal savings association or interim state savings association 
when the resulting Federal stock association is acquired pursuant to 
regulations of the Board of Governors of the Federal Reserve System. In 
those cases, an affirmative vote of 50 percent of the shares of the 
outstanding voting stock of the Federal stock association plus one 
affirmative vote shall be required. If any class of shares is entitled 
to vote as a class pursuant to Sec. 152.4 of this part, an affirmative 
vote of 50 percent of the shares of each voting class plus one 
affirmative vote shall be required. The required votes shall be taken at 
a meeting of the association.
    (i) Disclosure. The OCC may require, in connection with a 
combination under this section, such disclosure of information as the 
OCC deems necessary or desirable for the protection of investors in any 
of the constituent associations.
    (j) Articles of combination. (1) Following stockholder approval of 
any combination in which a Federal savings association is the resulting 
institution, articles of combination shall be executed in duplicate by 
each constituent institution, by its chief executive officer or 
executive vice president and by its secretary or an assistant secretary, 
and verified by one of the officers of each institution signing such 
articles, and shall set forth:
    (i) The plan of combination;

[[Page 627]]

    (ii) The number of shares outstanding in each depository 
institution; and
    (iii) The number of shares in each depository institution voted for 
and against such plan.
    (2) Both sets of articles of combination shall be filed with the 
OCC. If the OCC determines that such articles conform to the 
requirements of this section, the OCC shall endorse the articles and 
return one set to the resulting institution.
    (k) Effective date. No combination under this section shall be 
effective until receipt of any approvals required by the OCC. The 
effective date of a combination in which the resulting institution is a 
Federal stock association shall be the date of consummation of the 
transaction or such other later date specified on the endorsement of the 
articles of combination by the OCC. If a disappearing institution 
combining under this section is a Federal stock association, its charter 
shall be deemed to be cancelled as of the effective date of the 
combination and such charter must be surrendered to the OCC as soon as 
practicable after the effective date.
    (l) Mergers and consolidations: transfer of assets and liabilities 
to the resulting institution. Upon the effective date of a merger or 
consolidation under this section, if the resulting institution is a 
Federal savings association, all assets and property (real, personal and 
mixed, tangible and intangible, choses in action, rights, and credits) 
then owned by each constituent institution or which would inure to any 
of them, shall, immediately by operation of law and without any 
conveyance, transfer, or further action, become the property of the 
resulting Federal savings association. The resulting Federal savings 
association shall be deemed to be a continuation of the entity of each 
constituent institution, the rights and obligations of which shall 
succeed to such rights and obligations and the duties and liabilities 
connected therewith, subject to the Home Owners' Loan Act and other 
applicable statutes.



Sec. 152.14  Dissenter and appraisal rights.

    (a) Right to demand payment of fair or appraised value. Except as 
provided in paragraph (b) of this section, any stockholder of a stock 
association combining in accordance with Sec. 152.13 of this part shall 
have the right to demand payment of the fair or appraised value of his 
stock: Provided, That such stockholder has not voted in favor of the 
combination and complies with the provisions of paragraph (c) of this 
section.
    (b) Exceptions. No stockholder required to accept only qualified 
consideration for his or her stock shall have the right under this 
section to demand payment of the stock's fair or appraised value, if 
such stock was listed on a national securities exchange or quoted on the 
National Association of Securities Dealers' Automated Quotation System 
(``NASDAQ'') on the date of the meeting at which the combination was 
acted upon or stockholder action is not required for a combination made 
pursuant to Sec. 152.13(h)(2) of this part. ``Qualified consideration'' 
means cash, shares of stock of any association or corporation which at 
the effective date of the combination will be listed on a national 
securities exchange or quoted on NASDAQ, or any combination of such 
shares of stock and cash.
    (c) Procedure--(1) Notice. Each constituent Federal stock 
association shall notify all stockholders entitled to rights under this 
section, not less than twenty days prior to the meeting at which the 
combination agreement is to be submitted for stockholder approval, of 
the right to demand payment of appraised value of shares, and shall 
include in such notice a copy of this section. Such written notice shall 
be mailed to stockholders of record and may be part of management's 
proxy solicitation for such meeting.
    (2) Demand for appraisal and payment. Each stockholder electing to 
make a demand under this section shall deliver to the Federal stock 
association, before voting on the combination, a writing identifying 
himself or herself and stating his or her intention thereby to demand 
appraisal of and payment for his or her shares. Such demand must be in 
addition to and separate from any proxy or vote against the combination 
by the stockholder.

[[Page 628]]

    (3) Notification of effective date and written offer. (i) Within ten 
days after the effective date of the combination, the resulting 
association shall:
    (A) Give written notice by mail to stockholders of constituent 
Federal stock associations who have complied with the provisions of 
paragraph (c)(2) of this section and have not voted in favor of the 
combination, of the effective date of the combination;
    (B) Make a written offer to each stockholder to pay for dissenting 
shares at a specified price deemed by the resulting association to be 
the fair value thereof; and
    (C) Inform them that, within sixty days of such date, the respective 
requirements of paragraphs (c)(5) and (c)(6) of this section (set out in 
the notice) must be satisfied.
    (ii) The notice and offer shall be accompanied by a balance sheet 
and statement of income of the association the shares of which the 
dissenting stockholder holds, for a fiscal year ending not more than 
sixteen months before the date of notice and offer, together with the 
latest available interim financial statements.
    (4) Acceptance of offer. If within sixty days of the effective date 
of the combination the fair value is agreed upon between the resulting 
association and any stockholder who has complied with the provisions of 
paragraph (c)(2) of this section, payment therefore shall be made within 
ninety days of the effective date of the combination.
    (5) Petition to be filed if offer not accepted. If within sixty days 
of the effective date of the combination the resulting association and 
any stockholder who has complied with the provisions of paragraph (c)(2) 
of this section do not agree as to the fair value, then any such 
stockholder may file a petition with the OCC, with a copy by registered 
or certified mail to the resulting association, demanding a 
determination of the fair market value of the stock of all such 
stockholders. A stockholder entitled to file a petition under this 
section who fails to file such petition within sixty days of the 
effective date of the combination shall be deemed to have accepted the 
terms offered under the combination.
    (6) Stock certificates to be noted. Within sixty days of the 
effective date of the combination, each stockholder demanding appraisal 
and payment under this section shall submit to the transfer agent his 
certificates of stock for notation thereon that an appraisal and payment 
have been demanded with respect to such stock and that appraisal 
proceedings are pending. Any stockholder who fails to submit his or her 
stock certificates for such notation shall no longer be entitled to 
appraisal rights under this section and shall be deemed to have accepted 
the terms offered under the combination.
    (7) Withdrawal of demand. Notwithstanding the foregoing, at any time 
within sixty days after the effective date of the combination, any 
stockholder shall have the right to withdraw his or her demand for 
appraisal and to accept the terms offered upon the combination.
    (8) Valuation and payment. The Comptroller shall, as he or she may 
elect, either appoint one or more independent persons or direct 
appropriate staff of the OCC to appraise the shares to determine their 
fair market value, as of the effective date of the combination, 
exclusive of any element of value arising from the accomplishment or 
expectation of the combination. Appropriate staff of the OCC shall 
review and provide an opinion on appraisals prepared by independent 
persons as to the suitability of the appraisal methodology and the 
adequacy of the analysis and supportive data. The Comptroller after 
consideration of the appraisal report and the advice of the appropriate 
staff shall, if he or she concurs in the valuation of the shares, direct 
payment by the resulting association of the appraised fair market value 
of the shares, upon surrender of the certificates representing such 
stock. Payment shall be made, together with interest from the effective 
date of the combination, at a rate deemed equitable by the Comptroller.
    (9) Costs and expenses. The costs and expenses of any proceeding 
under this section may be apportioned and assessed by the Comptroller as 
he or she may deem equitable against all or

[[Page 629]]

some of the parties. In making this determination the Comptroller shall 
consider whether any party has acted arbitrarily, vexatiously, or not in 
good faith in respect to the rights provided by this section.
    (10) Voting and distribution. Any stockholder who has demanded 
appraisal rights as provided in paragraph (c)(2) of this section shall 
thereafter neither be entitled to vote such stock for any purpose nor be 
entitled to the payment of dividends or other distributions on the stock 
(except dividends or other distribution payable to, or a vote to be 
taken by stockholders of record at a date which is on or prior to, the 
effective date of the combination): Provided, That if any stockholder 
becomes unentitled to appraisal and payment of appraised value with 
respect to such stock and accepts or is deemed to have accepted the 
terms offered upon the combination, such stockholder shall thereupon be 
entitled to vote and receive the distributions described above.
    (11) Status. Shares of the resulting association into which shares 
of the stockholders demanding appraisal rights would have been converted 
or exchanged, had they assented to the combination, shall have the 
status of authorized and unissued shares of the resulting association.



Sec. 152.15  Supervisory combinations.

    Notwithstanding the foregoing provisions of this part, the 
Comptroller may waive or deem inapplicable any provision of Sec. 152.13 
or Sec. 152.14 of this part if he or she determines that grounds exist, 
or may imminently exist, for appointment of a conservator or receiver 
for an association under subsection 5(d) of the Home Owners' Loan Act.



Sec. 152.16  Effect of subsequent charter or bylaw change.

    Notwithstanding any subsequent change to its charter or bylaws, the 
authority of a Federal stock association to engage in any transaction 
shall be determined only by the association's charter or bylaws then in 
effect.



Sec. 152.17  Federal stock association created in connection with an 

association in default or in danger of default.

    Sections 152.1 and 152.2 of this part do not apply to a Federal 
stock association which is proposed by the Federal Deposit Insurance 
Corporation, or the Resolution Trust Corporation under section 5(p) of 
the Home Owner's Loan Act of 1933, section 11(c) of the Federal Deposit 
Insurance Act, or section 21A of the Federal Home Loan Bank Act, or is 
otherwise chartered by the OCC in connection with an association in 
default or in danger of default. Incorporation and organization of such 
associations are complete when and under such conditions as the OCC so 
determines.



Sec. 152.18  Conversion from stock form depository institution to Federal 

stock association.

    (a) With the approval of the OCC, any stock depository institution 
that is, or is eligible to become, a member of a Federal Home Loan Bank, 
may convert to a Federal stock association, provided that the depository 
institution, at the time of the conversion, has deposits insured by the 
Federal Deposit Insurance Corporation, and provided further, that the 
depository institution, in accomplishing the conversion, complies with 
all applicable statutes and regulations, including, without limitation, 
section 5(d) of the Federal Deposit Insurance Act. The resulting Federal 
stock association must conform within the time prescribed by the OCC to 
the requirements of section 5(c) of the Home Owners' Loan Act. For 
purposes of this section, the term ``depository institution'' shall have 
the meaning set forth at 12 CFR 152.13(b). An application for conversion 
filed under this section is subject to the procedures for organization 
of a Federal stock organization at Sec. 152.1.
    (b) Any and all of the assets and other property (whether real, 
personal, mixed, tangible or intangible, including choses in action, 
rights, and credits) of the former stock form depository institution 
become assets and property of the Federal stock association when the 
conversion occurs. Similarly, any and all of the obligations

[[Page 630]]

and debts of or claims against the former stock form depository 
institution become obligations and debts of and claims against the 
Federal stock association when the conversion occurs. In effect, the 
Federal stock association is the same as the former stock form 
depository institution with respect to any and all assets, property, 
claims and debts of or claims against the former stock form depository 
institution.



Sec. 152.19  Conversion to National banking association or state bank.

    A Federal stock association may convert to a national banking 
association or a state bank after filing a notification or application, 
as appropriate, with the appropriate OCC licensing office in accordance 
with the applicable provisions of Sec. 163.22(b) of this chapter.

                        PARTS 153-154 [RESERVED]



PART 155_ELECTRONIC OPERATIONS--Table of Contents



Sec.
155.100 What does this part do?
155.200 How may I use or participate with others to use electronic means 
          and facilities?
155.210 What precautions must I take?
155.300 Must I inform the OCC before I use electronic means or 
          facilities?
155.310 How do I notify the OCC?


    Authority: 12 U.S.C. 1462a, 1463, 1464, 5412(b)(2)(B).

    Source: 76 FR 49024, Aug. 9, 2011, unless otherwise noted.



Sec. 155.100  What does this part do?

    This part describes how a Federal savings association may provide 
products and services through electronic means and facilities.



Sec. 155.200  How may I use or participate with others to use electronic means 

and facilities?

    (a) General. A Federal savings association (``you'') may use, or 
participate with others to use, electronic means or facilities to 
perform any function, or provide any product or service, as part of an 
authorized activity. Electronic means or facilities include, but are not 
limited to, automated teller machines, automated loan machines, personal 
computers, the Internet, the World Wide Web, telephones, and other 
similar electronic devices.
    (b) Other. To optimize the use of your resources, you may market and 
sell, or participate with others to market and sell, electronic 
capacities and by-products to third-parties, if you acquired or 
developed these capacities and by-products in good faith as part of 
providing financial services.



Sec. 155.210  What precautions must I take?

    If you use electronic means and facilities under this subpart, your 
management must:
    (a) Identify, assess, and mitigate potential risks and establish 
prudent internal controls; and
    (b) Implement security measures designed to ensure secure 
operations. Such measures must be adequate to:
    (1) Prevent unauthorized access to your records and your customers' 
records;
    (2) Prevent financial fraud through the use of electronic means or 
facilities; and
    (3) Comply with applicable security devices requirements of part 168 
of this chapter.



Sec. 155.300  Must I inform the OCC before I use electronic means or 

facilities?

    (a) General. You are not required to inform the OCC before you use 
electronic means or facilities, except as provided in paragraphs (b) and 
(c) of this section. However, you are encouraged to consult with the OCC 
before you engage in any activities using electronic means or 
facilities.
    (b) Activities requiring advance notice. You must file a written 
notice as described in Sec. 155.310 before you establish a 
transactional web site. A transactional web site is an Internet site 
that enables users to conduct financial transactions such as accessing 
an account, obtaining an account balance, transferring funds, processing 
bill payments, opening an account, applying for or obtaining a loan, or 
purchasing other authorized products or services.

[[Page 631]]

    (c) Other procedures. If the OCC informs you of any supervisory or 
compliance concerns that may affect your use of electronic means or 
facilities, you must follow any procedures it imposes in writing.



Sec. 155.310  How do I notify the OCC?

    You must file a written notice with your OCC supervisory office at 
least 30 days before you establish a transactional Web site. The notice 
must do three things:
    (a) Describe the transactional web site.
    (b) Indicate the date the transactional web site will become 
operational.
    (c) List a contact familiar with the deployment, operation, and 
security of the transactional web site.

                           PART 156 [RESERVED]



PART 157_DEPOSITS--Table of Contents



Sec.
157.1 What does this part do?
157.10 What authorities govern the issuance of deposit accounts by a 
          Federal savings association?
157.11 To what extent does Federal law preempt state laws?
157.12 [Reserved]
157.13 [Reserved]
157.14 What interest rate may I pay on accounts?
157.15 Who owns a deposit account?
157.20 What records should I maintain on deposit activities?


    Authority: 12 U.S.C. 1462a, 1463, 1464, 5412(b)(2)(B).

    Source: 76 FR 49025, Aug. 9, 2011, unless otherwise noted.



Sec. 157.1  What does this part do?

    This part applies to the deposit activities of Federal savings 
associations.



Sec. 157.10  What authorities govern the issuance of deposit accounts by 

Federal savings associations?

    A Federal savings association (``you'') may raise funds through 
accounts and may issue evidence of accounts under section 5(b)(1) of the 
HOLA (12 U.S.C. 1464(b)(1)), your charter, and this part. Additionally, 
12 CFR parts 204 and 230 apply to your deposit activities.



Sec. 157.11  To what extent does Federal law preempt deposit-related state 

laws?

    State law applies to the deposit activities of Federal savings 
associations and their subsidiaries to the same extent and in the same 
manner that those laws apply to national banks and their subsidiaries.



Sec. 157.12  [Reserved]



Sec. 157.13  [Reserved]



Sec. 157.14  What interest rate may I pay on accounts?

    (a) You may pay interest at any rate or anticipated rate of return 
on accounts, either in deposit or in share form, as provided in your 
charter and the account's terms.
    (b) You may pay fixed or variable rates. If you pay a variable rate, 
you must base it on a schedule, index, or formula that you specify in 
the account's terms.



Sec. 157.15  Who owns a deposit account?

    You may treat the holder of record as the account owner, even if you 
receive contrary notice, until you transfer the account on your records.



Sec. 157.20  What records should I maintain on deposit activities?

    You should establish and maintain deposit documentation practices 
and records that demonstrate that you appropriately administer and 
monitor deposit-related activities. Your records should adequately 
evidence ownership, balances, and all transactions involving each 
account. You may maintain records on deposit activities in any format 
that is consistent with standard business practices.

                           PART 158 [RESERVED]



PART 159_SUBORDINATE ORGANIZATIONS--Table of Contents



Sec.
159.1 What does this part cover?
159.2 Definitions.

[[Page 632]]

159.3 What are the characteristics of, and what requirements apply to, 
          subordinate organizations of Federal savings associations?
159.4 What activities are preapproved for service corporations?
159.5 How much may a Federal savings association invest in service 
          corporations or lower-tier entities?
159.10 How must separate corporate identities be maintained?
159.11 What notices are required to establish or acquire a new 
          subsidiary or engage in new activities through an existing 
          subsidiary?
159.12 How may a subsidiary of a Federal savings association issue 
          securities?
159.13 How may a Federal savings association exercise its salvage power 
          in connection with its service corporation or lower-tier 
          entities?


    Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1828, 5412(b)(2)(B).

    Source: 76 FR 49025, Aug. 9, 2011, unless otherwise noted.



Sec. 159.1  What does this part cover?

    (a) The OCC is issuing this part 159 pursuant to its general 
rulemaking and supervisory authority under the Home Owners' Loan Act, 12 
U.S.C. 1462 et seq., and its specific authority under section 18(m) of 
the Federal Deposit Insurance Act, 12 U.S.C. 1828(m). This part 159 
applies to subordinate organizations of Federal savings associations. 
The OCC may, at any time, limit a Federal savings association's 
investment in any of these entities, or may limit or refuse to permit 
any activities of any of these entities for supervisory, legal, or 
safety and soundness reasons.
    (b) Notices under this part are applications for purposes of 
statutory and regulatory references to ``applications.'' Any conditions 
that the OCC imposes in approving any application are enforceable as a 
condition imposed in writing by the OCC in connection with the granting 
of a request by a Federal savings association within the meaning of 12 
U.S.C. 1818(b) or 1818(i).



Sec. 159.2  Definitions.

    For purposes of this part:
    Control has the same meaning as in part 174 of this chapter.
    GAAP-consolidated subsidiary means an entity in which a Federal 
savings association has a direct or indirect ownership interest and 
whose assets are consolidated with those of the savings association for 
purposes of reporting under Generally Accepted Accounting Principles 
(GAAP). Generally, these are entities in which the savings association 
has a majority ownership interest.
    Lower-tier entity includes any company in which an operating 
subsidiary or a service corporation has a direct or indirect ownership 
interest.
    Operating subsidiary means any entity that satisfies all of the 
requirements for an operating subsidiary set forth in Sec. 159.3 of 
this part and that is designated by the parent Federal savings 
association as an operating subsidiary pursuant to Sec. 159.3 of this 
part. More than 50% of the voting shares of an operating subsidiary must 
be owned, directly or indirectly, by a Federal savings association and 
no other person or entity may exercise effective operating control. An 
operating subsidiary may only engage in activities permissible for a 
Federal savings association.
    Ownership interest means any equity interest in a business 
organization, including stock, limited or general partnership interests, 
or shares in a limited liability company.
    Service corporation means any entity that satisfies all of the 
requirements for service corporations in 12 U.S.C. 1464(c)(4)(B) and 
Sec. 159.3 of this part and that is designated by the investing Federal 
savings association as a service corporation pursuant to Sec. 159.3 of 
this part. A service corporation must be organized under the laws of the 
state where the Federal savings association's home office is located, 
may only be owned by savings associations with home offices in that 
state, and may engage in the activities identified in Sec. Sec. 
159.3(e)(2) and 159.4 of this part.
    Subordinate organization means any corporation, partnership, 
business trust, association, joint venture, pool, syndicate, or other 
similar business organization in which a Federal savings association has 
a direct or indirect ownership interest, unless that ownership interest 
qualifies as a pass-through investment pursuant to Sec. 160.32 of this 
chapter and is so designated by the investing savings association.

[[Page 633]]

    Subsidiary means any subordinate organization directly or indirectly 
controlled by a Federal savings association.



Sec. 159.3  What are the characteristics of, and what requirements apply to, 

subordinate organizations of Federal savings associations?

    A Federal savings association (``you'') that meets the requirements 
of this section, as detailed in the following chart, may establish, or 
obtain an interest in an operating subsidiary or a service corporation. 
For ease of reference, this section cross-references other regulations 
in this chapter affecting operating subsidiaries and service 
corporations. You should refer to those regulations for the details of 
how they apply. The chart also discusses the regulations that may apply 
to lower-tier entities in which you have an indirect ownership interest 
through your operating subsidiary or service corporation. The chart 
follows:

------------------------------------------------------------------------
                              Operating subsidiary   Service corporation
------------------------------------------------------------------------
(a) How may a Federal         (1) You must file a   (2) You must file a
 savings association           notice, with the      notice, with the
 (``you'') establish an        appropriate OCC       appropriate OCC
 operating subsidiary or a     licensing office,     licensing office,
 service corporation?          satisfying Sec.      satisfying Sec.
                               159.11. Any finance   159.11. Depending
                               subsidiary that       upon your condition
                               existed on January    and the activities
                               1, 1997 is deemed     in which the
                               an operating          service corporation
                               subsidiary without    will engage, Sec.
                               further action on     159.3(e)(2) may
                               your part.            require you to file
                                                     an application.
(b) Who may be an owner?      (1) Anyone may have   (2) Only Federal or
                               an ownership          state chartered
                               interest in an        savings
                               operating             associations with
                               subsidiary.           home offices in the
                                                     state where you
                                                     have your home
                                                     office may have an
                                                     ownership interest
                                                     in any service
                                                     corporation in
                                                     which you invest.
(c) What ownership            (1) You must own,     (2) You are not
 requirements apply?           directly or           required to have
                               indirectly, more      any particular
                               than 50% of the       percentage
                               voting shares of      ownership interest
                               the operating         and need not have
                               subsidiary. No one    control of the
                               else may exercise     service
                               effective operating   corporation.
                               control.
(d) What geographic           (1) An operating      (2) A service
 restrictions apply?           subsidiary may be     corporation must be
                               organized in any      organized in the
                               geographic            state where your
                               location.             home office is
                                                     located.
(e) What activities are       (1) After you have    (2)(i) If you are
 permissible?                  notified the OCC in   eligible for
                               accordance with       expedited treatment
                               Sec.  159.11, an     under Sec.  116.5
                               operating             of this chapter,
                               subsidiary may        and notify the OCC
                               engage in any         as required by Sec.
                               activity that you       159.11, your
                               may conduct           service corporation
                               directly. You may     may engage in the
                               hold another          preapproved
                               insured depository    activities listed
                               institution as an     in Sec.  159.4.
                               operating             You may request OCC
                               subsidiary.           approval for your
                                                     service corporation
                                                     to engage in any
                                                     other activity
                                                     reasonably related
                                                     to the activities
                                                     of financial
                                                     institutions by
                                                     filing an
                                                     application in
                                                     accordance with
                                                     standard treatment
                                                     processing
                                                     procedures at part
                                                     116, subparts A and
                                                     E of this chapter.
                                                    (ii) If you are
                                                     subject to standard
                                                     treatment under
                                                     Sec.  116.5 of
                                                     this chapter, and
                                                     notify the OCC as
                                                     required by Sec.
                                                     159.11, your
                                                     service corporation
                                                     may engage in any
                                                     activity that you
                                                     may conduct
                                                     directly except
                                                     taking deposits.
                                                     You may request OCC
                                                     approval for your
                                                     service corporation
                                                     to engage in any
                                                     other activity
                                                     reasonably related
                                                     to the activities
                                                     of financial
                                                     institutions,
                                                     including the
                                                     activities set
                                                     forth in Sec.
                                                     159.4(b)-(j), by
                                                     filing an
                                                     application in
                                                     accordance with
                                                     standard treatment
                                                     processing
                                                     procedures at part
                                                     116, subparts A and
                                                     E of this chapter.

[[Page 634]]

 
(f) May the operating         (1)(i) An operating   (2) A service
 subsidiary or service         subsidiary may        corporation may
 corporation invest in lower-  itself hold an        invest in all types
 tier entities?                operating             of lower-tier
                               subsidiary. Part      entities as long as
                               159 applies equally   the lower-tier
                               to a lower-tier       entity is engaged
                               operating             solely in
                               subsidiary. In        activities that are
                               applying the          permissible for a
                               regulations in this   service
                               part, the investing   corporation. All of
                               operating             the requirements of
                               subsidiary should     this part apply to
                               substitute            such entities
                               ``investing           except for
                               operating             paragraphs (b)(2)
                               subsidiary''          and (d)(2) of this
                               wherever the part     section.
                               uses ``you'' or
                               ``savings
                               association.''
                              (ii) An operating
                               subsidiary may also
                               invest in other
                               types of lower-tier
                               entities. These
                               entities must
                               comply with all of
                               the requirements of
                               this part 159 that
                               apply to service
                               corporations except
                               for paragraphs
                               (b)(2) and (d)(2)
                               of this section.
(g) How much may a Federal    (1) There are no      (2) Section 159.5
 savings association invest?   limits on the         limits your
                               amount you may        aggregate
                               invest in your        investments in
                               operating             service
                               subsidiaries,         corporations and
                               either separately     indicates when your
                               or in the             investments (both
                               aggregate.            debt and equity) in
                                                     lower-tier entities
                                                     must be aggregated
                                                     with your
                                                     investments in
                                                     service
                                                     corporations.
(h) Do Federal statutes and   (1) Unless otherwise  (2)(i) If the
 regulations that apply to     specifically          Federal statute or
 the savings association       provided by           regulation
 apply?                        statute,              specifically refers
                               regulation, or OCC    to ``service
                               policy, all Federal   corporation,'' it
                               statutes and          applies to all
                               regulations apply     service
                               to operating          corporations, even
                               subsidiaries in the   if you do not
                               same manner as they   control the service
                               apply to you. You     corporation or it
                               and your operating    is not a GAAP-
                               subsidiary are        consolidated
                               generally             subsidiary.
                               consolidated and     (ii) If the Federal
                               treated as a unit     statute or
                               for statutory and     regulation refers
                               regulatory            to ``subsidiary,''
                               purposes.             it applies only to
                                                     service
                                                     corporations that
                                                     you directly or
                                                     indirectly control.
(i) Do the investment limits  (1) Your assets and   (2) Your service
 that apply to Federal         those of your         corporation's
 savings associations (HOLA    operating             assets are not
 section 5(c) and part 160     subsidiary are        subject to the same
 of this chapter) apply?       aggregated when       investment
                               calculating           limitations that
                               investment            apply to you. The
                               limitations.          investment
                                                     activities of your
                                                     service corporation
                                                     are governed by
                                                     paragraph (e)(2) of
                                                     this section and
                                                     Sec.  159.4.
(j) How does the capital      (1) Your assets and   (2) The capital
 regulation (part 167 of       those of your         treatment of a
 this chapter) apply?          operating             service corporation
                               subsidiary are        depends upon
                               consolidated for      whether it is an
                               all capital           includable
                               purposes.             subsidiary. That
                                                     determination is
                                                     based upon factors
                                                     set forth in part
                                                     167 of this
                                                     chapter, including
                                                     your percentage
                                                     ownership of the
                                                     service corporation
                                                     and the activities
                                                     in which the
                                                     service corporation
                                                     engages. Both debt
                                                     and equity
                                                     investments in
                                                     service
                                                     corporations that
                                                     are GAAP-
                                                     consolidated
                                                     subsidiaries are
                                                     considered
                                                     investments in
                                                     subsidiaries for
                                                     purposes of the
                                                     capital regulation,
                                                     regardless of the
                                                     authority under
                                                     which they are
                                                     made.
(k) How does the loans-to-    (1) The LTOB          (2) The LTOB
 one-borrower (LTOB)           regulation does not   regulation does not
 regulation (Sec.  160.93     apply to loans from   apply to loans from
 of this chapter) apply?       you to your           you to your service
                               operating             corporation or from
                               subsidiary or loans   your service
                               from your operating   corporation to you.
                               subsidiary to you.    However, Sec.
                               Other loans made by   159.5 imposes
                               your operating        restrictions on the
                               subsidiary are        amount of loans you
                               aggregated with       may make to certain
                               your loans for LTOB   service
                               purposes.             corporations. Loans
                                                     made by a service
                                                     corporation that
                                                     you control to
                                                     entities other than
                                                     you or your
                                                     subordinate
                                                     organizations are
                                                     aggregated with
                                                     your loans for LTOB
                                                     purposes.

[[Page 635]]

 
(l) How do the transactions   (1) Board rules       (2) Board rules
 with affiliates (TWA)         explain how TWA       explain how TWA
 regulations of the Board of   applies. Generally,   applies. Generally,
 Governors of the Federal      an operating          a service
 Reserve System (Board)        subsidiary is not     corporation is not
 apply?                        an affiliate,         an affiliate,
                               unless it is a        unless it is a
                               depository            depository
                               institution; is       institution; is
                               directly controlled   directly controlled
                               by another            by another
                               affiliate of the      affiliate of the
                               savings association   savings association
                               or by shareholders    or by shareholders
                               that control the      that control the
                               savings               savings
                               association; or is    association; or is
                               an employee stock     an employee stock
                               option plan, trust,   option plan, trust,
                               or similar            or similar
                               organization that     organization that
                               exists for the        exists for the
                               benefit of            benefit of
                               shareholders,         shareholders,
                               partners, members,    partners, members,
                               or employees of the   or employees of the
                               savings association   savings association
                               or an affiliate. A    or an affiliate. If
                               non-affiliate         a savings
                               operating             association
                               subsidiary is         directly or
                               treated as a part     indirectly controls
                               of the savings        a service
                               association and its   corporation and the
                               transactions with     service corporation
                               affiliates of the     is not otherwise an
                               savings association   affiliate under
                               are aggregated with   Board rules, the
                               those of the          service corporation
                               savings association   is treated as a
                                                     part of the savings
                                                     association and its
                                                     transactions with
                                                     affiliates of the
                                                     savings association
                                                     are aggregated with
                                                     those of the
                                                     savings
                                                     association.
(m) How does the Qualified    (1) Under 12 U.S.C.   (2) Under 12 U.S.C.
 Thrift Lender (QTL) (12       1467a(m)(5), you      1467a(m)(5), you
 U.S.C. 1467a(m)) test         may determine         may determine
 apply?                        whether to            whether to
                               consolidate the       consolidate the
                               assets of a           assets of a
                               particular            particular service
                               operating             corporation for
                               subsidiary for        purposes of
                               purposes of           calculating your
                               calculating your      qualified thrift
                               qualified thrift      investments. If a
                               investments. If the   service
                               operating             corporation's
                               subsidiary's assets   assets are not
                               are not               consolidated with
                               consolidated with     yours for that
                               yours for that        purpose, your
                               purpose, your         investment in the
                               investment in the     service corporation
                               operating             will be considered
                               subsidiary will be    in calculating your
                               considered in         qualified thrift
                               calculating your      investments.
                               qualified thrift
                               investments.
(n) Does state law apply?     (1) State law         (2) State law
                               applies to            applies to service
                               operating             corporations
                               subsidiaries          regardless of
                               regardless of         whether it applies
                               whether it applies    to you.
                               to you.
(o) May the OCC conduct       (1) An operating      (2) A service
 examinations?                 subsidiary is         corporation is
                               subject to            subject to
                               examination by the    examination by the
                               OCC.                  OCC.
(p) What must be done to      (1) Before            (2) Before
 redesignate an operating      redesignating an      redesignating a
 subsidiary as a service       operating             service corporation
 corporation or a service      subsidiary as a       as an operating
 corporation as an operating   service               subsidiary, you
 subsidiary?                   corporation, you      should consult with
                               should consult with   the OCC licensing
                               the OCC licensing     office in the
                               office in the         district in which
                               district in which     your home office is
                               your home office is   located. You must
                               located. You must     maintain adequate
                               maintain adequate     internal records,
                               internal records,     available for
                               available for         examination by the
                               examination by the    OCC, demonstrating
                               OCC, demonstrating    that the
                               that the              redesignated
                               redesignated          operating
                               service corporation   subsidiary meets
                               meets all of the      all of the
                               applicable            applicable
                               requirements of       requirements of
                               this part and that    this part and that
                               your board of         your board of
                               directors has         directors has
                               approved the          approved the
                               redesignation.        redesignation.
(q) What are the              (1) If an operating   (2) If a service
 consequences of failing to    subsidiary, or any    corporation, or any
 comply with the               lower-tier entity     lower-tier entity
 requirements of this part?    in which the          in which the
                               operating             service corporation
                               subsidiary invests    invests pursuant to
                               pursuant to           paragraph (f)(2) of
                               paragraph (f)(1) of   this section, fails
                               this section fails    to meet any of the
                               to meet any of the    requirements of
                               requirements of       this section, you
                               this section, you     must notify the
                               must notify the       appropriate OCC
                               appropriate OCC       licensing office.
                               licensing office.     Unless otherwise
                               Unless otherwise      advised by the OCC,
                               advised by the OCC,   if the company
                               if the company        cannot comply
                               cannot comply         within 90 days with
                               within 90 days with   all of the
                               all of the            requirements for
                               requirements for      either an operating
                               either an operating   subsidiary or a
                               subsidiary or a       service corporation
                               service corporation   under this section,
                               under this section,   or any other
                               or any other          investment
                               investment            authorized by 12
                               authorized by 12      U.S.C. 1464(c) or
                               U.S.C. 1464(c) or     part 160 of this
                               part 160 of this      chapter, you must
                               chapter, you must     promptly dispose of
                               promptly dispose of   your investment.
                               your investment.
------------------------------------------------------------------------


[[Page 636]]



Sec. 159.4  What activities are preapproved for service corporations?

    This section sets forth the activities that have been preapproved 
for service corporations. Section 159.3(e)(2) of this part sets forth 
the procedures for engaging in a broader scope of activities on a case-
by-case basis. You should read these two sections together to determine 
whether you must file a notice with the OCC under Sec. 159.11 of this 
part, or whether you must file an application under part 116 of this 
chapter and receive prior written OCC approval for your service 
corporation to engage in a particular activity. The notice or 
application should be filed with the appropriate OCC licensing office. 
To the extent permitted by Sec. 159.3(e)(2) of this part, a service 
corporation may engage in the following activities:
    (a) Any activity that all Federal savings associations may conduct 
directly, except taking deposits.
    (b) Business and professional services. The following services are 
preapproved for service corporations only when they are limited to 
financial documents or financial clients or are generally finance-
related:
    (1) Accounting or internal audit;
    (2) Advertising, marketing research and other marketing;
    (3) Clerical;
    (4) Consulting;
    (5) Courier;
    (6) Data processing;
    (7) Data storage facilities operation and related services;
    (8) Office supplies, furniture, and equipment purchasing and 
distribution;
    (9) Personnel benefit program development or administration;
    (10) Printing and selling forms that require Magnetic Ink Character 
Recognition (MICR) encoding;
    (11) Relocation of personnel;
    (12) Research studies and surveys;
    (13) Software development and systems integration; and
    (14) Remote service unit operation, leasing, ownership or 
establishment.
    (c) Credit-related activities.
    (1) Abstracting;
    (2) Acquiring and leasing personal property;
    (3) Appraising;
    (4) Collection agency;
    (5) Credit analysis;
    (6) Check or credit card guaranty and verification;
    (7) Escrow agent or trustee (under deeds of trust, including 
executing and deliverance of conveyances, reconveyances and transfers of 
title); and
    (8) Loan inspection.
    (d) Consumer services.
    (1) Financial advice or consulting;
    (2) Foreign currency exchange;
    (3) Home ownership counseling;
    (4) Income tax return preparation;
    (5) Postal services;
    (6) Stored value instrument sales;
    (7) Welfare benefit distribution;
    (8) Check printing and related services; and
    (9) Remote service unit operation, leasing, ownership, or 
establishment.
    (e) Real estate related services.
    (1) Acquiring real estate for prompt development or subdivision, for 
construction of improvements, for resale or leasing to others for such 
construction, or for use as manufactured home sites, in accordance with 
a prudent program of property development;
    (2) Acquiring improved real estate or manufactured homes to be held 
for rental or resale, for remodeling, renovating, or demolishing and 
rebuilding for sale or rental, or to be used for offices and related 
facilities of a stockholder of the service corporation;
    (3) Maintaining and managing real estate; and
    (4) Real estate brokerage for property owned by a savings 
association that owns capital stock of the service corporation, the 
service corporation, or a lower-tier entity in which the service 
corporation invests.
    (f) Securities activities, liquidity management, and coins.
    (1) Execution of transactions in securities on an agency or riskless 
principal basis solely upon the order and for the account of customers 
or the provision of investment advice. The service corporation must 
register with the Securities and Exchange Commission and state 
securities regulators, as required by applicable Federal and state law 
and regulations;
    (2) Liquidity management;
    (3) Issuing notes, bonds, debentures, or other obligations or 
securities;

[[Page 637]]

    (4) Purchase or sale of coins issued by the U.S. Treasury.
    (g) Investments. (1) Tax-exempt bonds used to finance residential 
real property for family units;
    (2) Tax-exempt obligations of public housing agencies used to 
finance housing projects with rental assistance subsidies;
    (3) Small business investment companies and new markets venture 
capital companies licensed by the U.S. Small Business Administration;
    (4) Rural business investment companies; and
    (5) Investing in savings accounts of an investing thrift.
    (h) Community development and charitable activities:
    (1) Investments in governmentally insured, guaranteed, subsidized or 
otherwise sponsored programs for housing, small farms, or businesses 
that are local in character;
    (2) Investments designed primarily to promote the public welfare, 
including the welfare of low- and moderate-income communities or 
families (such as providing housing, services, or jobs);
    (3) Investments in low-income housing tax credit and new markets tax 
credit projects and entities authorized by statute (e.g., community 
development financial institutions) to promote community, inner city, 
and community development purposes; and
    (4) Establishing a corporation that is recognized by the Internal 
Revenue Service as organized for charitable purposes under 26 U.S.C. 
501(c)(3) of the Internal Revenue Code and making a reasonable 
contribution to capitalize it, provided that the corporation engages 
exclusively in activities designed to promote the well-being of 
communities in which the owners of the service corporation operate.
    (i) Activities conducted on behalf of a customer on an other than 
``as principal'' basis.
    (j) Activities reasonably incident to those listed in paragraphs (a) 
through (i) of this section if the service corporation engages in those 
activities.



Sec. 159.5  How much may a Federal savings association invest in service 

corporations or lower-tier entities?

    The amount that a Federal savings association (``you'') may invest 
in a service corporation or any lower-tier entity depends upon several 
factors. These include your total assets, your capital, the purpose of 
the investment, and your ownership interest in the service corporation 
or entity.
    (a) Under section 5(c)(4)(B) of the HOLA, you may invest up to 3% of 
your assets in the capital stock, obligations, and other securities of 
service corporations. Any investment you make under this paragraph that 
would cause your investment, in the aggregate, to exceed 2% of your 
assets must serve primarily community, inner city, or community 
development purposes. You must designate the investments serving those 
purposes, which include:
    (1) Investments in governmentally insured, guaranteed, subsidized or 
otherwise sponsored programs for housing, small farms, or businesses 
that are local in character;
    (2) Investments for the preservation or revitalization of either 
urban or rural communities;
    (3) Investments designed to meet the community development needs of, 
and primarily benefit, low- and moderate-income communities; or
    (4) Other community, inner city, or community development-related 
investments approved by the OTS or the OCC.
    (b) In addition to the amounts you may invest under paragraph (a) of 
this section, and to the extent that you have authority under other 
provisions of section 5(c) of the HOLA and part 160 of this chapter, and 
available capacity within any applicable investment limits, you may make 
loans to any service corporation and any lower-tier entity, subject to 
the following conditions:
    (1) You and your GAAP-consolidated subsidiaries may, in the 
aggregate, make loans of up to 15% of your total capital, as described 
in part 167 of this chapter to each subordinate organization that does 
not qualify as a GAAP-consolidated subsidiary. All loans made under this 
paragraph (b)(1) may not, in the aggregate, exceed 50% of

[[Page 638]]

your total capital, as described in part 167 of this chapter.
    (2) The OCC may limit the amount of loans to a GAAP-consolidated 
subsidiary, or may adjust the limits set forth in paragraph (b)(1) of 
this section where safety and soundness considerations warrant such 
action.
    (c) For purposes of this section, the terms ``loans'' and 
``obligations'' include all loans and other debt instruments (except 
accounts payable incurred in the ordinary course of business and paid 
within 60 days) and all guarantees or take-out commitments of such loans 
or debt instruments.



Sec. 159.10  How must separate corporate identities be maintained?

    (a) Each Federal savings association and subordinate organization 
thereof must be operated in a manner that demonstrates to the public 
that each maintains a separate corporate existence. Each must operate so 
that:
    (1) Their respective business transactions, accounts, and records 
are not intermingled;
    (2) Each observes the formalities of their separate corporate 
procedures;
    (3) Each is adequately financed as a separate unit in light of 
normal obligations reasonably foreseeable in a business of its size and 
character;
    (4) Each is held out to the public as a separate enterprise; and
    (5) Unless the parent savings association has guaranteed a loan to 
the subordinate organization, all borrowings by the subordinate 
organization indicate that the parent is not liable.
    (b) OCC regulations that apply both to Federal savings associations 
and subordinate organizations shall not be construed as requiring a 
savings association and its subordinate organizations to operate as a 
single entity.



Sec. 159.11  What notices are required to establish or acquire a new 

subsidiary or engage in new activities through an existing subsidiary?

    When required by section 18(m) of the Federal Deposit Insurance Act, 
a Federal savings association (``you'') must file a notice (``Notice'') 
under part 116, subpart A of this chapter at least 30 days before 
establishing or acquiring a subsidiary or engaging in new activities in 
a subsidiary. The Notice should be filed with the appropriate OCC 
licensing office and must contain all of the information the Federal 
Deposit Insurance Corporation (FDIC) requires under 12 CFR 362.15. 
Providing the OCC with a copy of the notice you file with the FDIC will 
satisfy this requirement. If the OCC notifies you within 30 days that 
the Notice presents supervisory concerns, or raises significant issues 
of law or policy, you must apply for and receive the OCC's prior written 
approval under the standard treatment processing procedures at part 116, 
subpart A and E of this chapter before establishing or acquiring the 
subsidiary or engaging in new activities in the subsidiary.



Sec. 159.12  How may a subsidiary of a Federal savings association issue 

securities?

    (a) A subsidiary may issue, either directly or through a third party 
intermediary, any securities that its parent Federal savings association 
(``you'') may issue. The subsidiary must not state or imply that the 
securities it issues are covered by Federal deposit insurance. A 
subsidiary may not issue any security the payment, maturity, or 
redemption of which may be accelerated upon the condition that you are 
insolvent or have been placed into receivership.
    (b) You must file a notice with the appropriate OCC licensing office 
in accordance with Sec. 159.11 of this part at least 30 days before 
your first issuance of any securities through an existing subsidiary or 
in conjunction with establishing or acquiring a new subsidiary. If the 
OCC notifies you within 30 days that the notice presents supervisory 
concerns or raises significant issues of law or policy, you must receive 
the OCC's prior written approval before issuing securities through your 
subsidiary.
    (c) For as long as any securities are outstanding, you must maintain 
all records generated through each securities issuance in the ordinary 
course of business, including a copy of any prospectus, offering 
circular, or similar document concerning such issuance,

[[Page 639]]

and make such records available for examination by the OCC. Such records 
must include, but are not limited to:
    (1) The amount of your assets or liabilities (including any 
guarantees you make with respect to the securities issuance) that have 
been transferred or made available to the subsidiary; the percentage 
that such amount represents of the current book value of your assets on 
an unconsolidated basis; and the current book value of all such assets 
of the subsidiary;
    (2) The terms of any guarantee(s) issued by you or any third party;
    (3) A description of the securities the subsidiary issued;
    (4) The net proceeds from the issuance of securities (or the pro 
rata portion of the net proceeds from securities issued through a 
jointly owned subsidiary); the gross proceeds of the securities 
issuance; and the market value of assets collateralizing the securities 
issuance (any assets of the subsidiary, including any guarantees of its 
securities issuance you have made);
    (5) The interest or dividend rates and yields, or the range thereof, 
and the frequency of payments on the subsidiary's securities;
    (6) The minimum denomination of the subsidiary's securities; and
    (7) Where the subsidiary marketed or intends to market the 
securities.



Sec. 159.13  How may a Federal savings association exercise its salvage power 

in connection with its service corporation or lower-tier entities?

    (a) In accordance with this section, a Federal savings association 
(``you'') may exercise your salvage power to make a contribution or a 
loan (including a guarantee of a loan made by any other person) to your 
service corporation or lower-tier entity (``salvage investment'') that 
exceeds the maximum amount otherwise permitted under law or regulation. 
You must notify the appropriate OCC licensing office at least 30 days 
before making such a salvage investment. This notice must demonstrate 
that:
    (1) The salvage investment protects your interest in the service 
corporation or lower-tier entity;
    (2) The salvage investment is consistent with safety and soundness; 
and
    (3) You considered alternatives to the salvage investment and 
determined that such alternatives would not adequately satisfy 
paragraphs (a)(1) and (a)(2) of this section.
    (b) If the OCC notifies you within 30 days that the Notice presents 
supervisory concerns, or raises significant issues of law or policy, you 
must apply for and receive the OCC's prior written approval under the 
standard treatment processing procedures at part 116, subparts A and E 
of this chapter before making a salvage investment.
    (c) If your service corporation or lower-tier entity is a GAAP-
consolidated subsidiary, your salvage investment under this section will 
be considered an investment in a subsidiary for purposes of part 167 of 
this chapter.



PART 160_LENDING AND INVESTMENT--Table of Contents



Sec.
160.1 General.
160.2 Applicability of law.
160.3 Definitions.
160.30 General lending and investment powers of Federal savings 
          associations.
160.31 Election regarding categorization of loans or investments and 
          related calculations.
160.32 Pass-through investments.
160.33 Late charges.
160.34 Prepayments.
160.35 Adjustments to home loans.
160.36 De minimis investments.
160.37 Real estate for office and related facilities.
160.40 Commercial paper and corporate debt securities.
160.41 Leasing.
160.42 State and local government obligations.
160.43 Foreign assistance investments.
160.50 Letters of credit and other independent undertakings--authority.
160.60 Suretyship and guaranty.
160.93 Lending limitations.
160.100 Real estate lending standards; purpose and scope.
160.101 Real estate lending standards.
160.110 Most favored lender usury preemption.
160.120 Letters of credit and other independent undertakings to pay 
          against documents.
160.121 Investment in state housing corporations.
160.130 Prohibition on loan procurement fees.
160.160 Asset classification.

[[Page 640]]

160.170 Records for lending transactions.
160.172 Re-evaluation of real estate owned.
160.210 [Reserved]
160.220 [Reserved]


    Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 1701j-3, 1828, 
3803, 3806, 5412(b)(2)(B); 42 U.S.C. 4106.

    Source: 76 FR 49030, Aug. 9, 2011, unless otherwise noted.



Sec. 160.1  General.

    (a) Authority and scope. This part is being issued by the OCC under 
its general rulemaking and supervisory authority under the Home Owners' 
Loan Act (HOLA), 12 U.S.C. 1462 et seq.
    (b) General lending standards. Each savings association is expected 
to conduct its lending and investment activities prudently. Each 
association should use lending and investment standards that are 
consistent with safety and soundness, ensure adequate portfolio 
diversification and are appropriate for the size and condition of the 
institution, the nature and scope of its operations, and conditions in 
its lending market. Each association should adequately monitor the 
condition of its portfolio and the adequacy of any collateral securing 
its loans.



Sec. 160.2  Applicability of law.

    State law applies to the lending activities of Federal savings 
associations and their subsidiaries to the same extent and in the same 
manner that those laws apply to national banks and their subsidiaries.



Sec. 160.3  Definitions.

    For purposes of this part and any determination under 12 U.S.C. 
1467a(m):
    Consumer loans include loans for personal, family, or household 
purposes and loans reasonably incident thereto, and may be made as 
either open-end or closed-end consumer credit (as defined at 12 CFR 
226.2(a)(10) and (20)). Consumer loans do not include credit extended in 
connection with credit card loans, bona fide overdraft loans, and other 
loans that the savings association has designated as made under 
investment or lending authority other than section 5(c)(2)(D) of the 
HOLA.
    Credit card is any card, plate, coupon book, or other single credit 
device that may be used from time to time to obtain credit.
    Credit card account is a credit account established in conjunction 
with the issuance of, or the extension of credit through, a credit card. 
This term includes loans made to consolidate credit card debt, including 
credit card debt held by other lenders, and participation certificates, 
securities and similar instruments secured by credit card receivables.
    Home loans include any loans made on the security of a home 
(including a dwelling unit in a multi-family residential property such 
as a condominium or a cooperative), combinations of homes and business 
property (i.e., a home used in part for business), farm residences, and 
combinations of farm residences and commercial farm real estate.
    Loan commitment includes a loan in process, a letter of credit, or 
any other commitment to extend credit.
    Real estate loan, for purposes of this part, is a loan for which the 
savings association substantially relies upon a security interest in 
real estate given by the borrower as a condition of making the loan. A 
loan is made on the security of real estate if:
    (1) The security property is real estate pursuant to the law of the 
state in which the property is located;
    (2) The security interest of the Federal savings association may be 
enforced as a real estate mortgage or its equivalent pursuant to the law 
of the state in which the property is located;
    (3) The security property is capable of separate appraisal; and
    (4) With regard to a security property that is a leasehold or other 
interest for a period of years, the term of the interest extends, or is 
subject to extension or renewal at the option of the Federal savings 
association for a term of at least five years following the maturity of 
the loan.
    Small business includes a small business concern or entity as 
defined by section 3(a) of the Small Business Act, 15 U.S.C. 632(a), and 
implemented by the regulations of the Small Business Administration at 
13 CFR part 121.
    Small business loans and loans to small businesses include any loan 
to a small business as defined in this section; or a

[[Page 641]]

loan that does not exceed $2 million (including a group of loans to one 
borrower) and is for commercial, corporate, business, or agricultural 
purposes.



Sec. 160.30  General lending and investment powers of Federal savings 

associations.

    Pursuant to section 5(c) of the Home Owners' Loan Act (``HOLA''), 12 
U.S.C. 1464(c), a Federal savings association may make, invest in, 
purchase, sell, participate in, or otherwise deal in (including 
brokerage or warehousing) all loans and investments allowed under 
section 5(c) of the HOLA including, without limitation, the following 
loans, extensions of credit, and investments, subject to the limitations 
indicated and any such terms, conditions, or limitations as may be 
prescribed from time to time by the OCC by policy directive, order, or 
regulation:

                   Lending and Investment Powers Chart
------------------------------------------------------------------------
                                                    Statutory investment
                                                         limitations
                                    Statutory         (Endnotes contain
          Category              authorization \1\        applicable
                                                         regulatory
                                                        limitations)
------------------------------------------------------------------------
Bankers' bank stock.........  5(c)(4)(E)..........  Same terms as
                                                     applicable to
                                                     national banks.
Business development credit   5(c)(4)(A)..........  The lesser of .5% of
 corporations.                                       total outstanding
                                                     loans or $250,000.
Commercial loans............  5(c)(2)(A)..........  20% of total assets,
                                                     provided that
                                                     amounts in excess
                                                     of 10% of total
                                                     assets may be used
                                                     only for small
                                                     business loans.
Commercial paper and          5(c)(2)(D)..........  Up to 35% of total
 corporate debt securities.                          assets.2 3
Community development loans   5(c)(3)(A)..........  5% of total assets,
 and equity investments.                             provided equity
                                                     investments do not
                                                     exceed 2% of total
                                                     assets.\4\
Construction loans without    5(c)(3)(C)..........  In the aggregate,
 security.                                           the greater of
                                                     total capital or 5%
                                                     of total assets.
Consumer loans..............  5(c)(2)(D)..........  Up to 35% of total
                                                     assets.2 5
Credit card loans or loans    5(c)(1)(T)..........  None.\6\
 made through credit card
 accounts.
Deposits in insured           5(c)(1)(G)..........  None.\6\
 depository institutions.
Education loans.............  5(c)(1)(U)..........  None.\6\
Federal government and        5(c)(1)(C),           None.\6\
 government-sponsored          5(c)(1)(D),
 enterprise securities and     5(c)(1)(E),
 instruments.                  5(c)(1)(F).
Finance leasing.............  5(c)(1)(B),           Based on purpose and
                               5(c)(2)(A),           property
                               5(c)(2)(B),           financed.\7\
                               5(c)(2)(D).
Foreign assistance            5(c)(4)(C)..........  1% of total
 investments.                                        assets.\8\
General leasing.............  5(c)(2)(C)..........  10% of assets.\7\
Home improvement loans......  5(c)(1)(J)..........  None.\6\
Home (residential) loans \9\  5(c)(1)(B)..........  None.6 10
HUD-insured or guaranteed     5(c)(1)(O)..........  None.\6\
 investments.
Insured loans...............  5(c)(1)(I),           None.\6\
                               5(c)(1)(K).
Liquidity investments.......  5(c)(1)(M)..........  None.\6\
Loans secured by deposit      5(c)(1)(A)..........  None.6 11
 accounts.
Loans to financial            5(c)(1)(L)..........  None.6 12
 institutions, brokers, and
 dealers.
Manufactured home loans.....  5(c)(1)(J)..........  None.6 13
Mortgage-backed securities..  5(c)(1)(R)..........  None.\6\
National Housing Partnership  5(c)(1)(N)..........  None.\6\
 Corporation and related
 partnerships and joint
 ventures.
New markets venture capital   5(c)(4)(F)..........  5% of total capital.
 companies.
Nonconforming loans.........  5(c)(3)(B)..........  5% of total assets.
Nonresidential real property  5(c)(2)(B)..........  400% of total
 loans.                                              capital.\14\
Open-end management           5(c)(1)(Q)..........  None.\6\
 investment companies \15\.
Rural business investment     7 U.S.C. 2009cc-9...  Five percent of
 companies.                                          total capital.
Service corporations........  5(c)(4)(B)..........  3% of total assets,
                                                     as long as any
                                                     amounts in excess
                                                     of 2% of total
                                                     assets further
                                                     community, inner
                                                     city, or community
                                                     development
                                                     purposes.\16\
Small business investment     15 U.S.C. 682(b)(2).  5% of total capital.
 companies.
Small business-related        5(c)(1)(S)..........  None.\6\
 securities.

[[Page 642]]

 
State and local government    5(c)(1)(H)..........  None for general
 obligations.                                        obligations. Per
                                                     issuer limitation
                                                     of 10% of capital
                                                     for other
                                                     obligations.6 17
State housing corporations..  5(c)(1)(P)..........  None.6 18
Transaction account loans,    5(c)(1)(A)..........  None.6 19
 including overdrafts.
------------------------------------------------------------------------
Endnotes
\1\ All references are to section 5 of the Home Owners' Loan Act (12
  U.S.C. 1464) unless otherwise indicated.
\2\ For purposes of determining a Federal savings association's
  percentage of assets limitation, investment in commercial paper and
  corporate debt securities must be aggregated with the Federal savings
  association's investment in consumer loans.
\3\ A Federal savings association may invest in commercial paper and
  corporate debt securities, which includes corporate debt securities
  convertible into stock, subject to the provisions of Sec.  160.40 of
  this part. Amounts in excess of 30% of assets, in the aggregate, may
  be invested only in obligations purchased by the association directly
  from the original obligor and for which no finder's or referral fees
  have been paid.
\4\ The 2% of assets limitation is a sublimit for investments within the
  overall 5% of assets limitation on community development loans and
  investments. The qualitative standards for such loans and investments
  are set forth in HOLA section 5(c)(3)(A) (formerly 5(c)(3)(B)), as
  explained in an opinion of the Office of Thrift Supervision Chief
  Counsel dated May 10, 1995.
\5\ Amounts in excess of 30% of assets, in the aggregate, may be
  invested only in loans made by the association directly to the
  original obligor and for which no finder's or referral fees have been
  paid. A Federal savings association may include loans to dealers in
  consumer goods to finance inventory and floor planning in the total
  investment made under this section.
\6\ While there is no statutory limit on certain categories of loans and
  investments, including credit card loans, home improvement loans,
  education loans, and deposit account loans, the OCC may establish an
  individual limit on such loans or investments if the association's
  concentration in such loans or investments presents a safety and
  soundness concern.
\7\ A Federal savings association may engage in leasing activities
  subject to the provisions of Sec.  160.41 of this part.
\8\ This 1% of assets limitation applies to the aggregate outstanding
  investments made under the Foreign Assistance Act and in the capital
  of the Inter-American Savings and Loan Bank. Such investments may be
  made subject to the provisions of Sec.  160.43 of this part.
\9\ A home (or residential) loan includes loans secured by one-to-four
  family dwellings, multi-family residential property, and loans secured
  by a unit or units of a condominium or housing cooperative.
\10\ A Federal savings association may make home loans subject to the
  provisions of Sec. Sec.  160.33, 160.34, and 160.35 of this part.
\11\ Loans secured by savings accounts and other time deposits may be
  made without limitation, provided the Federal savings association
  obtains a lien on, or a pledge of, such accounts. Such loans may not
  exceed the withdrawable amount of the account.
\12\ A Federal savings association may only invest in these loans if
  they are secured by obligations of, or by obligations fully guaranteed
  as to principal and interest by, the United States or any of its
  agencies or instrumentalities, the borrower is a financial institution
  insured by the Federal Deposit Insurance Corporation or is a broker or
  dealer registered with the Securities and Exchange Commission, and the
  market value of the securities for each loan at least equals the
  amount of the loan at the time it is made.
\13\ If the wheels and axles of the manufactured home have been removed
  and it is permanently affixed to a foundation, a loan secured by a
  combination of a manufactured home and developed residential lot on
  which it sits may be treated as a home loan.
\14\ Without regard to any limitations of this part, a Federal savings
  association may make or invest in the fully insured or guaranteed
  portion of nonresidential real estate loans insured or guaranteed by
  the Economic Development Administration, the Farmers Home
  Administration, or the Small Business Administration. Unguaranteed
  portions of guaranteed loans must be aggregated with uninsured loans
  when determining an association's compliance with the 400% of capital
  limitation for other real estate loans.
\15\ This authority is limited to investments in open-end management
  investment companies that are registered with the Securities and
  Exchange Commission under the Investment Company Act of 1940. The
  portfolio of the investment company must be restricted by the
  company's investment policy (changeable only if authorized by
  shareholder vote) solely to investments that a Federal savings
  association may, without limitation as to percentage of assets, invest
  in, sell, redeem, hold, or otherwise deal in. Separate and apart from
  this authority, a Federal savings association may make pass-through
  investments to the extent authorized by Sec.  160.32 of this part.
\16\ A Federal savings association may invest in service corporations
  subject to the provisions of part 159 of this chapter.
\17\ This category includes obligations issued by any state, territory,
  or possession of the United States or political subdivision thereof
  (including any agency, corporation, or instrumentality of a state or
  political subdivision), subject to Sec.  160.42 of this part.
\18\ A Federal savings association may invest in state housing
  corporations subject to the provisions of Sec.  160.121 of this part.
\19\ Payments on accounts in excess of the account balance (overdrafts)
  on commercial deposit or transaction accounts shall be considered
  commercial loans for purposes of determining the association's
  percentage of assets limitation.



Sec. 160.31  Election regarding categorization of loans or investments and 

related calculations.

    (a) If a loan or other investment is authorized under more than one 
section of the HOLA, as amended, or this part, a Federal savings 
association may designate under which section the loan or investment has 
been made. Such a loan or investment may be apportioned among 
appropriate categories, and may be moved, in whole or part, from one 
category to another. A loan commitment shall be counted as an investment 
and included in total assets of a Federal savings association for 
purposes of calculating compliance with HOLA section 5(c)'s investment 
limitations only to the extent that funds have been advanced and not 
repaid pursuant to the commitment.
    (b) Loans or portions of loans sold to a third party shall be 
included in the calculation of a percentage-of-assets or

[[Page 643]]

percentage-of-capital investment limitation only to the extent they are 
sold with recourse.
    (c) A Federal savings association may make a loan secured by an 
assignment of loans to the extent that it could, under applicable law 
and regulations, make or purchase the underlying assigned loans.



Sec. 160.32  Pass-through investments.

    (a) A Federal savings association (``you'') may make pass-through 
investments. A pass-through investment occurs when you invest in an 
entity (``company'') that engages only in activities that you may 
conduct directly and the investment meets the requirements of this 
section. If an investment is authorized under both this section and some 
other provision of law, you may designate under which authority or 
authorities the investment is made. When making a pass-through 
investment, you must comply with all the statutes and regulations that 
would apply if you were engaging in the activity directly. For example, 
your proportionate share of the company's assets will be aggregated with 
the assets you hold directly in calculating investment limits (e.g., no 
more than 400% of total capital may be invested in nonresidential real 
property loans).
    (b) You may make a pass-through investment without prior notice to 
the OCC if all of the following conditions are met:
    (1) You do not invest more than 15% of your total capital in one 
company;
    (2) The book value of your aggregate pass-through investments does 
not exceed 50% of your total capital after making the investment;
    (3) Your investment would not give you direct or indirect control of 
the company;
    (4) Your liability is limited to the amount of your investment; and
    (5) The company falls into one of the following categories:
    (i) A limited partnership;
    (ii) An open-end mutual fund;
    (iii) A closed-end investment trust;
    (iv) A limited liability company; or
    (v) An entity in which you are investing primarily to use the 
company's services (e.g., data processing).
    (c) If you want to make other pass-through investments, you must 
provide the OCC with 30 days' advance notice. If within that 30-day 
period the OCC notifies you that an investment presents supervisory, 
legal, or safety and soundness concerns, you must apply for and receive 
the OCC's prior written approval under the standard treatment processing 
procedures at part 116, subparts A and E of this chapter before making 
the investment. Notices under this section are deemed to be applications 
for purposes of statutory and regulatory references to ``applications.'' 
Any conditions that the OCC imposes on any pass-through investment shall 
be enforceable as a condition imposed in writing by the OCC in 
connection with the granting of a request by a Federal savings 
association within the meaning of 12 U.S.C. 1818(b) or 1818(i).



Sec. 160.33  Late charges.

    A Federal savings association may include in a home loan contract a 
provision authorizing the imposition of a late charge with respect to 
the payment of any delinquent periodic payment. With respect to any loan 
made after July 31, 1976, on the security of a home occupied or to be 
occupied by the borrower, no late charge, regardless of form, shall be 
assessed or collected by a Federal savings association, unless any 
billing, coupon, or notice the Federal savings association may provide 
regarding installment payments due on the loan discloses the date after 
which the charge may be assessed. A Federal savings association may not 
impose a late charge more than one time for late payment of the same 
installment, and any installment payment made by the borrower shall be 
applied to the longest outstanding installment due. A Federal savings 
association shall not assess a late charge as to any payment received by 
it within fifteen days after the due date of such payment. No form of 
such late charge permitted by this paragraph shall be considered as 
interest to the Federal savings association and the Federal savings 
association shall not deduct late charges from the regular periodic 
installment payments on the loan, but must collect them as such from the 
borrower.

[[Page 644]]



Sec. 160.34  Prepayments.

    Any prepayment on a real estate loan must be applied directly to 
reduce the principal balance on the loan unless the loan contract or the 
borrower specifies otherwise. Subject to the terms of the loan contract, 
a Federal savings association may impose a fee for any prepayment of a 
loan.



Sec. 160.35  Adjustments to home loans.

    (a) For any home loan secured by borrower-occupied property, or 
property to be occupied by the borrower, adjustments to the interest 
rate, payment, balance, or term to maturity must comply with the 
limitations of this section and the disclosure and notice requirements 
of 560.210 until superseding regulations are issued by the Consumer 
Financial Protection Bureau.
    (b) Adjustments to the interest rate shall correspond directly to 
the movement of an index satisfying the requirements of paragraph (d) of 
this section. A Federal savings association also may increase the 
interest rate pursuant to a formula or schedule that specifies the 
amount of the increase, the time at which it may be made, and which is 
set forth in the loan contract. A Federal savings association may 
decrease the interest rate at any time.
    (c) Adjustments to the payment and the loan balance that do not 
reflect an interest-rate adjustment may be made if:
    (1) The adjustments reflect a change in an index that may be used 
pursuant to paragraph (d) of this section;
    (2) In the case of a payment adjustment, the adjustment reflects a 
change in the loan balance or is made pursuant to a formula, or to a 
schedule specifying the percentage or dollar change in the payment as 
set forth in the loan contract; or
    (3) In the case of an open-end line-of-credit loan, the adjustment 
reflects an advance taken by the borrower under the line-of-credit and 
is permitted by the loan contract.
    (d)(1) Any index used must be readily available and independently 
verifiable. If set forth in the loan contract, an association may use 
any combination of indices, a moving average of index values, or more 
than one index during the term of a loan.
    (2) Except as provided in paragraph (d)(3) of this section, any 
index used must be a national or regional index.
    (3) A Federal savings association may use an index not satisfying 
the requirements of paragraph (d)(2) of this section 30 days after 
filing a notice unless, within that 30-day period, the OCC has notified 
the association that the notice presents supervisory concerns or raises 
significant issues of law or policy. If the OCC notifies the association 
of such concerns or issues, the Federal savings association may not use 
such an index unless it applies for and receives the OCC's prior written 
approval under the standard treatment processing procedures at part 116, 
subparts A and E of this chapter.



Sec. 160.36  De minimis investments.

    A Federal savings association may invest in the aggregate up to the 
greater of 1% of its total capital or $250,000 in community development 
investments of the type permitted for a national bank under 12 CFR part 
24.



Sec. 160.37  Real estate for office and related facilities.

    A Federal savings association may invest in real estate (improved or 
unimproved) to be used for office and related facilities of the 
association, or for such office and related facilities and for rental or 
sale, if such investment is made and maintained under a prudent program 
of property acquisition to meet the Federal savings association's 
present needs or its reasonable future needs for office and related 
facilities. A Federal savings association may not make an investment 
that would cause the outstanding book value of all such investments 
(including investments under Sec. 159.4(e)(2) of this chapter) to 
exceed its total capital.



Sec. 160.40  Commercial paper and corporate debt securities.

    Pursuant to HOLA section 5(c)(2)(D), a Federal savings association 
may invest in, sell, or hold commercial paper and corporate debt 
securities subject to the provisions of this section.

[[Page 645]]

    (a) Limitations. (1) Commercial paper must be:
    (i) As of the date of purchase, rated in either one of the two 
highest categories by at least two nationally recognized investment 
ratings services as shown by the most recently published rating made of 
such investments; or
    (ii) If unrated, guaranteed by a company having outstanding paper 
that is rated as provided in paragraph (a)(1)(i) of this section.
    (2) Corporate debt securities must be:
    (i) Securities that may be sold with reasonable promptness at a 
price that corresponds reasonably to their fair value; and
    (ii) Rated in one of the four highest categories as to the portion 
of the security in which the association is investing by a nationally 
recognized investment ratings service at its most recently published 
rating before the date of purchase of the security.
    (3) A Federal savings association's total investment in the 
commercial paper and corporate debt securities of any one issuer, or 
issued by any one person or entity affiliated with such issuer, together 
with other loans, shall not exceed the general lending limitations 
contained in Sec. 160.93(c) of this part.
    (4) Investments in corporate debt securities convertible into stock 
are subject to the following additional limitations:
    (i) The purchase of securities convertible into stock at the option 
of the issuer is prohibited;
    (ii) At the time of purchase, the cost of such securities must be 
written down to an amount that represents the investment value of the 
securities considered independently of the conversion feature; and
    (iii) Federal savings associations are prohibited from exercising 
the conversion feature.
    (5) A Federal savings association shall maintain information in its 
files adequate to demonstrate that it has exercised prudent judgment in 
making investments under this section.
    (b) Notwithstanding the limitations contained in this section, the 
OCC may permit investment in corporate debt securities of another 
savings association in connection with the purchase or sale of a branch 
office or in connection with a supervisory merger or acquisition.
    (c) Underwriting. Before committing to acquire any investment 
security, a Federal savings association must determine whether the 
investment is safe and sound and suitable for the association. The 
Federal savings association must consider, as appropriate, the interest 
rate, credit, liquidity, price, transaction, and other risks associated 
with the investment activity. The Federal savings association must also 
determine that the issuer has adequate resources and the willingness to 
provide for all required payments on its obligations in a timely manner.



Sec. 160.41  Leasing.

    (a) Permissible activities. Subject to the limitations of this 
section, a Federal savings association may engage in leasing activities. 
These activities include becoming the legal or beneficial owner of 
tangible personal property or real property for the purpose of leasing 
such property, obtaining an assignment of a lessor's interest in a lease 
of such property, and incurring obligations incidental to its position 
as the legal or beneficial owner and lessor of the leased property.
    (b) Definitions. For the purposes of this section:
    (1) The term net lease means a lease under which the Federal savings 
association will not, directly or indirectly, provide or be obligated to 
provide for:
    (i) The servicing, repair or maintenance of the leased property 
during the lease term;
    (ii) The purchasing of parts and accessories for the leased 
property, except that improvements and additions to the leased property 
may be leased to the lessee upon its request in accordance with the 
full-payout requirements of paragraph (c)(2)(i) of this section;
    (iii) The loan of replacement or substitute property while the 
leased property is being serviced;
    (iv) The purchasing of insurance for the lessee, except where the 
lessee has failed to discharge a contractual obligation to purchase or 
maintain insurance; or

[[Page 646]]

    (v) The renewal of any license, registration, or filing for the 
property unless such action by the Federal savings association is 
necessary to protect its interest as an owner or financier of the 
property.
    (2) The term full-payout lease means a lease transaction in which 
any unguaranteed portion of the estimated residual value relied on by 
the association to yield the return of its full investment in the leased 
property, plus the estimated cost of financing the property over the 
term of the lease, does not exceed 25% of the original cost of the 
property to the lessor. In general, a lease will qualify as a full-
payout lease if the scheduled payments provide at least 75% of the 
principal and interest payments that a lessor would receive if the 
finance lease were structured as a market-rate loan.
    (3) The term realization of investment means that a Federal savings 
association that enters into a lease financing transaction must 
reasonably expect 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:
    (i) Rentals;
    (ii) Estimated tax benefits, if any; and
    (iii) The estimated residual value of the property at the expiration 
of the term of the lease.
    (c) Finance leasing--(1) Investment limits. A Federal savings 
association may exercise its authority under HOLA sections 5(c)(1)(B) 
(residential real estate loans), 5(c)(2)(A) (commercial, business, 
corporate or agricultural loans), 5(c)(2)(B) (nonresidential real estate 
loans), and 5(c)(2)(D) (consumer loans) by conducting leasing activities 
that are the functional equivalent of loans made under those HOLA 
sections. These activities are commonly referred to as financing leases. 
Such financing leases are subject to the same investment limits that 
apply to loans made under those sections. For example, a financing lease 
of tangible personal property made to a natural person for personal, 
family or household purposes is subject to all limitations applicable to 
the amount of a Federal savings association's investment in consumer 
loans. A financing lease made for commercial, corporate, business, or 
agricultural purposes is subject to all limitations applicable to the 
amount of a Federal savings association's investment in commercial 
loans. A financing lease of residential or nonresidential real property 
is subject to all limitations applicable to the amount of a Federal 
savings association's investment in these types of real estate loans.
    (2) Functional equivalent of lending. To qualify as the functional 
equivalent of a loan:
    (i) The lease must be a net, full-payout lease representing a non-
cancelable obligation of the lessee, notwithstanding the possible early 
termination of the lease;
    (ii) The portion of the estimated residual value of the property 
relied upon by the lessor to satisfy the requirements of a full-payout 
lease must be reasonable in light of the nature of the leased property 
and all relevant circumstances so that realization of the lessor's full 
investment plus the cost of financing the property depends primarily on 
the creditworthiness of the lessee, and not on the residual market value 
of the leased property; and
    (iii) At the termination of a financing lease, either by expiration 
or default, property acquired must be liquidated or released on a net 
basis as soon as practicable. Any property held in anticipation of re-
leasing must be reevaluated and recorded at the lower of fair market 
value or book value.
    (d) General leasing. Pursuant to section 5(c)(2)(C) of the HOLA, a 
Federal savings association may invest in tangible personal property, 
including vehicles, manufactured homes, machinery, equipment, or 
furniture, for the purpose of leasing that property. In contrast to 
financing leases, lease investments made under this authority need not 
be the functional equivalent of loans.
    (e) Leasing salvage powers. If, in good faith, a Federal savings 
association believes that there has been an unanticipated change in 
conditions that threatens its financial position by significantly 
increasing its exposure to loss, it may:

[[Page 647]]

    (1) As the owner and lessor, take reasonable and appropriate action 
to salvage or protect the value of the property or its interest arising 
under the lease;
    (2) As the assignee of a lessor's interest in a lease, become the 
owner and lessor of the leased property pursuant to its contractual 
right, or take any reasonable and appropriate action to salvage or 
protect the value of the property or its interest arising under the 
lease; or
    (3) Include any provisions in a lease, or make any additional 
agreements, to protect its financial position or investment in the 
circumstances set forth in paragraphs (e)(1) and (e)(2) of this section.



Sec. 160.42  State and local government obligations.

    (a) What limitations apply? Pursuant to HOLA section 5(c)(1)(H), a 
Federal savings association (``you'') may invest in obligations issued 
by any state, territory, possession, or political subdivision thereof 
(``governmental entity''), subject to appropriate underwriting and the 
following conditions:

----------------------------------------------------------------------------------------------------------------
                                            Aggregate limitation                   Per-issuer limitation
----------------------------------------------------------------------------------------------------------------
(1) General obligations..........  None..................................  None.
(2) Other obligations of a         None..................................  10% of total capital.
 governmental entity ( e.g.,
 revenue bonds) that hold one of
 the four highest investment
 grade ratings by a nationally
 recognized rating agency or that
 are nonrated but of investment
 quality.
(3) Obligations of a governmental  As approved by the OCC................  10% of total capital.
 entity that do not qualify under
 any other paragraph but are
 approved by the OCC.
----------------------------------------------------------------------------------------------------------------

    (b) What is a political subdivision? Political subdivision means a 
county, city, town, or other municipal corporation, a public authority, 
or a publicly-owned entity that is an instrumentality of a state or a 
municipal corporation.
    (c) What is a general obligation of a state or political 
subdivision? A general obligation is an obligation that is guaranteed by 
the full faith and credit of a state or political subdivision that has 
the power to tax. Indirect payments, such as through a special fund, may 
qualify as general obligations if a state or political subdivision with 
taxing authority has unconditionally agreed to provide funds to cover 
payments.
    (d) What is appropriate underwriting for this type of investment? In 
the case of a security rated in one of the four highest investment 
grades by a nationally recognized rating agency, your assessment of the 
obligor's credit quality may be based, in part, on reliable rating 
agency estimates of the obligor's performance. For all other securities, 
you must perform your own detailed analysis of credit quality. In doing 
so, you must consider, as appropriate, the interest rate, credit, 
liquidity, price, transaction, and other risks associated with the 
investment activity and determine that such investment is appropriate 
for your institution. You must also determine that the obligor has 
adequate resources and willingness to provide for all required payments 
on its obligations in a timely manner.



Sec. 160.43  Foreign assistance investments.

    Pursuant to HOLA section 5(c)(4)(C), a Federal savings association 
may make foreign assistance investments in an aggregate amount not to 
exceed one percent of its assets, subject to the following conditions:
    (a) For any investment made under the Foreign Assistance Act, the 
loan agreement shall specify what constitutes an event of default, and 
provide that upon default in payment of principal or interest under such 
agreement, the entire amount of outstanding indebtedness thereunder 
shall become immediately due and payable, at the lender's option. 
Additionally, the contract of guarantee shall cover 100% of any loss of 
investment thereunder, except for any portion of the loan arising out of 
fraud or misrepresentation for which the party seeking payment is 
responsible, and provide that the guarantor shall pay for any

[[Page 648]]

such loss in U.S. dollars within a specified reasonable time after the 
date of application for payment.
    (b) To make any investments in the share capital and capital reserve 
of the Inter-American Savings and Loan Bank, a Federal savings 
association must be adequately capitalized and have adequate allowances 
for loan and lease losses. The Federal savings association's aggregate 
investment in such capital or capital reserve, including the amount of 
any obligations undertaken to provide said Bank with reserve capital in 
the future (call-able capital), must not, as a result of such 
investment, exceed the lesser of one-quarter of 1% of its assets or 
$100,000.



Sec. 160.50  Letters of credit and other independent undertakings--authority.

    A Federal savings association may issue letters of credit and may 
issue such other independent undertakings as are approved by the OCC, 
subject to the restrictions in Sec. 160.120.



Sec. 160.60  Suretyship and guaranty.

    Pursuant to section 5(b)(2) of the HOLA, a Federal savings 
association may enter into a repayable suretyship or guaranty agreement, 
subject to the conditions in this section.
    (a) What is a suretyship or guaranty agreement? Under a suretyship, 
a Federal savings association is bound with its principal to pay or 
perform an obligation to a third person. Under a guaranty agreement, a 
Federal savings association agrees to satisfy the obligation of the 
principal only if the principal fails to pay or perform.
    (b) What requirements apply to suretyship and guaranty agreements 
under this section? A Federal savings association may enter into a 
suretyship or guaranty agreement under this section, subject to each of 
the following requirements:
    (1) The Federal savings association must limit its obligations under 
the agreement to a fixed dollar amount and a specified duration.
    (2) The Federal savings association's performance under the 
agreement must create an authorized loan or other investment.
    (3) The Federal savings association must treat its obligation under 
the agreement as a loan to the principal for purposes of Sec. Sec. 
160.93 and 163.43 of this chapter.
    (4) The Federal savings association must take and maintain a 
perfected security interest in collateral sufficient to cover its total 
obligation under the agreement.
    (c) What collateral is sufficient? (1) The Federal savings 
association must take and maintain a perfected security interest in real 
estate or marketable securities equal to at least 110 percent of its 
obligation under the agreement, except as provided in paragraph (c)(2) 
of this section.
    (i) If the collateral is real estate, the Federal savings 
association must establish the value by a signed appraisal or evaluation 
in accordance with part 164 of this chapter. In determining the value of 
the collateral, the Federal savings association must factor in the value 
of any existing senior mortgages, liens or other encumbrances on the 
property, except those held by the principal to the suretyship or 
guaranty agreement.
    (ii) If the collateral is marketable securities, the Federal savings 
association must be authorized to invest in that security taken as 
collateral. The Federal savings association must ensure that the value 
of the security is 110 percent of the obligation at all times during the 
term of agreement.
    (2) The Federal savings association may take and maintain a 
perfected security interest in collateral which is at all times equal to 
at least 100 percent of its obligation, if the collateral is:
    (i) Cash;
    (ii) Obligations of the United States or its agencies;
    (iii) Obligations fully guarantied 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.



Sec. 160.93  Lending limitations.

    (a) Scope. This section applies to all loans and extensions of 
credit to third parties made by a savings association and its 
subsidiaries. This section does

[[Page 649]]

not apply to loans made by a savings association or a GAAP-consolidated 
subsidiary to subordinate organizations or affiliates of the savings 
association. The terms subsidiary, GAAP-consolidated subsidiary, and 
subordinate organization have the same meanings as specified in Sec. 
159.2 of this chapter. The term affiliate has the same meaning as 
specified in 12 CFR 563.41 until superseded by regulations of the Board 
of Governors of the Federal Reserve System regarding transactions with 
affiliates.
    (b) Definitions. In applying these lending limitations, savings 
associations shall apply the definitions and interpretations promulgated 
by the OCC consistent with 12 U.S.C. 84. See 12 CFR part 32. In applying 
these definitions, pursuant to 12 U.S.C. 1464, savings associations 
shall use the terms savings association, savings associations, and 
savings association's in place of the terms national bank and bank, 
banks, and bank's, respectively. For purposes of this section:
    (1) The term one borrower has the same meaning as the term person 
set forth at 12 CFR part 32. It also includes, in addition to the 
definition cited therein, a financial institution as defined at Sec. 
161.19 of this chapter.
    (2) The term company means a corporation, partnership, business 
trust, association, or similar organization and, unless specifically 
excluded, the term company includes a savings association and a bank.
    (3) Contractual commitment to advance funds has the meaning set 
forth in 12 CFR part 32.
    (4) Loans and extensions of credit has the meaning set forth in 12 
CFR part 32, and includes investments in commercial paper and corporate 
debt securities. The appropriate Federal banking agency expressly 
reserves its authority to deem other arrangements that are, in 
substance, loans and extensions of credit to be encompassed by this 
term.
    (5) The term loans as used in the phrase Loans to one borrower to 
finance the sale of real property acquired in satisfaction of debts 
previously contracted for in good faith does not include an 
association's taking of a purchase money mortgage note from the 
purchaser provided that:
    (i) No new funds are advanced by the association to the borrower; 
and
    (ii) The association is not placed in a more detrimental position as 
a result of the sale.
    (6) [Reserved]
    (7) Readily marketable collateral has the meaning set forth in 12 
CFR part 32.
    (8) Residential housing units has the same meaning as the term 
residential real estate set forth in Sec. 141.23 of this chapter. The 
term to develop includes the various phases necessary to produce housing 
units as an end product, to include: Acquisition, development and 
construction; development and construction; construction; 
rehabilitation; or conversion. The term domestic includes units within 
the fifty states, the District of Columbia, Puerto Rico, the Virgin 
Islands, Guam, and the Pacific Islands.
    (9) Single family dwelling unit has the meaning set forth in Sec. 
141.25 of this chapter.
    (10) A standby letter of credit has the meaning set forth in 12 CFR 
part 32.
    (11) Unimpaired capital and unimpaired surplus means--
    (i) A savings association's core capital and supplementary capital 
included in its total capital under part 167 of this chapter; plus
    (ii) The balance of a savings association's allowance for loan and 
lease losses not included in supplementary capital under part 167 of 
this chapter; plus
    (iii) The amount of a savings association's loans to, investments 
in, and advances to subsidiaries not included in calculating core 
capital under part 167 of this chapter.
    (c) General limitation. Section 5200 of the Revised Statutes (12 
U.S.C. 84) shall apply to savings associations in the same manner and to 
the same extent as it applies to national banks. This statutory 
provision and lending limit regulations and interpretations promulgated 
by the OCC pursuant to a rulemaking conducted in accordance with the 
provisions of the Administrative Procedure Act, 5 U.S.C. 553 et seq. 
(including the regulations appearing at 12 CFR part 32) shall apply to 
savings associations in the same manner and to

[[Page 650]]

the same extent as these provisions apply to national banks:
    (1) The total loans and extensions of credit by a savings 
association to one borrower outstanding at one time and not fully 
secured, as determined in the same manner as determined under 12 U.S.C. 
84(a)(2), by collateral having a market value at least equal to the 
amount of the loan or the extension of credit shall not exceed 15 
percent of the unimpaired capital and unimpaired surplus of the 
association.
    (2) The total loans and extensions of credit by a savings 
association to one borrower outstanding at one time and fully secured by 
readily marketable collateral having a market value, as determined by 
reliable and continuously available price quotations, at least equal to 
the amount of the funds outstanding shall not exceed 10 per centum of 
the unimpaired capital and unimpaired surplus of the association. This 
limitation shall be separate from and in addition to the limitation 
contained in paragraph (c)(1) of this section.
    (d) Exceptions to the general limitation--(1) $500,000 exception. If 
a savings association's aggregate lending limitation calculated under 
paragraphs (c)(1) and (c)(2) of this section is less than $500,000, 
notwithstanding this aggregate limitation in paragraphs (c)(1) and 
(c)(2) of this section, such savings association may have total loans 
and extensions of credit, for any purpose, to one borrower outstanding 
at one time not to exceed $500,000.
    (2) Statutory exceptions. The exceptions to the lending limits set 
forth in 12 U.S.C. 84 and 12 CFR part 32 are applicable to savings 
associations in the same manner and to the extent as they apply to 
national banks.
    (3) Loans to develop domestic residential housing units. Subject to 
paragraph (d)(4) of this section, a savings association may make loans 
to one borrower to develop domestic residential housing units, not to 
exceed the lesser of $30,000,000 or 30 percent of the savings 
association's unimpaired capital and unimpaired surplus, including all 
amounts loaned under the authority of the General Limitation set forth 
under paragraphs (c)(1) and (c)(2) of this section, provided that:
    (i) The final purchase price of each single family dwelling unit the 
development of which is financed under this paragraph (d)(3) does not 
exceed $500,000;
    (ii) The savings association is, and continues to be, in compliance 
with its capital requirements under part 167 of this chapter.
    (iii) The appropriate Federal banking agency permits, subject to 
conditions it may impose, the savings association to use the higher 
limit set forth under this paragraph (d)(3). A savings association that 
meets the requirements of paragraphs (d)(3)(i), (ii), (iv) and (v) of 
this section and that meets the requirements for ``expedited treatment'' 
under Sec. 116.5 of this chapter may use the higher limit set forth 
under this paragraph (d)(3) if the savings association has filed a 
notice with the appropriate Federal banking agency that it intends to 
use the higher limit at least 30 days prior to the proposed use. A 
savings association that meets the requirements of paragraphs (d)(3)(i), 
(ii), (iv), and (v) of this section and that meets the requirements for 
``standard treatment'' under Sec. 116.5 of this chapter may use the 
higher limit set forth under this paragraph (d)(3) if the savings 
association has filed an application with the appropriate Federal 
banking agency and the agency has approved the use the higher limit;
    (iv) Loans made under this paragraph (d)(3) to all borrowers do not, 
in aggregate, exceed 150 percent of the savings association's unimpaired 
capital and unimpaired surplus; and
    (v) Such loans comply with the applicable loan-to-value requirements 
that apply to Federal savings associations.
    (4) The authority of a savings association to make a loan or 
extension of credit under the exception in paragraph (d)(3) of this 
section ceases immediately upon the association's failure to comply with 
any one of the requirements set forth in paragraph (d)(3) of this 
section or any condition(s) set forth in an order issued by the 
appropriate Federal banking agency under paragraph (d)(3)(iii) of this 
section.
    (5) Notwithstanding the limit set forth in paragraphs (c)(1) and 
(c)(2) of this section, a savings association may invest up to 10 
percent of unimpaired

[[Page 651]]

capital and unimpaired surplus in the obligations of one issuer 
evidenced by:
    (i) Commercial paper rated, as of the date of purchase, as shown by 
the most recently published rating by at least two nationally recognized 
investment rating services in the highest category; or
    (ii) Corporate debt securities that may be sold with reasonable 
promptness at a price that corresponds reasonably to their fair value, 
and that are rated in one of the two highest categories by a nationally 
recognized investment rating service in its most recently published 
ratings before the date of purchase of the security.
    (e) Loans to finance the sale of REO. A savings association's loans 
to one borrower to finance the sale of real property acquired in 
satisfaction of debts previously contracted for in good faith shall not, 
when aggregated with all other loans to such borrower, exceed the 
General Limitation in paragraph (c)(1) of this section.
    (f) Calculating compliance and recordkeeping. (1) The amount of an 
association's unimpaired capital and unimpaired surplus pursuant to 
paragraph (b)(11) of this section shall be calculated as of the 
association's most recent periodic report required to be filed with the 
appropriate Federal banking agency prior to the date of granting or 
purchasing the loan or otherwise creating the obligation to repay funds, 
unless the association knows, or has reason to know, based on 
transactions or events actually completed, that such level has changed 
significantly, upward or downward, subsequent to filing of such report.
    (2) If a savings association or subsidiary thereof makes a loan or 
extension of credit to any one borrower, as defined in paragraph (b)(1) 
of this section, in an amount that, when added to the total balances of 
all outstanding loans owed to such association and its subsidiary by 
such borrower, exceeds the greater of $500,000 or 5 percent of 
unimpaired capital and unimpaired surplus, the records of such 
association or its subsidiary with respect to such loan shall include 
documentation showing that such loan was made within the limitations of 
paragraphs (c) and (d) of this section; for the purpose of such 
documentation such association or subsidiary may require, and may accept 
in good faith, a certification by the borrower identifying the persons, 
entities, and interests described in the definition of one borrower in 
paragraph (b)(1) of this section.
    (g) [Reserved]
    (h) More stringent restrictions for Federal savings associations. 
The Comptroller may impose more stringent restrictions on a Federal 
savings association's loans to one borrower if the Comptroller 
determines that such restrictions are necessary to protect the safety 
and soundness of the savings association.

                Appendix to Sec. 160.93--Interpretations

 Section 160.93-100 Interrelation of General Limitation With Exception 
         for Loans To Develop Domestic Residential Housing Units

    1. The Sec. 160.93(d)(3) exception for loans to one person to 
develop domestic residential housing units is characterized in the 
regulation as an ``alternative'' limit. This exceptional $30,000,000 or 
30 percent limitation does not operate in addition to the 15 percent 
General Limitation or the 10 percent additional amount an association 
may loan to one borrower secured by readily marketable collateral, but 
serves as the uppermost limitation on a savings association's lending to 
any one person once an association employs this exception.
    Example: Savings Associations A's lending limitation as calculated 
under the 15 percent General Limitation is $800, 0. If Association A 
lends Y $800,000 for commercial purposes, Association A cannot lend Y an 
additional $1,600,000, or 30 percent of capital and surplus, to develop 
residential housing units under the paragraph (d)(3) exception. The 
(d)(3) exception operates as the uppermost limitation on all lending to 
one borrower (for associations that may employ this exception) and 
includes any amounts loaned to the same borrower under the General 
Limitation. Association A, therefore, may lend only an additional 
$800,000 to Y, provided the paragraph (d)(3) prerequisites have been 
met. The amount loaned under the authority of the General Limitation 
($800,000), when added to the amount loaned under the exception 
($800,000), yields a sum that does not exceed the 30 percent uppermost 
limitation ($1,600,000).
    2. This result does not change even if the facts are altered to 
assume that some or all of the $800,000 amount of lending permissible 
under the General Limitation's 15 percent basket is not used, or is 
devoted to the development of domestic residential housing units.

[[Page 652]]

    In other words, using the above example, if Association A lends Y 
$400,000 for commercial purposes and $300,000 for residential purposes--
both of which would be permitted under the Association's $800,000 
General Limitation--Association A's remaining permissible lending to Y 
would be: First, an additional $100,000 under the General Limitation, 
and then another $800,000 to develop domestic residential housing units 
if the Association meets the paragraph (d)(3) prerequisites. (The latter 
is $800,000 because in no event may the total lending to Y exceed 30 
percent of unimpaired capital and unimpaired surplus). If Association A 
did not lend Y the remaining $100,000 permissible under the General 
Limitation, its permissible loans to develop domestic residential 
housing units under paragraph (d)(3) would be $900,000 instead of 
$800,000 (the total loans to Y would still equal $1,600,000).
    3. In short, under the paragraph (d)(3) exception, the 30 percent or 
$30,000,000 limit will always operate as the uppermost limitation, 
unless of course the association does not avail itself of the exception 
and merely relies upon its General Limitation.

Section 160.93-101 Interrelationship Between the General Limitation and 
  the 150 Percent Aggregate Limit on Loans to all Borrowers To Develop 
                   Domestic Residential Housing Units

    1. Numerous questions have been received regarding the allocation of 
loans between the different lending limit ``baskets,'' i.e., the 15 
percent General Limitation basket and the 30 percent Residential 
Development basket. In general, the inquiries concern the manner in 
which an association may ``move'' a loan from the General Limitation 
basket to the Residential Development basket. The following example is 
intended to provide guidance:
    Example: Association A's General Limitation under section 5(u)(1) is 
$15 million. In January, Association A makes a $10 million loan to 
Borrower to develop domestic residential housing units. At the time the 
loan was made, Association A had not received approval under an order 
issued by the appropriate Federal banking agency to avail itself of the 
residential development exception to lending limits. Therefore, the $10 
million loan is made under Association A's General Limitation.
    2. In June, Association A receives authorization to lend under the 
Residential Development exception. In July, Association A lends $3 
million to Borrower to develop domestic residential housing units. In 
August, Borrower seeks an additional $12 million commercial loan from 
Association A. Association A cannot make the loan to Borrower, however, 
because it already has an outstanding $10 million loan to Borrower that 
counts against Association A's General Limitation of $15 million. Thus, 
Association A may lend only up to an additional $5 million to Borrower 
under the General Limitation.
    3. However, Association A may be able to reallocate the $10 million 
loan it made to Borrower in January to its Residential Development 
basket provided that: (1) Association A has obtained authority under an 
order issued by the appropriate Federal banking agency to avail itself 
of the additional lending authority for residential development and 
maintains compliance with all prerequisites to such lending authority; 
(2) the original $10 million loan made in January constitutes a loan to 
develop domestic residential housing units as defined; and (3) the 
housing unit(s) constructed with the funds from the January loan remain 
in a stage of ``development'' at the time Association A reallocates the 
loan to the domestic residential housing basket. The project must be in 
a stage of acquisition, development, construction, rehabilitation, or 
conversion in order for the loan to be reallocated.
    4. If Association A is able to reallocate the $10 million loan made 
to Borrower in January to its Residential Development basket, it may 
make the $12 million commercial loan requested by Borrower in August. 
Once the January loan is reallocated to the Residential Development 
basket, however, the $10 million loan counts towards Association's 150 
percent aggregate limitation on loans to all borrowers under the 
residential development basket (section 5(u)(2)(A)(ii)(IV)).
    5. If Association A reallocates the January loan to its domestic 
residential housing basket and makes an additional $12 million 
commercial loan to Borrower, Association A's totals under the respective 
limitations would be: $12 million under the General Limitation; and $13 
million under the Residential Development limitation. The full $13 
million residential development loan counts toward Association A's 
aggregate 150 percent limitation.



Sec. 160.100  Real estate lending standards; purpose and scope.

    This section, and Sec. 160.101 of this subpart, issued pursuant to 
section 304 of the Federal Deposit Insurance Corporation Improvement Act 
of 1991, 12 U.S.C. 1828(o), prescribe standards for real estate lending 
to be used by Federal savings associations and all their includable 
subsidiaries, as defined in 12 CFR 167.1, over which the savings 
associations exercise control, in adopting internal real estate lending 
policies.

[[Page 653]]



Sec. 160.101  Real estate lending standards.

    (a) Each Federal savings association 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;
    (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 savings association'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 savings association's 
real estate portfolio; and
    (iv) Documentation, approval, and reporting requirements to monitor 
compliance with the savings association's real estate lending policies.
    (c) Each Federal savings association 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.

   Appendix to Sec. 160.101--Interagency Guidelines for Real Estate 
                            Lending Policies

    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 (Board); 12 CFR 
part 34, subpart D and 12 CFR 160.100-160.101 (OCC).
---------------------------------------------------------------------------

    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:

[[Page 654]]

     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 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:

[[Page 655]]



------------------------------------------------------------------------
                                                          Loan-to-value
                     Loan category                       limit (percent)
------------------------------------------------------------------------
Raw land..............................................                65
Land development......................................                75
Construction:
    Commercial, multifamily,\1\ and other                             80
     nonresidential...................................
    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.

    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' 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 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'' as described in part 
167 of this chapter.
---------------------------------------------------------------------------

    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

[[Page 656]]

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.
     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.

[[Page 657]]

                               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.
    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).



Sec. 160.110  Most favored lender usury preemption for all savings 

associations.

    (a) Definition. The term ``interest'' as used in 12 U.S.C. 1463(g) 
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, not sufficient funds (NSF) fees, overlimit fees, annual fees, cash 
advance fees, and membership fees. It does not ordinarily include 
appraisal fees, premiums and commissions attributable to insurance 
guaranteeing

[[Page 658]]

repayment of any extension of credit, finders' fees, fees for document 
preparation or notarization, or fees incurred to obtain credit reports.
    (b) Authority. A savings association 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 
Federal savings association 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 
Federal savings association 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. State supervisors determine the 
degree to which state-chartered savings associations must comply with 
state laws other than those imposing restrictions on interest, as 
defined in paragraph (a) of this section.
    (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 
savings association is located but state law permits its most favored 
lender to charge late fees, then a savings association located in that 
state may charge late fees to its intrastate customers. The savings 
association 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 savings association 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.



Sec. 160.120  Letters of credit and other independent undertakings to pay 

against documents.

    (a) General authority. A Federal savings association may issue and 
commit to issue letters of credit within the scope of applicable laws or 
rules of practice recognized by law. It may also issue other independent 
undertakings within the scope of such laws or rules of practice 
recognized by law, that have been approved by the OCC (approved 
undertaking).\1\ Under such letters of credit and approved undertakings, 
the savings association'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 account party and the beneficiary. A savings association 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\ Samples of laws or rules of practice applicable to letters of 
credit and other independent undertakings include, but are not limited 
to: 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.); the Uniform Customs 
and Practice for Documentary Credits (International Chamber of Commerce 
(ICC) Publication No. 500) (available from ICC Publishing, Inc.; the 
United Nations Convention on Independent Guarantees and Standby 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); and the Uniform Rules for Bank-to-Bank Reimbursements Under 
Documentary Credits (ICC Publication No. 525) (available from ICC 
Publishing, Inc.).
---------------------------------------------------------------------------

    (b) Safety and soundness considerations--(1) Terms. As a matter of 
safe and sound banking practice, Federal savings associations that issue 
letters of credit or approved undertakings should not be exposed to 
undue risk. At a minimum, savings associations should consider the 
following:
    (i) The independent character of the letter of credit or approved 
undertaking should be apparent from its terms (such as terms that 
subject it to

[[Page 659]]

laws or rules providing for its independent character);
    (ii) The letter of credit or approved undertaking should be limited 
in amount;
    (iii) The letter of credit or approved undertaking should:
    (A) Be limited in duration; or
    (B) Permit the savings association to terminate the letter of credit 
or approved undertaking, either on a periodic basis (consistent with the 
savings association's ability to make any necessary credit assessments) 
or at will upon either notice or payment to the beneficiary; or
    (C) Entitle the savings association to cash collateral from the 
account party on demand (with a right to accelerate the customer's 
obligations, as appropriate); and
    (iv) The savings association either should be fully collateralized 
or have a post-honor right of reimbursement from its customer or from 
another issuer of a letter of credit or an independent undertaking. 
Alternatively, if the savings association's undertaking is to purchase 
documents of title, securities, or other valuable documents, it should 
obtain a first priority right to realize on the documents if the savings 
association is not otherwise to be reimbursed.
    (2) Additional considerations in special circumstances. Certain 
letters of credit and approved 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 savings association should ensure 
that market fluctuations that affect the value of the item will not 
cause the savings association to assume undue market risk;
    (ii) In the event that the undertaking provides for automatic 
renewal, the terms for renewal should allow the savings association to 
make any necessary credit assessment prior to renewal;
    (iii) In the event that a savings association issues an undertaking 
for its own account, the underlying transaction for which it is issued 
must be within the savings association's authority and comply with any 
safety and soundness requirements applicable to that transaction.
    (3) Operational expertise. The savings association should possess 
operational expertise that is commensurate with the sophistication of 
its letter of credit or independent undertaking activities.
    (4) Documentation. The savings association must accurately reflect 
its letters of credit or approved undertakings in its records, including 
any acceptance or deferred payment or other absolute obligation arising 
out of its contingent undertaking.



Sec. 160.121  Investment in state housing corporations.

    (a) Any Federal savings association to the extent it has legal 
authority to do so, may make investments in, commitments to invest in, 
loans to, or commitments to lend to any state housing corporation; 
provided, that such obligations or loans are secured directly, or 
indirectly through a fiduciary, by a first lien on improved real estate 
which is insured under the National Housing Act, as amended, and that in 
the event of default, the holder of such obligations or loans has the 
right directly, or indirectly through a fiduciary, to subject to the 
satisfaction of such obligations or loans the real estate described in 
the first lien, or the insurance proceeds.
    (b) Any Federal savings association that is adequately capitalized 
may, to the extent it has legal authority to do so, invest in 
obligations (including loans) of, or issued by, any state housing 
corporation incorporated in the state in which such savings association 
has its home or a branch office; provided (except with respect to 
loans), that:
    (1) The obligations are rated in one of the four highest grades as 
shown by the most recently published rating made of such obligations by 
a nationally recognized rating service; or
    (2) The obligations, if not rated, are approved by the OCC. The 
aggregate outstanding direct investment in obligations under paragraph 
(b) of this section shall not exceed the amount of the savings 
association's total capital.
    (c) Each state housing corporation in which a savings association 
invests under the authority of paragraph (b) of

[[Page 660]]

this section shall agree, before accepting any such investment 
(including any loan or loan commitment), to make available at any time 
to the OCC such information as the OCC may consider to be necessary to 
ensure that investments are properly made under this section.



Sec. 160.130  Prohibition on loan procurement fees.

    If you are a director, officer, or other natural person having the 
power to direct the management or policies of a Federal savings 
association, you must not receive, directly or indirectly, any 
commission, fee, or other compensation in connection with the 
procurement of any loan made by the savings association or a subsidiary 
of the savings association.



Sec. 160.160  Asset classification.

    (a)(1) Each savings association must evaluate and classify its 
assets on a regular basis in a manner consistent with, or reconcilable 
to, the asset classification system used by the OCC.
    (2) In connection with the examination of a savings association or 
its affiliates, OCC examiners may identify problem assets and classify 
them, if appropriate. The association must recognize such examiner 
classifications in its subsequent reports to the OCC.
    (b) Based on the evaluation and classification of its assets, each 
savings association shall establish adequate valuation allowances or 
charge-offs, as appropriate, consistent with generally accepted 
accounting principles and the practices of the Federal banking agencies.



Sec. 160.170  Records for lending transactions.

    In establishing and maintaining its records pursuant to Sec. 
163.170 of this chapter, each Federal savings association and service 
corporation should establish and maintain loan documentation practices 
that:
    (a) Ensure that the institution can make an informed lending 
decision and can assess risk on an ongoing basis;
    (b) Identify the purpose and all sources of repayment for each loan, 
and assess the ability of the borrower(s) and any guarantor(s) to repay 
the indebtedness in a timely manner;
    (c) Ensure that any claims against a borrower, guarantor, security 
holders, and collateral are legally enforceable;
    (d) Demonstrate appropriate administration and monitoring of its 
loans; and
    (e) Take into account the size and complexity of its loans.



Sec. 160.172  Re-evaluation of real estate owned.

    A Federal savings association shall appraise each parcel of real 
estate owned at the earlier of in-substance foreclosure or at the time 
of the savings association's acquisition of such property, and at such 
times thereafter as dictated by prudent management policy; such 
appraisals shall be consistent with the requirements of part 164 of this 
chapter. The Comptroller or his or her designee may require subsequent 
appraisals if, in his or her discretion, such subsequent appraisal is 
necessary under the particular circumstances. The foregoing requirement 
shall not apply to any parcel of real estate that is sold and reacquired 
less than 12 months subsequent to the most recent appraisal made 
pursuant to this part. A dated, signed copy of each report of appraisal 
made pursuant to any provisions of this part shall be retained in the 
savings association's records.



                          Subpart C [Reserved]



Sec. 160.210  [Reserved]



Sec. 160.220  [Reserved]



PART 161_DEFINITIONS FOR REGULATIONS AFFECTING ALL SAVINGS ASSOCIATIONS--Table 

of Contents



Sec.
161.1 When do the definitions in this part apply?
161.2 Account.
161.3 Accountholder.
161.4 Affiliate.
161.5 Affiliated person.
161.6 Audit period.
161.7 Appropriate Federal banking agency.
161.8 [Reserved]
161.9 Certificate account.
161.10 Comptroller

[[Page 661]]

161.12 Consumer credit.
161.14 Controlling person.
161.15 Corporation.
161.16 Demand accounts.
161.18 Director.
161.19 Financial institution.
161.24 Immediate family.
161.26 Land loan.
161.27 Low-rent housing.
161.28 Money Market Deposit Accounts.
161.29 Negotiable Order of Withdrawal Accounts.
161.30 Nonresidential construction loan.
161.31 Nonwithdrawable account.
161.33 Note account.
161.34 OCC.
161.35 Officer.
161.37 Parent company; subsidiary.
161.38 Political subdivision.
161.39 Principal office.
161.40 Public unit.
161.41 [Reserved]
161.42 Savings account.
161.43 Savings association.
161.44 Security.
161.45 Service corporation.
161.50 State.
161.51 Subordinated debt security.
161.52 Tax and loan account.
161.53 United States Treasury General Account.
161.54 United States Treasury Time Deposit Open Account.
161.55 With recourse.

    Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 5412(b)(2)(B).

    Source: 76 FR 49043, Aug. 9, 2011, unless otherwise noted.



Sec. 161.1  When do the definitions in this part apply?

    The definitions in this part and in 12 CFR part 141 apply throughout 
parts 100-199 of this chapter, unless another definition is specifically 
provided.



Sec. 161.2  Account.

    The term account means any savings account, demand account, 
certificate account, tax and loan account, note account, United States 
Treasury general account or United States Treasury time deposit-open 
account, whether in the form of a deposit or a share, held by an 
accountholder in a savings association.



Sec. 161.3  Accountholder.

    The term accountholder means the holder of an account or accounts in 
a savings association insured by the Deposit Insurance Fund. The term 
does not include the holder of any subordinated debt security or any 
mortgage-backed bond issued by the savings association.



Sec. 161.4  Affiliate.

    The term affiliate of a savings association, unless otherwise 
defined, means any corporation, business trust, association, or other 
similar organization:
    (a) Of which a savings association, directly or indirectly, owns or 
controls either a majority of the voting shares or more than 50 per 
centum of the number of shares voted for the election of its directors, 
trustees, or other persons exercising similar functions at the preceding 
election, or controls in any manner the election of a majority of its 
directors, trustees, or other persons exercising similar functions; or
    (b) Of which control is held, directly or indirectly through stock 
ownership or in any other manner, by the shareholders of a savings 
association who own or control either a majority of the shares of such 
savings association or more than 50 per centum of the number of shares 
voted for the election of directors of such savings association at the 
preceding election, or by trustees for the benefit of the shareholders 
of any such savings association; or
    (c) Of which a majority of its directors, trustees, or other persons 
exercising similar functions are directors of any one savings 
association.



Sec. 161.5  Affiliated person.

    The term affiliated person of a savings association means the 
following:
    (a) A director, officer, or controlling person of such association;
    (b) A spouse of a director, officer, or controlling person of such 
association;
    (c) A member of the immediate family of a director, officer, or 
controlling person of such association, who has the same home as such 
person or who is a director or officer of any subsidiary of such 
association or of any holding company affiliate of such association;
    (d) Any corporation or organization (other than the savings 
association or a corporation or organization through which the savings 
association operates) of which a director, officer or the controlling 
person of such association:

[[Page 662]]

    (1) Is chief executive officer, chief financial officer, or a person 
performing similar functions;
    (2) Is a general partner;
    (3) Is a limited partner who, directly or indirectly either alone or 
with his or her spouse and the members of his or her immediate family 
who are also affiliated persons of the association, owns an interest of 
10 percent or more in the partnership (based on the value of his or her 
contribution) or who, directly or indirectly with other directors, 
officers, and controlling persons of such association and their spouses 
and their immediate family members who are also affiliated persons of 
the association, owns an interest of 25 percent or more in the 
partnership; or
    (4) Directly or indirectly either alone or with his or her spouse 
and the members of his or her immediate family who are also affiliated 
persons of the association, owns or controls 10 percent or more of any 
class of equity securities or owns or controls, with other directors, 
officers, and controlling persons of such association and their spouses 
and their immediate family members who are also affiliated persons of 
the association, 25 percent or more of any class of equity securities; 
and
    (5) Any trust or other estate in which a director, officer, or 
controlling person of such association or the spouse of such person has 
a substantial beneficial interest or as to which such person or his or 
her spouse serves as trustee or in a similar fiduciary capacity.



Sec. 161.6  Audit period.

    The audit period of a savings association means the twelve month 
period (or other period in the case of a change in audit period) covered 
by the annual audit conducted to satisfy Sec. 163.170 of this chapter.



Sec. 161.7  Appropriate Federal banking agency.

    The term appropriate Federal banking agency means appropriate 
Federal banking agency as that term is defined in 12 U.S.C. 1813(q).



Sec. 161.8  [Reserved]



Sec. 161.9  Certificate account.

    The term certificate account means a savings account evidenced by a 
certificate that must be held for a fixed or minimum term.



Sec. 161.10  Comptroller.

    The term Comptroller means the Comptroller of the Currency.



Sec. 161.12  Consumer credit.

    The term consumer credit means credit extended to a natural person 
for personal, family, or household purposes, including loans secured by 
liens on real estate and chattel liens secured by mobile homes and 
leases of personal property to consumers that may be considered the 
functional equivalent of loans on personal security: Provided, the 
savings association relies substantially upon other factors, such as the 
general credit standing of the borrower, guaranties, or security other 
than the real estate or mobile home, as the primary security for the 
loan. Appropriate evidence to demonstrate justification for such 
reliance should be retained in a savings association's files. Among the 
types of credit included within this term are consumer loans; 
educational loans; unsecured loans for real property alteration, repair 
or improvement, or for the equipping of real property; loans in the 
nature of overdraft protection; and credit extended in connection with 
credit cards.



Sec. 161.14  Controlling person.

    The term controlling person of a savings association means any 
person or entity which, either directly or indirectly, or acting in 
concert with one or more other persons or entities, owns, controls, or 
holds with power to vote, or holds proxies representing, ten percent or 
more of the voting shares or rights of such savings association; or 
controls in any manner the election or appointment of a majority of the 
directors of such savings association. However, a director of a savings 
association will not be deemed to be a controlling person of such 
savings association based upon his or her voting, or acting in concert 
with other directors in voting, proxies:

[[Page 663]]

    (a) Obtained in connection with an annual solicitation of proxies, 
or
    (b) Obtained from savings account holders and borrowers if such 
proxies are voted as directed by a majority vote of the entire board of 
directors of such association, or of a committee of such directors if 
such committee's composition and authority are controlled by a majority 
vote of the entire board and if its authority is revocable by such a 
majority.



Sec. 161.15  Corporation.

    The terms Corporation and FDIC mean the Federal Deposit Insurance 
Corporation.



Sec. 161.16  Demand accounts.

    The term demand accounts means non-interest-bearing demand deposits 
that are subject to check or to withdrawal or transfer on negotiable or 
transferable order to the savings association and that are permitted to 
be issued by statute, regulation, or otherwise and are payable on 
demand.



Sec. 161.18  Director.

    (a) The term director means any director, trustee, or other person 
performing similar functions with respect to any organization whether 
incorporated or unincorporated. Such term does not include an advisory 
director, honorary director, director emeritus, or similar person, 
unless the person is otherwise performing functions similar to those of 
a director.
    (b) [Reserved]



Sec. 161.19  Financial institution.

    The term financial institution has the same meaning as the term 
depository institution set forth in 12 U.S.C. 1813(c)(1).



Sec. 161.24  Immediate family.

    The term immediate family of any natural person means the following 
(whether by the full or half blood or by adoption):
    (a) Such person's spouse, father, mother, children, brothers, 
sisters, and grandchildren;
    (b) The father, mother, brothers, and sisters of such person's 
spouse; and
    (c) The spouse of a child, brother, or sister of such person.



Sec. 161.26  Land loan.

    The term land loan means a loan:
    (a) Secured by real estate upon which all facilities and 
improvements have been completely installed, as required by local 
regulations and practices, so that it is entirely prepared for the 
erection of structures;
    (b) To finance the purchase of land and the accomplishment of all 
improvements required to convert it to developed building lots; or
    (c) Secured by land upon which there is no structure.



Sec. 161.27  Low-rent housing.

    The term low-rent housing means real estate which is, or which is 
being constructed, remodeled, rehabilitated, modernized, or renovated to 
be, the subject of an annual contributions contract for low-rent housing 
under the provisions of the United States Housing Act of 1937, as 
amended.



Sec. 161.28  Money Market Deposit Accounts.

    (a) Money Market Deposit Accounts (MMDAs) offered by Federal savings 
associations in accordance with 12 U.S.C. 1464(b)(1) and by state-
chartered savings associations in accordance with applicable state law 
are savings accounts on which interest may be paid if issued subject to 
the following limitations:
    (1) The savings association shall reserve the right to require at 
least seven days' notice prior to withdrawal or transfer of any funds in 
the account; and
    (2)(i) The depositor is authorized by the savings association to 
make no more than six transfers per calendar month or statement cycle 
(or similar period) of at least four weeks by means of preauthorized, 
automatic, telephonic, or data transmission agreement, order, or 
instruction to another account of the depositor at the same savings 
association to the savings association itself, or to a third party.
    (ii) Savings associations may permit holders of MMDAs to make 
unlimited transfers for the purpose of repaying loans (except overdraft 
loans on the depositor's demand account) and associated expenses at the 
same savings association (as originator or servicer), to

[[Page 664]]

make unlimited transfers of funds from this account to another account 
of the same depositor at the same savings association or to make 
unlimited payments directly to the depositor from the account when such 
transfers or payments are made by mail, messenger, automated teller 
machine, or in person, or when such payments are made by telephone (via 
check mailed to the depositor).
    (3) In order to ensure that no more than the number of transfers 
specified in paragraph (a)(2)(i) of this section are made, a savings 
association must either:
    (i) Prevent transfers of funds in excess of the limitations; or
    (ii) Adopt procedures to monitor those transfers on an after-the-
fact basis and contact customers who exceed the limits on more than an 
occasional basis. For customers who continue to violate those limits 
after being contacted by the depository savings association the 
depository savings association must either place funds in another 
account that the depositor is eligible to maintain or take away the 
account's transfer and draft capacities.
    (iii) Insured savings association at their option, may use on a 
consistent basis either the date on a check or the date it is paid in 
determining whether the transfer limitations within the specified 
interval are exceeded.
    (b) Federal savings associations may offer MMDAs to any depositor, 
and state-chartered savings associations may offer MMDAs to any 
depositor not inconsistent with applicable state law.



Sec. 161.29  Negotiable Order of Withdrawal Accounts.

    (a) Negotiable Order of Withdrawal (NOW) accounts are savings 
accounts authorized by 12 U.S.C. 1832 on which the savings association 
reserves the right to require at least seven days' notice prior to 
withdrawal or transfer of any funds in the account.
    (b) For purposes of 12 U.S.C. 1832:
    (1) An organization shall be deemed ``operated primarily for 
religious, philanthropic, charitable, educational, or other similar 
purposes and * * * not * * * for profit'' if it is described in sections 
501(c)(3) through (13), 501(c)(19), or 528 of the Internal Revenue Code; 
and
    (2) The funds of a sole proprietorship or unincorporated business 
owned by a husband and wife shall be deemed beneficially owned by ``one 
or more individuals.''



Sec. 161.30  Nonresidential construction loan.

    The term nonresidential construction loan means a loan for 
construction of other than one or more dwelling units.



Sec. 161.31  Nonwithdrawable account.

    The term nonwithdrawable account means an account which by the terms 
of the contract of the accountholder with the savings association or by 
provisions of state law cannot be paid to the accountholder until all 
liabilities, including other classes of share liability of the savings 
association have been fully liquidated and paid upon the winding up of 
the savings association is referred to as a nonwithdrawable account.



Sec. 161.33  Note account.

    The term note account means a note, subject to the right of 
immediate call, evidencing funds held by depositories electing the note 
option under applicable United States Treasury Department regulations. 
Note accounts are not savings accounts or savings deposits.



Sec. 161.34  OCC.

    The term OCC means Office of the Comptroller of the Currency.



Sec. 161.35  Officer.

    The term Officer means the president, any vice-president (but not an 
assistant vice-president, second vice-president, or other vice president 
having authority similar to an assistant or second vice-president), the 
secretary, the treasurer, the comptroller, and any other person 
performing similar functions with respect to any organization whether 
incorporated or unincorporated. The term officer also includes the 
chairman of the board of directors if the chairman is authorized by the 
charter or by-laws of the organization to participate in its operating 
management or if the chairman in fact participates in such management.

[[Page 665]]



Sec. 161.37  Parent company; subsidiary.

    The term parent company means any company which directly or 
indirectly controls any other company or companies. The term subsidiary 
means any company which is owned or controlled directly or indirectly by 
a person, and includes any service corporation owned in whole or in part 
by a savings association, or a subsidiary of such service corporation.



Sec. 161.38  Political subdivision.

    The term political subdivision includes any subdivision of a public 
unit, any principal department of such public unit:
    (a) The creation of which subdivision or department has been 
expressly authorized by state statute,
    (b) To which some functions of government have been delegated by 
state statute, and
    (c) To which funds have been allocated by statute or ordinance for 
its exclusive use and control. It also includes drainage, irrigation, 
navigation, improvement, levee, sanitary, school or power districts and 
bridge or port authorities and other special districts created by state 
statute or compacts between the states. Excluded from the term are 
subordinate or nonautonomous divisions, agencies or boards within 
principal departments.



Sec. 161.39  Principal office.

    The term principal office means the home office of a savings 
association established as such in conformity with the laws under which 
the savings association is organized.



Sec. 161.40  Public unit.

    The term public unit means the United States, any state of the 
United States, the District of Columbia, any territory of the United 
States, Puerto Rico, the Virgin Islands, any county, any municipality or 
any political subdivision thereof.



Sec. 161.41  [Reserved]



Sec. 161.42  Savings account.

    The term savings account means any withdrawable account, except a 
demand account as defined in Sec. 161.16 of this chapter, a tax and 
loan account, a note account, a United States Treasury general account, 
or a United States Treasury time deposit-open account.



Sec. 161.43  Savings association.

    The term savings association means a savings association as defined 
in section 3 of the Federal Deposit Insurance Act, the deposits of which 
are insured by the Corporation. It includes a Federal savings 
association or Federal savings bank, chartered under section 5 of the 
Act, or a building and loan, savings and loan, or homestead association, 
or a cooperative bank (other than a cooperative bank which is a state 
bank as defined in section 3(a)(2) of the Federal Deposit Insurance Act) 
organized and operating according to the laws of the state in which it 
is chartered or organized, or a corporation (other than a bank as 
defined in section 3(a)(1) of the Federal Deposit Insurance Act) that 
the Board of Directors of the Federal Deposit Insurance Corporation and 
the Comptroller jointly determine to be operating substantially in the 
same manner as a savings association.



Sec. 161.44  Security.

    The term security means any non-withdrawable account, note, stock, 
treasury stock, bond, debenture, evidence of indebtedness, certificate 
of interest or participation in any profit-sharing agreement, 
collateral-trust certificate, preorganization certificate or 
subscription, transferable share, investment contract, voting-trust 
certificate, or, in general, any interest or instrument commonly known 
as a security, or any certificate of interest or participation in, 
temporary or interim certificate for, receipt for, guarantee of, or 
warrant or right to subscribe to or purchase, any of the foregoing, 
except that a security shall not include an account or deposit insured 
by the Federal Deposit Insurance Corporation.



Sec. 161.45  Service corporation.

    The term service corporation means any corporation, the majority of 
the capital stock of which is owned by one or more savings associations 
and which engages, directly or indirectly, in any activities similar to 
activities which

[[Page 666]]

may be engaged in by a service corporation in which a Federal savings 
association may invest under part 159 of this chapter.



Sec. 161.50  State.

    The term state means a state, the District of Columbia, Guam, Puerto 
Rico, and the Virgin Islands of the United States.



Sec. 161.51  Subordinated debt security.

    The term subordinated debt security means any unsecured note, 
debenture, or other debt security issued by a savings association and 
subordinated on liquidation to all claims having the same priority as 
account holders or any higher priority.



Sec. 161.52  Tax and loan account.

    The term tax and loan account means an account, the balance of which 
is subject to the right of immediate withdrawal, established for receipt 
of payments of Federal taxes and certain United States obligations. Such 
accounts are not savings accounts or savings deposits.



Sec. 161.53  United States Treasury General Account.

    The term United States Treasury General Account means an account 
maintained in the name of the United States Treasury the balance of 
which is subject to the right of immediate withdrawal, except in the 
case of the closure of the member, and in which a zero balance may be 
maintained. Such accounts are not savings accounts or savings deposits.



Sec. 161.54  United States Treasury Time Deposit Open Account.

    The term United States Treasury Time Deposit Open Account means a 
non-interest-bearing account maintained in the name of the United States 
Treasury which may not be withdrawn prior to the expiration of 30 days' 
written notice from the United States Treasury, or such other period of 
notice as the Treasury may require. Such accounts are not savings 
accounts or savings deposits.



Sec. 161.55  With recourse.

    (a) The term with recourse means, in connection with the sale of a 
loan or a participation interest in a loan, an agreement or arrangement 
under which the purchaser is to be entitled to receive from the seller a 
sum of money or thing of value, whether tangible or intangible 
(including any substitution), upon default in payment of any loan 
involved or any part thereof or to withhold or to have withheld from the 
seller a sum of money or anything of value by way of security against 
default. The recourse liability resulting from a sale with recourse 
shall be the total book value of any loan sold with recourse less:
    (1) The amount of any insurance or guarantee against loss in the 
event of default provided by a third party,
    (2) The amount of any loss to be borne by the purchaser in the event 
of default, and
    (3) The amount of any loss resulting from a recourse obligation 
entered on the books and records of the savings association.
    (b) The term with recourse does not include loans or interests 
therein where the agreement of sale provides for the savings association 
directly or indirectly:
    (1) To hold or retain a subordinate interest in a specified 
percentage of the loans or interests; or
    (2) To guarantee against loss up to a specified percentage of the 
loans or interests, which specified percentage shall not exceed ten 
percent of the outstanding balance of the loans or interests at the time 
of sale: Provided, That the savings association designates adequate 
reserves for the subordinate interest or guarantee.
    (c) This definition does not apply for purposes of determining the 
capital adequacy requirements under part 167 of this chapter.



PART 162_REGULATORY REPORTING STANDARDS--Table of Contents



Sec.
162.1 Regulatory reporting requirements.
162.2 Regulatory reports.
162.4 Audit of Federal savings associations.

    Authority: 12 U.S.C. 1463, 5412(b)(2)(B).

[[Page 667]]


    Source: 76 FR 49046, Aug. 9, 2011, unless otherwise noted.



Sec. 162.1  Regulatory reporting requirements.

    (a) Authority and scope. This part is issued by the Office of the 
Comptroller of the Currency (OCC) pursuant to section 4(b) and 4(c) of 
the Home Owners' Loan Act (HOLA) (12 U.S.C. 1463(b) and 1463(c)). It 
applies to all Federal savings associations regulated by the OCC.
    (b) Records and reports--general--(1) Records. Each savings 
association and its affiliates shall maintain accurate and complete 
records of all business transactions. Such records shall support and be 
readily reconcilable to any regulatory reports submitted to the OCC and 
financial reports prepared in accordance with GAAP. The records shall be 
maintained in the United States and be readily accessible for 
examination and other supervisory purposes within 5 business days upon 
request by the OCC, at a location acceptable to the OCC.
    (2) Reports. For purposes of examination by and regulatory reports 
to the OCC and compliance with this chapter, all savings associations 
shall use such forms and follow such regulatory reporting requirements 
as the OCC may require by regulation or otherwise.



Sec. 162.2  Regulatory reports.

    (a) Definition and scope. This section applies to all regulatory 
reports, as defined herein. A regulatory report is any report that the 
OCC prepares, or is submitted to, or is used by the OCC, to determine 
compliance with its rules and regulations, and to evaluate the safe and 
sound condition and operation of savings associations. The Report of 
Examination is an example of a regulatory report. Regulatory reports are 
regulatory documents, not accounting documents.
    (b) Regulatory reporting requirements--(1) General. The instructions 
to regulatory reports are referred to as ``regulatory reporting 
requirements.'' Regulatory reporting requirements include, but are not 
limited to, guidance contained in OCC regulations, bulletins, and 
examination handbooks; and safe and sound practices. Regulatory 
reporting requirements are not limited to the minimum requirements under 
generally accepted accounting principles (GAAP) because of the special 
supervisory, regulatory, and economic policy needs served by such 
reports. Regulatory reporting by savings associations that purports to 
comply with GAAP shall incorporate the GAAP that best reflects the 
underlying economic substance of the transaction at issue. Regulatory 
reporting requirements shall, at a minimum:
    (i) Incorporate GAAP whenever GAAP is the referenced accounting 
instruction for regulatory reports to the Federal banking agencies;
    (ii) Incorporate safe and sound practices contained in OCC 
regulations, bulletins, examination handbooks and instructions to 
regulatory reports. Such safety and soundness requirements shall be no 
less stringent than those applied by the Comptroller of the Currency for 
national banks; and
    (iii) Incorporate additional safety and soundness requirements more 
stringent than GAAP, as the Comptroller may prescribe.
    (2) Exceptions. Regulatory reporting requirements that are not 
consistent with GAAP, if any, are not required to be reflected in 
audited financial statements, including financial statements contained 
in securities filings submitted to the OCC pursuant to the Securities 
and Exchange Act of 1934 or parts 192, 194, or 197 of this chapter.
    (3) Compliance. When the OCC determines that a savings association's 
regulatory reports did not conform to regulatory reporting requirements 
in previous reporting periods, the association shall correct its 
regulatory reports in accordance with the directions of the OCC.



Sec. 162.4  Audit of savings associations.

    (a) General. The OCC may require, at any time, an independent audit 
of the financial statements of, or the application of procedures agreed 
upon by the OCC to a savings association or affiliate (as defined by 12 
CFR 563.41, or upon issuance of superseding regulations by the Board of 
Governors of the

[[Page 668]]

Federal Reserve System, such superseding regulations) by qualified 
independent public accountants when needed for any safety and soundness 
reason identified by the OCC.
    (b) Audits required for safety and soundness purposes. The OCC 
requires an independent audit for safety and soundness purposes if a 
savings association has received a composite rating of 3, 4 or 5, as 
defined at Sec. 116.5(c) of this chapter.
    (c) Procedures. (1) When the OCC requires an independent audit 
because such an audit is needed for safety and soundness purposes, the 
Comptroller shall determine whether the audit was conducted and filed in 
a manner satisfactory to the OCC.
    (2) The Comptroller may waive the independent audit requirement 
described at paragraph (b)(1) of this section, if the Comptroller 
determines that an audit would not provide further information on safety 
and soundness issues relevant to the examination rating.
    (3) When the OCC requires the application of procedures agreed upon 
for safety and soundness purposes, the Comptroller shall identify the 
procedures to be performed. The Comptroller shall also determine whether 
the agreed upon procedures were conducted and filed in a manner 
satisfactory to the OCC.
    (d) Qualifications for independent public accountants. The audit 
shall be conducted by an independent public accountant who:
    (1) Is registered or licensed to practice as a public accountant, 
and is in good standing, under the laws of the state or other political 
subdivision of the United States in which the savings association's or 
holding company's principal office is located;
    (2) Agrees in the engagement letter to provide the OCC with access 
to and copies of any work papers, policies, and procedures relating to 
the services performed;
    (3)(i) Is in compliance with the American Institute of Certified 
Public Accountants' (AICPA) Code of Professional Conduct; and
    (ii) Meets the independence requirements and interpretations of the 
Securities and Exchange Commission and its staff; and
    (4) Has received, or is enrolled in, a peer review program that 
meets guidelines acceptable to the OCC.
    (e) Voluntary audits. When a savings association or affiliate (as 
defined by 12 CFR 563.41, or upon issuance of superseding regulations by 
the Board of Governors of the Federal Reserve System, such superseding 
regulations) obtains an independent audit voluntarily, it must be 
performed by an independent public accountant who satisfies the 
requirements of paragraphs (d)(1), (d)(2), and (d)(3)(i) of this 
section.



PART 163_SAVINGS ASSOCIATIONS_OPERATIONS--Table of Contents



                           Subpart A_Accounts

Sec.
163.1 Chartering documents.
163.4 [Reserved]
163.5 Securities: Statement of non-insurance.

                    Subpart B_Operation and Structure

163.22 Merger, consolidation, purchase or sale of assets, or assumption 
          of liabilities.
163.27 Advertising.
163.33 Directors, officers, and employees.
163.36 Tying restriction exception.
163.39 Employment contracts.
163.41 Transactions with affiliates.
163.43 Loans by savings associations to their executive officers, 
          directors and principal shareholders.
163.47 Pension plans.

                   Subpart C_Securities and Borrowings

163.74 Mutual capital certificates.
163.76 Offers and sales of securities at an office of a Federal savings 
          association.
163.80 Borrowing limitations.
163.81 Inclusion of subordinated debt securities and mandatorily 
          redeemable preferred stock as supplementary capital.

Subpart D [Reserved]

                     Subpart E_Capital Distributions

163.140 What does this subpart cover?
163.141 What is a capital distribution?
163.142 What other definitions apply to this subpart?
163.143 Must I file with the OCC?
163.144 How do I file with the OCC?
163.145 May I combine my notice or application with other notices or 
          applications?

[[Page 669]]

163.146 Will the OCC permit my capital distribution?

                 Subpart F_Financial Management Policies

163.161 Management and financial policies.
163.170 Examinations and audits; appraisals; establishment and 
          maintenance of records.
163.171 [Reserved]
163.172 Financial derivatives.
163.176 Interest-rate-risk-management procedures.
163.177 Procedures for monitoring Bank Secrecy Act (BSA) compliance.

                     Subpart G_Reporting and Bonding

163.180 Suspicious Activity Reports and other reports and statements.
163.190 Bonds for directors, officers, employees, and agents; form of 
          and amount of bonds.
163.191 Bonds for agents.
163.200 Conflicts of interest.
163.201 Corporate opportunity.

   Subpart H_Notice of Change of Director or Senior Executive Officer

163.550 What does this subpart do?
163.555 What definitions apply to this subpart?
163.560 Who must give prior notice?
163.565 What procedures govern the filing of my notice?
163.570 What information must I include in my notice?
163.575 What procedures govern OCC review of my notice for completeness?
163.580 What standards and procedures will govern OCC review of the 
          substance of my notice?
163.585 When may a proposed director or senior executive officer begin 
          service?
163.590 When will the OCC waive the prior notice requirement?

    Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 1817, 1820, 
1828, 1831o, 3806, 5101 et seq., 5412(b)(2)(B); 31 U.S.C. 5318; 42 
U.S.C. 4106.

    Source: 76 FR 49047, Aug. 9, 2011, unless otherwise noted.



                           Subpart A_Accounts



Sec. 163.1  Chartering documents.

    (a) Submission for approval. Any de novo Federal savings association 
prior to commencing operations shall file its charter and bylaws with 
the OCC for approval, together with a certification that such charter 
and bylaws are permissible under all applicable laws, rules and 
regulations.
    (b) Availability of chartering documents. Each Federal savings 
association shall cause a true copy of its charter and bylaws and all 
amendments thereto to be available to accountholders at all times in 
each office of the savings association, and shall upon request deliver 
to any accountholders a copy of such charter and bylaws or amendments 
thereto.



Sec. 163.4  [Reserved]



Sec. 163.5  Securities: Statement of non-insurance.

    Every security issued by a Federal savings association must include 
in its provisions a clear statement that the security is not insured by 
the Federal Deposit Insurance Corporation.



                    Subpart B_Operation and Structure



Sec. 163.22  Merger, consolidation, purchase or sale of assets, or assumption 

of liabilities.

    (a) No Federal savings association may, without application to and 
approval by the OCC:
    (1) Combine with any insured depository institution, if the 
acquiring or resulting institution is to be a Federal savings 
association; or
    (2) Assume liability to pay any deposit made in, any insured 
depository institution.
    (b)(1) No Federal savings association may, without notifying the 
OCC, as provided in paragraph (h)(1) of this section:
    (i) Combine with another insured depository institution where a 
Federal savings association is not the resulting institution; or
    (ii) In the case of a savings association that meets the conditions 
for expedited treatment under Sec. 116.5 of this chapter, convert, 
directly or indirectly, to a national or state bank.
    (2) A Federal savings association that does not meet the conditions 
for expedited treatment under Sec. 116.5 of this chapter may not, 
directly or indirectly, convert to a national or state bank without 
prior application to and approval of the OCC, as provided in paragraph 
(h)(2)(ii) of this section.

[[Page 670]]

    (c) No Federal savings association may make any transfer (excluding 
transfers subject to paragraphs (a) or (b) of this section) without 
notice or application to the OCC, as provided in paragraph (h)(2) of 
this section. For purposes of this paragraph, the term ``transfer'' 
means purchases or sales of assets or liabilities in bulk not made in 
the ordinary course of business including, but not limited to, transfers 
of assets or savings account liabilities, purchases of assets, and 
assumptions of deposit accounts or other liabilities, and combinations 
with a depository institution other than an insured depository 
institution.
    (d)(1) In determining whether to confer approval for a transaction 
under paragraphs (a), (b)(2), or (c) of this section, the OCC shall take 
into account the following:
    (i) The capital level of any resulting Federal savings association;
    (ii) The financial and managerial resources of the constituent 
institutions;
    (iii) The future prospects of the constituent institutions;
    (iv) The convenience and needs of the communities to be served;
    (v) The conformity of the transaction to applicable law, regulation, 
and supervisory policies;
    (vi) Factors relating to the fairness of and disclosure concerning 
the transaction, including, but not limited to:
    (A) Equitable treatment. The transaction should be equitable to all 
concerned--savings account holders, borrowers, creditors and 
stockholders (if any) of each Federal savings association--giving proper 
recognition of and protection to their respective legal rights and 
interests. The transaction will be closely reviewed for fairness where 
the transaction does not appear to be the result of arms' length 
bargaining or, in the case of a stock savings association, where 
controlling stockholders are receiving different consideration from 
other stockholders. No finder's or similar fee should be paid to any 
officer, director, or controlling person of a Federal savings 
association which is a party to the transaction.
    (B) Full disclosure. The filing should make full disclosure of all 
written or oral agreements or understandings by which any person or 
company will receive, directly or indirectly, any money, property, 
service, release of pledges made, or other thing of value, whether 
tangible or intangible, in connection with the transaction.
    (C) Compensation to officers. Compensation, including deferred 
compensation, to officers, directors and controlling persons of the 
disappearing Federal savings association by the resulting institution or 
an affiliate thereof should not be in excess of a reasonable amount, and 
should be commensurate with their duties and responsibilities. The 
filing should fully justify the compensation to be paid to such persons. 
The transaction will be particularly scrutinized where any of such 
persons is to receive a material increase in compensation above that 
paid by the disappearing savings association prior to the commencement 
of negotiations regarding the proposed transaction. An increase in 
compensation in excess of the greater of 15% or $10,000 gives rise to 
presumptions of unreasonableness and sale of control. In the case of 
such an increase, evidence sufficient to rebut such presumptions should 
be submitted.
    (D) Advisory boards. Advisory board members should be elected for a 
term not exceeding one year. No advisory board fees should be paid to 
salaried officers or employees of the resulting Federal savings 
association. The filing should describe and justify the duties and 
responsibilities and any compensation paid to any advisory board of the 
resulting Federal savings association that consists of officers, 
directors or controlling persons of the disappearing institution, 
particularly if the disappearing institution experienced significant 
supervisory problems prior to the transaction. No advisory board fees 
should exceed the director fees paid by the resulting savings 
association. Advisory board fees that are in excess of 115 percent of 
the director fees paid by the disappearing Federal savings association 
prior to commencement of negotiations regarding the transaction give 
rise to presumptions of unreasonableness and sale of control unless 
sufficient evidence to rebut such presumptions is submitted. Rebuttal 
evidence is not required if:

[[Page 671]]

    (1) The advisory board fees do not exceed the fee that advisory 
board members of the resulting institution receive for each monthly 
meeting attended or $150, whichever is greater; or
    (2) The advisory board fees do not exceed $100 per meeting attended 
for disappearing Federal savings associations with assets greater than 
$10,000,000 or $50 per meeting attended for disappearing Federal savings 
associations with assets of $10,000,000 or less, based on a schedule of 
12 meetings per year.
    (E) The accounting and tax treatment of the transaction; and
    (F) Fees paid and professional services rendered in connection with 
the transaction.
    (2) In conferring approval of a transaction under paragraph (a) of 
this section, the OCC also will consider the competitive impact of the 
transaction, including whether:
    (i) The transaction would result in a monopoly, or would be in 
furtherance of any monopoly or conspiracy to monopolize or to attempt to 
monopolize the savings association business in any part of the United 
States; or
    (ii) The effect of the transaction on any section of the country may 
be substantially to lessen competition, or tend to create a monopoly, or 
in any other manner would be in restraint of trade, unless the OCC finds 
that the anticompetitive effects of the proposed transaction are clearly 
outweighed in the public interest by the probable effect of the 
transaction in meeting the convenience and needs of the communities to 
be served.
    (3) Applications and notices filed under this section shall be upon 
forms prescribed by the OCC.
    (4) Applications filed under paragraph (a) of this section must be 
processed in accordance with the time frames set forth in Sec. Sec. 
116.210 through 116.290 of this chapter, provided that the period for 
review may be extended only if the OCC determines that the applicant has 
failed to furnish all requested information or that the information 
submitted is substantially inaccurate, in which case the review period 
may be extended for up to 30 days.
    (e)(1) The following procedures apply to applications described in 
paragraph (a) of this section, unless the OCC finds that it must act 
immediately to prevent the probable default of one of the depository 
institutions involved:
    (i) The applicant must publish a public notice of the application in 
accordance with the procedures in subpart B of part 116 of this chapter. 
In addition to the initial publication, the applicant must also publish 
on a weekly basis during the public comment period.
    (ii) Commenters may submit comments on an application in accordance 
with the procedures in subpart C of part 116 of this chapter. The public 
comment period is 30 calendar days after the date of publication of the 
initial public notice. However, if the OCC has advised the Attorney 
General that an emergency exists requiring expeditious action, the 
public comment period is 10 calendar days after the date of publication 
of the initial public notice.
    (iii) The OCC may arrange a meeting in accordance with the 
procedures in subpart D of part 116 of this chapter.
    (iv) The OCC will request the Attorney General to provide reports on 
the competitive impacts involved in the transaction.
    (v) The OCC will immediately notify the Attorney General of the 
approval of the transaction. The applicant may not consummate the 
transaction before the date established under 12 U.S.C. 1828(c)(6).
    (2) For applications described in Sec. 163.22, certain savings 
associations described below must provide affected accountholders with a 
notice of a proposed account transfer and an option of retaining the 
account in the transferring Federal savings association. The notice must 
allow affected accountholders at least 30 days to consider whether to 
retain their accounts in the transferring Federal savings association. 
The following savings associations must provide the notices:
    (i) A Federal savings association transferring account liabilities 
to an institution the accounts of which are not insured by the Deposit 
Insurance Fund or the National Credit Union Share Insurance Fund; and
    (ii) Any mutual Federal savings association transferring account 
liabilities to a stock form depository institution.

[[Page 672]]

    (f) Automatic approvals by the OCC. Applications filed pursuant to 
paragraph (a) of this section shall be deemed to be approved 
automatically by the OCC 30 calendar days after the OCC sends written 
notice to the applicant that the application is complete, unless:
    (1) The acquiring Federal savings association does not meet the 
criteria for expedited treatment under Sec. 116.5 of this chapter;
    (2) The OCC recommends the imposition of non-standard conditions 
prior to approving the application;
    (3) The OCC suspends the applicable processing time frames under 
Sec. 116.190 of this chapter;
    (4) The OCC raises objections to the transaction;
    (5) The resulting Federal savings association would be one of the 3 
largest depository institutions competing in the relevant geographic 
area where before the transaction there were 5 or fewer depository 
institutions, the resulting savings association would have 25 percent or 
more of the total deposits held by depository institutions in the 
relevant geographic area, and the share of total deposits would have 
increased by 5 percent or more;
    (6) The resulting Federal savings association would be one of the 2 
largest depository institutions competing in the relevant geographic 
area where before the transaction there were 6 to 11 depository 
institutions, the resulting savings association would have 30 percent or 
more of the total deposits held by depositing institutions in the 
relevant geographic area, and the share of total deposits would have 
increased by 10 percent or more;
    (7) The resulting Federal savings association would be one of the 2 
largest depository institutions competing in the relevant geographic 
area where before the transaction there were 12 or more depository 
institutions, the resulting savings association would have 35 percent or 
more of the total deposits held by the depository institutions in the 
relevant geographic area, and the share of total deposits would have 
increased by 15 percent or more;
    (8) The Herfindahl-Hirschman Index (HHI) in the relevant geographic 
area was more than 1800 before the transaction, and the increase in the 
HHI caused by the transaction would be 50 or more;
    (9) In a transaction involving potential competition, the OCC 
determines that the acquiring Federal savings association is one of 
three or fewer potential entrants into the relevant geographic area;
    (10) The acquiring Federal savings association has assets of $1 
billion or more and proposes to acquire assets of $1 billion or more;
    (11) The Federal savings association that will be the resulting 
savings association in the transaction has a composite Community 
Reinvestment Act rating of less than satisfactory and the deficiencies 
have not been resolved to the satisfaction of the OCC;
    (12) The transaction involves any supervisory or assistance 
agreement with the OCC, Office of Thrift Supervision, the Resolution 
Trust Corporation, or the Federal Deposit Insurance Corporation;
    (13) The transaction is part of a conversion under part 192 of this 
chapter;
    (14) The transaction raises a significant issue of law or policy; or
    (15) The transaction is opposed by any constituent institution or 
contested by a competing acquiror.
    (g) Definitions. (1) The terms used in this section shall have the 
same meaning as set forth in Sec. 152.13(b) of this chapter.
    (2) Insured depository institution. Insured depository institution 
has the same meaning as defined in section 3(c)(2) of the Federal 
Deposit Insurance Act.
    (3) With regard to paragraph (f) of this section, the term relevant 
geographic area is used as a substitute for relevant geographic market, 
which means the area within which the competitive effects of a merger or 
other combination may be evaluated. The relevant geographic area shall 
be delineated as a county or similar political subdivision, an area 
smaller than a county, or an aggregation of counties within which the 
merging or combining insured depository institutions compete. In 
addition, the OCC may consider commuting patterns, newspaper and other 
advertising activities, or other factors as the OCC deems relevant.

[[Page 673]]

    (h) Special requirements and procedures for transactions under 
paragraphs (b) and (c) of this section--(1) Certain transactions with no 
surviving Federal savings association. (i) The OCC must be notified of 
any transaction under paragraph (b)(1) of this section. Such 
notification must be submitted to the OCC at least 30 days prior to the 
effective date of the transaction, but not later than the date on which 
an application relating to the proposed transaction is filed with the 
primary regulator of the resulting institution; the OCC may, upon 
request or on its own initiative, shorten the 30-day prior notification 
requirement. Notifications under this paragraph must demonstrate 
compliance with applicable stockholder or accountholder approval 
requirements. Where the Federal savings association submitting the 
notification maintains a liquidation account established pursuant to 
part 192 of this chapter, the notification must state that the resulting 
institution will assume such liquidation account.
    (ii) The notification may be in the form of either a letter 
describing the material features of the transaction or a copy of a 
filing made with another Federal or state regulatory agency seeking 
approval from that agency for the transaction under the Bank Merger Act 
or other applicable statute. If the action contemplated by the 
notification is not completed within one year after the OCC's receipt of 
the notification, a new notification must be submitted to the OCC.
    (2) Other transfer transactions--(i) Expedited treatment. A notice 
in conformity with Sec. 116.25(a) of this chapter may be submitted to 
the OCC under Sec. 116.40 of this chapter for any transaction under 
paragraph (c) of this section, provided all constituent Federal savings 
associations meet the conditions for expedited treatment under Sec. 
116.5 of this chapter. Notices submitted under this paragraph must be 
deemed approved automatically by the OCC 30 days after receipt, unless 
the OCC advises the applicant in writing prior to the expiration of such 
period that the proposed transaction may not be consummated without the 
OCC's approval of an application under paragraphs (h)(2)(ii) or 
(h)(2)(iii) of this section.
    (ii) Standard treatment. An application in conformity with Sec. 
116.25(b) of this chapter and paragraph (d) of this section must be 
submitted to the OCC under Sec. 116.40 by each Federal savings 
association participating in a transaction under paragraph (b)(2) or (c) 
of this section, where any constituent savings association does not meet 
the conditions for expedited treatment under Sec. 116.5 of this 
chapter. Applications under this paragraph must be processed in 
accordance with the procedures in part 116, subparts A and E of this 
chapter.



Sec. 163.27  Advertising.

    No Federal savings association shall use advertising (which includes 
print or broadcast media, displays or signs, stationery, and all other 
promotional materials), or make any representation which is inaccurate 
in any particular or which in any way misrepresents its services, 
contracts, investments, or financial condition.



Sec. 163.33  Directors, officers, and employees.

    (a) Directors--(1) Requirements. The composition of the board of 
directors of a Federal savings association must be in accordance with 
the following requirements:
    (i) A majority of the directors must not be salaried officers or 
employees of the savings association or of any subsidiary thereof.
    (ii) Not more than two of the directors may be members of the same 
immediate family.
    (iii) Not more than one director may be an attorney with a 
particular law firm.
    (2) Prospective application. In the case of an association whose 
board of directors does not conform with any requirement set forth in 
paragraph (a)(1) of this section as of October 5, 1983, this paragraph 
(a) shall not prohibit the uninterrupted service, including re-election 
and re-appointment, of any person serving on the board of directors at 
that date.
    (b) [Reserved]

[[Page 674]]



Sec. 163.36  Tying restriction exception.

    For applicable rules, see regulations of the Board of Governors of 
the Federal Reserve System.



Sec. 163.39  Employment contracts.

    (a) General. A Federal savings association may enter into an 
employment contract with its officers and other employees only in 
accordance with the requirements of this section. All employment 
contracts shall be in writing and shall be approved specifically by an 
association's board of directors. An association shall not enter into an 
employment contract with any of its officers or other employees if such 
contract would constitute an unsafe or unsound practice. The making of 
such an employment contract would be an unsafe or unsound practice if 
such contract could lead to material financial loss or damage to the 
association or could interfere materially with the exercise by the 
members of its board of directors of their duty or discretion provided 
by law, charter, bylaw or regulation as to the employment or termination 
of employment of an officer or employee of the association. This may 
occur, depending upon the circumstances of the case, where an employment 
contract provides for an excessive term.
    (b) Required provisions. Each employment contract shall provide 
that:
    (1) The Federal savings association's board of directors may 
terminate the officer or employee's employment at any time, but any 
termination by the association's board of directors other than 
termination for cause, shall not prejudice the officer or employee's 
right to compensation or other benefits under the contract. The officer 
or employee shall have no right to receive compensation or other 
benefits for any period after termination for cause. Termination for 
cause shall include termination because of the officer or employee's 
personal dishonesty, incompetence, willful misconduct, breach of 
fiduciary duty involving personal profit, intentional failure to perform 
stated duties, willful violation of any law, rule, or regulation (other 
than traffic violations or similar offenses) or final cease-and-desist 
order, or material breach of any provision of the contract.
    (2) If the officer or employee is suspended and/or temporarily 
prohibited from participating in the conduct of the association's 
affairs by a notice served under section 8(e)(3) or (g)(1) of the 
Federal Deposit Insurance Act (12 U.S.C. 1818(e)(3) and (g)(1)), the 
association's obligations under the contract shall be suspended as of 
the date of service unless stayed by appropriate proceedings. If the 
charges in the notice are dismissed, the association may in its 
discretion (i) pay the officer or employee all or part of the 
compensation withheld while its contract obligations were suspended, and 
(ii) reinstate (in whole or in part) any of its obligations which were 
suspended.
    (3) If the officer or employee is removed and/or permanently 
prohibited from participating in the conduct of the association's 
affairs by an order issued under section 8(e)(4) or (g)(1) of the 
Federal Deposit Insurance Act (12 U.S.C. 1818(e)(4) or (g)(1)), all 
obligations of the association under the contract shall terminate as of 
the effective date of the order, but vested rights of the contracting 
parties shall not be affected.
    (4) If the savings association is in default (as defined in section 
3(x)(1) of the Federal Deposit Insurance Act), all obligations under the 
contract shall terminate as of the date of default, but this paragraph 
(b)(4) shall not affect any vested rights of the contracting parties: 
Provided, that this paragraph (b)(4) need not be included in an 
employment contract if prior written approval is secured from the 
Comptroller or his or her designee.
    (5) All obligations under the contract shall be terminated, except 
to the extent determined that continuation of the contract is necessary 
for the continued operation of the association;
    (i) By the Comptroller, or his or her designee, at the time the 
Federal Deposit Insurance Corporation enters into an agreement to 
provide assistance to or on behalf of the association under the 
authority contained in 13(c) of the Federal Deposit Insurance Act; or
    (ii)(A) By the Comptroller or his or her designee, at the time the 
Comptroller, or his or her designee approves

[[Page 675]]

a supervisory merger to resolve problems related to operation of the 
association or when the association is determined by the Comptroller to 
be in an unsafe or unsound condition.
    (B) Any rights of the parties that have already vested, however, 
shall not be affected by such action.



Sec. 163.41  Transactions with affiliates.

    For applicable rules, see regulations of the Board of Governors of 
the Federal Reserve System.



Sec. 163.43  Loans by savings associations to their executive officers, 

directors and principal shareholders.

    For applicable rules, see Regulation O of the Board of Governors of 
the Federal Reserve System.



Sec. 163.47  Pension plans.

    (a) General. No Federal savings association or service corporation 
thereof shall sponsor an employee pension plan which, because of 
unreasonable costs or any other reason, could lead to material financial 
loss or damage to the sponsor. For purposes of this section, an employee 
pension plan is defined in section 3(2) of the Employee Retirement 
Income Security Act of 1974, as amended. The prospective obligation or 
liability of a plan sponsor to each plan participant shall be stated in 
or determinable from the plan, and, for a defined benefit plan, shall 
also be based upon an actuarial estimate of future experience under the 
plan.
    (b) Funding. Actuarial cost methods permitted under the Employee 
Retirement Income Security Act of 1974 and the Internal Revenue Code of 
1954, as amended, shall be used to determine plan funding.
    (c) Plan amendment. A plan may be amended to provide reasonable 
annual cost-of-living increases to retired participants: Provided, That
    (1) Any such increase shall be for a period and amount determined by 
the sponsor's board of directors, but in no event shall it exceed the 
annual increase in the Consumer Price Index published by the Bureau of 
Labor Statistics; and
    (2) No increase shall be granted unless:
    (i) Anticipated charges to net income for future periods have first 
been found by such board of directors to be reasonable and are 
documented by appropriate resolution and supporting analysis; and
    (ii) The increase will not reduce the association's regulatory 
capital below its regulatory capital requirement.
    (d) Termination. The plan shall permit the sponsor's board of 
directors and its successors to terminate such plan. Notice of intent to 
terminate shall be filed with the OCC at least 60 days prior to the 
proposed termination date.
    (e) Records. Each Federal savings association or service corporation 
maintaining a plan not subject to recordkeeping and reporting 
requirements of the Employee Retirement Income Security Act of 1974, and 
the Internal Revenue Code of 1954, as amended, shall establish and 
maintain records containing the following:
    (1) Plan description;
    (2) Schedule of participants and beneficiaries;
    (3) Schedule of participants and beneficiaries' rights and 
obligations;
    (4) Plan's financial statements; and
    (5) Except for defined contribution plans, an opinion signed by an 
enrolled actuary (as defined by the Employee Retirement Income Security 
Act of 1974) affirming that actuarial assumptions in the aggregate are 
reasonable, take into account the plan's experience and expectations, 
and represent the actuary's best estimate of the plan's projected 
experiences.



                   Subpart C_Securities and Borrowings



Sec. 163.74  Mutual capital certificates.

    (a) General. No savings association that is in the mutual form shall 
issue mutual capital certificates pursuant to this section or amend the 
terms of such certificates unless it has obtained written approval of 
the appropriate Federal banking agency. No approval shall be granted 
unless the proposed issuance of the mutual capital certificates and the 
form and manner of filing of the application are in accordance with the 
provisions of this section.
    (b) Eligibility Requirements. The appropriate Federal banking agency 
will

[[Page 676]]

consider and process an application for approval of the issuance of 
mutual capital certificates pursuant to this section only if the 
issuance is authorized by applicable law and regulation and is not 
inconsistent with any provision of the applicant's charter, constitution 
or bylaws.
    (c) Application form; supporting information. An application for 
approval of the issuance of mutual capital certificates pursuant to this 
section shall be in the form prescribed by the appropriate Federal 
banking agency. Such application and instructions may be obtained from 
the appropriate Federal banking agency. Information and exhibits shall 
be furnished in support of the application in accordance with such 
instructions, setting forth all of the terms and provisions relating to 
the proposed issue and showing that all of the requirements of this 
section have been or will be met.
    (d) Charter amendment. No application for approval of the issuance 
of mutual capital certificates pursuant to this section may be filed 
unless the amendment to the mutual association's charter, constitution 
or bylaws or other actions conferring such authority shall have been 
approved pursuant to the procedures and requirements set forth in the 
mutual association's charter, constitution or bylaws, or as may 
otherwise be required by applicable law.
    (e) Filing requirements. The application for issuance of mutual 
capital certificates shall be publicly filed with the appropriate 
Federal banking agency.
    (f) Supervisory objection. No application or approval of the 
issuance of mutual capital certificates pursuant to this section shall 
be approved if, in the opinion of the appropriate Federal banking 
agency, the policies, condition, or operation of the applicant afford a 
basis for supervisory objection to the application.
    (g) Limitation on offering period. Following the date of the 
approval of the application by the appropriate Federal banking agency, 
the association shall have an offering period of not more than one year 
in which to complete the sale of the mutual capital certificates issued 
pursuant to this section. The appropriate Federal banking agency may in 
its discretion extend such offering period if a written request showing 
good cause for such extension is filed with it not later than 30 days 
before the expiration of such offering period or any extension thereof.
    (h) Reports. Within 30 days after completion of the sale of mutual 
capital certificates issued pursuant to this section, the association 
shall transmit to the appropriate Federal banking agency a written 
report stating the total dollar amount of securities sold, and the 
amount of net proceeds received by the association, and within 90 days 
it shall transmit a written report stating the number of purchasers.
    (i) Requirements as to mutual capital certificates--(1) Form of 
certificate. Each mutual capital certificate and any governing agreement 
evidencing a mutual capital certificate issued by an association 
pursuant to this section:
    (i) Shall bear on its face, in bold-face type, the following legend: 
``This security is not a savings account or a deposit and it is not 
insured by the United States or any agency or fund of the United 
States''; and
    (ii) Shall clearly state that the certificate is subject to the 
requirements of Sec. 163.74(i)(2).
    (2) Legal requirements. Mutual capital certificates issued pursuant 
to this section shall:
    (i) Be subordinate to all claims against the association having the 
same priority as savings accounts, savings certificates, debt 
obligations or any higher priority;
    (ii) Not be eligible for use as collateral for any loan made by the 
issuing association;
    (iii) Constitute a claim in liquidation not exceeding the face value 
plus accrued dividends of the certificates, on the general reserves, 
surplus and undivided profits of the association remaining after the 
payment in full of all savings accounts, savings certificates and debt 
obligations;
    (iv) Be entitled to the payment of dividends, which may be fixed, 
variable, participating, or cumulative, or any combination thereof, only 
if, when and as declared by the association's board of directors out of 
funds legally available for that purpose, provided that no dividend may 
be declared or

[[Page 677]]

paid without the approval of the appropriate Federal banking agency if 
such payment would cause the association to fail to meet its regulatory 
capital requirements under part 167 of this chapter if a Federal savings 
association or 12 CFR part 390, subpart Z if a state savings 
association, and provided further that no dividend may be paid if such 
payment would constitute a violation of 12 U.S.C. 1828(b);
    (v) Not be redeemable, except: where the dollar weighted average 
term of each issue of mutual capital certificates to be redeemed is 
seven years or more and redemption is to be made pursuant to a 
redemption schedule; in the event of a merger, consolidation or 
reorganization approved by the appropriate Federal banking agency; or 
where the funds for redemption are raised by the issuance of mutual 
capital certificates approved pursuant to this section, or in 
conjunction with the issuance of capital stock pursuant to part 192 of 
this chapter: Provided, that mandatory redemption shall not be required; 
that mutual capital certificates shall not be redeemable on the demand 
or at the option of the holder; and that mutual capital certificates 
shall not receive, benefit from, be credited with or otherwise be 
entitled to or due payments in or for redemption if such payments would 
cause the association to fail to meet its regulatory capital 
requirements under part 167 of this chapter if a Federal savings 
association or 12 CFR part 390, subpart Z if a state savings 
association; And Provided further, for the purposes of this paragraph 
(i)(2)(v), the ``dollar weighted average term'' of an issue of mutual 
capital certificates shall be the sum of the products calculated for 
each year that the mutual capital certificates in the issue have been 
redeemed or are scheduled to be redeemed. Each product shall be 
calculated by multiplying the number of years of each mutual capital 
certificate of a given term by a fraction, the numerator of which shall 
be the total dollar amount of each mutual capital certificate in the 
issue with the same term and the denominator of which shall be the total 
dollar amount of mutual capital certificates in the entire issue;
    (vi) Not have preemptive rights;
    (vii) Not have voting rights, except that an association may provide 
for voting rights if:
    (A) The savings association fails to pay dividends for a minimum of 
three consecutive dividend periods, and then the holders of the class or 
classes of mutual capital certificates granted such voting rights, and 
voting as a single class, with one vote for each outstanding 
certificate, may elect by a majority vote a maximum of one-third of the 
association's board of directors, the directors so elected to serve 
until the next annual meeting of the association succeeding the payment 
of all current and past dividends;
    (B) Any merger, consolidation, or reorganization (except in a 
supervisory case) is sought to be authorized, where the issuing 
association is not the survivor, provided that the regulatory capital of 
the resulting association available for payment of any class of mutual 
capital certificate on liquidation is less than the regulatory capital 
available for such class prior to the merger, consolidation, or 
reorganization;
    (C) Action is sought to be authorized which would create any class 
of mutual capital certificates having a preference or priority over an 
outstanding class or classes of mutual capital certificates;
    (D) Any action is sought to be authorized which would adversely 
change the specific terms of any class of mutual capital certificates;
    (E) Action is sought to be authorized which would increase the 
number of a class of mutual capital certificates, or the number of a 
class of mutual capital certificates ranking prior to or on parity with 
another class of mutual capital certificates; or
    (F) Action is sought which would authorize the issuance of an 
additional class or classes of mutual capital certificates without the 
association having met specific financial standards;
    (viii) Not constitute an obligation of the association and shall 
confer no rights which would give rise to any claim of or action for 
default;
    (ix) Not be convertible into any account, security, or interest, 
except that mutual capital certificates may be surrendered in exchange 
for preferred stock issued in connection with

[[Page 678]]

the conversion of the issuing savings association to the stock form 
pursuant to part 192 of this chapter, provided that the preferred stock 
shall have substantially the same voting rights, designations, 
preferences and relative, participating optional, or other special 
rights, and qualifications, limitations, and restrictions, as the mutual 
capital certificates exchanged for the preferred stock.
    (x) Provide for charging of losses after the exhaustion of all other 
items in the regulatory capital account.



Sec. 163.76  Offers and sales of securities at an office of a Federal savings 

association.

    (a) A Federal saving association may not offer or sell debt or 
equity securities issued by the association or an affiliate of the 
association at an office of the association; except that equity 
securities issued by the association or an affiliate in connection with 
the association's conversion from the mutual to stock form of 
organization in a conversion approved pursuant to part 192 of this 
chapter may be offered and sold at the association's offices: Provided, 
That:
    (1) The OCC does not object on supervisory grounds to the offer and 
sale of the securities at the offices of the association;
    (2) No commissions, bonuses, or comparable payments are paid to any 
employee of the savings association or its affiliates or to any other 
person in connection with the sale of securities at an office of a 
savings association; except that compensation and commissions consistent 
with industry norms may be paid to securities personnel of registered 
broker-dealers;
    (3) No offers or sales are made by tellers or at the teller counter, 
or by comparable persons at comparable locations;
    (4) Sales activity is conducted in a segregated or separately 
identifiable area of the savings association's offices apart from the 
area accessible to the general public for the purposes of making or 
withdrawing deposits;
    (5) Offers and sales are made only by regular, full-time employees 
of the savings association or by securities personnel who are subject to 
supervision by a registered broker-dealer;
    (6) An acknowledgment, in the form set forth in paragraph (c) of 
this section, is signed by any customer to whom the security is sold in 
the savings association's offices prior to the sale of any such 
securities;
    (7) A legend that the security is not a deposit or account and is 
not Federally insured or guaranteed appears conspicuously on the 
security and in all offering documents and advertisements for the 
securities; the legend must state in bold or other prominent type at 
least as large as other textual type in the document that ``This 
security is not a deposit or account and is not Federally insured or 
guaranteed''; and
    (8) The savings association will be in compliance with its current 
capital requirements upon completion of the conversion stock offering.
    (b) Securities sales practices, advertisements, and other sales 
literature used in connection with offers and sales of securities by 
Federal savings associations shall be subject to Sec. 197.10 of this 
chapter.
    (c) Offers and sales of securities of a savings association or its 
affiliates in any office of the savings association must use a one-page, 
unambiguous, certification in substantially the following form:

                          FORM OF CERTIFICATION

    I ACKNOWLEDGE THAT THIS SECURITY IS NOT A DEPOSIT OR ACCOUNT AND IS 
NOT FEDERALLY INSURED, AND IS NOT GUARANTEED BY [insert name of savings 
association] OR BY THE FEDERAL GOVERNMENT.
    If anyone asserts that this security is Federally insured or 
guaranteed, or is as safe as an insured deposit, I should call the 
Office of the Comptroller of the Currency].
    I further certify that, before purchasing the [description of 
security being offered] of [name of issuer, name of savings association 
and affiliation to issuer (if different)], I received an offering 
circular.
    The offering circular that I received contains disclosure concerning 
the nature of the security being offered and

[[Page 679]]

describes the risks involved in the investment, including:
    [List briefly the principal risks involved and cross reference 
certain specified pages of the offering circular where a more complete 
description of the risks is made.]



Sec. 163.80  Borrowing limitations.

    (a) General. Except as the appropriate Federal banking agency 
otherwise may permit by advice in writing, a savings association may 
borrow only in accordance with the provisions of this section.
    (b) Amount of borrowing. A savings association may borrow up to the 
amount authorized by the laws under which the savings association 
operates.
    (c) Security. An association may give security for borrowings 
subject to any requirements imposed by the appropriate Federal banking 
agency or the FDIC regarding notice of default on borrowings and any 
FDIC right of first refusal to purchase collateral.
    (d) Required statement for all securities evidencing outside 
borrowings. Each security shall bear on its face, in a prominent place, 
the following legend:
    This security is not a savings account or a deposit and it is not 
insured by the United States or any agency or fund of the United States.
    (e) Filing requirements for outside borrowings with maturities in 
excess of one year. (1) Unless the savings association meets its capital 
requirement under part 167 of this chapter if a Federal savings 
association or 12 CFR part 390, subpart Z if a state savings 
association, it shall, at least ten business days prior to issuance, 
file a notice of intent to issue securities evidencing such borrowings 
with the appropriate OCC licensing office if a Federal savings 
association, or with the appropriate regional director of the FDIC if a 
state savings association. Such notice shall contain a summary of the 
items of the security, including:
    (i) Principal amount of the securities;
    (ii) Anticipated interest rate range and price range at which the 
securities are to be sold;
    (iii) Minimum denomination;
    (iv) Stated and average effective maturity;
    (v) Mandatory and optional prepayment provisions;
    (vi) Description, amount, and maintenance of collateral if any;
    (vii) Trustee provisions if any;
    (viii) Events of default and remedies of default;
    (ix) Any provisions which restrict, conditionally or otherwise, the 
operations of the association.
    (2) The appropriate Federal banking agency shall have 10 business 
days after receipt of such filing to object to the issuance of such 
securities. The appropriate Federal banking agency shall object if the 
terms or covenants of the proposed issue place unreasonable burdens on, 
or control over, the operations of the association. If no objection is 
taken, the savings association shall have 120 calendar days within which 
to issue such securities.
    (f) Note accounts. For purposes of this section, note accounts are 
not borrowings.



Sec. 163.81  Inclusion of subordinated debt securities and mandatorily 

redeemable preferred stock as supplementary capital.

    (a) Scope. A Federal savings association must comply with this 
section in order to include subordinated debt securities or mandatorily 
redeemable preferred stock (``covered securities'') in supplementary 
capital (tier 2 capital) under part 167 of this chapter. If a savings 
association does not include covered securities in supplementary 
capital, it is not required to comply with this section.
    (b) Application and notice procedures. (1) A Federal savings 
association must file an application or notice under 12 CFR part 116, 
subpart A seeking the OCC's approval of, or non-objection to, the 
inclusion of covered securities in supplementary capital. The savings 
association may file its application or notice before or after it issues 
covered securities, but may not include covered securities in 
supplementary capital until the OCC approves the application or does not 
object to the notice.
    (2) A savings association must also comply with the securities 
offering rules at 12 CFR part 197 by filing an offering circular for a 
proposed issuance

[[Page 680]]

of covered securities, unless the offering qualifies for an exemption 
under that part.
    (c) Securities requirements. To be included in supplementary 
capital, covered securities must meet the following requirements:
    (1) Form. (i) Each certificate evidencing a covered security must:
    (A) Bear the following legend on its face, in bold type: ``This 
security is not a savings account or deposit and it is not insured by 
the United States or any agency or fund of the United States;''
    (B) State that the security is subordinated on liquidation, as to 
principal, interest, and premium, to all claims against the savings 
association that have the same priority as savings accounts or a higher 
priority;
    (C) State that the security is not secured by the savings 
association's assets or the assets of any affiliate of the savings 
association. An affiliate means any person or company which controls, is 
controlled by, or is under common control with the savings association;
    (D) State that the security is not eligible collateral for a loan by 
the savings association;
    (E) State the prohibition on the payment of dividends or interest at 
12 U.S.C. 1828(b) and, in the case of subordinated debt securities, 
state the prohibition on the payment of principal and interest at 12 
U.S.C. 1831o(h);
    (F) For subordinated debt securities, state or refer to a document 
stating the terms under which the savings association may prepay the 
obligation; and
    (G) State or refer to a document stating that the savings 
association must obtain OCC's approval before the voluntary prepayment 
of principal on subordinated debt securities, the acceleration of 
payment of principal on subordinated debt securities, or the voluntarily 
redemption of mandatorily redeemable preferred stock (other than 
scheduled redemptions), if the savings association is undercapitalized, 
significantly undercapitalized, or critically undercapitalized as 
described in Sec. 165.4(b) of this chapter, fails to meet the 
regulatory capital requirements at 12 CFR part 167, or would fail to 
meet any of these standards following the payment.
    (ii) A Federal savings association must include such additional 
statements as the OCC may prescribe for certificates, purchase 
agreements, indentures, and other related documents.
    (2) Maturity requirements. Covered securities must have an original 
weighted average maturity or original weighted average period to 
required redemption of at least five years.
    (3) Mandatory prepayment. Subordinated debt securities and related 
documents may not provide events of default or contain other provisions 
that could result in a mandatory prepayment of principal, other than 
events of default that:
    (i) Arise from the Federal savings association's failure to make 
timely payment of interest or principal;
    (ii) Arise from its failure to comply with reasonable financial, 
operating, and maintenance covenants of a type that are customarily 
included in indentures for publicly offered debt securities; or
    (iii) Relate to bankruptcy, insolvency, receivership, or similar 
events.
    (4) Indenture. (i) Except as provided in paragraph (c)(4)(ii) of 
this section, a Federal savings association must use an indenture for 
subordinated debt securities. If the aggregate amount of subordinated 
debt securities publicly offered (excluding sales in a non-public 
offering as defined in 12 CFR 197.4) and sold in any consecutive 12-
month or 36-month period exceeds $5,000,000 or $10,000,000 respectively 
(or such lesser amount that the Securities and Exchange Commission shall 
establish by rule or regulation under 15 U.S.C. 77ddd), the indenture 
must provide for the appointment of a trustee other than the savings 
association or an affiliate of the savings association (as defined in 
subsection (c)(1)(i)(C) of this section) and for collective enforcement 
of the security holders' rights and remedies.
    (ii) A Federal savings association is not required to use an 
indenture if the subordinated debt securities are sold only to 
accredited investors, as that term is defined in 15 U.S.C. 77d(6). A 
savings association must have an indenture that meets the requirements 
of paragraph (c)(4)(i) of this section in place before any debt 
securities for

[[Page 681]]

which an exemption from the indenture requirement is claimed, are 
transferred to any non-accredited investor. If a savings association 
relies on this exemption from the indenture requirement, it must place a 
legend on the debt securities indicating that an indenture must be in 
place before the debt securities are transferred to any non-accredited 
investor.
    (d) Review by the OCC. (1) The OCC will review notices and 
applications under 12 CFR part 116, subpart E.
    (2) In reviewing notices and applications under this section, the 
OCC will consider whether:
    (i) The issuance of the covered securities is authorized under 
applicable laws and regulations and is consistent with the savings 
association's charter and bylaws.
    (ii) The savings association is at least adequately capitalized 
under Sec. 165.4(b) of this chapter and meets the regulatory capital 
requirements at part 167 of this chapter.
    (iii) The savings association is or will be able to service the 
covered securities.
    (iv) The covered securities are consistent with the requirements of 
this section.
    (v) The covered securities and related transactions sufficiently 
transfer risk from the Deposit Insurance Fund.
    (vi) The OCC has no objection to the issuance based on the savings 
association's overall policies, condition, and operations.
    (3) The OCC's approval or non-objection is conditioned upon no 
material changes to the information disclosed in the application or 
notice submitted to the OCC. The OCC may impose such additional 
requirements or conditions as it may deem necessary to protect 
purchasers, the savings association, the OCC, or the Deposit Insurance 
Fund.
    (e) Amendments. If a Federal savings association amends the covered 
securities or related documents following the completion of the OCC's 
review, it must obtain the OCC's approval or non-objection under this 
section before it may include the amended securities in supplementary 
capital.
    (f) Sale of covered securities. The Federal savings association must 
complete the sale of covered securities within one year after the OCC's 
approval or non-objection under this section. A savings association may 
request an extension of the offering period by filing a written request 
with the OCC. The savings association must demonstrate good cause for 
the extension and file the request at least 30 days before the 
expiration of the offering period or any extension of the offering 
period.
    (g) Reports. A Federal savings association must file the following 
information with the OCC within 30 days after the savings association 
completes the sale of covered securities includable as supplementary 
capital. If the savings association filed its application or notice 
following the completion of the sale, it must submit this information 
with its application or notice:
    (1) A written report indicating the number of purchasers, the total 
dollar amount of securities sold, the net proceeds received by the 
savings association from the issuance, and the amount of covered 
securities, net of all expenses, to be included as supplementary 
capital;
    (2) Three copies of an executed form of the securities and a copy of 
any related documents governing the issuance or administration of the 
securities; and
    (3) A certification by the appropriate executive officer indicating 
that the savings association complied with all applicable laws and 
regulations in connection with the offering, issuance, and sale of the 
securities.

Subpart D [Reserved]



                     Subpart E_Capital Distributions



Sec. 163.140  What does this subpart cover?

    This subpart applies to all capital distributions by a Federal 
savings association (``you'').



Sec. 163.141  What is a capital distribution?

    A capital distribution is:
    (a) A distribution of cash or other property to your owners made on 
account of their ownership, but excludes:
    (1) Any dividend consisting only of your shares or rights to 
purchase your shares; or

[[Page 682]]

    (2) If you are a Federal mutual savings association, any payment 
that you are required to make under the terms of a deposit instrument 
and any other amount paid on deposits that the OCC determines is not a 
distribution for the purposes of this section;
    (b) Your payment to repurchase, redeem, retire or otherwise acquire 
any of your shares or other ownership interests, any payment to 
repurchase, redeem, retire, or otherwise acquire debt instruments 
included in your total capital under part 167 of this chapter, and any 
extension of credit to finance an affiliate's acquisition of your shares 
or interests;
    (c) Any direct or indirect payment of cash or other property to 
owners or affiliates made in connection with a corporate restructuring. 
This includes your payment of cash or property to shareholders of 
another association or to shareholders of its holding company to acquire 
ownership in that association, other than by a distribution of shares;
    (d) Any other distribution charged against your capital accounts if 
you would not be well capitalized, as set forth in Sec. 165.4(b)(1) of 
this chapter, following the distribution; and
    (e) Any transaction that the OCC determines, by order or regulation, 
to be in substance a distribution of capital.



Sec. 163.142  What other definitions apply to this subpart?

    The following definitions apply to this subpart:
    Affiliate means an affiliate, as defined under Sec. 563.41(b) until 
superseded by regulations of the Board of Governors of the Federal 
Reserve System regarding transactions with affiliates.
    Capital means total capital, as computed under part 167 of this 
chapter.
    Net income means your net income computed in accordance with 
generally accepted accounting principles.
    Retained net income means your net income for a specified period 
less total capital distributions declared in that period.
    Shares means common and preferred stock, and any options, warrants, 
or other rights for the acquisition of such stock. The term ``share'' 
also includes convertible securities upon their conversion into common 
or preferred stock. The term does not include convertible debt 
securities prior to their conversion into common or preferred stock or 
other securities that are not equity securities at the time of a capital 
distribution.



Sec. 163.143  Must I file with the OCC?

    Whether and what you must file with the OCC depends on whether you 
and your proposed capital distribution fall within certain criteria.
    (a) Application required.

------------------------------------------------------------------------
                  If:                               Then you:
------------------------------------------------------------------------
(1) You are not eligible for expedited   Must file an application with
 treatment under Sec.  116.5 of this     the OCC.
 chapter.
(2) The total amount of all of your      Must file an application with
 capital distributions (including the     the OCC.
 proposed capital distribution) for the
 applicable calendar year exceeds your
 net income for that year to date plus
 your retained net income for the
 preceding two years.
(3) You would not be at least            Must file an application with
 adequately capitalized, as set forth     the OCC.
 in Sec.  165.4(b)(2) of this chapter,
 following the distribution.
(4) Your proposed capital distribution   Must file an application with
 would violate a prohibition contained    the OCC.
 in any applicable statute, regulation,
 or agreement between you and the OCC
 or the OTS, or violate a condition
 imposed on you in an application or
 notice approved by the OCC or the OTS.
------------------------------------------------------------------------

    (b) Notice required.

------------------------------------------------------------------------
   If you are not required to file an
application under paragraph (a) of this             Then you:
             section, but:
------------------------------------------------------------------------
(1) You would not be well capitalized,   Must file a notice with the
 as set forth under Sec.  165.4(b)(1),   OCC.
 following the distribution.

[[Page 683]]

 
(2) Your proposed capital distribution   Must file a notice with the
 would reduce the amount of or retire     OCC.
 any part of your common or preferred
 stock or retire any part of debt
 instruments such as notes or
 debentures included in capital under
 part 167 of this chapter (other than
 regular payments required under a debt
 instrument approved under Sec.
 163.81).
(3) You are a subsidiary of a savings    Except as provided in (d), you
 and loan holding company,.               must file a notice with the
                                          OCC.
------------------------------------------------------------------------

    (c) No prior notice required.

------------------------------------------------------------------------
 
------------------------------------------------------------------------
If neither you nor your proposed         Then you do not need to file a
 capital distribution meet any of the     notice or an application with
 criteria listed in paragraphs (a) and    the OCC before making a
 (b) of this section.                     capital distribution.
------------------------------------------------------------------------

    (d) Informational copy of notice required.

------------------------------------------------------------------------
 
------------------------------------------------------------------------
If you are a subsidiary of a stock       Then you do not file a notice
 savings and loan holding company that    under (b)(3) but you must
 is filing a notice with the Board of     provide an informational copy
 Governors of the Federal Reserve         to the OCC of the notice filed
 System (Board) for a cash divided        with the Board, at the same
 pursuant to 12 U.S.C. 1467a(f) and       time it is filed with the
 neither an application under (a), nor    Board.
 a notice under (b)(1) or (b)(2) is
 required,
------------------------------------------------------------------------



Sec. 163.144  How do I file with the OCC?

    (a) Contents. Your notice or application must:
    (1) Be in narrative form.
    (2) Include all relevant information concerning the proposed capital 
distribution, including the amount, timing, and type of distribution.
    (3) Demonstrate compliance with Sec. 163.146.
    (b) Schedules. Your notice or application may include a schedule 
proposing capital distributions over a specified period, not to exceed 
12 months.
    (c) Timing. You must file your notice or application at least 30 
days before the proposed declaration of dividend or approval of the 
proposed capital distribution by your board of directors.



Sec. 163.145  May I combine my notice or application with other notices or 

applications?

    You may combine the notice or application required under Sec. 
163.143 with any other notice or application, if the capital 
distribution is a part of, or is proposed in connection with, another 
transaction requiring a notice or application under this chapter. If you 
submit a combined filing, you must:
    (a) State that the related notice or application is intended to 
serve as a notice or application under this subpart; and
    (b) Submit the notice or application in a timely manner.



Sec. 163.146  Will the OCC permit my capital distribution?

    The OCC will review your notice or application under the review 
procedures in 12 CFR part 116, subpart E, except that the OCC will not 
act on informational copies of the notice submitted to the OCC pursuant 
to Sec. 163.143(d). The OCC may disapprove your notice or deny your 
application filed under Sec. 163.143, in whole or in part, if it makes 
any of the following determinations.
    (a) You will be undercapitalized, significantly undercapitalized, or 
critically undercapitalized as set forth in

[[Page 684]]

Sec. 165.4(b) of this chapter, following the capital distribution. If 
so, the OCC will determine if your capital distribution is permitted 
under 12 U.S.C. 1831o(d)(1)(B).
    (b) Your proposed capital distribution raises safety or soundness 
concerns.
    (c) Your proposed capital distribution violates a prohibition 
contained in any statute, regulation, agreement between you and the OCC 
or the OTS, or a condition imposed on you in an application or notice 
approved by the OCC or the OTS. If so, the OCC will determine whether it 
may permit your capital distribution notwithstanding the prohibition or 
condition.



                 Subpart F_Financial Management Policies



Sec. 163.161  Management and financial policies.

    (a)(1) For the protection of depositors and other savings 
associations, each Federal savings association and each service 
corporation must be well managed and operate safely and soundly. Each 
also must pursue financial policies that are safe and consistent with 
economical home financing and the purposes of savings associations. In 
implementing this section, the OCC will consider that service 
corporations may be authorized to engage in activities that involve a 
higher degree of risk than activities permitted to savings associations.
    (2) As part of meeting its requirements under paragraph (a)(1) of 
this section, each Federal savings association and service corporation 
must maintain sufficient liquidity to ensure its safe and sound 
operation.
    (b) Compensation to officers, directors, and employees of each 
Federal savings association and its service corporations shall not be in 
excess of that which is reasonable and commensurate with their duties 
and responsibilities. Former officers, directors, and employees of 
savings association or its service corporation who regularly perform 
services therefore under consulting contracts are employees thereof for 
purposes of this paragraph (b).



Sec. 163.170  Examinations and audits; appraisals; establishment and 

maintenance of records.

    (a) Examinations and audits. Each Federal savings association and 
affiliate thereof shall be examined periodically, and may be examined at 
any time, by the OCC, with appraisals when deemed advisable, in 
accordance with general policies from time to time established by the 
OCC. The costs, as computed by the OCC, of any examinations made by it, 
including office analysis, overhead, per diem, travel expense, other 
supervision by the OCC, and other indirect costs, shall be paid by the 
savings associations examined, except that in the case of service 
corporations of Federal savings associations the cost of examinations, 
as determined by the OCC, shall be paid by the service corporations. 
Payments shall be made in accordance with a schedule of annual 
assessments based upon each savings association's total assets and of 
rates for examiner time in amounts determined by the OCC.
    (b) Appraisals. (1) Unless otherwise ordered by the OCC, appraisal 
of real estate by the OCC in connection with any examination or audit of 
a savings association, affiliate, or service corporation shall be made 
by an appraiser, or by appraisers, selected by the OCC. The cost of such 
appraisal shall promptly be paid by such savings association, affiliate, 
or service corporation direct to such appraiser or appraisers upon 
receipt by the savings association, affiliate, or service corporation of 
a statement of such cost as approved by the OCC. A copy of the report of 
each appraisal made by the OCC pursuant to any of the foregoing 
provisions of this section shall be furnished to the savings 
association, affiliate, or service corporation, as appropriate within a 
reasonable time, not to exceed 90 days, following the completion of such 
appraisals and the filing of a report thereof by the appraiser, or 
appraisers, with the OCC.
    (2) The OCC may obtain at any time, at its expense, such appraisals 
of any of the assets, including the security therefore, of a savings 
association, affiliate, or service corporation as the OCC deems 
appropriate.

[[Page 685]]

    (c) Establishment and maintenance of records. To enable the OCC to 
examine Federal savings associations and affiliates and audit savings 
associations, affiliates, and service corporations pursuant to the 
provisions of paragraph (a) of this section, each savings association, 
affiliate, and service corporation shall establish and maintain such 
accounting and other records as will provide an accurate and complete 
record of all business it transacts. This includes, without limitation, 
establishing and maintaining such other records as are required by 
statute or any other regulation to which the savings association, 
affiliate, or service corporation is subject. The documents, files, and 
other material or property comprising said records shall at all times be 
available for such examination and audit wherever any of said records, 
documents, files, material, or property may be.
    (d) Change in location of records. A Federal savings association 
shall not transfer the location of any of its general accounting or 
control records, or the maintenance thereof, from its home office to a 
branch or service office, or from a branch or service office to its home 
office or to another branch or service office unless prior to the date 
of transfer its board of directors has:
    (1) By resolution authorized the transfer or maintenance; and
    (2) Sent a certified copy of the resolution to the OCC.
    (e) Use of data processing services for maintenance of records. A 
Federal savings association which determines to maintain any of its 
records by means of data processing services shall so notify the OCC in 
writing, at least 90 days prior to the date on which such maintenance of 
records will begin. Such notification shall include identification of 
the records to be maintained by data processing services and a statement 
as to the location at which such records will be maintained. Any 
contract, agreement, or arrangement made by a savings association 
pursuant to which data processing services are to be performed for such 
savings association shall be in writing and shall expressly provide that 
the records to be maintained by such services shall at all times be 
available for examination and audit.



Sec. 163.171  [Reserved]



Sec. 163.172  Financial derivatives.

    (a) What is a financial derivative? A financial derivative is a 
financial contract whose value depends on the value of one or more 
underlying assets, indices, or reference rates. The most common types of 
financial derivatives are futures, forward commitments, options, and 
swaps. A mortgage derivative security, such as a collateralized mortgage 
obligation or a real estate mortgage investment conduit, is not a 
financial derivative under this section.
    (b) May I engage in transactions involving financial derivatives? 
(1) If you are a Federal savings association, you may engage in a 
transaction involving a financial derivative if you are authorized to 
invest in the assets underlying the financial derivative, the 
transaction is safe and sound, and you otherwise meet the requirements 
in this section.
    (2) [Reserved]
    (3) In general, if you engage in a transaction involving a financial 
derivative, you should do so to reduce your risk exposure.
    (c) What are my board of directors' responsibilities with respect to 
financial derivatives? (1) Your board of directors is responsible for 
effective oversight of financial derivatives activities.
    (2) Before you may engage in any transaction involving a financial 
derivative, your board of directors must establish written policies and 
procedures governing authorized financial derivatives. Your board of 
directors should review applicable guidance issued by the OCC on 
establishing a sound risk management program.
    (3) Your board of directors must periodically review:
    (i) Compliance with the policies and procedures established under 
paragraph (c)(2) of this section; and
    (ii) The adequacy of these policies and procedures to ensure that 
they continue to be appropriate to the nature and scope of your 
operations and existing market conditions.
    (4) Your board of directors must ensure that management establishes 
an adequate system of internal controls

[[Page 686]]

for transactions involving financial derivatives.
    (d) What are management's responsibilities with respect to financial 
derivatives? (1) Management is responsible for daily oversight and 
management of financial derivatives activities. Management must 
implement the policies and procedures established by the board of 
directors and must establish a system of internal controls. This system 
of internal controls should, at a minimum, provide for periodic 
reporting to the board of directors and management, segregation of 
duties, and internal review procedures.
    (2) Management must ensure that financial derivatives activities are 
conducted in a safe and sound manner and should review applicable 
guidance issued by the OCC on implementing a sound risk management 
program.
    (e) What records must I keep on financial derivative transactions? 
You must maintain records adequate to demonstrate compliance with this 
section and with your board of directors' policies and procedures on 
financial derivatives.



Sec. 163.176  Interest-rate-risk-management procedures.

    Federal savings associations shall take the following actions:
    (a) The board of directors or a committee thereof shall review the 
savings association's interest-rate-risk exposure and devise a policy 
for the savings association's management of that risk.
    (b) The board of directors shall formally adopt a policy for the 
management of interest-rate risk. The management of the savings 
association shall establish guidelines and procedures to ensure that the 
board's policy is successfully implemented.
    (c) The management of the savings association shall periodically 
report to the board of directors regarding implementation of the savings 
association's policy for interest-rate-risk management and shall make 
that information available upon request to the OCC.
    (d) The savings association's board of directors shall review the 
results of operations at least quarterly and shall make such adjustments 
as it considers necessary and appropriate to the policy for interest-
rate-risk management, including adjustments to the authorized acceptable 
level of interest-rate risk.



Sec. 163.177  Procedures for monitoring Bank Secrecy Act (BSA) compliance.

    (a) Purpose. The purpose of this regulation is to require savings 
associations (as defined by Sec. 161.43 of this chapter) to establish 
and maintain procedures reasonably designed to assure and monitor 
compliance with the requirements of subchapter II of chapter 53 of title 
31, United States Code, and the implementing regulations promulgated 
thereunder by the U.S. Department of Treasury, 31 CFR Chapter X.
    (b) Establishment of a BSA compliance program--(1) Program 
requirement. Each savings association 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 Chapter X. The compliance program must be written, approved by 
the savings association's board of directors, and reflected in the 
minutes of the savings association.
    (2) Customer identification program. Each savings association 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 1020.220, 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 a savings association's in-house personnel or by an outside party;
    (3) Designate individual(s) responsible for coordinating and 
monitoring day-to-day compliance; and
    (4) Provide training for appropriate personnel.

[[Page 687]]



                     Subpart G_Reporting and Bonding



Sec. 163.180  Suspicious Activity Reports and other reports and statements.

    (a) Periodic reports. Each savings association and service 
corporation thereof shall make such periodic or other reports of its 
affairs in such manner and on such forms as the appropriate Federal 
banking agency may prescribe. The appropriate Federal banking agency may 
provide that reports filed by savings associations or service 
corporations to meet the requirements of other regulations also satisfy 
requirements imposed under this section.
    (b) False or misleading statements or omissions. No savings 
association or director, officer, agent, employee, affiliated person, or 
other person participating in the conduct of the affairs of such 
association nor any person filing or seeking approval of any application 
shall knowingly:
    (1) Make any written or oral statement to the appropriate Federal 
banking agency or to an agent, representative or employee of the 
appropriate Federal banking agency that is false or misleading with 
respect to any material fact or omits to state a material fact 
concerning any matter within the jurisdiction of the appropriate Federal 
banking agency or
    (2) Make any such statement or omission to a person or organization 
auditing a savings association or otherwise preparing or reviewing its 
financial statements concerning the accounts, assets, management 
condition, ownership, safety, or soundness, or other affairs of the 
association.
    (c) Notifications of loss and reports of increase in deductible 
amount of bond. A savings association maintaining bond coverage as 
required by Sec. 163.190 of this part shall promptly notify its bond 
company and file a proof of loss under the procedures provided by its 
bond, concerning any covered losses greater than twice the deductible 
amount.
    (d) Suspicious Activity Reports--(1) Purpose and scope. This 
paragraph (d) ensures that savings associations and service corporations 
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.
    (2) Definitions. For the purposes of this paragraph (d):
    (i) FinCEN means the Financial Crimes Enforcement Network of the 
Department of the Treasury.
    (ii) Institution-affiliated party means any institution-affiliated 
party as that term is defined in sections 3(u) and 8(b)(9) of the 
Federal Deposit Insurance Act (12 U.S.C. 1813(u) and 1818(b)(9)).
    (iii) SAR means a Suspicious Activity Report.
    (3) SARs required. A savings association or service corporation 
shall file a SAR with the appropriate Federal law enforcement agencies 
and the Department of the Treasury on the form prescribed by the 
appropriate Federal banking agency and in accordance with the form's 
instructions, by sending a completed SAR to FinCEN in the following 
circumstances:
    (i) Insider abuse involving any amount. Whenever the savings 
association or service corporation detects any known or suspected 
Federal criminal violation, or pattern of criminal violations, committed 
or attempted against the savings association or service corporation or 
involving a transaction or transactions conducted through the savings 
association or service corporation, where the savings association or 
service corporation 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 it 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.
    (ii) Violations aggregating $5,000 or more where a suspect can be 
identified. Whenever the savings association or service corporation 
detects any known or suspected Federal criminal violation, or pattern of 
criminal violations, committed or attempted against the savings 
association or service corporation or involving a transaction or 
transactions conducted through the savings association or service 
corporation and involving or aggregating $5,000

[[Page 688]]

or more in funds or other assets, where the savings association or 
service corporation 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 it 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.
    (iii) Violations aggregating $25,000 or more regardless of potential 
suspects. Whenever the savings association or service corporation 
detects any known or suspected Federal criminal violation, or pattern of 
criminal violations, committed or attempted against the savings 
association or service corporation or involving a transaction or 
transactions conducted through the savings association or service 
corporation and involving or aggregating $25,000 or more in funds or 
other assets, where the savings association or service corporation 
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, even though there is no substantial 
basis for identifying a possible suspect or group of suspects.
    (iv) Transactions aggregating $5,000 or more that involve potential 
money laundering or violations of the Bank Secrecy Act. Any transaction 
(which for purposes of this paragraph (d)(3)(iv) means a deposit, 
withdrawal, transfer between accounts, exchange of currency, loan, 
extension of credit, 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 savings association or service corporation and involving 
or aggregating $5,000 or more in funds or other assets, if the savings 
association or service corporation knows, suspects, or has reason to 
suspect that:
    (A) 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;
    (B) The transaction is designed to evade any regulations promulgated 
under the Bank Secrecy Act; or
    (C) 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.
    (4) Service corporations. When a service corporation is required to 
file a SAR under paragraph (d)(3) of this section, either the service 
corporation or a savings association that wholly or partially owns the 
service corporation may file the SAR.
    (5) Time for reporting. A savings association or service corporation 
is required to file a SAR no later than 30 calendar days after the date 
of 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 savings association or service 
corporation 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 savings 
association or service corporation shall immediately notify, by 
telephone, an appropriate law enforcement authority and the appropriate 
Federal banking agency in addition to filing a timely SAR.
    (6) Reports to state and local authorities. A savings association or 
service

[[Page 689]]

corporation is encouraged to file a copy of the SAR with state and local 
law enforcement agencies where appropriate.
    (7) Exception. A savings association or service corporation need not 
file a SAR for a robbery or burglary committed or attempted that is 
reported to appropriate law enforcement authorities.
    (8) Retention of records. A savings association or service 
corporation 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 savings 
association or service corporation as such, and shall be deemed to have 
been filed with the SAR. A savings association or service corporation 
shall make all supporting documentation available to appropriate law 
enforcement agencies upon request. A savings association or service 
corporation shall make all supporting documentation available to the 
appropriate Federal banking agency, FinCEN, or any Federal, state, or 
local law enforcement agency, or any Federal regulatory authority that 
examines the savings association or service corporation for compliance 
with the Bank Secrecy Act, or any state regulatory authority 
administering a state law that requires the savings association or 
service corporation to comply with the Bank Secrecy Act or otherwise 
authorizes the state authority to ensure that the institution complies 
with the Bank Secrecy Act, upon request.
    (9) Notification to board of directors--(i) Generally. Whenever a 
savings association (or a service corporation in which the savings 
association has an ownership interest) files a SAR pursuant to this 
paragraph (d), the management of the savings association or service 
corporation shall promptly notify its board of directors, or a committee 
of directors or executive officers designated by the board of directors 
to receive notice.
    (ii) Suspect is a director or executive officer. If the savings 
association or service corporation files a SAR pursuant to this 
paragraph (d) and the suspect is a director or executive officer, the 
savings association or service corporation may not notify the suspect, 
pursuant to 31 U.S.C. 5318(g)(2), but shall notify all directors who are 
not suspects.
    (10) Compliance. Failure to file a SAR in accordance with this 
section and the instructions may subject the savings association or 
service corporation, its directors, officers, employees, agents, or 
other institution-affiliated parties to supervisory action.
    (11) Obtaining SARs. A savings association or service corporation 
may obtain SARs and the instructions from the appropriate Federal 
banking agency.
    (12) Confidentiality of SARs. A SAR, and any information that would 
reveal the existence of a SAR, are confidential, and shall not be 
disclosed except as authorized in this paragraph (d)(12).
    (i) Prohibition on disclosure by savings associations or service 
corporations. (A) General rule. No savings association or service 
corporation, and no director, officer, employee, or agent of a savings 
association or service corporation, shall disclose a SAR or any 
information that would reveal the existence of a SAR. Any savings 
association or service corporation, and any director, officer, employee, 
or agent of any savings association or service corporation that is 
subpoenaed or otherwise requested to disclose a SAR, or any information 
that would reveal the existence of a SAR, shall decline to produce the 
SAR or such information, citing this section and 31 U.S.C. 
5318(g)(2)(A)(i), and shall notify the following of any such request and 
the response thereto:
    (A) Director, Litigation Division, Office of the Comptroller of the 
Currency or the appropriate FDIC region, as appropriate and
    (B) The Financial Crimes Enforcement Network (FinCEN).
    (ii) Rules of construction. Provided that no person involved in any 
reported suspicious transaction is notified that the transaction has 
been reported, paragraph (d)(1) of this section shall not be construed 
as prohibiting:
    (A) The disclosure by a savings association or service corporation, 
or any director, officer, employee or agent of a savings association or 
service corporation of:
    (1) A SAR, or any information that would reveal the existence of a 
SAR, to

[[Page 690]]

FinCEN or the appropriate Federal banking agency or any Federal, state, 
or local law enforcement agency; or any Federal regulatory authority 
that examines the savings association or service corporation for 
compliance with the Bank Secrecy Act, or any state regulatory authority 
administering a state law that requires compliance with the Bank Secrecy 
Act or otherwise authorizes the state authority to ensure that the 
institution complies with the Bank Secrecy Act; or
    (2) The underlying facts, transactions, and documents upon which a 
SAR is based, including, but not limited to, disclosures:
    (i) To another financial institution, or any director, officer, 
employee or agent of a financial institution, for the preparation of a 
joint SAR; or
    (ii) In connection with certain employment references or termination 
notices, to the full extent authorized in 31 U.S.C. 5318(g)(2)(B); or
    (B) The sharing by a savings association or service corporation, or 
any director, officer, employee, or agent of a savings association or 
service corporation, of a SAR, or any information that would reveal the 
existence of a SAR, within the corporate organizational structure of the 
savings association or service corporation, for purposes consistent with 
Title II of the Bank Secrecy Act as determined by regulation or in 
guidance.
    (iii) Prohibition on disclosure by the appropriate Federal banking 
agency. The appropriate Federal banking agency will not, and no officer, 
employee or agent of appropriate Federal banking agency shall disclose a 
SAR, or any information that would reveal the existence of a SAR, except 
as necessary to fulfill official duties consistent with Title II of the 
Bank Secrecy Act. For purposes of this section, ``official duties'' 
shall not include the disclosure of a SAR, or any information that would 
reveal the existence of a SAR, in response to a request for use in a 
private legal proceeding or in response to a request for disclosure of 
non-public information under 12 CFR 4.33 or 12 CFR part 309, as 
appropriate.
    (iv) Limitation on liability. A savings association or service 
corporation and any director, officer, employee or agent of a savings 
association or service corporation that makes a voluntary disclosure of 
any possible violation of law or regulation to a government agency or 
makes a disclosure pursuant to this section or any other authority, 
including a disclosure made jointly with another institution, shall be 
protected from liability for any such disclosure, or for failure to 
provide notice of such disclosure to any person identified in the 
disclosure, or both, to the full extent provided by 31 U.S.C. 
5318(g)(3).
    (13) 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 filed 
pursuant to this paragraph (d), or are filed on a voluntary basis.
    (e) Adjustable-rate mortgage indices--(1) Reporting obligation. Upon 
the request of a Federal Home Loan Bank, all savings associations within 
the jurisdiction of that Federal Home Loan Bank shall report the data 
items set forth in paragraph (e)(2) of this section for the Federal Home 
Loan Bank to use in calculating and publishing an adjustable-rate 
mortgage index.
    (2) Data to be reported. For purposes of paragraph (e)(1) of this 
section, the term ``data items'' means the data items previously 
collected from the monthly Thrift Financial Report or Consolidated 
Reports of Condition and Income, as appropriate, and such data items as 
may be altered, amended, or substituted by the requesting Federal Home 
Loan Bank.
    (3) Applicable indices. For the purpose of this reporting 
requirement, the term ``adjustable-rate mortgage index'' means any of 
the adjustable-rate mortgage indices calculated and published by a 
Federal Home Loan Bank or the Federal Home Loan Bank Board on or before 
August 9, 1989.

[[Page 691]]


    Editorial Note: At 76 FR 49047, Aug. 9, 2011, Sec. 163.180 was 
added; however, there are two paragraphs (d)(12)(i)(A).



Sec. 163.190  Bonds for directors, officers, employees, and agents; form of 

and amount of bonds.

    (a) Each Federal savings association shall maintain fidelity bond 
coverage. The bond shall cover each director, officer, employee, and 
agent who has control over or access to cash, securities, or other 
property of the savings association.
    (b) The amount of coverage to be required for each Federal savings 
association shall be determined by the association's management, based 
on its assessment of the level that would be safe and sound in view of 
the association's potential exposure to risk; provided, such 
determination shall be subject to approval by the association's board of 
directors.
    (c) Each Federal savings association may maintain bond coverage in 
addition to that provided by the insurance underwriter industry's 
standard forms, through the use of endorsements, riders, or other forms 
of supplemental coverage, if, in the judgment of the association's board 
of directors, additional coverage is warranted.
    (d) The board of directors of each Federal savings association shall 
formally approve the association's bond coverage. In deciding whether to 
approve the bond coverage, the board shall review the adequacy of the 
standard coverage and the need for supplemental coverage. Documentation 
of the board's approval shall be included as a part of the minutes of 
the meeting at which the board approves coverage. Additionally, the 
board of directors shall review the association's bond coverage at least 
annually to assess the continuing adequacy of coverage.



Sec. 163.191  Bonds for agents.

    In lieu of the bond provided in Sec. 163.190 of this part in the 
case of agents appointed by a Federal savings association, a fidelity 
bond may be provided in an amount at least twice the average monthly 
collections of such agents, provided such agents shall be required to 
make settlement with the savings association at least monthly, and 
provided such bond is approved by the board of directors of the savings 
association. No bond need be obtained for any agent that is a financial 
institution insured by the Federal Deposit Insurance Corporation.



Sec. 163.200  Conflicts of interest.

    If you are a director, officer, or employee of a Federal savings 
association, or have the power to direct its management or policies, or 
otherwise owe a fiduciary duty to a Federal savings association:
    (a) You must not advance your own personal or business interests, or 
those of others with whom you have a personal or business relationship, 
at the expense of the savings association; and
    (b) You must, if you have an interest in a matter or transaction 
before the board of directors:
    (1) Disclose to the board all material nonprivileged information 
relevant to the board's decision on the matter or transaction, 
including:
    (i) The existence, nature and extent of your interests; and
    (ii) The facts known to you as to the matter or transaction under 
consideration;
    (2) Refrain from participating in the board's discussion of the 
matter or transaction; and
    (3) Recuse yourself from voting on the matter or transaction (if you 
are a director).



Sec. 163.201  Corporate opportunity.

    (a) If you are a director or officer of a Federal savings 
association, or have the power to direct its management or policies, or 
otherwise owe a fiduciary duty to a Federal savings association, you 
must not take advantage of corporate opportunities belonging to the 
savings association.
    (b) A corporate opportunity belongs to a Federal savings association 
if:
    (1) The opportunity is within the corporate powers of the savings 
association or a subsidiary of the savings association; and
    (2) The opportunity is of present or potential practical advantage 
to the savings association, either directly or through its subsidiary.
    (c) The OCC will not deem you to have taken advantage of a corporate 
opportunity belonging to the Federal

[[Page 692]]

savings association if a disinterested and independent majority of the 
savings association's board of directors, after receiving a full and 
fair presentation of the matter, rejected the opportunity as a matter of 
sound business judgment.



   Subpart H_Notice of Change of Director or Senior Executive Officer



Sec. 163.550  What does this subpart do?

    This subpart implements 12 U.S.C. 1831i, which requires certain 
Federal savings associations to notify the OCC before appointing or 
employing directors and senior executive officers.



Sec. 163.555  What definitions apply to this subpart?

    The following definitions apply to this subpart:
    Director means an individual who serves on the board of directors of 
a Federal savings association. This term does not include an advisory 
director who:
    (1) Is not elected by the shareholders;
    (2) Is not authorized to vote on any matters before the board of 
directors or any committee of the board of directors;
    (3) Provides only general policy advice to the board of directors or 
any committee of the board of directors; and
    (4) Has not been identified by the OCC or the OTS in writing as an 
individual who performs the functions of a director, or who exercises 
significant influence over, or participates in, major policymaking 
decisions of the board of directors.
    Senior executive officer means an individual who holds the title or 
performs the function of one or more of the following positions (without 
regard to title, salary, or compensation): President, chief executive 
officer, chief operating officer, chief financial officer, chief lending 
officer, or chief investment officer. Senior executive officer also 
includes any other person identified by the OCC or the OTS in writing as 
an individual who exercises significant influence over, or participates 
in, major policymaking decisions, whether or not hired as an employee.
    Troubled condition means:
    (1) A Federal savings association that has a composite rating of 4 
or 5, as composite rating is defined in Sec. 116.5(c) of this chapter;
    (2) A Federal savings association that is subject to a capital 
directive, a cease-and-desist order, a consent order, a formal written 
agreement, or a prompt corrective action directive relating to the 
safety and soundness or financial viability of the savings association, 
unless otherwise informed in writing by the OCC; or
    (3) A Federal savings association that is informed in writing by the 
OCC that it is in troubled condition based on information available to 
the OCC.



Sec. 163.560  Who must give prior notice?

    (a) Federal savings association. Except as provided under Sec. 
163.590, you must notify your OCC supervisory office at least 30 days 
before adding or replacing any member of your board of directors, 
employing any person as a senior executive officer, or changing the 
responsibilities of any senior executive officer so that the person 
would assume a different senior executive position if you are a Federal 
savings association and at least one of the following circumstances 
apply:
    (1) You do not comply with all minimum capital requirements under 
part 167 of this chapter;
    (2) Are in troubled condition; or
    (3) The OCC has notified you, in connection with its review of a 
capital restoration plan required under section 38 of the Federal 
Deposit Insurance Act or part 165 of this chapter or otherwise, that a 
notice is required under this subpart.
    (b) Notice by individual. If you are an individual seeking election 
to the board of directors of a Federal savings association described in 
paragraph (a) of this section, and have not been nominated by 
management, you must either provide the prior notice required under 
paragraph (a) of this section or follow the process under Sec. 
163.590(b).



Sec. 163.565  What procedures govern the filing of my notice?

    The procedures found in part 116, subpart A of this chapter govern 
the filing of your notice under Sec. 163.560.

[[Page 693]]



Sec. 163.570  What information must I include in my notice?

    (a) Content requirements. Your notice must include:
    (1) The information required under 12 U.S.C. 1817(j)(6)(A), and the 
information prescribed in the Interagency Notice of Change in Director 
or Senior Executive Officer and the Interagency Biographical and 
Financial Report which are available from the OCC;
    (2) Legible fingerprints of the proposed director or senior 
executive officer. You are not required to file fingerprints if, within 
three years prior to the date of submission of the notice, the proposed 
director or senior executive officer provided legible fingerprints as 
part of a notice filed with the OCC or the Office of Thrift Supervision 
under 12 U.S.C. 1831i; and
    (3) Such other information required by the OCC.
    (b) Modification of content requirements. The OCC may require or 
accept other information in place of the content requirements in 
paragraph (a) of this section.



Sec. 163.575  What procedures govern OCC review of my notice for completeness?

    The OCC will first review your notice to determine whether it is 
complete.
    (a) If your notice is complete, the OCC will notify you in writing 
of the date that the OCC received the complete notice.
    (b) If your notice is not complete, the OCC will notify you in 
writing what additional information you need to submit, why we need the 
information, and when you must submit it. You must, within the specified 
time period, provide additional information or request that the OCC 
suspend processing of the notice. If you fail to act within the 
specified time period, the OCC may treat the notice as abandoned or may 
review the application based on the information provided.



Sec. 163.580  What standards and procedures will govern OCC review of the 

substance of my notice?

    The OCC will disapprove a notice if, pursuant to the standard set 
forth in 12 U.S.C. 1831i(e), the OCC finds that the competence, 
experience, character, or integrity of the proposed director or senior 
executive officer indicates that it would not be in the best interests 
of the depositors of the Federal savings association or of the public to 
permit the individual to be employed by, or associated with, the savings 
association. If the OCC disapproves a notice, it will issue a written 
notice that explains why the OCC disapproved the notice. The OCC will 
send the notice to the savings association and the individual.



Sec. 163.585  When may a proposed director or senior executive officer begin 

service?

    (a) A proposed director or senior executive officer may begin 
service 30 days after the date the OCC receives all required 
information, unless:
    (1) The OCC notifies you that it has disapproved the notice; or
    (2) The OCC extends the 30-day period for an additional period not 
to exceed 60 days. If the OCC extends the 30-day period, it will notify 
you in writing that the period has been extended, and will state the 
reason for the extension. The proposed director or senior executive 
officer may begin service upon expiration of the extended period, unless 
the OCC notifies you that it has disapproved the notice during the 
extended period.
    (b) Notwithstanding paragraph (a) of this section, a proposed 
director or senior executive officer may begin service after the OCC 
notifies you, in writing, of its intention not to disapprove the notice.



Sec. 163.590  When will the OCC waive the prior notice requirement?

    (a) Waiver request. (1) An individual may serve as a director or 
senior executive officer before filing a notice under this subpart if 
the OCC issues a written finding that:
    (i) Delay would threaten the safety or soundness of the savings 
association;
    (ii) Delay would not be in the public interest; or
    (iii) Other extraordinary circumstances exist that justify waiver of 
prior notice.
    (2) If the OCC grants a waiver, you must file a notice under this 
subpart

[[Page 694]]

within the time period specified by the OCC.
    (b) Automatic waiver. An individual may serve as a director before 
filing a notice under this subpart, if the individual was not nominated 
by management and the individual submits a notice under this subpart 
within seven days after election as a director.
    (c) Subsequent OCC action. The OCC may disapprove a notice within 30 
days after the OCC issues a waiver under paragraph (a) of this section 
or within 30 days after the election of an individual who has filed a 
notice and is serving pursuant to an automatic waiver under paragraph 
(b) of this section.



PART 164_APPRAISALS--Table of Contents



Sec.
164.1 Purpose, and scope.
164.2 Definitions.
164.3 Appraisals required; transactions requiring a state certified or 
          licensed appraiser.
164.4 Minimum appraisal standards.
164.5 Appraiser independence.
164.6 Professional association membership; competency.
164.7 Enforcement.
164.8 Appraisal policies and practices of Federal savings associations 
          and subsidiaries.

    Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1828(m), 3331 et seq, 
5412(b)(2)(B).

    Source: 76 FR 49062, Aug. 9, 2011, unless otherwise noted.



Sec. 164.1  Purpose and scope.

    (a) [Reserved]
    (b) Purpose and scope. (1) Title XI of the Financial Institutions 
Reform, Recovery, and Enforcement Act of 1989 (``FIRREA'') (Pub. L. 101-
73, 103 Stat. 183, 511 (1989)), 12 U.S.C. 3331 et seq. 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 part implements the requirements 
of title XI and applies to all Federally related transactions entered 
into by institutions regulated by the OCC (``regulated institutions'').
    (2) This part: (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. 164.2  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 Institution 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) Any 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

[[Page 695]]

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 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 National 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.



Sec. 164.3  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;

[[Page 696]]

    (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
    (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 part 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 and residential (other than 1-to-4 family) 
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 prepared 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 of whether the appraisal is complex. If during the course 
of the appraisal a licensed appraiser

[[Page 697]]

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.



Sec. 164.4  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 
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 part; and
    (e) Be performed by state licensed or certified appraisers in 
accordance with requirements set forth in this part.



Sec. 164.5  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 and that the 
appraisal is adequate. 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 part and is otherwise acceptable.



Sec. 164.6  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.

[[Page 698]]



Sec. 164.7  Enforcement.

    Institutions and institution-affiliated parties, including staff 
appraisers and fee appraisers, who violate this part 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.



Sec. 164.8  Appraisal policies and practices of Federal savings associations 

and subsidiaries.

    (a) Introduction. The soundness of a Federal savings association's 
mortgage loans and real estate investments, and those of its service 
corporation(s), depends to a great extent upon the adequacy of the loan 
underwriting used to support these transactions. An appraisal standard 
is one of several critical components of a sound underwriting policy 
because appraisal reports contain estimates of the value of collateral 
held or assets owned. This section sets forth the responsibilities of 
management to develop, implement, and maintain appraisal standards in 
determining compliance with the appraisal requirements of Sec. 163.170 
of this chapter.
    (b) Definition. For purposes of this section, management means: the 
directors and officers of a Federal savings association, or service 
corporation of such savings association, as those terms are defined in 
Sec. Sec. 161.18 and 161.35 of this chapter respectively.
    (c) Responsibilities of management. An appraisal is a critical 
component of the loan underwriting or real estate investment decision. 
Therefore, management shall develop, implement, and maintain appraisal 
policies to ensure that appraisals reflect professional competence and 
to facilitate the reporting of estimates of market value upon which 
Federal savings associations may rely to make lending decisions. To 
achieve these results:
    (1) Management shall develop written appraisal policies, subject to 
formal adoption by the savings association's board of directors, that it 
shall implement in consultation with other appropriate personnel. These 
policies shall ensure that adequate appraisals are obtained and proper 
appraisal procedures are followed consistent with the requirements of 
this part 164.
    (2) Management shall develop and adopt guidelines and institute 
procedures pertaining to the hiring of appraisers to perform appraisal 
services for the savings association consistent with the requirements of 
this part 164. These guidelines shall set forth specific factors to be 
considered by management including, but not limited to, an appraiser's 
state certification or licensing, professional education, and type of 
experience. An appraiser's membership in professional appraisal 
organizations may be considered consistent with the requirements of 
Sec. 164.6
    (3) Management shall review on an annual basis the performance of 
all approved appraisers used within the preceding 12-month period for 
compliance with (i) the savings association's appraisal policies and 
procedures; and (ii) the reasonableness of the value estimates reported.
    (d) Exemptions. The requirements of Sec. 164.4(b) through (d) shall 
not apply with respect to appraisals on nonresidential properties 
prepared on form reports approved by the OCC and completed in accordance 
with the applicable instructional booklet.



PART 165_PROMPT CORRECTIVE ACTION--Table of Contents



Sec.
165.1 Authority, purpose, scope, other supervisory authority, and 
          disclosure of capital categories.
165.2 Definitions.
165.3 Notice of capital category.
165.4 Capital measures and capital category definitions.
165.5 Capital restoration plans.
165.6 Mandatory and discretionary supervisory actions under section 38.
165.7 Directives to take prompt corrective action.
165.8 Procedures for reclassifying a Federal savings association based 
          on criteria other than capital.
165.9 Order to dismiss a director or senior executive officer.
165.10 Enforcement of directives.

    Authority: 12 U.S.C. 1831o, 5412(b)(2)(B).

    Source: 76 FR 49065, Aug. 9, 2011, unless otherwise noted.

[[Page 699]]



Sec. 165.1  Authority, purpose, scope, other supervisory authority, and 

disclosure of capital categories.

    (a) Authority. This part is issued by the 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 part is to define, 
for Federal savings associations, the capital measures and capital 
levels that are used for determining the supervisory actions authorized 
under section 38 of the FDI Act. This part 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 part implements the provisions of section 38 of the 
FDI Act as they apply to Federal savings associations. Certain of these 
provisions also apply to officers, directors and employees of Federal 
savings associations. Other provisions apply to any company that 
controls a Federal savings association and to the affiliates of a 
Federal savings association.
    (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 a Federal 
savings association under this part 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 Federal 
savings association 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 Federal savings 
association to a particular category.



Sec. 165.2  Definitions.

    For purposes of this part, except as modified in this section or 
unless the context otherwise requires, the terms used in this part have 
the same meanings as set forth in sections 38 and 3 of the FDI Act.
    (a)(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.
    (b) Controlling person means any person having control of an insured 
depository institution and any company controlled by that person.
    (c) Leverage ratio means the ratio of Tier 1 capital to adjusted 
total assets, as calculated in accordance with part 167 of this chapter.
    (d) Management fee means any payment of money or provision of any 
other thing of value to a company or

[[Page 700]]

individual for the provision of management services or advice to the 
Federal savings association 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 Federal savings association.
    (e) Risk-weighted assets means total risk-weighted assets, as 
calculated in accordance with part 167 of this chapter.
    (f) Tangible equity means the amount of a Federal savings 
association's core capital as computed in part 167 of this chapter plus 
the amount of its outstanding cumulative perpetual preferred stock 
(including related surplus), minus intangible assets as defined in Sec. 
167.1 of this chapter, except mortgage servicing assets to the extent 
they are includable under Sec. 167.12. Non-mortgage servicing assets 
that have not been previously deducted in calculating core capital are 
deducted.
    (g) Tier 1 capital means the amount of core capital as defined in 
part 167 of this chapter.
    (h) Tier 1 risk-based capital ratio means the ratio of Tier 1 
capital to risk-weighted assets, as calculated in accordance with part 
167 of this chapter.
    (i) Total assets, for purposes of Sec. 165.4(b)(5), means adjusted 
total assets as calculated in accordance with part 167 of this chapter, 
minus intangible assets as provided in the definition of tangible 
equity.
    (j) Total risk-based capital ratio means the ratio of total capital 
to risk-weighted assets, as calculated in accordance with part 167 of 
this chapter.



Sec. 165.3  Notice of capital category.

    (a) Effective date of determination of capital category. A Federal 
savings association 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 savings association 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 Federal savings association shall 
be deemed to have been notified of its capital levels and its capital 
category as of the most recent date:
    (1) A Consolidated Report of Condition (Call Report) or Thrift 
Financial Report (TFR), as appropriate, is required to be filed with the 
OCC;
    (2) A final report of examination is delivered to the savings 
association; or
    (3) Written notice is provided by the OCC to the savings association 
of its capital category for purposes of section 38 of the FDI Act and 
this part or that the savings association's capital category has changed 
as provided in paragraph (c) of this section or Sec. 165.4(c).
    (c) Adjustments to reported capital levels and category--(1) Notice 
of adjustment by Federal savings association. A Federal savings 
association shall provide the OCC with written notice that an adjustment 
to the savings association'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 savings association to be placed in a 
lower capital category from the category assigned to the savings 
association for purposes of section 38 and this part on the basis of the 
savings association's most recent Call Report or TFR, as appropriate, or 
report of examination.
    (2) Determination by the OCC 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 Federal 
savings association and shall notify the savings association of the OCC 
determination.



Sec. 165.4  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; and
    (3) The leverage ratio.
    (b) Capital categories. For purposes of section 38 and this part, a 
Federal savings association shall be deemed to be:
    (1) Well capitalized if the savings association:
    (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

[[Page 701]]

    (iii) Has a leverage ratio of 5.0 percent or greater; and
    (iv) Is not subject to any written agreement, order, capital 
directive, or prompt corrective action directive issued by the OCC or 
OTS under section 8 of the FDI Act, the International Lending 
Supervision Act of 1983 (12 U.S.C. 3907), the Home Owners' Loan Act (12 
U.S.C. 1464(t)(6)(A)(ii)), 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 savings association:
    (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 savings 
association is assigned a composite rating of 1, as composite rating is 
defined in Sec. 116.5(c) of this chapter; and
    (iv) Does not meet the definition of a well capitalized savings 
association.
    (3) Undercapitalized if the savings association:
    (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) Has a leverage ratio that is less than 3.0 percent if the 
savings association is assigned a composite rating of 1, as composite 
rating is defined in Sec. 116.5(c) of this chapter.
    (4) Significantly undercapitalized if the savings association 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 savings association has a 
ratio of tangible equity to total assets that is equal to or less than 
2.0 percent.
    (c) Reclassification based on supervisory criteria other than 
capital. The OCC may reclassify a well capitalized Federal savings 
association as adequately capitalized and may require an adequately 
capitalized or undercapitalized Federal savings association to comply 
with certain mandatory or discretionary supervisory actions as if the 
savings association were in the next lower capital category (except that 
the OCC may not reclassify a significantly undercapitalized savings 
association 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 Sec. 165.8(a) of this 
part, that the savings association is in an unsafe or unsound condition; 
or
    (2) Unsafe or unsound practice. The OCC has determined, after notice 
and an opportunity for hearing pursuant to Sec. 165.8(a) of this part, 
that the savings association received a less-than-satisfactory rating 
for any rating category (other than in a rating category specifically 
addressing capital adequacy) under the Uniform Financial Institutions 
Rating System, or an equivalent rating under a comparable rating system 
adopted by the OCC; and has not corrected the conditions that served as 
the basis for the less than satisfactory rating. Ratings under this 
paragraph (c)(2) refer to the most recent ratings (as determined either 
on-site or off-site by the most recent examination) of which the savings 
association has been notified in writing.



Sec. 165.5  Capital restoration plans.

    (a) Schedule for filing plan--(1) In general. A Federal savings 
association shall file a written capital restoration plan with the OCC 
within 45 days of the date that the savings association receives notice 
or is deemed to have notice that the savings association is 
undercapitalized, significantly undercapitalized, or critically 
undercapitalized, unless the OCC notifies the savings association in 
writing that the plan is to be filed within a different period. An 
adequately capitalized savings

[[Page 702]]

association that has been required pursuant to Sec. 165.4(c) to comply 
with supervisory actions as if the savings association 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 Federal savings association that has already 
submitted and is operating under a capital restoration plan approved 
under section 38 and this part 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. 165.4(c) 
unless the OCC notifies the savings association that it must submit a 
new or revised capital plan. A savings association 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 savings association in writing that the plan 
is to be filed within a different period.
    (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 or TFR, as appropriate, 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 Federal savings association that is required to submit a 
capital restoration plan as the result of a reclassification of the 
savings association pursuant to Sec. 165.4(c) of this part shall 
include a description of the steps the savings association 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 the FDI Act by each company that controls the 
savings association.
    (c) Review of capital restoration plans. Within 60 days after 
receiving a capital restoration plan under this part, the OCC shall 
provide written notice to the Federal savings association 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 plan. If a capital restoration plan is 
not approved by the OCC, the Federal savings association shall submit a 
revised capital restoration plan, when directed to do so, within the 
time specified by the OCC. Upon receiving notice that its capital 
restoration plan has not been approved, any undercapitalized savings 
association (as defined in Sec. 165.4(b)(3) of this part) 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 savings association has been approved by the OCC.
    (e) Failure to submit a capital restoration plan. A Federal savings 
association that is undercapitalized (as defined in Sec. 165.4(b)(3) of 
this part) 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 institutions.
    (f) Failure to implement a capital restoration plan. Any 
undercapitalized Federal savings association 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 institutions.
    (g) Amendment of capital plan. A Federal savings association that 
has filed 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 savings association 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 FDIC.
    (i) Performance guarantee by companies that control a savings 
association--(1)

[[Page 703]]

Limitation on liability--(i) Amount limitation. The aggregate liability 
under the guarantee provided under section 38 and this part for all 
companies that control a specific Federal savings association that is 
required to submit a capital restoration plan under this part shall be 
limited to the lesser of:
    (A) An amount equal to 5.0 percent of the savings association's 
total assets at the time the savings association was notified or deemed 
to have notice that the savings association was undercapitalized; or
    (B) The amount necessary to restore the relevant capital measures of 
the savings association to the levels required for the savings 
association to be classified as adequately capitalized, as those capital 
measures and levels are defined at the time that the savings association 
initially fails to comply with a capital restoration plan under this 
part.
    (ii) Limit on duration. The guarantee and limit of liability under 
section 38 and this part shall expire after the OCC notifies the Federal 
savings association 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 filed by the same savings 
association after expiration of the first guarantee.
    (iii) Collection on guarantee. Each company that controls a given 
Federal savings association shall be jointly and severally liable for 
the guarantee for such savings association as required under section 38 
and this part, and the OCC may require and collect 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 Federal 
savings association 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 savings association shall, upon 
submission of the plan, be subject to the provisions of section 38 and 
this part that are applicable to savings associations that have not 
submitted an acceptable capital restoration plan.
    (3) Failure to perform guarantee. Failure by any company that 
controls a Federal savings association 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 savings association shall be subject to the provisions of section 38 
and this part that are applicable to savings associations that have 
failed in a material respect to implement a capital restoration plan.



Sec. 165.6  Mandatory and discretionary supervisory actions under section 38.

    (a) Mandatory supervisory actions--(1) Provisions applicable to all 
Federal savings associations. All Federal savings associations 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 Federal savings 
associations. Immediately upon receiving notice or being deemed to have 
notice, as provided in Sec. 165.3 or Sec. 165.5 of this part, that the 
Federal savings association is undercapitalized, significantly 
undercapitalized, or critically undercapitalized, the savings 
association 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 savings 
association (section 38(e)(1));
    (iii) Requiring submission of a capital restoration plan within the 
schedule established in this part (section 38(e)(2));
    (iv) Restricting the growth of the savings association'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 Federal savings 
associations. In addition to the provisions of section 38 of the FDI Act 
described

[[Page 704]]

in paragraph (a)(2) of this section, immediately upon receiving notice 
or being deemed to have notice, as provided in Sec. 165.3 or Sec. 
165.5 of this part, that the Federal savings association is 
significantly undercapitalized, or critically undercapitalized, or that 
the savings association is subject to the provisions applicable to 
institutions that are significantly undercapitalized because the savings 
association failed to submit or implement in any material respect an 
acceptable capital restoration plan, the savings association 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 
Federal savings associations. In addition to the provisions of section 
38 of the FDI Act described in paragraphs (a)(2) and (a)(3) of this 
section, immediately upon receiving notice or being deemed to have 
notice, as provided in Sec. 165.3 of this part, that the Federal 
savings association is critically undercapitalized, the savings 
association shall become subject to the provisions of section 38 of the 
FDI Act:
    (i) Restricting the activities of the savings association (section 
38(h)(1)); and
    (ii) Restricting payments on subordinated debt of the savings 
association (section 38(h)(2)).
    (b) Discretionary supervisory actions. In taking any action under 
section 38 that is within the OCC discretion to take in connection with: 
A Federal savings association that is deemed to be undercapitalized, 
significantly undercapitalized or critically undercapitalized, or has 
been reclassified as undercapitalized, or significantly 
undercapitalized; an officer or director of such savings association; or 
a company that controls such savings association, the OCC shall follow 
the procedures for issuing directives under Sec. Sec. 165.7 and 165.9 
of this part unless otherwise provided in section 38 or this part.



Sec. 165.7  Directives to take prompt corrective action.

    (a) Notice of intent to issue a directive--(1) In general. The OCC 
shall provide an undercapitalized, significantly undercapitalized, or 
critically undercapitalized Federal savings association or, where 
appropriate, any company that controls the savings association, prior 
written notice of the OCC's intention to issue a directive requiring 
such savings association 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 sections 38(e)(5), (f)(2), (f)(3), or (f)(5). The savings 
association shall have such time to respond to a proposed directive as 
provided by the OCC under paragraph (c) of this section.
    (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 Federal savings 
association or any company that controls a Federal savings association 
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 savings association or company 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 Federal savings association'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

[[Page 705]]

    (4) The date by which the Federal savings association or company 
subject to the directive may file with the OCC a written response to the 
notice.
    (c) Response to notice--(1) Time for response. A Federal savings 
association or company 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 savings association 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 38;
    (ii) Any recommended modification of the proposed directive; and
    (iii) Any other relevant information, mitigating circumstances, 
documentation, or other evidence in support of the position of the 
savings association or company regarding the proposed directive.
    (d) 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 savings 
association or company; or
    (3) Seek additional information or clarification of the response 
from the savings association or company, or any other relevant source.
    (e) Failure to file response. Failure by a Federal savings 
association or company 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.
    (f) Request for modification or rescission of directive. Any Federal 
savings association or company that is subject to a directive under this 
part 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. 165.8  Procedures for reclassifying a Federal savings association based 

on criteria other than capital.

    (a) Reclassification based on unsafe or unsound condition or 
practice--(1) Issuance of notice of proposed reclassification--(i) 
Grounds for reclassification. (A) Pursuant to Sec. 165.4(c) of this 
part, the OCC may reclassify a well capitalized Federal savings 
association as adequately capitalized or subject an adequately 
capitalized or undercapitalized institution to the supervisory actions 
applicable to the next lower capital category if:
    (1) The OCC determines that the savings association is in an unsafe 
or unsound condition; or
    (2) The OCC deems the savings association to be engaged in an unsafe 
or unsound practice and not to have corrected the deficiency.
    (B) Any action pursuant to this paragraph (a)(1)(i) shall 
hereinafter be referred to as ``reclassification.''
    (ii) Prior notice to institution. Prior to taking action pursuant to 
Sec. 165.4(c)(1), the OCC shall issue and serve on the Federal savings 
association a written notice of the OCC's intention to reclassify the 
savings association.
    (2) Contents of notice. A notice of intention to reclassify a 
Federal savings association based on unsafe or unsound condition shall 
include:
    (i) A statement of the savings association's capital measures and 
capital levels and the category to which the savings association would 
be reclassified;
    (ii) The reasons for reclassification of the savings association;
    (iii) The date by which the savings association 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 savings association or other relevant 
circumstances.

[[Page 706]]

    (3) Response to notice of proposed reclassification. A Federal 
savings association may file a written response to a notice of proposed 
reclassification within the time period set by the OCC. The response 
should include:
    (i) An explanation of why the savings association is not in unsafe 
or unsound condition or otherwise should not be reclassified; and
    (ii) Any other relevant information, mitigating circumstances, 
documentation, or other evidence in support of the position of the 
savings association or company regarding the reclassification.
    (4) Failure to file response. Failure by a Federal savings 
association 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.
    (5) Request for hearing and presentation of oral testimony or 
witnesses. The response may include a request for an informal hearing 
before the OCC or its designee under this section. If the Federal 
savings association desires to present oral testimony or witnesses at 
the hearing, the savings association shall include a request to do so 
with the request for an informal hearing. A 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 to present oral testimony or witnesses.
    (6) 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 Federal savings association. 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.
    (7) Hearing procedures. (i) The Federal savings association shall 
have the right to introduce relevant written materials and to present 
oral argument at the hearing. The savings association 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 parts 19 or 109 
of this chapter apply to an informal hearing under this section unless 
the OCC orders that such procedures shall apply.
    (ii) The informal hearing shall be recorded and a transcript 
furnished to the savings association 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.
    (iii) 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.
    (8) Recommendation of presiding officers. 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.
    (9) 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 
Federal savings association and notify the savings association of the 
OCC's decision.
    (b) Request for rescission of reclassification. Any Federal savings 
association that has been reclassified under this section, 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 savings association

[[Page 707]]

shall remain subject to the reclassification and to any directives 
issued in connection with that reclassification while such request is 
pending before the OCC.



Sec. 165.9  Order to dismiss a director or senior executive officer.

    (a) Service of notice. When the OCC issues and serves a directive on 
a Federal savings association pursuant to section 165.7 requiring the 
savings association to dismiss 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 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 should 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 Federal savings association 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 parts 19 or 109 
of this chapter 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 Federal savings association would materially strengthen the savings 
association's ability:
    (1) To become adequately capitalized, to the extent that the 
directive was issued as a result of the savings association's capital 
level or failure to submit or implement a capital restoration plan; and

[[Page 708]]

    (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 savings association based on supervisory criteria 
other than capital, pursuant to section 38(g) of the FDI Act.
    (f) Recommendation of presiding officers. 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 Federal 
savings association.
    (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 has been 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.



Sec. 165.10  Enforcement of directives.

    (a) Judicial remedies. Whenever a Federal savings association or 
company that controls a Federal savings association 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--(1) Failure to comply with directive. 
Pursuant to section 8(i)(2)(A) of the FDI Act, the OCC may assess a 
civil money penalty against any Federal savings association or company 
that controls a Federal savings association 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.
    (2) Failure to implement capital restoration plan. The failure of a 
Federal savings association to implement a capital restoration plan 
required under section 38, or this part, or the failure of a company 
having control of a Federal savings association to fulfill a guarantee 
of a capital restoration plan made pursuant to section 38(e)(2) of the 
FDI Act shall subject the savings association or company to the 
assessment of civil money penalties pursuant to section 8(i)(2)(A) of 
the FDI Act.
    (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 167_CAPITAL--Table of Contents



                             Subpart A_Scope

Sec.
167.0 Scope.

                Subpart B_Regulatory Capital Requirements

167.1 Definitions.
167.2 Minimum regulatory capital requirement.
167.3 Individual minimum capital requirements.
167.4 Capital directives.
167.5 Components of capital.
167.6 Risk-based capital credit risk-weight categories.
167.8 Leverage ratio.
167.9 Tangible capital requirement.
167.10 Consequences of failure to meet capital requirements.
167.11 Reservation of authority.
167.12 Purchased credit card relationships, servicing assets, intangible 
          assets (other than purchased credit card relationships and 
          servicing assets), credit-enhancing interest-only strips, and 
          deferred tax assets.
167.14-167.19 [Reserved]

Appendixes A-B to Part 167 [Reserved]
Appendix C to Part 167--Risk-Based Capital Requirements--Internal-
          Ratings-Based and Advanced Measurement Approaches

    Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 1828 (note), 
5412(b)(2)(B).

    Source: 76 FR 49070, Aug. 9, 2011, unless otherwise noted.



                             Subpart A_Scope



Sec. 167.0  Scope.

    (a) This part prescribes the minimum regulatory capital requirements 
for Federal savings associations. Subpart B of this part applies to all 
Federal savings associations, except as described in paragraph (b) of 
this section.

[[Page 709]]

    (b)(1) A Federal savings association that uses Appendix C of this 
part must comply with the minimum qualifying criteria for internal risk 
measurement and management processes for calculating risk-based capital 
requirements, utilize the methodologies for calculating risk-based 
capital requirements, and make the required disclosures described in 
that appendix.
    (2) Subpart B of this part does not apply to the computation of 
risk-based capital requirements by a Federal savings association that 
uses Appendix C of this part. However, these savings associations:
    (i) Must compute the components of capital under Sec. 167.5, 
subject to the modifications in sections 11 and 12 of Appendix C of this 
part.
    (ii) Must meet the leverage ratio requirement at Sec. Sec. 
167.2(a)(2) and 167.8 with tier 1 capital, as computed under sections 11 
and 12 of Appendix C of this part.
    (iii) Must meet the tangible capital requirement described at 
Sec. Sec. 167.2(a)(3) and 167.9.
    (iv) Are subject to Sec. Sec. 167.3 (individual minimum capital 
requirement), 167.4 (capital directives); and 167.10 (consequences of 
failure to meet capital requirements).
    (v) Are subject to the reservations of authority at Sec. 167.11, 
which supplement the reservations of authority at section 1 of Appendix 
C of this part.
    (c) [Reserved]



                Subpart B_Regulatory Capital Requirements



Sec. 167.1  Definitions.

    For the purposes of this subpart:
    Adjusted total assets. The term adjusted total assets means:
    (1) A Federal savings association's total assets as that term is 
defined in this section;
    (2) Plus the prorated assets of any includable subsidiary in which 
the savings association has a minority ownership interest that is not 
consolidated under GAAP;
    (3) Minus:
    (i) Assets not included in the applicable capital standard except 
for those subject to paragraphs (3)(ii) and (3)(iii) of this definition;
    (ii) Investments in any includable subsidiary in which a savings 
association has a minority interest; and
    (iii) Investments in any subsidiary subject to consolidation under 
paragraph (2)(ii) of this definition.
    Asset-backed commercial paper program. The term asset-backed 
commercial paper program (ABCP program) means a program that primarily 
issues commercial paper that has received a credit rating from an NRSRO 
and that is backed by assets or other exposures held in a bankruptcy-
remote special purpose entity. The term sponsor of an ABCP program means 
a Federal savings association that:
    (1) Establishes an ABCP program;
    (2) Approves the sellers permitted to participate in an ABCP 
program;
    (3) Approves the asset pools to be purchased by an ABCP program; or
    (4) Administers the ABCP 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.
    Cash items in the process of collection. The term 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; 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; and unposted debits.
    Commitment. The term commitment means any arrangement that obligates 
a Federal savings association to:
    (1) Purchase loans or securities;
    (2) Extend credit in the form of loans or leases, participations in 
loans or leases, overdraft facilities, revolving credit facilities, home 
equity lines of credit, eligible ABCP liquidity facilities, or similar 
transactions.
    Common stockholders' equity. The term common stockholders' equity 
means common stock, common stock surplus, retained earnings, and 
adjustments for

[[Page 710]]

the cumulative effect of foreign currency translation, less net 
unrealized losses on available-for-sale equity securities with readily 
determinable fair values.
    Conditional guarantee. The term conditional guarantee means a 
contingent obligation of the United States Government or its agencies, 
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.
    Credit derivative. The term 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 ``referenced asset.''
    Credit-enhancing interest-only strip. (1) The term 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 Federal savings association to credit risk directly 
or indirectly associated with the transferred assets that exceeds its 
pro rata share of the savings association's claim on the assets whether 
through subordination provisions or other credit enhancement techniques.
    (2) The OCC reserves the right to identify other cash flows or 
related interests as a credit-enhancing interest-only strip. In 
determining whether a particular interest cash flow functions as a 
credit-enhancing interest-only strip, The OCC will consider the economic 
substance of the transaction.
    Credit-enhancing representations and warranties. (1) The term 
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 Federal 
savings association to protect investors from losses arising from credit 
risk in the assets transferred or loans serviced.
    (2) 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.
    (3) 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, qualifying mortgage loans 
for a period not to exceed 120 days from the date of transfer. These 
warranties may cover only those loans that were originated within one 
year of the date of the transfer;
    (ii) Premium refund clauses covering assets guaranteed, in whole or 
in part, by the United States government, a United States government 
agency, or a United States government-sponsored enterprise, provided the 
premium refund clause is 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.
    Depository institution. The term domestic 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 United States, 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 institutions. Bank holding 
companies and savings and loan 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.

[[Page 711]]

    Direct credit substitute. The term direct credit substitute means an 
arrangement in which a Federal savings association 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 savings 
association (third-party asset) and the risk assumed by the savings 
association exceeds the pro rata share of the savings association's 
interest in the third-party asset. If a savings association has no claim 
on the third-party asset, then the savings association's assumption of 
any credit risk is a direct credit substitute. Direct credit substitutes 
include:
    (1) Financial standby letters of credit that support financial 
claims on a third party that exceed a savings association's pro rata 
share in the financial claim;
    (2) Guarantees, surety arrangements, credit derivatives, and similar 
instruments backing financial claims that exceed a savings association's 
pro rata share in the financial claim;
    (3) Purchased subordinated interests that absorb more than their pro 
rata share of losses from the underlying assets;
    (4) Credit derivative contracts under which the savings association 
assumes more than its pro rata share of credit risk on a third-party 
asset or exposure;
    (5) Loans or lines of credit that provide credit enhancement for the 
financial obligations of a third party;
    (6) 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. 
Servicer cash advances as defined in this section are not direct credit 
substitutes;
    (7) Clean-up calls on third party assets. However, clean-up calls 
that are 10 percent or less of the original pool balance and that are 
exercisable at the option of the savings association are not direct 
credit substitutes; and
    (8) Liquidity facilities that provide support to asset-backed 
commercial paper (other than eligible ABCP liquidity facilities).
    Eligible ABCP liquidity facility. The term eligible ABCP liquidity 
facility means a liquidity facility that supports asset-backed 
commercial paper, in form or in substance, and that meets the following 
criteria:
    (1)(i) At the time of the draw, the liquidity facility must be 
subject to an asset quality test that precludes funding against assets 
that are 90 days or more past due or in default; and
    (ii) If the assets that the liquidity facility is required to fund 
against are assets or exposures that have received a credit rating by a 
NRSRO at the time of the inception of the facility, the facility can be 
used to fund only those assets or exposures that are rated investment 
grade by an NRSRO at the time of funding; or
    (2) If the assets that are funded under the liquidity facility do 
not meet the criteria described in paragraph (1) of this definition, the 
assets must be guaranteed, conditionally or unconditionally, by the 
United States Government, its agencies, or the central government of an 
OECD country.
    Eligible Federal savings association. (1) The term eligible Federal 
savings association means a Federal savings association with respect to 
which the Comptroller of the Currency has determined, on the basis of 
information available at the time, that:
    (i) The savings association's management appears to be competent;
    (ii) The savings association, as certified by its Board of 
Directors, is in substantial compliance with all applicable statutes, 
regulations, orders and written agreements and directives; and
    (iii) The savings association's management, as certified by its 
Board of Directors, has not engaged in insider dealing, speculative 
practices, or any other activities that have or may jeopardize the 
association's safety and soundness or contributed to impairing the 
association's capital.
    (2) Federal savings associations, for purposes of this paragraph, 
will be deemed to be eligible unless the Comptroller makes a 
determination otherwise or notifies the savings association of its 
intent to conduct either an informal or formal examination to determine 
eligibility and provides written notification thereof to the savings 
association.

[[Page 712]]

    Equity investments. (1) The term equity investments includes 
investments in equity securities and real property that would be 
considered an equity investment under GAAP.
    (2)(i) The term equity securities means any:
    (A) Stock, certificate of interest of participation in any profit-
sharing agreement, collateral trust certificate or subscription, 
preorganization certificate or subscription, transferable share, 
investment contract, or voting trust certificate; or
    (B) In general, any interest or instrument commonly known as an 
equity security; or
    (C) Loans having profit sharing features which GAAP would reclassify 
as equity securities; or
    (D) Any security immediately convertible at the option of the holder 
without payment of substantial additional consideration into such a 
security; or
    (E) Any security carrying any warrant or right to subscribe to or 
purchase such a security; or
    (F) Any certificate of interest or participation in, temporary or 
Interim certificate for, or receipt for any of the foregoing or any 
partnership interest; or
    (G) Investments in equity securities and loans or advances to and 
guarantees issued on behalf of partnerships or joint ventures in which a 
Federal savings association holds an interest in real property under 
GAAP.
    (ii) The term equity securities does not include investments in a 
subsidiary as that term is defined in this section, equity investments 
that are permissible for national banks, ownership interests in pools of 
assets that are risk-weighted in accordance with Sec. 167.6(a)(1)(vi) 
of this part, or the stock of Federal Home Loan Banks or Federal Reserve 
Banks.
    (3) For purposes of this part, the term equity investments in real 
property does not include interests in real property that are primarily 
used or intended to be used by the savings association, its 
subsidiaries, or its affiliates as offices or related facilities for the 
conduct of its business.
    (4) In addition, for purposes of this part, the term equity 
investments in real property does not include interests in real property 
that are acquired in satisfaction of a debt previously contracted in 
good faith or acquired in sales under judgments, decrees, or mortgages 
held by the savings association, provided that the property is not 
intended to be held for real estate investment purposes but is expected 
to be disposed of within five years or a longer period approved by the 
OCC.
    Exchange rate contracts. The term exchange rate contracts includes 
cross-currency interest rate swaps; forward foreign exchange rate 
contracts; currency options purchased; and any similar instrument that, 
in the opinion of the OCC, may give rise to similar risks.
    Face amount. The term face amount means the notational principal, or 
face value, amount of an off-balance sheet item or the amortized cost of 
an on-balance sheet asset.
    Financial asset. The term 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.
    Financial standby letter of credit. The term financial standby 
letter of credit means a letter of credit or similar arrangement that 
represents an irrevocable obligation to a third-party beneficiary:
    (1) To repay money borrowed by, or advanced to, or for the account 
of, a second party (the account party); or
    (2) To make payment on behalf of the account party, in the event 
that the account party fails to fulfill its obligation to the 
beneficiary.
    Includable subsidiary. The term includable subsidiary means a 
subsidiary of a Federal savings association that is:
    (1) Engaged solely in activities not impermissible for a national 
bank;
    (2) Engaged in activities not permissible for a national bank, but 
only if acting solely as agent for its customers and such agency 
position is clearly documented in the savings association's files;
    (3) Engaged solely in mortgage-banking activities;

[[Page 713]]

    (4)(i) Itself an insured depository institution or a company the 
sole investment of which is an insured depository institution, and
    (ii) Was acquired by the parent savings association prior to May 1, 
1989; or
    (5) A subsidiary of any savings association existing as a savings 
association on August 9, 1989 that
    (i) Was chartered prior to October 15, 1982, as a savings bank or a 
cooperative bank under state law, or
    (ii) Acquired its principal assets from an association that was 
chartered prior to October 15, 1982, as a savings bank or a cooperative 
bank under state law.
    Intangible assets. The term intangible assets means assets 
considered to be intangible assets under GAAP. These assets include, but 
are not limited to, goodwill, core deposit premiums, purchased credit 
card relationships, favorable leaseholds, and servicing assets (mortgage 
and non-mortgage). Interest-only strips receivable and other nonsecurity 
financial instruments are not intangible assets under this definition.
    Interest-rate contracts. The term interest-rate contracts includes 
single currency interest-rate swaps; basis swaps; forward rate 
agreements; interest-rate options purchased; forward forward deposits 
accepted; and any other instrument that, in the opinion of the OCC, may 
give rise to similar risks, including when-issued securities.
    Liquidity facility. The term liquidity facility means a legally 
binding commitment to provide liquidity support to asset-backed 
commercial paper by lending to, or purchasing assets from any structure, 
program or conduit in the event that funds are required to repay 
maturing asset-backed commercial paper.
    Mortgage-related securities. The term mortgage-related securities 
means any mortgage-related qualifying securities under section 3(a)(41) 
of the Securities Exchange Act of 1934, 15 U.S.C. 78c(a)(41), Provided, 
That the rating requirements of that section shall not be considered for 
purposes of this definition.
    Nationally recognized statistical rating organization (NRSRO). The 
term nationally recognized statistical rating organization means an 
entity recognized by the Division of Market Regulation of the Securities 
and Exchange Commission (Commission) as a nationally recognized 
statistical rating organization for various purposes, including the 
Commission's uniform net capital requirements for brokers and dealers.
    OECD-based country. The term OECD-based country means a member of 
that grouping of countries that are full members of the Organization for 
Economic Cooperation and Development (OECD) plus countries that have 
concluded special lending arrangements with the International Monetary 
Fund (IMF) associated with the IMF's General Arrangements to Borrow. 
This term excludes any country that has rescheduled its external 
sovereign debt within the previous five years. 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.
    Original maturity. The term original maturity means, with respect to 
a commitment, the earliest 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:
    (1) The commitment is not subject to extension or renewal and will 
actually expire on its stated expiration date; or
    (2) 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.
    Performance-based standby letter of credit. The term performance-
based standby letter of credit means any letter

[[Page 714]]

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 a third party in 
the performance of a nonfinancial or commercial obligation. Such letters 
of credit include arrangements backing subcontractors' and suppliers' 
performance, labor and materials contracts, and construction bids.
    Perpetual preferred stock. The term perpetual preferred stock 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. Cumulative perpetual 
preferred stock is preferred stock where the dividends accumulate from 
one period to the next. Noncumulative perpetual preferred stock is 
preferred stock where the unpaid dividends are not carried over to 
subsequent dividend periods.
    Problem institution. The term problem institution means a Federal 
savings association that, at the time of its acquisition, merger, 
purchase of assets or other business combination with or by another 
savings association:
    (1) Was subject to special regulatory controls by its primary 
Federal or state regulatory authority;
    (2) Posed particular supervisory concerns to its primary Federal or 
state regulatory authority; or
    (3) Failed to meet its regulatory capital requirement immediately 
before the transaction.
    Prorated assets. The term prorated assets means the total assets (as 
determined in the most recently available GAAP report but in no event 
more than one year old) of a subsidiary (including those subsidiaries 
where the savings association has a minority interest) multiplied by the 
Federal savings association's percentage of ownership of that 
subsidiary.
    Qualifying mortgage loan. (1) The term qualifying mortgage loan 
means a loan that:
    (i) Is fully secured by a first lien on a one-to four-family 
residential property;
    (ii) Is underwritten in accordance with prudent underwriting 
standards, including standards relating the ratio of the loan amount to 
the value of the property (LTV ratio). See Appendix to 12 CFR 160.101. A 
nonqualifying mortgage loan that is paid down to an appropriate LTV 
ratio (calculated using value at origination) may become a qualifying 
loan if it meets all other requirements of this definition;
    (iii) Maintains an appropriate LTV ratio based on the amortized 
principal balance of the loan; and
    (iv) Is performing and is not more than 90 days past due.
    (2) If a Federal savings association holds the first and junior 
lien(s) on a 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 determining the LTV ratio and the 
appropriate risk weight under Sec. 167.6(a).
    (3) A loan to an individual borrower for the construction of the 
borrower's home may be included as a qualifying mortgage loan.
    (4) A loan that meets the requirements of this section prior to 
modification on a permanent or trial basis under the U.S. Department of 
Treasury's Home Affordable Mortgage Program may be included as a 
qualifying mortgage loan, so long as the loan is not 90 days or more 
past due.
    Qualifying multifamily mortgage loan. (1) The term qualifying 
multifamily mortgage loan means a loan secured by a first lien on 
multifamily residential properties consisting of 5 or more dwelling 
units, provided that:
    (i) The amortization of principal and interest occurs over a period 
of not more than 30 years;
    (ii) The original minimum maturity for repayment of principal on the 
loan is not less than seven years;
    (iii) When considering the loan for placement in a lower risk-weight 
category, all principal and interest payments have been made on a timely

[[Page 715]]

basis in accordance with its terms for the preceding year;
    (iv) The loan is performing and not 90 days or more past due;
    (v) The loan is made by the Federal savings association in 
accordance with prudent underwriting standards; and
    (vi) If the interest rate on the loan does not change over the term 
of the loan:
    (A) The current loan balance amount does not exceed 80 percent of 
the value of the property securing the loan; and
    (B) For the property's 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 percent, or in the case of cooperative or other not-for-profit 
housing projects, the property generates sufficient cash flows to 
provide comparable protection to the institution; or
    (vii) If the interest rate on the loan changes over the term of the 
loan:
    (A) The current loan balance amount does not exceed 75 percent of 
the value of the property securing the loan; and
    (B) For the property's 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 percent, or in the case of cooperative or other not-for-profit 
housing projects, the property generates sufficient cash flows to 
provide comparable protection to the institution.
    (2) The term qualifying multifamily mortgage loan also includes a 
multifamily mortgage loan that on March 18, 1994 was a first mortgage 
loan on an existing property consisting of 5-36 dwelling units with an 
initial loan-to-value ratio of not more than 80% where an average annual 
occupancy rate of 80% or more of total units had existed for at least 
one year, and continues to meet these criteria.
    (3) For purposes of paragraphs (1)(vi) and (vii) of this definition, 
the term value of the property means, at origination of a loan to 
purchase a multifamily property: the lower of the purchase price or the 
amount of the initial appraisal, or if appropriate, the initial 
evaluation. In cases not involving the purchase of a multifamily loan, 
the value of the property is determined by the most current appraisal, 
or if appropriate, the most current evaluation.
    (4) In cases where a borrower refinances a loan on an existing 
property, as an alternative to paragraphs (1)(iii), (vi), and (vii) of 
this definition:
    (i) All principal and interest payments on the loan being refinanced 
have been made on a timely basis in accordance with the terms of that 
loan for the preceding year; and
    (ii) The net income on the property for the preceding year would 
support timely principal and interest payments on the new loan in 
accordance with the applicable debt service requirement.
    Qualifying residential construction loan. (1) The term qualifying 
residential construction loan, also referred to as a residential bridge 
loan, means a loan made in accordance with sound lending principles 
satisfying the following criteria:
    (i) The builder must have substantial project equity in the home 
construction project;
    (ii) The residence being constructed must be a 1-4 family residence 
sold to a home purchaser;
    (iii) The lending Federal savings association must obtain sufficient 
documentation from a permanent lender (which may be the construction 
lender) demonstrating that:
    (A) The home buyer intends to purchase the residence; and
    (B) Has the ability to obtain a permanent qualifying mortgage loan 
sufficient to purchase the residence;
    (iv) The home purchaser must have made a substantial earnest money 
deposit;
    (v) The construction loan must not exceed 80 percent of the sales 
price of the residence;
    (vi) The construction loan must be secured by a first lien on the 
lot, residence under construction, and other improvements;
    (vii) The lending thrift must retain sufficient undisbursed loan 
funds throughout the construction period to ensure project completion;
    (viii) The builder must incur a significant percentage of direct 
costs (i.e.,

[[Page 716]]

the actual costs of land, labor, and material) before any drawdown on 
the loan;
    (ix) If at any time during the life of the construction loan any of 
the criteria of this rule are no longer satisfied, the association must 
immediately recategorize the loan at a 100 percent risk-weight and must 
accurately report the loan in the association's next quarterly 
Consolidated Reports of Condition and Income (Call Report) or Thrift 
Financial Report (TFR), as appropriate;
    (x) The home purchaser must intend that the home will be owner-
occupied;
    (xi) The home purchaser(s) must be an individual(s), not a 
partnership, joint venture, trust corporation, or any other entity 
(including an entity acting as a sole proprietorship) that is purchasing 
the home(s) for speculative purposes; and
    (xii) The loan must be performing and not more than 90 days past 
due.
    (2) The documentation for each loan and home sale must be sufficient 
to demonstrate compliance with the criteria in paragraph (1) of this 
definition. The OCC retains the discretion to determine that any loans 
not meeting sound lending principles must be placed in a higher risk-
weight category. The OCC also reserves the discretion to modify these 
criteria on a case-by-case basis provided that any such modifications 
are not inconsistent with the safety and soundness objectives of this 
definition.
    Qualifying securities firm. The term qualifying securities firm 
means:
    (1) A securities firm incorporated in the United States that is a 
broker-dealer that is registered with the Securities and Exchange 
Commission (SEC) and that complies with the SEC's net capital 
regulations (17 CFR 240.15c3(1)); and
    (2) A securities firm incorporated in any other OECD-based country, 
if the Federal savings association is able to demonstrate that the 
securities firm is subject to consolidated supervision and regulation 
(covering its subsidiaries, but not necessarily its parent 
organizations) comparable to that imposed on depository institutions in 
OECD countries. Such regulation must include risk-based capital 
requirements comparable to those imposed on depository institutions 
under the Accord on International Convergence of Capital Measurement and 
Capital Standards (1988, as amended in 1998).
    Reciprocal holdings of depository institution instruments. The term 
reciprocal holdings of depository institution instruments means cross-
holdings or other formal or informal arrangements in which two or more 
depository institutions swap, exchange, or otherwise agree to hold each 
other's capital instruments. This definition does not include holdings 
of capital instruments issued by other depository institutions that were 
taken in satisfaction of debts previously contracted, provided that the 
reporting Federal savings association has not held such instruments for 
more than five years or a longer period approved by the OCC.
    Recourse. The term recourse means a Federal savings association's 
retention, in form or in substance, of any credit risk directly or 
indirectly associated with an asset it has sold (in accordance with 
GAAP) that exceeds a pro rata share of that savings association's claim 
on the asset. If a savings association has no claim on an asset it has 
sold, then the retention of any credit risk is recourse. A recourse 
obligation typically arises when a savings association transfers assets 
in a sale 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 savings 
association provides credit enhancement beyond any contractual 
obligation to support assets it has sold. Recourse obligations include:
    (1) Credit-enhancing representations and warranties made on 
transferred assets;
    (2) Loan servicing assets retained pursuant to an agreement under 
which the savings association will be responsible for losses associated 
with the loans serviced. Servicer cash advances as defined in this 
section are not recourse obligations;
    (3) Retained subordinated interests that absorb more than their pro 
rata

[[Page 717]]

share of losses from the underlying assets;
    (4) Assets sold under an agreement to repurchase, if the assets are 
not already included on the balance sheet;
    (5) 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;
    (6) Credit derivatives that absorb more than the savings 
association's pro rata share of losses from the transferred assets;
    (7) Clean-up calls on assets the savings association has sold. 
However, clean-up calls that are 10 percent or less of the original pool 
balance and that are exercisable at the option of the savings 
association are not recourse arrangements; and
    (8) Liquidity facilities that provide support to asset-backed 
commercial paper (other than eligible ABCP liquidity facilities).
    Replacement cost. The term 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. This mark-to-market process must incorporate 
changes in both interest rates and counterparty credit quality.
    Residential properties. The term 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, or timeshare properties.
    Residual characteristics. The term residual characteristics means 
interests similar to a multi-class pay-through obligation representing 
the excess cash flow generated from mortgage collateral over the amount 
required for the issue's debt service and ongoing administrative 
expenses or interests presenting similar degrees of interest-rate/
prepayment risk and principal loss risks.
    Residual interest. (1) The term residual interest means any on-
balance sheet asset that:
    (i) Represents an interest (including a beneficial interest) created 
by a transfer that qualifies as a sale (in accordance with GAAP) of 
financial assets, whether through a securitization or otherwise; and
    (ii) Exposes a Federal savings association to credit risk directly 
or indirectly associated with the transferred asset that exceeds a pro 
rata share of that savings association's claim on the asset, whether 
through subordination provisions or other credit enhancement techniques.
    (2) 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.
    (3) Residual interests further include those exposures that, in 
substance, cause the savings association to retain the credit risk of an 
asset or exposure that had qualified as a residual interest before it 
was sold.
    (4) Residual interests generally do not include assets purchased 
from a third party. However, a credit-enhancing interest-only strip that 
is acquired in any asset transfer is a residual interest.
    Risk participation. The term 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.
    Risk-weighted assets. The term risk-weighted assets means the sum 
total of risk-weighted on-balance sheet assets and the total of risk-
weighted off-balance sheet credit equivalent amounts. These assets are 
calculated in accordance with Sec. 167.6 of this part.
    Securitization. The term 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

[[Page 718]]

credit risk positions whose performance is dependent upon an underlying 
pool of credit exposures, including loans and commitments.
    Servicer cash advance. The term 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 
servicer cash advance is not a recourse obligation or a direct credit 
substitute if:
    (1) 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
    (2) For any one loan, the servicer's obligation to make 
nonreimbursable advances is contractually limited to an insignificant 
amount of the outstanding principal amount on that loan.
    State. The term 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.
    Structured financing program. The term structured financing program 
means a program where receivable interests and asset-or mortgage-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 financing programs allocate credit 
risk, generally, between the participants and credit enhancement 
provided to the program.
    Subsidiary. The term subsidiary means any corporation, partnership, 
business trust, joint venture, association or similar organization in 
which a Federal savings association directly or indirectly holds an 
ownership interest and the assets of which are consolidated with those 
of the Federal savings association for purposes of reporting under GAAP. 
Generally, these are majority-owned subsidiaries.\1\ This definition 
does not include ownership interests that were taken in satisfaction of 
debts previously contracted, provided that the reporting association has 
not held the interest for more than five years or a longer period 
approved by the OCC.
---------------------------------------------------------------------------

    \1\ The OCC reserves the right to review a Federal savings 
association's investment in a subsidiary on a case-by-case basis. If the 
OCC determines that such investment is more appropriately treated as an 
equity security or an ownership interest in a subsidiary, it will make 
such determination regardless of the percentage of ownership held by the 
savings association.
---------------------------------------------------------------------------

    Tier 1 capital. The term Tier 1 capital means core capital as 
computed in accordance with Sec. 167.5(a) of this part.
    Tier 2 capital. The term Tier 2 capital means supplementary capital 
as computed in accordance with Sec. 167.5 of this part.
    Total assets. The term total assets means total assets as would be 
required to be reported for consolidated entities on period-end reports 
filed with the OCC in accordance with GAAP.
    Traded position. The term traded position means a position retained, 
assumed, or issued in connection with a securitization that is rated by 
a NRSRO, where there is a reasonable expectation that, in the near 
future, the rating will be relied upon by:
    (1) Unaffiliated investors to purchase the security; or
    (2) An unaffiliated third party to enter into a transaction 
involving the position, such as a purchase, loan, or repurchase 
agreement.
    Unconditionally cancelable. The term unconditionally cancelable 
means, with respect to a commitment-type lending arrangement, that the 
Federal savings association 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 savings association 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.
    United States Government or its agencies. The term 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.

[[Page 719]]

    United States Government-sponsored agency or corporation. The term 
United States Government-sponsored agency or corporation means an agency 
or corporation 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.



Sec. 167.2  Minimum regulatory capital requirement.

    (a) To meet its regulatory capital requirement a Federal savings 
association must satisfy each of the following capital standards:
    (1) Risk-based capital requirement. (i) A Federal savings 
association's minimum risk-based capital requirement shall be an amount 
equal to 8% of its risk-weighted assets as measured under Sec. 167.6 of 
this part.
    (ii) A Federal savings association may not use supplementary capital 
to satisfy this requirement in an amount greater than 100% of its core 
capital as defined in Sec. 167.5 of this part.
    (2) Leverage ratio requirement. (i) A Federal savings association's 
minimum leverage ratio requirement shall be the amount set forth in 
Sec. 167.8 of this part.
    (ii) A Federal savings association must satisfy this requirement 
with core capital as defined in Sec. 167.5(a) of this part.
    (3) Tangible capital requirement. (i) A Federal savings 
association's minimum tangible capital requirement shall be the amount 
set forth in Sec. 167.9 of this part.
    (ii) A Federal savings association must satisfy this requirement 
with tangible capital as defined in Sec. 167.9 of this part in an 
amount not less than 1.5% of its adjusted total assets.
    (b) [Reserved]
    (c) Federal savings associations are expected to maintain compliance 
with all of these standards at all times.



Sec. 167.3  Individual minimum capital requirements.

    (a) Purpose and scope. The rules and procedures specified in this 
section apply to the establishment of an individual minimum capital 
requirement for a Federal savings association that varies from the risk-
based capital requirement, the leverage ratio requirement or the 
tangible capital requirement that would otherwise apply to the savings 
association under this part.
    (b) Appropriate considerations for establishing individual minimum 
capital requirements. Minimum capital levels higher than the risk-based 
capital requirement, the leverage ratio requirement or the tangible 
capital requirement required under this part may be appropriate for 
individual savings associations. Increased individual minimum capital 
requirements may be established upon a determination that the savings 
association's capital is or may become inadequate in view of its 
circumstances. For example, higher capital levels may be appropriate 
for:
    (1) A Federal savings association receiving special supervisory 
attention;
    (2) A Federal savings association that has or is expected to have 
losses resulting in capital inadequacy;
    (3) A Federal savings association that has a high degree of exposure 
to interest rate risk, prepayment risk, credit risk, concentration of 
credit risk, certain risks arising from nontraditional activities, or 
similar risks; or a high proportion of off-balance sheet risk, 
especially standby letters of credit;
    (4) A Federal savings association that has poor liquidity or cash 
flow;
    (5) A Federal savings association growing, either internally or 
through acquisitions, at such a rate that supervisory problems are 
presented that are not dealt with adequately by other OCC regulations or 
other guidance;
    (6) A Federal savings association that may be adversely affected by 
the activities or condition of its holding company, affiliate(s), 
subsidiaries, or other persons or savings associations with which it has 
significant business relationships, including concentrations of credit;
    (7) A Federal savings association with a portfolio reflecting weak 
credit quality or a significant likelihood of financial loss, or that 
has loans in nonperforming status or on which borrowers fail to comply 
with repayment terms;
    (8) A Federal savings association that has inadequate underwriting 
policies, standards, or procedures for its loans and investments; or

[[Page 720]]

    (9) A Federal savings association that has a record of operational 
losses that exceeds the average of other, similarly situated savings 
associations; has management deficiencies, including failure to 
adequately monitor and control financial and operating risks, 
particularly the risks presented by concentrations of credit and 
nontraditional activities; or has a poor record of supervisory 
compliance.
    (c) Standards for determination of appropriate individual minimum 
capital requirements. The appropriate minimum capital level for an 
individual Federal savings association 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:
    (1) The conditions or circumstances leading to the determination 
that a higher minimum capital requirement is appropriate or necessary 
for the savings association;
    (2) The exigency of those circumstances or potential problems;
    (3) The overall condition, management strength, and future prospects 
of the savings association and, if applicable, its holding company, 
subsidiaries, and affiliates;
    (4) The savings association's liquidity, capital and other 
indicators of financial stability, particularly as compared with those 
of similarly situated savings associations; and
    (5) The policies and practices of the savings association's 
directors, officers, and senior management as well as the internal 
control and internal audit systems for implementation of such adopted 
policies and practices.
    (d) Procedures--(1) Notification. When the OCC determines that a 
minimum capital requirement is necessary or appropriate for a particular 
Federal savings association, it shall notify the savings association in 
writing of its proposed individual minimum capital requirement; the 
schedule for compliance with the new requirement; and the specific 
causes for determining that the higher individual minimum capital 
requirement is necessary or appropriate for the savings association.
    (2) Response. (i) The response shall include any information that 
the Federal savings association wants the OCC to consider in deciding 
whether to establish or to amend an individual minimum capital 
requirement for the savings association, what the individual capital 
requirement should be, and, if applicable, what compliance schedule is 
appropriate for achieving the required capital level. The response of 
the savings association must be in writing and must be delivered to the 
OCC within 30 days after the date on which the notification was 
received. The OCC may extend the time period for good cause. The time 
period for response by the insured savings association may be shortened 
for good cause:
    (A) When, in the opinion of the OCC, the condition of the savings 
association so requires, and the OCC informs the savings association of 
the shortened response period in the notice;
    (B) With the consent of the savings association; or
    (C) When the savings association already has advised the OCC that it 
cannot or will not achieve its applicable minimum capital requirement.
    (ii) Failure to respond within 30 days, or such other time period as 
may be specified by the OCC, may constitute a waiver of any objections 
to the proposed individual minimum capital requirement or to the 
schedule for complying with it, unless the OCC has provided an extension 
of the response period for good cause.
    (3) Decision. After expiration of the response period, the OCC shall 
decide whether or not the OCC believes the proposed individual minimum 
capital requirement should be established for the Federal savings 
association, or whether that proposed requirement should be adopted in 
modified form, based on a review of the savings association's response 
and other relevant information. The OCC's decision shall address 
comments received within the response period from the savings 
association and shall state the level of capital required, the schedule 
for compliance with this requirement, and any specific remedial action 
the savings association could take to eliminate the

[[Page 721]]

need for continued applicability of the individual minimum capital 
requirement. The OCC shall provide the savings association with a 
written decision on the individual minimum capital requirement, 
addressing the substantive comments made by the savings association and 
setting forth the decision and the basis for that decision. Upon receipt 
of this decision by the savings association, the individual minimum 
capital requirement becomes effective and binding upon the savings 
association. This decision represents final agency action.
    (4) Failure to comply. Failure to satisfy an individual minimum 
capital requirement, or to meet any required incremental additions to 
capital under a schedule for compliance with such an individual minimum 
capital requirement, shall constitute a legal basis for issuing a 
capital directive pursuant to Sec. 167.4 of this part.
    (5) Change in circumstances. If, after a decision is made under 
paragraph (d)(3) of this section, there is a change in the circumstances 
affecting the savings association's capital adequacy or its ability to 
reach its required minimum capital level by the specified date, the OCC 
may amend the individual minimum capital requirement or the savings 
association's schedule for such compliance. The OCC may decline to 
consider a savings association's request for such changes that are not 
based on a significant change in circumstances or that are repetitive or 
frivolous. Pending the OCC's reexamination of the original decision, 
that original decision and any compliance schedule established 
thereunder shall continue in full force and effect.



Sec. 167.4  Capital directives.

    (a) Issuance of a Capital Directive--(1) Purpose. (i) In addition to 
any other action authorized by law, the OCC may issue a capital 
directive to a Federal savings association that does not have an amount 
of capital satisfying its minimum capital requirement. Issuance of such 
a capital directive may be based on a Federal savings association's 
noncompliance with the risk-based capital requirement, the leverage 
ratio requirement, the tangible capital requirement, or individual 
minimum capital requirement established under this part, by a written 
agreement under 12 U.S.C. 1464(s), or as a condition for approval of an 
application. A capital directive may order a Federal savings association 
to:
    (A) Achieve its minimum capital requirement by a specified date;
    (B) Adhere to the compliance schedule for achieving its individual 
minimum capital requirement;
    (C) Submit and adhere to a capital plan acceptable to the OCC 
describing the means and a time schedule by which the savings 
association shall reach its required capital level;
    (D) Take other action, including but not limited to, reducing the 
savings association's assets or its rate of liability growth, or 
imposing restrictions on the savings association's payment of dividends, 
in order to cause the savings association to reach its required capital 
level;
    (E) Take any action authorized under Sec. 167.10(e); or
    (F) Take a combination of any of these actions.
    (ii) A capital directive issued under this section, including a plan 
submitted pursuant to a capital directive, is enforceable under 12 
U.S.C. 1818 in the same manner and to the same extent as an effective 
and outstanding cease and desist order which has become final under 12 
U.S.C. 1818.
    (2) Notice of intent to issue capital directive. The OCC will 
determine whether to initiate the process of issuing a capital 
directive. The OCC will notify a Federal savings association in writing 
by registered mail of its intention to issue a capital directive. The 
notice will state:
    (i) The reasons for issuance of the capital directive and
    (ii) The proposed contents of the capital directive.
    (3) Response to notice of intent. (i) A Federal savings association 
may respond to the notice of intent by submitting its own compliance 
plan, or may propose an alternative plan. The response should also 
include any information that the savings association wishes the OCC to 
consider in deciding whether to issue a capital directive. The response 
must be in writing and be

[[Page 722]]

delivered within 30 days after the receipt of the notices. Such response 
must be filed in accordance with Sec. Sec. 116.30 and 116.40 of this 
chapter. In its discretion, the OCC may extend the time period for the 
response for good cause. The OCC may, for good cause, shorten the 30-day 
time period for response by the insured savings association:
    (A) When, in the opinion of the OCC, the condition of the savings 
association so requires, and the OCC informs the savings association of 
the shortened response period in the notice;
    (B) With the consent of the savings association; or
    (C) When the savings association already has advised the OCC that it 
cannot or will not achieve its applicable minimum capital requirement.
    (ii) Failure to respond within 30 days of receipt, or such other 
time period as may be specified by the OCC, may constitute a waiver of 
any objections to the capital directive unless the OCC grants an 
extension of the time period for good cause.
    (4) Decision. After the closing date of the Federal savings 
association's response period, or upon receipt of the savings 
association's response, if earlier, the OCC shall consider the savings 
association's response and may seek additional information or 
clarification of the response. Thereafter, the OCC will determine 
whether or not to issue a capital directive and, if one is to be issued, 
whether it should be as originally proposed or in modified form.
    (5) Service and effectiveness. (i) Upon issuance, a capital 
directive will be served upon the Federal savings association. It will 
include or be accompanied by a statement of reasons for its issuance and 
shall address the responses received during the response period.
    (ii) A capital directive shall become effective upon the expiration 
of 30 days after service upon the savings association, unless the OCC 
determines that a shorter effective period is necessary either on 
account of the public interest or in order to achieve the capital 
directive's purpose. If the savings association has consented to 
issuance of the capital directive, it may become effective immediately. 
A capital directive shall remain in effect and enforceable unless, and 
then only to the extent that, it is stayed, modified, or terminated by 
the OCC.
    (6) Change in circumstances. Upon a change in circumstances, a 
Federal savings association may submit a request to the OCC to 
reconsider the terms of the capital directive or consider changes in the 
savings association's capital plan issued under a directive for the 
savings association to achieve its minimum capital requirement. If the 
OCC believes such a change is warranted, the OCC may modify the savings 
association's capital requirement or may refuse to make such 
modification if it determines that there are not significant changes in 
circumstances. Pending a decision on reconsideration, the capital 
directive and capital plan shall continue in full force and effect.
    (b) Relation to other administrative actions. The OCC --
    (1) May consider a Federal savings association's progress in 
adhering to any capital plan required under this section whenever such 
savings association or any affiliate of such savings association 
(including any company which controls such savings association) seeks 
approval for any proposal that would have the effect of diverting 
earnings, diminishing capital, or otherwise impeding such savings 
association's progress in meeting its minimum capital requirement; and
    (2) May disapprove any proposal referred to in paragraph (b)(1) of 
this section if the OCC determines that the proposal would adversely 
affect the ability of the savings association on a current or pro forma 
basis to satisfy its capital requirement.



Sec. 167.5  Components of capital.

    (a) Core Capital. (1) The following elements,\2\ less the amount of 
any deductions pursuant to paragraph (a)(2) of

[[Page 723]]

this section, comprise a Federal savings association's core capital:
---------------------------------------------------------------------------

    \2\ Stock issues where the dividend is reset periodically based on 
current market conditions and the savings association's current credit 
rating, including but not limited to, auction rate, money market or 
remarketable preferred stock, are assigned to supplementary capital, 
regardless of cumulative or noncumulative characteristics.
---------------------------------------------------------------------------

    (i) Common stockholders' equity (including retained earnings);
    (ii) Noncumulative perpetual preferred stock and related surplus; 
\3\
---------------------------------------------------------------------------

    \3\ Stock issued by subsidiaries that may not be counted by the 
parent savings association on the Call Report or TFR, as appropriate, 
likewise shall not be considered in calculating capital. For example, 
preferred stock issued by a Federal savings association or a subsidiary 
that is, in effect, collateralized by assets of the savings association 
or one of its subsidiaries shall not be included in capital. Similarly, 
common stock with mandatorily redeemable provisions is not includable in 
core capital.
---------------------------------------------------------------------------

    (iii) Minority interests in the equity accounts of the subsidiaries 
that are fully consolidated.
    (iv) Nonwithdrawable accounts and pledged deposits of mutual savings 
associations (excluding any treasury shares held by the savings 
association) meeting the criteria of regulations and memoranda of the 
OCC to the extent that such accounts or deposits have no fixed maturity 
date, cannot be withdrawn at the option of the accountholder, and do not 
earn interest that carries over to subsequent periods;
    (v) [Reserved]
    (2) Deductions from core capital. (i) Intangible assets, as defined 
in Sec. 167.1 of this part, are deducted from assets and capital in 
computing core capital, except as otherwise provided by Sec. 167.12 of 
this part.
    (ii) Servicing assets that are not includable in core capital 
pursuant to Sec. 167.12 of this part are deducted from assets and 
capital in computing core capital.
    (iii) Credit-enhancing interest-only strips that are not includable 
in core capital under Sec. 167.12 of this part are deducted from assets 
and capital in computing core capital.
    (iv) Investments, both equity and debt, in subsidiaries that are not 
includable subsidiaries (including those subsidiaries where the savings 
association has a minority ownership interest) are deducted from assets 
and, thus core capital except as provided in paragraphs (a)(2)(v) and 
(a)(2)(vi) of this section.
    (v) If a Federal savings association has any investments (both debt 
and equity) in one or more subsidiaries engaged in any activity that 
would not fall within the scope of activities in which includable 
subsidiaries may engage, it must deduct such investments from assets 
and, thus, core capital in accordance with this paragraph (a)(2)(v). The 
savings association must first deduct from assets and, thus, core 
capital the amount by which any investments in such subsidiary(ies) 
exceed the amount of such investments held by the savings association as 
of April 12, 1989. Next the savings association must deduct from assets 
and, thus, core capital, the savings association's investments in and 
extensions of credit to the subsidiary on the date as of which the 
savings association's capital is being determined.
    (vi) If a Federal savings association holds a subsidiary (either 
directly or through a subsidiary) that is itself a domestic depository 
institution, the OCC may, in its sole discretion upon determining that 
the amount of core capital that would be required would be higher if the 
assets and liabilities of such subsidiary were consolidated with those 
of the parent savings association than the amount that would be required 
if the parent savings association's investment were deducted pursuant to 
paragraphs (a)(2)(iv) and (a)(2)(v) of this section, consolidate the 
assets and liabilities of that subsidiary with those of the parent 
savings association in calculating the capital adequacy of the parent 
savings association, regardless of whether the subsidiary would 
otherwise be an includable subsidiary as defined in Sec. 167.1 of this 
part.
    (vii) Deferred tax assets that are not includable in core capital 
pursuant to Sec. 167.12 of this part are deducted from assets and 
capital in computing core capital.
    (b) Supplementary Capital. Supplementary capital counts towards a 
Federal savings association's total capital up to a maximum of 100% of 
the savings association's core capital. The following elements comprise 
a Federal savings association's supplementary capital:
    (1) Permanent Capital Instruments. (i) Cumulative perpetual 
preferred stock

[[Page 724]]

and other perpetual preferred stock \4\ issued pursuant to regulations 
and memoranda of the OCC;
---------------------------------------------------------------------------

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

    (ii) Mutual capital certificates issued pursuant to regulations and 
memoranda of the OCC;
    (iii) Nonwithdrawable accounts and pledged deposits (excluding any 
treasury shares held by the savings association) meeting the criteria of 
12 CFR 161.42 to the extent that such instruments are not included in 
core capital under paragraph (a) of this section;
    (iv) Perpetual subordinated debt issued pursuant to regulations and 
memoranda of the OCC; and
    (v) Mandatory convertible subordinated debt (capital notes) issued 
pursuant to regulations and memoranda of the OCC.
    (2) Maturing Capital Instruments. (i) Subordinated debt issued 
pursuant to regulations and memoranda of the OCC;
    (ii) Intermediate-term preferred stock issued pursuant to 
regulations and memoranda of the OCC and any related surplus:
    (iii) Mandatory convertible subordinated debt (commitment notes) 
issued pursuant to regulations and memoranda of the OCC; and
    (iv) Mandatorily redeemable preferred stock that was issued before 
July 23, 1985 or issued pursuant to regulations and memoranda of the 
Office of Thrift Supervision and approved in writing by the FSLIC for 
inclusion as regulatory capital before or after issuance.
    (3) Transition rules for maturing capital instruments--(i) 
[Reserved]
    (ii) A Federal savings association issuing maturing capital 
instruments after November 7, 1989, may choose, subject to paragraph 
(b)(3)(ii)(C) of this section, to include such instruments pursuant to 
either paragraph (b)(3)(ii)(A) or (b)(3)(ii)(B) of this section.
    (A) At the beginning of each of the last five years of the life of 
the maturing capital instrument, the amount that is eligible to be 
included as supplementary capital is reduced by 20% of the original 
amount of that instrument (net of redemptions).\5\
---------------------------------------------------------------------------

    \5\ Capital instruments may be redeemed prior to maturity and 
without the prior approval of the OCC, as long as the instruments are 
redeemed with the proceeds of, or replaced by, a like amount of a 
similar or higher quality capital instrument. However, the OCC must be 
notified in writing at least 30 days in advance of such redemption.
---------------------------------------------------------------------------

    (B) Only the aggregate amount of maturing capital instruments that 
mature in any one year during the seven years immediately prior to an 
instrument's maturity that does not exceed 20% of an institution's 
capital will qualify as supplementary capital.
    (C) Once a Federal savings association selects either paragraph 
(b)(3)(ii)(A) or (b)(3)(ii)(B) of this section for the issuance of a 
maturing capital instrument, it must continue to elect that option for 
all subsequent issuances of maturing capital instruments for as long as 
there is a balance outstanding of such issuances. Only when such 
issuances have all been repaid and the savings association has no 
balance of such issuances outstanding may the savings association elect 
the other option.
    (4) Allowance for loan and lease losses. Allowance for loan and 
lease losses established under regulations and memoranda of the OCC to a 
maximum of 1.25 percent of risk-weighted assets.\6\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    (5) Unrealized gains on equity securities. Up to 45 percent of 
unrealized gains on available-for-sale equity securities with readily 
determinable fair values may be included in supplementary capital. 
Unrealized gains are unrealized holding gains, net of unrealized holding 
losses, before income taxes, calculated as the amount, if any, by which 
fair value exceeds historical cost. The OCC may disallow such inclusion 
in the calculation of supplementary capital if the OCC determines that 
the equity securities are not prudently valued.

[[Page 725]]

    (c) Total capital. (1) A Federal savings association's total capital 
equals the sum of its core capital and supplementary capital (to the 
extent that such supplementary capital does not exceed 100% of its core 
capital).
    (2) The following assets, in addition to assets required to be 
deducted elsewhere in calculating core capital, are deducted from assets 
for purposes of determining total capital:
    (i) Reciprocal holdings of depository institution capital 
instruments; and
    (ii) All equity investments.



Sec. 167.6  Risk-based capital credit risk-weight categories.

    (a) Risk-weighted assets. Risk-weighted assets equal risk-weighted 
on-balance sheet assets (computed under paragraph (a)(1) of this 
section), plus risk-weighted off-balance sheet activities (computed 
under paragraph (a)(2) of this section), plus risk-weighted recourse 
obligations, direct credit substitutes, and certain other positions 
(computed under paragraph (b) of this section). Assets not included 
(i.e., deducted from capital) for purposes of calculating capital under 
Sec. 167.5 are not included in calculating risk-weighted assets.
    (1) On-balance sheet assets. Except as provided in paragraph (b) of 
this section, risk-weighted on-balance sheet assets are computed by 
multiplying the on-balance sheet asset amounts times the appropriate 
risk-weight categories. The risk-weight categories are:
    (i) Zero percent Risk Weight (Category 1). (A) Cash, including 
domestic and foreign currency owned and held in all offices of a Federal 
savings association or in transit. Any foreign currency held by a 
Federal savings association must be converted into U.S. dollar 
equivalents;
    (B) Securities issued by and other direct claims on the U.S. 
Government or its agencies (to the extent such securities or claims are 
unconditionally backed by the full faith and credit of the United States 
Government) or the central government of an OECD country;
    (C) Notes and obligations issued by either the Federal Savings and 
Loan Insurance Corporation or the Federal Deposit Insurance Corporation 
and backed by the full faith and credit of the United States Government;
    (D) Deposit reserves at, claims on, and balances due from Federal 
Reserve Banks;
    (E) The book value of paid-in Federal Reserve Bank stock;
    (F) That portion of assets that is fully covered against capital 
loss and/or yield maintenance agreements by the Federal Savings and Loan 
Insurance Corporation or any successor agency.
    (G) That portion of assets directly and unconditionally guaranteed 
by the United States Government or its agencies, or the central 
government of an OECD country.
    (H) Claims on, and claims guaranteed by, a qualifying securities 
firm that are collateralized by cash on deposit in the savings 
association or by securities issued or guaranteed by the United States 
Government or its agencies, or the central government of an OECD 
country. To be eligible for this risk weight, the savings association 
must maintain a positive margin of collateral on the claim on a daily 
basis, taking into account any change in a savings association's 
exposure to the obligor or counterparty under the claim in relation to 
the market value of the collateral held in support of the claim.
    (ii) 20 percent Risk Weight (Category 2). (A) Cash items in the 
process of collection;
    (B) That portion of assets collateralized by the current market 
value of securities issued or guaranteed by the United States government 
or its agencies, or the central government of an OECD country;
    (C) That portion of assets conditionally guaranteed by the United 
States Government or its agencies, or the central government of an OECD 
country;
    (D) Securities (not including equity securities) issued by and other 
claims on the U.S. Government or its agencies which are not backed by 
the full faith and credit of the United States Government;
    (E) Securities (not including equity securities) issued by, or other 
direct claims on, United States Government-sponsored agencies;

[[Page 726]]

    (F) That portion of assets guaranteed by United States Government-
sponsored agencies;
    (G) That portion of assets collateralized by the current market 
value of securities issued or guaranteed by United States Government-
sponsored agencies;
    (H) Claims on, and claims guaranteed by, a qualifying securities 
firm, subject to the following conditions:
    (1) A qualifying securities firm must have a long-term issuer credit 
rating, or a rating on at least one issue of long-term unsecured debt, 
from a NRSRO. The rating must be in one of the three highest investment 
grade categories used by the NRSRO. If two or more NRSROs assign ratings 
to the qualifying securities firm, the savings association must use the 
lowest rating to determine whether the rating requirement of this 
paragraph is met. A qualifying securities firm may rely on the rating of 
its parent consolidated company, if the parent consolidated company 
guarantees the claim.
    (2) A collateralized claim on a qualifying securities firm does not 
have to comply with the rating requirements under paragraph 
(a)(1)(ii)(H)(1) of this section if the claim arises under a contract 
that:
    (i) Is a reverse repurchase/repurchase agreement or securities 
lending/borrowing transaction executed using standard industry 
documentation;
    (ii) Is collateralized by debt or equity securities that are liquid 
and readily marketable;
    (iii) Is marked-to-market daily;
    (iv) Is subject to a daily margin maintenance requirement under the 
standard industry documentation; and
    (v) Can be liquidated, terminated or accelerated immediately in 
bankruptcy or similar proceeding, and the security or collateral 
agreement will not be stayed or avoided under applicable law of the 
relevant jurisdiction. For example, a claim is exempt from the automatic 
stay in bankruptcy in the United States if it arises under a securities 
contract or a repurchase agreement subject to section 555 or 559 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 Regulation 
EE (12 CFR part 231).
    (3) If the securities firm uses the claim to satisfy its applicable 
capital requirements, the claim is not eligible for a risk weight under 
this paragraph (a)(1)(ii)(H);
    (I) 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;
    (J) [Reserved]
    (K) Balances due from and all claims on domestic depository 
institutions. This includes demand deposits and other transaction 
accounts, savings deposits and time certificates of deposit, Federal 
funds sold, loans to other depository institutions, including overdrafts 
and term Federal funds, holdings of the savings association's own 
discounted acceptances for which the account party is a depository 
institution, holdings of bankers acceptances of other institutions and 
securities issued by depository institutions, except those that qualify 
as capital;
    (L) The book value of paid-in Federal Home Loan Bank stock;
    (M) Deposit reserves at, claims on and balances due from the Federal 
Home Loan Banks;
    (N) Assets collateralized by cash held in a segregated deposit 
account by the reporting savings association;
    (O) 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; \7\
---------------------------------------------------------------------------

    \7\ 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.
---------------------------------------------------------------------------

    (P) That portion of assets collateralized by the current market 
value of securities issued by official multilateral lending institutions 
or regional development institutions in

[[Page 727]]

which the United States Government is a shareholder or contributing 
member.
    (Q) 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;
    (R) Claims on, or guaranteed by depository institutions other than 
the central bank, incorporated in a non-OECD country, with a remaining 
maturity of one year or less;
    (S) That portion of local currency claims conditionally guaranteed 
by central governments of non-OECD countries, to the extent the savings 
association has local currency liabilities in that country.
    (iii) 50 percent Risk Weight (Category 3). (A) Revenue bonds issued 
by any public-sector entity in an OECD country for which the underlying 
obligor is a public-sector entity, but which are repayable solely from 
the revenues generated from the project financed through the issuance of 
the obligations;
    (B) Qualifying mortgage loans and qualifying multifamily mortgage 
loans;
    (C) Privately-issued mortgage-backed securities (i.e., those that do 
not carry the guarantee of a government or government sponsored entity) 
representing an interest in qualifying mortgage loans or qualifying 
multifamily mortgage loans. If the security is backed by qualifying 
multifamily mortgage loans, the savings association must receive timely 
payments of principal and interest in accordance with the terms of the 
security. Payments will generally be considered timely if they are not 
30 days past due;
    (D) Qualifying residential construction loans as defined in Sec. 
167.1 of this part.
    (iv) 100 percent Risk Weight (Category 4). All assets not specified 
above or deducted from calculations of capital pursuant to Sec. 167.5 
of this part, including, but not limited to:
    (A) Consumer loans;
    (B) Commercial loans;
    (C) Home equity loans;
    (D) Non-qualifying mortgage loans;
    (E) Non-qualifying multifamily mortgage loans;
    (F) Residential construction loans;
    (G) Land loans;
    (H) Nonresidential construction loans;
    (I) 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 obligations, e.g., industrial development bonds;
    (J) Debt securities not otherwise described in this section;
    (K) Investments in fixed assets and premises;
    (L) Certain nonsecurity financial instruments including servicing 
assets and intangible assets includable in core capital under Sec. 
167.12 of this part;
    (M) Interest-only strips receivable, other than credit-enhancing 
interest-only strips;
    (N)-(O) [Reserved]
    (P) That portion of equity investments not deducted pursuant to 
Sec. 167.5 of this part;
    (Q) The prorated assets of subsidiaries (except for the assets of 
includable, fully consolidated subsidiaries) to the extent such assets 
are included in adjusted total assets;
    (R) All repossessed assets or assets that are more than 90 days past 
due; and
    (S) Equity investments that the OCC determines have the same risk 
characteristics as foreclosed real estate by the savings association;
    (T) Equity investments permissible for a national bank.
    (v) [Reserved]

[[Page 728]]

    (vi) Indirect ownership interests in pools of assets. Assets 
representing an indirect holding of a pool of assets, e.g., mutual 
funds, are assigned to risk-weight categories under this section based 
upon the risk weight that would be assigned to the assets in the 
portfolio of the pool. An investment in shares of a mutual fund whose 
portfolio consists primarily of various securities or money market 
instruments that, if held separately, would be assigned to different 
risk-weight categories, generally is assigned to the risk-weight 
category appropriate to the highest risk-weighted asset that the fund is 
permitted to hold in accordance with the investment objectives set forth 
in its prospectus. The savings association may, at its option, assign 
the investment on a pro rata basis to different risk-weight categories 
according to the investment limits in its prospectus. In no case will an 
investment in shares in any such fund be assigned to a total risk weight 
less than 20 percent. If the savings association chooses to assign 
investments on a pro rata basis, and the sum of the investment limits of 
assets in the fund's prospectus exceeds 100 percent, the savings 
association must assign the highest pro rata amounts of its total 
investment to the higher risk categories. If, in order to maintain a 
necessary degree of short-term liquidity, a 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 will generally be disregarded 
in determining the risk-weight category into which the savings 
association's holding in the overall fund should be assigned. The 
prudent use of hedging instruments by a mutual fund to reduce the risk 
of its assets will not increase the risk weighting of the mutual fund 
investment. For example, the use of hedging instruments by a mutual fund 
to reduce the interest rate risk of its government bond portfolio will 
not increase the risk weight of that fund above the 20 percent category. 
Nonetheless, if the fund engages in any activities that appear 
speculative in nature or has any other characteristics that are 
inconsistent with the preferential risk-weighting assigned to the fund's 
assets, holdings in the fund will be assigned to the 100 percent risk-
weight category.
    (2) Off-balance sheet items. Except as provided in paragraph (b) of 
this section, risk-weighted off-balance sheet items are determined by 
the following two-step process. First, the face amount of the off-
balance sheet item must be multiplied by the appropriate credit 
conversion factor listed in this paragraph (a)(2). This calculation 
translates the face amount of an off-balance sheet exposure into an on-
balance sheet credit-equivalent amount. Second, the credit-equivalent 
amount must be assigned to the appropriate risk-weight category using 
the criteria regarding obligors, guarantors, and collateral listed in 
paragraph (a)(1) of this section, provided that the maximum risk weight 
assigned to the credit-equivalent amount of an interest-rate or 
exchange-rate contract is 50 percent. The following are the credit 
conversion factors and the off-balance sheet items to which they apply.
    (i) 100 percent credit conversion factor (Group A).
    (A) [Reserved]
    (B) Risk participations purchased in bankers' acceptances;
    (C) [Reserved]
    (D) Forward agreements and other contingent obligations with a 
certain draw down, e.g., legally binding agreements to purchase assets 
at a specified future date. On the date an institution enters into a 
forward agreement or similar obligation, it should convert the principal 
amount of the assets to be purchased at 100 percent as of that date and 
then assign this amount to the risk-weight category appropriate to the 
obligor or guarantor of the item, or the nature of the collateral;
    (E) Indemnification of customers whose securities the savings 
association has lent as agent. If the customer is not indemnified 
against loss by the savings association, the transaction is excluded 
from the risk-based capital calculation. When a savings association 
lends its own securities, the transaction is treated as a loan. When a 
savings association lends its own securities or is acting as agent, 
agrees to indemnify a customer, the transaction is

[[Page 729]]

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.
    (ii) 50 percent credit conversion factor (Group B). (A) Transaction-
related contingencies, including, among other things, performance bonds 
and performance-based standby letters of credit related to a particular 
transaction;
    (B) Unused portions of commitments (including home equity lines of 
credit and eligible ABCP liquidity facilities) with an original maturity 
exceeding one year except those listed in paragraph (a)(2)(v) of this 
section. For eligible ABCP liquidity facilities, the resulting credit 
equivalent amount is assigned to the risk category appropriate to the 
assets to be funded by the liquidity facility based on the assets or the 
obligor, after considering any collateral or guarantees, or external 
credit ratings under paragraph (b)(3) of this section, if applicable; 
and
    (C) Revolving underwriting facilities, note issuance facilities, and 
similar arrangements pursuant to which the savings association's 
customer can issue short-term debt obligations in its own name, but for 
which the savings association has a legally binding commitment to 
either:
    (1) Purchase the obligations the customer is unable to sell by a 
stated date; or
    (2) Advance funds to its customer, if the obligations cannot be 
sold.
    (iii) 20 percent credit conversion factor (Group C). Trade-related 
contingencies, i.e., short-term, self-liquidating instruments used to 
finance the movement of goods and collateralized by the underlying 
shipment. A commercial letter of credit is an example of such an 
instrument.
    (iv) 10 percent credit conversion factor (Group D). Unused portions 
of eligible ABCP liquidity facilities with an original maturity of one 
year or less. The resulting credit equivalent amount is assigned to the 
risk category appropriate to the assets to be funded by the liquidity 
facility based on the assets or the obligor, after considering any 
collateral or guarantees, or external credit ratings under paragraph 
(b)(3) of this section, if applicable;
    (v) Zero percent credit conversion factor (Group E). (A) Unused 
portions of commitments with an original maturity of one year or less, 
except for eligible ABCP liquidity facilities;
    (B) Unused commitments with an original maturity greater than one 
year, if they are unconditionally cancelable at any time at the option 
of the savings association and the savings association has the 
contractual right to make, and in fact does make, either:
    (1) A separate credit decision based upon the borrower's current 
financial condition before each drawing under the lending facility; or
    (2) 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
    (C) The unused portion of retail credit card lines or other related 
plans that are unconditionally cancelable by the savings association in 
accordance with applicable law.
    (vi) Off-balance sheet contracts; interest-rate and foreign exchange 
rate contracts (Group F)--(A) Calculation of credit equivalent amounts. 
The credit equivalent amount of an off-balance sheet interest rate or 
foreign exchange rate contract that is not subject to a qualifying 
bilateral netting contract in accordance with paragraph (a)(2)(vi)(B) of 
this section is equal to the sum of the current credit exposure, i.e., 
the replacement cost of the contract, and the potential future credit 
exposure of the off-balance sheet rate contract. The calculation of 
credit equivalent amounts is measured in U.S. dollars, regardless of the 
currency or currencies specified in the off-balance sheet rate contract.
    (1) Current credit exposure. The current credit exposure of an off-
balance sheet rate contract is determined by the mark-to-market value of 
the 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 
value is zero or negative, then the current exposure is zero. In 
determining its current credit exposure for multiple off-balance sheet 
rate contracts executed with a single counterparty, a Federal savings 
association may net positive

[[Page 730]]

and negative mark-to-market values of off-balance sheet rate contracts 
if subject to a bilateral netting contract as provided in paragraph 
(a)(2)(vi)(B) of this section.
    (2) Potential future credit exposure. The potential future credit 
exposure of an off-balance sheet rate contract, including a contract 
with a negative mark-to-market value, is estimated by multiplying the 
notional principal \8\ by a credit conversion factor. Federal savings 
associations, subject to examiner review, should use the effective 
rather than the apparent or stated notional amount in this calculation. 
The conversion factors are: \9\
---------------------------------------------------------------------------

    \8\ For purposes of calculating potential future credit exposure for 
foreign exchange contracts and other similar contracts, in which 
notional principal is equivalent to cash flows, total notional principal 
is defined as the net receipts to each party falling due on each value 
date in each currency.
    \9\ No potential future credit exposure is calculated for single 
currency interest rate swaps in which payments are made based upon two 
floating rate indices, so-called floating/floating or basis swaps; the 
credit equivalent amount is measured solely on the basis of the current 
credit exposure.

------------------------------------------------------------------------
                                                             Foreign
                                        Interest rate     exchange rate
         Remaining maturity               contracts         contracts
                                         (percents)        (percents)
------------------------------------------------------------------------
One year or less....................               0.0               1.0
Over one year.......................               0.5               5.0
------------------------------------------------------------------------

    (B) Off-balance sheet rate contracts subject to bilateral netting 
contracts. In determining its current credit exposure for multiple off-
balance sheet rate contracts executed with a single counterparty, a 
Federal savings association may net off-balance sheet rate contracts 
subject to a bilateral netting contract by offsetting positive and 
negative mark-to-market values, provided that:
    (1) The bilateral netting contract is in writing;
    (2) The bilateral netting contract creates a single legal obligation 
for all individual off-balance sheet rate contracts covered by the 
bilateral netting contract. In effect, the bilateral netting contract 
provides that the savings association has a single claim or obligation 
either to receive or pay only the net amount of the sum of the positive 
and negative mark-to-market values on the individual off-balance sheet 
rate contracts covered by the 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 bilateral netting contract 
has been validly assigned, fails to perform due to any of the following 
events: default, insolvency, bankruptcy, or other similar circumstances;
    (3) The Federal savings association obtains a written and reasoned 
legal opinion(s) representing, 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 savings association'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 that governs the individual off-balance sheet rate 
contracts covered by the bilateral netting contract; and
    (iii) The law that governs the bilateral netting contract;
    (4) The savings association establishes and maintains procedures to 
monitor possible changes in relevant law and to ensure that the 
bilateral netting contract continues to satisfy the requirements of this 
section; and
    (5) The savings association maintains in its files documentation 
adequate to

[[Page 731]]

support the netting of an off-balance sheet rate contract.\10\
---------------------------------------------------------------------------

    \10\ By netting individual off-balance sheet rate contracts for the 
purpose of calculating its credit equivalent amount, a Federal savings 
association represents that documentation adequate to support the 
netting of an off-balance sheet rate contract is in the savings 
association's files and available for inspection by the OCC. Upon 
determination by the OCC that a Federal savings association's files are 
inadequate or that a bilateral netting contract may not be legally 
enforceable under any one of the bodies of law described in paragraphs 
(a)(2)(vi)(B)(3)(i) through (iii) of this section, the underlying 
individual off-balance sheet rate contracts may not be netted for the 
purposes of this section.
---------------------------------------------------------------------------

    (C) Walkaway clause. A bilateral netting contract that contains a 
walkaway clause is not eligible for netting for purposes of calculating 
the current credit exposure amount. The term ``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.
    (D) Risk weighting. Once the savings association determines the 
credit equivalent amount for an off-balance sheet rate contract, that 
amount is assigned to the risk-weight category appropriate to the 
counterparty, or, if relevant, to the nature of any collateral or 
guarantee. Collateral held against a netting contract is not recognized 
for capital purposes unless it is legally available for all contracts 
included in the netting contract. However, the maximum risk weight for 
the credit equivalent amount of such off-balance sheet rate contracts is 
50 percent.
    (E) Exceptions. The following off-balance sheet rate contracts are 
not subject to the above calculation, and therefore, are not part of the 
denominator of a Federal savings association's risk-based capital ratio:
    (1) A foreign exchange rate contract with an original maturity of 14 
calendar days or less; and
    (2) Any interest rate or foreign exchange rate contract that is 
traded on an exchange requiring the daily payment of any variations in 
the market value of the contract.
    (3) If a Federal savings association has multiple overlapping 
exposures (such as a program-wide credit enhancement and a liquidity 
facility) to an ABCP program that is not consolidated for risk-based 
capital purposes, the savings association is not required to hold 
duplicative risk-based capital under this part against the overlapping 
position. Instead, the savings association should apply to the 
overlapping position the applicable risk-based capital treatment that 
results in the highest capital charge.
    (b) Recourse obligations, direct credit substitutes, and certain 
other positions--(1) In general. Except as otherwise permitted in this 
paragraph (b), to determine the risk-weighted asset amount for a 
recourse obligation or a direct credit substitute (but not a residual 
interest):
    (i) Multiply the full amount of the credit-enhanced assets for which 
the savings association directly or indirectly retains or assumes credit 
risk by a 100 percent conversion factor. (For a direct credit substitute 
that is an on-balance sheet asset (e.g., a purchased subordinated 
security), a Federal savings association must use the amount of the 
direct credit substitute and the full amount of the asset its supports, 
i.e., all the more senior positions in the structure); and
    (ii) Assign this credit equivalent amount to the risk-weight 
category appropriate to the obligor in the underlying transaction, after 
considering any associated guarantees or collateral. Paragraph (a)(1) of 
this section lists the risk-weight categories.
    (2) Residual interests. Except as otherwise permitted under this 
paragraph (b), a Federal savings association must maintain risk-based 
capital for residual interests as follows:
    (i) Credit-enhancing interest-only strips. After applying the 
concentration limit under Sec. 167.12(e)(2) of this part, a saving 
association must maintain risk-

[[Page 732]]

based capital for a credit-enhancing interest-only strip equal to the 
remaining amount of the strip (net of any existing associated deferred 
tax liability), even if the amount of risk-based capital that must 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 are treated as if the strip was retained by the 
savings association and was not transferred.
    (ii) Other residual interests. A saving association 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 
(net of any existing associated deferred tax liability), even if the 
amount of risk-based capital that must 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 are treated as if the residual 
interest was retained by the savings association and was not 
transferred.
    (iii) Residual interests and other recourse obligations. Where a 
Federal savings association holds a residual interest (including a 
credit-enhancing interest-only strip) and another recourse obligation in 
connection with the same transfer of assets, the savings association 
must maintain risk-based capital equal to the greater of:
    (A) The risk-based capital requirement for the residual interest as 
calculated under paragraph (b)(2)(i) through (ii) of this section; or
    (B) The full risk-based capital requirement for the assets 
transferred, subject to the low-level recourse rules under paragraph 
(b)(7) of this section.
    (3) Ratings-based approach--(i) Calculation. A Federal savings 
association may calculate the risk-weighted asset amount for an eligible 
position described in paragraph (b)(3)(ii) of this section by 
multiplying the face amount of the position by the appropriate risk 
weight determined in accordance with Table A or B of this section.

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


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


                                 Table B
------------------------------------------------------------------------
                                                            Risk weight
               Short term rating category                  (In percent)
------------------------------------------------------------------------
Highest investment grade................................              20
Second highest investment grade.........................              50
Lowest investment grade.................................             100
------------------------------------------------------------------------

    (ii) Eligibility--(A) Traded positions. A position is eligible for 
the treatment described in paragraph (b)(3)(i) of this section, if:
    (1) The position is a recourse obligation, direct credit substitute, 
residual interest, or asset- or mortgage-backed security and is not a 
credit-enhancing interest-only strip;
    (2) The position is a traded position; and
    (3) The NRSRO has rated a long term position as one grade below 
investment grade or better or a short term position as investment grade. 
If two or more NRSROs assign ratings to a traded position, the savings 
association must use the lowest rating to determine the appropriate 
risk-weight category under paragraph (b)(3)(i) of this section.
    (B) Non-traded positions. A position that is not traded is eligible 
for the treatment described in paragraph (b)(3)(i) of this section if:
    (1) The position is a recourse obligation, direct credit substitute, 
residual interest, or asset- or mortgage-backed security extended in 
connection with a securitization and is not a credit-enhancing interest-
only strip;
    (2) More than one NRSRO rate the position;
    (3) All of the NRSROs that provide a rating rate a long term 
position as one grade below investment grade or better or a short term 
position as investment grade. If the NRSROs assign different ratings to 
the position, the savings association must use the lowest rating to 
determine the appropriate risk-weight

[[Page 733]]

category under paragraph (b)(3)(i) of this section;
    (4) The NRSROs base their ratings on the same criteria that they use 
to rate securities that are traded positions; and
    (5) The ratings are publicly available.
    (C) Unrated senior positions. If a recourse obligation, direct 
credit substitute, residual interest, or asset- or mortgage-backed 
security is not rated by an NRSRO, but is senior or preferred in all 
features to a traded position (including collateralization and 
maturity), the savings association may risk-weight the face amount of 
the senior position under paragraph (b)(3)(i) of this section, based on 
the rating of the traded position, subject to supervisory guidance. The 
savings association must satisfy the OCC that this treatment is 
appropriate. This paragraph (b)(3)(i)(C) applies only if the traded 
position provides substantive credit support to the unrated position 
until the unrated position matures.
    (4) Certain positions that are not rated by NRSROs--(i) Calculation. 
A Federal savings association may calculate the risk-weighted asset 
amount for eligible position described in paragraph (b)(4)(ii) of this 
section based on the savings association's determination of the credit 
rating of the position. To risk-weight the asset, the savings 
association must multiply the face amount of the position by the 
appropriate risk weight determined in accordance with Table C of this 
section.

                                 Table C
------------------------------------------------------------------------
                                                            Risk weight
                     Rating category                       (In percent)
------------------------------------------------------------------------
Investment grade........................................             100
One category below investment grade.....................             200
------------------------------------------------------------------------

    (ii) Eligibility. A position extended in connection with a 
securitization is eligible for the treatment described in paragraph 
(b)(4)(i) of this section if it is not rated by an NRSRO, is not a 
residual interest, and meets the one of the three alternative standards 
described in paragraph (b)(4)(ii)(A), (B), or (C) below of this section:
    (A) Position rated internally. A direct credit substitute, but not a 
purchased credit-enhancing interest-only strip, is eligible for the 
treatment described under paragraph (b)(4)(i) of this section, if the 
position is assumed in connection with an asset-backed commercial paper 
program sponsored by the savings association. Before it may rely on an 
internal credit risk rating system, the saving association must 
demonstrate to the OCC's satisfaction that the system is adequate. 
Adequate internal credit risk rating systems typically:
    (1) Are an integral part of the savings association's risk 
management system that explicitly incorporates the full range of risks 
arising from the savings association's participation in securitization 
activities;
    (2) Link internal credit ratings to measurable outcomes, such as the 
probability that the position will experience any loss, the expected 
loss on the position in the event of default, and the degree of variance 
in losses in the event of default on that position;
    (3) Separately consider the risk associated with the underlying 
loans or borrowers, and the risk associated with the structure of the 
particular securitization transaction;
    (4) Identify gradations of risk among ``pass'' assets and other risk 
positions;
    (5) Use clear, explicit criteria to classify assets into each 
internal rating grade, including subjective factors;
    (6) Employ independent credit risk management or loan review 
personnel to assign or review the credit risk ratings;
    (7) Include an internal audit procedure to periodically verify that 
internal risk ratings are assigned in accordance with the savings 
association's established criteria;
    (8) Monitor the performance of the assigned internal credit risk 
ratings 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 rating system, as needed; and
    (9) Make credit risk rating assumptions that are consistent with, or 
more conservative than, the credit risk rating assumptions and 
methodologies of NRSROs.
    (B) Program ratings. (1) A recourse obligation or direct credit 
substitute, but not a residual interest, is eligible for

[[Page 734]]

the treatment described in paragraph (b)(4)(i) of this section, if the 
position is retained or assumed in connection with a structured finance 
program and an 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 or 
external credit enhancements and other relevant factors, and the NRSRO 
specifies ranges of rating categories to them, the savings association 
may apply the rating category applicable to the option that corresponds 
to the savings association's position.
    (2) To rely on a program rating, the savings association 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 savings association must also 
demonstrate to the OCC's satisfaction that the criteria underlying the 
assignments for the program are satisfied by the particular position.
    (3) If a Federal savings association participates in a 
securitization sponsored by another party, the OCC may authorize the 
savings association to use this approach based on a program rating 
obtained by the sponsor of the program.
    (C) Computer program. A recourse obligation or direct credit 
substitute, but not a residual interest, is eligible for the treatment 
described in paragraph (b)(4)(i) of this section, if the position is 
extended in connection with a structured financing program and the 
savings association uses an acceptable credit assessment computer 
program to determine the rating of the position. An NRSRO must have 
developed the computer program and the savings association must 
demonstrate to the OCC's satisfaction that the ratings under the program 
correspond credibly and reliably with the rating of traded positions.
    (5) Alternative capital computation for small business obligations-- 
(i) Definitions. For the purposes of this paragraph (b)(5):
    (A) Qualified Federal savings association means a savings 
association that:
    (1) Is well capitalized as defined in Sec. 165.4 of this chapter 
without applying the capital treatment described in this paragraph 
(b)(5); or
    (2) Is adequately capitalized as defined in Sec. 165.4 of this 
chapter without applying the capital treatment described in this 
paragraph (b)(5) and has received written permission from the OCC to 
apply that capital treatment.
    (B) Small business means a business that meets the criteria for a 
small business concern established by the Small Business Administration 
in 13 CFR 121 pursuant to 15 U.S.C. 632.
    (ii) Capital requirement. Notwithstanding any other provision of 
this paragraph (b), with respect to a transfer of a small business loan 
or lease of personal property with recourse that is a sale under GAAP, a 
qualified Federal savings association may elect to include only the 
amount of its recourse in its risk-weighted assets. To qualify for this 
election, the savings association must establish and maintain a reserve 
under GAAP sufficient to meet the reasonable estimated liability of the 
savings association under the recourse obligation.
    (iii) Aggregate amount of recourse. The total outstanding amount of 
recourse retained by a qualified Federal savings association with 
respect to transfers of small business loans and leases of personal 
property and included in the risk-weighted assets of the savings 
association as described in paragraph (b)(5)(ii) of this section, may 
not exceed 15 percent of the association's total capital computed under 
Sec. 167.5(c).
    (iv) Federal savings association that ceases to be a qualified 
Federal savings association or that exceeds aggregate limits. If a 
Federal savings association ceases to be a qualified savings association 
or exceeds the aggregate limit described in paragraph (b)(5)(iii) of 
this section, the savings association may continue to apply the capital 
treatment described in paragraph (b)(5)(ii) of this section to transfers 
of small business loans and leases of personal property that occurred 
when the association was a qualified savings association and did not 
exceed the limit.
    (v) Prompt corrective action not affected. (A) A Federal savings 
association shall compute its capital without regard to this paragraph 
(b)(5) of this

[[Page 735]]

section for purposes of prompt corrective action (12 U.S.C. 1831o), 
unless the savings association is adequately or well capitalized without 
applying the capital treatment described in this paragraph (b)(5) and 
would be well capitalized after applying that capital treatment.
    (B) A Federal savings association shall compute its capital 
requirement without regard to this paragraph (b)(5) for the purposes of 
applying 12 U.S.C. 1831o(g), regardless of the association's capital 
level.
    (6) Risk participations and syndications of direct credit 
substitutes. A Federal savings association must calculate the risk-
weighted asset amount for a risk participation in, or syndication of, a 
direct credit substitute as follows:
    (i) If a Federal savings association conveys a risk participation in 
a direct credit substitute, the savings association must convert the 
full amount of the assets that are supported by the direct credit 
substitute to a credit equivalent amount using a 100 percent conversion 
factor. The savings association must assign the pro rata share of the 
credit equivalent amount that was conveyed through the risk 
participation to the lower of: 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 savings 
association must assign the pro rata share of the credit equivalent 
amount that was not participated out to the risk-weight category 
appropriate to the obligor, after considering any associated guarantees 
or collateral.
    (ii) If a Federal savings association acquires a risk participation 
in a direct credit substitute, the savings association must multiply its 
pro rata share of the direct credit substitute by the full amount of the 
assets that are supported by the direct credit substitute, and convert 
this amount to a credit equivalent amount using a 100 percent conversion 
factor. The savings association must assign the resulting credit 
equivalent amount to the risk-weight category appropriate to the obligor 
in the underlying transaction, after considering any associated 
guarantees or collateral.
    (iii) If the Federal savings association holds a direct credit 
substitute in the form of a syndication where each savings association 
or other participant is obligated only for its pro rata share of the 
risk and there is no recourse to the originating party, the savings 
association must calculate the credit equivalent amount by multiplying 
only its pro rata share of the assets supported by the direct credit 
substitute by a 100 percent conversion factor. The savings association 
must assign the resulting credit equivalent amount to the risk-weight 
category appropriate to the obligor in the underlying transaction after 
considering any associated guarantees or collateral.
    (7) Limitations on risk-based capital requirements--(i) Low-level 
exposure rule. If the maximum contractual exposure to loss retained or 
assumed by a Federal savings association is less than the effective 
risk-based capital requirement, as determined in accordance with this 
paragraph (b), for the assets supported by the savings association's 
position, the risk-based capital requirement is limited to the savings 
association's contractual exposure less any recourse liability account 
established in accordance with GAAP. This limitation does not apply when 
a Federal savings association provides credit enhancement beyond any 
contractual obligation to support assets it has sold.
    (ii) Mortgage-related securities or participation certificates 
retained in a mortgage loan swap. If a Federal savings association holds 
a mortgage-related security or a participation certificate as a result 
of a mortgage loan swap with recourse, it must hold risk-based capital 
to support the recourse obligation and that percentage of the mortgage-
related security or participation certificate that is not covered by the 
recourse obligation. The total amount of risk-based capital required for 
the security (or certificate) and the recourse obligation is limited to 
the risk-based capital requirement for the underlying loans, calculated 
as if the savings association continued to hold these loans as an on-
balance sheet asset.
    (iii) Related on-balance sheet assets. If an asset is included in 
the calculation

[[Page 736]]

of the risk-based capital requirement under this paragraph (b) and also 
appears as an asset on the savings association's balance sheet, the 
savings association must risk-weight the asset only under this paragraph 
(b), except in the case of loan servicing assets and similar 
arrangements with embedded recourse obligations or direct credit 
substitutes. In that case, the savings association must separately risk-
weight the on-balance sheet servicing asset and the related recourse 
obligations and direct credit substitutes under this section, and 
incorporate these amounts into the risk-based capital calculation.
    (8) Obligations of subsidiaries. If a Federal savings association 
retains a recourse obligation or assumes a direct credit substitute on 
the obligation of a subsidiary that is not an includable subsidiary, and 
the recourse obligation or direct credit substitute is an equity or debt 
investment in that subsidiary under GAAP, the face amount of the 
recourse obligation or direct credit substitute is deducted for capital 
under Sec. Sec. 167.5(a)(2) and 167.9(c). All other recourse 
obligations and direct credit substitutes retained or assumed by a 
Federal savings association on the obligations of an entity in which the 
savings association has an equity investment are risk-weighted in 
accordance with this paragraph (b).



Sec. 167.8  Leverage ratio.

    (a) The minimum leverage capital requirement for a Federal savings 
association assigned a composite rating of 1, as defined in Sec. 116.3 
of this chapter, shall consist of a ratio of core capital to adjusted 
total assets of 3 percent. These generally are strong associations that 
are not anticipating or experiencing significant growth and have well-
diversified risks, including no undue interest rate risk exposure, 
excellent asset quality, high liquidity, and good earnings.
    (b) For all Federal savings associations not meeting the conditions 
set forth in paragraph (a) of this section, the minimum leverage capital 
requirement shall consist of a ratio of core capital to adjusted total 
assets of 4 percent. Higher capital ratios may be required if warranted 
by the particular circumstances or risk profiles of an individual 
Federal savings association. In all cases, Federal savings associations 
should hold capital commensurate with the level and nature of all risks, 
including the volume and severity of problem loans, to which they are 
exposed.



Sec. 167.9  Tangible capital requirement.

    (a) Federal savings associations shall have and maintain tangible 
capital in an amount equal to at least 1.5% of adjusted total assets.
    (b) The following elements, less the amount of any deductions 
pursuant to paragraph (c) of this section, comprise a Federal savings 
association's tangible capital:
    (1) Common stockholders' equity (including retained earnings);
    (2) Noncumulative perpetual preferred stock and related earnings;
    (3) Nonwithdrawable accounts and pledged deposits that would qualify 
as core capital under Sec. 167.5 of this part; and
    (4) Minority interests in the equity accounts of fully consolidated 
subsidiaries.
    (c) Deductions from tangible capital. In calculating tangible 
capital, a Federal savings association must deduct from assets, and, 
thus, from capital:
    (1) Intangible assets (as defined in Sec. 167.1) except for 
mortgage servicing assets to the extent they are includable in tangible 
capital under Sec. 167.12, and credit enhancing interest-only strips 
and deferred tax assets not includable in tangible capital under Sec. 
167.12.
    (2) Investments, both equity and debt, in subsidiaries that are not 
includable subsidiaries (including those subsidiaries where the savings 
association has a minority ownership interest), except as provided in 
paragraphs (c)(3) and (c)(4) of this section.
    (3) If a Federal savings association has any investments (both debt 
and equity) in one or more subsidiary(ies) engaged in any activity that 
would not fall within the scope of activities in which includable 
subsidiaries may engage, it must deduct such investments from assets 
and, thus, tangible capital in accordance with this paragraph (c)(3). 
The savings association must

[[Page 737]]

first deduct from assets and, thus, capital the amount by which any 
investments in such a subsidiary(ies) exceed the amount of such 
investments held by the savings association. Next, the savings 
association must deduct from assets and, thus, tangible capital the 
savings association's investments in and extensions of credit to the 
subsidiary on the date as of which the savings association's capital is 
being determined.
    (4) If a savings association holds a subsidiary (either directly or 
through a subsidiary) that is itself a domestic depository institution 
the OCC may, in its sole discretion upon determining that the amount of 
tangible capital that would be required would be higher if the assets 
and liabilities of such subsidiary were consolidated with those of the 
parent savings association than the amount that would be required if the 
parent savings association's investment were deducted pursuant to 
paragraphs (c)(2) and (c)(3) of this section, consolidate the assets and 
liabilities of that subsidiary with those of the parent savings 
association in calculating the capital adequacy of the parent savings 
association, regardless of whether the subsidiary would otherwise be an 
includable subsidiary as defined in Sec. 167.1 of this part.



Sec. 167.10  Consequences of failure to meet capital requirements.

    (a) Capital plans. (1) [Reserved]
    (2) The OCC shall require any Federal savings association not in 
compliance with capital standards to submit a capital plan that:
    (i) Addresses the savings association's need for increased capital;
    (ii) Describes the manner in which the savings association will 
increase capital so as to achieve compliance with capital standards;
    (iii) Specifies types and levels of activities in which the savings 
association will engage;
    (iv) Requires any increase in assets to be accompanied by increase 
in tangible capital not less in percentage amount than the leverage 
limit then applicable;
    (v) Requires any increase in assets to be accompanied by an increase 
in capital not less in percentage amount than required under the risk-
based capital standard then applicable; and
    (vi) Is acceptable to the Comptroller.
    (3) To be acceptable to the Comptroller under this section, a plan 
must, in addition to satisfying all of the requirements set forth in 
paragraphs (a)(2)(i) through (a)(2)(v) of this section, contain a 
certification that while the plan is under review by the OCC, the 
savings association will not, without the prior written approval of the 
OCC:
    (i) Grow beyond net interest credited;
    (ii) Make any capital distributions; or
    (iii) Act inconsistently with any other limitations on activities 
established by statute, regulation or by the OCC in supervisory guidance 
for Federal savings associations not meeting capital standards.
    (4) If the plan submitted to the Comptroller under paragraph (a)(2) 
of this section is not approved by the Comptroller, the savings 
association shall immediately and without any further action, be subject 
to the following restrictions:
    (i) It may not increase its assets beyond the amount held on the day 
it receives written notice of the Comptroller's disapproval of the plan; 
and
    (ii) It must comply with any other restrictions or limitations set 
forth in the written notice of the Comptroller's disapproval of the 
plan.
    (b) The Comptroller shall:
    (1) Prohibit any asset growth by any Federal savings association not 
in compliance with capital standards, except as provided in paragraph 
(d) of this section; and
    (2) Require any Federal savings association not in compliance with 
capital standards to comply with a capital directive issued by the 
Comptroller which may include the restrictions contained in paragraph 
(e) of this section and any other restrictions the Comptroller 
determines appropriate.
    (c) A Federal savings association that wishes to obtain an exemption 
from the sanctions provided in paragraph (b)(2) of this section must 
file a request for exemption with the OCC. Such request must include a 
capital plan that satisfies the requirements of paragraph (a)(2) of this 
section.

[[Page 738]]

    (d) The Comptroller may permit any Federal savings association that 
is subject to paragraph (b) of this section to increase its assets in an 
amount not exceeding the amount of net interest credited to the savings 
association's deposit liabilities, if:
    (1) The savings association obtains the Comptroller's prior 
approval;
    (2) Any increase in assets is accompanied by an increase in tangible 
capital in an amount not less than 3% of the increase in assets;
    (3) Any increase in assets is accompanied by an increase in capital 
not less in percentage amount than required under the risk-based capital 
standards then applicable;
    (4) Any increase in assets is invested in low-risk assets; and
    (5) The savings association's ratio of core capital to total assets 
is not less than the ratio existing on January 1, 1991.
    (e) If a Federal savings association fails to meet the risk-based 
capital requirement, the leverage ratio requirement, or the tangible 
capital requirement established under this part, the Comptroller may, 
through enforcement proceedings or otherwise, require such savings 
association to take one or more of the following corrective actions:
    (1) Increase the amount of its regulatory capital to a specified 
level or levels;
    (2) Convene a meeting or meetings with the supervision staff of the 
OCC for the purpose of accomplishing the objectives of this section;
    (3) Reduce the rate of earnings that may be paid on savings 
accounts;
    (4) Limit the receipt of deposits to those made to existing 
accounts;
    (5) Cease or limit the issuance of new accounts of any or all 
classes or categories, except in exchange for existing accounts;
    (6) Cease or limit lending or the making of a particular type or 
category of loan;
    (7) Cease or limit the purchase of loans or the making of specified 
other investments;
    (8) Limit operational expenditures to specified levels;
    (9) Increase liquid assets and maintain such increased liquidity at 
specified levels; or
    (10) Take such other action or actions as the Comptroller may deem 
necessary or appropriate for the safety and soundness of the savings 
association, or depositors or investors in the savings association.
    (f) The Comptroller shall treat as an unsafe and unsound practice 
any material failure by a Federal savings association to comply with any 
plan, regulation, written agreement undertaken under this section or 
order or directive issued to comply with the requirements of this part.



Sec. 167.11  Reservation of authority.

    (a) Transactions for purposes of evasion. The Comptroller may 
disregard any transaction entered into primarily for the purpose of 
reducing the minimum required amount of regulatory capital or otherwise 
evading the requirements of this part.
    (b) Average versus period-end figures. The OCC reserves the right to 
require a Federal savings association to compute its capital ratios on 
the basis of average, rather than period-end, assets when the OCC 
determines appropriate to carry out the purposes of this part.
    (c)(1) Reservation of authority. Notwithstanding the definitions of 
core and supplementary capital in Sec. 167.5 of this part, the OCC may 
find that a particular type of purchased intangible asset or capital 
instrument constitutes or may constitute core or supplementary capital, 
and may permit one or more Federal savings associations to include all 
or a portion of such intangible asset or funds obtained through such 
capital instrument as core or supplementary capital, permanently or on a 
temporary basis, for the purposes of compliance with this part or for 
any other purposes. Similarly, the OCC may find that a particular asset 
or core or supplementary capital component has characteristics or terms 
that diminish its contribution to a Federal savings association's 
ability to absorb losses, and the OCC may require the discounting or 
deduction of such asset or component from the computation of core, 
supplementary, or total capital.

[[Page 739]]

    (2) Notwithstanding Sec. 167.6 of this part, the OCC will look to 
the substance of a transaction and may find that the assigned risk 
weight for any asset, or credit equivalent amount or credit conversion 
factor for any off-balance sheet item does not appropriately reflect the 
risks imposed on the savings association. The OCC may require the 
savings association to apply another risk-weight, credit equivalent 
amount, or credit conversion factor that the OCC deems appropriate.
    (3) The OCC may find that the capital treatment for an exposure to a 
transaction not subject to consolidation on the savings association's 
balance sheet does not appropriately reflect the risks imposed on the 
savings association. Accordingly, the OCC may require the savings 
association to treat the transaction as if it were consolidated on the 
savings association's balance sheet. The OCC will look to the substance 
of and risk associated with the transaction as well as other relevant 
factors in determining whether to require such treatment and in 
calculating risk based capital as the OCC deems appropriate.
    (4) If this part does not specifically assign a risk weight, credit 
equivalent amount, or credit conversion factor, the OCC may assign any 
risk weight, credit equivalent amount, or credit conversion factor that 
it deems appropriate. In making this determination, the OCC will 
consider the risks associated with the asset or off-balance sheet item 
as well as other relevant factors.
    (d) In making a determination under this paragraph (c) of this 
section, the OCC will notify the savings association of the 
determination and solicit a response from the savings association. After 
review of the response by the savings association, the OCC shall issue a 
final supervisory decision regarding the determination made under 
paragraph (c) of this section.



Sec. 167.12  Purchased credit card relationships, servicing assets, intangible 

assets (other than purchased credit card relationships and servicing assets), 

credit-enhancing interest-only strips, and deferred tax assets.

    (a) Scope. This section prescribes the maximum amount of purchased 
credit card relationships, serving assets, intangible assets (other than 
purchased credit card relationships and servicing assets), credit-
enhancing interest-only strips, and deferred tax assets that Federal 
savings associations may include in calculating tangible and core 
capital.
    (b) Computation of core and tangible capital. (1) Purchased credit 
card relationships may be included (that is, not deducted) in computing 
core capital in accordance with the restrictions in this section, but 
must be deducted in computing tangible capital.
    (2) In accordance with the restrictions in this section, mortgage 
servicing assets may be included in computing core and tangible capital 
and nonmortgage servicing assets may be included in core capital.
    (3) Intangible assets, as defined in Sec. 167.1 of this part, other 
than purchased credit card relationships described in paragraph (b)(1) 
of this section, servicing assets described in paragraph (b)(2) of this 
section, and core deposit intangibles described in paragraph (g)(3) of 
this section, are deducted in computing tangible and core capital, 
subject to paragraph (e)(3)(ii) of this section.
    (4) Credit-enhancing interest-only strips may be included (that is 
not deducted) in computing core capital subject to the restrictions of 
this section, and may be included in tangible capital in the same 
amount.
    (5) Deferred tax assets may be included (that is not deducted) in 
computing core capital subject to the restrictions of paragraph (h) of 
this section, and may be included in tangible capital in the same 
amount.
    (c) Market valuations. The OCC reserves the authority to require any 
Federal savings association to perform an independent market valuation 
of assets subject to this section on a case-by-case basis or through the 
issuance of policy guidance. An independent market valuation, if 
required, shall be conducted in accordance with any policy guidance 
issued by the OCC. A required valuation shall include adjustments for 
any significant changes in original valuation assumptions, including 
changes in prepayment estimates or attrition rates. The valuation shall

[[Page 740]]

determine the current fair value of assets subject to this section. This 
independent market valuation may be conducted by an independent 
valuation expert evaluating the reasonableness of the internal 
calculations and assumptions used by the association in conducting its 
internal analysis. The association shall calculate an estimated fair 
value for assets subject to this section at least quarterly regardless 
of whether an independent valuation expert is required to perform an 
independent market valuation.
    (d) Value limitation. For purposes of calculating core capital under 
this part (but not for financial statement purposes), purchased credit 
card relationships and servicing assets must be valued at the lesser of:
    (1) 90 percent of their fair value determined in accordance with 
paragraph (c) of this section; or
    (2) 100 percent of their remaining unamortized book value determined 
in accordance with the instructions for the Call Report or TFR, as 
appropriate.
    (e) Core capital limitations--(1) Servicing assets and purchased 
credit card relationships. (i) The maximum aggregate amount of servicing 
assets and purchased credit card relationships that may be included in 
core capital is limited to the lesser of:
    (A) 100 percent of the amount of core capital; or
    (B) The amount of servicing assets and purchased credit card 
relationships determined in accordance with paragraph (d) of this 
section.
    (ii) In addition to the aggregate limitation in paragraph (e)(1)(i) 
of this section, a sublimit applies to purchased credit card 
relationships and non mortgage-related serving assets. The maximum 
allowable amount of these two types of assets combined is limited to the 
lesser of:
    (A) 25 percent the amount of core capital; and
    (B) The amount of purchased credit card relationships and non 
mortgage-related servicing assets determined in accordance with 
paragraph (d) of this section.
    (2) Credit-enhancing interest-only strips. The maximum aggregate 
amount of credit-enhancing interest-only strips that may be included in 
core capital is limited to 25 percent of the amount of core capital. 
Purchased and retained credit-enhancing interest-only strips, on a non-
tax adjusted basis, are included in the total amount that is used for 
purposes of determining whether a Federal savings association exceeds 
the core capital limit.
    (3) Computation. (i) For purposes of computing the limits and 
sublimits in paragraphs (e) and (h) of this section, core capital is 
computed before the deduction of disallowed servicing assets, disallowed 
purchased credit card relationships, disallowed credit-enhancing 
interest-only strips (purchased and retained), and disallowed deferred 
tax assets.
    (ii) A Federal savings association may elect to deduct the following 
items on a basis net of deferred tax liabilities:
    (A) Disallowed servicing assets;
    (B) Goodwill such that only the net amount must be deducted from 
Tier 1 capital;
    (C) Disallowed credit-enhancing interest only strips (both purchased 
and retained); and
    (D) Other intangible assets arising from non-taxable business 
combinations. A deferred tax liability that is specifically related to 
an intangible asset (other than purchased credit card relationships) 
arising from a nontaxable business combination may be netted against 
this intangible asset. The net amount of the intangible asset must be 
deducted from Tier 1 capital.
    (iii) Deferred tax liabilities that are netted in accordance with 
paragraph (e)(3)(ii) of this section cannot also be netted against 
deferred tax assets when determining the amount of deferred tax assets 
that are dependent upon future taxable income.
    (f) Tangible capital limitation. The maximum amount of mortgage 
servicing assets that may be included in tangible capital shall be the 
same amount includable in core capital in accordance with the 
limitations set by paragraph (e) of this section. All nonmortgage 
servicing assets are deducted in computing tangible capital.
    (g) Exemption for certain subsidiaries--(1) Exemption standard. An 
association holding purchased mortgage servicing

[[Page 741]]

rights in separately capitalized, nonincludable subsidiaries may submit 
an application for approval by the OCC for an exemption from the 
deductions and limitations set forth in this section. The deductions and 
limitations will apply to such purchased mortgage servicing rights, 
however, if the OCC determines that:
    (i) The thrift and subsidiary are not conducting activities on an 
arm's length basis; or
    (ii) The exemption is not consistent with the association's safe and 
sound operation.
    (2) Applicable requirements. If the OCC determines to grant or to 
permit the continuation of an exemption under paragraph (h)(1) of this 
section, the association receiving the exemption must ensure the 
following:
    (i) The association's investments in, and extensions of credit to, 
the subsidiary are deducted from capital when calculating capital under 
this part;
    (ii) Extensions of credit and other transactions with the subsidiary 
are conducted in compliance with the rules for covered transactions with 
affiliates set forth in sections 23A and 23B of the Federal Reserve Act, 
as applied to thrifts; and
    (iii) Any contracts entered into by the subsidiary include a written 
disclosure indicating that the subsidiary is not a bank or Federal 
savings association; the subsidiary is an organization separate and 
apart from any bank or Federal savings association; and the obligations 
of the subsidiary are not backed or guaranteed by any bank or Federal 
savings association and are not insured by the FDIC.
    (h) Treatment of deferred tax assets. For purposes of calculating 
Tier 1 capital under this part (but not for financial statement 
purposes) deferred tax assets are subject to the conditions, 
limitations, and restrictions described in this section.
    (1) Tier 1 capital limitations. (i) The maximum allowable amount of 
deferred tax assets net of any valuation allowance that are dependent 
upon future taxable income will be limited to the lesser of:
    (A) The amount of deferred tax assets that are dependent upon future 
taxable income that is expected to be realized within one year of the 
calendar quarter-end date, based on a projected future taxable income 
for that year; or
    (B) Ten percent of the amount of Tier 1 capital that exists before 
the deduction of any disallowed servicing assets, any disallowed 
purchased credit card relationships, any disallowed credit-enhancing 
interest-only strips, and any disallowed deferred tax assets.
    (ii) For purposes of this limitation, all existing temporary 
differences should be assumed to fully reverse at the calendar quarter-
end date. The recorded amount of deferred tax assets that are dependent 
upon future taxable income, net of any valuation allowance for deferred 
tax assets, in excess of this limitation will be deducted from assets 
and from equity capital for purposes of determining Tier 1 capital under 
this part. The amount of deferred tax assets that can be realized from 
taxes paid in prior carryback years and from the reversal of existing 
taxable temporary differences generally would not be deducted from 
assets and from equity capital.
    (iii) Notwithstanding paragraph (h)(1)(B)(ii) of this section, the 
amount of carryback potential that may be considered in calculating the 
amount of deferred tax assets that a Federal savings association that is 
part of a consolidated group (for tax purposes) may include in Tier 1 
capital may not exceed the amount which the association could reasonably 
expect to have refunded by its parent.
    (2) Projected future taxable income. Projected future taxable income 
should not include net operating loss carryforwards to be used within 
one year of the most recent calendar quarter-end date or the amount of 
existing temporary differences expected to reverse within that year. 
Projected future taxable income should include the estimated effect of 
tax planning strategies that are expected to be implemented to realize 
tax carryforwards that will otherwise expire during that year. Future 
taxable income projections for the current fiscal year (adjusted for any 
significant changes that have occurred or are expected to occur) may be 
used when applying the capital limit at an interim calendar quarter-

[[Page 742]]

end date rather than preparing a new projection each quarter.
    (3) Unrealized holding gains and losses on available-for-sale debt 
securities. The deferred tax effects of any unrealized holding gains and 
losses on available-for-sale debt securities may be excluded from the 
determination of the amount of deferred tax assets that are dependent 
upon future taxable income and the calculation of the maximum allowable 
amount of such assets. If these deferred tax effects are excluded, this 
treatment must be followed consistently over time.



Sec. Sec. 167.14-167.19  [Reserved]



               Sec. Appendixes A-B to Part 167 [Reserved]



 Sec. Appendix C to Part 167--Risk-Based Capital Requirements--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 IX Transition Provisions
    Section 81 Optional Transition Provisions Related to the 
Implementation of Consolidation Requirements Under FAS 167

                       Part I. General Provisions

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

    (a) Purpose. This appendix establishes:

[[Page 743]]

    (1) Minimum qualifying criteria for Federal savings associations 
using Federal savings association-specific internal risk measurement and 
management processes for calculating risk-based capital requirements;
    (2) Methodologies for such Federal savings associations to calculate 
their risk-based capital requirements; and
    (3) Public disclosure requirements for such Federal savings 
associations.
    (b) Applicability. (1) This appendix applies to a Federal savings 
association that:
    (i) Has consolidated assets, as reported on the most recent year-end 
Consolidated Reports of Condition and Income (Call Report) or Thrift 
Financial Report (TFR), as appropriate, 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 167, 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 Federal savings association may elect to use this appendix 
to calculate its risk-based capital requirements.
    (3) A Federal savings association that is subject to this appendix 
must use this appendix unless the OCC determines in writing that 
application of this appendix is not appropriate in light of the savings 
association's asset size, level of complexity, risk profile, or scope of 
operations. 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 Sec. 167.3(d).
    (c) Reservation of authority--(1) Additional capital in the 
aggregate. The OCC may require a Federal savings association to hold an 
amount of capital greater than otherwise required under this appendix if 
the OCC determines that the savings association's risk-based capital 
requirement under this appendix is not commensurate with the savings 
association's credit, market, operational, or other risks. 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 Sec. 167.3(d).
    (2) Specific risk-weighted asset amounts. (i) If the OCC determines 
that the risk-weighted asset amount calculated under this appendix by 
the savings association for one or more exposures is not commensurate 
with the risks associated with those exposures, the OCC may require the 
savings association 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 OCC.
    (ii) If the OCC determines that the risk-weighted asset amount for 
operational risk produced by the savings association under this appendix 
is not commensurate with the operational risks of the savings 
association, the OCC may require the savings association 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 savings association's operational risk management processes, data 
and assessment systems, or quantification systems, all as specified by 
the OCC.
    (3) Regulatory capital treatment of unconsolidated entities. The OCC 
may find that the capital treatment for an exposure to a transaction not 
subject to consolidation on the savings association's balance sheet does 
not appropriately reflect the risks imposed on

[[Page 744]]

the savings association. Accordingly, the OCC may require the savings 
association to treat the transaction as if it were consolidated on the 
savings association's balance sheet. The OCC will look to the substance 
of and risk associated with the transaction as well as other relevant 
factors in determining whether to require such treatment and in 
calculating risk-based capital as the OCC deems appropriate.
    (4) Other supervisory authority. Nothing in this appendix limits the 
authority of the OCC 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 Federal savings association may choose not to apply a 
provision of this appendix to one or more exposures, provided that:
    (1) The savings association can demonstrate on an ongoing basis to 
the satisfaction of the OCC 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 savings association appropriately manages the risk of each 
such exposure;
    (3) The savings association notifies the OCC in writing prior to 
applying this principle to each such exposure; and
    (4) The exposures to which the savings association applies this 
principle are not, in the aggregate, material to the savings 
association.

                         Section 2. Definitions

    Advanced internal ratings-based (IRB) systems means a Federal 
savings association'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.
    Advanced systems means a Federal savings association's advanced IRB 
systems, operational risk management processes, operational risk data 
and assessment systems, operational risk quantification systems, and, to 
the extent the savings association 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 Federal 
savings association 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 Federal savings association's 
internal estimates with actual outcomes during

[[Page 745]]

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 Federal savings association'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 Federal savings association's operational risk profile 
that reflect a current and forward-looking assessment of the savings 
association'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 Federal savings association, 
determined in accordance with GAAP.
    Clean-up call means a contractual provision that permits an 
originating Federal savings association 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 Federal savings association 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 Federal 
savings association'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:
    (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 Federal savings association 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

[[Page 746]]

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 Federal savings 
association 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 savings association 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 savings association 
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 savings 
association may elect to use the definition of default that is used in 
that jurisdiction, provided that the savings association has obtained 
prior approval from the OCC to use the definition of default in that 
jurisdiction.
    (iii) A retail exposure in default remains in default until the 
savings association has reasonable assurance of repayment and 
performance for all contractual principal and interest payments on the 
exposure.
    (2) Wholesale. (i) A Federal savings association's wholesale obligor 
is in default if:
    (A) The savings association determines that the obligor is unlikely 
to pay its credit obligations to the savings association in full, 
without recourse by the savings association 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 savings association.\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 savings 
association has reasonable assurance of repayment and performance for 
all contractual principal and interest payments on all exposures of the 
savings association 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

[[Page 747]]

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 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 Federal 
savings association (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 savings association, 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 savings 
association) in the exposure's national jurisdiction (or subdivision of 
such jurisdiction selected by the savings association) 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 savings association 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 savings association 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 
Federal savings association 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

[[Page 748]]

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, nth-to-default swap, total return swap, or any 
other form of credit derivative approved by the OCC, 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 nth-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;
    (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 nth-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 savings 
association records net payments received on the swap as net income, the 
savings association 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 specific reserves created against 
recognized losses.
    Eligible double default guarantor, with respect to a guarantee or 
credit derivative obtained by a Federal savings association, 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 savings association 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 savings association 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

[[Page 749]]

    (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 savings association 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 savings association 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 savings association 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 savings association, 
unless the affiliate is an insured depository institution, bank, 
securities broker or dealer, or insurance company that:
    (i) Does not control the savings association; 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 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 savings association 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
---------------------------------------------------------------------------

    \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 savings association has conducted sufficient legal review to 
conclude with a well-founded basis (and maintains sufficient written 
documentation of that legal review) that

[[Page 750]]

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 savings association 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 savings association 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 savings association 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 Federal savings 
association under GAAP;
    (ii) The savings association is required to deduct the ownership 
interest from tier 1 or tier 2 capital under this appendix;

[[Page 751]]

    (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 167.1 (definition of 
``qualifying residential construction loan'') and 12 CFR 
167.6(a)(1)(iv).
    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 Federal savings association'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 savings 
association 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 Federal savings association'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 Federal savings association

[[Page 752]]

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 savings associations carrying value (including 
net accrued but unpaid interest and fees) 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 savings association's carrying value (including 
net accrued but unpaid interest and fees) 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 savings 
association 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 savings 
association's best estimate of net additions to the outstanding amount 
owed the savings association, 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 savings 
association 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 savings association 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 savings association 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 
Federal savings association, gross operational loss amounts, dates, 
recoveries, and relevant causal information for operational loss events 
occurring at organizations other than the savings association.
    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:

[[Page 753]]

    (i) Cash on deposit with the Federal savings association (including 
cash held for the savings association 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 savings association 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 or Schedule SC of the TFR, as 
appropriate) of a Federal savings association that results from a 
securitization (other than an increase in equity capital that results 
from the Federal savings association'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 OCC's real estate lending 
standards at 12 CFR 160.100-160.101;
    (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 Federal savings 
association 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 savings association that 
provided the ADC facility as long as the permanent financing is subject 
to the savings association'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

[[Page 754]]

gives rise to similar counterparty credit risks.
    Internal operational loss event data means, with respect to a 
Federal savings association, gross operational loss amounts, dates, 
recoveries, and relevant causal information for operational loss events 
occurring at the savings association.
    Investing Federal savings association means, with respect to a 
securitization, a Federal savings association that assumes the credit 
risk of a securitization exposure (other than an originating savings 
association of the securitization). In the typical synthetic 
securitization, the investing savings association sells credit 
protection on a pool of underlying exposures to the originating savings 
association.
    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 savings association's empirically based best estimate of 
the long-run default-weighted average economic loss, per dollar of EAD, 
the savings association would expect to incur if the obligor (or a 
typical obligor in the loss severity grade assigned by the savings 
association to the exposure) were to default within a one-year horizon 
over a mix of economic conditions, including economic downturn 
conditions; or
    (iii) The savings association's empirically based best estimate of 
the economic loss, per dollar of EAD, the savings association would 
expect to incur if the obligor (or a typical obligor in the loss 
severity grade assigned by the savings association 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 savings association's empirically based best estimate of 
the long-run default-weighted average economic loss, per dollar of EAD, 
the savings association 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 savings association's empirically based best estimate of 
the economic loss, per dollar of EAD, the savings association 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 Federal savings association can 
demonstrate to the satisfaction of the OCC 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,

[[Page 755]]

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 OCC 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.
    Nth-to-default credit derivative means a credit derivative that 
provides credit protection only for the nth-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 Federal savings 
association 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 savings association, 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).

[[Page 756]]

    (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 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 99.9th percentile of the 
distribution of potential aggregate operational losses, as generated by 
the Federal savings association's operational risk quantification system 
over a one-year horizon (and not incorporating eligible operational risk 
offsets or qualifying operational risk mitigants).
    Originating Federal savings association, with respect to a 
securitization, means a savings association 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 Federal savings association'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 Federal 
savings association's empirically based best estimate of the long-run 
average one-year default rate for the rating grade assigned by the 
savings association 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 savings 
association'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 savings 
association'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).

[[Page 757]]

    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 Federal savings association demonstrates to the satisfaction 
of the OCC 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 Federal savings association obtains a written legal opinion 
verifying the validity and enforceability 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 Federal savings association 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 Federal savings association 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 Federal savings association 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:

[[Page 758]]

    (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 Federal 
savings association 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 Federal savings 
association 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 
savings association 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 savings association; and
    (2) Executed under an agreement that provides the savings 
association 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 savings association 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
    (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

[[Page 759]]

include the well-reasoned evaluation and use of external operational 
loss event data, adjusted as appropriate to ensure relevance to a 
Federal savings association'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 
Federal savings association 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 subpart B of part 167, as modified in 
part II of this appendix.
    Tier 2 capital is defined in subpart B of part 167, 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.

[[Page 760]]

    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 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 subpart B of part 167 (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 is designed primarily to promote community welfare, including 
the welfare of low- and moderate-income communities or families, such as 
by providing services or jobs.
    (8) The OCC 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 OCC 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 
Federal savings association's operational risk exposure and the savings 
association's expected operational loss.
    Unit of measure means the level (for example, organizational unit or 
operational loss event type) at which the Federal savings association'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 Federal savings association 
on behalf of a company;
    (2) A repo-style transaction entered into by a Federal savings 
association with a company and any other transaction in which a savings 
association posts collateral to a company and faces counterparty credit 
risk;
    (3) An exposure that a Federal savings association treats as a 
covered position under any applicable market risk rule for which there 
is a

[[Page 761]]

counterparty credit risk capital requirement;
    (4) A sale of corporate loans by a Federal savings association to a 
third party in which the savings association retains full recourse;
    (5) An OTC derivative contract entered into by a Federal savings 
association with a company;
    (6) An exposure to an individual that is not managed by a Federal 
savings association 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 Federal savings association 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 Federal savings association must hold capital commensurate 
with the level and nature of all risks to which the savings association 
is exposed.
    (c) When a Federal savings association subject to any applicable 
market risk rule calculates its risk-based capital requirements under 
this appendix, the savings association must also refer to any applicable 
market risk rule for supplemental rules to calculate risk-based capital 
requirements adjusted for market risk.

                       Part II. Qualifying Capital

                    Section 11. Additional Deductions

    (a) General. A Federal savings association that uses this appendix 
must make the same deductions from its tier 1 capital and tier 2 capital 
required in subpart B of part 167, except that:
    (1) A Federal savings association is not required to deduct certain 
equity investments and CEIOs (as provided in section 12 of this 
appendix); and
    (2) A Federal savings association also must make the deductions from 
capital required by paragraphs (b) and (c) of this section.
    (b) Deductions from tier 1 capital. A Federal savings association 
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 Federal savings 
association 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 Federal savings association's actual tier 2 capital, 
however, the Federal savings association 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.

[[Page 762]]

    (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 savings 
association's exposure on certain failed capital markets transactions.

           Section 12. Deductions and Limitations Not Required

    (a) Deduction of CEIOs. A Federal savings association is not 
required to make the deduction from capital for CEIOs in 12 CFR 
167.5(a)(2)(iii) and 167.12(e).
    (b) Deduction for certain equity investments. A Federal savings 
association is not required to deduct equity securities from capital 
under 12 CFR 167.5(c)(2)(ii). However, it must continue to deduct equity 
investments in real estate under that section. See 12 CFR 167.1, which 
defines equity investments, including equity securities and equity 
investments in real estate.

                  Section 13. Eligible Credit Reserves

    (a) Comparison of eligible credit reserves to expected credit losses 
--(1) Shortfall of eligible credit reserves. If a Federal savings 
association's eligible credit reserves are less than the savings 
association's total expected credit losses, the savings association 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 savings association's actual tier 2 capital, the 
savings association must deduct the excess amount from tier 1 capital.
    (2) Excess eligible credit reserves. If a Federal savings 
association's eligible credit reserves exceed the savings association's 
total expected credit losses, the savings association may include the 
excess amount in tier 2 capital to the extent that the excess amount 
does not exceed 0.6 percent of the savings association's credit-risk-
weighted assets.
    (b) Treatment of allowance for loan and lease losses. Regardless of 
any provision in subpart B of part 167, 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 Federal savings association 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 Federal savings association meets a criterion in 
that section. The implementation plan must incorporate an explicit first 
floor period start date no later than 36 months after the later of April 
1, 2008, or the date the savings association meets at least one 
criterion under paragraph (b)(1) of section 1 of this appendix. The OCC 
may extend the first floor period start date.
    (2) A Federal savings association 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 savings association's 
implementation plan must address in detail how the savings association 
complies, or plans to comply, with the qualification requirements in 
section 22 of this appendix. The savings association 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 savings association and each 
consolidated subsidiary (U.S. and foreign-based) of the savings 
association with respect to all portfolios and exposures of the savings 
association 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 
savings association);
    (iii) Include the savings association's self-assessment of:

[[Page 763]]

    (A) The savings association's current status in meeting the 
qualification requirements in section 22 of this appendix; and
    (B) The consistency of the savings association's current practices 
with the OCC's supervisory guidance on the qualification requirements;
    (iv) Based on the savings association's self-assessment, identify 
and describe the areas in which the savings association proposes to 
undertake additional work to comply with the qualification requirements 
in section 22 of this appendix or to improve the consistency of the 
savings association's current practices with the OCC's supervisory 
guidance on the qualification requirements (gap analysis);
    (v) Describe what specific actions the Federal savings association 
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 savings association'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 savings association's board of 
directors.
    (2) The savings association must submit the implementation plan, 
together with a copy of the minutes of the board of directors' approval, 
to the OCC at least 60 days before the savings association proposes to 
begin its parallel run, unless the OCC waives prior notice.
    (c) Parallel run. Before determining its risk-based capital 
requirements under this appendix and following adoption of the 
implementation plan, the savings association must conduct a satisfactory 
parallel run. A satisfactory parallel run is a period of no less than 
four consecutive calendar quarters during which the savings association 
complies with the qualification requirements in section 22 of this 
appendix to the satisfaction of the OCC. During the parallel run, the 
savings association must report to the OCC on a calendar quarterly basis 
its risk-based capital ratios using subpart B of part 167 and the risk-
based capital requirements described in this appendix. During this 
period, the savings association is subject to subpart B of part 167.
    (d) Approval to calculate risk-based capital requirements under this 
appendix. The OCC will notify the savings association of the date that 
the savings association may begin its first floor period if the OCC 
determines that:
    (1) The savings association fully complies with all the 
qualification requirements in section 22 of this appendix;
    (2) The savings association has conducted a satisfactory parallel 
run under paragraph (c) of this section; and
    (3) The savings association 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 Federal savings association 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 Federal savings 
association's transitional floor periods, the savings association's tier 
1 risk-based capital ratio is equal to the lower of:
    (A) The savings association's floor-adjusted tier 1 risk-based 
capital ratio; or
    (B) The savings association's advanced approaches tier 1 risk-based 
capital ratio.
    (ii) Total risk-based capital ratio. During a savings association's 
transitional floor periods, the savings association's total risk-based 
capital ratio is equal to the lower of:
    (A) The savings association's floor-adjusted total risk-based 
capital ratio; or
    (B) The savings association's advanced approaches total risk-based 
capital ratio.
    (2) Floor-adjusted risk-based capital ratios. (i) A Federal savings 
association's floor-adjusted tier 1 risk-based capital ratio during a 
transitional floor period is equal to the savings association's tier 1 
capital as calculated under subpart B of part 167, divided by the 
product of:

[[Page 764]]

    (A) The savings association's total risk-weighted assets as 
calculated under subpart B of part 167; and
    (B) The appropriate transitional floor percentage in Table 1.
    (ii) A Federal savings association's floor-adjusted total risk-based 
capital ratio during a transitional floor period is equal to the sum of 
the savings association's tier 1 and tier 2 capital as calculated under 
subpart B of part 167, divided by the product of:
    (A) The savings association's total risk-weighted assets as 
calculated under subpart B of part 167; and
    (B) The appropriate transitional floor percentage in Table 1.
    (iii) A Federal savings association that meets the criteria in 
paragraph (b)(1) or (b)(2) of section 1 of this appendix as of April 1, 
2008, must use subpart B of part 167 during the parallel run and as the 
basis for its transitional floors.

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

    (3) Advanced approaches risk-based capital ratios. (i) A Federal 
savings association's advanced approaches tier 1 risk-based capital 
ratio equals the savings association's tier 1 risk-based capital ratio 
as calculated under this appendix (other than this section on 
transitional floor periods).
    (ii) A Federal savings association's advanced approaches total risk-
based capital ratio equals the savings association'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 Federal 
savings association must report to the OCC 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 Federal savings 
association may not exit a transitional floor period until the savings 
association has spent a minimum of four consecutive calendar quarters in 
the period and the OCC has determined that the savings association may 
exit the floor period. The OCC's determination will be based on an 
assessment of the savings association'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 Federal savings 
association 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 Federal savings association 
for risk-based capital purposes under this appendix must be consistent 
with the savings association's internal risk management processes and 
management information reporting systems.
    (3) Each Federal savings association must have an appropriate 
infrastructure with risk measurement and management processes that meet 
the qualification requirements of this section and are appropriate given 
the savings association's size and level of complexity. Regardless of 
whether the systems and models that generate the risk parameters 
necessary for calculating a Federal savings association's risk-based 
capital requirements are located

[[Page 765]]

at any affiliate of the savings association, the savings association 
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 Federal savings association must have an internal risk 
rating and segmentation system that accurately and reliably 
differentiates among degrees of credit risk for the savings 
association's wholesale and retail exposures.
    (2) For wholesale exposures:
    (i) A Federal savings association 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 Federal 
savings association may elect, however, not to assign to a rating grade 
an obligor to whom the savings association extends credit based solely 
on the financial strength of a guarantor, provided that all of the 
savings association's exposures to the obligor are fully covered by 
eligible guarantees, the savings association applies the PD substitution 
approach in paragraph (c)(1) of section 33 of this appendix to all 
exposures to that obligor, and the savings association immediately 
assigns the obligor to a rating grade if a guarantee can no longer be 
recognized under this appendix. The savings association'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 savings association has chosen to directly assign 
LGD estimates to each wholesale exposure, the savings association must 
have an internal risk rating system that accurately and reliably assigns 
each wholesale exposure to a loss severity rating grade (reflecting the 
savings association's estimate of the LGD of the exposure). A Federal 
savings association 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 Federal savings association 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 savings association'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 savings association's internal risk rating policy for 
wholesale exposures must describe the savings association's rating 
philosophy (that is, must describe how wholesale obligor rating 
assignments are affected by the savings association's choice of the 
range of economic, business, and industry conditions that are considered 
in the obligor rating process).
    (5) The savings association'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 savings association receives new material 
information, but no less frequently than annually. The savings 
association's retail exposure segmentation system must provide for the 
review and update (as appropriate) of assignments of retail exposures to 
segments whenever the savings association receives new material 
information, but generally no less frequently than quarterly.
    (c) Quantification of risk parameters for wholesale and retail 
exposures. (1) The Federal savings association must have a comprehensive 
risk parameter quantification process that produces accurate, timely, 
and reliable estimates of the risk parameters for the savings 
association's wholesale and retail exposures.
    (2) Data used to estimate the risk parameters must be relevant to 
the savings association's actual wholesale and retail exposures, and of 
sufficient quality to support the determination of risk-based capital 
requirements for the exposures.
    (3) The savings association's risk parameter quantification process 
must produce appropriately conservative

[[Page 766]]

risk parameter estimates where the savings association 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 savings association'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 savings association'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 savings association 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 savings association must 
adjust its estimates of risk parameters to compensate for the lack of 
data from periods of economic downturn conditions.
    (8) The savings association's PD, LGD, and EAD estimates must be 
based on the definition of default in this appendix.
    (9) The savings association must review and update (as appropriate) 
its risk parameters and its risk parameter quantification process at 
least annually.
    (10) The savings association must at least annually conduct a 
comprehensive review and analysis of reference data to determine 
relevance of reference data to the savings association'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 Federal savings association 
must obtain the prior written approval of the OCC under section 32 of 
this appendix to use the internal models methodology for counterparty 
credit risk.
    (e) Double default treatment. A Federal savings association must 
obtain the prior written approval of the OCC under section 34 of this 
appendix to use the double default treatment.
    (f) Securitization exposures. A Federal savings association must 
obtain the prior written approval of the OCC under section 44 of this 
appendix to use the Internal Assessment Approach for securitization 
exposures to ABCP programs.
    (g) Equity exposures model. A Federal savings association must 
obtain the prior written approval of the OCC under section 53 of this 
appendix to use the Internal Models Approach for equity exposures.
    (h) Operational risk--(1) Operational risk management processes. A 
Federal savings association must:
    (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 
savings association'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 savings 
association's operational risk profile) to identify, measure, monitor, 
and control operational risk in savings association 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).

[[Page 767]]

    (2) Operational risk data and assessment systems. A Federal savings 
association must have operational risk data and assessment systems that 
capture operational risks to which the savings association is exposed. 
The savings association's operational risk data and assessment systems 
must:
    (i) Be structured in a manner consistent with the savings 
association'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 Federal savings 
association must have a systematic process for capturing and using 
internal operational loss event data in its operational risk data and 
assessment systems.
    (1) The savings association'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 OCC to address transitional situations, such as 
integrating a new business line).
    (2) The Federal savings association must be able to map its internal 
operational loss event data into the seven operational loss event type 
categories.
    (3) The savings association may refrain from collecting internal 
operational loss event data for individual operational losses below 
established dollar threshold amounts if the savings association can 
demonstrate to the satisfaction of the OCC that the thresholds are 
reasonable, do not exclude important internal operational loss event 
data, and permit the savings association to capture substantially all 
the dollar value of the savings association's operational losses.
    (B) External operational loss event data. The Federal savings 
association 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 Federal savings association 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 Federal 
savings association must incorporate business environment and internal 
control factors into its operational risk data and assessment systems. 
The Federal savings association 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 Federal savings 
association's operational risk quantification systems:
    (A) Must generate estimates of the savings association's operational 
risk exposure using its operational risk data and assessment systems;
    (B) Must employ a unit of measure that is appropriate for the 
savings association'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 savings association 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 savings association can 
demonstrate to the satisfaction of the OCC 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 savings association 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 
savings association becomes aware of information that may have a 
material effect on

[[Page 768]]

the savings association'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 OCC, a Federal savings 
association 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 savings association proposing to use such an 
alternative operational risk quantification system must submit a 
proposal to the OCC. In determining whether to approve a savings 
association's proposal to use an alternative operational risk 
quantification system, the OCC 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 savings association;
    (B) The savings association 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 savings association 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 Federal savings 
association 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 Federal savings association must retain data using an 
electronic format that allows timely retrieval of data for analysis, 
validation, reporting, and disclosure purposes.
    (3) A Federal savings association 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 Federal 
savings association's senior management must ensure that all components 
of the savings association's advanced systems function effectively and 
comply with the qualification requirements in this section.
    (2) The savings association's board of directors (or a designated 
committee of the board) must at least annually review the effectiveness 
of, and approve, the savings association's advanced systems.
    (3) A savings association 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 
savings association's advanced systems; and
    (iii) Includes adequate governance and project management processes.
    (4) The Federal savings association must validate, on an ongoing 
basis, its advanced systems. The savings association'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 Federal savings association must have an internal audit 
function independent of business-line management that at least annually 
assesses the effectiveness of the controls supporting the savings 
association's advanced systems and reports its findings to the savings 
association's board of directors (or a committee thereof).
    (6) The Federal savings association 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).

[[Page 769]]

    (k) Documentation. The Federal savings association must adequately 
document all material aspects of its advanced systems.

                    Section 23. Ongoing Qualification

    (a) Changes to advanced systems. A Federal savings association must 
meet all the qualification requirements in section 22 of this appendix 
on an ongoing basis. A savings association must notify the OCC when the 
savings association makes any change to an advanced system that would 
result in a material change in the savings association's risk-weighted 
asset amount for an exposure type, or when the savings association makes 
any significant change to its modeling assumptions.
    (b) Failure to comply with qualification requirements. (1) If the 
OCC determines that a Federal savings association 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 
OCC will notify the savings association in writing of the savings 
association's failure to comply.
    (2) The Federal savings association must establish and submit a plan 
satisfactory to the OCC to return to compliance with the qualification 
requirements.
    (3) In addition, if the OCC determines that the savings 
association's risk-based capital requirements are not commensurate with 
the savings association's credit, market, operational, or other risks, 
the OCC may require such a savings association to calculate its risk-
based capital requirements:
    (i) Under subpart B of part 167; or
    (ii) Under this appendix with any modifications provided by the OCC.

      Section 24. Merger and Acquisition Transitional Arrangements

    (a) Mergers and acquisitions of companies without advanced systems. 
If a Federal savings association merges with or acquires a company that 
does not calculate its risk-based capital requirements using advanced 
systems, the savings association may use subpart B of part 167 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 OCC may extend this transition period for 
up to an additional 12 months. Within 90 days of consummating the merger 
or acquisition, the savings association must submit to the OCC an 
implementation plan for using its advanced systems for the acquired 
company. During the period when subpart A of this part applies to the 
merged or acquired company, any ALLL associated with the merged or 
acquired company's exposures may be included in the savings 
association'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 savings association's 
eligible credit reserves. In addition, the risk-weighted assets of the 
merged or acquired company are not included in the savings association's 
credit-risk-weighted assets but are included in total risk-weighted 
assets. If a savings association relies on this paragraph, the savings 
association must disclose publicly the amounts of risk-weighted assets 
and qualifying capital calculated under this appendix for the acquiring 
savings association and under subpart B of part 167 for the acquired 
company.
    (b) Mergers and acquisitions of companies with advanced systems--(1) 
If a Federal savings association merges with or acquires a company that 
calculates its risk-based capital requirements using advanced systems, 
the savings association 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 OCC may extend this transition period for up 
to an additional 12 months. Within 90 days of consummating the merger or 
acquisition, the savings association must submit to the OCC an 
implementation plan for using its advanced systems for the merged or 
acquired company.
    (2) If the acquiring Federal savings association is not subject to 
the advanced approaches in this appendix at

[[Page 770]]

the time of acquisition or merger, during the period when subpart B of 
part 167 apply to the acquiring savings association, 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 savings association'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 Federal savings association 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 Federal savings association must 
determine which of its exposures are wholesale exposures, retail 
exposures, securitization exposures, or equity exposures. The savings 
association must categorize each retail exposure as a residential 
mortgage exposure, a QRE, or an other retail exposure. The savings 
association 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 savings association 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 savings association 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 savings association must identify which of its wholesale 
obligors are in default.
    (2) Segmentation of retail exposures. (i) The savings association 
must group the retail exposures in each retail subcategory into segments 
that have homogeneous risk characteristics.
    (ii) The savings association must identify which of its retail 
exposures are in default. The savings association must segment defaulted 
retail exposures separately from non-defaulted retail exposures.
    (iii) If the savings association determines the EAD for eligible 
margin loans using the approach in paragraph (b) of section 32 of this 
appendix, the savings association must identify which of its retail 
exposures are eligible margin loans for which the savings association 
uses this EAD approach and must segment such eligible margin loans 
separately from other retail exposures.
    (3) Eligible purchased wholesale exposures. A Federal savings 
association may group its eligible purchased wholesale exposures into 
segments that have homogeneous risk characteristics. A Federal savings 
association 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 Federal savings association 
must:
    (i) Associate a PD with each wholesale obligor rating grade;

[[Page 771]]

    (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 savings association 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 Federal savings 
association must assign a PD, LGD, EAD, and M to each segment of 
eligible purchased wholesale exposures. If the savings association can 
estimate ECL (but not PD or LGD) for a segment of eligible purchased 
wholesale exposures, the savings association 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 Federal savings association 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 
Federal savings association 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 Federal savings association 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 
Federal savings association 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 Federal savings association must calculate 
its EAD for an OTC derivative contract as provided in paragraphs (c) and 
(d) of section 32 of this appendix. A Federal savings association 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 savings association's VaR-based measure under any applicable market 
risk rule through an adjustment to EAD as provided in paragraphs (b) and 
(d) of section 32 of this appendix. A savings association 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 Federal savings association 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

[[Page 772]]

    (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 Federal savings association's ongoing 
financing of the obligor. An exposure is not part of a Federal savings 
association's ongoing financing of the obligor if the savings 
association:
    (i) Has a legal and practical ability not to renew or roll over the 
exposure in the event of credit deterioration of the obligor;
    (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 Federal savings association 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 savings association 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 Federal 
savings association may apply a 300 percent risk weight to the EAD of an 
eligible margin loan if the savings association is not able to meet the 
agencies' requirements for estimation of PD and LGD for the margin loan.

[[Page 773]]

[GRAPHIC] [TIFF OMITTED] TR09AU11.002

    (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.

[[Page 774]]

    (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 
Federal savings association may assign a risk-weighted asset amount of 
zero to cash owned and held in all offices of the savings association or 
in transit and for gold bullion held in the savings association's own 
vaults, or held in another savings association'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 Federal savings 
association has demonstrated to the OCC's satisfaction that the 
portfolio (when combined with all other portfolios of exposures that the 
savings association seeks to treat under this paragraph) is not material 
to the savings association 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 
Federal savings association 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 Federal savings 
association's VaR-based measure under any applicable 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 Federal savings 
association also may use the internal models methodology to estimate EAD 
for qualifying cross-product master netting agreements.
    (3) A Federal savings association 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 savings association's VaR-based 
measure under any applicable market risk rule), eligible margin loans, 
and OTC derivative contracts.
    (4) A Federal savings association 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 Federal savings association may recognize the credit risk 
mitigation benefits of financial collateral that secures an

[[Page 775]]

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 savings association may 
estimate an unsecured LGD for the exposure, as well as for any repo-
style transaction that is included in the savings association's VaR-
based measure under any applicable market risk rule, and determine the 
EAD of the exposure using:
    (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 Federal savings 
association 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 Federal 
savings association 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 Federal 
savings association 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 Federal savings association 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 savings 
association 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 
Federal savings association 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 savings 
association 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 Federal savings association 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       from the 3 basis     Other issuers
     category for debt securities                  securities                  point floor
----------------------------------------------------------------------------------------------------------------
Two highest investment-grade rating    <= 1 year.........................               0.005               0.01
 categories for long-term ratings/     1 year, <= 5 years.....               0.02                0.04
 highest investment-grade rating        5 years...............               0.04                0.08
 category for short-term ratings.
Two lowest investment-grade rating     <= 1 year.........................               0.01                0.02
 categories for both short- and long-   1 year, <= 5 years....               0.03                0.06
 term ratings.                          5 years...............               0.06                0.12
One rating category below investment   All...............................               0.15                0.25
 grade.
                                      --------------------------------------------------------------------------
Main index equities (including convertible bonds) and gold......0.15.....

[[Page 776]]

 
Other publicly traded equities (including convertible bonds), co0.25ming
 residential mortgages, and nonfinancial collateral.
Mutual funds.............................Highest haircut applicable to any security in which
                                                         the fund can invest.
Cash on deposit with the Federal savings association (including a 0
 certificate of deposit issued by the savings association).
----------------------------------------------------------------------------------------------------------------
\1\ The market price volatility haircuts in Table 3 are based on a ten-business-day holding period.

    (2) For currency mismatches, a Federal savings association 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 Federal savings association 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 Federal savings association 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.
    (iii) Own internal estimates for haircuts. With the prior written 
approval of the OCC, a Federal savings association may calculate 
haircuts (Hs and Hfx) using its own internal estimates of the 
volatilities of market prices and foreign exchange rates.
    (A) To receive the OCC's approval to use its own internal estimates, 
a Federal savings association must satisfy the following minimum 
quantitative standards:
    (1) A Federal savings association 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 Federal savings association 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] TR09AU11.003

(i) TM equals 5 for repo-style transactions and 10 for 
eligible margin loans;
(ii) TN equals the holding period used by the savings 
association to derive HN; and
(iii) HN equals the haircut based on the holding period 
TN.
    (3) A Federal savings association 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 Federal savings association 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 Federal savings association may calculate 
haircuts for categories of securities. For a category of securities, the 
savings association must calculate the haircut on the basis

[[Page 777]]

of internal volatility estimates for securities in that category that 
are representative of the securities in that category that the savings 
association has lent, sold subject to repurchase, posted as collateral, 
borrowed, purchased subject to resale, or taken as collateral. In 
determining relevant categories, the savings association 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 Federal 
savings association 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 Federal savings association 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 Federal savings association'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 
OCC, a Federal savings association 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 savings association 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 savings 
association 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 savings 
association 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 savings 
association'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 savings association has 
lent, sold subject to repurchase, posted as collateral, borrowed, 
purchased subject to resale, or taken as collateral. The savings 
association 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 Federal savings 
association 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 Federal savings association must determine the EAD for 
multiple OTC derivative contracts that are 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 Federal savings association 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 any 
applicable market risk rule need not compute a separate

[[Page 778]]

counterparty credit risk capital requirement under this section so long 
as the savings association 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 Federal savings association 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 
savings association is treating the credit derivative as a covered 
position under any applicable market risk rule, in which case the 
savings association must compute a supplemental counterparty credit risk 
capital requirement under this section).
    (4) Counterparty credit risk for equity derivatives. A Federal 
savings association 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 savings association is 
treating the contract as a covered position under any applicable market 
risk rule). In addition, if the savings association is treating the 
contract as a covered position under any applicable market risk rule and 
in certain other cases described in section 55 of this appendix, the 
savings association 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 Federal savings association'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 Federal savings association 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 779]]



                                            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           Other
                                                             and gold        reference       reference                     (except 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 Federal savings association 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 savings association must use the column labeled ``Credit (non-investment-grade reference obligor)'' for all other credit
  derivatives.


[[Page 780]]

    (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 = (0.4 x Agross)+(0.6 x NGR x Agross), 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 Federal savings 
association 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 
Federal savings association 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 savings association 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 OCC, a Federal savings association 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 Federal savings 
association 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 Federal savings association 
may choose to use the internal models methodology for one or two of 
these three types of exposures and not the other types. A Federal 
savings association 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 savings association effectively integrates the risk 
mitigating effects of cross-product netting into its risk management and 
other information technology systems; and
    (ii) The savings association obtains the prior written approval of 
the OCC. A savings association that uses the internal models methodology 
for a transaction type must receive approval from the OCC 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 Federal savings 
association uses an internal model to estimate the expected exposure 
(EE) for a netting

[[Page 781]]

set and then calculates EAD based on that EE.
    (i) The savings association 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 the OCC's approval as provided in 
paragraph (d)(7), a more conservative measure of EAD.
[GRAPHIC] [TIFF OMITTED] TR09AU11.004


(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 OCC has determined that the Federal savings association must set 
[alpha] higher based on the savings association's specific 
characteristics of counterparty credit risk.
    (iii) A Federal savings association may include financial collateral 
currently posted by the counterparty as collateral (but may not include 
other forms of collateral) when calculating EE.
    (iv) If a Federal savings association hedges some or all of the 
counterparty credit risk associated with a netting set using an eligible 
credit derivative, the savings association may take the reduction in 
exposure to the counterparty into account when estimating EE. If the 
savings association 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 savings association's exposure to the 
protection provider of the credit derivative.
    (3) To obtain the OCC's approval to calculate the distributions of 
exposures upon which the EAD calculation is based, the Federal savings 
association must demonstrate to the satisfaction of the OCC that it has 
been using for at least one year an internal model that broadly meets 
the following minimum standards, with which the savings association 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 savings association 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 savings association must be able to measure and manage 
current exposures gross and net of collateral held, where appropriate. 
The savings association must estimate expected exposures for OTC 
derivative contracts both with and without the effect of collateral 
agreements.
    (vi) The savings association 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.

[[Page 782]]

    (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 savings association should consider 
using model parameters based on forward-looking measures, where 
appropriate.
    (viii) A savings association 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 
Federal savings association must set M for the exposure or netting set 
equal to the lower of five years or M(EPE) \3\ where:
---------------------------------------------------------------------------

    \3\ Alternatively, a Federal savings association 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] TR09AU11.005

(B) dfk is the risk-free discount factor for future time period tk; and
(C) [Delta] t k = t k - t k - 1.

    (ii) If the remaining maturity of the exposure or the longest-dated 
contract in the netting set is one year or less, the savings association 
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 Federal savings association 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 savings association for a single 
financial contract or for all financial contracts in a netting set and 
confers upon the savings association 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 savings association 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 savings association'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 OCC, a savings association 
may include the effect of a collateral agreement within its internal 
model used to calculate EAD. The savings association 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

[[Page 783]]

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 savings association 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 OCC, a 
Federal savings association 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 savings association 
must meet the following minimum standards to the satisfaction of the 
OCC:
    (i) The savings association'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 savings association must assess the potential model 
uncertainty in its estimates of alpha.
    (iii) The savings association must calculate the numerator and 
denominator of alpha in a consistent fashion with respect to modeling 
methodology, parameter specifications, and portfolio composition.
    (iv) The savings association 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 OCC, a Federal savings association 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 savings association must demonstrate the 
conservatism of the measure of counterparty credit risk exposure used 
for EAD. For material portfolios of new

[[Page 784]]

OTC derivative products, the savings association may assume that the 
current exposure methodology in paragraphs (c)(5) and (c)(6) of this 
section meets the conservatism requirement of this paragraph for a 
period not to exceed 180 days. For immaterial portfolios of OTC 
derivative contracts, the savings association 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 Federal savings association 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 Federal savings association 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 savings association'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 
Federal savings association 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 Federal savings association 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 Federal savings association 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 Federal savings association may only 
recognize the credit risk mitigation benefits of eligible guarantees and 
eligible credit derivatives.
    (2) A Federal savings association 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 
Federal savings association may recognize the guarantee or credit 
derivative in determining the savings association's risk-based capital 
requirement for the hedged exposure by substituting the

[[Page 785]]

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 savings association determines that 
full substitution of the protection provider's PD leads to an 
inappropriate degree of risk mitigation, the savings association 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 Federal 
savings association 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 savings association 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 
savings association determines that full substitution leads to an 
inappropriate degree of risk mitigation, the savings association may use 
a higher PD than that of the protection provider.
    (B) The savings association 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.
    (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 
Federal savings association 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 Federal savings association 
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 Federal savings association'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 Federal 
savings association 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.

[[Page 786]]

    (A) The savings association'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 savings association 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 Federal savings association 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 savings association (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 savings 
association (protection purchaser), but the terms of the arrangement at 
origination of the credit risk mitigant contain a positive incentive for 
the savings association 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 savings association 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;
    (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 
Federal savings association 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 savings association 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

[[Page 787]]

    (2) Pm = effective notional amount of the credit risk mitigant 
adjusted for maturity mismatch (if applicable).
    (f) Currency mismatch. (1) If a Federal savings association 
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 savings association 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 Federal savings association 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 savings 
association 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 Federal savings association must adjust HFX 
calculated in paragraph (f)(2) of this section upward if the savings 
association 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 Federal savings association 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 Federal savings association 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 Federal savings association has implemented a process (which 
has received the prior, written approval of the OCC) to detect excessive 
correlation between the creditworthiness of the obligor of the hedged 
exposure and the protection provider. If excessive correlation is 
present, the savings association may not use the double default 
treatment for the hedged exposure.

[[Page 788]]

    (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 Federal savings association 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 Federal savings association must treat the hedged exposure 
as two separate exposures (protected and unprotected) in order to 
recognize double default treatment on the protected portion of the 
exposure.
    (1) For the protected exposure, the savings association 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 savings association 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 Federal savings 
association applies double default treatment, the savings association 
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 
Federal savings association 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] TR09AU11.006
    
    (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 savings association 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 savings association 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.

[[Page 789]]

    (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 
Federal savings association 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 savings association 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).
    (c) System-wide failures. In the case of a system-wide failure of a 
settlement or clearing system, the OCC 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 Federal savings association must hold risk-based capital 
against any DvP or PvP transaction with a normal settlement period if 
the savings association's counterparty has not made delivery or payment 
within five business days after the settlement date. The savings 
association must determine its risk-weighted asset amount for such a 
transaction by multiplying the positive current exposure of the 
transaction for the savings association by the appropriate risk weight 
in Table 5.

      Table 5--Risk Weights for Unsettled DvP and PvP Transactions
------------------------------------------------------------------------
                                                          Risk weight to
                                                           be applied to
  Number of business days after contractual settlement       positive
                          date                                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 Federal savings association must hold risk-
based capital against any non-DvP/non-PvP transaction with a normal 
settlement period if the savings association 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 savings association must continue to hold risk-based capital 
against the transaction until the savings association has received its 
corresponding deliverables.
    (2) From the business day after the savings association has made its 
delivery until five business days after the counterparty delivery is 
due, the savings association must calculate its risk-based capital 
requirement for the transaction by treating the current market value of 
the deliverables owed to the savings association as a wholesale 
exposure.
    (i) A savings association 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.

[[Page 790]]

    (ii) A savings association may use a 45 percent LGD for the 
transaction rather than estimating LGD for the transaction provided the 
savings association uses the 45 percent LGD for all transactions 
described in paragraphs (e)(1) and (e)(2) of this section.
    (iii) A savings association may use a 100 percent risk weight for 
the transaction provided the savings association uses this risk weight 
for all transactions described in paragraphs (e)(1) and (e)(2) of this 
section.
    (3) If the savings association has not received its deliverables by 
the fifth business day after the counterparty delivery was due, the 
savings association must deduct the current market value of the 
deliverables owed to the savings association 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 Federal 
savings association 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 savings association that meets 
these conditions must hold risk-based capital against any securitization 
exposures it retains in connection with the securitization. A savings 
association 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 savings association 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 Federal savings association 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 savings association 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 savings association 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:
    (i) Allow for the termination of the credit protection due to 
deterioration in the credit quality of the underlying exposures;
    (ii) Require the savings association to alter or replace the 
underlying exposures to improve the credit quality of the pool of 
underlying exposures;
    (iii) Increase the savings association'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 savings 
association 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 savings association after the 
inception of the securitization;
    (3) The savings association obtains a well-reasoned opinion from 
legal counsel that confirms the enforceability of the credit risk 
mitigant in all relevant jurisdictions; and

[[Page 791]]

    (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 Federal savings association 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 Federal savings association 
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 Federal savings association may either apply the 
Internal Assessment Approach in section 44 of this appendix to the 
exposure (if the savings association, 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 savings association 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 Federal savings association 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 OCC, a Federal savings 
association 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 
Federal savings association'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 Federal savings association must deduct a 
securitization exposure from total capital, the savings association 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 
savings association's tier 2 capital, the savings association must 
deduct the excess from tier 1 capital.
    (2) A Federal savings association 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 Federal savings association 
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 savings association's gain-on-sale or CEIOs 
associated with the securitization) may not exceed the sum of:
    (1) The savings association's total risk-based capital requirement 
for the underlying exposures as if the savings

[[Page 792]]

association 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 Federal savings association'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
    (ii) The Federal savings association'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 Federal savings association 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 Federal savings association has 
multiple securitization exposures that provide duplicative coverage of 
the underlying exposures of a securitization (such as when a savings 
association provides a program-wide credit enhancement and multiple 
pool-specific liquidity facilities to an ABCP program), the savings 
association is not required to hold duplicative risk-based capital 
against the overlapping position. Instead, the savings association 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 Federal savings 
association has a securitization exposure where any underlying exposure 
is not a wholesale exposure, retail exposure, securitization exposure, 
or equity exposure, the savings association must:
    (1) If the Federal savings association is an originating savings 
association, 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 Federal savings 
association, 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 Federal savings association provides 
support to a securitization in excess of the savings association's 
contractual obligation to provide credit support to the securitization 
(implicit support):
    (1) The savings association 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 savings association must disclose publicly:
    (i) That it has provided implicit support to the securitization; and
    (ii) The regulatory capital impact to the savings association of 
providing such implicit support.
    (i) Eligible servicer cash advance facilities. Regardless of any 
other provisions of this part, a Federal savings association is not 
required to hold risk-based capital against the undrawn portion of

[[Page 793]]

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 Federal savings association 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 savings association establishes and maintains, pursuant to 
GAAP, a non-capital reserve sufficient to meet the savings association'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 savings association is well capitalized, as defined in the 
OCC's prompt corrective action regulation at 12 CFR part 165. For 
purposes of determining whether a savings association is well 
capitalized for purposes of this paragraph, the savings association'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 Federal 
savings association on transfers of small-business obligations receiving 
the capital treatment specified in paragraph (k)(1) of this section 
cannot exceed 15 percent of the savings association's total qualifying 
capital.
    (3) If a Federal savings association ceases to be well capitalized 
or exceeds the 15 percent capital limitation, the preferential capital 
treatment specified 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 savings association was well 
capitalized and did not exceed the capital limit.
    (4) The risk-based capital ratios of the savings association 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 167.6(b)(5)(v).
    (l) Nth-to-default credit derivatives--(1) First-to-default credit 
derivatives--(i) Protection purchaser. A Federal savings association 
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 savings 
association 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 Federal savings association 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 Federal savings association that obtains 
credit protection on a group of underlying exposures through a nth-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 savings association also has obtained credit protection on 
the same underlying exposures in the form of

[[Page 794]]

first-through-(n-1)-to-default credit derivatives; or
    (2) If n-1 of the underlying exposures have already defaulted.
    (B) If a savings association satisfies the requirements of paragraph 
(m)(2)(i)(A) of this section, the savings association must determine its 
risk-based capital requirement for the underlying exposures as if the 
savings association 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 savings association 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 
Federal savings association. An originating Federal savings association 
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 Federal savings association. An investing Federal 
savings association 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 Federal savings association must 
determine the risk-weighted asset 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 Federal savings association 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 Federal savings association 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 Federal savings association 
may assume that N is six or more unless the savings association knows or 
has reason to know that N is less than six); and
    (B) The securitization exposure is a senior securitization exposure.
    (ii) A Federal savings association 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 Federal savings association must apply the risk 
weights in column 2 of Table 6 or Table 7.

[[Page 795]]



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


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

             Section 44. Internal Assessment Approach (IAA)

    (a) Eligibility requirements. A Federal savings association may 
apply the IAA to calculate the risk-weighted asset amount for a 
securitization exposure that the savings association has to an ABCP 
program (such as a liquidity facility or credit enhancement) if the 
savings association, the ABCP program, and the exposure qualify for use 
of the IAA.

[[Page 796]]

    (1) Federal savings association qualification criteria. A Federal 
savings association qualifies for use of the IAA if the savings 
association has received the prior written approval of the OCC. To 
receive such approval, the savings association must demonstrate to the 
OCC's satisfaction that the savings association's internal assessment 
process meets the following criteria:
    (i) The savings association's internal credit assessments of 
securitization exposures must be based on publicly available rating 
criteria used by an NRSRO.
    (ii) The savings association's internal credit assessments of 
securitization exposures used for risk-based capital purposes must be 
consistent with those used in the savings association's internal risk 
management process, management information reporting systems, and 
capital adequacy assessment process.
    (iii) The savings association's internal credit assessment process 
must have sufficient granularity to identify gradations of risk. Each of 
the savings association's internal credit assessment categories must 
correspond to an external rating of an NRSRO.
    (iv) The savings association'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 savings association 
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 savings association must evaluate whether to revise its 
internal assessment process.
    (v) The Federal savings association 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 savings association 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 Federal savings association must review and update each 
internal credit assessment whenever new material information is 
available, but no less frequently than annually.
    (vii) The Federal savings association 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 Federal savings association 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

[[Page 797]]

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 Federal savings association 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 savings association must map its 
internal assessment of such a securitization exposure to an equivalent 
external rating from an NRSRO. Under the IAA, a savings association 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 Federal savings association may use 
the SFA to determine its risk-based capital requirement for a 
securitization exposure only if the savings association can calculate on 
an ongoing basis each of the SFA parameters in paragraph (e) of this 
section.
    (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 
Federal savings association 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 798]]

[GRAPHIC] [TIFF OMITTED] TR09AU11.007

    (1) 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.
    (2) [Reserved]
    (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 
Federal savings association's securitization exposure to the amount of 
the tranche that contains the securitization exposure.
    (3) Capital requirement on underlying exposures (KIRB). (i) 
KIRBis 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 Federal savings association); to
    (B) UE.
    (ii) The calculation of KIRB must reflect the effects of 
any credit risk

[[Page 799]]

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 Federal savings association's securitization 
exposure; to
    (B) UE.
    (ii) A Federal savings association 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 Federal savings association'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 Federal savings 
association's securitization exposure; to
    (ii) UE.
    (6) Effective number of exposures (N). (i) Unless the Federal 
savings association elects to use the formula provided in paragraph (f) 
of this section,
[GRAPHIC] [TIFF OMITTED] TR09AU11.008


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 savings association 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] TR09AU11.009


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.


[[Page 800]]


    (f) Simplified method for computing N and EWALGD. (1) If all 
underlying exposures of a securitization are retail exposures, a Federal 
savings association 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 Federal savings association may employ a simplified method 
for calculating N and EWALGD.
    (3) If C1 is no more than 0.03, a Federal savings 
association 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] TR09AU11.010


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 Federal savings 
association.

    (4) Alternatively, if only C1 is available and 
C1 is no more than 0.03, the Federal savings association 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 Federal savings association 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 savings 
association 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 savings association 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 Federal savings 
association may recognize financial collateral in determining the 
savings association'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 
savings association has reflected collateral in its determination of 
exposure amount under section 32 of this appendix) as follows. The 
savings association'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;

[[Page 801]]

    (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] TR09AU11.011


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 Federal savings 
association qualifies for use of and uses own-estimates haircuts in 
paragraph (b)(4) of this section:
    (i) A savings association must use the collateral type haircuts (Hs) 
in Table 3;
    (ii) A savings association must use a currency mismatch haircut 
(Hfx) of 8 percent if the exposure and the collateral are denominated in 
different currencies;
    (iii) A savings association 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 savings association 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 OCC, a Federal savings association 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 Federal savings association may only recognize an 
eligible guarantee or eligible credit derivative provided by an eligible 
securitization guarantor in determining the savings association's risk-
based capital requirement for a securitization exposure.
    (2) ECL for securitization exposures. When a Federal savings 
association recognizes an eligible guarantee or eligible credit 
derivative provided by an eligible securitization guarantor in 
determining the savings association's risk-based capital requirement for 
a securitization exposure, the savings association 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 Federal savings association's 
total ECL.
    (3) Rules of recognition. A Federal savings association may 
recognize an eligible guarantee or eligible credit derivative provided 
by an eligible securitization guarantor in determining the savings 
association'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 Federal savings association 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 savings 
association's PD for the guarantor, the savings association's LGD for 
the guarantee or credit derivative, and an EAD equal to the amount of 
the securitization exposure (as determined

[[Page 802]]

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 savings association 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 Federal savings association's PD for the guarantor, 
the savings association'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 Federal savings association 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 savings 
association 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 Federal savings association must 
hold risk-based capital against the sum of the originating savings 
association'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 Federal savings association must calculate the 
risk-based capital requirement for the originating savings association'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 Federal savings association'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 Federal savings association 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 Federal savings association 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 
Federal savings association 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

[[Page 803]]

if a single underlying exposure is a committed exposure.
    (ii) To find the appropriate conversion factor in the tables, a 
Federal savings association 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.

            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 Federal 
savings association may calculate the appropriate conversion factor 
using paragraph (c)(1) of this section or may use a conversion factor of 
10 percent. If the savings association 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 Federal 
savings association 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 Federal 
savings association 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 
savings association'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 savings association'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

[[Page 804]]

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 savings association'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 Federal savings association'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 savings 
association'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 savings association's individual 
equity exposures to an investment fund as determined in section 54 of 
this appendix.
    (b) SRWA computation for individual equity exposures. A Federal 
savings association 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 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) An equity exposure that is designed primarily to promote 
community welfare, including the welfare of low- and moderate-income 
communities or families, such as by providing services or jobs, 
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 OCC'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 savings association's 
tier 1 capital plus tier 2 capital.
    (A) To compute the aggregate adjusted carrying value of a Federal 
savings association's equity exposures for purposes of this paragraph 
(b)(3)(iii), the savings association 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 savings association does not 
know the actual holdings of the investment fund, the savings association 
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 savings association 
must assume for purposes of this paragraph (b)(3)(iii) that the 
investment fund invests to the maximum extent possible in equity 
exposures.

[[Page 805]]

    (B) When determining which of a Federal savings association's equity 
exposures qualify for a 100 percent risk weight under this paragraph, a 
savings association 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 OCC'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 Federal 
savings association acquires at least one of the equity exposures); the 
documentation specifies the measure of effectiveness (E) the Federal 
savings association 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 Federal savings association 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 
Federal savings association 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:
[GRAPHIC] [TIFF OMITTED] TR09AU11.012

(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

[[Page 806]]

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 Federal savings association 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 Federal savings 
association must receive prior written approval from the OCC. To receive 
such approval, the savings association must demonstrate to the OCC's 
satisfaction that the savings association meets the following criteria:
    (1) The savings association 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 savings association's modeled equity exposures; and
    (iii) Adequately capture both general market risk and idiosyncratic 
risk.
    (2) The savings association'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 savings association'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 savings association's model 
and benchmarking exercise must be sufficient to provide confidence in 
the accuracy and robustness of the savings association's estimates.
    (4) The savings association's model and benchmarking process must 
incorporate data that are relevant in representing the risk profile of 
the savings association'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 savings association's 
modeled equity exposures. In addition, the savings association's 
benchmarking exercise must be based on daily market prices for the 
benchmark portfolio. If the savings association's model uses a scenario 
methodology, the savings association must demonstrate that the model 
produces a conservative estimate of potential losses on the savings 
association's modeled equity exposures over a relevant long-term market 
cycle. If the savings association employs risk factor models, the 
savings association must demonstrate through empirical analysis the 
appropriateness of the risk factors used.
    (5) The savings association must be able to demonstrate, using 
theoretical arguments and empirical evidence, that any proxies used in 
the modeling process are comparable to the savings association's modeled 
equity exposures and that the savings association has made appropriate 
adjustments for differences. The savings association must derive any 
proxies for its modeled equity exposures and benchmark portfolio using 
historical market data that are relevant to the savings association'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 savings association's modeled equity 
exposures.
    (c) Risk-weighted assets calculation for a Federal savings 
association modeling publicly traded and non-publicly traded equity 
exposures. If a Federal savings association models publicly traded and 
non-publicly traded equity exposures, the savings association's 
aggregate

[[Page 807]]

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 an investment 
fund (as determined under section 54 of this appendix); and
    (2) The greater of:
    (i) The estimate of potential losses on the savings association's 
equity exposures (other than equity exposures referenced in paragraph 
(c)(1) of this section) generated by the savings association'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 savings association'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 savings association'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 Federal savings 
association using the IMA only for publicly traded equity exposures. If 
a Federal savings association models only publicly traded equity 
exposures, the savings association'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 Federal savings 
association's equity exposures (other than equity exposures referenced 
in paragraph (d)(1) of this section) generated by the savings 
association'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 Federal savings association'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 Federal savings association 
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

[[Page 808]]

the Federal savings association does not use the Full Look-Through 
Approach, the savings association 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 Federal savings association 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 savings association) may either:
    (1) Set the risk-weighted asset amount of the Federal savings 
association'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 savings association; 
and
    (ii) The savings association's proportional ownership share of the 
fund; or
    (2) Include the savings association's proportional ownership share 
of each exposure held by the fund in the savings association's IMA.
    (c) Simple Modified Look-Through Approach. Under this approach, the 
risk-weighted asset amount for a Federal savings association'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 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  (percent)                   Exposure class
------------------------------------------------------------------------
0........................  Sovereign exposures with a long-term
                            applicable external rating in the highest
                            investment-grade rating category and
                            sovereign exposures of the United States.
20.......................  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.......................  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......................  Exposures with a long-term or short-term
                            applicable external rating in the lowest
                            investment-grade rating category.
200......................  Exposures with a long-term applicable
                            external rating one rating category below
                            investment grade.
300......................  Publicly traded equity exposures.
400......................  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....................  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 Federal savings association 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 savings association'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

[[Page 809]]

exposure classes within the fund exceeds 100 percent, the savings 
association 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 Federal savings 
association must use the highest applicable risk weight. A Federal 
savings association 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 
Federal savings association'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 Federal savings 
association 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 Federal savings association 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 Federal savings association 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 Federal 
savings association may adjust its estimate of operational risk exposure 
to reflect qualifying operational risk mitigants if:
    (1) The savings association's operational risk quantification system 
is able to generate an estimate of the savings association's operational 
risk exposure (which does not incorporate qualifying operational risk 
mitigants) and an estimate of the savings association's operational risk 
exposure adjusted to incorporate qualifying operational risk mitigants; 
and
    (2) The savings association's methodology for incorporating the 
effects of insurance, if the savings association 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

[[Page 810]]

    (2) Operational risk mitigants other than insurance for which the 
OCC has given prior written approval. In evaluating an operational risk 
mitigant other than insurance, the OCC 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 Federal savings association does not qualify to use or does 
not have qualifying operational risk mitigants, the savings 
association's dollar risk-based capital requirement for operational risk 
is its operational risk exposure minus eligible operational risk offsets 
(if any).
    (b) If a Federal savings association qualifies to use operational 
risk mitigants and has qualifying operational risk mitigants, the 
savings association's dollar risk-based capital requirement for 
operational risk is the greater of:
    (1) The Federal savings association'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 Federal savings association's operational risk exposure; and
    (ii) Eligible operational risk offsets (if any).
    (c) The Federal savings association's risk-weighted asset amount for 
operational risk equals the savings association'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 Federal savings association 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.
---------------------------------------------------------------------------

    (b) A Federal savings association must comply with paragraph (c) of 
section 71 of this appendix unless it is a consolidated subsidiary of a 
depository institution or bank holding company that is subject to these 
requirements.
    (c)(1) Each consolidated Federal savings association described in 
paragraph (b) of this section that is not a subsidiary of a non-U.S. 
banking organization that is subject to comparable public disclosure 
requirements in its home jurisdiction and has successfully completed its 
parallel run must provide timely public disclosures each calendar 
quarter of the information in tables 11.1-11.11 below. If a significant 
change occurs, such that the most recent reported amounts are no longer 
reflective of the savings association's capital adequacy and risk 
profile, then a brief discussion of this change and its likely impact 
must be provided as soon as practicable thereafter. Qualitative 
disclosures that typically do not change each quarter (for example, a 
general summary of the savings association's risk management objectives 
and policies, reporting system, and definitions) may be disclosed 
annually, provided any significant changes to these are disclosed in the 
interim. Management is encouraged to provide all of the disclosures 
required by this appendix in one place on the savings association's 
public Web site.\5\ The savings association must make these disclosures 
publicly available for each of the last three years (twelve quarters) or 
such shorter period since it began its first floor period.
---------------------------------------------------------------------------

    \5\ Alternatively, a Federal savings association may provide the 
disclosures in more than one place, as some of them may be included in 
public financial reports (for example, in Management's Discussion and 
Analysis included in SEC filings) or other regulatory reports. The 
savings association must provide a summary table on its public Web site 
that specifically indicates where all the disclosures may be found (for 
example, regulatory report schedules, page numbers in annual reports).
---------------------------------------------------------------------------

    (2) Each Federal savings association is required to have a formal 
disclosure policy approved by the board of directors that addresses its 
approach for determining the disclosures it makes.

[[Page 811]]

The policy must address the associated internal controls and disclosure 
controls and procedures. The board of directors and senior management 
are responsible for establishing and maintaining an effective internal 
control structure over financial reporting, including the disclosures 
required by this appendix, and must ensure that appropriate review of 
the disclosures takes place. One or more senior officers of the savings 
association must attest that the disclosures required by this appendix 
meet the requirements of this appendix.
    (3) If a Federal savings association believes that disclosure of 
specific commercial or financial information would prejudice seriously 
its position by making public information that is either proprietary or 
confidential in nature, the savings association need not disclose those 
specific items, but must disclose more general information about the 
subject matter of the requirement, together with the fact that, and the 
reason why, the specific items of information have not been disclosed.

                    Table 11.1--Scope of Application
------------------------------------------------------------------------
                                               (a) The name of the top
                                               corporate entity in the
          Qualitative Disclosures            group to which the appendix
                                                       applies.
------------------------------------------------------------------------
Qualitative Disclosures....................  (a) The name of the top
                                              corporate entity in the
                                              group to which the
                                              appendix applies.
                                             (b) An outline of
                                              differences in the basis
                                              of consolidation for
                                              accounting and regulatory
                                              purposes, with a brief
                                              description of the
                                              entities \6\ within the
                                              group that are fully
                                              consolidated; that are
                                              deconsolidated and
                                              deducted; for which the
                                              regulatory capital
                                              requirement is deducted;
                                              and that are neither
                                              consolidated nor deducted
                                              (for example, where the
                                              investment is risk-
                                              weighted).
                                             (c) Any restrictions, or
                                              other major impediments,
                                              on transfer of funds or
                                              regulatory capital within
                                              the group.
Quantitative Disclosures...................  (d) The aggregate amount of
                                              surplus capital of
                                              insurance subsidiaries
                                              (whether deducted or
                                              subjected to an
                                              alternative method)
                                              included in the regulatory
                                              capital of the
                                              consolidated group.
                                             (e) The aggregate amount by
                                              which actual regulatory
                                              capital is less than the
                                              minimum regulatory capital
                                              requirement in all
                                              subsidiaries with
                                              regulatory capital
                                              requirements and the
                                              name(s) of the
                                              subsidiaries with such
                                              deficiencies.
------------------------------------------------------------------------

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

    \6\ Entities include securities, insurance and other financial 
subsidiaries, commercial subsidiaries (where permitted), and significant 
minority equity investments in insurance, financial and commercial 
entities.

                      Table 11.2--Capital Structure
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Qualitative Disclosures....................  (a) Summary information on
                                              the terms and conditions
                                              of the main features of
                                              all capital instruments,
                                              especially in the case of
                                              innovative, complex or
                                              hybrid capital
                                              instruments.
Quantitative Disclosures...................  (b) The amount of tier 1
                                              capital, with separate
                                              disclosure of:
                                                
                                                 Common stock/surplus;
                                                
                                                 Retained earnings;
                                                
                                                 Minority interests in
                                                 the equity of
                                                 subsidiaries;
                                                
                                                 Regulatory calculation
                                                 differences deducted
                                                 from tier 1 capital;
                                                 \7\ and
                                                 Other
                                                 amounts deducted from
                                                 tier 1 capital,
                                                 including goodwill and
                                                 certain intangibles.

[[Page 812]]

 
                                             (c) The total amount of
                                              tier 2 capital.
                                             (d) Other deductions from
                                              capital.\8\
                                             (e) Total eligible capital.
------------------------------------------------------------------------

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

    \7\ Representing 50 percent of the amount, if any, by which total 
expected credit losses as calculated within the IRB approach exceed 
eligible credit reserves, which must be deducted from tier 1 capital.
    \8\ Including 50 percent of the amount, if any, by which total 
expected credit losses as calculated within the IRB approach exceed 
eligible credit reserves, which must be deducted from tier 2 capital.
    \9\ Risk-weighted assets determined under any applicable market risk 
rule are to be disclosed only for the approaches used.
    \10\ Total risk-weighted assets should also be disclosed.

                      Table 11.3--Capital Adequacy
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Qualitative disclosures....................  (a) A summary discussion of
                                              the Federal savings
                                              association's approach to
                                              assessing the adequacy of
                                              its capital to support
                                              current and future
                                              activities.
Quantitative disclosures...................  (b) Risk-weighted assets
                                              for credit risk from:
                                                
                                                 Wholesale exposures;
                                                
                                                 Residential mortgage
                                                 exposures;
                                                
                                                 Qualifying revolving
                                                 exposures;
                                                 Other
                                                 retail exposures;
                                                
                                                 Securitization
                                                 exposures;
                                                
                                                 Equity exposures;
                                                
                                                 Equity exposures
                                                 subject to the simple
                                                 risk weight approach;
                                                 and
                                                
                                                 Equity exposures
                                                 subject to the internal
                                                 models approach.
                                             (c) Risk-weighted assets
                                              for market risk as
                                              calculated under any
                                              applicable market risk
                                              rule: \9\
                                                
                                                 Standardized approach
                                                 for specific risk; and
                                                
                                                 Internal models
                                                 approach for specific
                                                 risk.
                                             (d) Risk-weighted assets
                                              for operational risk.
                                             (e) Total and tier 1 risk-
                                              based capital ratios: \10\
                                                 For
                                                 the top consolidated
                                                 group; and
                                                 For
                                                 each DI subsidiary.
------------------------------------------------------------------------

               General qualitative disclosure requirement

    For each separate risk area described in tables 11.4 through 11.11, 
the Federal savings association must describe its risk management 
objectives and policies, including:
     Strategies and processes;
     The structure and organization of the relevant 
risk management function;
     The scope and nature of risk reporting and/or 
measurement systems;
     Policies for hedging and/or mitigating risk and 
strategies and processes for monitoring the continuing effectiveness of 
hedges/mitigants.

[[Page 813]]



            Table 11.4 \11\--Credit Risk: General Disclosures
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Qualitative Disclosures....................  (a) The general qualitative
                                              disclosure requirement
                                              with respect to credit
                                              risk (excluding
                                              counterparty credit risk
                                              disclosed in accordance
                                              with Table 11.6),
                                              including:
                                                
                                                 Definitions of past due
                                                 and impaired (for
                                                 accounting purposes);
                                                
                                                 Description of
                                                 approaches followed for
                                                 allowances, including
                                                 statistical methods
                                                 used where applicable;
                                                 and
                                                
                                                 Discussion of the
                                                 Federal savings
                                                 association's credit
                                                 risk management policy.
Quantitative Disclosures...................  (b) Total credit risk
                                              exposures and average
                                              credit risk exposures,
                                              after accounting offsets
                                              in accordance with
                                              GAAP,\12\ and without
                                              taking into account the
                                              effects of credit risk
                                              mitigation techniques (for
                                              example, collateral and
                                              netting), over the period
                                              broken down by major types
                                              of credit exposure.\13\
                                             (c) Geographic \14\
                                              distribution of exposures,
                                              broken down in significant
                                              areas by major types of
                                              credit exposure.
                                             (d) Industry or
                                              counterparty type
                                              distribution of exposures,
                                              broken down by major types
                                              of credit exposure.
                                             (e) Remaining contractual
                                              maturity breakdown (for
                                              example, one year or less)
                                              of the whole portfolio,
                                              broken down by major types
                                              of credit exposure.
                                             (f) By major industry or
                                              counterparty type:
                                                
                                                 Amount of impaired
                                                 loans;
                                                
                                                 Amount of past due
                                                 loans; \15\
                                                
                                                 Allowances; and
                                                
                                                 Charge-offs during the
                                                 period.
                                             (g) Amount of impaired
                                              loans and, if available,
                                              the amount of past due
                                              loans broken down by
                                              significant geographic
                                              areas including, if
                                              practical, the amounts of
                                              allowances related to each
                                              geographical area.\16\
                                             (h) Reconciliation of
                                              changes in the allowance
                                              for loan and lease
                                              losses.\17\
------------------------------------------------------------------------

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

    \11\ Table 4 does not include equity exposures.
    \12\ For example, FASB Interpretations 39 and 41.
    \13\ For example, savings associations could apply a breakdown 
similar to that used for accounting purposes.
    Such a breakdown might, for instance, be (a) loans, off-balance 
sheet commitments, and other non-derivative off-balance sheet exposures, 
(b) debt securities, and (c) OTC derivatives.
    \14\ Geographical areas may comprise individual countries, groups of 
countries, or regions within countries.
    \15\ A Federal savings association is encouraged also to provide an 
analysis of the aging of past-due loans.
    \16\ The portion of general allowance that is not allocated to a 
geographical area should be disclosed separately.
    \17\ The reconciliation should include the following: A description 
of the allowance; the opening balance of the allowance; charge-offs 
taken against the allowance during the period; amounts provided (or 
reversed) for estimated probable loan losses during the period; any 
other adjustments (for example, exchange rate differences, business 
combinations, acquisitions and disposals of subsidiaries), including 
transfers between allowances; and the closing balance of the allowance. 
Charge-offs and recoveries that have been recorded directly to the 
income statement should be disclosed separately.
---------------------------------------------------------------------------

    A Federal savings association might choose to define the 
geographical areas based on the way the company's portfolio is 
geographically managed. The criteria used to allocate the loans to 
geographical areas must be specified.

[[Page 814]]



Table 11.5--Credit Risk: Disclosures for Portfolios Subject to IRB Risk-
                         Based Capital Formulas
------------------------------------------------------------------------
 
------------------------------------------------------------------------
 Qualitative disclosures                     (a) Explanation and review
                                              of the:
                                             
                                              Structure of internal
                                              rating systems and
                                              relation between internal
                                              and external ratings;
                                              Use of
                                              risk parameter estimates
                                              other than for regulatory
                                              capital purposes;
                                              Process
                                              for managing and
                                              recognizing credit risk
                                              mitigation (see table
                                              11.7); and
                                              Control
                                              mechanisms for the rating
                                              system, including
                                              discussion of
                                              independence,
                                              accountability, and rating
                                              systems review.
                                             (b) Description of the
                                              internal ratings process,
                                              provided separately for
                                              the following:
                                             
                                              Wholesale category;
                                              Retail
                                              subcategories;
                                             
                                              Residential mortgage
                                              exposures;
                                             
                                              Qualifying revolving
                                              exposures; and
                                              Other
                                              retail exposures.
                                             For each category and
                                              subcategory the
                                              description should
                                              include:
                                              The
                                              types of exposure included
                                              in the category/
                                              subcategories; and
                                              The
                                              definitions, methods and
                                              data for estimation and
                                              validation of PD, LGD, and
                                              EAD, including assumptions
                                              employed in the derivation
                                              of these variables.\18\
 Quantitative disclosures: risk assessment.  (c) For wholesale
                                              exposures, present the
                                              following information
                                              across a sufficient number
                                              of PD grades (including
                                              default) to allow for a
                                              meaningful differentiation
                                              of credit risk: \19\
                                              Total
                                              EAD; \20\
                                              Exposure-
                                              weighted average LGD
                                              (percentage);
                                              Exposure-
                                              weighted average risk
                                              weight; and
                                              Amount
                                              of undrawn commitments and
                                              exposure-weighted average
                                              EAD for wholesale
                                              exposures.
                                             For each retail
                                              subcategory, present the
                                              disclosures outlined above
                                              across a sufficient number
                                              of segments to allow for a
                                              meaningful differentiation
                                              of credit risk.
 Quantitative disclosures: historical        (d) Actual losses in the
 results.                                     preceding period for each
                                              category and subcategory
                                              and how this differs from
                                              past experience. A
                                              discussion of the factors
                                              that impacted the loss
                                              experience in the
                                              preceding period--for
                                              example, has the Federal
                                              savings association
                                              experienced higher than
                                              average default rates,
                                              loss rates or EADs.
                                             (e) Federal savings
                                              association's estimates
                                              compared against actual
                                              outcomes over a longer
                                              period.\21\ At a minimum,
                                              this should include
                                              information on estimates
                                              of losses against actual
                                              losses in the wholesale
                                              category and each retail
                                              subcategory over a period
                                              sufficient to allow for a
                                              meaningful assessment of
                                              the performance of the
                                              internal rating processes
                                              for each category/
                                              subcategory.\22\ Where
                                              appropriate, the savings
                                              association should further
                                              decompose this to provide
                                              analysis of PD, LGD, and
                                              EAD outcomes against
                                              estimates provided in the
                                              quantitative risk
                                              assessment disclosures
                                              above.\23\
------------------------------------------------------------------------


[[Page 815]]

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

    \18\ This disclosure does not require a detailed description of the 
model in full--it should provide the reader with a broad overview of the 
model approach, describing definitions of the variables and methods for 
estimating and validating those variables set out in the quantitative 
risk disclosures below. This should be done for each of the four 
category/subcategories. The Federal savings association should disclose 
any significant differences in approach to estimating these variables 
within each category/subcategories.
    \19\ The PD, LGD and EAD disclosures in Table 11.5(c) should reflect 
the effects of collateral, qualifying master netting agreements, 
eligible guarantees and eligible credit derivatives as defined in part 
I. Disclosure of each PD grade should include the exposure-weighted 
average PD for each grade. Where a Federal savings association 
aggregates PD grades for the purposes of disclosure, this should be a 
representative breakdown of the distribution of PD grades used for 
regulatory capital purposes.
    \20\ Outstanding loans and EAD on undrawn commitments can be 
presented on a combined basis for these disclosures.
    \21\ These disclosures are a way of further informing the reader 
about the reliability of the information provided in the ``quantitative 
disclosures: risk assessment'' over the long run. The disclosures are 
requirements from year-end 2010; in the meantime, early adoption is 
encouraged. The phased implementation is to allow a Federal savings 
association sufficient time to build up a longer run of data that will 
make these disclosures meaningful.
    \22\ This regulation is not prescriptive about the period used for 
this assessment. Upon implementation, it might be expected that a 
Federal savings association would provide these disclosures for as long 
a run of data as possible--for example, if a savings association has 10 
years of data, it might choose to disclose the average default rates for 
each PD grade over that 10-year period. Annual amounts need not be 
disclosed.
    \23\ A Federal savings association should provide this further 
decomposition where it will allow users greater insight into the 
reliability of the estimates provided in the ``quantitative disclosures: 
risk assessment.'' In particular, it should provide this information 
where there are material differences between its estimates of PD, LGD or 
EAD compared to actual outcomes over the long run. The savings 
association should also provide explanations for such differences.

   Table 11.6--General Disclosure for Counterparty Credit Risk of OTC
Derivative Contracts, Repo-Style Transactions, and Eligible Margin Loans
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Qualitative Disclosures....................  (a) The general qualitative
                                              disclosure requirement
                                              with respect to OTC
                                              derivatives, eligible
                                              margin loans, and repo-
                                              style transactions,
                                              including:
                                             
                                              Discussion of methodology
                                              used to assign economic
                                              capital and credit limits
                                              for counterparty credit
                                              exposures;
                                             
                                              Discussion of policies for
                                              securing collateral,
                                              valuing and managing
                                              collateral, and
                                              establishing credit
                                              reserves;
                                             
                                              Discussion of the primary
                                              types of collateral taken;
                                             
                                              Discussion of policies
                                              with respect to wrong-way
                                              risk exposures; and
                                             
                                              Discussion of the impact
                                              of the amount of
                                              collateral the Federal
                                              savings association would
                                              have to provide if the
                                              savings association were
                                              to receive a credit rating
                                              downgrade.
Quantitative Disclosures...................  (b) Gross positive fair
                                              value of contracts,
                                              netting benefits, netted
                                              current credit exposure,
                                              collateral held (including
                                              type, for example, cash,
                                              government securities),
                                              and net unsecured credit
                                              exposure.\24\ Also report
                                              measures for EAD used for
                                              regulatory capital for
                                              these transactions, the
                                              notional value of credit
                                              derivative hedges
                                              purchased for counterparty
                                              credit risk protection,
                                              and, for Federal savings
                                              associations not using the
                                              internal models
                                              methodology in section
                                              32(d) of this appendix,
                                              the distribution of
                                              current credit exposure by
                                              types of credit
                                              exposure.\25\

[[Page 816]]

 
                                             (c) Notional amount of
                                              purchased and sold credit
                                              derivatives, segregated
                                              between use for the
                                              Federal savings
                                              association's own credit
                                              portfolio and for its
                                              intermediation activities,
                                              including the distribution
                                              of the credit derivative
                                              products used, broken down
                                              further by protection
                                              bought and sold within
                                              each product group.
                                             (d) The estimate of alpha
                                              if the Federal savings
                                              association has received
                                              supervisory approval to
                                              estimate alpha.
------------------------------------------------------------------------

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

    \24\ Net unsecured credit exposure is the credit exposure after 
considering the benefits from legally enforceable netting agreements and 
collateral arrangements, without taking into account haircuts for price 
volatility, liquidity, etc.
    \25\ This may include interest rate derivative contracts, foreign 
exchange derivative contracts, equity derivative contracts, credit 
derivatives, commodity or other derivative contracts, repo-style 
transactions, and eligible margin loans.

               Table 11.7--Credit Risk Mitigation 26 27 28
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Qualitative Disclosures...................  (a) The general qualitative
                                             disclosure requirement with
                                             respect to credit risk
                                             mitigation including:
                                             Policies
                                             and processes for, and an
                                             indication of the extent to
                                             which the Federal savings
                                             association uses, on- and
                                             off-balance sheet netting;
                                             Policies
                                             and processes for
                                             collateral valuation and
                                             management;
                                             A
                                             description of the main
                                             types of collateral taken
                                             by the Federal savings
                                             association;
                                             The main
                                             types of guarantors/credit
                                             derivative counterparties
                                             and their creditworthiness;
                                             and
                                            
                                             Information about (market
                                             or credit) risk
                                             concentrations within the
                                             mitigation taken.
Quantitative Disclosures..................  (b) For each separately
                                             disclosed portfolio, the
                                             total exposure (after,
                                             where applicable, on- or
                                             off-balance sheet netting)
                                             that is covered by
                                             guarantees/credit
                                             derivatives.
------------------------------------------------------------------------

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

    \26\ At a minimum, a Federal savings association must provide the 
disclosures in Table 11.7 in relation to credit risk mitigation that has 
been recognized for the purposes of reducing capital requirements under 
this appendix. Where relevant, Federal savings associations are 
encouraged to give further information about mitigants that have not 
been recognized for that purpose.
    \27\ Credit derivatives that are treated, for the purposes of this 
appendix, as synthetic securitization exposures should be excluded from 
the credit risk mitigation disclosures and included within those 
relating to securitization.
    \28\ Counterparty credit risk-related exposures disclosed pursuant 
to Table 11.6 should be excluded from the credit risk mitigation 
disclosures in Table 11.7.

                       Table 11.8--Securitization
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Qualitative Disclosures....................  (a) The general qualitative
                                              disclosure requirement
                                              with respect to
                                              securitization (including
                                              synthetics), including a
                                              discussion of:

[[Page 817]]

 
                                              The
                                              Federal savings
                                              association's objectives
                                              relating to securitization
                                              activity, including the
                                              extent to which these
                                              activities transfer credit
                                              risk of the underlying
                                              exposures away from the
                                              savings association to
                                              other entities;
                                              The
                                              roles played by the
                                              Federal savings
                                              association in the
                                              securitization process
                                              \29\ and an indication of
                                              the extent of the savings
                                              association's involvement
                                              in each of them; and
                                              The
                                              regulatory capital
                                              approaches (for example,
                                              RBA, IAA and SFA) that the
                                              Federal savings
                                              association follows for
                                              its securitization
                                              activities.
                                             (b) Summary of the Federal
                                              savings association's
                                              accounting policies for
                                              securitization activities,
                                              including:
                                              Whether
                                              the transactions are
                                              treated as sales or
                                              financings;
                                             
                                              Recognition of gain-on-
                                              sale;
                                              Key
                                              assumptions for valuing
                                              retained interests,
                                              including any significant
                                              changes since the last
                                              reporting period and the
                                              impact of such changes;
                                              and
                                             
                                              Treatment of synthetic
                                              securitizations.
                                             (c) Names of NRSROs used
                                              for securitizations and
                                              the types of
                                              securitization exposure
                                              for which each agency is
                                              used.
Quantitative Disclosures...................  (d) The total outstanding
                                              exposures securitized by
                                              the Federal savings
                                              association in
                                              securitizations that meet
                                              the operational criteria
                                              in section 41 of this
                                              appendix (broken down into
                                              traditional/synthetic), by
                                              underlying exposure
                                              type.30 31 32
                                             (e) For exposures
                                              securitized by the Federal
                                              savings association in
                                              securitizations that meet
                                              the operational criteria
                                              in Section 41 of this
                                              appendix:
                                              Amount
                                              of securitized assets that
                                              are impaired/past due; and
                                              Losses
                                              recognized by the Federal
                                              savings association during
                                              the current period \33\
                                              broken down by exposure
                                              type.
                                             (f) Aggregate amount of
                                              securitization exposures
                                              broken down by underlying
                                              exposure type.
                                             (g) Aggregate amount of
                                              securitization exposures
                                              and the associated IRB
                                              capital requirements for
                                              these exposures broken
                                              down into a meaningful
                                              number of risk weight
                                              bands. Exposures that have
                                              been deducted from capital
                                              should be disclosed
                                              separately by type of
                                              underlying asset.
                                             (h) For securitizations
                                              subject to the early
                                              amortization treatment,
                                              the following items by
                                              underlying asset type for
                                              securitized facilities:
                                              The
                                              aggregate drawn exposures
                                              attributed to the seller's
                                              and investors' interests;
                                              and
                                              The
                                              aggregate IRB capital
                                              charges incurred by the
                                              Federal savings
                                              association against the
                                              investors' shares of drawn
                                              balances and undrawn
                                              lines.
                                             (i) Summary of current
                                              year's securitization
                                              activity, including the
                                              amount of exposures
                                              securitized (by exposure
                                              type), and recognized gain
                                              or loss on sale by asset
                                              type.
------------------------------------------------------------------------

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

    \29\ For example: originator, investor, servicer, provider of credit 
enhancement, sponsor of ABCP facility, liquidity provider, or swap 
provider.
    \30\ Underlying exposure types may include, for example, one- to 
four-family residential loans, home equity lines, credit card 
receivables, and auto loans.
    \31\ Securitization transactions in which the originating Federal 
savings association does not retain any securitization exposure should 
be shown separately but need only be reported for the year of inception.
    \32\ Where relevant, a Federal savings association is encouraged to 
differentiate between exposures resulting from activities in which they 
act only as sponsors, and exposures that result from all other Federal 
savings association securitization activities.
    \33\ For example, charge-offs/allowances (if the assets remain on 
the savings association's balance sheet) or write-downs of I/O strips 
and other residual interests.

[[Page 818]]



                      Table 11.9--Operational Risk
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Qualitative Disclosures....................  (a) The general qualitative
                                              disclosure requirement for
                                              operational risk.
                                             (b) Description of the AMA,
                                              including a discussion of
                                              relevant internal and
                                              external factors
                                              considered in the Federal
                                              savings association's
                                              measurement approach.
                                             (c) A description of the
                                              use of insurance for the
                                              purpose of mitigating
                                              operational risk.
------------------------------------------------------------------------


          Table 11.10--Equities Not Subject to Market Risk Rule
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Qualitative Disclosures....................  (a) The general qualitative
                                              disclosure requirement
                                              with respect to equity
                                              risk, including:
                                             
                                              Differentiation between
                                              holdings on which capital
                                              gains are expected and
                                              those held for other
                                              objectives, including for
                                              relationship and strategic
                                              reasons; and
                                             
                                              Discussion of important
                                              policies covering the
                                              valuation of and
                                              accounting for equity
                                              holdings in the banking
                                              book. This includes the
                                              accounting techniques and
                                              valuation methodologies
                                              used, including key
                                              assumptions and practices
                                              affecting valuation as
                                              well as significant
                                              changes in these
                                              practices.
Quantitative Disclosures...................  (b) Value disclosed in the
                                              balance sheet of
                                              investments, as well as
                                              the fair value of those
                                              investments; for quoted
                                              securities, a comparison
                                              to publicly quoted share
                                              values where the share
                                              price is materially
                                              different from fair value.
                                             (c) The types and nature of
                                              investments, including the
                                              amount that is:
                                              Publicly
                                              traded; and
                                              Non-
                                              publicly traded.
                                             (d) The cumulative realized
                                              gains (losses) arising
                                              from sales and
                                              liquidations in the
                                              reporting period.
                                             (e) 
                                              Total unrealized gains
                                              (losses) \34\
                                              Total
                                              latent revaluation gains
                                              (losses) \35\
                                              Any
                                              amounts of the above
                                              included in tier 1 and/or
                                              tier 2 capital.
                                             (f) Capital requirements
                                              broken down by appropriate
                                              equity groupings,
                                              consistent with the
                                              Federal savings
                                              association's methodology,
                                              as well as the aggregate
                                              amounts and the type of
                                              equity investments subject
                                              to any supervisory
                                              transition regarding
                                              regulatory capital
                                              requirements.\36\
------------------------------------------------------------------------

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

    \34\ Unrealized gains (losses) recognized in the balance sheet but 
not through earnings.
    \35\ Unrealized gains (losses) not recognized either in the balance 
sheet or through earnings.
    \36\ This disclosure should include a breakdown of equities that are 
subject to the 0 percent, 20 percent, 100 percent, 300 percent, 400 
percent, and 600 percent risk weights, as applicable.

[[Page 819]]



       Table 11.11--Interest Rate Risk for Non-trading Activities
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Qualitative Disclosures....................  (a) The general qualitative
                                              disclosure requirement,
                                              including the nature of
                                              interest rate risk for non-
                                              trading activities and key
                                              assumptions, including
                                              assumptions regarding loan
                                              prepayments and behavior
                                              of non-maturity deposits,
                                              and frequency of
                                              measurement of interest
                                              rate risk for non-trading
                                              activities.
Quantitative Disclosures...................  (b) The increase (decline)
                                              in earnings or economic
                                              value (or relevant measure
                                              used by management) for
                                              upward and downward rate
                                              shocks according to
                                              management's method for
                                              measuring interest rate
                                              risk for non-trading
                                              activities, broken down by
                                              currency (as appropriate).
------------------------------------------------------------------------

                     Part IX--Transition Provisions

Section 81--Optional Transition Provisions Related to the Implementation 
               of Consolidation Requirements Under FAS 167

    (a) Scope, applicability, and purpose. This section 81 provides 
optional transition provisions for a Federal savings association that is 
required for financial and regulatory reporting purposes, as a result of 
its implementation of Statement of Financial Accounting Standards No. 
167, Amendments to FASB Interpretation No. 46(R) (FAS 167), to 
consolidate certain variable interest entities (VIEs) as defined under 
GAAP. These transition provisions apply through the end of the fourth 
quarter following the date of a savings association's implementation of 
FAS 167 (implementation date).
    (b) Exclusion period.
    (1) Exclusion of risk-weighted assets for the first and second 
quarters. For the first two quarters after the implementation date 
(exclusion period), including for the two calendar quarter-end 
regulatory report dates within those quarters, a Federal savings 
association may exclude from risk-weighted assets:
    (i) Subject to the limitations in paragraph (d) of section 81, 
assets held by a VIE, provided that the following conditions are met:
    (A) The VIE existed prior to the implementation date,
    (B) The savings association did not consolidate the VIE on its 
balance sheet for calendar quarter-end regulatory report dates prior to 
the implementation date,
    (C) The savings association must consolidate the VIE on its balance 
sheet beginning as of the implementation date as a result of its 
implementation of FAS 167, and
    (D) The savings association excludes all assets held by VIEs 
described in paragraphs (b)(1)(i)(A) through (C) of this section 81; and
    (ii) Subject to the limitations in paragraph (d) of this section 81, 
assets held by a VIE that is a consolidated ABCP program, provided that 
the following conditions are met:
    (A) The savings association is the sponsor of the ABCP program,
    (B) Prior to the implementation date, the savings association 
consolidated the VIE onto its balance sheet under GAAP and excluded the 
VIE's assets from the savings association's risk-weighted assets, and
    (C) The savings association chooses to exclude all assets held by 
ABCP program VIEs described in paragraphs (b)(1)(ii)(A) and (B) of this 
section 81.
    (2) Risk-weighted assets during exclusion period. During the 
exclusion period, including for the two calendar quarter-end regulatory 
report dates within the exclusion period, a Federal savings association 
adopting the optional provisions in paragraph (b) of this section must 
calculate risk-weighted assets for its contractual exposures to the VIEs 
referenced in paragraph (b)(1) of this section 81 on the implementation 
date and include this calculated amount in risk-weighted assets. Such 
contractual exposures may include direct-credit substitutes, recourse 
obligations, residual interests, liquidity facilities, and loans.
    (3) Inclusion of ALLL in tier 2 capital for the first and second 
quarters. During the exclusion period, including for the

[[Page 820]]

two calendar quarter-end regulatory report dates within the exclusion 
period, a Federal savings association that excludes VIE assets from 
risk-weighted assets pursuant to paragraph (b)(1) of this section 81 may 
include in tier 2 capital the full amount of the ALLL calculated as of 
the implementation date that is attributable to the assets it excludes 
pursuant to paragraph (b)(1) of this section 81 (inclusion amount). The 
amount of ALLL includable in tier 2 capital in accordance with this 
paragraph shall not be subject to the limitations set forth in section 
13(A)(2) and 13(b) of this Appendix.
    (c) Phase-in period--
    (1) Exclusion amount. For purposes of this paragraph (c), exclusion 
amount is defined as the amount of risk-weighted assets excluded in 
paragraph (b)(1) of this section as of the implementation date.
    (2) Risk-weighted assets for the third and fourth quarters. A 
Federal savings association that excludes assets of consolidated VIEs 
from risk-weighted assets pursuant to paragraph (b)(1) of this section 
may, for the third and fourth quarters after the implementation date 
(phase-in period), including for the two calendar quarter-end regulatory 
report dates within those quarters, exclude from risk-weighted assets 50 
percent of the exclusion amount, provided that the savings association 
may not include in risk-weighted assets pursuant to this paragraph an 
amount less than the aggregate risk-weighted assets calculated pursuant 
to paragraph (b)(2) of this section 81.
    (3) Inclusion of ALLL in tier 2 capital for the third and fourth 
quarters. A Federal savings association that excludes assets of 
consolidated VIEs from risk-weighted assets pursuant to paragraph (c)(2) 
of this section may, for the phase-in period, include in tier 2 capital 
50 percent of the inclusion amount it included in tier 2 capital, during 
the exclusion period, notwithstanding the limit on including ALLL in 
tier 2 capital in section 13(a)(2) and 13(b) of this Appendix.
    (d) Implicit recourse limitation. Notwithstanding any other 
provision in this section 81, assets held by a VIE to which the savings 
association has provided recourse through credit enhancement beyond any 
contractual obligation to support assets it has sold may not be excluded 
from risk-weighted assets.



PART 168_SECURITY PROCEDURES--Table of Contents



Sec.
168.1 Authority, purpose, and scope.
168.2 Designation of security officer.
168.3 Security program.
168.4 Report.
168.5 Protection of customer information.

    Authority: 12 U.S.C. 1462a, 1463, 1464, 1467a, 1828, 1831p-1, 1881-
1884, 5412(b)(2)(B); 15 U.S.C. 1681s and 1681w; 15 U.S.C. 6801 and 
6805(b)(1).

    Source: 76 FR 49129, Aug. 9, 2011, unless otherwise noted.



Sec. 168.1  Authority, purpose, and scope.

    (a) This part is issued under section 3 of the Bank Protection Act 
of 1968 (12 U.S.C 1882), sections 501 and 505(b)(1) of the Gramm-Leach-
Bliley Act (15 U.S.C. 6801 and 6805(b)(1)), and sections 621 and 628 of 
the Fair Credit Reporting Act (15 U.S.C. 1681s and 1681w). This part is 
applicable to Federal savings associations. It requires each Federal 
savings association to adopt appropriate security procedures to 
discourage robberies, burglaries, and larcenies and to assist in the 
identification and prosecution of persons who commit such acts. Section 
168.5 of this part is applicable to Federal savings associations and 
their subsidiaries (except brokers, dealers, persons providing 
insurance, investment companies, and investment advisers). Section 168.5 
of this part requires covered institutions to establish and implement 
appropriate administrative, technical, and physical safeguards to 
protect the security, confidentiality, and integrity of customer 
information.
    (b) It is the responsibility of a Federal savings association's 
board of directors to comply with this regulation and ensure that a 
written security program for the association's main office and branches 
is developed and implemented.



Sec. 168.2  Designation of security officer.

    Within 30 days after the effective date of insurance of accounts, 
the

[[Page 821]]

board of directors of each Federal savings association shall designate a 
security officer who shall have the authority, subject to the approval 
of the board of directors, to develop, within a reasonable time but no 
later than 180 days, and to administer a written security program for 
each of the association's offices.



Sec. 168.3  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 association and that will preserve 
evidence that may aid in their identification and prosecution. Such 
procedures may include, but are not limited to:
    (i) Maintaining a camera that records activity in the office;
    (ii) Using identification devices, such as prerecorded serial-
numbered bills, or chemical and electronic devices; and
    (iii) Retaining a record of any robbery, burglary, or larceny 
committed against the association;
    (3) Provide for initial and periodic training of officers and 
employees in their responsibilities under the security program and in 
proper employee conduct during and after a burglary, robbery, or 
larceny; and
    (4) Provide for selecting, testing, operating and maintaining 
appropriate security devices, as specified in paragraph (b) of this 
section.
    (b) Security devices. Each savings association shall have, at a 
minimum, the following security devices:
    (1) A means of protecting cash and 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 office;
    (3) Tamper-resistant locks on exterior doors and exterior windows 
that may 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 or burglary; 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;
    (ii) The amount of currency and other valuables exposed to robbery, 
burglary, or larceny;
    (iii) The distance of the office from the nearest responsible law 
enforcement officers;
    (iv) The cost of the security devices;
    (v) Other security measures in effect at the office; and
    (vi) The physical characteristics of the structure of the office and 
its surroundings.



Sec. 168.4  Report.

    The security officer for each Federal savings association shall 
report at least annually to the association's board of directors on the 
implementation, administration, and effectiveness of the security 
program.



Sec. 168.5  Protection of customer information.

    Federal savings associations and their subsidiaries (except brokers, 
dealers, persons providing insurance, investment companies, and 
investment advisers) must comply with the Interagency Guidelines 
Establishing Information Security Standards set forth in appendix B to 
part 170 of this chapter. Supplement A to appendix B to part 170 of this 
chapter provides interpretive guidance.



PART 169_PROXIES--Table of Contents



Sec.
169.1 Definitions.
169.2 Form of proxies.
169.3 Holders of proxies.
169.4 Proxy soliciting material.

    Authority: Section 2, 48 Stat. 128, as amended (12 U.S.C. 1462); 
section 3, as added by section 301, 103 Stat. 278 (12 U.S.C. 1462a); 
section 4, as added by section 301, 103 Stat. 280 (12 U.S.C. 1463), 
5412(b)(2)(B).

    Source: 76 FR 49129, Aug. 9, 2011, unless otherwise noted.



Sec. 169.1  Definitions.

    As used in this part:

[[Page 822]]

    (a) Security holder. (1) The term security holder means any person 
having the right to vote in the affairs of a savings association by 
virtue of:
    (i) Ownership of any security of the association or
    (ii) Any indebtedness to the association.
    (2) For purposes of this part, the term security holder shall 
include any account holder having the right to vote in the affairs of a 
mutual savings association.
    (b) Person. The term person includes, in addition to natural 
persons, corporations, partnerships, pension funds, profit-sharing 
funds, trusts, and any other group of associated persons of whatever 
nature.
    (c) Proxy. The term proxy includes every form of authorization by 
which a person is, or may be deemed to be, designated to act for the 
security holder in the exercise of his or her voting rights in the 
affairs of a savings association. Such an authorization may take the 
form of failure to dissent or object.
    (d) Solicit; solicitation. (1) The terms solicit and solicitation 
refer to:
    (i) Any request for a proxy whether or not accompanied by or 
included in a form of proxy;
    (ii) Any request to execute, not execute, or revoke a proxy; or
    (iii) The furnishing of a form of proxy or other communication to 
security holders under circumstances reasonably calculated to result in 
the procurement, withholding, or revocation of a proxy.
    (2) The terms do not apply, however, to the furnishing of a form of 
proxy to a security holder upon the request of such security holder or 
to the performance by any person of ministerial acts on behalf of a 
person soliciting a proxy.



Sec. 169.2  Form of proxies.

    Every form of proxy shall conform to the following requirements:
    (a) The proxy shall be revocable at will by the person giving it. 
The power to revoke may not be conditioned on any event or occurrence or 
be otherwise limited; except that, in the case of a proxy relating to 
capital stock if such proxy is coupled with an interest, states such 
fact on its face, and is valid under the laws of the state in which it 
is to be exercised, such proxy may be made irrevocable to the extent 
permitted by such state law.
    (b) The proxy may not be part of any other document or instrument 
(such as an account card).
    (c) The proxy shall be clearly labeled ``Revocable Proxy'' in 
boldface type (at least as large as 18 point).



Sec. 169.3  Holders of proxies.

    No proxy of a mutual savings association with a term greater than 
eleven months or solicited at the expense of the association may 
designate as holder anyone other than the board of directors [trustees] 
as a whole, or a committee appointed by a majority of such board.



Sec. 169.4  Proxy soliciting material.

    No solicitation of a proxy shall be made by means of any statement, 
form of proxy, notice of meeting, or other communication, written or 
oral, which:
    (a) Solicits any undated or postdated proxy;
    (b) Solicits any proxy that provides that it shall be deemed to be 
dated as of any date subsequent to the date on which it is signed by the 
security holder; or
    (c)(1) Contains any statement that is false or misleading with 
respect to any material fact, or
    (2) Omits to state any material fact:
    (i) Necessary in order to make the statements therein not false or 
misleading or
    (ii) Necessary to correct any statement in any earlier communication 
with respect to the solicitation of a proxy for the same meeting or 
subject matter that has subsequently become false or misleading.



PART 170_SAFETY AND SOUNDNESS GUIDELINES AND COMPLIANCE PROCEDURES--Table of 

Contents



Sec.
170.1 Authority, purpose, scope and preservation of existing authority.
170.2 Determination and notification of failure to meet safety and 
          soundness standards and request for compliance plan.
170.3 Filing of safety and soundness compliance plan.

[[Page 823]]

170.4 Issuance of orders to correct deficiencies and to take or refrain 
          from taking other actions.
170.5 Enforcement of orders.

Appendix A to Part 170--Interagency Guidelines Establishing Standards 
          for Safety and Soundness
Appendix B to Part 170--Interagency Guidelines Establishing Information 
          Security Standards


    Authority: 12 U.S.C. 1462a, 1463, 1464, 1467a, 1828, 1831p-1, 1881-
1884, 5412(b)(2)(B); 15 U.S.C. 1681s and 1681w; 15 U.S.C. 6801 and 
6805(b)(1).

    Source: 76 FR 49130, Aug. 9, 2011, unless otherwise noted.



Sec. 170.1  Authority, purpose, scope and preservation of existing authority.

    (a) Authority. This part and the Guidelines in Appendices A and B to 
this part are issued by the OCC under section 39 (section 39) of the 
Federal Deposit Insurance Act (FDI Act) (12 U.S.C. 1831p-1) as added by 
section 132 of the Federal Deposit Insurance Corporation Improvement Act 
of 1991 (FDICIA) (Pub. L. 102-242, 105 Stat. 2236 (1991)), and as 
amended by section 956 of the Housing and Community Development Act of 
1992 (Pub. L. 102-550, 106 Stat. 3895 (1992)), and as amended by section 
318 of the Community Development Banking Act of 1994 (Pub. L. 103-325, 
108 Stat. 2160 (1994)). Appendix B to this part is further issued under 
sections 501(b) and 505 of the Gramm-Leach-Bliley Act (Pub. L. 106-102, 
113 Stat. 1338 (1999)).
    (b) Purpose. Section 39 of the FDI Act requires the OCC to establish 
safety and soundness standards. Pursuant to section 39, a Federal 
savings association may be required to submit a compliance plan if it is 
not in compliance with a safety and soundness standard established by 
guideline under section 39 (a) or (b). An enforceable order under 
section 8 of the FDI Act may be issued if, after being notified that it 
is in violation of a safety and soundness standard prescribed under 
section 39, the Federal savings association fails to submit an 
acceptable compliance plan or fails in any material respect to implement 
an accepted plan. This part establishes procedures for submission and 
review of safety and soundness compliance plans and for issuance and 
review of orders pursuant to section 39. Interagency Guidelines 
Establishing Standards for Safety and Soundness pursuant to section 39 
of the FDI Act are set forth in Appendix A to this part. Interagency 
Guidelines Establishing Information Security Standards are set forth in 
appendix B to this part.
    (c) Scope. This part and the Interagency Guidelines Establishing 
Standards for Safety and Soundness as set forth at appendix A to this 
part and the Interagency Guidelines Establishing Information Security 
Standards at appendix B to this part implement the provisions of section 
39 of the FDI Act as they apply to Federal savings associations.
    (d) Preservation of existing authority. Neither section 39 of the 
FDI Act 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, violations of law, unsafe or unsound conditions, 
or other practices. Action under section 39 and this part may be taken 
independently of, in conjunction with, or in addition to any other 
enforcement action available to the OCC.



Sec. 170.2  Determination and notification of failure to meet safety and 

soundness standards 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 Federal savings association has failed to satisfy the 
safety and soundness standards contained in the Interagency Guidelines 
Establishing Standards for Safety and Soundness as set forth in appendix 
A to this part or the Interagency Guidelines Establishing Information 
Security Standards as set forth in appendix B to this part.
    (b) Request for compliance plan. If the OCC determines that a 
Federal savings association has failed to meet 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. The savings association shall be deemed to have notice 
of the request three days after mailing or delivery of the letter or 
report of examination by the OCC.

[[Page 824]]



Sec. 170.3  Filing of safety and soundness compliance plan.

    (a) Schedule for filing compliance plan-- (1) In general. A Federal 
savings association 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. 170.2(b), unless the OCC notifies the savings 
association in writing that the plan is to be filed within a different 
period.
    (2) Other plans. If a savings association 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, a formal 
or informal agreement, or a response to a report of examination, 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)(1) of this section.
    (b) Contents of plan. The compliance plan shall include a 
description of the steps the Federal savings association 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 
subpart, the OCC shall provide written notice to the Federal savings 
association of whether the plan has been approved or seek additional 
information from the savings association 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. If a Federal 
savings association 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 savings 
association to correct the deficiency and may take further actions 
provided in section 39(e)(2)(B) of the FDI Act. Pursuant to section 
39(e)(3), the OCC may be required to take certain actions if the savings 
association commenced operations or experienced a change in control 
within the previous 24-month period, or the savings association 
experienced extraordinary growth during the previous 18-month period.
    (e) Amendment of compliance plan. A Federal savings association 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, 
the savings association shall implement the compliance plan as 
previously approved.



Sec. 170.4  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 Federal savings association prior written notice of the OCC's 
intention to issue an order requiring the savings association 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 savings 
association 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 savings association immediately to 
take actions to correct a safety and soundness deficiency or to take or 
refrain from taking other actions pursuant to section 39. A savings 
association 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 manner, 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) Contents of notice. A notice of intent to issue an order shall 
include:

[[Page 825]]

    (1) A statement of the safety and soundness deficiency or 
deficiencies that have been identified at the Federal savings 
association;
    (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 savings association subject to the order 
may file with the OCC a written response to the notice.
    (c) Response to notice-- (1) Time for response. A Federal savings 
association 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 savings association or other 
relevant circumstances.
    (2) Contents 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 of the FDI Act;
    (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 
savings association regarding the proposed order.
    (d) The OCC's 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 Federal 
savings association; or
    (3) Seek additional information or clarification of the response 
from the savings association, or any other relevant source.
    (e) Failure to file response. Failure by a Federal savings 
association 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 Federal 
savings association that is subject to an order under this subpart 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. 170.5  Enforcement of orders.

    (a) Judicial remedies. Whenever a Federal savings association fails 
to comply with an order issued under section 39 of the FDI Act, 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) Administrative remedies. Pursuant to section 8(i)(2)(A) of the 
FDI Act, the OCC may assess a civil money penalty against any Federal 
savings association that violates or otherwise fails to comply with any 
final order issued under section 39 and against any savings association-
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 of the FDI Act or this part through any 
other judicial or administrative proceeding authorized by law.



    Sec. Appendix A to Part 170--Interagency Guidelines Establishing 

                   Standards for Safety and Soundness

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.

[[Page 826]]

    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), Public Law 102-242, 105 
Stat. 2236 (1991), and amended by section 956 of the Housing and 
Community Development Act of 1992, Public Law 102-550, 106 Stat. 3895 
(1992) and section 318 of the Riegle Community Development and 
Regulatory Improvement Act of 1994, Public Law 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 national banks and part 170 for 
Federal savings associations; for the Board of Governors of the Federal 
Reserve System, these regulations appear at 12 CFR part 263; and for the 
Federal Deposit Insurance Corporation, these regulations appear at 12 
CFR part 308 subpart R for state nonmember banks and part 390, subpart B 
for state savings associations.
---------------------------------------------------------------------------

    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 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 Fund.

                  A. Preservation of Existing Authority

    Neither section 39 nor these Guidelines in any way limits the 
authority

[[Page 827]]

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 Federal savings associations, 
pursuant to 12 U.S.C. 1464, Federal savings associations shall use the 
terms ``Federal savings association'' and ``insured Federal 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;

[[Page 828]]

    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 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 asset quality 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.

[[Page 829]]

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.



    Sec. Appendix B to Part 170--Interagency Guidelines Establishing 

                     Information Security Standards

                            Table of Contents

I. Introduction
    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(a) of 
the Federal Deposit Insurance Act (12 U.S.C. 1831p-1), and sections 501 
and 505(b) of the Gramm-Leach-Bliley Act (15 U.S.C. 6801 and 6805(b)). 
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. For purposes 
of this appendix, these entities are Federal savings associations whose 
deposits are FDIC-insured and any subsidiaries of such savings 
associations, except brokers, dealers, persons providing insurance, 
investment companies, and investment advisers. This appendix refers to 
such entities as ``you'. These 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 OCC's authority 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

[[Page 830]]

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. 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 you or on your behalf 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 Federal savings association obtains;
    (B) Information from a consumer report that you obtain from your 
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 you obtain 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 you obtain about an 
individual who guarantees a loan (including a loan to a business 
entity); or
    (E) Information from a consumer report that you obtain 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.
    b. Consumer report has the same meaning as set forth in the Fair 
Credit Reporting Act, 15 U.S.C. 1681a(d).
    c. Customer means any of your customers as defined in Sec. 573.3(h) 
or any superseding regulation issued by the Consumer Financial 
Protection Bureau.
    d. Customer information means any record containing nonpublic 
personal information, as defined in Sec. 573.3(n) or any superseding 
regulation issued by the Consumer Financial Protection Bureau, about a 
customer, whether in paper, electronic, or other form, that you maintain 
or that is maintained on your behalf.
    e. Customer information systems means any methods used to access, 
collect, store, use, transmit, protect, or dispose of customer 
information.
    f. 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 you.

                 II. Standards for Information Security

    A. Information Security Program. You shall implement a comprehensive 
written information security program that includes administrative, 
technical, and physical safeguards appropriate to your size and 
complexity and the nature and scope of your activities. While all parts 
of your organization are not required to implement a uniform set of 
policies, all elements of your information security program must be 
coordinated.
    B. Objectives. Your 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. Your board of directors or an 
appropriate committee of the board shall:
    1. Approve your written information security program; and
    2. Oversee the development, implementation, and maintenance of your 
information security program, including assigning specific 
responsibility for

[[Page 831]]

its implementation and reviewing reports from management.
    B. Assess Risk. You 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. You shall:
    1. Design your information security program to control the 
identified risks, commensurate with the sensitivity of the information 
as well as the complexity and scope of your activities. You must 
consider whether the following security measures are appropriate for you 
and, if so, adopt those measures you conclude 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 your 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 for you to take when you 
suspect or detect 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 your 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 your 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 your information 
security program, appropriate measures to properly dispose of customer 
information and consumer information in accordance with each of the 
requirements in this paragraph III.
    D. Oversee Service Provider Arrangements. You shall:
    1. Exercise appropriate due diligence in selecting your service 
providers;
    2. Require your service providers by contract to implement 
appropriate measures designed to meet the objectives of these 
Guidelines; and
    3. Where indicated by your risk assessment, monitor your service 
providers to confirm that they have satisfied their obligations as 
required by paragraph D.2. As part of this monitoring, you should review 
audits, summaries of test results, or other equivalent evaluations of 
your service providers.
    E. Adjust the Program. You shall monitor, evaluate, and adjust, as 
appropriate, the information security program in light of any relevant 
changes in technology, the sensitivity of your customer information, 
internal or external threats to information, and your own changing 
business arrangements, such as mergers and acquisitions, alliances and 
joint ventures, outsourcing

[[Page 832]]

arrangements, and changes to customer information systems.
    F. Report to the Board. You shall report to your board or an 
appropriate committee of the board at least annually. This report should 
describe the overall status of the information security program and your 
compliance with these Guidelines. The reports should discuss material 
matters related to your 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. You 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 you have entered into with a service 
provider to perform services for you or functions on your behalf 
satisfies the provisions of paragraph 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 you entered into the 
contract on or before March 5, 2001.
    3. Effective date for measures relating to the disposal of consumer 
information. You 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., your contracts with 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 170--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.
---------------------------------------------------------------------------

    \1\ This Guidance was originally jointly issued by the Board of 
Governors of the Federal Reserve System (Board), the Federal Deposit 
Insurance Corporation (FDIC), and the Office of the Comptroller of the 
Currency (OCC), and the Office of Thrift Supervision (OTS).
    \2\ 12 CFR part 30, app. B and 12 CFR part 170, app. B (OCC); 12 CFR 
part 208, app. D-2 and part 225, app. F (Board); and 12 CFR part 364, 
app. B (FDIC). The ``Interagency Guidelines Establishing Information 
Security Standards'' were formerly known as ``The Interagency Guidelines 
Establishing Standards for Safeguarding Customer Information.''
---------------------------------------------------------------------------

                   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:

[[Page 833]]

    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
    c. The sufficiency of policies, procedures, customer information 
systems, and other arrangements in place to control risks.\3\
---------------------------------------------------------------------------

    \3\ See Security Guidelines, III.B.
---------------------------------------------------------------------------

    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:
---------------------------------------------------------------------------

    \4\ See Security Guidelines, III.C.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \5\ See Security Guidelines, III.C.
---------------------------------------------------------------------------

                          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\
---------------------------------------------------------------------------

    \6\ See Security Guidelines, III.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.
---------------------------------------------------------------------------

                          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

[[Page 834]]

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.
---------------------------------------------------------------------------

    \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.
    \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.
---------------------------------------------------------------------------

    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 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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

                   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;
---------------------------------------------------------------------------

    \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 163.180 (Federal 
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.
---------------------------------------------------------------------------

    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

[[Page 835]]

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.

                    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.

[[Page 836]]

                      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:
---------------------------------------------------------------------------

    \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\
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

    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.



PART 171_FAIR CREDIT REPORTING--Table of Contents



Subparts A-H [Reserved]

Subpart I_Duties of Users of Consumer Reports Regarding Records Disposal

Sec.
171.80-170.82 [Reserved]
171.83 Disposal of consumer information.

                   Subpart J_Identity Theft Red Flags

171.90 Duties regarding the detection, prevention, and mitigation of 
          identity theft.
171.91 Duties of card issuers regarding changes of address.
171.92 Examples.

Appendixes A-I to Part 171 [Reserved]
Appendix J to Part 171--Interagency Guidelines on Identity Theft 
          Detection, Prevention, and Mitigation

    Authority: 12 U.S.C. 1462a, 1463, 1464, 1467a, 1828, 1831p-1, 1881-
1884, and 5412(b)(2)(B); 15 U.S.C. 1681b, 1681m, 1681s, 1681s-2, 1681s-
3, 1681t, and 1681w; 15 U.S.C. 6801 and 6805; Section 214 Pub. L. 108-
159, 117 Stat. 1952.

    Source: 76 FR 49137, Aug. 9, 2011, unless otherwise noted.

[[Page 837]]



                         Subparts A-H [Reserved]





Subpart I_Duties of Users of Consumer Reports Regarding Records Disposal



Sec. Sec. 171.80-170.82  [Reserved]



Sec. 171.83  Disposal of consumer information.

    (a) Scope. This section applies to Federal savings associations 
whose deposits are insured by the Federal Deposit Insurance Corporation 
and Federal savings association operating subsidiaries in accordance 
with Sec. 159.3(h)(1) of this chapter (defined as ``you'').
    (b) In general. You must properly dispose of any consumer 
information that you maintain or otherwise possess in accordance with 
the Interagency Guidelines Establishing Information Security Standards, 
as set forth in appendix B to part 170, to the extent that you are 
covered by the scope of the Guidelines.
    (c) Rule of construction. Nothing in this section shall be construed 
to:
    (1) Require you 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



Sec. 171.90  Duties regarding the detection, prevention, and mitigation of 

identity theft.

    (a) Scope. This section applies to a financial institution or 
creditor that is a Federal savings association whose deposits are 
insured by the Federal Deposit Insurance Corporation or, in accordance 
with Sec. 159.3(h)(1) of this chapter, a Federal savings association 
operating subsidiary that 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)).
    (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.

[[Page 838]]

    (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.
    (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. 171.91  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 Federal savings association whose deposits 
are insured by the Federal Deposit Insurance Corporation or, in 
accordance with Sec. 159.3(h)(1) of this chapter, a Federal savings 
association operating subsidiary that 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)).
    (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

[[Page 839]]

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 card issuer has 
established pursuant to Sec. 171.90 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. 171.92  Examples.

    The examples in Appendix J and Supplement A to Appendix J are not 
exclusive. Compliance with an example, to the extent applicable, 
constitutes compliance with this subpart. Examples in a paragraph 
illustrate only the issue described in the paragraph and do not 
illustrate any other issue that may arise in this subpart.



               Sec. Appendixes A-I to Part 171 [Reserved]



 Sec. Appendix J to Part 171--Interagency Guidelines on Identity Theft 

                  Detection, Prevention, and Mitigation

    Section 171.90 of this part requires each financial institution and 
creditor that offers or maintains one or more covered accounts, as 
defined in Sec. 171.90(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. 171.90 
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;

[[Page 840]]

    (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 1020.220); 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:
    (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. 171.90 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. 171.90 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

[[Page 841]]

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.
    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. 171.82(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

[[Page 842]]

    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 address or telephone number submitted by an unusually 
large number of other persons opening accounts or by 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. 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;
    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.



PART 172_LOANS IN AREAS HAVING SPECIAL FLOOD HAZARDS--Table of Contents



Sec.
172.1 Authority, purpose, and scope.
172.2 Definitions.
172.3 Requirement to purchase flood insurance where available.
172.4 Exemptions.
172.5 Escrow requirement.
172.6 Required use of standard flood hazard determination form.
172.7 Forced placement of flood insurance.
172.8 Determination fees.
172.9 Notice of special flood hazards and availability of Federal 
          disaster relief assistance.
172.10 Notice of servicer's identity.

Appendix A to Part 172--Sample Form of Notice of Special Flood Hazards 
          and Availability of Federal Disaster Relief Assistance

    Authority: 12 U.S.C. 1462a, 1463, 1464; 42 U.S.C. 4012a, 4104a, 
4104b, 4106, 4128, and 5412(b)(2)(B).

    Source: 76 FR 49140, Aug. 9, 2011, unless otherwise noted.



Sec. 172.1  Authority, purpose, and scope.

    (a) Authority. This part is issued pursuant to 12 U.S.C. 1462, 
1462a, 1463, 1464 and 42 U.S.C. 4012a, 4104a, 4104b, 4106, 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. 172.6 and 172.8, applies 
to loans secured by

[[Page 843]]

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 172.6 and 172.8 of this part apply to 
loans secured by buildings or mobile homes, regardless of location.



Sec. 172.2  Definitions.

    (a) Act means the National Flood Insurance Act of 1968, as amended 
(42 U.S.C. 4001-4129).
    (b) Federal savings association means, for purposes of this part, a 
Federal savings association as that term is defined in 12 U.S.C. 
1813(b)(2) and any subsidiaries or service corporations thereof.
    (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. 172.3  Requirement to purchase flood insurance where available.

    (a) In general. A Federal savings association 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 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 Federal savings association 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. 172.4  Exemptions.

    The flood insurance requirement prescribed by Sec. 172.3 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

[[Page 844]]

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. 172.5  Escrow requirement.

    If a Federal savings association 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 savings 
association shall also require the escrow of all premiums and fees for 
any flood insurance required under Sec. 172.3. The savings association, 
or a servicer acting on behalf of the savings association, 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 savings association, or a servicer acting on behalf of the 
savings association, shall pay the amount owed to the insurance provider 
from the escrow account by the date when such premiums are due.



Sec. 172.6  Required use of standard flood hazard determination form.

    (a) Use of form. A Federal savings association 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 Federal savings association may 
obtain the standard flood hazard determination form from FEMA, P.O. Box 
2012, Jessup, MD 20794-2012.
    (b) Retention of form. A Federal savings association 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 savings 
association owns the loan.



Sec. 172.7  Forced placement of flood insurance.

    If a Federal savings association, or a servicer acting on behalf of 
the savings association, 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. 172.3, then the savings association 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. 172.3, for the remaining term of the loan. 
If the borrower fails to obtain flood insurance within 45 days after 
notification, then the savings association or its servicer shall 
purchase insurance on the borrower's behalf. The savings association or 
its servicer may charge the borrower for the cost of premiums and fees 
incurred in purchasing the insurance.



Sec. 172.8  Determination fees.

    (a) General. Notwithstanding any Federal or state law other than the 
Flood Disaster Protection Act of 1973, as amended (42 U.S.C. 4001-4129), 
any Federal savings association, or a servicer acting on behalf of the 
savings association, 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

[[Page 845]]

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 
lender or its servicer on behalf of the borrower under Sec. 172.7.
    (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. 172.9  Notice of special flood hazards and availability of Federal 

disaster relief assistance.

    (a) Notice requirement. When a Federal savings association 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 
savings association 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 Federal savings association 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 savings association 
provides notice to the borrower and in any event no later than the 
savings association 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 Federal savings association shall retain 
a record of the receipt of the notices by the borrower and the servicer 
for the period of time the savings association owns the loan.
    (e) Alternate method of notice. Instead of providing the notice to 
the borrower required by paragraph (a) of this section, a Federal 
savings association 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 savings association shall retain 
a record of the written assurance from the seller or lessor for the 
period of time the savings association owns the loan.
    (f) Use of prescribed form of notice. A Federal savings association 
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 in appendix A to this part satisfies the borrower 
notice requirements of the Act.



Sec. 172.10  Notice of servicer's identity.

    (a) Notice requirement. When a Federal savings association makes, 
increases, extends, renews, sells, or transfers a loan secured by a 
building or mobile

[[Page 846]]

home located or to be located in a special flood hazard area, the 
savings association 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 
savings association'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 Federal savings association 
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 172--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.



PART 174_ACQUISITION OF CONTROL OF FEDERAL SAVINGS ASSOCIATIONS--Table of 

Contents



Sec.
174.1 Scope of part.
174.2 Definitions.
174.3 Acquisition of control of Federal savings associations.
174.4 Control.
174.5 Certifications of ownership.
174.6 Procedural requirements.
174.7 Determination by the OCC.
174.8 [Reserved]

Appendix A to Part 174--Rebuttal of control agreement.

    Authority: 12 U.S.C. 1817(j).

    Source: 76 FR 49142, Aug. 9, 2011, unless otherwise noted.

[[Page 847]]



Sec. 174.1  Scope of part.

    The purpose of this part is to implement the provisions of the 
Change in Bank Control Act, 12 U.S.C. 1817(j) (``Control Act'') relating 
to acquisitions and changes in control of Federal savings associations 
that are organized in stock form.



Sec. 174.2  Definitions.

    As used in this part and in the forms under this part, the following 
definitions apply, unless the context otherwise requires:
    (a) Acquire when used in connection with the acquisition of stock of 
a savings association means obtaining ownership, control, power to vote, 
or sole power of disposition of stock, directly or indirectly or through 
one or more transactions or subsidiaries, through purchase, assignment, 
transfer, exchange, succession, or other means, including:
    (1) An increase in percentage ownership resulting from a redemption, 
repurchase, reverse stock split or a similar transaction involving other 
securities of the same class, and
    (2) The acquisition of stock by a group of persons and/or companies 
acting in concert which shall be deemed to occur upon formation of such 
group: Provided, That an investment advisor shall not be deemed to 
acquire the voting stock of its advisee if the advisor:
    (i) Votes the stock only upon instruction from the beneficial owner, 
and
    (ii) Does not provide the beneficial owner with advice concerning 
the voting of such stock.
    (b) Acquiror means a person or company.
    (c) Acting in concert means:
    (1) Knowing participation in a joint activity or interdependent 
conscious parallel action towards a common goal whether or not pursuant 
to an express agreement, or
    (2) 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.
    (3) A person or company which acts in concert with another person or 
company (``other party'') shall also be deemed to be acting in concert 
with any person or company who is also acting in concert with that other 
party, except that any tax-qualified employee stock benefit plan as 
defined in Sec. 192.25 of this chapter will not be deemed to be acting 
in concert with its trustee or a person who serves in a similar capacity 
solely for the purpose of determining whether stock held by the trustee 
and stock held by the plan will be aggregated.
    (d) Affiliate means any person or company which controls, is 
controlled by or is under common control with a person, savings 
association or company.
    (e) [Reserved]
    (f) Company means any corporation, partnership, trust, association, 
joint venture, pool, syndicate, unincorporated organization, joint-stock 
company or similar organization, as defined in paragraph (r) of this 
section; but a company does not include:
    (1) The Federal Deposit Insurance Corporation, the Resolution Trust 
Corporation, the Office of the Comptroller of the Currency (OCC), or any 
Federal Home Loan Bank;
    (2) Any company the majority of shares of which is owned by:
    (i) The United States or any state;
    (ii) An officer of the United States or any state in his or her 
official capacity; or
    (iii) An instrumentality of the United States or any state; or
    (3) A savings and loan holding company registered under section 
10(b) of the Home Owners' Loan Act (Holding Company Act).
    (g) Controlling shareholder means any person who directly or 
indirectly or acting in concert with one or more persons or companies, 
or together with members of his or her immediate family, owns, controls, 
or holds with power to vote 10 percent or more of the voting stock of a 
company or controls in any manner the election or appointment of a 
majority of the company's board of directors.
    (h) Comptroller means the Comptroller of the Currency.
    (i) [Reserved]
    (j) Immediate family means a person's spouse, father, mother, 
children, brothers, sisters and grandchildren; the father, mother, 
brothers, and sisters of

[[Page 848]]

the person's spouse; and the spouse of the person's child, brother or 
sister.
    (k) Management official means any president, chief executive 
officer, chief operating officer, vice president, director, partner, or 
trustee, or any other person who performs or has a representative or 
nominee performing similar policymaking functions, including executive 
officers of principal business units or divisions or subsidiaries who 
perform policymaking functions, for a savings association or a company, 
whether or not incorporated.
    (l) [Reserved]
    (m) Person means an individual or a group of individuals acting in 
concert who do not constitute a ``company'' as defined in paragraph (f) 
of this section.
    (n) Repealed Control Act means the Change in Savings and Loan 
Control Act, 12 U.S.C. 1730(q), as in effect immediately prior to its 
repeal by the Financial Institutions Reform, Recovery, and Enforcement 
Act of 1989.
    (o) [Reserved]
    (p) Savings Association means a Federal savings and loan association 
or a Federal savings bank chartered under section 5 of the Home Owners' 
Loan Act (HOLA), a building and loan, savings and loan or homestead 
association or a cooperative bank (other than a cooperative bank 
described in 12 U.S.C. 1813(a)(2)) the deposits of which are insured by 
the Federal Deposit Insurance Corporation, and any corporation (other 
than a bank) the deposits of which are insured by the Federal Deposit 
Insurance Corporation that the OCC and the Federal Deposit Insurance 
Corporation jointly determine to be operating in substantially the same 
manner as a savings association.
    (q) [Reserved]
    (r) Similar organization for purposes of paragraph (f) of this 
section means a combination of parties with the potential for or 
practical likelihood of continuing rather than temporary existence, 
where the parties thereto have knowingly and voluntarily associated for 
a common purpose pursuant to identifiable and binding relationships 
which govern the parties with respect to either:
    (1) The transferability and voting of any stock or other indicia of 
participation in another entity, or
    (2) Achievement of a common or shared objective, such as to 
collectively manage or control another entity.
    (s) Stock means common or preferred stock, general or limited 
partnership shares or interests, or similar interests.
    (t) Uninsured institution means any financial institution the 
deposits of which are not insured by the Federal Deposit Insurance 
Corporation.
    (u)(1) Voting stock means common or preferred stock, general or 
limited partnership shares or interests, or similar interests if the 
shares or interests, by statute, charter or in any manner, entitle the 
holder:
    (i) To vote for or to select directors, trustees, or partners (or 
persons exercising similar functions of the issuing savings association 
or company); or
    (ii) To vote or to direct the conduct of the operations or other 
significant policies of the issuer:
    (2) Notwithstanding anything in paragraph (u)(1) of this section, 
preferred stock, limited partnership shares or interests, or similar 
interests are not ``voting stock'' if:
    (i) Voting rights associated with the stock, shares or interests are 
limited solely to the type customarily provided by statute with regard 
to matters that would significantly and adversely affect the rights or 
preference of the stock, security or other interest, such as the 
issuance of additional amounts or classes of senior securities, the 
modification of the terms of the stock, security or interest, the 
dissolution of the issuer, or the payment of dividends by the issuer 
when preferred dividends are in arrears;
    (ii) The stock, shares or interests represent an essentially passive 
investment or financing device and do not otherwise provide the holder 
with control over the issuer; and
    (iii) The stock, shares or interests do not at the time entitle the 
holder, by statute, charter, or otherwise, to select or to vote for the 
selection of directors, trustees, or partners (or persons exercising 
similar functions) of the issuer;
    (3) Notwithstanding anything in paragraphs (u)(1) and (u)(2) of this 
section, ``voting stock'' shall be deemed to include stock and other 
securities that,

[[Page 849]]

upon transfer or otherwise, are convertible into voting stock or 
exercisable to acquire voting stock where the holder of the stock, 
convertible security or right to acquire voting stock has the 
preponderant economic risk in the underlying voting stock. Securities 
immediately convertible into voting stock at the option of the holder 
without payment of additional consideration shall be deemed to 
constitute the voting stock into which they are convertible; other 
convertible securities and rights to acquire voting stock shall not be 
deemed to vest the holder with the preponderant economic risk in the 
underlying voting stock if the holder has paid less than 50 percent of 
the consideration required to directly acquire the voting stock and has 
no other economic interest in the underlying voting stock. For purposes 
of calculating the percentage of voting stock held by a particular 
acquiror, stock or other securities convertible into voting stock or 
exercisable to acquire voting stock which are deemed voting stock under 
this paragraph (u)(3) shall be included in calculating the amount of 
voting stock held by the acquiror and the total amount of stock 
outstanding only to the extent of the voting stock obtainable by such 
acquiror by such conversion or exercise of rights.



Sec. 174.3  Acquisition of control of Federal savings associations.

    (a) [Reserved]
    (b) Acquisition by a person or company. Unless a transaction is 
exempt from prior notice under paragraph (d) of this section, no person 
or company (other than certain persons affiliated with a savings and 
loan holding company who are subject to 10(e)(4) of the HOLA), shall 
acquire control, as defined in Sec. 174.4 (a) and (b) of this part, of 
a Federal savings association until written notice has been provided to 
the appropriate OCC licensing office and the OCC indicates in writing 
its intent not to disapprove the proposed acquisition or 60 days (or 
such period of time as the OCC may specify if the review period has been 
extended under Sec. 174.6(c)(3) of this part) have passed since receipt 
of a notice deemed sufficient under Sec. 174.6(c)(2). Notwithstanding 
the forgoing, acquisitions by persons or companies by means of a merger 
with an interim association are not subject to this part, but shall be 
subject to approval under Sec. 163.22, and either Sec. 152.13 or 
applicable state law.
    (c) Exempt Transactions.
    (1) [Reserved]
    (2) The following transactions are exempt from the notice 
requirements of paragraph (b) of this section:
    (i)(A) Control of a Federal savings association acquired by a bank 
holding company that is registered under and subject to, the Bank 
Holding Company Act of 1956, or any company controlled by such bank 
holding company;
    (B) Control of a Federal savings association acquired solely as a 
result of a pledge or hypothecation of stock to secure a loan contracted 
for in good faith or the liquidation of a loan contracted for in good 
faith, in either case where such loan was made in the ordinary course of 
the business of the lender: Provided, further, That acquisition of 
control pursuant to such pledge, hypothecation or liquidation is 
reported to the OCC within 30 days, and Provided, further, That the 
acquiror shall not retain such control for more than one year from the 
date on which such control was acquired; however, the OCC may, upon 
application by an acquiror, extend such one-year period from year to 
year, for an additional period of time not exceeding three years, if the 
OCC finds such extension is warranted and would not be detrimental to 
the public interest;
    (C) Control of a Federal savings association acquired through a 
percentage increase in stock ownership following a pro rata stock 
dividend or stock split, if the proportional interests of the recipients 
remain substantially the same;
    (D) Acquisition of additional stock after a non-disapproval under 
Sec. 174.7 of this part, or any predecessor provision, has been 
received: Provided, That such acquisition is consistent with any 
conditions imposed in connection with such non-disapproval and with the 
representations made by the acquiror in its notice; and
    (E) Acquisitions of less than 25 percent (25%) of a class of stock 
by a tax-qualified employee stock benefit plan as defined in Sec. 
192.25.

[[Page 850]]

    (ii) Transactions for which approval is required under the HOLA;
    (iii) Transactions for which approval is required under part 146 or 
Sec. 152.13 and Sec. 163.22 of this chapter;
    (iv) Transactions for which a change of control notice must be 
submitted to the Board of Governors of the Federal Reserve System 
pursuant to the Change in Bank Control Act, 12 U.S.C. 1817(j);
    (v) Acquisition of additional stock of a Federal savings association 
by any person who:
    (A) Has held power to vote 25 percent or more of any class of voting 
stock in such association continuously since March 9, 1979; or
    (B) Has maintained control of the savings association continuously 
since acquiring control in compliance with the Control Act (or the 
Repealed Control Act) and the OCC's regulations thereunder then in 
effect: Provided, That such acquisition is consistent with any 
conditions imposed in connection with such acquisition of control and 
with the representations made by the acquiror in its notice; and
    (vi) Acquisitions of stock of a de novo Federal savings association 
in connection with the organization of such association: Provided, That 
the OCC has considered the financial and managerial resources of the 
acquiror in granting the association its Federal savings association 
charter; and additional acquisitions of stock of such association, and 
further provided, that the acquisitions are consistent with any 
conditions imposed in connection with the approval of the association's 
charter and with representations made by the acquiror in its application 
for a Federal savings association charter, and that the OCC has no 
supervisory objection to the acquiror's additional acquisitions.
    (3) An acquiror that would be considered to be in control of a 
Federal savings association pursuant to Sec. 174.4 of this part on 
December 26, 1985, shall not be subject to this Sec. 174.3 unless the 
acquiror acquires additional stock of the savings association or obtains 
a control factor with respect to such association after December 26, 
1985: Provided, That an acquiror shall not be deemed to have acquired 
control of a savings association on the basis of actions taken prior to 
December 26, 1985, or on the basis of actions taken after December 26, 
1985, if such actions are pursuant to and consistent with a materially 
complete application under the Holding Company Act or notice under the 
Repealed Control Act filed prior to December 26, 1985, if such 
acquisition is made pursuant to an application approved under the 
Holding Company Act or a notice under the Repealed Control Act that was 
not disapproved.
    (d) Transactions exempt from prior notice. (1) Subject to the 
conditions set forth in paragraph (d)(2) of this section, the following 
transactions are exempt from prior approval and prior notice under Sec. 
174.3: Provided, That the timing of the transaction was not within the 
control of the acquiror.
    (i) Control of a savings association acquired through bona fide 
gift;
    (ii) Control of a savings association acquired through liquidation 
of a loan contracted in good faith where the loan was not made in the 
ordinary course of business of the lender;
    (iii) Control of a savings association acquired through a percentage 
increase in ownership following a stock split or redemption that was not 
pro rata;
    (iv) Control determined pursuant to Sec. 174.4 (a) or (b) as a 
result of actions by third parties that are not within the control of 
the acquiror;
    (v) Control of a savings association acquired through testate or 
intestate succession: Provided, That the acquiror transmits written 
notification of the acquisition to the OCC within 60 days of the 
acquisition and provides such additional information as the OCC may 
specifically request.
    (2) The exemptions provided by paragraphs (d)(1)(i) through 
(d)(1)(iv) of this section are subject to the following conditions:
    (i) The acquiror shall file a notice or rebuttal, as appropriate, 
with the OCC within 90 days of acquisition of control;
    (ii) The acquiror shall not take any action to direct the management 
or policies of the savings association or which are designed to effect a 
change in the business plan of the savings association other than voting 
on matters that may be presented to stockholders

[[Page 851]]

by management of the savings association until the OCC has acted 
favorably upon the acquiror's notice or rebuttal, and the OCC may 
require that the acquiror take such steps as the OCC deems necessary to 
insure that control is not exercised; and
    (iii) If the OCC disapproves the acquiror's notice or rebuttal, the 
acquiror shall divest such portion of the stock held by the acquiror so 
as to cause the acquiror not to be determined to be in control of the 
savings association under Sec. 174.4 of this part, within one year or 
such shorter period of time and in the manner that the OCC may order.



Sec. 174.4  Control.

    (a) Conclusive control. (1) An acquiror shall be deemed to have 
acquired control of a Federal savings association if the acquiror 
directly or indirectly, through one or more subsidiaries or transactions 
or acting in concert with one or more persons or companies:
    (i) Acquires 25 percent or more of any class of voting stock of the 
savings association;
    (ii) Acquires irrevocable proxies representing 25 percent or more of 
any class of voting stock of the savings association; or
    (iii) Acquires any combination of voting stock and irrevocable 
proxies representing 25 percent or more of any class of voting stock of 
a savings association.
    (iv) [Reserved]
    (2) [Reserved]
    (3) [Reserved]
    (4) A person or company shall be deemed to control a savings 
association if the OCC determines that such person has the power to 
direct the management or policies of the savings association.
    (b) Rebuttable control determinations. (1) An acquiror shall be 
determined, subject to rebuttal, to have acquired control of a Federal 
savings association, if the acquiror directly or indirectly, or through 
one or more subsidiaries or transactions or acting in concert with one 
or more persons or companies:
    (i) Acquires more than 10 percent of any class of voting stock of 
the savings association and is subject to any control factor, as defined 
in paragraph (c) of this section;
    (ii) Acquires 25 percent or more of any class of stock of the 
savings association and is subject to any control factor, as defined in 
paragraph (c) of this section.
    (2) An acquiror shall be determined, subject to rebuttal, to have 
acquired control of a savings association, if the acquiror directly or 
indirectly, or through one or more subsidiaries or transactions or 
acting in concert with one or more persons or companies, holds any 
combination of voting stock and revocable proxies, representing 25 
percent or more of any class of voting stock of a savings association, 
excluding such proxies held in connection with a solicitation by, or in 
opposition to, a solicitation on behalf of management of the savings 
association, but including a solicitation in connection with an election 
of directors, and such proxies would enable the acquiror to:
    (i) Elect one-third or more of the savings association's board of 
directors, including nominees or representatives of the acquiror 
currently serving on such board;
    (ii) Cause the savings association's stockholders to approve the 
acquisition or corporate reorganization of the savings association; or
    (iii) Exert a continuing influence on a material aspect of the 
business operations of the savings association.
    (c) Control factors. For purposes of paragraph (b)(1) of this 
section, the following constitute control factors. References to the 
acquiror include actions taken directly or indirectly, or through one or 
more subsidiaries or transactions or acting in concert with one or more 
persons or companies:
    (1) The acquiror would be one of the two largest holders of any 
class of voting stock of the Federal savings association.
    (2) The acquiror would hold 25 percent or more of the total 
stockholders' equity of the Federal savings association.
    (3) The acquiror would hold more than 35 percent of the combined 
debt securities and stockholders' equity of the Federal savings 
association.
    (4) The acquiror is party to any agreement:

[[Page 852]]

    (i) Pursuant to which the acquiror possesses a material economic 
stake in the Federal savings association resulting from a profit-sharing 
arrangement, use of common names, facilities or personnel, or the 
provision of essential services to the savings association; or
    (ii) That enables the acquiror to influence a material aspect of the 
management or policies of the Federal savings association, other than 
agreements to which the savings association is a party where the 
restrictions are customary under the circumstances and in the case of an 
acquisition agreement, which apply only during the period when the 
acquiror is seeking the OCC's approval to acquire the savings 
association, the agreement prohibits transactions between the acquiror 
and the savings association and their respective affiliates without 
approval by the OCC during the pendency of the notice process, and the 
agreement contains no material forfeiture provisions applicable to the 
savings association in the event the acquisition is not approved or not 
approved by a specified date.
    (5) The acquiror would have the ability, other than through the 
holding of revocable proxies, to direct the votes of 25 percent or more 
of a class of the Federal savings association's voting stock or to vote 
25 percent or more of a class of the savings association's voting stock 
in the future upon the occurrence of a future event.
    (6) The acquiror would have the power to direct the disposition of 
25 percent or more of a class of the Federal savings association's 
voting stock in a manner other than a widely dispersed or public 
offering.
    (7) The acquiror and/or the acquiror's representatives or nominees 
would constitute more than one member of the Federal savings 
association's board of directors.
    (8) The acquiror or a nominee or management official of the acquiror 
would serve as the chairman of the board of directors, chairman of the 
executive committee, chief executive officer, chief operating officer, 
chief financial officer, or in any position with similar policymaking 
authority in the Federal savings association.
    (d) Rebuttable presumptions of concerted action. An acquiror will be 
presumed to be acting in concert with the following persons and 
companies:
    (1) A company will be presumed to be acting in concert with a 
controlling shareholder, partner, trustee or management official of such 
company with respect to the acquisition of stock of a Federal savings 
association, if
    (i) Both the company and the person own stock in the savings 
association,
    (ii) The company provides credit to the person to purchase the 
savings association's stock, or
    (iii) The company pledges its assets or otherwise is instrumental in 
obtaining financing for the person to acquire stock of the savings 
association;
    (2) A person will be presumed to be acting in concert with members 
of the person's immediate family;
    (3) Persons will be presumed to be acting in concert with each other 
where
    (i) Both own stock in the savings association and both are also 
management officials, controlling shareholders, partners, or trustees of 
another company, or
    (ii) One person provides credit to another person or is instrumental 
in obtaining financing for another person to purchase stock of the 
savings association;
    (4) A company controlling or controlled by another company and 
companies under common control will be presumed to be acting in concert;
    (5) Persons or companies will be presumed to be acting in concert 
where they constitute a group under the beneficial ownership reporting 
rules under section 13 or the proxy rules under section 14 of the 
Securities Exchange Act of 1934, promulgated by the Securities and 
Exchange Commission.
    (6) A person or company will be presumed to be acting in concert 
with any trust for which such person or company serves as trustee, 
except that a tax-qualified employee stock benefit plan as defined in 
Sec. 192.2(a)(39) shall not be presumed to be acting in concert with 
its trustee or person acting in a similar fiduciary capacity solely for 
the purposes of determining whether to combine the holdings of a plan 
and its trustee or fiduciary.

[[Page 853]]

    (7) Persons or companies will be presumed to be acting in concert 
with each other and with any other person or company with which they 
also are presumed to act in concert.
    (e) Procedures for rebuttal--(1) Rebuttal of control determination. 
An acquiror attempting to rebut a determination of control that would 
arise under paragraph (b) of this section shall file a submission with 
the appropriate OCC licensing office setting forth the facts and 
circumstances which support the acquiror's contention that no control 
relationship would exist if the acquiror acquires stock or obtains a 
control factor with respect to a Federal savings association. The 
rebuttal must be filed and accepted in accordance with this section 
before the acquiror acquires such stock or control factor.
    (i) An acquiror seeking to rebut the determination of control 
arising under paragraph (b)(1) of this section shall submit to the 
appropriate OCC licensing office an executed agreement materially 
conforming to the agreement set forth at Appendix A to this part. Unless 
agreed to by the OCC in writing, no other agreement or filing shall be 
deemed to rebut the determination of control arising under paragraph 
(b)(1) of this section. If accepted by the OCC, the acquiror shall 
furnish a copy of the executed agreement to the association to which the 
rebuttal pertains.
    (ii) An acquiror seeking to rebut the determination of control with 
respect to holding of proxies arising under paragraph (b)(2) of this 
section shall be subject to the requirements of paragraph (e)(1) of this 
section, except that in the case of a rebuttal of the presumption of 
control arising under paragraph (b)(2) of this section, the OCC may 
require the acquiror to furnish information in response to a specific 
request for information and depending upon the particular facts and 
circumstances, to provide an executed rebuttal agreement materially 
conforming to the agreement set forth at Appendix A to this part, with 
any modifications deemed necessary by the OCC.
    (2) Presumptions of concerted action. An acquiror attempting to 
rebut the presumption of concerted action arising under paragraph (d) of 
this section shall file a submission with the appropriate OCC licensing 
office setting forth facts and circumstances which clearly and 
convincingly demonstrate the acquiror's contention that no action in 
concert exists. Such a statement must be accompanied by an affidavit, in 
form and content satisfactory to the OCC, executed by each person or 
company presumed to be acting in concert, stating that such person or 
company does not and shall not, without having made necessary filings 
and obtained approval or clearance thereof under the Holding Company Act 
or the Control Act, as applicable, have any agreements or 
understandings, written or tacit, with respect to the exercise of 
control, directly or indirectly, over the management or policies of the 
savings association, including agreements relating to voting, 
acquisition or disposition of the Federal savings association's stock. 
The affidavit shall also recite that the signatory is aware that the 
filing of a false affidavit may subject the person or company to 
criminal sanctions, would constitute a violation of the OCC's 
regulations at 12 CFR 163.180(b), and would be considered a 
``presumptive disqualifier'' under 12 CFR 174.7(g)(1)(v).
    (3) Determination. A rebuttal filed pursuant to paragraph (e) of 
this section shall not be deemed sufficient unless it includes all the 
information, agreements, and affidavits required by the OCC and this 
part, as well as any additional relevant information as the OCC may 
require by written request to the acquiror. Within 20 calendar days 
after proper filing of a rebuttal submission, the OCC will provide 
written notification of its determination to accept or reject the 
submission; request additional information in connection with the 
submission; or return the submission to the acquiror as materially 
deficient. Within 15 calendar days after proper filing of any additional 
information furnished in response to a specific request by the OCC, the 
OCC shall notify the acquiror in writing as to whether the rebuttal is 
thereby deemed to be sufficient. If the OCC fails to notify an acquiror 
within such time, the rebuttal shall be deemed to be accepted. The OCC 
may reject any rebuttal which is inconsistent with facts and

[[Page 854]]

circumstances known to it or where the rebuttal does not clearly and 
convincingly refute the rebuttable determination of control or 
presumption of action in concert, and may determine to reject a 
submission solely on such bases.
    (f) Safe harbor. Notwithstanding any other provision of this 
section, where an acquiror has no intention to participate in or to seek 
to exercise control over a Federal savings association's management or 
policies, the acquiror may seek to qualify for a safe harbor with 
respect to its ownership of stock of the savings association.
    (1) In order to qualify for the safe harbor, an acquiror must submit 
a certification to the appropriate OCC licensing office that shall be 
signed by the acquiror or an authorized representative thereof and shall 
read as follows:
    The undersigned makes this submission pursuant to Sec. 174.4(f) of 
the regulations of the Office of the Comptroller of the Currency 
(``OCC'') with respect to [name of savings association] and hereby 
certifies to the OCC the following:
    The undersigned is not in control of [name of savings association] 
under Sec. 174.4(a);
    The undersigned is not subject to any control factor as enumerated 
in Sec. 174.4(c) with respect to the [name of savings association];
    The undersigned will not solicit proxies relating to the voting 
stock of [name of savings association];
    Before any change in status occurs that would bring the undersigned 
within the scope of Sec. 174.4(a) or (b), the undersigned will file and 
obtain approval of a rebuttal or non-disapproval of a notice or holding 
company application, as appropriate.
    The undersigned has not acquired stock of [name of savings 
association] for the purpose or effect of changing or influencing the 
control of [name of savings association] or in connection with or as a 
participant in any transaction having such purpose or effect.
    (2) An acquiror claiming safe-harbor status may vote freely and 
dissent with respect to its own stock. Certifications provided for in 
this paragraph must be filed with the appropriate OCC licensing office 
in accordance with Sec. Sec. 116.30 and 116.40 of this chapter.



Sec. 174.5  Certifications of ownership.

    (a) Acquisition of stock. (1) Upon the acquisition of beneficial 
ownership that exceeds, in the aggregate, 10 percent of any class of 
stock of a Federal savings association or additional stock above 10 
percent of the stock of a savings association occurring after December 
26, 1985, an acquiror shall file with the OCC a certification as 
described in this section.
    (2) The certification filed pursuant to this section shall be signed 
by the acquiror or an authorized representative thereof and shall read 
as follows:
    The undersigned is the beneficial owner of 10 percent or more of a 
class of stock of [name of savings association]. The undersigned is not 
in control of such association, as defined in 12 CFR 174.4(a), and is 
not subject to a rebuttable determination of control under Sec. 
174.4(b), and will take no action that would result in a determination 
of control or a rebuttable determination of control without first filing 
and obtaining approval of an application under the Savings and Loan 
Holding Company Act, 12 U.S.C. 1467a, or notice under the Change in Bank 
Control Act, 12 U.S.C. 1817(j), or filing and obtaining acceptance by 
the Office of the Comptroller of the Currency of a rebuttal of the 
rebuttable determination of control.
    (3) Notwithstanding anything contained in this paragraph (a), an 
acquiror is not required to file a certification if:
    (i) The OCC has issued a notice of non-disapproval of the 
acquisition of the savings association; or
    (ii) The acquiror has filed a materially complete notice pursuant to 
Sec. 174.3 of this part.
    (b) Privacy. All certifications filed under this Sec. 174.5 shall 
be for the information of the OCC in connection with its examination 
functions and shall be provided confidential treatment by the OCC.



Sec. 174.6  Procedural requirements.

    (a) Form of notice. A notice required by Sec. 174.3 of this part 
shall be filed on the form indicated below. An acquiror

[[Page 855]]

may request confidential treatment of portions of a notice only by 
complying with the requirements of paragraph (f) of this section.
    (1)-(5) [Reserved]
    (6) Notice Form 1393, parts A and B. This form shall be used for all 
notices filed under Sec. 174.3(b) of this part regarding the 
acquisition of control of a Federal savings association by any person or 
persons not constituting a company.
    (b) Filing requirements--(1) Notices, and rebuttals. (i) Complete 
copies including exhibits and all other pertinent documents of notices 
and rebuttal submissions shall be filed with the appropriate OCC 
licensing office. Unsigned copies shall be conformed. Each copy shall 
include a summary of the proposed transaction.
    (ii) Any person or company may amend a notice or rebuttal 
submission, or file additional information, upon request of the OCC or, 
in the case of the party filing a notice or rebuttal, upon such party's 
own initiative.
    (2) [Reserved]
    (c) Sufficiency and waiver. (1) Except as provided in Sec. 
174.6(c)(5), a notice filed pursuant to Sec. 174.3(b) shall not be 
deemed sufficient unless it includes all of the information required by 
the form prescribed by the OCC and this part, including a complete 
description of the acquiror's proposed plan for acquisition of control 
whether pursuant to one or more transactions, and any additional 
relevant information as the OCC may require by written request to the 
acquiror. Unless a notice specifically indicates otherwise, the notice 
shall be considered to pertain to acquisition of 100 percent of a 
Federal savings association's voting stock. Where a notice pertains to a 
lesser amount of stock, the OCC may condition its non-disapproval to 
apply only to such amount, in which case additional acquisitions may be 
made only by amendment to the acquiror's notice and the OCC's non-
disapproval thereof. Failure by an acquiror to respond completely to a 
written request by the OCC for additional information within 30 calendar 
days of the date of such request may be deemed to constitute withdrawal 
of the notice or rebuttal filing or may be treated as grounds for an 
issuance of a notice of disapproval of a notice or rejection of a 
rebuttal.
    (2) The period for the OCC's review of any proposed acquisition will 
commence upon receipt by the OCC of a notice deemed sufficient under 
paragraph (c)(1) of this section. The OCC shall notify an acquiror in 
writing within 30 calendar days after proper filing of a notice as to 
whether the notice--
    (i) Is sufficient;
    (ii) Is insufficient, and what additional information is requested 
in order to render the notice sufficient; or
    (iii) Is materially deficient and will not be processed. The OCC 
shall also notify an acquiror in writing within 15 calendar days after 
proper filing of any additional information furnished in response to a 
specific request by the OCC as to whether the notice is thereby deemed 
to be sufficient. If the OCC fails to so notify an acquiror within such 
time, the notice shall be deemed to be sufficient as of the expiration 
of the applicable period.
    (3) After additional information has been requested and supplied, 
the OCC may request additional information only with respect to matters 
derived from or prompted by information already furnished, or 
information of a material nature that was not reasonably available from 
the acquiror, was concealed, or pertains to developments subsequent to 
the time of the OCC's initial request for additional information. With 
regard to information of a material nature that was not reasonably 
available from the acquiror or was concealed at the time a notice was 
deemed to be sufficient or which pertains to developments subsequent to 
the time a notice was deemed to be sufficient, the OCC, at its option, 
may request such additional information as it considers necessary, or 
may deem the notice not to be sufficient until such additional 
information is furnished and cause the review period to commence again 
in its entirety upon receipt of such additional information.
    (i) The 60-day period for the OCC's review of a notice deemed to be 
sufficient also may be extended by the OCC for up to an additional 30 
days.
    (ii) The period for the OCC's review of a notice may be further 
extended not

[[Page 856]]

to exceed two additional times for not more than 45 days each time if--
    (A) The OCC determines that any acquiring party has not furnished 
all the information required under this part;
    (B) In the OCC's judgment, any material information submitted is 
substantially inaccurate;
    (C) The OCC has been unable to complete an investigation of each 
acquiror because of any delay caused by, or the inadequate cooperation 
of, such acquiror; or
    (D) The OCC determines that additional time is needed to investigate 
and determine that no acquiring party has a record of failing to comply 
with the requirements of subchapter II of chapter 53 of title 31 of the 
United States Code.
    (4) [Reserved]
    (5) The OCC may waive any requirements of this paragraph (c) 
determined to be unnecessary by the OCC, upon its own initiative, upon 
the written request of an acquiring person, or in a supervisory case.
    (d) Public notice. (1) The acquiror must publish a public notice of 
a notice under Sec. 174.3(b) of this chapter, in accordance with the 
procedures in subpart B of part 116 of this chapter. Promptly after 
publication, the acquiror must transmit copies of the public notice and 
the publisher's affidavit to the OCC.
    (2) The acquiror must provide a copy of the public notice to the 
savings association whose stock is sought to be acquired, and may 
provide a copy of the public notice to any other person who may have an 
interest in the notice.
    (3) The OCC will notify the persons whose requests for 
announcements, as described in 12 CFR part 195, appendix B, have been 
received in time for the notification. The OCC may also notify any other 
persons who may have an interest in the notice.
    (e) Submission of comments. Commenters may submit comments on the 
notice in accordance with the procedures in subpart C of part 116 of 
this chapter.
    (f) Disclosure. (1) Any notice, other filings, public comment, or 
portion thereof, made pursuant to this part for which confidential 
treatment is not requested in accordance with this paragraph (f), shall 
be immediately available to the public and not subject to the procedures 
set forth herein. Public disclosure shall be made of other portions of a 
notice, other filing or public comment in accordance with paragraph 
(f)(2) of this section, the provisions of the Freedom of Information Act 
(5 U.S.C. 552a) and part 4 of this chapter. Submitters should provide 
confidential and non-confidential versions of their filings, as 
described in Sec. 174.6(f)(2) and (3) in order to facilitate this 
process.
    (2) Any person who submits any information or causes or permits any 
information to be submitted to the OCC pursuant to this part may request 
that the OCC afford confidential treatment under the Freedom of 
Information Act to such information for reasons of personal privacy or 
business confidentiality, which shall include such information that 
would be deemed to result in the commencement of a tender offer under 
Sec. 240.14d-2 of title 17 of the Code of Federal Regulations, or for 
any other reason permitted by Federal law. Such request for 
confidentiality must be made and justified in accordance with paragraph 
(f)(5) of this section at the time of filing, and must, to the extent 
practicable, identify with specificity the information for which 
confidential treatment may be available and not merely indicate portions 
of documents or entire documents in which such information is contained. 
Failure to specifically identify information for which confidential 
treatment is requested, failure to specifically justify the bases upon 
which confidentiality is claimed in accordance with paragraph (f)(5) of 
this section, or overbroad and indiscriminate claims for confidential 
treatment, may be bases for denial of the request. In addition, the 
filing party should take all steps reasonably necessary to ensure, as 
nearly as practicable, that at the time the information is first 
received by the OCC it is supplied segregated from information for which 
confidential treatment is not being requested, it is appropriately 
marked as confidential, and it is accompanied by a written request for 
confidential treatment which identifies with specificity the information 
as to which confidential

[[Page 857]]

treatment is requested. Any such request must be substantiated in 
accordance with paragraph (f)(5) of this section.
    (3) All documents which contain information for which a request for 
confidential treatment is made or the appropriate segregable portions 
thereof shall be marked by the person submitting the records with a 
prominent stamp, typed legend, or other suitable form of notice on each 
page or segregable portion of each page, stating ``Confidential 
Treatment Requested by [name].'' If such marking is impracticable under 
the circumstances, a cover sheet prominently marked ``Confidential 
Treatment Requested by [name]'' should be securely attached to each 
group of records submitted for which confidential treatment is 
requested. Each of the records transmitted in this manner should be 
individually marked with an identifying number and code so that they are 
separately identifiable.
    (4) A determination as to the validity of any request for 
confidential treatment may be made when a request for disclosure of the 
information under the Freedom of Information Act is received, or at any 
time prior thereto. If the OCC receives a request for the information 
under the Freedom of Information Act, the OCC will advise the filing 
party before it discloses material for which confidential treatment has 
been requested.
    (5) Substantiation of a request for confidential treatment shall 
consist of a statement setting forth, to the extent appropriate or 
necessary for the determination of the request for confidential 
treatment, the following information regarding the request:
    (i) The reasons, concisely stated and referring to specific 
exemptive provisions of the Freedom of Information Act, why the 
information should be withheld from access under the Freedom of 
Information Act;
    (ii) The applicability of any specific statutory or regulatory 
provisions which govern or may govern the treatment of the information;
    (iii) The existence and applicability of any prior determination by 
the OCC, other Federal agencies, or a court, concerning confidential 
treatment of the information;
    (iv) The adverse consequences to a business enterprise, financial or 
otherwise, that would result from disclosure of confidential commercial 
or financial information, including any adverse effect on the business' 
competitive position;
    (v) The measures taken by the business to protect the 
confidentiality of the commercial or financial information in question 
and of similar information, prior to, and after, its submission to the 
OCC;
    (vi) The ease or difficulty of a competitor's obtaining or compiling 
the commercial or financial information;
    (vii) Whether commercial or financial information was voluntarily 
submitted to the OCC, and, if so, whether and how disclosure of the 
information would tend to impede the availability of similar information 
to the OCC;
    (viii) The extent, if any, to which portions of the substantiation 
of the request for confidential treatment should be afforded 
confidential treatment;
    (ix) The amount of time after the consummation of the proposed 
acquisition for which the information should remain confidential and a 
justification thereof;
    (x) Such additional facts and such legal and other authorities as 
the requesting person may consider appropriate.
    (6) Any person requesting access to a notice, other filing, or 
public comment made pursuant to this part for purposes of commenting on 
a pending submission may prominently label such request: ``Request for 
Disclosure of Filing(s) Made Under part 174/Priority Treatment 
Requested.''
    (g) Supervisory cases. The provisions of paragraphs (d), (e) and (f) 
of this section may be waived by the OCC in connection with a 
transaction approved by the OCC for supervisory reasons.
    (h) [Reserved]
    (i) Additional procedures for acquisitions involving mergers. 
Acquisitions of control involving mergers (including mergers with an 
interim association) shall also be subject to the procedures set forth 
in Sec. 163.22 of this chapter to the extent applicable, except as 
provided in paragraph (a) of this section.

[[Page 858]]

    (j) Additional procedures for acquisitions of recently converted 
savings associations. Notices and rebuttals involving acquisitions of 
the stock of a recently converted savings association under Sec. 
192.3(i)(3) of this chapter shall also address the criteria for approval 
set forth at Sec. 192.3(i)(5) of this chapter.



Sec. 174.7  Determination by the OCC.

    (a) (1) [Reserved]
    (2) [Reserved]
    (3) [Reserved]
    (b) [Reserved]
    (c) [Reserved]
    (d) Notice criteria. In making its determination whether to 
disapprove a notice, the OCC may disapprove any proposed acquisition, if 
the OCC determines that:
    (1) 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 banking business in any part 
of the United States;
    (2) 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;
    (3) The financial condition of any acquiring person or company or 
the future prospects of the institution is such as might jeopardize the 
financial stability of the association or prejudice the interests of the 
depositors of the association;
    (4) The competence, experience, or integrity of the acquiring person 
or any of the proposed management personnel indicates that it would not 
be in the interests of the depositors of the association, the OCC, or 
the public to permit such person to control the association;
    (5) The acquiring person fails or refuses to furnish information 
requested by the OCC; or
    (6) The OCC determines that the proposed acquisition would have an 
adverse effect on the Deposit Insurance Fund.
    (e) Failure to disapprove a notice. If, upon expiration of the 60-
day review period of any notice deemed to be sufficient filed pursuant 
to Sec. 174.6(c), or extension thereof, the OCC has failed to 
disapprove such notice, the proposed acquisition may take place: 
Provided, That it is consummated within one year and in accordance with 
the terms and representations in the notice and that there is no 
material change in circumstances prior to the acquisition.
    (f) [Reserved]
    (g) Presumptive disqualifiers--(1) Integrity factors. The following 
factors shall give rise to a rebuttable presumption that an acquiror may 
fail to satisfy the integrity test of paragraph (d)(4) of this section:
    (i) During the 10-year period immediately preceding filing of the 
notice, criminal, civil or administrative judgments, consents or orders, 
and any indictments, formal investigations, examinations, or civil or 
administrative proceedings (excluding routine or customary audits, 
inspections and investigations) that terminated in any agreements, 
undertakings, consents or orders, issued against, entered into by, or 
involving the acquiror or affiliates of the acquiror by any Federal or 
state court, any department, agency, or commission of the U.S. 
Government, any state or municipality, any Federal Home Loan Bank, any 
self-regulatory trade or professional organization, or any foreign 
government or governmental entity, which involve:
    (A) Fraud, moral turpitude, dishonesty, breach of trust or fiduciary 
duties, organized crime or racketeering;
    (B) Violation of securities or commodities laws or regulations;
    (C) Violation of depository institution laws or regulations;
    (D) Violation of housing authority laws or regulations; or
    (E) Violation of the rules, regulations, codes of conduct or ethics 
of a self-regulatory trade or professional organization;
    (ii) Denial, or withdrawal after receipt of formal or informal 
notice of an

[[Page 859]]

intent to deny, by the acquiror or affiliates of the acquiror, of
    (A) Any application relating to the organization of a financial 
institution,
    (B) An application to acquire any financial institution or holding 
company thereof under the Savings and Loan Holding Company Act or the 
Bank Holding Company Act or otherwise,
    (C) A notice relating to a change in control of any of the foregoing 
under the Control Act or
    (D) An application or notice under a state holding company or change 
in control statute;
    (iii) The acquiror or affiliates of the acquiror were placed in 
receivership or conservatorship during the preceding 10 years, or any 
management official of the acquiror was a management official or 
director (other than an official or director serving at the request of 
the OCC, the Federal Deposit Insurance Corporation, the Resolution Trust 
Corporation, or the former Federal Savings and Loan Insurance 
Corporation) or controlling shareholder of a company or savings 
association that was placed into receivership, conservatorship, or a 
management consignment program, or was liquidated during his or her 
tenure or control or within two years thereafter;
    (iv) Felony conviction of the acquiror, an affiliate of the acquiror 
or a management official of the acquiror or an affiliate of the 
acquiror;
    (v) Knowingly making any written or oral statement to the OCC or any 
predecessor agency (or its delegate) in connection with a notice or 
other filing under this part that is false or misleading with respect to 
a material fact or omits to state a material fact with respect to 
information furnished or requested in connection with such a notice or 
other filing;
    (vi) Acquisition and retention at the time of submission of a 
notice, of stock in the savings association by the acquiror in violation 
of Sec. 174.3 or its predecessor sections.
    (2) Financial factors. The following shall give rise to a rebuttable 
presumption that an acquiror may fail to satisfy the financial condition 
test of paragraph (d)(3) of this section:
    (i) Liability for amounts of debt which, in the opinion of the OCC, 
create excessive risks of default and pressure on the savings 
association to be acquired; or
    (ii) Failure to furnish a business plan or furnishing a business 
plan projecting activities which are inconsistent with economical home 
financing.



Sec. 174.8  [Reserved]



       Sec. Appendix A to Part 174--Rebuttal of Control Agreement

                                Agreement

     Rebuttal of Rebuttable Determination of Control Under Part 174

                               I. WHEREAS

    A. [ ] is the owner of [ ] shares (the ``Shares'') of the [ ] stock 
(the ``Stock'') of [name and address of association], which Shares 
represent [ ] percent of a class of ``voting stock'' of [ ] as defined 
under the Acquisition of Control Regulations (``Regulations'') of the 
Office of the Comptroller of the Currency (``OCC''), 12 CFR part 174 
(``Voting Stock'');
    B. [ ] is a ``savings association'' within the meaning of the 
Regulations;
    C. [ ] seeks to acquire additional shares of stock of [ ] 
(``Additional Shares''), such that [ ]'s ownership thereof will exceed 
10 percent of a class of Voting Stock but will be less than 25 percent 
of a class of Voting Stock of [ ]; [and/or] [ ] seeks to [ ], which 
would constitute the acquisition of a ``control factor'' as defined in 
the Regulations (``Control Factor'');
    D. [ ] does not seek to acquire the [Additional Shares or Control 
Factor] for the purpose or effect of changing the control of [ ] or in 
connection with or as a participant in any transaction having such 
purpose or effect;
    E. The Regulations require a company or a person who intends to hold 
10 percent or more but less than 25 percent of any class of Voting Stock 
of a savings association or holding company thereof and that also would 
possess any of the Control Factors specified in the Regulations, to file 
and obtain clearance of a notice (``Notice'') under the Change in 
Control Act (``Control Act''), 12 U.S.C. 1817(j), prior to acquiring 
such amount of stock and a Control Factor unless the rebuttable 
determination of control has been rebutted.
    F. Under the Regulations, [ ] would be determined to be in control, 
subject to rebuttal, of [ ] upon acquisition of the [Additional Shares 
or Control Factor];
    G. [ ] has no intention to manage or control, directly or 
indirectly, [ ];
    H. [ ] has filed on [ ], a written statement seeking to rebut the 
determination of

[[Page 860]]

control, attached hereto and incorporated by reference herein, (this 
submission referred to as the ``Rebuttal'');
    I. In order to rebut the rebuttable determination of contro1, [ ] 
agrees to offer this Agreement as evidence that the acquisition of the 
[Additional Shares or Control Factor] as proposed would not constitute 
an acquisition of control under the Regulations.
    II. The OCC has determined, and hereby agrees, to act favorably on 
the Rebuttal, and in consideration of such a determination and agreement 
by the OCC to act favorably on the Rebuttal, [ ] and any other existing, 
resulting or successor entities of [ ] agree with the OCC that:
    A. Unless [ ] shall have filed a Notice under the Control Act, or an 
Application under the Holding Company Act, as appropriate, and shall 
have obtained clearance of the Notice in accordance with the 
Regulations, [ ] will not, except as expressly permitted otherwise 
herein or pursuant to an amendment to this Rebuttal Agreement:
    1. Seek or accept representation of more than one member of the 
board of directors of [insert name of association and any holding 
company thereof];
    2. Have or seek to have any representative serve as the chairman of 
the board of directors, or chairman of an executive or similar committee 
of [insert name of association and any holding company thereof]'s board 
of directors or as president or chief executive officer of [insert name 
of association and any holding company thereof];
    3. Engage in any intercompany transaction with [ ] or [ ]'s 
affiliates;
    4. Propose a director in opposition to nominees proposed by the 
management of [insert name of association and any holding company 
thereof] for the board of directors of [insert name of association and 
any holding company thereof] other than as permitted in paragraph A-1;
    5. Solicit proxies or participate in any solicitation of proxies 
with respect to any matter presented to the stockholders [ ] other than 
in support of, or in opposition to, a solicitation conducted on behalf 
of management of [ ];
    6. Do any of the following, except as necessary solely in connection 
with [ ]'s performance of duties as a member of [ ]'s board of 
directors:
    (a) Influence or attempt to influence in any respect the loan and 
credit decisions or policies of [ ], the pricing of services, any 
personnel decisions, the location of any offices, branching, the hours 
of operation or similar activities of [ ];
    (b) Influence or attempt to influence the dividend policies and 
practices of [ ] or any decisions or policies of [ ] as to the offering 
or exchange of any securities;
    (c) Seek to amend, or otherwise take action to change, the bylaws, 
articles of incorporation, or charter of [ ];
    (d) Exercise, or attempt to exercise, directly or indirectly, 
control or a controlling influence over the management, policies or 
business operations of [ ]; or
    (e) Seek or accept access to any non-public information concerning [ 
].
    B. [ ] is not a party to any agreement with [ ].
    C. [ ] shall not assist, aid or abet any of [ ]'s affiliates or 
associates that are not parties to this Agreement to act, or act in 
concert with any person or company, in a manner which is inconsistent 
with the terms hereof or which constitutes an attempt to evade the 
requirements of this Agreement.
    D. Any amendment to this Agreement shall only be proposed in 
connection with an amended rebuttal filed by [ ] with the OCC for its 
determination;
    E. Prior to acquisition of any shares of ``Voting Stock'' of [ ] as 
defined in the Regulations in excess of the Additional Shares, any 
required filing will be made by [ ] under the Control Act or the Holding 
Company Act and either approval of the acquisition under the Holding 
Company Act or any Notice filed under the Control Act shall be cleared 
in accordance with applicable regulations;
    F. At any time during which 10 percent or more of any class of 
Voting Stock of [ ] is owned or controlled by [ ], no action which is 
inconsistent with the provisions of this Agreement shall be taken by [ ] 
until [ ] files and either obtains a favorable determination with 
respect to either an amended rebuttal, approval of an Application under 
the Holding Company Act, or clearance of a Notice under the Control Act 
in accordance with applicable regulations;
    G. Where any amended rebuttal filed by [ ] is denied or disapproved, 
[ ] shall take no action which is inconsistent with the terms of this 
Agreement, except after either (1) reducing the amount of shares of 
Voting Stock of [ ] owned or controlled by [ ] to an amount under 10 
percent of a class of Voting Stock, or immediately ceasing any other 
actions that give rise to a conclusive or rebuttable determination of 
control under the Regulations; or (2) filing a Notice under the Control 
Act or an Application under the Holding Company Act, as appropriate, and 
either obtaining clearance of the Notice or approval of the Application, 
in accordance with applicable regulations;
    H. Where any Notice filed by [ ] is disapproved, [ ] shall take no 
action which is inconsistent with the terms of this Agreement, except 
after reducing the amount of shares of Voting Stock of [ ] owned or 
controlled by [ ] to an amount under 10 percent of any class of Voting 
Stock, or immediately ceasing any other actions that give rise to a

[[Page 861]]

conclusive or rebuttable determination of control under the Regulations;
    I. Should circumstances beyond [ ]'s control result in [ ] being 
placed in a position to direct the management or policies of [ ], then [ 
] shall either (1) promptly file a Notice under the Control Act or an 
Application under the Holding Company Act, as appropriate, and take no 
affirmative steps to enlarge that control pending either a final 
determination with respect to the Notice or Application, or (2) promptly 
reduce the amount of shares of [ ] Voting Stock owned or controlled by [ 
] to an amount under 10 percent of any class of Voting Stock or 
immediately cease any actions that give rise to a conclusive or 
rebuttable determination of control under the Regulations;
    J. By entering into this Agreement and by offering it for reliance 
in reaching a decision on the request to rebut the presumption of 
control under the Regulations, as long as 10 percent or more of any 
class of Voting Stock of [ ] is owned or controlled, directly or 
indirectly, by [ ], and [ ] possesses any Control Factor as defined in 
the Regulations, [ ] will submit to the jurisdiction of the Regulations, 
including (1) the filing of an amended rebuttal or Notice for any 
proposed action which is prohibited by this Agreement, and (2) the 
provisions relating to a penalty for any person who willfully violates 
or with reckless disregard for the safety or soundness of a savings 
association participates in a violation of the Control Act and the 
Regulations thereunder, and any regulation or order issued by the OCC.
    K. Any violation of this Agreement shall be deemed to be a violation 
of the [Control Act or Holding Company Act] and the Regulations, and 
shall be subject to such remedies and procedures as are provided in the 
[Control Act or Holding Company Act], as appropriate and the Regulations 
for a violation thereunder and in addition shall be subject to any such 
additional remedies and procedures as are provided under any other 
applicable statutes or regulations for a violation, willful or 
otherwise, of any agreement entered into with the OCC.
    III. This Agreement may be executed in one or more counterparts, 
each of which shall be deemed an original but all of which counterparts 
collectively shall constitute one instrument representing the Agreement 
among the parties thereto. It shall not be necessary that any one 
counterpart be signed by all of the parties hereto as long as each of 
the parties has signed at least one counterpart.
    IV. This Agreement shall be interpreted in a manner consistent with 
the provisions of the Rules and Regulations of the OCC.
    V. This Agreement shall terminate upon (i) clearance by the OCC of [ 
]'s Notice under the Control Act to acquire [ ], and consummation of the 
transaction as described in such Notice, (ii) in the disposition by [ ] 
of a sufficient number of shares of [ ], or (iii) the taking of such 
other action that thereafter [ ] is not in control and would not be 
determined to be in control of [ ] under the Control Act or the 
Regulations of the OCC as in effect at that time.
    VI. IN WITNESS THEREOF, the parties thereto have executed this 
Agreement by their duly authorized officer.

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

[Acquiror]

Office of the Comptroller of the Currency

Date:___________________________________________________________________

By:_____________________________________________________________________



PART 190_PREEMPTION OF STATE USURY LAWS--Table of Contents



Sec.
190.1 Authority, purpose, and scope.
190.2 Definitions.
190.3 Operation.
190.4 Federally-related residential manufactured housing loans--consumer 
          protection provisions.
190.100 Status of Interpretations issued under Public Law 96-161.
190.101 State criminal usury statutes.

    Authority: 12 U.S.C. 1735f-7a, 5412(b)(2)(B).

    Source: 76 FR 49151, Aug. 9, 2011, unless otherwise noted.



Sec. 190.1  Authority, purpose, and scope.

    (a) Authority. This part contains regulations issued under section 
501 of the Depository Institutions Deregulation and Monetary Control Act 
of 1980, Public Law 96-221, 94 Stat. 161.
    (b) Purpose and scope. The purpose of this permanent preemption of 
state interest-rate ceilings applicable to Federally-related residential 
mortgage loans is to ensure that the availability of such loans is not 
impeded in states having restrictive interest limitations. This part 
applies to loans, mortgages, credit sales, and advances, secured by 
first liens on residential real property, stock in residential 
cooperative housing corporations, or residential manufactured homes as 
defined in Sec. 190.2 of this part.



Sec. 190.2  Definitions.

    For the purposes of this part, the following definitions apply:
    (a) Loans mean any loans, mortgages, credit sales, or advances.

[[Page 862]]

    (b) Federally-related loans include any loan:
    (1) Made by any lender whose deposits or accounts are insured by any 
agency of the Federal government;
    (2) Made by any lender regulated by any agency of the Federal 
government;
    (3) Made by any lender approved by the Secretary of Housing and 
Urban Development for participation in any mortgage insurance program 
under the National Housing Act;
    (4) Made in whole or in part by the Secretary of Housing and Urban 
Development; insured, guaranteed, supplemented, or assisted in any way 
by the Secretary or any officer or agency of the Federal government, or 
made under or in connection with a housing or urban development program 
administered by the Secretary, or a housing or related program 
administered by any other such officer or agency;
    (5) Eligible for purchase by the Federal National Mortgage 
Association, the Government National Mortgage Association, or the 
Federal Home Loan Mortgage Corporation, or made by any financial 
institution from which the loan could be purchased by the Federal Home 
Loan Mortgage Corporation; or
    (6) Made in whole or in part by any entity which:
    (i) Regularly extends, or arranges for the extension of, credit 
payable by agreement in more than four installments or for which the 
payment of a finance charge is or may be required; and
    (ii) Makes or invests in residential real property loans, including 
loans secured by first liens on residential manufactured homes that 
aggregate more than $1,000,000 per year; except that the latter 
requirement shall not apply to such an entity selling residential 
manufactured homes and providing financing for such sales through loans 
or credit sales secured by first liens on residential manufactured 
homes, if the entity has an arrangement to sell such loans or credit 
sales in whole or in part, or where such loans or credit sales are sold 
in whole or in part, to a lender or other institution otherwise included 
in this section.
    (c) Loans which are secured by first liens on real estate means 
loans on the security of any instrument (whether a mortgage, deed of 
trust, or land contract) which makes the interest in real estate 
(whether in fee, or in a leasehold or subleasehold extending, or 
renewable, automatically or at the option of the holder or the lender, 
for a period of at least 5 years beyond the maturity of the loan) 
specific security for the payment of the obligation secured by the 
instrument: Provided, That the instrument is of such a nature that, in 
the event of default, the real estate described in the instrument could 
be subjected to the satisfaction of the obligation with the same 
priority as a first mortgage of a first deed of trust in the 
jurisdiction where the real estate is located.
    (d) Loans secured by first liens on stock in a residential 
cooperative housing corporation means loans on the security of:
    (1) A first security interest in stock or a membership certificate 
issued to a tenant stockholder or resident member by a cooperative 
housing organization; and
    (2) An assignment of the borrower's interest in the proprietary 
lease or occupancy agreement issued by such organization.
    (e) Loans secured by first liens on residential manufactured homes 
means a loan made pursuant to an agreement by which the party extending 
the credit acquires a security interest in the residential manufactured 
home which will have priority over any conflicting security interest.
    (f) Residential real property means real estate improved or to be 
improved by a structure or structures designed primarily for dwelling, 
as opposed to commercial use.
    (g) Residential manufactured home shall mean a manufactured home as 
defined in the National Manufactured Home Construction and Safety 
Standards Act, 42 U.S.C. 5402(6), which is or will be used as a 
residence.
    (h) State means the several states, Puerto Rico, the District of 
Columbia, Guam, the Trust Territories of the Pacific Islands, the 
Northern Mariana Islands, and the Virgin Islands, except as provided in 
section 501(a)(2)(B) of the Depository Institutions Deregulation and 
Monetary Control Act of 1980, Public Law 96-221, 94 Stat. 161.

[[Page 863]]



Sec. 190.3  Operation.

    (a) The provisions of the constitution or law of any state expressly 
limiting the rate or amount of interest, discount points, finance 
charges, or other charges which may be charged, taken, received, or 
reserved shall not apply to any Federally-related loan:
    (1) Made after March 31, 1980; and
    (2) Secured by a first lien on:
    (i) Residential real property;
    (ii) Stock in a residential cooperative housing corporation when the 
loan is used to finance the acquisition of such stock; or
    (iii) A residential manufactured home: Provided, That the loan so 
secured contains the consumer safeguards required by Sec. 190.4 of this 
part;
    (b) The provisions of paragraph (a) of this section shall apply to 
loans made in any state on or before the date (after April 1, 1980 and 
prior to April l, 1983) on which the state adopts a law or certifies 
that the voters of such state have voted in favor of any law, 
constitutional or otherwise, which states explicitly and by its terms 
that such state does not want the provisions of paragraph (a) of this 
section to apply with respect to loans made in such state, except that--
    (1) The provisions of paragraph (a) of this section shall apply to 
any loan which is made after such date pursuant to a commitment 
therefore which was entered into during the period beginning on April 1, 
1980, and ending on the date the state takes such action;
    (2) The provisions of paragraph (a) of this section shall apply to 
any rollover of a loan which loan was made, or committed to be made, 
during the period beginning on April 1, 1980, and ending on the date the 
state takes such action, if the mortgage document or loan note provided 
that the interest rate to the original borrower could be changed through 
the use of such a rollover; and
    (3) At any time after the date of adoption of these regulations, any 
state may adopt a provision of law placing limitations on discount 
points or such other charges on any loan described in this part.
    (c) Nothing in this section preempts limitations in state laws on 
prepayment charges, attorneys' fees, late charges or other provisions 
designed to protect borrowers.



Sec. 190.4  Federally-related residential manufactured housing loans--consumer 

protection provisions.

    (a) Definitions. As used in this section:
    (1) Prepayment. A ``prepayment'' occurs upon--
    (i) Refinancing or consolidation of the indebtedness;
    (ii) Actual prepayment of the indebtedness by the debtor, whether 
voluntarily or following acceleration of the payment obligation by the 
creditor; or
    (iii) The entry of a judgment for the indebtedness in favor of the 
creditor.
    (2) Actuarial method. The term actuarial method means the method of 
allocating payments made on a debt between the outstanding balance of 
the obligation 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 outstanding balance 
of the obligation.
    (3) Precomputed Finance Charge. The term precomputed finance charge 
means interest or a time/price differential as computed by the add-on or 
discount method. Precomputed finance charges do not include loan fees, 
points, finder's fees, or similar charges.
    (4) Creditor. The term creditor means any entity covered by this 
part, including those which regularly extend or arrange for the 
extension of credit and assignees that are creditors under section 
501(a)(1)(C)(v) of the Depository Institutions Deregulation and Monetary 
Control Act of 1980.
    (b) General. (1) The provisions of the constitution or the laws of 
any state expressly limiting the rate or amount of interest, discount 
points, finance charges, or other charges which may be charged, taken, 
received, or reserved shall not apply to any loan, mortgage, credit 
sale, or advance which is secured by a first lien on a residential 
mobile home if a creditor covered by this part complies with the 
consumer protection regulations of this section.
    (2) Relation to state law. (i) In making loans or credit sales 
subject to this section, creditors shall comply with state

[[Page 864]]

and Federal law in accordance with the following:
    (A) State law regulating matters not covered by this section. When 
state law regulating matters not covered by this section is otherwise 
applicable to a loan or credit sale subject to this section, creditors 
shall comply with such state law provisions.
    (B) State law regulating matters covered by this section. Creditors 
need comply only with the provisions of this section, unless the OCC 
determines that an otherwise applicable state law regulating matters 
covered by this section provides greater protection to consumers. Such 
determinations shall be published in the Federal Register and shall 
operate prospectively.
    (ii) Any interested party may petition the OCC for a determination 
that state law requirements are more protective of consumers than the 
provisions of this section. Petitions shall include:
    (A) A copy of the state law to be considered;
    (B) Copies of any relevant judicial, regulatory, or administrative 
interpretations of the state law; and
    (C) An opinion or memorandum from the state Attorney General or 
other appropriate state official having primary enforcement 
responsibilities for the subject state law provision, indicating how the 
state law to be considered offers greater protection to consumers than 
the OCC's regulation.
    (c) Refund of precomputed finance charge. In the event the entire 
indebtedness is prepaid, the unearned portion of the precomputed finance 
charge shall be refunded to the debtor. This refund shall be in an 
amount not less than the amount which would be refunded if the unearned 
precomputed finance charge were calculated in accordance with the 
actuarial method, except that the debtor shall not be entitled to a 
refund which, is less than one dollar. The unearned portion of the 
precomputed finance charge is, at the option of the creditor, either:
    (1) That portion of the precomputed finance charge which is 
allocable to all unexpired payment periods as originally scheduled, or 
if deferred, as deferred. A payment period shall be deemed unexpired if 
prepayment is made within 15 days after the payment period's scheduled 
due date. The unearned precomputed finance charge is the total of that 
which would have been earned for each such period had the loan not been 
precomputed, by applying to unpaid balances of principal, according to 
the actuarial method, an annual percentage rate based on those charges 
which are considered precomputed finance charges in this section, 
assuming that all payments were made as originally scheduled, or as 
deferred, if deferred. The creditor, at its option, may round this 
annual percentage rate to the nearest one-quarter of one percent; or
    (2) The total precomputed finance charge less the earned precomputed 
finance charge. The earned precomputed finance charge shall be 
determined by applying an annual percentage rate based on the total 
precomputed finance charge (as that term is defined in this section), 
under the actuarial method, to the unpaid balances for the actual time 
those balances were unpaid up to the date of prepayment. If a late 
charge or deferral fee has been collected, it shall be treated as a 
payment.
    (d) Prepayment penalties. A debtor may prepay in full or in part the 
unpaid balance of the loan at any time without penalty. The right to 
prepay shall be disclosed in the loan contract in type larger than that 
used for the body of the document.
    (e) Balloon payments-- (1) Federal savings associations. Federal 
savings association creditors may enter into agreements with debtors 
which provide for non-amortized and partially-amortized loans on 
residential manufactured homes, and such loans shall be governed by the 
provisions of this section and 12 CFR 560.220 until superseding 
regulations are issued by the Consumer Financial Protection Bureau 
regarding the Alternative Mortgage Transactions Parity Act.
    (2) Other creditors. All other creditors may enter into agreements 
with debtors which provide for non-amortized and partially-amortized 
loans on residential manufactured homes to the extent authorized by 
applicable Federal or state law or regulation.

[[Page 865]]

    (f) Late charges. (1) No late charge may be assessed, imposed, or 
collected unless provided for by written contract between the creditor 
and debtor.
    (2) To the extent that applicable state law does not provide for a 
longer period of time, no late charge may be collected on an installment 
which is paid in full on or before the 15th day after its scheduled or 
deferred due date even though an earlier maturing installment or a late 
charge on an earlier installment may not have been paid in full. For 
purposes of assessing late charges, payments received are deemed to be 
applied first to current installments.
    (3) A late charge may be imposed only once on an installment; 
however, no such charge may be collected for a late installment which 
has been deferred.
    (4) To the extent that applicable state law does not provide for a 
lower charge or a longer grace period, a late charge on any installment 
not paid in full on or before the 15th day after its scheduled or 
deferred due date may not exceed five percent of the unpaid amount of 
the installment.
    (5) If, at any time after imposition of a late charge, the lender 
provides the borrower with written notice regarding amounts claimed to 
be due but unpaid, the notice shall separately state the total of all 
late charges claimed.
    (6) Interest after the final scheduled maturity date may not exceed 
the maximum rate otherwise allowable under state law for such contracts, 
and if such interest is charged, no separate late charge may be made on 
the final scheduled installment.
    (g) Deferral fees. (1) With respect to mobile home credit 
transactions containing precomputed finance charges, agreements 
providing for deferral of all or part of one or more installments shall 
be in writing, signed by the parties, and
    (i) Provide, to the extent that applicable state law does not 
provide for a lower charge, for a charge not exceeding one percent of 
each installment or part thereof for each month from the date when such 
installment was due to the date when it is agreed to become payable and 
proportionately for a part of each month, counting each day as 1/30th of 
a month;
    (ii) Incorporate by reference the transaction to which the deferral 
applied;
    (iii) Disclose each installment or part thereof in the amount to be 
deferred, the date or dates originally payable, and the date or dates 
agreed to become payable: and
    (iv) Set forth the fact of the deferral charge, the dollar amount of 
the charge for each installment to be deferred, and the total dollar 
amount to be paid by the debtor for the privilege of deferring payment.
    (2) No term of a writing executed by the debtor shall constitute 
authority for a creditor unilaterally to grant a deferral with respect 
to which a charge is to be imposed or collected.
    (3) The deferral period is that period of time in which no payment 
is required or made by reason of the deferral.
    (4) Payments received with respect to deferred installments shall be 
deemed to be applied first to deferred installments.
    (5) A charge may not be collected for the deferral of an installment 
or any part thereof if, with respect to that installment, a refinancing 
or consolidation agreement is concluded by the parties, or a late charge 
has been imposed or collected, unless such late charge is refunded to 
the borrower or credited to the deferral charge.
    (h) Notice before repossession, foreclosure, or acceleration. (1) 
Except in the case of abandonment or other extreme circumstances, no 
action to repossess or foreclose, or to accelerate payment of the entire 
outstanding balance of the obligation, may be taken against the debtor 
until 30 days after the creditor sends the debtor a notice of default in 
the form set forth in paragraph (h)(2) of this section. Such notice 
shall be sent by registered or certified mail with return receipt 
requested. In the case of default on payments, the sum stated in the 
notice may only include payments in default and applicable late or 
deferral charges. If the debtor cures the default within 30 days of the 
postmark of the notice and subsequently defaults a second time, the 
creditor shall again give notice as described in

[[Page 866]]

this paragraph (h)(1). The debtor is not entitled to notice of default 
more than twice in any one-year period.
    (2) The notice in the following form shall state the nature of the 
default, the action the debtor must take to cure the default, the 
creditor's intended actions upon failure of the debtor to cure the 
default, and the debtor's right to redeem under state law.
    To:
    Date: , 20
    Notice of Default and Right To Cure Default
    Name, address, and telephone number of creditor
    Account number, if any
    Brief identification of credit transaction
    You are now in default on this credit transaction. You have a right 
to correct this default within 30 days from the postmarked date of this 
notice.
    If you correct the default, you may continue with the contract as 
though you did not default. Your default consists of:
    Describe default alleged
    Cure of default: Within 30 days from the postmarked date of this 
notice, you may cure your default by (describe the acts necessary for 
cure, including, if applicable, the amount of payment required, 
including itemized delinquency or deferral charges).
    Creditor's rights: If you do not correct your default in the time 
allowed, we may exercise our rights against you under the law by 
(describe action creditor intends to take).
    If you have any questions, write (the creditor) at the above address 
or call (creditor's designated employee) at (telephone number) between 
the hours of and on (state days of week).
    If this default was caused by your failure to make a payment or 
payments, and you want to pay by mail, please send a check or money 
order; do not send cash.



Sec. 190.100  Status of Interpretations issued under Public Law 96-161.

    The OCC continues to adhere to the views expressed in the formal 
Interpretations issued under the authority of section 105(c) of Public 
Law 96-161, 93 Stat. 1233 (1979). These interpretations, which relate to 
the temporary preemption of state interest ceilings contained in Public 
Law 96-161, may be found at 45 FR 2840 (Jan. 15, 1980); 45 FR 6165 (Jan. 
25, 1980); 45 FR 8000 (Feb. 6, 1980); 45 FR 15921 (Mar. 12, 1980).



Sec. 190.101  State criminal usury statutes.

    (a) Section 501 provides that ``the provisions of the constitution 
or laws of any state expressly limiting the rate or amount of interest, 
discount points, finance charges, or other charges shall not apply to 
any'' Federally-related loan secured by a first lien on residential real 
property, a residential manufactured home, or all the stock allocated to 
a dwelling unit in a residential housing cooperative. 12 U.S.C. 1735f-7 
note (Supp. IV 1980). The question has arisen as to whether the Federal 
statute preempts a state law which deems it a criminal offense to charge 
interest at a rate in excess of that specified in the state law.
    (b) Section 501 preempts all state laws which expressly limit the 
rate or amount of interest chargeable on a Federally-related residential 
first mortgage. It does not matter whether the statute in question 
imposes criminal or civil sanctions; section 501, by its terms, preempts 
``any'' state law which imposes a ceiling on interest rates. The wording 
of the Federal statute clearly expresses an intent to displace all 
direct state law restraints on interest. Any state law that conflicts 
with this Congressional purpose must yield.



PART 191_PREEMPTION OF STATE DUE-ON-SALE LAWS--Table of Contents



Sec.
191.1 Authority, purpose, and scope.
191.2 Definitions.
191.3 Loans originated by Federal savings associations.
191.4 Loans originated by lenders other than Federal savings 
          associations.
191.5 Limitation on exercise of due-on-sale clauses.
191.6 Interpretations.

    Authority: 12 U.S.C. 1464, 1701j-3, and 5412(b)(2)(B).

    Source: 76 FR 49154', Aug. 9, 2011, unless otherwise noted.

[[Page 867]]



Sec. 191.1  Authority, purpose, and scope.

    (a) Authority. This part contains regulations issued under section 5 
of the Home Owners' Loan Act of 1933, as amended, and under section 341 
of the Garn-St Germain Depository Institutions Act of 1982, Public Law 
97-320, 96 Stat. 1469, 1505-1507.
    (b) Purpose and scope. The purpose of this permanent preemption of 
state prohibitions on the exercise of due-on-sale clauses by all 
lenders, whether Federally- or state-chartered, is to reaffirm the 
authority of Federal savings associations to enforce due-on-sale 
clauses, and to confer on other lenders generally comparable authority 
with respect to the exercise of such clauses. This part applies to all 
real property loans, and all lenders making such loans, as those terms 
are defined in Sec. 191.2 of this part.



Sec. 191.2  Definitions.

    For the purposes of this part, the following definitions apply:
    (a) Assumed includes transfers of real property subject to a real 
property loan by assumptions, installment land sales contracts, 
wraparound loans, contracts for deed, transfers subject to the mortgage 
or similar lien, and other like transfers. ``Completed credit 
application'' has the same meaning as completed application for credit 
as provided in Sec. 202.2(f) of this title.
    (b) Due-on-sale clause means a contract provision which authorizes 
the lender, at its option, to declare immediately due and payable sums 
secured by the lender's security instrument upon a sale of transfer of 
all or any part of the real property securing the loan without the 
lender's prior written consent. For purposes of this definition, a sale 
or transfer means the conveyance of real property of any right, title or 
interest therein, whether legal or equitable, whether voluntary or 
involuntary, by outright sale, deed, installment sale contract, land 
contract, contract for deed, leasehold interest with a term greater than 
three years, lease-option contract or any other method of conveyance of 
real property interests.
    (c) Federal savings association has the same meaning as provided in 
Sec. 141.11 of this chapter.
    (d) Federal credit union means a credit union chartered under the 
Federal Credit Union Act.
    (e) Home has the same meaning as provided in Sec. 141.14 of this 
chapter.
    (f) Savings association has the same meaning as provided in Sec. 
161.43 of this chapter.
    (g) Lender means a person or government agency making a real 
property loan, including without limitation, individuals, Federal 
savings associations, state-chartered savings associations, national 
banks, state-chartered banks and state-chartered mutual savings banks, 
Federal credit unions, state-chartered credit unions, mortgage banks, 
insurance companies and finance companies which make real property 
loans, manufactured-home retailers who extend credit, agencies of the 
Federal government, any lender approved by the Secretary of Housing and 
Urban Development for participation in any mortgage insurance program 
under the National Housing Act, and any assignee or transferee, in whole 
or part, of any such persons or agencies.
    (h) Loan secured by a lien on real property means a loan on the 
security of any instrument (whether a mortgage, deed or trust, or land 
contract) which makes the interest in real property (whether in fee, or 
in a leasehold or subleasehold) specific security for the payment of the 
obligation secured by the instrument.
    (i) Loan secured by a lien on stock in a residential cooperative 
housing corporation means a loan on the security of:
    (1) A security interest in stock or a membership certificate issued 
to a tenant stockholder or resident member by a cooperative housing 
organization; and
    (2) An assignment of the borrower's interest in the proprietary 
lease or occupancy agreement issued by such organization.
    (j) Loan secured by a lien on a residential manufactured home, 
whether real or personal property, means a loan made pursuant to an 
agreement by which the party extending the credit acquires a security 
interest in the residential manufactured home.
    (k) Loan originated by a Federal savings association or other lender 
means any loan for which the lender makes

[[Page 868]]

the first advance of credit thereunder, Provided, That such lender then 
held a beneficial interest in the loan, whether as to the whole loan or 
a portion thereof, and whether or not the loan is later held by or 
transferred to another lender.
    (l) Real property loan means any loan, mortgage, advance or credit 
sale secured by a lien on real property, the stock or membership 
certificate allocated to a dwelling unit in a cooperative housing 
corporation, or a residential manufactured home, whether real or 
personal property.
    (m) Residential manufactured home has the same meaning as provided 
in Sec. 190.2(g) of this chapter.
    (n) Reverse mortgage means an instrument that provides for one or 
more payments to a homeowner based on accumulated equity. The lender may 
make payment directly, through the purchase of an annuity through an 
insurance company, or in any other manner. The loan may be due either on 
a specific date or when a specified event occurs, such as the sale of 
the property or the death of the borrower.
    (o) State means the several states, Puerto Rico, the District of 
Columbia, Guam, the Trust Territory of the Pacific Islands, the Northern 
Mariana Islands, the Virgin Islands, and American Samoa.
    (p)(1) A window-period loan means a real property loan, not 
originated by a Federal savings association, which was made or assumed 
during a window-period created by state law and subject to that law, 
which loan was recorded, at the time of origination or assumption, 
before October 15, 1982, or within 60 days thereafter (December 14, 
1982).
    (2) The window-period begins on:
    (i) The date a state adopted a law (by means of a constitutional 
provision or statute) prohibiting the unrestricted exercise of due-on-
sale clauses upon outright transfers of property securing loans subject 
to the state law creating the window-period, or the effective date of a 
constitutional or statutory provision so adopted, whichever is later; or
    (ii) The date on which the highest court of the state rendered a 
decision prohibiting such unrestricted exercise (or if the highest court 
has not so decided, the date on which the next highest appellate court 
rendered a decision resulting in a final judgment which applies 
statewide), and ends on the earlier of the date such state law 
prohibition terminated under state law or October 15, 1982.
    (3) Categories of state law which create window-periods by 
prohibiting the unrestricted exercise of due-on-sale clauses upon 
outright transfers of property securing loans subject to such state law 
restrictions include laws or judicial decisions which permit the lender 
to exercise its option under a due-on-sale clause only where:
    (i) The lender's security interest or the likelihood of repayment is 
impaired; or
    (ii) The lender is required to accept an assumption of the existing 
loan without an interest-rate change or with an interest-rate change 
below the market interest rate currently being offered by the lender on 
similar loans secured by similar property at the time of the transfer.



Sec. 191.3  Loans originated by Federal savings associations.

    (a) With regard to any real property loan originated or to be 
originated by a Federal savings association, as a matter of contract 
between it and the borrower, a Federal savings association continues to 
have the power to include a due-on-sale clause in its loan instrument.
    (b) Except as otherwise provided in Sec. 191.5 of this part with 
respect to any such loan made on the security of a home occupied or to 
be occupied by the borrower, exercise by any lender of a due-on-sale 
clause in a loan originated by a Federal savings association shall be 
exclusively governed by the terms of the loan contract, and all rights 
and remedies of the lender and borrower shall at all times be fixed and 
governed by that contract.



Sec. 191.4  Loans originated by lenders other than Federal savings 

associations.

    (a) With regard to any real property loan originated by a lender 
other than a Federal savings association, as a matter of contract 
between it and the borrower, the lender has the power to

[[Page 869]]

include a due on sale clause in its loan instrument.
    (b) Except as otherwise provided in paragraph (c) of this section 
and Sec. 191.5 of this part, the exercise of due-on-sale clauses in 
loans originated by lenders other than Federal savings associations 
shall be governed exclusively by the terms of the loan contract, and all 
rights and remedies of the lender and the borrower shall be fixed and 
governed by that contract.
    (c)(1) In the case of a window-period loan, the provisions of 
paragraph (b) of this section shall apply only in the case of a sale or 
transfer of the property subject to the real property loan and only if 
such sale or transfer occurs on or after October 15, 1985: Provided, 
That:
    (i) With respect to real property loans originated in a state by 
lenders other than national banks, Federal savings associations, and 
Federal credit unions, a state may otherwise regulate such contracts by 
state law enacted prior to October 16, 1985, in which case paragraph (b) 
of this section shall apply only if such state law so provides; and
    (ii) With respect to real property loans originated by national 
banks and Federal credit unions, the OCC or the National Credit Union 
Administration Board, respectively, may otherwise regulate such 
contracts by regulations promulgated prior to October 16, 1985, in which 
case paragraph (b) of this section shall apply only if such regulation 
so provides.
    (2) A lender may not exercise its options pursuant to a due-on-sale 
clause contained in a window-period loan in the case of a sale or 
transfer of property securing such loan where the sale or transfer 
occurred prior to October 15, 1982.
    (d)(1) Prior to the sale or transfer of property securing a window-
period loan subject to the provisions of paragraph (c) of this section.
    (i) Any lender in the business of making real property loans may 
require any successor or transferee of the borrower to supply credit 
information customarily required by the lender in connection with credit 
applications, to complete its customary credit application, and to meet 
customary credit standards applied by such lender, at the date of sale 
or transfer, to the lender's similar loans secured by similar property.
    (ii) Any lender not in the business of making loans may require any 
successor or transferee of the borrower to meet credit standards 
customarily applied by other similarly situated lenders or sellers in 
the geographic market within which the transaction occurs, for similar 
loans secured by similar property, prior to the lender's consent to the 
transfer.
    (2) The lender may exercise a due-on-sale clause in a window-period 
loan if:
    (i) The successor or transferee of the borrower fails to meet the 
lender's credit standards as set forth in paragraphs (b)(1)(i) and 
(b)(1)(ii) of this section; or
    (ii) Upon transfer of the security property and not later than 
fifteen days after written request by the lender, the successor or 
transferee of the borrower fails to provide information requested by the 
lender pursuant to paragraph (d)(1)(i) or (d)(1)(ii) of this section, to 
determine whether such successor or transferee of the borrower meets the 
lender's customary credit standards.
    (3) The lender shall, within thirty days of receipt of a completed 
credit application and any other related information provided by the 
successor or transferee of the borrower, determine whether such 
successor or transferee meets the customary credit standards of the 
lender and provide written notice to the successor or transferee of its 
decision, and the reasons in the event of a disapproval. Failure of the 
lender to provide such notice shall preclude the lender from exercise of 
its due-on-sale clause upon the sale or transfer of the property 
securing the loan.
    (4) The lender's right to exercise a due-on-sale clause pursuant to 
this paragraph (d)(4) is in addition to any other rights afforded the 
lender by state law regulating window-period loans with regard to the 
exercise of due-on-sale clauses and loan assumptions.

[[Page 870]]



Sec. 191.5  Limitation on exercise of due-on-sale clauses.

    (a) General. Except as provided in Sec. 191.4(c) and (d)(4) of this 
part, due-on-sale practices of Federal savings associations and other 
lenders shall be governed exclusively by the OCC's regulations, in 
preemption of and without regard to any limitations imposed by state law 
on either their inclusion or exercise including, without limitation, 
state law prohibitions against restraints on alienation, prohibitions 
against penalties and forfeitures, equitable restrictions and state law 
dealing with equitable transfers.
    (b) Specific limitations. With respect to any loan on the security 
of a home occupied or to be occupied by the borrower,
    (1) A lender shall not (except with regard to a reverse mortgage) 
exercise its option pursuant to a due-on-sale clause upon:
    (i) The creation of a lien or other encumbrance subordinate to the 
lender's security instrument which does not relate to a transfer of 
rights of occupancy in the property: Provided, That such lien or 
encumbrance is not created pursuant to a contract for deed;
    (ii) The creation of a purchase-money security interest for 
household appliances;
    (iii) A transfer by devise, descent, or operation of law on the 
death of a joint tenant or tenant by the entirety;
    (iv) The granting of a leasehold interest which has a term of three 
years or less and which does not contain an option to purchase (that is, 
either a lease of more than three years or a lease with an option to 
purchase will allow the exercise of a due-on-sale clause);
    (v) A transfer, in which the transferee is a person who occupies or 
will occupy the property, which is:
    (A) A transfer to a relative resulting from the death of the 
borrower;
    (B) A transfer where the spouse or child(ren) becomes an owner of 
the property; or
    (C) A transfer resulting from a decree of dissolution of marriage, 
legal separation agreement, or from an incidental property settlement 
agreement by which the spouse becomes an owner of the property; or
    (vi) A transfer into an inter vivos trust in which the borrower is 
and remains the beneficiary and occupant of the property, unless, as a 
condition precedent to such transfer, the borrower refuses to provide 
the lender with reasonable means acceptable to the lender by which the 
lender will be assured of timely notice of any subsequent transfer of 
the beneficial interest or change in occupancy.
    (2) A lender shall not impose a prepayment penalty or equivalent fee 
when the lender or party acting on behalf of the lender.
    (i) Declares by written notice that the loan is due pursuant to a 
due-on-sale clause or
    (ii) Commences a judicial or nonjudicial foreclosure proceeding to 
enforce a due-on-sale clause or to seek payment in full as a result of 
invoking such clause.
    (3) A lender shall not impose a prepayment penalty or equivalent fee 
when the lender or party acting on behalf of the lender fails to approve 
within 30 days the completed credit application of a qualified 
transferee of the security property to assume the loan in accordance 
with the terms of the loan, and thereafter the borrower transfers the 
security property to such transferee and prepays the loan in full within 
120 days after receipt by the lender of the completed credit 
application. For purposes of this paragraph (b)(3), a qualified 
transferee is a person who qualifies for the loan under the lender's 
applicable underwriting standards and who occupies or will occupy the 
security property.
    (4) A lender waives its option to exercise a due-on-sale clause as 
to a specific transfer if, before the transfer, the lender and the 
existing borrower's prospective successor in interest agree in writing 
that the successor in interest will be obligated under the terms of the 
loan and that interest on sums secured by the lender's security interest 
will be payable at a rate the lender shall request. Upon such agreement 
and resultant waiver, a lender shall release the existing borrower from 
all obligations under the loan instruments, and the lender is deemed to 
have made a new

[[Page 871]]

loan to the existing borrower's successor in interest. The waiver and 
release apply to all loans secured by homes occupied by borrowers made 
by a Federal savings association after July 31, 1976, and to all loans 
secured by homes occupied by borrowers made by other lenders after the 
effective date of this regulation.
    (5) Nothing in paragraph (b)(1) of this section shall be construed 
to restrict a lender's right to enforce a due-on-sale clause upon the 
subsequent occurrence of any event which disqualifies a transfer for a 
previously-applicable exception under that paragraph (b)(1).
    (c) Policy considerations. Paragraph (b) of this section does not 
prohibit a lender from requiring, as a condition to an assumption, 
continued maintenance of mortgage insurance by the existing borrower's 
successor in interest, whether by endorsement of the existing policy or 
by entrance into a new contract of insurance.



Sec. 191.6  Interpretations.

    The OCC periodically will publish Interpretations under section 341 
of the Garn-St Germain Depository Institutions Act of 1982, Public Law 
97-320, 96 Stat. 1469, 1505-1507, in the Federal Register in response to 
written requests sent to the OCC.



PART 192_CONVERSIONS FROM MUTUAL TO STOCK FORM--Table of Contents



Sec.
192.5 What does this part do?
192.10 May I form a holding company as part of my conversion?
192.15 May I form a charitable organization as part of my conversion?
192.20 May I acquire another insured stock depository institution as 
          part of my conversion?
192.25 What definitions apply to this part?

                     Subpart A_Standard Conversions

                           Prior to Conversion

192.100 What must I do before a conversion?
192.105 What information must I include in my business plan?
192.110 Who must review my business plan?
192.115 How will the appropriate Federal banking agency review my 
          business plan?
192.120 May I discuss my plans to convert with others?

                           Plan of Conversion

192.125 Must my board of directors adopt a plan of conversion?
192.130 What must I include in my plan of conversion?
192.135 How do I notify my members that my board of directors approved a 
          plan of conversion?
192.140 May I amend my plan of conversion?

                           Filing Requirements

192.150 What must I include in my application for conversion?
192.155 How do I file my application for conversion?
192.160 May I keep portions of my application for conversion 
          confidential?
192.165 How do I amend my application for conversion?

           Notice of Filing of Application and Comment Process

192.180 How do I notify the public that I filed an application for 
          conversion?
192.185 How may a person comment on my application for conversion?

    Appropriate Federal Banking Agency Review of the Application for 
                               Conversion

192.200 What actions may the appropriate Federal banking agency take on 
          my application?
192.205 May a court review the appropriate Federal banking agency's 
          final action on my conversion?

                             Vote by Members

192.225 Must I submit the plan of conversion to my members for approval?
192.230 Who is eligible to vote?
192.235 How must I notify my members of the meeting?
192.240 What must I submit to the appropriate Federal banking agency 
          after the members' meeting?

                           Proxy Solicitation

192.250 Who must comply with these proxy solicitation provisions?
192.255 What must the form of proxy include?
192.260 May I use previously executed proxies?
192.265 How may I use proxies executed under this part?
192.270 What must I include in my proxy statement?
192.275 Filing How do I file revised proxy materials?
192.280 Must I mail a member's proxy solicitation material?
192.285 What solicitations are prohibited?
192.290 What will the appropriate Federal banking agency do if a 
          solicitation violates these prohibitions?

[[Page 872]]

192.295 Will the appropriate Federal banking agency require me to re-
          solicit proxies?

                            Offering Circular

192.300 What must happen before the appropriate Federal banking agency 
          declares my offering circular effective?
192.305 When may I distribute the offering circular?
192.310 When must I file a post-effective amendment to the offering 
          circular?

                        Offers and Sales of Stock

192.320 Who has priority to purchase my conversion shares?
192.325 When may I offer to sell my conversion shares?
192.330 How do I price my conversion shares?
192.335 How do I sell my conversion shares?
192.340 What sales practices are prohibited?
192.345 How may a subscriber pay for my conversion shares?
192.350 Must I pay interest on payments for conversion shares?
192.355 What subscription rights must I give to each eligible account 
          holder and each supplemental eligible account holder?
192.360 Are my officers, directors, and their associates eligible 
          account holders?
192.365 May other voting members purchase conversion shares in the 
          conversion?
192.370 Does the appropriate Federal banking agency limit the aggregate 
          purchases by officers, directors, and their associates?
192.375 How do I allocate my conversion shares if my shares are 
          oversubscribed?
192.380 May my employee stock ownership plan purchase conversion shares?
192.385 May I impose any purchase limitations?
192.390 Must I provide a purchase preference to persons in my local 
          community?
192.395 What other conditions apply when I offer conversion shares in a 
          community offering, a public offering, or both?

                       Completion of the Offering

192.400 When must I complete the sale of my stock?
192.405 How do I extend the offering period?

                      Completion of the Conversion

192.420 When must I complete my conversion?
192.425 Who may terminate the conversion?
192.430 What happens to my old charter?
192.435 What happens to my corporate existence after conversion?
192.440 What voting rights must I provide to stockholders after the 
          conversion?
192.445 What must I provide my savings account holders?

                           Liquidation Account

192.450 What is a liquidation account?
192.455 What is the initial balance of the liquidation account?
192.460 How do I determine the initial balances of liquidation sub-
          accounts?
192.465 Do account holders retain any voting rights based on their 
          liquidation sub-accounts?
192.470 Must I adjust liquidation sub-accounts?
192.475 What is a liquidation?
192.480 Does the liquidation account affect my net worth?
192.485 What provision must I include in my new Federal charter?

                             Post-Conversion

192.500 What management stock benefit plans may I implement?
192.505 May my directors, officers, and their associates freely trade 
          shares?
192.510 May I repurchase shares after conversion?
192.515 What information must I provide to the appropriate Federal 
          banking agency before I repurchase my shares?
192.520 May I declare or pay dividends after I convert?
192.525 Who may acquire my shares after I convert?
192.530 What other requirements apply after I convert?

                Contributions to Charitable Organizations

192.550 May I donate conversion shares or conversion proceeds to a 
          charitable organization?
192.555 How do my members approve a charitable contribution?
192.560 How much may I contribute to a charitable organization?
192.565 What must the charitable organization include in its 
          organizational documents?
192.570 How do I address conflicts of interest involving my directors?
192.575 What other requirements apply to charitable organizations?

               Subpart B_Voluntary Supervisory Conversions

192.600 What does this subpart do?
192.605 How may I conduct a voluntary supervisory conversion?
192.610 Do my members have rights in a voluntary supervisory conversion?

                               Eligibility

192.625 When is a savings association eligible for a voluntary 
          supervisory conversion?

[[Page 873]]

192.630 When is a state-chartered savings bank eligible for a voluntary 
          supervisory conversion?

                     Plan of Supervisory Conversion

192.650 What must I include in my plan of voluntary supervisory 
          conversion?

              Voluntary Supervisory Conversion Application

192.660 What must I include in my voluntary supervisory conversion 
          application?

 Appropriate Federal banking agency review of the Voluntary Supervisory 
                         Conversion Application

192.670 Will the appropriate Federal banking agency approve my voluntary 
          supervisory conversion application?
192.675 What conditions will the appropriate Federal banking agency 
          impose on an approval?

                        Offers and Sales of Stock

192.680 How do I sell my shares?

                             Post-Conversion

192.690 Who may not acquire additional shares after the voluntary 
          supervisory conversion?

    Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 2901, 
5412(b)(2)(B); 15 U.S.C. 78c, 78l, 78m, 78n, 78w.

    Source: 76 FR 49156, Aug. 9, 2011, unless otherwise noted.



Sec. 192.5  What does this part do?

    (a) General. This part governs how a savings association (``you'') 
may convert from the mutual to the stock form of ownership. Subpart A of 
this part governs standard mutual-to-stock conversions. Subpart B of 
this part governs voluntary supervisory mutual-to-stock conversions. 
This part supersedes all inconsistent charter and bylaw provisions of 
Federal savings associations converting to stock form.
    (b) Prescribed forms. You must use the forms prescribed under this 
part and provide such information as the appropriate Federal banking 
agency may require under the forms by regulation or otherwise. The forms 
required under this part include: Form AC (Application for Conversion); 
Form PS (Proxy Statement); Form OC (Offering Circular); and Form OF 
(Order Form). Forms are available on the OCC's web site at http://
www.occ.gov.
    (c) Waivers. The appropriate Federal banking agency may waive any 
requirement of this part or a provision in any prescribed form. To 
obtain a waiver, you must file a written request with the appropriate 
Federal banking agency that:
    (1) Specifies the requirement(s) or provision(s) you want the 
appropriate Federal banking agency to waive;
    (2) Demonstrates that the waiver is equitable; is not detrimental to 
you, your account holders, or other savings associations; and is not 
contrary to the public interest; and
    (3) Includes an opinion of counsel demonstrating that applicable law 
does not conflict with the requirement or provision.



Sec. 192.10  May I form a holding company as part of my conversion.

    You may convert to the stock form of ownership as part of a 
transaction where you organize a holding company to acquire all of your 
shares upon their issuance. In such a transaction, your holding company 
will offer rights to purchase its shares instead of your shares. 
Regulations of the Board of Governors of the Federal Reserve System 
address holding company application requirements.



Sec. 192.15  May I form a charitable organization as part of my conversion?

    When you convert to the stock form, you may form a charitable 
organization. Your contributions to the charitable organization are 
governed by the requirements of Sec. Sec. 192.550 through 192.575.



Sec. 192.20  May I acquire another insured stock depository institution as 

part of my conversion?

    When you convert to stock form, you may acquire for cash or stock 
another insured depository institution that is already in the stock form 
of ownership.



Sec. 192.25  What definitions apply to this part?.

    The following definitions apply to this part and the forms 
prescribed under this part:
    Acting in concert has the same meaning as in Sec. 174.2(c) of this 
chapter. The rebuttable presumptions of Sec. 174.4(d) of

[[Page 874]]

this chapter, other than Sec. Sec. 174.4(d)(1) and (d)(2) of this 
chapter, apply to the share purchase limitations at Sec. Sec. 192.355 
through 192.395.
    Affiliate of, or a person affiliated with, a specified person is a 
person that directly or indirectly, through one or more intermediaries, 
controls, is controlled by, or is under common control with the 
specified person.
    Associate of a person is:
    (1) A corporation or organization (other than you or your majority-
owned subsidiaries), if the person is a senior officer or partner, or 
beneficially owns, directly or indirectly, 10 percent or more of any 
class of equity securities of the corporation or organization.
    (2) A trust or other estate, if the person has a substantial 
beneficial interest in the trust or estate or is a trustee or fiduciary 
of the trust or estate. For purposes of Sec. Sec. 192.370, 192.380, 
192.385, 192.390, 192.395 and 192.505, a person who has a substantial 
beneficial interest in your tax-qualified or non-tax-qualified employee 
stock benefit plan, or who is a trustee or a fiduciary of the plan, is 
not an associate of the plan. For the purposes of Sec. 192.370, your 
tax-qualified employee stock benefit plan is not an associate of a 
person.
    (3) Any person who is related by blood or marriage to such person 
and:
    (i) Who lives in the same home as the person; or
    (ii) Who is your director or senior officer, or a director or senior 
officer of your holding company or your subsidiary.
    Association members or members are persons who, under applicable 
law, are eligible to vote at the meeting on conversion.
    Control (including controlling, controlled by, and under common 
control with ) means the direct or indirect power to direct or exercise 
a controlling influence over the management and policies of a person, 
whether through the ownership of voting securities, by contract, or 
otherwise as described in part 174 of this chapter.
    Eligibility record date is the date for determining eligible account 
holders. The eligibility record date must be at least one year before 
the date your board of directors adopts the plan of conversion.
    Eligible account holders are any persons holding qualifying deposits 
on the eligibility record date.
    IRS is the Internal Revenue Service.
    Local community includes:
    (1) Every county, parish, or similar governmental subdivision in 
which you have a home or branch office;
    (2) Each county's, parish's, or subdivision's metropolitan 
statistical area;
    (3) All zip code areas in your Community Reinvestment Act assessment 
area; and
    (4) Any other area or category you set out in your plan of 
conversion, as approved by the appropriate Federal banking agency.
    Offer, offer to sell, or offer for sale is an attempt or offer to 
dispose of, or a solicitation of an offer to buy, a security or interest 
in a security for value. Preliminary negotiations or agreements with an 
underwriter, or among underwriters who are or will be in privity of 
contract with you, are not offers, offers to sell, or offers for sale.
    Person is an individual, a corporation, a partnership, an 
association, a joint-stock company, a limited liability company, a 
trust, an unincorporated organization, or a government or political 
subdivision of a government.
    Proxy soliciting material includes a proxy statement, form of proxy, 
or other written or oral communication regarding the conversion.
    Purchase or buy includes every contract to acquire a security or 
interest in a security for value.
    Qualifying deposit is the total balance in an account holder's 
savings accounts at the close of business on the eligibility or 
supplemental eligibility record date. Your plan of conversion may 
provide that only savings accounts with total deposit balances of $50 or 
more will qualify.
    Sale or sell includes every contract to dispose of a security or 
interest in a security for value. An exchange of securities in a merger 
or acquisition approved by the appropriate Federal banking agency is not 
a sale.
    Savings account is any withdrawable account as defined in Sec. 
161.42 of this

[[Page 875]]

chapter, including a demand account as defined in Sec. 161.16 of this 
chapter.
    Solicitation and solicit is a request for a proxy, whether or not 
accompanied by or included in a form of proxy; a request to execute, not 
execute, or revoke a proxy; or the furnishing of a form of proxy or 
other communication reasonably calculated to cause your members to 
procure, withhold, or revoke a proxy. Solicitation or solicit does not 
include providing a form of proxy at the unsolicited request of a 
member, the acts required to mail communications for members, or 
ministerial acts performed on behalf of a person soliciting a proxy.
    Subscription offering is the offering of shares through 
nontransferable subscription rights to:
    (1) Eligible account holders under Sec. 192.355;
    (2) Tax-qualified employee stock ownership plans under Sec. 
192.380;
    (3) Supplemental eligible account holders under Sec. 192.355; and
    (4) Other voting members under Sec. 192.365.
    Supplemental eligibility record date is the date for determining 
supplemental eligible account holders. The supplemental eligibility 
record date is the last day of the calendar quarter before the 
appropriate Federal banking agency approves your conversion and will 
only occur if such agency has not approved your conversion within 15 
months after the eligibility record date.
    Supplemental eligible account holders are any persons, except your 
officers, directors, and their associates, holding qualifying deposits 
on the supplemental eligibility record date.
    Tax-qualified employee stock benefit plan is any defined benefit 
plan or defined contribution plan, such as an employee stock ownership 
plan, stock bonus plan, profit-sharing plan, or other plan, and a 
related trust, that is qualified under section 401 of the Internal 
Revenue Code (26 U.S.C. 401).
    Underwriter is any person who purchases any securities from you with 
a view to distributing the securities, offers or sells securities for 
you in connection with the securities' distribution, or participates or 
has a direct or indirect participation in the direct or indirect 
underwriting of any such undertaking. Underwriter does not include a 
person whose interest is limited to a usual and customary distributor's 
or seller's commission from an underwriter or dealer.



                     Subpart A_Standard Conversions

                           Prior to Conversion



Sec. 192.100  What must I do before a conversion?

    (a) Your board, or a subcommittee of your board, must meet with the 
appropriate Federal banking agency before you pass your plan of 
conversion. The meeting may occur at the appropriate Federal banking 
agency or your offices at your option. At that meeting you must provide 
the appropriate Federal banking agency with a written strategic plan 
that outlines the objectives of the proposed conversion and the intended 
use of the conversion proceeds.
    (b) You should also consult with the appropriate Federal banking 
agency before you file your application for conversion. The appropriate 
Federal banking agency will discuss the information that you must 
include in the application for conversion, general issues that you may 
confront in the conversion process, and any other pertinent issues.



Sec. 192.105  What information must I include in my business plan?

    (a) Prior to filing an application for conversion, you must adopt a 
business plan reflecting your intended plans for deployment of the 
proposed conversion proceeds. Your business plan is required, under 
Sec. 192.150, to be included in your conversion application. At a 
minimum, your business plan must address:
    (1) Your projected operations and activities for three years 
following the conversion. You must describe how you will deploy the 
conversion proceeds at the converted savings association (and holding 
company, if applicable), what opportunities are available to reasonably 
achieve your planned deployment of conversion proceeds in your proposed 
market areas, and how your deployment will provide a reasonable return 
on investment commensurate

[[Page 876]]

with investment risk, investor expectations, and industry norms, by the 
final year of the business plan. You must include three years of 
projected financial statements. The business plan must provide that the 
converted savings association must retain at least 50 percent of the net 
conversion proceeds. The appropriate Federal banking agency may require 
that a larger percentage of proceeds remain in the institution.
    (2) Your plan for deploying conversion proceeds to meet credit and 
lending needs in your proposed market areas. The appropriate Federal 
banking agencies strongly discourage business plans that provide for a 
substantial investment in mortgage securities or other securities, 
except as an interim measure to facilitate orderly, prudent deployment 
of proceeds during the three years following the conversion, or as part 
of a properly managed leverage strategy.
    (3) The risks associated with your plan for deployment of conversion 
proceeds, and the effect of this plan on management resources, staffing, 
and facilities.
    (4) The expertise of your management and board of directors, or that 
you have planned for adequate staffing and controls to prudently manage 
the growth, expansion, new investment, and other operations and 
activities proposed in your business plan.
    (b) You may not project returns of capital or special dividends in 
any part of the business plan. A newly converted company may not plan on 
stock repurchases in the first year of the business plan.



Sec. 192.110  Who must review my business plan?

    (a) Your chief executive officer and members of the board of 
directors must review, and at least two-thirds of your board of 
directors must approve, the business plan.
    (b) Your chief executive officer and at least two-thirds of the 
board of directors must certify that the business plan accurately 
reflects the intended plans for deployment of conversion proceeds, and 
that any new initiatives reflected in the business plan are reasonably 
achievable. You must submit these certifications with your business 
plan, as part of your conversion application under Sec. 192.150.



Sec. 192.115  How will the appropriate Federal banking agency review my 

business plan?

    (a) The appropriate Federal banking agency will review your business 
plan to determine that it demonstrates a safe and sound deployment of 
conversion proceeds, as part of its review of your conversion 
application. In making its determination, the appropriate Federal 
banking agency will consider how you have addressed the applicable 
factors of Sec. 192.105. No single factor will be determinative.
    (b) If you are a Federal savings association, you must file your 
business plan with the appropriate OCC licensing office. If you are a 
state savings association, you must file your business plan with the 
appropriate FDIC region. The appropriate Federal banking agency may 
request additional information, if necessary, to support its 
determination under paragraph (a) of this section. You must file your 
business plan as a confidential exhibit to the Form AC.
    (c) If the appropriate Federal banking agency approves your 
application for conversion and you complete your conversion, you must 
operate within the parameters of your business plan. You must obtain the 
prior written approval of the appropriate Federal banking agency for any 
material deviations from your business plan.



Sec. 192.120  May I discuss my plans to convert with others?

    (a) You may discuss information about your conversion with 
individuals that you authorize to prepare documents for your conversion.
    (b) Except as permitted under paragraph (a) of this section, you 
must keep all information about your conversion confidential until your 
board of directors adopts your plan of conversion.
    (c) If you violate this section, the appropriate Federal banking 
agency may require you to take remedial action. For example, the 
appropriate Federal banking agency may require you to

[[Page 877]]

take any or all of the following actions:
    (1) Publicly announce that you are considering a conversion;
    (2) Set an eligibility record date acceptable to the appropriate 
Federal banking agency;
    (3) Limit the subscription rights of any person who violates or aids 
a violation of this section; or
    (4) Take any other action to assure that your conversion is fair and 
equitable.

                           Plan of Conversion



Sec. 192.125  Must my board of directors adopt a plan of conversion?

    Prior to filing an application for conversion, your board of 
directors must adopt a plan of conversion that conforms to Sec. Sec. 
192.320 through 192.485 and 192.505. Your board of directors must adopt 
the plan by at least a two-thirds vote. Your plan of conversion is 
required, under Sec. 192.150, to be included in your conversion 
application.



Sec. 192.130  What must I include in my plan of conversion?

    You must include the information included in Sec. Sec. 192.320 
through 192.485 and 192.505 in your plan of conversion. The appropriate 
Federal banking agency may require you to delete or revise any provision 
in your plan of conversion if it determines the provision is 
inequitable; is detrimental to you, your account holders, or other 
savings associations; or is contrary to public interest.



Sec. 192.135  How do I notify my members that my board of directors approved a 

plan of conversion?

    (a) Notice. You must promptly notify your members that your board of 
directors adopted a plan of conversion and that a copy of the plan is 
available for the members' inspection in your home office and in your 
branch offices. You must mail a letter to each member or publish a 
notice in the local newspaper in every local community where you have an 
office. You may also issue a press release. The appropriate Federal 
banking agency may require broader publication, if necessary, to ensure 
adequate notice to your members.
    (b) Contents of notice. You may include any of the following 
statements and descriptions in your letter, notice, or press release.
    (1) Your board of directors adopted a proposed plan to convert from 
a mutual to a stock savings institution.
    (2) You will send your members a proxy statement with detailed 
information on the proposed conversion before you convene a members' 
meeting to vote on the conversion.
    (3) Your members will have an opportunity to approve or disapprove 
the proposed conversion at a meeting. At least a majority of the 
eligible votes must approve the conversion.
    (4) You will not vote existing proxies to approve or disapprove the 
conversion. You will solicit new proxies for voting on the proposed 
conversion.
    (5) The appropriate Federal banking agency, and in the case of a 
state-chartered savings association, the appropriate state regulator, 
must approve the conversion before the conversion will be effective. 
Your members will have an opportunity to file written comments, 
including objections and materials supporting the objections, with the 
appropriate Federal banking agency.
    (6) The IRS must issue a favorable tax ruling, or a tax expert must 
issue an appropriate tax opinion, on the tax consequences of your 
conversion before the appropriate Federal banking agency will approve 
the conversion. The ruling or opinion must indicate the conversion will 
be a tax-free reorganization.
    (7) The appropriate Federal banking agency, and in the case of a 
state-chartered savings association, the appropriate state regulator, 
might not approve the conversion, and the IRS or a tax expert might not 
issue a favorable tax ruling or tax opinion.
    (8) Savings account holders will continue to hold accounts in the 
converted savings association with the same dollar amounts, rates of 
return, and general terms as existing deposits. FDIC will continue to 
insure the accounts.
    (9) Your conversion will not affect borrowers' loans, including the 
amount, rate, maturity, security, and other contractual terms.
    (10) Your business of accepting deposits and making loans will 
continue without interruption.

[[Page 878]]

    (11) Your current management and staff will continue to conduct 
current services for depositors and borrowers under current policies and 
in existing offices.
    (12) You may continue to be a member of the Federal Home Loan Bank 
System.
    (13) You may substantively amend your proposed plan of conversion 
before the members' meeting.
    (14) You may terminate the proposed conversion.
    (15) After the appropriate Federal banking agency, and in the case 
of a state-chartered savings association, the appropriate state 
regulator, approves the proposed conversion, you will send proxy 
materials providing additional information. After you send proxy 
materials, members may telephone or write to you with additional 
questions.
    (16) The proposed record date for determining the eligible account 
holders who are entitled to receive subscription rights to purchase your 
shares.
    (17) A brief description of the circumstances under which 
supplemental eligible account holders will receive subscription rights 
to purchase your shares.
    (18) A brief description of how voting members may participate in 
the conversion.
    (19) A brief description of how directors, officers, and employees 
will participate in the conversion.
    (20) A brief description of the proposed plan of conversion.
    (21) The par value (if any) and approximate number of shares you 
will issue and sell in the conversion.
    (c) Other requirements. (1) You may not solicit proxies, provide 
financial statements, describe the benefits of conversion, or estimate 
the value of your shares upon conversion in the letter, notice, or press 
release.
    (2) If you respond to inquiries about the conversion, you may 
address only the matters listed in paragraph (b) of this section.



Sec. 192.140  May I amend my plan of conversion?

    You may amend your plan of conversion before you solicit proxies. 
After you solicit proxies, you may amend your plan of conversion only if 
the appropriate Federal banking agency concurs.

                           Filing Requirements



Sec. 192.150  What must I include in my application for conversion?

    (a) Your application for conversion must include all of the 
following information.
    (1) Your plan of conversion.
    (2) Pricing materials meeting the requirements of Sec. 192.200(b).
    (3) Proxy soliciting materials under Sec. 192.270, including:
    (i) A preliminary proxy statement with signed financial statements;
    (ii) A form of proxy meeting the requirements of Sec. 192.255; and
    (iii) Any additional proxy soliciting materials, including press 
releases, personal solicitation instructions, radio or television 
scripts that you plan to use or furnish to your members, and a legal 
opinion indicating that any marketing materials comply with all 
applicable securities laws.
    (4) An offering circular described in Sec. 192.300.
    (5) The documents and information required by Form AC. You may 
obtain Form AC from the appropriate Federal banking agency.
    (6) Where indicated, written consents, signed and dated, of any 
accountant, attorney, investment banker, appraiser, or other 
professional who prepared, reviewed, passed upon, or certified any 
statement, report, or valuation for use. See Form AC, instruction B(7).
    (7) Your business plan, submitted as a separately bound, 
confidential exhibit. See Sec. 192.160.
    (8) Any additional information that the appropriate Federal banking 
agency requests.
    (b) The appropriate Federal banking agency will not accept for 
filing, and will return, any application for conversion that is 
improperly executed, materially deficient, substantially incomplete, or 
that provides for unreasonable conversion expenses.



Sec. 192.155  How do I file my application for conversion?

    If you are a Federal savings association, you must file an original 
and at

[[Page 879]]

least one conformed copy of Form AC with the appropriate OCC licensing 
office. If you are a state savings association, you must file all copies 
of your application with the appropriate FDIC region.



Sec. 192.160  May I keep portions of my application for conversion 

confidential?

    (a) The appropriate Federal banking agency makes all filings under 
this part available to the public, but may keep portions of your 
application for conversion confidential under paragraph (b) of this 
section.
    (b) You may request that the appropriate Federal banking agency keep 
portions of your application confidential. To do so, you must separately 
bind and clearly designate as ``confidential'' any portion of your 
application for conversion that you deem confidential. You must provide 
a written statement specifying the grounds supporting your request for 
confidentiality. The appropriate Federal banking agency will not treat 
as confidential the portion of your application describing how you plan 
to meet your Community Reinvestment Act (CRA) objectives. The CRA 
portion of your application may not incorporate by reference information 
contained in the confidential portion of your application.
    (c) The appropriate Federal banking agency will determine whether 
confidential information must be made available to the public under 5 
U.S.C. 552 and part 4 of this chapter or 12 CFR 309. The appropriate 
Federal banking agency will advise you before it makes information you 
designated as ``confidential'' available to the public.



Sec. 192.165  How do I amend my application for conversion?

    To amend your application for conversion, you must:
    (a) File an amendment with an appropriate facing sheet;
    (b) Number each amendment consecutively;
    (c) Respond to all issues raised by the appropriate Federal banking 
agency; and
    (d) Demonstrate that the amendment conforms to all applicable 
regulations.

           Notice of Filing of Application and Comment Process



Sec. 192.180  How do I notify the public that I filed an application for 

conversion?

    (a) You must publish a public notice of the application in 
accordance with the procedures in subpart B of part 116 of this chapter. 
You must simultaneously prominently post the notice in your home office 
and all branch offices.
    (b) Promptly after publication, you must file any public notice and 
an affidavit of publication from each publisher. If you are a Federal 
savings association, you must file the affidavit and two copies of any 
public notice with the appropriate OCC licensing office. If you are a 
state savings association, you must file all copies with the appropriate 
FDIC region.
    (c) If the appropriate Federal banking agency does not accept your 
application for conversion under Sec. 192.200 and requires you to file 
a new application, you must publish and post a new notice and allow an 
additional 30 days for comment.



Sec. 192.185  How may a person comment on my application for conversion?

    Commenters may submit comments on your application in accordance 
with the procedures in subpart C of part 116 of this chapter. A 
commenter must file the original and one copy of any comments with the 
appropriate OCC licensing office for Federal savings association 
applications and with the appropriate FDIC region for state savings 
association applications.

             Agency Review of the Application for Conversion



Sec. 192.200  What actions may the appropriate Federal banking agency take on 

my application?

    (a) The appropriate Federal banking agency may approve your 
application for conversion only if:
    (1) Your conversion complies with this part;
    (2) You will meet your regulatory capital requirements under part 
167 of this chapter after the conversion; and

[[Page 880]]

    (3) Your conversion will not result in a taxable reorganization 
under the Internal Revenue Code of 1986, as amended.
    (b) The appropriate Federal banking agency will review the appraisal 
required by Sec. 192.150(a)(2) in determining whether to approve your 
application. The appropriate Federal banking agency will review the 
appraisal under the following requirements.
    (1) Independent persons experienced and expert in corporate 
appraisal, and acceptable to the appropriate Federal banking agency, 
must prepare the appraisal report.
    (2) An affiliate of the appraiser may serve as an underwriter or 
selling agent, if you ensure that the appraiser is separate from the 
underwriter or selling agent affiliate and the underwriter or selling 
agent affiliate does not make recommendations or affect the appraisal.
    (3) The appraiser may not receive any fee in connection with the 
conversion other than for appraisal services.
    (4) The appraisal report must include a complete and detailed 
description of the elements of the appraisal, a justification for the 
appraisal methodology, and sufficient support for the conclusions.
    (5) If the appraisal is based on a capitalization of your pro forma 
income, it must indicate the basis for determining the income to be 
derived from the sale of shares, and demonstrate that the earnings 
multiple used is appropriate, including future earnings growth 
assumptions.
    (6) If the appraisal is based on a comparison of your shares with 
outstanding shares of existing stock associations, the existing stock 
associations must be reasonably comparable in size, market area, 
competitive conditions, risk profile, profit history, and expected 
future earnings.
    (7) The appropriate Federal banking agency may decline to process 
the application for conversion and deem it materially deficient or 
substantially incomplete if the initial appraisal report is materially 
deficient or substantially incomplete.
    (8) You may not represent or imply that the appropriate Federal 
banking agency approved the appraisal.
    (c) The appropriate Federal banking agency will review your 
compliance record under part 195 of this chapter and your business plan 
to determine how you will serve the convenience and needs of your 
communities after the conversion.
    (1) Based on this review, the appropriate Federal banking agency may 
approve your application, deny your application, or approve your 
application on the condition that you will improve your CRA performance 
or that you will address the particular credit or lending needs of the 
communities that you will serve.
    (2) The appropriate Federal banking agency may deny your application 
if your business plan does not demonstrate that your proposed use of 
conversion proceeds will help you to meet the credit and lending needs 
of the communities that you will serve.
    (d) The appropriate Federal banking agency may request that you 
amend your application if further explanation is necessary, material is 
missing, or material must be corrected.
    (e) The appropriate Federal banking agency will deny your 
application if the application does not meet the requirements of this 
subpart, unless The appropriate Federal banking agency waives the 
requirement under Sec. 192.5(c).



Sec. 192.205  May a court review the appropriate Federal banking agency's 

final action on my conversion?

    (a) Any person aggrieved by the appropriate Federal banking agency's 
final action on your application for conversion may ask the court of 
appeals of the United States for the circuit in which the principal 
office or residence of such person is located, or the U.S. Court of 
Appeals for the District of Columbia Circuit, to review the action under 
12 U.S.C. 1464(i)(2)(B).
    (b) To obtain court review of the action, this statute requires the 
aggrieved person to file a written petition requesting that the court 
modify, terminate, or set aside the final appropriate Federal banking 
agency action. The aggrieved person must file the petition with the 
court within the later of 30 days after the appropriate Federal agency 
publishes notice of its final action in the Federal Register or 30 days

[[Page 881]]

after you mail the proxy statement to your members under Sec. 192.235.

                             Vote by Members



Sec. 192.225  Must I submit the plan of conversion to my members for approval?

    (a) After the appropriate Federal banking agency approves your plan 
of conversion, you must submit your plan of conversion to your members 
for approval. You must obtain this approval at a meeting of your 
members, which may be a special or annual meeting, unless you are a 
state-chartered savings association and state law requires you to obtain 
approval at an annual meeting.
    (b) Your members must approve your plan of conversion by a majority 
of the total outstanding votes, unless you are a state-chartered savings 
association and state law prescribes a higher percentage.
    (c) Your members may vote in person or by proxy.
    (d) You may notify eligible account holders or supplemental eligible 
account holders who are not voting members of your proposed conversion. 
You may include only the information in Sec. 192.135 in your notice.



Sec. 192.230  Who is eligible to vote?

    You determine members' eligibility to vote by setting a voting 
record date. You must set a voting record date that is not more than 60 
days nor less than 20 days before your meeting, unless you are a state-
chartered savings association and state law requires a different voting 
record date.



Sec. 192.235  How must I notify my members of the meeting?

    (a) You must notify your members of the meeting to consider your 
conversion by sending the members a proxy statement cleared by the 
appropriate Federal banking agency.
    (b) You must notify your members 20 to 45 days before your meeting, 
unless you are a state-chartered savings association and state law 
requires a different notice period.
    (c) You must also notify each beneficial holder of an account held 
in a fiduciary capacity:
    (1) If you are a Federal savings association, and the name of the 
beneficial holder is disclosed on your records; or
    (2) If you are a state-chartered association and the beneficial 
holder possesses voting rights under state law.



Sec. 192.240  What must I submit after the members' meeting?

    (a) Promptly after the members' meeting, you must file all of the 
following information with the appropriate OCC licensing office if you 
are a Federal savings association, and with the appropriate FDIC region 
if you are a state savings association.
    (1) A certified copy of each adopted resolution on the conversion.
    (2) The total votes eligible to be cast.
    (3) The total votes represented in person or by proxy.
    (4) The total votes cast in favor of and against each matter.
    (5) The percentage of votes necessary to approve each matter.
    (6) An opinion of counsel that you conducted the members' meeting in 
compliance with all applicable state or Federal laws and regulations.
    (b) Promptly after completion of the conversion, you must submit an 
opinion of counsel that you complied with all laws applicable to the 
conversion.

                           Proxy Solicitation



Sec. 192.250  Who must comply with these proxy solicitation provisions?

    (a) You must comply with these proxy solicitation provisions when 
you provide proxy solicitation material to members for the meeting to 
vote on your plan of conversion.
    (b) Your members must comply with these proxy solicitation 
provisions when they provide proxy solicitation materials to members for 
the meeting to vote on your conversion, pursuant to Sec. 192.280, 
except where:
    (1) The member solicits 50 people or fewer and does not solicit 
proxies on your behalf; or
    (2) The member solicits proxies through newspaper advertisements 
after your board of directors adopts the plan of conversion. Any 
newspaper advertisements may include only the following information:
    (i) Your name;
    (ii) The reason for the advertisement;

[[Page 882]]

    (iii) The proposal or proposals to be voted upon;
    (iv) Where a member may obtain a copy of the proxy solicitation 
material; and
    (v) A request for your members to vote at the meeting.



Sec. 192.255  What must the form of proxy include?

    The form of proxy must include all of the following:
    (a) A statement in bold face type stating that management is 
soliciting the proxy.
    (b) Blank spaces where the member must date and sign the proxy.
    (c) Clear and impartial identification of each matter or group of 
related matters that members will vote upon. You must include any 
proposed charitable contribution as an item to be voted on separately.
    (d) The phrase ``Revocable Proxy'' in bold face type (at least 18 
point).
    (e) A description of any charter or state law requirement that 
restricts or conditions votes by proxy.
    (f) An acknowledgment that the member received a proxy statement 
before he or she signed the form of proxy.
    (g) The date, time, and the place of the meeting, when available.
    (h) A way for the member to specify by ballot whether he or she 
approves or disapproves of each matter that members will vote upon.
    (i) A statement that management will vote the proxy in accordance 
with the member's specifications.
    (j) A statement in bold face type indicating how management will 
vote the proxy if the member does not specify a choice for a matter.



Sec. 192.260  May I use previously executed proxies?

    You may not use previously executed proxies for the plan of 
conversion vote. If members consider your plan of conversion at an 
annual meeting, you may vote proxies obtained through other proxy 
solicitations only on matters not related to your plan of conversion.



Sec. 192.265  How may I use proxies executed under this part?

    You may vote a proxy obtained under this part on matters that are 
incidental to the conduct of the meeting. You may not vote a proxy 
obtained under this subpart at any meeting other than the meeting (or 
any adjournment of the meeting) to vote on your plan of conversion.



Sec. 192.270  What must I include in my proxy statement?

    (a) Content requirements. You must prepare your proxy statement in 
compliance with this part and Form PS.
    (b) Other requirements. (1) The appropriate Federal banking agency 
will review your proxy solicitation material when it reviews the 
application for conversion and will clear the proxy solicitation 
material.
    (2) You must provide a cleared written proxy statement to your 
members before or at the same time you provide any other soliciting 
material. You must mail cleared proxy solicitation material to your 
members within ten days after the appropriate Federal banking agency 
clears the solicitation.



Sec. 192.275  How do I file revised proxy materials?

    (a) You must file revised proxy materials as an amendment to your 
application for conversion. See Sec. 192.155 for where to file.
    (b) To revise your proxy solicitation materials, you must file:
    (1) Seven copies of your revised proxy materials as required by Form 
PS;
    (2) Seven copies of your revised form of proxy, if applicable; and
    (3) Seven copies of any additional proxy solicitation material 
subject to Sec. 192.270.
    (c) You must mark four of the seven required copies to clearly 
indicate changes from the prior filing.
    (d) You must file seven definitive copies of all proxy solicitation 
material, in the form in which you furnish the material to your members. 
You must file no later than the date that you send or give the proxy 
solicitation material to your members. You must indicate the date that 
you will release the materials.
    (e) Unless the appropriate Federal banking agency requests you to do 
so, you do not have to file copies of replies

[[Page 883]]

to inquiries from your members or copies of communications that merely 
request members to sign and return proxy forms.



Sec. 192.280  Must I mail a member's proxy solicitation material?

    (a) You must mail the member's cleared proxy solicitation material 
if:
    (1) Your board of directors adopted a plan of conversion;
    (2) A member requests in writing that you mail the proxy 
solicitation material;
    (3) The appropriate Federal banking agency has cleared the member's 
proxy solicitation; and
    (4) The member agrees to defray your reasonable expenses.
    (b) As soon as practicable after you receive a request under 
paragraph (a) of this section, you must mail or otherwise furnish the 
following information to the member:
    (1) The approximate number of members that you solicited or will 
solicit, or the approximate number of members of any group of account 
holders that the member designates; and
    (2) The estimated cost of mailing the proxy solicitation material 
for the member.
    (c) You must mail cleared proxy solicitation material to the 
designated members promptly after the member furnishes the materials, 
envelopes (or other containers), and postage (or payment for postage) to 
you.
    (d) You are not responsible for the content of a member's proxy 
solicitation material.
    (e) A member may furnish other members its own proxy solicitation 
material, cleared by the appropriate Federal banking agency, subject to 
the rules in this section.



Sec. 192.285  What solicitations. are prohibited?

    (a) False or misleading statements. (1) No one may use proxy 
solicitation material for the members' meeting if the material contains 
any statement which, considering the time and the circumstances of the 
statement:
    (i) Is false or misleading with respect to any material fact;
    (ii) Omits any material fact that is necessary to make the 
statements not false or misleading; or
    (iii) Omits any material fact that is necessary to correct a 
statement in an earlier communication that has become false or 
misleading.
    (2) No one may represent or imply that the appropriate Federal 
banking agency determined that the proxy solicitation material is 
accurate, complete, not false or not misleading, or passed upon the 
merits of or approved any proposal.
    (b) Other prohibited solicitations. No person may solicit:
    (1) An undated or post-dated proxy;
    (2) A proxy that states it will be dated after the date it is signed 
by a member;
    (3) A proxy that is not revocable at will by the member; or
    (4) A proxy that is part of another document or instrument.



Sec. 192.290  What will the appropriate Federal banking agency do if a 

solicitation violates these prohibitions?

    (a) If a solicitation violates Sec. 192.285, the appropriate 
Federal banking agency may require remedial measures, including:
    (1) Correction of the violation by a retraction and a new 
solicitation;
    (2) Rescheduling the members' meeting; or
    (3) Any other actions necessary to ensure a fair vote.
    (b) The appropriate Federal banking agency may also bring an 
enforcement action against the violator.



Sec. 192.295  Will the appropriate Federal banking agency require me to re-

solicit proxies?

    If you amend your application for conversion, the appropriate 
Federal banking agency may require you to re-solicit proxies for your 
members' meeting as a condition of approval of the amendment.

[[Page 884]]

                            Offering Circular



Sec. 192.300  What must happen before the appropriate Federal banking agency 

declares my offering circular effective?

    (a) You must prepare and file your offering circular with the 
Securities and Corporate Practices Division of the OCC if you are a 
Federal savings association and with the appropriate FDIC region if you 
are a state savings association, in compliance with this part and Form 
OC and, where applicable, part 197 of this chapter. File your offering 
circular in accordance with the procedures in section 192.155.
    (b) You must condition your stock offering upon member approval of 
your plan of conversion.
    (c) The appropriate Federal banking agency will review the Form OC 
and may comment on the included disclosures and financial statements.
    (d) You must file any revised offering circular, final offering 
circular, and any post-effective amendment to the final offering 
circular in accordance with the procedures in section 192.155.
    (e) The appropriate Federal banking agency will not approve the 
adequacy or accuracy of the offering circular or the disclosures.
    (f) After you satisfactorily address the appropriate Federal banking 
agency's concerns, you must request the appropriate Federal banking 
agency to declare your Form OC effective for a time period. The time 
period may not exceed the maximum time period for the completion of the 
sale of all of your shares under Sec. 192.400.



Sec. 192.305  When may I distribute the offering circular?

    (a) You may distribute a preliminary offering circular at the same 
time as or after you mail the proxy statement to your members.
    (b) You may not distribute an offering circular until the 
appropriate Federal banking agency declares it effective. You must 
distribute the offering circular in accordance with this part.
    (c) You must distribute your offering circular to persons listed in 
your plan of conversion within 10 days after the appropriate Federal 
banking agency declares it effective.



Sec. 192.310  When must I file a post-effective amendment to the offering 

circular?

    (a) You must file a post-effective amendment to the offering 
circular with the appropriate Federal banking agency when a material 
event or change of circumstance occurs.
    (b) After the appropriate Federal banking agency declares the post-
effective amendment effective, you must immediately deliver the 
amendment to each person who subscribed for or ordered shares in the 
offering.
    (c) Your post-effective amendment must indicate that each person may 
increase, decrease, or rescind their subscription or order.
    (d) The post-effective offering period must remain open no less than 
10 days nor more than 20 days, unless the appropriate Federal banking 
agency approves a longer rescission period.

                        Offers and Sales of Stock



Sec. 192.320  Who has priority to purchase my conversion shares?

    You must offer to sell your shares in the following order:
    (a) Eligible account holders.
    (b) Tax-qualified employee stock ownership plans.
    (c) Supplemental eligible account holders.
    (d) Other voting members who have subscription rights.
    (e) Your community, your community and the general public, or the 
general public.



Sec. 192.325  When may I offer to sell my conversion shares?

    (a) You may offer to sell your conversion shares after the 
appropriate Federal banking agency approves your conversion, clears your 
proxy statement, and declares your offering circular effective.
    (b) The offer may commence at the same time you start the proxy 
solicitation of your members.



Sec. 192.330  How do I price my conversion shares?

    (a) You must sell your conversion shares at a uniform price per 
share and

[[Page 885]]

at a total price that is equal to the estimated pro forma market value 
of your shares after you convert.
    (b) The maximum price must be no more than 15 percent above the 
midpoint of the estimated price range in your offering circular.
    (c) The minimum price must be no more than 15 percent below the 
midpoint of the estimated price range in your offering circular.
    (d) If the appropriate Federal banking agency permits, you may 
increase the maximum price of conversion shares sold. The maximum price, 
as adjusted, must be no more than 15 percent above the maximum price 
computed under paragraph (b) of this section.
    (e) The maximum price must be between $5 and $50 per share.
    (f) You must include the estimated price in any preliminary offering 
circular.



Sec. 192.335  How do I sell my conversion shares?

    (a) You must distribute order forms to all eligible account holders, 
supplemental eligible account holders, and other voting members to 
enable them to subscribe for the conversion shares they are permitted 
under the plan of conversion. You may either send the order forms with 
your offering circular or after you distribute your offering circular.
    (b) You may sell your conversion shares in a community offering, a 
public offering, or both. You may begin the community offering, the 
public offering, or both at any time during the subscription offering or 
upon conclusion of the subscription offering.
    (c) You may pay underwriting commissions (including underwriting 
discounts). The appropriate Federal banking agency may object to the 
payment of unreasonable commissions. You may reimburse an underwriter 
for accountable expenses in a subscription offering if the public 
offering is limited. If no public offering occurs, you may pay an 
underwriter a consulting fee. The appropriate Federal banking agency may 
object to the payment of unreasonable consulting fees.
    (d) If you conduct the community offering, the public offering, or 
both at the same time as the subscription offering, you must fill all 
subscription orders first.
    (e) You must prepare your order form in compliance with this part 
and Form OF.



Sec. 192.340  What sales practices are prohibited?

    (a) In connection with offers, sales, or purchases of conversion 
shares under this part, you and your directors, officers, agents, or 
employees may not:
    (1) Employ any device, scheme, or artifice to defraud;
    (2) Obtain money or property by means of any untrue statement of a 
material fact or any omission of a material fact necessary to make the 
statements, in light of the circumstances under which they were made, 
not misleading; or
    (3) Engage in any act, transaction, practice, or course of business 
that operates or would operate as a fraud or deceit upon a purchaser or 
seller.
    (b) During your conversion, no person may:
    (1) Transfer, or enter into any agreement or understanding to 
transfer, the legal or beneficial ownership of subscription rights for 
your conversion shares or the underlying securities to the account of 
another;
    (2) Make any offer, or any announcement of an offer, to purchase any 
of your conversion shares from anyone but you; or
    (3) Knowingly acquire more than the maximum purchase allowable under 
your plan of conversion.
    (c) The restrictions in paragraphs (b)(1) and (b)(2) of this section 
do not apply to offers for more than 10 percent of any class of 
conversion shares by:
    (1) An underwriter or a selling group, acting on your behalf, that 
makes the offer with a view toward public resale; or
    (2) One or more of your tax-qualified employee stock ownership plans 
so long as the plan or plans do not beneficially own more than 25 
percent of any class of your equity securities in the aggregate.
    (d) If any person is found to have violated the restrictions in 
paragraphs (b)(1) and (b)(2) of this section, they

[[Page 886]]

may face prosecution or other legal action.



Sec. 192.345  How may a subscriber pay for my conversion shares?

    (a) A subscriber may purchase conversion shares with cash, by a 
withdrawal from a savings account, or a withdrawal from a certificate of 
deposit. If a subscriber purchases shares by a withdrawal from a 
certificate of deposit, you may not assess a penalty for the withdrawal.
    (b) You may not extend credit to any person to purchase your 
conversion shares.



Sec. 192.350  Must I pay interest on payments for conversion shares?

    (a) You must pay interest from the date you receive a payment for 
conversion shares until the date you complete or terminate the 
conversion. You must pay interest at no less than your passbook rate for 
amounts paid in cash, check, or money order.
    (b) If a subscriber withdraws money from a savings account to 
purchase conversion shares, you must pay interest on the payment until 
you complete or terminate the conversion as if the withdrawn amount 
remained in the account.
    (c) If a depositor fails to maintain the applicable minimum balance 
requirement because he or she withdraws money from a certificate of 
deposit to purchase conversion shares, you may cancel the certificate 
and pay interest at no less than your passbook rate on any remaining 
balance.



Sec. 192.355  What subscription rights must I give to each eligible account 

holder and each supplemental eligible account holder?

    (a) You must give each eligible account holder subscription rights 
to purchase conversion shares in an amount equal to the greater of:
    (1) The maximum purchase limitation established for the community 
offering or the public offering under Sec. 192.395;
    (2) One-tenth of one percent of the total stock offering; or
    (3) Fifteen times the following number: The total number of 
conversion shares that you will issue, multiplied by the following 
fraction. The numerator is the total qualifying deposit of the eligible 
account holder. The denominator is the total qualifying deposits of all 
eligible account holders. You must round down the product of this 
multiplied fraction to the next whole number.
    (b) You must give subscription rights to purchase shares to each 
supplemental eligible account holder in the same amount as described in 
paragraph (a) of this section, except that you must compute the fraction 
described in paragraph (a)(3) of this section as follows: The numerator 
is the total qualifying deposit of the supplemental eligible account 
holder. The denominator is the total qualifying deposits of all 
supplemental eligible account holders.



Sec. 192.360  Are my officers, directors, and their associates eligible 

account holders?

    Your officers, directors, and their associates may be eligible 
account holders. However, if an officer, director, or his or her 
associate receives subscription rights based on increased deposits in 
the year before the eligibility record date, you must subordinate 
subscription rights for these deposits to subscription rights exercised 
by other eligible account holders.



Sec. 192.365  May other voting members purchase conversion shares in the 

conversion?

    (a) You must give rights to purchase your conversion shares in the 
conversion to voting members who are neither eligible account holders 
nor supplemental eligible account holders. You must allocate rights to 
each voting member that are equal to the greater of:
    (1) The maximum purchase limitation established for the community 
offering and the public offering under Sec. 192.395; or
    (2) One-tenth of one percent of the total stock offering.
    (b) You must subordinate the voting members' rights to the rights of 
eligible account holders, tax-qualified employee stock ownership plans, 
and supplemental eligible account holders.

[[Page 887]]



Sec. 192.370  Does the appropriate Federal banking agency limit the aggregate 

purchases by officers, directors, and their associates?

    (a) When you convert, your officers, directors, and their associates 
may not purchase, in the aggregate, more than the following percentage 
of your total stock offering:

------------------------------------------------------------------------
                                                   Officer and director
                Institution size                   purchases  (percent)
------------------------------------------------------------------------
$50,000,000 or less............................                       35
$50,000,001-100,000,000........................                       34
$100,000,001-150,000,000.......................                       33
$150,000,001-200,000,000.......................                       32
$200,000,001-250,000,000.......................                       31
$250,000,001-300,000,000.......................                       30
$300,000,001-350,000,000.......................                       29
$350,000,001-400,000,000.......................                       28
$400,000,001-450,000,000.......................                       27
$450,000,001-500,000,000.......................                       26
Over $500,000,000..............................                       25
------------------------------------------------------------------------

    (b) The purchase limitations in this section do not apply to shares 
held in tax-qualified employee stock benefit plans that are attributable 
to your officers, directors, and their associates.



Sec. 192.375  How do I allocate my conversion shares if my shares are 

oversubscribed?

    (a) If your conversion shares are oversubscribed by your eligible 
account holders, you must allocate shares among the eligible account 
holders so that each, to the extent possible, may purchase 100 shares.
    (b) If your conversion shares are oversubscribed by your 
supplemental eligible account holders, you must allocate shares among 
the supplemental eligible account holders so that each, to the extent 
possible, may purchase 100 shares.
    (c) If a person is an eligible account holder and a supplemental 
eligible account holder, you must include the eligible account holder's 
allocation in determining the number of conversion shares that you may 
allocate to the person as a supplemental eligible account holder.
    (d) For conversion shares that you do not allocate under paragraphs 
(a) and (b) of this section, you must allocate the shares among the 
eligible or supplemental eligible account holders equitably, based on 
the amounts of qualifying deposits. You must describe this method of 
allocation in your plan of conversion.
    (e) If shares remain after you have allocated shares as provided in 
paragraphs (a) and (b) of this section, and if your voting members 
oversubscribe, you must allocate your conversion shares among those 
members equitably. You must describe the method of allocation in your 
plan of conversion.



Sec. 192.380  May my employee stock ownership plan purchase conversion shares?

    (a) Your tax-qualified employee stock ownership plan may purchase up 
to 10 percent of the total offering of your conversion shares.
    (b) If the appropriate Federal banking agency approves a revised 
stock valuation range as described in Sec. 192.330(e), and the final 
conversion stock valuation range exceeds the former maximum stock 
offering range, you may allocate conversion shares to your tax-qualified 
employee stock ownership plan, up to the 10 percent limit in paragraph 
(a) of this section.
    (c) If your tax-qualified employee stock ownership plan is not able 
to or chooses not to purchase stock in the offering, it may, with prior 
appropriate Federal banking agency approval and appropriate disclosure 
in your offering circular, purchase stock in the open market, or 
purchase authorized but unissued conversion shares.

[[Page 888]]

    (d) You may include stock contributed to a charitable organization 
in the conversion in the calculation of the total offering of conversion 
shares under paragraphs (a) and (b) of this section, unless the 
appropriate Federal banking agency objects on supervisory grounds.



Sec. 192.385  May I impose any purchase limitations?

    (a) You may limit the number of shares that any person, group of 
associated persons, or persons otherwise acting in concert, may 
subscribe to up to five percent of the total stock sold.
    (b) If you set a limit of five percent under paragraph (a) of this 
section, you may modify that limit with appropriate Federal banking 
agency approval to provide that any person, group of associated persons, 
or persons otherwise acting in concert subscribing for five percent, may 
purchase between five and ten percent as long as the aggregate amount 
that the subscribers purchase does not exceed 10 percent of the total 
stock offering.
    (c) You may require persons exercising subscription rights to 
purchase a minimum number of conversion shares. The minimum number of 
shares must equal the lesser of the number of shares obtained by a $500 
subscription or 25 shares.
    (d) In setting purchase limitations under this section, you may not 
aggregate conversion shares attributed to a person in your tax-qualified 
employee stock ownership plan with shares purchased directly by, or 
otherwise attributable to, that person.



Sec. 192.390  Must I provide a purchase preference to persons in my local 

community?

    (a) In your subscription offering, you may give a purchase 
preference to eligible account holders, supplemental eligible account 
holders, and voting members residing in your local community.
    (b) In your community offering, you must give a purchase preference 
to natural persons residing in your local community.



Sec. 192.395  What other conditions apply when I offer conversion shares in a 

community offering, a public offering, or both?

    (a) You must offer and sell your stock to achieve a widespread 
distribution of the stock.
    (b) If you offer shares in a community offering, a public offering, 
or both, you must first fill orders for your stock up to a maximum of 
two percent of the conversion stock on a basis that will promote a 
widespread distribution of stock. You must allocate any remaining shares 
on an equal number of shares per order basis until you fill all orders.

                       Completion of the Offering



Sec. 192.400  When must I complete the sale of my stock?

    You must complete all sales of your stock within 45 calendar days 
after the last day of the subscription period, unless the offering is 
extended under Sec. 192.405.



Sec. 192.405  How do I extend the offering period?

    (a) You must request, in writing, an extension of any offering 
period.
    (b) The appropriate Federal banking agency may grant extensions of 
time to sell your shares. The appropriate Federal banking agency will 
not grant any single extension of more than 90 days.
    (c) If the appropriate Federal banking agency grants your request 
for an extension of time, you must provide a post-effective amendment to 
the offering circular under Sec. 192.310 to each person who subscribed 
for or ordered stock. Your amendment must indicate that the appropriate 
Federal banking agency extended the offering period and that each person 
who subscribed for or ordered stock may increase, decrease, or rescind 
their subscription or order within the time remaining in the extension 
period.

                      Completion of the Conversion



Sec. 192.420  When must I complete my conversion?

    (a) In your plan of conversion, you must set a date by which the 
conversion must be completed. This date

[[Page 889]]

must not be more than 24 months from the date that your members approve 
the plan of conversion. The date, once set, may not be extended by you 
or by the appropriate Federal banking agency. You must terminate the 
conversion if it is not completed by that date.
    (b) Your conversion is complete on the date that you accept the 
offers for your stock.



Sec. 192.425  Who may terminate the conversion?

    (a) Your members may terminate the conversion by failing to approve 
the conversion at your members' meeting.
    (b) You may terminate the conversion before your members' meeting.
    (c) You may terminate the conversion after the members' meeting only 
if the appropriate Federal banking agency concurs.



Sec. 192.430  What happens to my old charter?

    (a) If you are a Federally chartered mutual savings association or 
savings bank, and you convert to a Federally chartered stock savings 
association or savings bank, you must apply to the OCC to amend your 
charter and bylaws consistent with part 152 of this chapter, as part of 
your application for conversion. You may only include OCC pre-approved 
anti-takeover provisions in your amended charter and bylaws. See 12 CFR 
152.4(b)(8).
    (b) If you are a Federally chartered mutual savings association or 
savings bank and you convert to a state-chartered stock savings 
association under this part, you must surrender your charter to the OCC 
for cancellation promptly after the state issues your charter. You must 
promptly file a copy of your new state stock charter with the FDIC.
    (c) If you are a state-chartered mutual savings association or 
savings bank, and you convert to a Federally chartered stock savings 
association or savings bank, you must apply to the OCC for a new charter 
and bylaws consistent with part 152 of this chapter. You may only 
include OCC pre-approved anti-takeover provisions in your charter and 
bylaws. See 12 CFR 152.4(b)(8).
    (d) Your new or amended charter must require you to establish and 
maintain a liquidation account for eligible and supplemental eligible 
account holders under Sec. 192.450.



Sec. 192.435  What happens to my corporate existence after conversion?

    Your corporate existence will continue following your conversion, 
unless you convert to a state-chartered stock savings association and 
state law prescribes otherwise.



Sec. 192.440  What voting rights must I provide to stockholders after the 

conversion?

    You must provide your stockholders with exclusive voting rights, 
except as provided in Sec. 192.445(c).



Sec. 192.445  What must I provide my savings account holders?

    (a) You must provide each savings account holder, without payment, a 
withdrawable savings account or accounts in the same amount and under 
the same terms and conditions as their accounts before your conversion.
    (b) You must provide a liquidation account for each eligible and 
supplemental eligible account holder under Sec. 192.450.
    (c) If you are a state-chartered savings association and state law 
requires you to provide voting rights to savings account holders or 
borrowers, your charter must:
    (1) Limit these voting rights to the minimum required by state law; 
and
    (2) Require you to solicit proxies from the savings account holders 
and borrowers in the same manner that you solicit proxies from your 
stockholders.

                           Liquidation Account



Sec. 192.450  What is a liquidation account?

    (a) A liquidation account represents the potential interest of 
eligible account holders and supplemental eligible account holders in 
your net worth at the time of conversion. You must maintain a sub-
account to reflect the interest of each account holder.
    (b) Before you may provide a liquidation distribution to common 
stockholders, you must give a liquidation distribution to those eligible 
account

[[Page 890]]

holders and supplemental eligible account holders who hold savings 
accounts from the time of conversion until liquidation.
    (c) You may not record the liquidation account in your financial 
statements. You must disclose the liquidation account in the footnotes 
to your financial statements.



Sec. 192.455  What is the initial balance of the liquidation account?

    The initial balance of the liquidation account is your net worth in 
the statement of financial condition included in the final offering 
circular.



Sec. 192.460  How do I determine the initial balances of liquidation sub-

accounts?

    (a)(1) You determine the initial sub-account balance for a savings 
account held by an eligible account holder by multiplying the initial 
balance of the liquidation account by the following fraction: The 
numerator is the qualifying deposit in the savings account expressed in 
dollars on the eligibility record date. The denominator is total 
qualifying deposits of all eligible account holders on that date.
    (2) You determine the initial sub-account balance for a savings 
account held by a supplemental eligible account holder by multiplying 
the initial balance of the liquidation account by the following 
fraction: The numerator is the qualifying deposit in the savings account 
expressed in dollars on the supplemental eligibility record date. The 
denominator is total qualifying deposits of all supplemental eligible 
account holders on that date.
    (3) If an account holder holds a savings account on the eligibility 
record date and a separate savings account on the supplemental 
eligibility record date, you must compute separate sub-accounts for the 
qualifying deposits in the savings account on each record date.
    (b) You may not increase the initial sub-account balances. You must 
decrease the initial balance under Sec. 192.470 as depositors reduce or 
close their accounts.



Sec. 192.465  Do account holders retain any voting rights based on their 

liquidation sub-accounts?

    Eligible account holders or supplemental eligible account holders do 
not retain any voting rights based on their liquidation sub-accounts.



Sec. 192.470  Must I adjust liquidation sub-accounts?

    (a)(1) You must reduce the balance of an eligible account holder's 
or supplemental eligible account holder's sub-account if the deposit 
balance in the account holder's savings account at the close of business 
on any annual closing date, which for purposes of this section is your 
fiscal year end, after the relevant eligibility record dates is less 
than:
    (i) The deposit balance in the account holder's savings account at 
the close of business on any other annual closing date after the 
relevant eligibility record date; or
    (ii) The qualifying deposits in the account holder's savings account 
on the relevant eligibility record date.
    (2) The reduction must be proportionate to the reduction in the 
deposit balance.
    (b) If you reduce the balance of a liquidation sub-account, you may 
not subsequently increase it if the deposit balance increases.
    (c) You are not required to adjust the liquidation account and sub-
account balances at each annual closing date if you maintain sufficient 
records to make the computations if a liquidation subsequently occurs.
    (d) You must maintain the liquidation sub-account for each account 
holder as long as the account holder maintains an account with the same 
social security number.
    (e) If there is a complete liquidation, you must provide each 
account holder with a liquidation distribution in the amount of the sub-
account balance.



Sec. 192.475  What is a liquidation?

    (a) A liquidation is a sale of your assets and settlement of your 
liabilities with the intent to cease operations and close. Upon 
liquidation, you must return your charter to the governmental agency 
that issued it. The government agency must cancel your charter.

[[Page 891]]

    (b) A merger, consolidation, or similar combination or transaction 
with another depository institution, is not a liquidation. If you are 
involved in such a transaction, the surviving institution must assume 
the liquidation account.



Sec. 192.480  Does the liquidation account affect my net worth?

    The liquidation account does not affect your net worth.



Sec. 192.485  What provision must I include in my new Federal charter?

    If you convert to Federal stock form, you must include the following 
provision in your new charter: ``Liquidation Account. Under appropriate 
Federal banking agency regulations, the association must establish and 
maintain a liquidation account for the benefit of its savings account 
holders as of ----------. If the association undergoes a complete 
liquidation, it must comply with appropriate Federal banking agency 
regulations with respect to the amount and priorities on liquidation of 
each of the savings account holder's interests in the liquidation 
account. A savings account holder's interest in the liquidation account 
does not entitle the savings account holder to any voting rights.''

                             Post-Conversion



Sec. 192.500.  What management stock benefit plans may I implement?

    (a) During the 12 months after your conversion, you may implement a 
stock option plan (Option Plan), an employee stock ownership plan or 
other tax-qualified employee stock benefit plan (collectively, ESOP), 
and a management recognition plan (MRP), provided you meet all of the 
following requirements.
    (1) You disclose the plans in your proxy statement and offering 
circular and indicate in your offering circular that there will be a 
separate shareholder vote on the Option Plan and the MRP at least six 
months after the conversion. No shareholder vote is required to 
implement the ESOP. Your ESOP must be tax-qualified.
    (2) Your Option Plan does not encompass more than ten percent of the 
number of shares that you issued in the conversion.
    (3)(i) Your ESOP and MRP do not encompass, in the aggregate, more 
than ten percent of the number of shares that you issued in the 
conversion. If you have tangible capital of ten percent or more 
following the conversion, the appropriate Federal banking agency may 
permit your ESOP and MRP to encompass, in the aggregate, up to 12 
percent of the number of shares issued in the conversion; and
    (ii) Your MRP does not encompass more than three percent of the 
number of shares that you issued in the conversion. If you have tangible 
capital of ten percent or more after the conversion, the appropriate 
Federal banking agency may permit your MRP to encompass up to four 
percent of the number of shares that you issued in the conversion.
    (4) No individual receives more than 25 percent of the shares under 
any plan.
    (5) Your directors who are not your officers do not receive more 
than five percent of the shares of your MRP or Option Plan individually, 
or 30 percent of any such plan in the aggregate.
    (6) Your shareholders approve each of the Option Plan and the MRP by 
a majority of the total votes eligible to be cast at a duly called 
meeting before you establish or implement the plan. You may not hold 
this meeting until six months after your conversion.
    (7) When you distribute proxies or related material to shareholders 
in connection with the vote on a plan, you state that the plan complies 
with the appropriate Federal banking agency's regulations and that the 
appropriate Federal banking agency does not endorse or approve the plan 
in any way. You may not make any written or oral representations to the 
contrary.
    (8) You do not grant stock options at less than the market price at 
the time of grant.
    (9) You do not fund the Option Plan or the MRP at the time of the 
conversion.
    (10) Your plan does not begin to vest earlier than one year after 
shareholders approve the plan, and does not vest at a rate exceeding 20 
percent per year.

[[Page 892]]

    (11) Your plan permits accelerated vesting only for disability or 
death, or if you undergo a change of control.
    (12) Your plan provides that your executive officers or directors 
must exercise or forfeit their options in the event the institution 
becomes critically undercapitalized (as defined in Sec. 165.4 of this 
chapter), is subject to appropriate Federal banking agency enforcement 
action, or receives a capital directive under Sec. 165.7 of this 
chapter.
    (13) You file a copy of the proposed Option Plan or MRP with the 
appropriate Federal banking agency and certify to such agency that the 
plan approved by the shareholders is the same plan that you filed with, 
and disclosed in, the proxy materials distributed to shareholders in 
connection with the vote on the plan.
    (14) You file the plan and the certification with the appropriate 
Federal banking agency within five calendar days after your shareholders 
approve the plan.
    (b) You may provide dividend equivalent rights or dividend 
adjustment rights to allow for stock splits or other adjustments to your 
stock in your ESOP, MRP, and Option Plan.
    (c) The restrictions in paragraph (a) of this section do not apply 
to plans implemented more than 12 months after the conversion, provided 
that materials pertaining to any shareholder vote regarding such plans 
are not distributed within the 12 months after the conversion. If a plan 
adopted in conformity with paragraph (a) of this section is amended more 
than 12 months following your conversion, your shareholders must ratify 
any material deviations to the requirements in paragraph (a).



Sec. 192.505  May my directors, officers, and their associates freely trade 

shares?

    (a) Directors and officers who purchase conversion shares may not 
sell the shares for one year after the date of purchase, except that in 
the event of the death of the officer or director, the successor in 
interest may sell the shares.
    (b) You must include notice of the restriction described in 
paragraph (a) of this section on each certificate of stock that a 
director or officer purchases during the conversion or receives in 
connection with a stock dividend, stock split, or otherwise with respect 
to such restricted shares.
    (c) You must instruct your stock transfer agent about the transfer 
restrictions in this section.
    (d) For three years after you convert, your officers, directors, and 
their associates may purchase your stock only from a broker or dealer 
registered with the Securities and Exchange Commission. However, your 
officers, directors, and their associates may engage in a negotiated 
transaction involving more than one percent of your outstanding stock, 
and may purchase stock through any of your management or employee stock 
benefit plans.



Sec. 192.510  May I repurchase shares after conversion?

    (a) You may not repurchase your shares in the first year after the 
conversion except:
    (1) In extraordinary circumstances, you may make open market 
repurchases of up to five percent of your outstanding stock in the first 
year after the conversion if you file a notice under Sec. 192.515(a) 
and the appropriate Federal banking agency does not disapprove your 
repurchase. The appropriate Federal banking agency will not approve such 
repurchases unless the repurchase meets the standards in Sec. 
192.515(c), and the repurchase is consistent with paragraph (c) of this 
section.
    (2) You may repurchase qualifying shares of a director or conduct an 
appropriate Federal banking agency- approved repurchase pursuant to an 
offer made to all shareholders of your association.
    (3) Repurchases to fund management recognition plans that have been 
ratified by shareholders do not count toward the repurchase limitations 
in this section. Repurchases in the first year to fund such plans 
require prior written notification to the appropriate Federal banking 
agency.
    (4) Purchases to fund tax qualified employee stock benefit plans do 
not count toward the repurchase limitations in this section.

[[Page 893]]

    (b) After the first year, you may repurchase your shares, subject to 
all other applicable regulatory and supervisory restrictions and 
paragraph (c) of this section.
    (c) All stock repurchases are subject to the following restrictions.
    (1) You may not repurchase your shares if the repurchase will reduce 
your regulatory capital below the amount required for your liquidation 
account under Sec. 192.450. You must comply with the capital 
distribution requirements at part 163, subpart E of this chapter.
    (2) The restrictions on share repurchases apply to a charitable 
organization under Sec. 192.550. You must aggregate purchases of shares 
by the charitable organization with your repurchases.



Sec. 192.515  What information must I provide to the appropriate Federal 

banking agency before I repurchase my shares?

    (a) To repurchase stock in the first year following conversion, 
other than repurchases under Sec. 192.510(a)(3) or (a)(4), you must 
file a written notice with the appropriate OCC licensing office if you 
are a Federal savings association and with the appropriate FDIC region 
if you are a state savings association. You must provide the following 
information:
    (1) Your proposed repurchase program;
    (2) The effect of the repurchases on your regulatory capital; and
    (3) The purpose of the repurchases and, if applicable, an 
explanation of the extraordinary circumstances necessitating the 
repurchases.
    (b) You must file your notice with the appropriate OCC licensing 
office if you are a Federal savings association and with the appropriate 
regional director of the FDIC if you are a state savings association at 
least ten days before you begin your repurchase program.
    (c) You may not repurchase your shares if the appropriate Federal 
banking agency objects to your repurchase program. The appropriate 
Federal banking agency will not object to your repurchase program if:
    (1) Your repurchase program will not adversely affect your financial 
condition;
    (2) You submit sufficient information to evaluate your proposed 
repurchases;
    (3) You demonstrate extraordinary circumstances and a compelling and 
valid business purpose for the share repurchases; and
    (4) Your repurchase program would not be contrary to other 
applicable regulations.



Sec. 192.520  May I declare or pay dividends after I convert?

    You may declare or pay a dividend on your shares after you convert 
if:
    (a) The dividend will not reduce your regulatory capital below the 
amount required for your liquidation account under Sec. 192.450;
    (b) You comply with all capital requirements under part 167 of this 
chapter after you declare or pay dividends;
    (c) You comply with the capital distribution requirements under part 
163, subpart E, of this chapter; and
    (d) You do not return any capital, other than ordinary dividends, to 
purchasers during the term of the business plan submitted with the 
conversion.



Sec. 192.525  Who may acquire my shares after I convert?

    (a) For three years after you convert, no person may, directly or 
indirectly, acquire or offer to acquire the beneficial ownership of more 
than ten percent of any class of your equity securities without the 
appropriate Federal banking agency's prior written approval. If a person 
violates this prohibition, you may not permit the person to vote shares 
in excess of ten percent, and may not count the shares in excess of ten 
percent in any shareholder vote.
    (b) A person acquires beneficial ownership of more than ten percent 
of a class of shares when he or she holds any combination of your stock 
or revocable or irrevocable proxies under circumstances that give rise 
to a conclusive control determination or rebuttable control 
determination under Sec. Sec. 174.4(a) and (b) of this chapter. The 
appropriate Federal banking agency will presume that a person has 
acquired shares if the acquiror entered into a binding written agreement 
for

[[Page 894]]

the transfer of shares. For purposes of this section, an offer is made 
when it is communicated. An offer does not include non-binding 
expressions of understanding or letters of intent regarding the terms of 
a potential acquisition.
    (c) Notwithstanding the restrictions in this section:
    (1) Paragraphs (a) and (b) of this section do not apply to any offer 
with a view toward public resale made exclusively to you, to the 
underwriters, or to a selling group acting on your behalf.
    (2) Unless the appropriate Federal banking agency objects in 
writing, any person may offer or announce an offer to acquire up to one 
percent of any class of shares. In computing the one percent limit, the 
person must include all of his or her acquisitions of the same class of 
shares during the prior 12 months.
    (3) A corporation whose ownership is, or will be, substantially the 
same as your ownership may acquire or offer to acquire more than ten 
percent of your common stock, if it makes the offer or acquisition more 
than one year after you convert.
    (4) One or more of your tax-qualified employee stock benefit plans 
may acquire your shares, if the plan or plans do not beneficially own 
more than 25 percent of any class of your shares in the aggregate.
    (5) An acquiror does not have to file a separate application to 
obtain the appropriate Federal banking agency's approval under paragraph 
(a) of this section, if the acquiror files an application under part 174 
of this chapter that specifically addresses the criteria listed under 
paragraph (d) of this section and you do not oppose the proposed 
acquisition.
    (d) The appropriate Federal banking agency may deny an application 
under paragraph (a) of this section if the proposed acquisition:
    (1) Is contrary to the purposes of this part;
    (2) Is manipulative or deceptive;
    (3) Subverts the fairness of the conversion;
    (4) Is likely to injure you;
    (5) Is inconsistent with your plan to meet the credit and lending 
needs of your proposed market area;
    (6) Otherwise violates laws or regulations; or
    (7) Does not prudently deploy your conversion proceeds.



Sec. 192.530  What other requirements apply after I convert?

    After you convert, you must:
    (a) Promptly register your shares under the Securities Exchange Act 
of 1934 (15 U.S.C. 78a-78jj, as amended). You may not deregister the 
shares for three years.
    (b) Encourage and assist a market maker to establish and to maintain 
a market for your shares. A market maker for a security is a dealer who:
    (1) Regularly publishes bona fide competitive bid and offer 
quotations for the security in a recognized inter-dealer quotation 
system;
    (2) Furnishes bona fide competitive bid and offer quotations for the 
security on request; or
    (3) May effect transactions for the security in reasonable 
quantities at quoted prices with other brokers or dealers.
    (c) Use your best efforts to list your shares on a national or 
regional securities exchange or on the National Association of 
Securities Dealers Automated Quotation system.
    (d) File all post-conversion reports that the appropriate Federal 
banking agency requires.

                Contributions to Charitable Organizations



Sec. 192.550  May I donate conversion shares or conversion proceeds to a 

charitable organization?

    You may contribute some of your conversion shares or proceeds to a 
charitable organization if:
    (a) Your plan of conversion provides for the proposed contribution;
    (b) Your members approve the proposed contribution; and
    (c) The IRS either has approved, or approves within two years after 
formation, the charitable organization as a tax-exempt charitable 
organization under the Internal Revenue Code.



Sec. 192.555  How do my members approve a charitable contribution?

    At the meeting to consider your conversion, your members must 
separately

[[Page 895]]

approve by at least a majority of the total eligible votes, a 
contribution of conversion shares or proceeds. If you are in mutual 
holding company form and adding a charitable contribution as part of a 
second step stock conversion, you must also have your minority 
shareholders separately approve the charitable contribution by a 
majority of their total eligible votes.



Sec. 192.560  How much may I contribute to a charitable organization?

    You may contribute a reasonable amount of conversion shares or 
proceeds to a charitable organization, if your contribution will not 
exceed limits for charitable deductions under the Internal Revenue Code 
and the appropriate Federal banking agency does not object on 
supervisory grounds. If you are a well-capitalized savings association, 
the appropriate Federal banking agency generally will not object if you 
contribute an aggregate amount of eight percent or less of the 
conversion shares or proceeds.



Sec. 192.565  What must the charitable organization include in its 

organizational documents?

    The charitable organization's charter (or trust agreement) and gift 
instrument must provide that:
    (a) The charitable organization's primary purpose is to serve and 
make grants in your local community;
    (b) As long as the charitable organization controls shares, it must 
vote those shares in the same ratio as all other shares voted on each 
proposal considered by your shareholders;
    (c) For at least five years after its organization, one seat on the 
charitable organization's board of directors (or board of trustees) is 
reserved for an independent director (or trustee) from your local 
community. This director may not be your officer, director, or employee, 
or your affiliate's officer, director, or employee, and should have 
experience with local community charitable organizations and grant 
making; and
    (d) For at least five years after its organization, one seat on the 
charitable organization's board of directors (or board of trustees) is 
reserved for a director from your board of directors or the board of 
directors of an acquiror or resulting institution in the event of a 
merger or acquisition of your organization.



Sec. 192.570  How do I address conflicts of interest involving my directors?

    (a) A person who is your director, officer, or employee, or a person 
who has the power to direct your management or policies, or otherwise 
owes a fiduciary duty to you (for example, holding company directors) 
and who will serve as an officer, director, or employee of the 
charitable organization, is subject to Sec. 163.200 of this chapter. 
See Form AC (Exhibit 9) for further information on operating plans and 
conflict of interest plans.
    (b) Before your board of directors may adopt a plan of conversion 
that includes a charitable organization, you must identify your 
directors that will serve on the charitable organization's board. These 
directors may not participate in your board's discussions concerning 
contributions to the charitable organization, and may not vote on the 
matter.



Sec. 192.575  What other requirements apply to charitable organizations?

    (a) The charitable organization's charter (or trust agreement) and 
the gift instrument for the contribution must provide that:
    (1) The appropriate Federal banking agency may examine the 
charitable organization at the charitable organization's expense;
    (2) The charitable organization must comply with all supervisory 
directives that the appropriate Federal banking agency imposes;
    (3) The charitable organization must annually provide the 
appropriate Federal banking agency with a copy of the annual report that 
the charitable organization submitted to the IRS;
    (4) The charitable organization must operate according to written 
policies adopted by its board of directors (or board of trustees), 
including a conflict of interest policy; and
    (5) The charitable organization may not engage in self-dealing, and 
must comply with all laws necessary to maintain its tax-exempt status 
under the Internal Revenue Code.

[[Page 896]]

    (b) You must include the following legend in the stock certificates 
of shares that you contribute to the charitable organization or that the 
charitable organization otherwise acquires: ``The board of directors 
must consider the shares that this stock certificate represents as voted 
in the same ratio as all other shares voted on each proposal considered 
by the shareholders, as long as the shares are controlled by the 
charitable organization.''
    (c) As long as the charitable organization controls shares, you must 
consider those shares as voted in the same ratio as all of the shares 
voted on each proposal considered by your shareholders.
    (d) After you complete your stock offering, you must submit copies 
of the following documents to the appropriate OCC licensing office in 
accordance with part 192.155, or if you are a state savings association, 
with the appropriate FDIC region: the charitable organization's charter 
and bylaws (or trust agreement), operating plan (within six months after 
your stock offering), conflict of interest policy, and the gift 
instrument for your contributions of either stock or cash to the 
charitable organization.



               Subpart B_Voluntary Supervisory Conversions



Sec. 192.600  What does this subpart do?

    (a) You must comply with this subpart to engage in a voluntary 
supervisory conversion. This subpart applies to all voluntary 
supervisory conversions under sections 5(i)(1), (i)(2), and (p) of the 
Home Owners' Loan Act (HOLA), 12 U.S.C. 1464(i)(1), (i)(2), and (p).
    (b) Subpart A of this part also applies to a voluntary supervisory 
conversion, unless a requirement is clearly inapplicable.



Sec. 192.605  How may I conduct a voluntary supervisory conversion?

    (a) You may sell your shares or the shares of a holding company to 
the public under the requirements of subpart A of this part.
    (b) You may convert to stock form by merging into an interim 
Federal-or state-chartered stock association.
    (c) You may sell your shares directly to an acquiror, who may be a 
person, company, depository institution, or depository institution 
holding company.
    (d) You may merge or consolidate with an existing or newly created 
depository institution. The merger or consolidation must be authorized 
by, and is subject to, other applicable laws and regulations.



Sec. 192.610  Do my members have rights in a voluntary supervisory conversion?

    Your members do not have the right to approve or participate in a 
voluntary supervisory conversion, and will not have any legal or 
beneficial ownership interests in the converted association, unless the 
appropriate Federal banking agency provides otherwise. Your members may 
have interests in a liquidation account, if one is established.

                               Eligibility



Sec. 192.625  When is a savings association eligible for a voluntary 

supervisory conversion?

    (a) If you are an insured savings association, you may be eligible 
to convert under this subpart if:
    (1) You are significantly undercapitalized (or you are 
undercapitalized and a standard conversion that would make you 
adequately capitalized is not feasible) and you will be a viable entity 
following the conversion;
    (2) Severe financial conditions threaten your stability and a 
conversion is likely to improve your financial condition;
    (3) FDIC will assist you under section 13 of the Federal Deposit 
Insurance Act, 12 U.S.C. 1823; or
    (4) You are in receivership and a conversion will assist you.
    (b) You will be a viable entity following the conversion if you 
satisfy all of the following:
    (1) You will be adequately capitalized as a result of the 
conversion;
    (2) You, your proposed conversion, and your acquiror(s) comply with 
applicable supervisory policies;
    (3) The transaction is in your best interest, and the best interest 
of the Deposit Insurance Fund and the public; and

[[Page 897]]

    (4) The transaction will not injure or be detrimental to you, the 
Deposit Insurance Fund, or the public interest.



Sec. 192.630  When is a state-chartered savings bank eligible for a voluntary 

supervisory conversion.

    If you are a state-chartered savings bank you may be eligible to 
convert to a Federal stock savings bank under this subpart if:
    (a) FDIC certifies under section 5(o)(2)(C) of the HOLA that severe 
financial conditions threaten your stability and that the voluntary 
supervisory conversion is likely to improve your financial condition; or
    (b) You meet the following conditions:
    (1) Your liabilities exceed your assets, as calculated under 
generally accepted accounting principles, assuming you are a going 
concern; and
    (2) You will issue a sufficient amount of permanent capital stock to 
meet your applicable FDIC capital requirement immediately upon 
completion of the conversion, or FDIC determines that you will achieve 
an acceptable capital level within an acceptable time period.

                     Plan of Supervisory Conversion



Sec. 192.650  What must I include in my plan of voluntary supervisory 

conversion?

    A majority of your board of directors must adopt a plan of voluntary 
supervisory conversion. You must include all of the following 
information in your plan of voluntary supervisory conversion.
    (a) Your name and address.
    (b) The name, address, date and place of birth, and social security 
number of each proposed purchaser of conversion shares and a description 
of that purchaser's relationship to you.
    (c) The title, per-unit par value, number, and per-unit and 
aggregate offering price of shares that you will issue.
    (d) The number and percentage of shares that each investor will 
purchase.
    (e) The aggregate number and percentage of shares that each 
director, officer, and any affiliates or associates of the director or 
officer will purchase.
    (f) A description of any liquidation account.
    (g) Certified copies of all resolutions of your board of directors 
relating to the conversion.

              Voluntary Supervisory Conversion Application



Sec. 192.660  What must I include in my voluntary supervisory conversion 

application?

    You must include all of the following information and documents in a 
voluntary supervisory conversion application to the appropriate OCC 
licensing office if you are a Federal savings association and to the 
appropriate FDIC region if you are a state savings association under 
this subpart:
    (a) Eligibility. (1) Evidence establishing that you meet the 
eligibility requirements under Sec. Sec. 192.625 or 192.630.
    (2) An opinion of qualified, independent counsel or an independent, 
certified public accountant regarding the tax consequences of the 
conversion, or an IRS ruling indicating that the transaction qualifies 
as a tax-free reorganization.
    (3) An opinion of independent counsel indicating that applicable 
state law authorizes the voluntary supervisory conversion, if you are a 
state-chartered savings association converting to state stock form.
    (b) Plan of conversion. A plan of voluntary supervisory conversion 
that complies with Sec. 192.650.
    (c) Business plan. A business plan that complies with Sec. 192.105, 
when required by the appropriate Federal banking agency.
    (d) Financial data. (1) Your most recent audited financial 
statements and Consolidated Reports of Condition and Income or Thrift 
Financial Report, as appropriate. You must explain how your current 
capital levels make you eligible to engage in a voluntary supervisory 
conversion under Sec. 192.625 or Sec. 192.630.
    (2) A description of your estimated conversion expenses.
    (3) Evidence supporting the value of any non-cash asset 
contributions. Appraisals must be acceptable to the appropriate Federal 
banking agency and the non-cash asset must meet all other

[[Page 898]]

appropriate Federal banking agency policy guidelines.
    (4) Pro forma financial statements that reflect the effects of the 
transaction. You must identify your tangible, core, and risk-based 
capital levels and show the adjustments necessary to compute the capital 
levels. You must prepare your pro forma statements in conformance with 
the appropriate Federal banking agency regulations and policy.
    (e) Proposed documents. (1) Your proposed charter and bylaws.
    (2) Your proposed stock certificate form.
    (f) Agreements. (1) A copy of any agreements between you and 
proposed purchasers.
    (2) A copy and description of all existing and proposed employment 
contracts. You must describe the term, salary, and severance provisions 
of the contract, the identity and background of the officer or employee 
to be employed, and the amount of any conversion shares to be purchased 
by the officer or employee or his or her affiliates or associates.
    (g) Related applications. (1) All filings required under the 
securities offering rules of parts 192 and 197 of this chapter.
    (2) Any required Control Act notice, rebuttal submission under part 
174 of this chapter, or copies of any Holding Company Act Applications, 
including prior-conduct certifications under Regulatory Bulletin 20.
    (3) A subordinated debt application, if applicable.
    (4) Applications for permission to organize a stock association and 
for approval of a merger, if applicable, and a copy of any application 
for Federal Home Loan Bank membership or FDIC insurance of accounts, if 
applicable.
    (5) A statement describing any other applications required under 
Federal or state banking laws for all transactions related to your 
conversion, copies of all dispositive documents issued by regulatory 
authorities relating to the applications, and, if requested by the 
appropriate Federal banking agency, copies of the applications and 
related documents.
    (h) Waiver request. A description of any of the features of your 
application that do not conform to the requirements of this subpart, 
including any request for waiver of these requirements.

 Appropriate Federal Banking Agency Review of the Voluntary Supervisory 
                         Conversion Application



Sec. 192.670  Will the appropriate Federal banking agency approve my voluntary 

supervisory conversion application?

    The appropriate Federal banking agency will generally approve your 
application to engage in a voluntary supervisory conversion unless it 
determines:
    (a) You do not meet the eligibility requirements for a voluntary 
supervisory conversion under Sec. 192.625 or Sec. 192.630 or because 
the proceeds from the sale of your conversion stock, less the expenses 
of the conversion, would be insufficient to satisfy any applicable 
viability requirement;
    (b) The transaction is detrimental to or would cause potential 
injury to you or the Deposit Insurance Fund or is contrary to the public 
interest;
    (c) You or your acquiror, or the controlling parties or directors 
and officers of you or your acquiror, have engaged in unsafe or unsound 
practices in connection with the voluntary supervisory conversion; or
    (d) You fail to justify an employment contract incidental to the 
conversion, or the employment contract will be an unsafe or unsound 
practice or represent a sale of control. In a voluntary supervisory 
conversion, the appropriate Federal banking agency generally will not 
approve employment contracts of more than one year for your existing 
management.



Sec. 192.675  What conditions will the appropriate Federal banking agency 

impose on an approval?

    (a) The appropriate Federal banking agency will condition approval 
of a voluntary supervisory conversion application on all of the 
following.
    (1) You must complete the conversion stock sale within three months 
after the appropriate Federal banking agency approves your application. 
The appropriate Federal banking agency may grant an extension for good 
cause.

[[Page 899]]

    (2) You must comply with all filing requirements of parts 192 and 
197 of this chapter.
    (3) You must submit an opinion of independent legal counsel 
indicating that the sale of your shares complies with all applicable 
state securities law requirements.
    (4) You must comply with all applicable laws, rules, and 
regulations.
    (5) You must satisfy any other requirements or conditions the 
appropriate Federal banking agency may impose.
    (b) The appropriate Federal banking agency may condition approval of 
a voluntary supervisory conversion application on either of the 
following:
    (1) You must satisfy any conditions and restrictions the appropriate 
Federal banking agency imposes to prevent unsafe or unsound practices, 
to protect the Deposit Insurance Fund and the public interest, and to 
prevent potential injury or detriment to you before and after the 
conversion. The appropriate Federal banking agency may impose these 
conditions and restrictions on you (before and after the conversion) or, 
as appropriate, your acquiror, controlling parties, or your directors 
and officers; or
    (2) You must infuse a larger amount of capital, if necessary, for 
safety and soundness reasons.

                        Offers and Sales of Stock



Sec. 192.680  How do I sell my shares?

    If you convert under this subpart, you must offer and sell your 
shares under part 197 of this chapter.

                             Post-Conversion



Sec. 192.690  Who may not acquire additional shares after the voluntary 

supervisory conversion?

    For three years after the completion of a voluntary supervisory 
conversion, neither you nor your controlling shareholder(s) may acquire 
shares from minority shareholders without the appropriate Federal 
banking agency's prior approval.



PART 193_ACCOUNTING REQUIREMENTS--Table of Contents



           Subpart A_Form and Content of Financial Statements

Sec.
193.1 Form and content of financial statements.
193.2 Definitions.
193.3 Qualification of public accountant.
193.4 Condensed financial information [Parent only].

Subpart B [Reserved]

               Subpart C_Financial Statement Presentation

193.101 Application of this subpart.
193.102 Financial statement presentation.

Appendix A to Part 193--Financial Statement Line Items

    Authority: 12 U.S.C. 1462a, 1463, 1464, 5412(b)(2)(B); 15 U.S.C. 
78c(b), 78m, 78n, 78w.

    Source: 76 FR 49172, Aug. 9, 2011, unless otherwise noted.



           Subpart A_Form and Content of Financial Statements



Sec. 193.1  Form and content of financial statements.

    (a) This subpart A states the requirements as to form and content of 
financial statements included by a Federal savings association in the 
following documents. However, the OCC's regulations governing the 
applicable documents specify the actual financial statements that are to 
be included in that document.
    (1) Any proxy statement or offering circular required to be used in 
connection with a conversion under part 192 of this chapter.
    (2) Any offering circular or nonpublic offering materials required 
to be used in connection with an offer or sale of securities under part 
197 of this chapter.
    (3) Any filing under the Securities Exchange Act of 1934, 15 U.S.C. 
78a et seq., made pursuant to the requirements of part 194 of this 
chapter.
    (b) Except as otherwise provided by the OCC by rule, regulation or 
order made specifically applicable to financial statements governed by 
this section, financial statements shall:

[[Page 900]]

    (1) Be prepared and presented in accordance with generally accepted 
accounting principles;
    (2) Comply with subpart C of this part;
    (3) Consistent with the provisions of this subpart, comply with 
articles 1, 2, 3, 4, 10, and 11 of Regulation S-X adopted by the 
Securities and Exchange Commission (17 CFR 210.1-210.4, 210.10, and 
210.11).
    (4) Be audited, when required, by an independent auditor in 
accordance with the standards imposed by the American Institute of 
Certified Public Accountants.
    (c) The term ``financial statements'' includes all notes to the 
statements and related schedules.



Sec. 193.2  Definitions.

    (a) Registrant. The term ``registrant'' means an applicant, a 
savings association, or any other person required to prepare financial 
statements in accordance with this subpart.
    (b) Significant subsidiary. The term ``significant subsidiary'' 
means a subsidiary, including its subsidiaries, which meets any of the 
following conditions:
    (1) The association's and its other subsidiaries' investments in and 
advances to the subsidiary exceed 10 percent of the total assets of the 
association and its subsidiaries consolidated as of the end of the most 
recently completed fiscal year (for purposes of determining whether 
financial statements of a business acquired or to be acquired in a 
business combination accounted for as a pooling of interests are 
required pursuant to 17 CFR 210.3-05, this condition is also met when 
the number of common shares exchanged by the association exceeds 10 
percent of its total common shares outstanding at the date the 
combination is initiated); or
    (2) The association's and its other subsidiaries' proportionate 
share of the total assets (after intercompany eliminations) of the 
subsidiary exceeds 10 percent of the total assets of the association and 
its subsidiaries consolidated as of the end of the most recently 
completed fiscal year; or
    (3) The association's and its other subsidiaries' equity in the 
income from continuing operations before income taxes, extraordinary 
items, and cumulative effect of a change in accounting principle of the 
subsidiary exceeds 10 percent of such income of the association and its 
subsidiaries consolidated for the most recently completed fiscal year.
    Note to paragraph (b): For purposes of making the prescribed income 
test the following guidance should be applied:
    1. When a loss has been incurred by either the parent or its 
consolidated subsidiaries or the tested subsidiary, but not both, the 
equity in the income or loss of the tested subsidiary should be excluded 
from the income of the association and its subsidiaries consolidated for 
purposes of the computation.
    2. If income of the association and its subsidiaries consolidated 
for the most recent fiscal year is at least 10 percent lower than the 
average of the income for the last five fiscal years, such average 
income should be substituted for purposes of the computation. Any loss 
years should be omitted for purposes of computing average income.
    Note to Sec. 193.2: See also 17 CFR 210.1-02.



Sec. 193.3  Qualification of public accountant.

    The term ``qualified public accountant'' means a certified public 
accountant or licensed public accountant certified or licensed by a 
regulatory authority of a state or other political subdivision of the 
United States who is in good standing as such under the laws of the 
jurisdiction where the home office of the registrant to be audited is 
located. Any person or firm who is suspended from practice before the 
Securities and Exchange Commission or other governmental agency is not a 
``qualified public accountant'' for purposes of this section.
    Note to Sec. 193.3: See also 17 CFR 210.2-01.



Sec. 193.4  Condensed financial information [Parent only].

    (a) The information prescribed by Schedule III pursuant to section 
IV of appendix A to this part shall be presented in a note to the 
financial statements when the restricted net assets (17 CFR 210.4-
08(e)(3)) of consolidated subsidiaries exceed 25 percent of consolidated 
net assets as of the end of the most recently completed fiscal year. The 
investment in and indebtedness of and to association subsidiaries shall 
be

[[Page 901]]

stated separately in the condensed balance sheet from amounts for other 
subsidiaries; and the amount of cash dividends paid to the parent 
association for each of the last three years by association subsidiaries 
shall be stated separately in the condensed income statement from 
amounts for other subsidiaries.
    (b) For purposes of the above test, restricted net assets of 
consolidated subsidiaries shall mean that amount of the association's 
proportionate share of net assets of consolidated subsidiaries (after 
intercompany eliminations) which as of the end of the most recent year 
may not be transferred to the parent company by subsidiaries in the form 
of loans, advances, or cash dividends without the consent of a third 
party (i.e., lender, regulatory agency, foreign government, etc.).
    (c) Where restrictions on the amount of funds which may be loaned or 
advanced differ from the amount restricted as to transfer in the form of 
cash dividends, the amount least restrictive to the subsidiary shall be 
used. Redeemable preferred stocks (See item I (22) in appendix A to this 
part) and minority interest (See item I (21) in appendix A to this part) 
shall be deducted in computing net assets for purposes of this test.

Subpart B [Reserved]



               Subpart C_Financial Statement Presentation



Sec. 193.101  Application of this subpart.

    This subpart contains rules pertaining to the form and content of 
financial statements included as part of:
    (a) A conversion application under part 192, including financial 
statements in proxy statements and offering circulars,
    (b) A filing under the Securities Exchange Act of 1934, 15 U.S.C. 
78a et seq., and
    (c) Any offering circular required to be used in connection with the 
issuance of mutual capital certificates under Sec. 163.74 and debt 
securities under Sec. 163.80 and Sec. 163.81 of this chapter.



Sec. 193.102  Financial statement presentation.

    Federal savings associations shall comply with appendix A to this 
part, which specifies the various line items that should appear on the 
face of the financial statements governed by this subpart C and 
additional disclosures that should be included with the financial 
statements in related notes.



       Sec. Appendix A to Part 193--Financial Statement Line Items

                            I. Balance Sheet

                                 Assets

    1. Cash and amounts due from depository institutions. (a) The 
amounts in this caption should include noninterest-bearing deposits with 
depository institutions.
    (b) State in a note the amount and terms of any deposits in 
depository institutions held as compensating balances against long- or 
short-term borrowing arrangements. This disclosure should include the 
provisions of any restrictions as to withdrawal or usage. Restrictions 
may include legally restricted deposits held as compensating balances 
against short-term borrowing arrangements, contracts entered into with 
others, or company statements of intention with regard to particular 
deposits; however, time deposits and short-term certificates of deposits 
are not generally included in legally restricted deposits. In cases 
where compensating balance arrangements exist but are not agreements 
which legally restrict the use of cash amounts shown on the balance 
sheet, describe in the notes to the financial statements these 
arrangements and the amount involved, if determinable, for the most 
recent audited balance sheet required and for any subsequent unaudited 
balance sheet required. Compensating balances that are maintained under 
an agreement to ensure future credit availability shall be disclosed in 
the notes to the financial statements along with the amount and terms of 
the agreement.
    (c) Checks outstanding in excess of an applicant's book balance in a 
demand deposit account shall be shown as a liability.
    2. Interest-bearing deposits in other banks.
    3. Federal funds sold and securities purchased under resale 
agreements or similar arrangements. These amounts should be presented, 
i.e., gross and not netted against Federal funds purchased and 
securities sold under agreement to repurchase, as reported in caption 
15.
    4. Trading account assets. Include securities considered to be held 
for trading purposes.
    5. Other short-term investments.

[[Page 902]]

    6. Investment securities. (a) Include securities considered to be 
held for investment purposes. Disclose the aggregate book value of 
investment securities as the line item on the balance sheet; and also 
show on the face of the balance sheet the aggregate market value at the 
balance sheet date. The aggregate amounts should include securities 
pledged, loaned, or sold under repurchase agreements and similar 
arrangements. Borrowed securities and securities purchased under resale 
agreements or similar arrangements should be excluded.
    (b) Disclose in a note the carrying value and market value of 
securities of (i) the U.S. Treasury and other U.S. Government agencies 
and corporations; (ii) states of the U.S. and political subdivisions 
thereof; and (iii) other securities.
    7. Assets held for sale. Investments in assets considered to be held 
for sale purposes should be reported separately in the statement of 
financial condition.
    8. Loans. (a) Disclose separately: (i) Total loans (including 
financing type leases), (ii) allowance for loan losses, (iii) unearned 
income on installment loans, (iv) discount on loans purchased, and (v) 
loans in process.
    (b) State on the balance sheet or in a note the amount of loans in 
each of the following categories: (i) Real estate mortgage; (ii) real 
estate construction; (iii) installment; and (iv) commercial, financial, 
and agricultural.
    (c)(i) Include under the real estate mortgage category loans payable 
in monthly, quarterly, or other periodic installments and secured by 
developed income property and/or personal residences.
    (ii) Include under the real estate construction category loans 
secured by real estate which are made for the purpose of financing 
construction of real estate and land development projects.
    (iii) Include under the installment category loans to individuals 
generally repayable in monthly installments. This category shall 
include, but not be limited to, credit card and related activities, 
individual automobile loans, other installment loans, mobile home loans, 
and residential repair and modernization loans.
    (iv) Include under the commercial, financial, and agricultural 
category all loans not included in another category. This category shall 
include, but not be limited to, loans to real estate investment trusts, 
mortgage companies, banks, and other financial institutions; loans for 
carrying securities; and loans for agricultural purposes. Do not include 
loans secured primarily by developed real estate.
    (d) State separately any other loan category regardless of relative 
size if necessary to reflect any unusual risk concentration.
    (e) Unearned income on installment loans shall be shown and deducted 
separately from total loans.
    (f) Unamortized discounts on purchased loans shall be deducted 
separately from total loans.
    (g) Loans in process shall be deducted separately from total loans.
    (h) A series of categories other than those specified in item (b) of 
paragraph 8. may be used to present details of loans if considered a 
more appropriate presentation. The categories specified in item (b) of 
paragraph 8. should be considered the minimum categories that may be 
presented.
    (i) For each period for which an income statement is presented, 
disclose in a note the total dollar amount of loans being serviced by 
the association for the benefit of others.
    (j)(i)(A) As of each balance sheet date, disclose in a note the 
aggregate dollar amount of loans (exclusive of loans to any such persons 
which in the aggregate do not exceed $60,000 during the last year) made 
by the association or any of its subsidiaries to directors, executive 
officers, or principal holders of equity securities (17 CFR 210.1-02) of 
the association or any of its significant subsidiaries (17 CFR 210.1-02) 
or to any associate of such persons. For the latest fiscal year, an 
analysis of activity with respect to such aggregate loans to related 
parties should be provided. The analysis should include at the beginning 
of the period new loans, repayments, and other changes. (Other changes, 
if significant, should be explained.)
    (B) This disclosure need not be furnished when the aggregate amount 
of such loans at the balance sheet date (or with respect to the latest 
fiscal year, the maximum amount outstanding during the period) does not 
exceed 5 percent of stockholders' equity at the balance sheet date.
    (ii) If a significant portion of the aggregate amount of loans 
outstanding at the end of the fiscal year disclosed pursuant to item 
(i)(A) of this paragraph (j) relates to nonaccrual, past due, 
restructured, and potential problem loans (see Securities and Exchange 
Commission's Securities Act Industry Guide 3, section III.C.), so state 
and disclose the aggregate amount of such loans along with such other 
information necessary to an understanding of the effects of the 
transactions on the financial statements.
    (iii) Notwithstanding the aggregate disclosure called for by 
paragraph (j)(i) of this balance sheet caption 8, if any loans were not 
made in the ordinary course of business during any period for which an 
income statement is required to be filed, provide an appropriate 
description of each such loan (see 17 CFR 210.9-03.7(e)(3)).
    (iv) For purposes only of Balance Sheet item 8(j), the following 
definitions shall apply:
    (A) Associate used to indicate a relationship with any person means 
(1) any corporation,

[[Page 903]]

venture, or organization of which such person is a general partner or 
is, directly or indirectly, the beneficial owner of 10 percent or more 
of any class of equity securities; (2) any trust or other estate in 
which such person has a substantial beneficial interest or for which 
such person serves as trustee or in a similar capacity; and (3) any 
member of the immediate family of any of the foregoing persons.
    (B) Executive officer means the president, any vice president in 
charge of a principal business unit, division, or function (such as 
loans, investments, operations, administration, or finance), and any 
other officer or person who performs similar policy-making functions.
    (C) Immediate family with regard to a person means such person's 
spouse, parents, children, siblings, mother- and father-in-law, sons- 
and daughters-in-law, and brothers- and sisters-in-law.
    (D) Ordinary course of business with regard to loans means those 
loans which were made on substantially the same terms, including 
interest rate and collateral, as those prevailing at the same time for 
comparable transactions with unrelated persons and did not involve more 
than the normal risk of collectability or present other unfavorable 
features.
    (k) For each period for which an income statement is presented, 
furnish in a note a statement of changes in the allowance for loan 
losses, showing balances at beginning and end of the period, provision 
charged to income, recoveries of amounts previously charged off, and 
losses charged to the allowance.
    9. Premises and equipment.
    10. Real estate owned. State, parenthetically or otherwise:
    (a) The amount of real estate owned by class as described in item 
(b) of paragraph 10. and the basis for determining that amount; and
    (b) A description of each class of real estate owned (i) acquired by 
foreclosure or by deed in lieu of foreclosure, (ii) in judgment and 
subject to redemption, or (iii) acquired for development or resale. Show 
separately any accumulated depreciation or valuation allowances. 
Disclose the policies regarding, and amounts of, capitalized costs, 
including interest.
    11. Investment in joint ventures. In a note, present summarized 
aggregate financial statements for investments in real estate or other 
joint ventures which individually (a) are 20 percent or more owned by 
the association or any of its subsidiaries, or (b) have liabilities 
(including contingent liabilities) to the parent exceeding 10 percent of 
the parent's regulatory capital. If an allowance for real estate losses 
subsequent to acquisition is maintained, the amount shall be disclosed, 
deducted from the other real estate owned, and a statement of changes in 
the allowance showing balances at beginning and end of period should be 
included. Provision charged to income and losses charged to the 
allowance account shall be furnished for each period for which an income 
statement is filed.
    12. Other assets. (a) Disclose separately on the balance sheet or in 
a note thereto any of the following assets or any other asset the amount 
of which exceeds 30 percent of stockholders' equity. The remaining 
assets may be shown as one amount.
    (i) Accrued interest receivable. State separately those amounts 
relating to loans and those amounts relating to investments.
    (ii) Excess of cost over assets acquired (net of amortization).
    (b) State in a note (i) amounts representing investments in 
affiliates and investments in other persons which are accounted for by 
the equity method, and (ii) indebtedness of affiliates and other 
persons, the investments in which are accounted for by the equity 
method. State the basis of determining the amounts reported under 
paragraph (b)(i).
    13. Total assets.
    Liabilities, and Stockholders' Equity
    14. Deposits. (a) Disclose separately on the balance sheet or in a 
note the amounts in the following categories of interest-bearing and 
noninterest-bearing deposits: (i) NOW account and MMDA deposits, (ii) 
savings deposits, and (iii) time deposits.
    (b) Include under the savings-deposits category interest-bearing 
deposits without specified maturity or contractual provisions requiring 
advance notice of intention to withdraw funds. Include deposits for 
which an association may require at its option written notice of 
intended withdrawal not less than 14 days in advance.
    (c) Include under the time-deposits category deposits subject to 
provisions specifying maturity or other withdrawal conditions such as 
time certificates of deposits, open account time deposits, and deposits 
accumulated for the payment of personal loans.
    (d) Include accrued interest or dividends, if appropriate.
    15. Short-term borrowings. (a) State separately, here or in a note, 
the amounts payable for (i) Federal funds purchased and securities sold 
under agreements to repurchase, (ii) commercial paper, and (iii) other 
short-term borrowings.
    (b) Federal funds purchased and sales of securities under repurchase 
agreements shall be reported gross and not netted against sales of 
Federal funds and purchase of securities under resale agreements.
    (c) Include as securities sold under agreements to repurchase all 
transactions of this type regardless of (i) whether they are called 
simultaneous purchases and sales, buy-backs, turnarounds, overnight 
transactions,

[[Page 904]]

delayed deliveries, or other terms signifying the same substantive 
transaction, and (ii) whether the transactions are with the same or 
different institutions, if the purpose of the transactions is to 
repurchase identical or similar securities.
    (d) The amount and terms (including commitment fees and the 
conditions under which lines may be withdrawn) of unused lines of credit 
for short-term financing shall be disclosed, if significant, in the 
notes to the financial statements. The amount of these lines of credit 
which support a commercial paper borrowing arrangement or similar 
arrangements shall be separately identified.
    16. Advance payments by borrowers for taxes and insurance.
    17. Other liabilities. Disclose separately on the balance sheet or 
in a note any of the following liabilities or any other items which are 
individually in excess of 30 percent of stockholders' equity (except 
that amounts in excess of 5 percent of stockholders' equity should be 
disclosed with respect to item (d)). The remaining items may be shown as 
one amount.
    (a) Income taxes payable.
    (b) Deferred income taxes.
    (c) Indebtedness to affiliate and other persons the investment in 
which is accounted for by the equity method.
    (d) Indebtedness to directors, executive officers, and principal 
holders of equity securities of the registrant or any of its significant 
subsidiaries. (The guidance in balance sheet caption ``8(j)'' shall be 
used to identify related parties for purposes of this disclosure.)
    18. Bonds, mortgages, and similar debt. (a) Include bonds, Federal 
Home Loan Bank advances, capital notes, debentures, mortgages, and 
similar debt.
    (b) For each issue or type of obligation state in a note:
    (i) The general character of each type of debt, including: (A) The 
rate of interest, (B) the date of maturity, or, if maturing serially, a 
brief indication of the serial maturities, such as ``maturing serially 
from 1980 to 1990,'' (C) if the payment of principal or interest is 
contingent, an appropriate indication of such contingency, (D) a brief 
indication of priority, and (E) if convertible, the basis. For amounts 
owed to related parties see 17 CFR 210.4-08(k).
    (ii) The amount and terms (including commitment fees and the 
conditions under which commitments may be withdrawn) of unused 
commitments for long-term financing arrangements that, if used, would be 
disclosed under this caption shall be disclosed in the notes to the 
financial statements, if significant.
    (c) State in the notes with appropriate explanations (i) the title 
and amount of each issue of debt of a subsidiary included in item (a) of 
paragraph 18 which has not been assumed or guaranteed by the 
association, and (ii) any liens on premises of a subsidiary or its 
consolidated subsidiaries which have not been assumed by the subsidiary 
or its consolidated subsidiaries.
    19. Deferred credits. State separately those items which exceed 30 
percent of stockholders' equity.
    20. Commitments and contingent liabilities. Total commitments to 
fund loans should be disclosed. The dollar amounts and terms of other 
than floating market-rate commitments should also be disclosed.
    21. Minority interest in consolidated subsidiaries.
    22. Preferred stock subject to mandatory redemption requirements or 
the redemption of which is outside the control of the issuer. (a) 
Include under this caption amounts applicable to any class of stock 
which has any of the following characteristics: (i) It is redeemable at 
a fixed or determinable price on a fixed or determinable date or dates, 
whether by operation of a sinking fund or otherwise; (ii) it is 
redeemable at the option of the holder; or (iii) it has conditions for 
redemption which are not solely within the control of the issuer, such 
as stock which must be redeemed out of future earnings. Amounts 
attributable to preferred stock which is not redeemable or is redeemable 
solely at the option of the issuer shall be included under caption 23 
unless it meets one or more of the above criteria.
    (b) State on the face of the balance sheet the title, carrying 
amount, and redemption amount of each issue. (If there is more than one 
issue, these amounts may be aggregated on the face of the balance sheet 
and details concerning each issue may be presented in the note required 
by item (c) of paragraph 22.) Show also the dollar amount of any shares 
subscribed for but unissued, and show the deduction of subscriptions 
receivable therefrom. If the carrying value is different from the 
redemption amount, describe the accounting treatment for such difference 
in the note required by item (c) of paragraph 22. Also state in this 
note or on the face of the balance sheet, for each issue, the number of 
shares authorized and the number of shares issued or outstanding, as 
appropriate. (See 17 CFR 210.4-07.)
    (c) State in a separate note captioned ``Redeemable Preferred 
Stock'' (i) a general description of each issue, including its 
redemption features (e.g., sinking fund, at option of holders, out of 
future earnings) and the rights, if any, of holders in the event of 
default, including the effect, if any, on junior securities in the event 
a required dividend, sinking fund, or other redemption payment(s) is not 
made, (ii) the combined aggregate amount of redemption requirements for 
all issues each year for the five years following the date of the latest 
balance sheet, and (iii) the changes in each issue for each

[[Page 905]]

period for which an income statement is required to be presented. (See 
also 17 CFR 210.4-08(d)).
    (d) Securities reported under this caption are not to be included 
under a general heading ``stockholders' equity'' or combined in a total 
with items described in captions 23, 24 or 25, which follow.
    23. Preferred stock which is not redeemable or is redeemed solely at 
the option of the issuer. State on the face of the balance sheet, or, if 
more than one issue is outstanding, state in a note, the title of each 
issue and the dollar amount thereof. Show also the dollar amount of any 
shares subscribed for but unissued, and show the deduction of 
subscriptions receivable. State on the face of the balance sheet or in a 
note, for each issue, the number of shares authorized and the number of 
shares issued or outstanding, as appropriate. (See 17 CFR 210.4-07.) 
Show in a note or separate statement the changes in each class of 
preferred shares reported under this caption for each period for which 
an income statement is required to be presented. (See also 17 CFR 210.4-
08(d)).
    24. Common stock. For each class of common shares state, on the face 
of the balance sheet, the number of shares issued or outstanding, as 
appropriate (see 17 CFR 210.4-07), and the dollar amount thereof. If 
convertible, this fact should be indicated on the face of the balance 
sheet. For each class of common stock state, on the face of the balance 
sheet or in a note, the title of the issue, the number of shares 
authorized, and, if convertible, the basis for conversion (see also 17 
CFR 210.4-08(d)). Show also the dollar amount of any common stock 
subscribed for but unissued, and show the deduction of subscriptions 
receivable. Show in a note or statement the changes in each class of 
common stock for each period for which an income statement is required 
to be presented.
    25. Other stockholders' equity. (a) Separate captions shall be shown 
on the face of the balance sheet for (i) additional paid-in capital, 
(ii) other additional capital, and (iii) retained earnings, both (A) 
restricted and (B) unrestricted. (See 17 CFR 210.4-08(e).) Additional 
paid-in capital and other additional capital may be combined with the 
stock caption to which it applies, if appropriate. State whether or not 
the association is in compliance with the Federal regulatory capital 
requirements (and state requirements where applicable). Also include the 
dollar amount of those regulatory capital requirements and the amount by 
which the association exceeds or fails to meet those requirements.
    (b) For a period of at least 10 years subsequent to the effective 
date of a quasi-reorganization, any description of retained earnings 
shall indicate the point in time from which the new retained earnings 
dates, and for a period of at least three years shall indicate, on the 
face of the balance sheet, the total amount of the deficit eliminated.
    (c) Changes in stockholders' equity shall be disclosed in accordance 
with the requirements of 17 CFR 210.3-04.
    26. Total liabilities and stockholders' equity.

                          II. Income Statement

    1. Interest and fees on loans. (a) Include interest, service 
charges, and fees which are related to or are an adjustment of the loan 
interest yield.
    (b) Current amortization of premiums on mortgages or other loans 
shall be deducted from interest on loans, and current accretion of 
discount on such items shall be added to interest on loans.
    (c) Discounts and other deferred amounts which are related to or are 
an adjustment of the loan interest yield shall be amortized into income 
using the interest (level yield) method.
    2. Interest and dividends on investment securities. Include 
accretion of discount on securities and deduct amortization of premiums 
on securities.
    3. Trading account interest. Include interest from securities 
carried in a dealer trading account or accounts that are held 
principally for resale to customers.
    4. Other interest income. Include interest on short-term investments 
(Federal funds sold and securities purchased under agreements to resell) 
and interest on bank deposits.
    5. Total interest income.
    6. Interest on deposits. Include interest on all deposits. On the 
income statement or in a note, state separately, in the same categories 
as those specified for deposits at balance sheet caption 14(a), the 
interest on those deposits. Early withdrawal penalties should be netted 
against interest on deposits and, if material, disclosed on the income 
statement.
    7. Interest on short-term borrowings. Include interest on borrowed 
funds, including Federal funds purchased, securities sold under 
agreements to repurchase, commercial paper, and other short-term 
borrowings.
    8. Interest on long-term borrowings. Include interest on bonds, 
capital notes, debentures, mortgages on association premises, 
capitalized leases, and similar debt.
    9. Total interest expense.
    10. Net interest income.
    11. Provision for loan losses.
    12. Net interest income after provision for loan losses.
    13. Other income. Disclose separately any of the following amounts, 
or any other item of other income, which exceeds 1 percent of the 
aggregate of total interest income and other income. The remaining 
amount may be shown as one amount, except for investment securities 
gains or losses which shall be shown separately regardless of size.

[[Page 906]]

    (a) Commissions and fees from fiduciary activities.
    (b) Fees for other services to customers.
    (c) Commissions, fees, and markups on securities underwriting and 
other securities activities.
    (d) Profit or loss on transactions in investment securities.
    (e) Equity in earnings of unconsolidated subsidiaries and 50-
percent- or less-owned persons.
    (f) Gains or losses on disposition of investments in securities of 
subsidiaries and 50-percent- or less-owned persons.
    (g) Profit or loss from real estate operations.
    (h) Other fees related to loan originations or commitments not 
included in income statement caption 1.
    The remaining other income may be shown in one amount.
    (i) Investment securities gains or losses. The method followed in 
determining the cost of investments sold (e.g., ``average cost,'' 
``first-in, first-out,'' or ``identified certificate'') and related 
income taxes shall be disclosed.
    14. Other expenses. Disclose separately any of the following 
amounts, or any other item of other expense, which exceeds 1 percent of 
the aggregate of total interest income and other income. The remaining 
amounts may be shown as one amount.
    (a) Salaries and employee benefits.
    (b) Net occupancy expense of premises.
    (c) Net cost of operations of other real estate (including 
provisions for real estate losses, rental income, and gains and losses 
on sales of real estate).
    (d) Minority interest in income of consolidated subsidiaries.
    (e) Goodwill amortization.
    15. Other income and expenses. State separately material events or 
transactions that are unusual in nature or occur infrequently, but not 
both, and therefore do not meet both criteria for classification as an 
extraordinary item. Examples of items which would be reported separately 
are gain or loss from the sale of premises and equipment, provision for 
loss on real estate owned, or provision for gain or loss on the sale of 
loans.
    16. Income or losses before income tax expense.
    17. Income tax expense. The information required by 17 CFR 210.4-
08(h) should be disclosed.
    18. Income or loss before extraordinary items effects of changes in 
accounting principles.
    19. Extraordinary items, less applicable tax.
    20. Cumulative effects of changes in accounting principles.
    21. Net income or loss.
    22. Earnings-per-share data.
    23. Conversion footnote. If the association is an applicant for 
conversion from a mutual to a stock association or has converted within 
the last three years, describe in a note the general terms of the 
conversion and restrictions on the operations of the association imposed 
by the conversion. Also, state the amount of net proceeds received from 
the conversion and costs associated with the conversion.
    24. Mergers and acquisitions. For the period in which a business 
combination occurs and is accounted for by the purchase method of 
accounting, in addition to those disclosures required by Accounting 
Principles Board Opinion No. 16, the association shall make those 
disclosures as noted below for all combinations involving significant 
acquisitions. (A significant acquisition is defined for this purpose to 
be one in which the assets of the acquired association, or group of 
associations, exceed 10 percent of the assets of the consolidated 
association at the end of the most recent period being reported upon.)
    (a) Amounts and descriptions of discounts and premiums related to 
recording the aggregate interest-bearing assets and liabilities at their 
fair market value. The disclosure should also include the methods of 
amortization or accretion and the estimated remaining lives.
    (b) The net effect on net income before taxes of the amortization 
and accretion of discounts, premiums, and intangible assets related to 
the purchase accounting transaction(s). For subsequent periods, the 
association shall disclose the remaining total unamortized or unaccreted 
amounts of discounts, premiums, and intangible assets as of the date of 
the most recent balance sheet presented. In addition, the association 
shall disclose the net effect on net income before taxes of the 
amortization and accretion of discounts, premiums, and intangible assets 
related to prior business combinations accounted for by the purchase 
method of accounting. Such disclosures need not be made if the total 
amounts of discounts, premiums, or intangible assets do not exceed 30 
percent of stockholders' equity as of the date of the most recent 
balance sheet presented.

                      III. Statement of Cash Flows

    The amounts shown in this statement should be those items which 
materially enhance the reader's understanding of the association's 
business. For example, gains from sales of loans should be segregated 
from sales of mortgage-backed securities and other securities, if 
material, proceeds from principal repayments and maturities from loans 
and mortgage-backed securities should be segregated from proceeds from 
sales of loans and mortgage-backed securities, purchases of loans, 
mortgage-backed securities and other securities should be segregated, if 
material. Additional guidance may be found in the FASB's Statement of 
Financial Accounting Standards No. 95 Statement of Cash Flows.

[[Page 907]]

                   IV. Schedules Required to be Filed

    The following schedules, which should be examined by an independent 
accountant, shall be filed unless the required information is not 
applicable or is presented in the related financial statements:
    (1) Schedule I--Indebtedness of and to related parties--Not Current. 
For each period for which an income statement is required, the following 
schedule should be filed in support of the amounts required to be 
reported by balance sheet items 8(j) and 17(c) unless such aggregate 
amount does not exceed 5 percent of stockholders' equity at either the 
beginning or the end of the period:

                               Indebtedness of and to Related Parties--Not Current
----------------------------------------------------------------------------------------------------------------
                                                Indebtedness of--
-----------------------------------------------------------------------------------------------------------------
  Name of person \1\    Balance at beginning      Additions \2\          Deductions \3\        Balance at end
----------------------------------------------------------------------------------------------------------------
                A                      B                       C                     D                      E
----------------------------------------------------------------------------------------------------------------


                               Indebtedness of and to Related Parties--Not Current
----------------------------------------------------------------------------------------------------------------
                                                Indebtedness to--
-----------------------------------------------------------------------------------------------------------------
  Name of person \1\    Balance at beginning      Additions \2\          Deductions \3\        Balance at end
----------------------------------------------------------------------------------------------------------------
                A                      F                      G                      H                      I
----------------------------------------------------------------------------------------------------------------
\1\ The persons named shall be grouped as in the related schedule required for investments in related parties.
  The information called for shall be shown separately for any persons whose investments were shown separately
  in such related schedule.
\2\ For each person named in column A, explain in a note the nature and purpose of any increase during the
  period that is in excess of 10 percent of the related balance at either the beginning or end of the period.
\3\ If deduction was other than a receipt or disbursement of cash, explain.

    (2) Schedule II--Guarantees of securities of other issuers. The 
following schedule should be filed as of the date of the most recently 
audited balance sheet with respect to any guarantees of securities of 
other issuers by the person for which the statements are being filed:

              Guarantees of Securities of Other Issuers \1\
------------------------------------------------------------------------
 Col. A. Name of
    issuer of       Col. B. Title of                     Col. D. Amount
    securities       issue of each      Col. C. Total    owned by person
  guaranteed by         class of           amount        or persons for
 person for which      securities      guaranteed and    which statement
   statement is        guaranteed      outstanding \2\      is filed
      filed
------------------------------------------------------------------------
 
------------------------------------------------------------------------


              Guarantees of Securities of Other Issuers \1\
------------------------------------------------------------------------
                                                         Col. G. Nature
                                                         of any default
                                                           by issue of
 Col. A. Name of                                           securities
    issuer of      Col. E. Amount in                      guaranteed in
    securities        treasury of      Col. F. Nature      principal,
  guaranteed by        issuer of      of guarantee \3\      interest,
 person for which      securities                        sinking fund or
   statement is        guaranteed                          redemption
      filed                                              provisions, or
                                                           payment of
                                                          dividends \4\
------------------------------------------------------------------------
 
------------------------------------------------------------------------
 \1\ Indicate in a note to the most recent schedule being filed for a
  particular person or group any significant changes since the date of
  the related balance sheet. If this schedule is filed in support of
  consolidated or combined statements, there shall be set forth
  guarantees by any person included in the consolidation or combination,
  except that such guarantees of securities which are included in the
  consolidated or combined balance sheet need not be set forth.
\2\ Indicate any amounts included in column C which are included also in
  column D or E.
\3\ There need be made only a brief statement of the nature of the
  guarantee, such as ``Guarantee of principal and interest,'' or
  ``Guarantee of dividends.'' If the guarantee is of interest or
  dividends, state the annual aggregate amount of interest or dividends
  so guaranteed.
\4\ Only a brief statement as to any such defaults need be made.

    (3) Schedule III--Condensed financial information. The following 
schedule shall be filed as of the dates and for the periods specified in 
the schedule.

                     Condensed Financial Information

    [Parent only]
    [Association may determine disclosure based on information provided 
in footnotes below]
    (a) Provide condensed financial information as to financial 
position, changes in financial position, and results of operations of 
the association as of the same dates and for

[[Page 908]]

the same periods for which audited consolidated financial statements are 
required. The financial information required need not be presented in 
greater detail than is required for a condensed statement by 17 CFR 
210.10-01(a) (2), (3), (4). Detailed footnote disclosure which would 
normally be included with complete financial statements may be omitted 
with the exception of disclosure regarding material contingencies, long-
term obligations, and guarantees. Description of significant provisions 
of the association's long-term obligations, mandatory dividend, or 
redemption requirements of redeemable stocks, and guarantees of the 
association shall be provided along with a 5-year schedule of maturities 
of debt. If the material contingencies, long-term obligations, 
redeemable stock requirements, and guarantees of the association have 
been separately disclosed in the consolidated statements, they need not 
be repeated in this schedule.
    (b) Disclose separately the amount of cash dividends paid to the 
association for each of the last three fiscal years by consolidated 
subsidiaries, unconsolidated subsidiaries, and 50-percent- or less-owned 
persons accounted for by the equity method, respectively.



PART 194_SECURITIES OF FEDERAL SAVINGS ASSOCIATIONS--Table of Contents



                          Subpart A_Regulations

Sec.
194.1 Requirements under certain sections of the Securities Exchange Act 
          of 1934.
194.2 [Reserved]
194.3 Liability for certain statements by Federal savings associations.
194.210 Form and content of financial statements.

                        Subpart B_Interpretations

194.801 Application of this subpart.
194.802 Description of business.

    Authority: 12 U.S.C. 1462a, 1463, 1464, 5412(b)(2)(B); 15 U.S.C. 
78c(b), 78l, 78m, 78w, 78d-1.

    Source: 76 FR 49178, Aug. 9, 2011, unless otherwise noted.



                          Subpart A_Regulations



Sec. 194.1  Requirements under certain sections of the Securities Exchange Act 

of 1934.

    In respect to any securities issued by Federal savings associations, 
the powers, functions, and duties vested in the Securities and Exchange 
Commission (the ``Commission'') to administer and enforce sections 
10A(m), 12, 13, 14(a), 14(c), 14(d), 14(f), and 16 of the Securities 
Exchange Act of 1934, as amended, (the ``Act''); and 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) are vested in the OCC. The rules, regulations and forms prescribed 
by the Commission pursuant to those sections or applicable in connection 
with obligations imposed by those sections, shall apply to securities 
issued by Federal savings associations, except as otherwise provided in 
this part. The term ``Securities and Exchange Commission'' or 
``Commission'' as used in those rules and regulations shall, with 
respect to securities issued by Federal savings associations, be deemed 
to refer to the OCC unless the context otherwise requires. All filings 
with respect to securities issued by Federal savings associations 
required by those rules and regulations to be made with the Commission 
shall be made with the OCC's Securities and Corporate Practices 
Division. Except to the extent otherwise specifically provided by the 
OCC in the application fee schedule published in the Thrift Bulletin 
pursuant to 12 CFR part 102, all filing fees specified by the 
Commission's rules shall be paid to the OCC. If, after the OCC reviews a 
Form 10-K, Form 10-Q, Schedule 13D or Schedule 13G and determines that 
the filing is materially deficient such that the OCC requires that an 
amendment be filed to correct the deficiency, then, upon the filing of 
the amendment to the Form 10-K, Form 10-Q, Schedule 13D or Schedule 13G, 
as the case may be, the filer shall pay an additional filing fee to the 
OCC, in the amount specified by the OCC.



Sec. 194.2  [Reserved]



Sec. 194.3  Liability for certain statements by Federal savings associations.

    This section replaces adherence to 17 CFR 240.3b-6 and applies as 
follows:
    (a) A statement within the coverage of paragraph (b) of this section 
which is made by or on behalf of an issuer or by an outside reviewer 
retained by the issuer shall be deemed not to be a fraudulent statement 
(as defined in

[[Page 909]]

paragraph (d) of this section), unless it is shown that such statement 
was made or reaffirmed without a reasonable basis or was disclosed other 
than in good faith.
    (b) This section applies to the following statements:
    (1) A forward-looking statement (as defined in paragraph (c) of this 
section) made in a proxy statement or offering circular filed with the 
OCC under part 192 of this chapter; in a registration statement filed 
with the OCC under the Act on Form 10 (17 CFR 249.210); in part I of a 
quarterly report filed with the OCC on Form 10-Q (17 CFR 249.308a); in 
an annual report to shareholders meeting the requirements of Sec. 194.1 
of this part, particularly 17 CFR 240.14a-3 (b) and (c) or 17 CFR 
240.14c-3 (a) and (b) under the Act; in a statement reaffirming such 
forward-looking statement subsequent to the date the document was filed 
or the annual report was made publicly available; or a forward-looking 
statement made prior to the date the document was filed or the date the 
annual report was made publicly available if such statement is 
reaffirmed in a filed document or annual report made publicly available 
within a reasonable time after the making of such forward-looking 
statement: Provided, That
    (i) At the time such statements are made or reaffirmed, either:
    (A) The issuer is subject to the reporting requirements of section 
13(a) or 15(d) of the Act and has complied with the requirements of 17 
CFR 240.13a-1 or 240.15d-1 thereunder, if applicable, to file its most 
recent annual report on Form 10-K; or
    (B) If the issuer is not subject to the reporting requirements of 
section 13(a) or 15(d) of the Act, the statements are made either in a 
registration statement filed under part 197 of this chapter or pursuant 
to section 12 (b) or (g) of the Act, or in a proxy statement or offering 
circular filed with the OCC under part 192 of this chapter if such 
statements are reaffirmed in a registration statement under the Act on 
Form 10, filed with the OCC within 180 days of the Federal savings 
association's conversion, and
    (ii) The statements are not made by or on behalf of an issuer that 
is an investment company registered under the Investment Company Act of 
1940;
    (2) Information relating to the effects of changing prices on the 
business enterprise presented voluntarily or pursuant to item 303 of 
Regulation S-K (17 CFR 229.303), management's discussion and analysis of 
financial condition and results of operations, or item 302 of Regulation 
S-K (17 CFR 229.302), supplementary financial information, and disclosed 
in a document filed with the OCC or in an annual report to shareholders 
meeting the requirements of 17 CFR 240.14a-3 (b) and (c) or 17 CFR 
240.14c-3 (a) and (b) under the Act: Provided, That such information 
included in a proxy statement or offering circular filed pursuant to 
part 192 of this chapter shall be reaffirmed in a registration statement 
under the Act on Form 10 filed with the OCC within 180 days of the 
association's conversion.
    (c) For purposes of this section, the term ``forward-looking 
statement'' shall mean and shall be limited to:
    (1) A statement containing a projection of revenues, income (loss), 
earnings (loss) per share, capital expenditures, dividends, capital 
structure, or other financial items;
    (2) A statement of management's plans and objectives for future 
operations;
    (3) A statement of future economic performance contained in 
management's discussion and analysis of financial condition and results 
of operations pursuant to item 303 of Regulation S-K; or
    (4) A statement of the assumptions underlying or relating to any of 
the statements described in paragraph (c)(1), (c)(2), or (c)(3) of this 
section.
    (d) For purposes of this section, the term ``fraudulent statement'' 
shall mean a statement which is an untrue statement of a material fact, 
a statement false or misleading with respect to any material fact, an 
omission to state a material fact necessary to make a statement not 
misleading, or which constitutes the employment of a manipulative, 
deceptive, or fraudulent device, contrivance, scheme, transaction, act, 
practice, course of business, or an artifice to defraud, as those terms 
are used in the Securities Act of

[[Page 910]]

1933 or the rules or regulations promulgated thereunder.



Sec. 194.210  Form and content of financial statements.

    The financial statements required to be contained in filings with 
the OCC under the Act are as set out in the applicable form and 
Regulation S-X, 17 CFR part 210. Those financial statements, however, 
shall conform as to form and content to the requirements of Sec. 193.1 
of this chapter.



                        Subpart B_Interpretations



Sec. 194.801  Application of this subpart.

    This subpart contains interpretations pertaining to the requirements 
of the Act and the rules and regulations thereunder as applied to 
Federal savings associations by the OCC.



Sec. 194.802  Description of business.

    (a) This section applies to the description-of-business portion of:
    (1) Registration statements filed on Form 10 (item 1) (17 CFR 
249.210),
    (2) Proxy and information statements relating to mergers, 
consolidations, acquisitions, and similar matters (item 14 of Schedule 
14A and item 1 of Schedule 14C) (17 CFR 240.14a-101 and 240.14c-101), 
and
    (3) Annual reports filed on Form 10-K (item 7) (17 CFR 249.310).
    (b) The description of business should conform to the description of 
business required by item 7 of Form PS under part 192 of this chapter.
    (c) No repetitive disclosure is required by virtue of similar 
requirements in item 7 of Form PS and items 301 and 303 of Regulation S-
K (17 CFR 229.301, 303). However, there should be included appropriate 
disclosure which arises by virtue of the registrant being a stock 
Federal savings association. For example, the table regarding return on 
equity and assets, item 7(d)(5), should include a line item for 
``dividend payout ratio (dividends declared per share divided by net 
income per share).''



PART 195_COMMUNITY REINVESTMENT--Table of Contents



                            Subpart A_General

Sec.
195.11 Authority, purposes, and scope.
195.12 Definitions.

              Subpart B_Standards for Assessing Performance

195.21 Performance tests, standards, and ratings, in general.
195.22 Lending test.
195.23 Investment test.
195.24 Service test.
195.25 Community development test for wholesale or limited purpose 
          savings associations.
195.26 Small savings association performance standards.
195.27 Strategic plan.
195.28 Assigned ratings.
195.29 Effect of CRA performance on applications.

        Subpart C_Records, Reporting, and Disclosure Requirements

195.41 Assessment area delineation.
195.42 Data collection, reporting, and disclosure.
195.43 Content and availability of public file.
195.44 Public notice by savings associations.
195.45 Publication of planned examination schedule.

Appendix A to Part 195--Ratings
Appendix B to Part 195--CRA Notice

    Authority: 12 U.S.C. 1462a, 1463, 1464, 1814, 1816, 1828(c), 2901 
through 2908, 5412(b)(2)(B).

    Source: 76 FR 49179, Aug. 9, 2011, unless otherwise noted.



                            Subpart A_General



Sec. 195.11  Authority, purposes, and scope.

    (a) Authority. This part is issued under the Community Reinvestment 
Act of 1977 (CRA), as amended (12 U.S.C. 2901 et seq.); section 5, as 
amended, and sections 3, and 4, as added, of the Home Owners' Loan Act 
of 1933 (12 U.S.C. 1462a, 1463, and 1464); and sections 4, 6, and 18(c), 
as amended of the Federal Deposit Insurance Act (12 U.S.C. 1814, 1816, 
1828(c)).
    (b) Purposes. In enacting the CRA, the Congress required each 
appropriate Federal financial supervisory agency to assess an 
institution's record of

[[Page 911]]

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 appropriate 
Federal banking agency assesses a savings association'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 savings association; and
    (2) Providing that the appropriate Federal banking agency takes that 
record into account in considering certain applications.
    (c) Scope-- (1) General. This part applies to all savings 
associations except as provided in paragraph (c)(2) of this section.
    (2) Certain special purpose savings associations. This part does not 
apply to special purpose savings associations 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 associations include banker's banks, as 
defined in 12 U.S.C. 24 (Seventh), and associations that engage only in 
one or more of the following activities: Providing cash management 
controlled disbursement services or serving as correspondent 
associations, trust companies, or clearing agents.



Sec. 195.12  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. 195.41.
    (d) Automated teller machine (ATM) means an automated, unstaffed 
banking facility owned or operated by, or operated exclusively for, the 
savings association at which deposits are received, cash dispersed, or 
money lent.
    (e) [Reserved]
    (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;
    (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 appropriate Federal banking agency 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; or
    (5) Loans, investments, and services that--

[[Page 912]]

    (i) Support, enable or facilitate projects or activities that meet 
the ``eligible uses'' criteria described in Section 2301(c) of the 
Housing and Economic Recovery Act of 2008 (HERA), Public Law 110-289, 
122 Stat. 2654, as amended, and are conducted in designated target areas 
identified in plans approved by the United States Department of Housing 
and Urban Development in accordance with the Neighborhood Stabilization 
Program (NSP);
    (ii) Are provided no later than two years after the last date funds 
appropriated for the NSP are required to be spent by grantees; and
    (iii) Benefit low-, moderate-, and middle-income individuals and 
geographies in the savings association's assessment area(s) or areas 
outside the savings association's assessment area(s) provided the 
savings association has adequately addressed the community development 
needs of its assessment area(s).
    (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 savings 
association:
    (i) Has not been reported or collected by the savings association or 
an affiliate for consideration in the savings association'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 savings association's assessment area(s) or a 
broader statewide or regional area that includes the savings 
association's assessment area(s).
    (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 savings 
association's retail banking services under Sec. 195.24(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 savings association means a savings association 
that offers only a narrow product line (such as

[[Page 913]]

credit card or motor vehicle loans) to a regional or broader market and 
for which a designation as a limited purpose savings association is in 
effect, in accordance with Sec. 195.25(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 savings association--(1) Definition. Small savings 
association means a savings association that, as of December 31 of 
either of the prior two calendar years, had assets of less than $1.160 
billion. Intermediate small savings association means a small savings 
association with assets of at least $290 million as of December 31 of 
both of the prior two calendar years and less than $1.160 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 
Thrift Financial Report (TFR) or Consolidated Reports of Condition and 
Income (Call Report), as appropriate.
    (w) Small farm loan means a loan included in ``loans to small 
farms'' as defined in the instructions for preparation of the TFR or 
Call Report, as appropriate.
    (x) Wholesale savings association means a savings association 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 savings association is in effect, in accordance with 
Sec. 195.25(b).

[76 FR 49179, Aug. 9, 2011, as amended at 76 FR 79530, Dec. 22, 2011]



              Subpart B_Standards for Assessing Performance



Sec. 195.21  Performance tests, standards, and ratings, in general.

    (a) Performance tests and standards. The appropriate Federal banking 
agency assesses the CRA performance of a savings association in an 
examination as follows:
    (1) Lending, investment, and service tests. The appropriate Federal 
banking agency applies the lending, investment, and service tests, as 
provided in Sec. Sec. 195.22 through 195.24, in evaluating the 
performance of a savings association, except as provided in paragraphs 
(a)(2), (a)(3), and (a)(4) of this section.
    (2) Community development test for wholesale or limited purpose 
savings associations. The appropriate Federal banking agency applies the 
community development test for a wholesale or limited purpose savings 
association, as provided in Sec. 195.25, except as provided in 
paragraph (a)(4) of this section.
    (3) Small savings association performance standards. The appropriate 
Federal banking agency applies the small savings association performance 
standards as provided in Sec. 195.26 in evaluating the performance of a 
small savings association or a savings association that was a small 
savings association during the prior calendar year, unless the savings

[[Page 914]]

association elects to be assessed as provided in paragraphs (a)(1), 
(a)(2), or (a)(4) of this section. The savings association 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 savings associations 
under Sec. 195.42.
    (4) Strategic plan. The appropriate Federal banking agency evaluates 
the performance of a savings association under a strategic plan if the 
savings association submits, and the appropriate Federal banking agency 
approves, a strategic plan as provided in Sec. 195.27.
    (b) Performance context. The appropriate Federal banking agency 
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 savings association's assessment area(s);
    (2) Any information about lending, investment, and service 
opportunities in the savings association's assessment area(s) maintained 
by the savings association or obtained from community organizations, 
state, local, and tribal governments, economic development agencies, or 
other sources;
    (3) The savings association's product offerings and business 
strategy as determined from data provided by the savings association;
    (4) Institutional capacity and constraints, including the size and 
financial condition of the savings association, the economic climate 
(national, regional, and local), safety and soundness limitations, and 
any other factors that significantly affect the savings association's 
ability to provide lending, investments, or services in its assessment 
area(s);
    (5) The savings association's past performance and the performance 
of similarly situated lenders;
    (6) The savings association's public file, as described in Sec. 
195.43, and any written comments about the savings association's CRA 
performance submitted to the savings association or the appropriate 
Federal banking agency; and
    (7) Any other information deemed relevant by the appropriate Federal 
banking agency.
    (c) Assigned ratings. The appropriate Federal banking agency assigns 
to a savings association one of the following four ratings pursuant to 
Sec. 195.28 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 appropriate Federal banking agency reflects the savings 
association'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 savings association.
    (d) Safe and sound operations. This part and the CRA do not require 
a savings association to make loans or investments or to provide 
services that are inconsistent with safe and sound operations. To the 
contrary, the appropriate Federal banking agency anticipates savings 
associations can meet the standards of this part with safe and sound 
loans, investments, and services on which the savings associations 
expect to make a profit. Savings associations 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.
    (e) Low-cost education loans provided to low-income borrowers. In 
assessing and taking into account the record of a savings association 
under this part, the appropriate Federal banking agency considers, as a 
factor, low-cost education loans originated by the savings association 
to borrowers, particularly in its assessment area(s), who have an 
individual income that is less than 50 percent of the area median 
income. For purposes of this paragraph, ``low-cost education loans'' 
means any education loan, as defined in section 140(a)(7) of the Truth 
in Lending Act (15 U.S.C. 1650(a)(7)) (including a loan under a state or 
local education loan program), originated by the savings association for 
a student at an ``institution of higher education,'' as that term is 
generally defined in sections 101 and 102 of the Higher Education Act of 
1965 (20

[[Page 915]]

U.S.C. 1001 and 1002) and the implementing regulations published by the 
U.S. Department of Education, with interest rates and fees no greater 
than those of comparable education loans offered directly by the U.S. 
Department of Education. Such rates and fees are specified in section 
455 of the Higher Education Act of 1965 (20 U.S.C. 1087e).
    (f) Activities in cooperation with minority- or women-owned 
financial institutions and low-income credit unions. In assessing and 
taking into account the record of a nonminority-owned and nonwomen-owned 
savings association under this part, the appropriate Federal banking 
agency considers as a factor capital investment, loan participation, and 
other ventures undertaken by the savings association in cooperation with 
minority- and women-owned financial institutions and low-income credit 
unions. Such activities must help meet the credit needs of local 
communities in which the minority- and women-owned financial 
institutions and low-income credit unions are chartered. To be 
considered, such activities need not also benefit the savings 
association's assessment area(s) or the broader statewide or regional 
area that includes the savings association's assessment area(s).



Sec. 195.22  Lending test.

    (a) Scope of test. (1) The lending test evaluates a savings 
association's record of helping to meet the credit needs of its 
assessment area(s) through its lending activities by considering a 
savings association's home mortgage, small business, small farm, and 
community development lending. If consumer lending constitutes a 
substantial majority of a savings association's business, the 
appropriate Federal banking agency will evaluate the savings 
association'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 savings association's option, 
the appropriate Federal banking agency will evaluate one or more 
categories of consumer lending, if the savings association has collected 
and maintained, as required in Sec. 195.42(c)(1), the data for each 
category that the savings association elects to have the appropriate 
Federal banking agency evaluate.
    (2) The appropriate Federal banking agency considers originations 
and purchases of loans. The appropriate Federal banking agency will also 
consider any other loan data the savings association may choose to 
provide, including data on loans outstanding, commitments and letters of 
credit.
    (3) A savings association may ask the appropriate Federal banking 
agency to consider loans originated or purchased by consortia in which 
the savings association participates or by third parties in which the 
savings association has invested only if the loans meet the definition 
of community development loans and only in accordance with paragraph (d) 
of this section. The appropriate Federal banking agency will not 
consider these loans under any criterion of the lending test except the 
community development lending criterion.
    (b) Performance criteria. The appropriate Federal banking agency 
evaluates a savings association's lending performance pursuant to the 
following criteria:
    (1) Lending activity. The number and amount of the savings 
association's home mortgage, small business, small farm, and consumer 
loans, if applicable, in the savings association's assessment area(s);
    (2) Geographic distribution. The geographic distribution of the 
savings association's home mortgage, small business, small farm, and 
consumer loans, if applicable, based on the loan location, including:
    (i) The proportion of the savings association's lending in the 
savings association's assessment area(s);
    (ii) The dispersion of lending in the savings association's 
assessment area(s); and
    (iii) The number and amount of loans in low-, moderate-, middle-, 
and upper-income geographies in the savings association's assessment 
area(s);
    (3) Borrower characteristics. The distribution, particularly in the 
savings association's assessment area(s), of the savings association's 
home mortgage, small business, small farm, and consumer loans, if 
applicable, based on

[[Page 916]]

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 savings association's 
community development lending, including the number and amount of 
community development loans, and their complexity and innovativeness; 
and
    (5) Innovative or flexible lending practices. The savings 
association'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 savings association's option, the 
appropriate Federal banking agency will consider loans by an affiliate 
of the savings association, if the savings association provides data on 
the affiliate's loans pursuant to Sec. 195.42.
    (2) The appropriate Federal banking agency 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 savings association elects to have the appropriate Federal 
banking agency consider loans within a particular lending category made 
by one or more of the savings association's affiliates in a particular 
assessment area, the savings association shall elect to have the 
appropriate Federal banking agency 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 savings 
association's affiliates.
    (3) The appropriate Federal banking agency does not consider 
affiliate lending in assessing a savings association'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 savings 
association participates or by a third party in which the savings 
association has invested:
    (1) Will be considered, at the savings association's option, if the 
savings association reports the data pertaining to these loans under 
Sec. 195.42(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 appropriate Federal banking 
agency rates a savings association's lending performance as provided in 
Appendix A of this part.



Sec. 195.23  Investment test.

    (a) Scope of test. The investment test evaluates a savings 
association'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 savings association'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 savings association's option, the 
appropriate Federal banking agency will consider, in its assessment of a 
savings association's investment performance, a qualified investment 
made by an affiliate of the savings association, 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 savings 
association that

[[Page 917]]

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 appropriate Federal banking agency 
evaluates the investment performance of a savings association 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 appropriate Federal banking 
agency rates a savings association's investment performance as provided 
in Appendix A of this part.



Sec. 195.24  Service test.

    (a) Scope of test. The service test evaluates a savings 
association's record of helping to meet the credit needs of its 
assessment area(s) by analyzing both the availability and effectiveness 
of a savings association's systems for delivering retail banking 
services and the extent and innovativeness of its community development 
services.
    (b) Area(s) benefitted. Community development services must benefit 
a savings association's assessment area(s) or a broader statewide or 
regional area that includes the savings association's assessment 
area(s).
    (c) Affiliate service. At a savings association's option, the 
appropriate Federal banking agency will consider, in its assessment of a 
savings association's service performance, a community development 
service provided by an affiliate of the savings association, if the 
community development service is not claimed by any other institution.
    (d) Performance criteria--retail banking services. The appropriate 
Federal banking agency evaluates the availability and effectiveness of a 
savings association's systems for delivering retail banking services, 
pursuant to the following criteria:
    (1) The current distribution of the savings association's branches 
among low-, moderate-, middle-, and upper-income geographies;
    (2) In the context of its current distribution of the savings 
association's branches, the savings association'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 savings association, 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 
appropriate Federal banking agency evaluates community development 
services pursuant to the following criteria:
    (1) The extent to which the savings association provides community 
development services; and
    (2) The innovativeness and responsiveness of community development 
services.
    (f) Service performance rating. The appropriate Federal banking 
agency rates a savings association's service performance as provided in 
appendix A of this part.



Sec. 195.25  Community development test for wholesale or limited purpose 

savings associations.

    (a) Scope of test. The appropriate Federal banking agency assesses a 
wholesale or limited purpose savings association'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.

[[Page 918]]

    (b) Designation as a wholesale or limited purpose savings 
association. In order to receive a designation as a wholesale or limited 
purpose savings association, a savings association shall file a request, 
in writing, with the appropriate Federal banking agency, at least three 
months prior to the proposed effective date of the designation. If the 
appropriate Federal banking agency approves the designation, it remains 
in effect until the savings association requests revocation of the 
designation or until one year after the appropriate Federal banking 
agency notifies the savings association that the appropriate Federal 
banking agency has revoked the designation on its own initiative.
    (c) Performance criteria. The appropriate Federal banking agency 
evaluates the community development performance of a wholesale or 
limited purpose savings association 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 savings association, 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 savings association's responsiveness to credit and community 
development needs.
    (d) Indirect activities. At a savings association's option, the 
appropriate Federal banking agency will consider in its community 
development performance assessment:
    (1) Qualified investments or community development services provided 
by an affiliate of the savings association, 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. 195.22(c) 
and (d).
    (e) Benefit to assessment area(s)--(1) Benefit inside assessment 
area(s). The appropriate Federal banking agency considers all qualified 
investments, community development loans, and community development 
services that benefit areas within the savings association's assessment 
area(s) or a broader statewide or regional area that includes the 
savings association's assessment area(s).
    (2) Benefit outside assessment area(s). The appropriate Federal 
banking agency considers the qualified investments, community 
development loans, and community development services that benefit areas 
outside the savings association's assessment area(s), if the savings 
association has adequately addressed the needs of its assessment 
area(s).
    (f) Community development performance rating. The appropriate 
Federal banking agency rates a savings association's community 
development performance as provided in Appendix A of this part.



Sec. 195.26  Small savings association performance standards.

    (a) Performance criteria--(1) Small savings associations that are 
not intermediate small savings associations. The appropriate Federal 
banking agency evaluates the record of a small savings association that 
is not, or that was not during the prior calendar year, an intermediate 
small savings association, 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 savings associations. The appropriate Federal 
banking agency evaluates the record of a small savings association that 
is, or that was during the prior calendar year, an intermediate small 
savings association, 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 savings association's lending performance 
is evaluated pursuant to the following criteria:
    (1) The savings association's loan-to-deposit ratio, adjusted for 
seasonal variation, and, as appropriate, other lending-related 
activities, such as loan

[[Page 919]]

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 savings association's assessment 
area(s);
    (3) The savings association'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 savings association's loans; 
and
    (5) The savings association'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 savings 
association'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 savings association provides community 
development services; and
    (4) The savings association's responsiveness through such activities 
to community development lending, investment, and services needs.
    (d) Small savings association performance rating. The appropriate 
Federal banking agency rates the performance of a savings association 
evaluated under this section as provided in Appendix A of this part.



Sec. 195.27  Strategic plan.

    (a) Alternative election. The appropriate Federal banking agency 
will assess a savings association's record of helping to meet the credit 
needs of its assessment area(s) under a strategic plan if:
    (1) The savings association has submitted the plan to the 
appropriate Federal banking agency as provided for in this section;
    (2) The appropriate Federal banking agency has approved the plan;
    (3) The plan is in effect; and
    (4) The savings association has been operating under an approved 
plan for at least one year.
    (b) Data reporting. The appropriate Federal banking agency's 
approval of a plan does not affect the savings association's obligation, 
if any, to report data as required by Sec. 195.42.
    (c) Plans in general--(1) Term. A plan may have a term of no more 
than five years, and any multi-year plan must include annual interim 
measurable goals under which the appropriate Federal banking agency will 
evaluate the savings association's performance.
    (2) Multiple assessment areas. A savings association 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 appropriate Federal banking agency for approval, a savings 
association 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 savings association 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 
savings association 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 savings association shall submit its 
plan to the appropriate Federal banking agency at least three months 
prior to the proposed effective date of the plan. The

[[Page 920]]

savings association 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 savings association 
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 savings association shall address in its plan all three 
performance categories and, unless the savings association has been 
designated as a wholesale or limited purpose savings association, 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 savings association's capacity and constraints, product offerings, 
and business strategy.
    (2) Confidential information. A savings association may submit 
additional information to the appropriate Federal banking agency on a 
confidential basis, but the goals stated in the plan must be 
sufficiently specific to enable the public and the appropriate Federal 
banking agency to judge the merits of the plan.
    (3) Satisfactory and outstanding goals. A savings association shall 
specify in its plan measurable goals that constitute ``satisfactory'' 
performance. A plan may specify measurable goals that constitute 
``outstanding'' performance. If a savings association submits, and the 
appropriate Federal banking agency approves, both ``satisfactory'' and 
``outstanding'' performance goals, the appropriate Federal banking 
agency will consider the savings association eligible for an 
``outstanding'' performance rating.
    (4) Election if satisfactory goals not substantially met. A savings 
association may elect in its plan that, if the savings association fails 
to meet substantially its plan goals for a satisfactory rating, the 
appropriate Federal banking agency will evaluate the savings 
association's performance under the lending, investment, and service 
tests, the community development test, or the small savings association 
performance standards, as appropriate.
    (g) Plan approval--(1) Timing. The appropriate Federal banking 
agency will act upon a plan within 60 calendar days after it receives 
the complete plan and other material required under paragraph (e) of 
this section. If the appropriate Federal banking agency fails to act 
within this time period, the plan shall be deemed approved unless the 
appropriate Federal banking agency extends the review period for good 
cause.
    (2) Public participation. In evaluating the plan's goals, the 
appropriate Federal banking agency considers the public's involvement in 
formulating the plan, written public comment on the plan, and any 
response by the savings association to public comment on the plan.
    (3) Criteria for evaluating plan. The appropriate Federal banking 
agency evaluates a plan's measurable goals using the following criteria, 
as appropriate:
    (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 savings association's qualified investments; and
    (iii) The availability and effectiveness of the savings 
association's systems for delivering retail banking services and the 
extent and innovativeness of the savings association's community 
development services.
    (h) Plan amendment. During the term of a plan, a savings association 
may request the appropriate Federal banking agency to approve an 
amendment to the plan on grounds that there has

[[Page 921]]

been a material change in circumstances. The savings association 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 appropriate Federal banking agency approves 
the goals and assesses performance under a plan as provided for in 
Appendix A of this part.



Sec. 195.28  Assigned ratings.

    (a) Ratings in general. Subject to paragraphs (b) and (c) of this 
section, the appropriate Federal banking agency assigns to a savings 
association a rating of ``outstanding,'' ``satisfactory,'' ``needs to 
improve,'' or ``substantial noncompliance'' based on the savings 
association's performance under the lending, investment and service 
tests, the community development test, the small savings association 
performance standards, or an approved strategic plan, as applicable.
    (b) Lending, investment, and service tests. The appropriate Federal 
banking agency assigns a rating for a savings association assessed under 
the lending, investment, and service tests in accordance with the 
following principles:
    (1) A savings association that receives an ``outstanding'' rating on 
the lending test receives an assigned rating of at least 
``satisfactory'';
    (2) A savings association 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 savings association 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 appropriate Federal banking agency's evaluation of a 
savings association's CRA performance is adversely affected by evidence 
of discriminatory or other illegal credit practices in any geography by 
the savings association or in any assessment area by any affiliate whose 
loans have been considered as part of the savings association's lending 
performance. In connection with any type of lending activity described 
in Sec. 195.22(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 savings association's assigned 
rating, the appropriate Federal banking agency considers the nature, 
extent, and strength of the evidence of the practices; the policies and 
procedures that the savings association (or affiliate, as applicable) 
has in place to prevent the practices; any corrective action that the 
savings association (or affiliate, as applicable) has taken or has 
committed to take, including voluntary corrective action resulting from 
self-assessment; and any other relevant information.



Sec. 195.29  Effect of CRA performance on applications.

    (a) CRA performance. Among other factors, the appropriate Federal 
banking agency takes into account the record of performance under the 
CRA of each applicant savings association, and for applications under 
section 10(e) of the Home Owners' Loan Act (12 U.S.C. 1467a(e)), of each 
proposed subsidiary savings association, in considering an application 
for:
    (1) The establishment of a domestic branch or other facility that 
would be authorized to take deposits;
    (2) The relocation of the main office or a branch;
    (3) The merger or consolidation with or the acquisition of the 
assets or assumption of the liabilities of an insured depository 
institution requiring appropriate Federal banking agency

[[Page 922]]

approval under the Bank Merger Act (12 U.S.C. 1828(c));
    (4) A Federal thrift charter; and
    (5) Acquisitions subject to section 10(e) of the Home Owners' Loan 
Act (12 U.S.C. 1467a(e)).
    (b) Charter application. An applicant for a Federal thrift charter 
shall submit with its application a description of how it will meet its 
CRA objectives. The appropriate Federal banking agency takes the 
description into account in considering the application and may deny or 
condition approval on that basis.
    (c) Interested parties. The appropriate Federal banking agency takes 
into account any views expressed by interested parties that are 
submitted in accordance with the applicable comment procedures in 
considering CRA performance in an application listed in paragraphs (a) 
and (b) of this section.
    (d) Denial or conditional approval of application. A savings 
association'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



Sec. 195.41  Assessment area delineation.

    (a) In general. A savings association shall delineate one or more 
assessment areas within which the appropriate Federal banking agency 
evaluates the savings association's record of helping to meet the credit 
needs of its community. The appropriate Federal banking agency does not 
evaluate the savings association's delineation of its assessment area(s) 
as a separate performance criterion, but the appropriate Federal banking 
agency reviews the delineation for compliance with the requirements of 
this section.
    (b) Geographic area(s) for wholesale or limited purpose savings 
associations. The assessment area(s) for a wholesale or limited purpose 
savings association 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 savings 
association has its main office, branches, and deposit-taking ATMs.
    (c) Geographic area(s) for other savings associations. The 
assessment area(s) for a savings association other than a wholesale or 
limited purpose savings association 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 savings association has its 
main office, its branches, and its deposit-taking ATMs, as well as the 
surrounding geographies in which the savings association 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 
savings association chooses, such as those consumer loans on which the 
savings association elects to have its performance assessed).
    (d) Adjustments to geographic area(s). A savings association 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 
savings association's assessment area(s):
    (1) Must consist only of whole geographies;
    (2) May not reflect illegal discrimination;
    (3) May not arbitrarily exclude low- or moderate-income geographies, 
taking into account the savings association's size and financial 
condition; and

[[Page 923]]

    (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 savings association serves a geographic area that extends 
substantially beyond a state boundary, the savings association shall 
delineate separate assessment areas for the areas in each state. If a 
savings association serves a geographic area that extends substantially 
beyond an MSA boundary, the savings association shall delineate separate 
assessment areas for the areas inside and outside the MSA.
    (f) Savings associations serving military personnel. Notwithstanding 
the requirements of this section, a savings association 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 appropriate Federal banking 
agency uses the assessment area(s) delineated by a savings association 
in its evaluation of the savings association's CRA performance unless 
the appropriate Federal banking agency determines that the assessment 
area(s) do not comply with the requirements of this section.



Sec. 195.42  Data collection, reporting, and disclosure.

    (a) Loan information required to be collected and maintained. A 
savings association, except a small savings association, shall collect, 
and maintain in machine readable form (as prescribed by the appropriate 
Federal banking agency) until the completion of its next CRA 
examination, the following data for each small business or small farm 
loan originated or purchased by the savings association:
    (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 savings association, 
except a small savings association or a savings association that was a 
small savings association during the prior calendar year, shall report 
annually by March 1 to the appropriate Federal banking agency in machine 
readable form (as prescribed by the agency) the following data for the 
prior calendar year:
    (1) Small business and small farm loan data. For each geography in 
which the savings association 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 savings association 
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 savings association 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 savings association 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 
savings association may collect and maintain in machine readable form 
(as prescribed by the appropriate Federal banking agency) data for 
consumer loans originated or purchased by the savings association for 
consideration under the lending test. A savings association 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 savings association maintains data for loans in a 
certain category, it shall maintain data for all loans originated or 
purchased within that category. The savings association shall maintain 
data separately for each category, including for each loan:

[[Page 924]]

    (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
    (iv) The gross annual income of the borrower that the savings 
association considered in making its credit decision.
    (2) Other loan data. At its option, a savings association may 
provide other information concerning its lending performance, including 
additional loan distribution data.
    (d) Data on affiliate lending. A savings association that elects to 
have the appropriate Federal banking agency 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 savings association 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 savings 
association. For home mortgage loans, the savings association 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 savings 
association that elects to have the appropriate Federal banking agency 
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 savings 
association would have reported under paragraph (b)(2) of this section 
had the loans been originated or purchased by the savings association.
    (f) Small savings associations electing evaluation under the 
lending, investment, and service tests. A savings association that 
qualifies for evaluation under the small savings association performance 
standards but elects evaluation under the lending, investment, and 
service tests shall collect, maintain, and report the data required for 
other savings associations pursuant to paragraphs (a) and (b) of this 
section.
    (g) Assessment area data. A savings association, except a small 
savings association or a savings association that was a small savings 
association during the prior calendar year, shall collect and report to 
the appropriate Federal banking agency by March 1 of each year a list 
for each assessment area showing the geographies within the area.
    (h) CRA Disclosure Statement. The appropriate Federal banking agency 
prepares annually for each savings association 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 
savings association 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 savings association 
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 
savings association 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

[[Page 925]]

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;
    (iii) A list showing each geography in which the savings association 
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 savings association 
and the number and amount of small business and small farm loans located 
outside the assessment area(s) reported by the savings association; and
    (4) The number and amount of community development loans reported as 
originated or purchased.
    (i) Aggregate disclosure statements. The appropriate Federal banking 
agency, in conjunction with the Board of Governors of the Federal 
Reserve System and the Federal Deposit Insurance Corporation or the OCC, 
as appropriate, 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 25, 228, or 
345 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 
appropriate Federal banking agency 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 appropriate Federal banking 
agency makes the aggregate disclosure statements, described in paragraph 
(i) of this section, and the individual savings association CRA 
Disclosure Statements, described in paragraph (h) of this section, 
available to the public at central data depositories. The appropriate 
Federal banking agency publishes a list of the depositories at which the 
statements are available.



Sec. 195.43  Content and availability of public file.

    (a) Information available to the public. A savings association 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 savings association's performance in helping to meet community 
credit needs, and any response to the comments by the savings 
association, if neither the comments nor the responses contain 
statements that reflect adversely on the good name or reputation of any 
persons other than the savings association or publication of which would 
violate specific provisions of law;
    (2) A copy of the public section of the savings association's most 
recent CRA Performance Evaluation prepared by the appropriate Federal 
banking agency. The savings association shall place this copy in the 
public file within 30 business days after its receipt from the 
appropriate Federal banking agency;
    (3) A list of the savings association's branches, their street 
addresses, and geographies;
    (4) A list of branches opened or closed by the savings association 
during the current year and each of the prior two calendar years, their 
street addresses, and geographies;

[[Page 926]]

    (5) A list of services (including hours of operation, available loan 
and deposit products, and transaction fees) generally offered at the 
savings association's branches and descriptions of material differences 
in the availability or cost of services at particular branches, if any. 
At its option, a savings association 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 savings association, 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 savings association chooses.
    (b) Additional information available to the public--(1) Savings 
associations other than small savings associations. A savings 
association, except a small savings association or a savings association 
that was a small savings association during the prior calendar year, 
shall include in its public file the following information pertaining to 
the savings association and its affiliates, if applicable, for each of 
the prior two calendar years:
    (i) If the savings association 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 savings association's assessment area(s) and 
outside the savings association's assessment area(s); and
    (ii) The savings association's CRA Disclosure Statement. The savings 
association shall place the statement in the public file within three 
business days of its receipt from the appropriate Federal banking 
agency.
    (2) Savings associations required to report Home Mortgage Disclosure 
Act (HMDA) data. A savings association required to report home mortgage 
loan data pursuant to 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 savings 
association for each of the prior two calendar years. In addition, a 
savings association that elected to have the appropriate Federal banking 
agency 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 savings association shall place the 
statement(s) in the public file within three business days after its 
receipt.
    (3) Small savings associations. A small savings association or a 
savings association that was a small savings association during the 
prior calendar year shall include in its public file:
    (i) The savings association'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 savings associations by 
paragraph (b)(1) of this section, if the savings association has elected 
to be evaluated under the lending, investment, and service tests.
    (4) Savings associations with strategic plans. A savings association 
that has been approved to be assessed under a strategic plan shall 
include in its public file a copy of that plan. A savings association 
need not include information submitted to the appropriate Federal 
banking agency on a confidential basis in conjunction with the plan.
    (5) Savings associations with less than satisfactory ratings. A 
savings association 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 savings 
association shall update the description quarterly.
    (c) Location of public information. A savings association shall make 
available to the public for inspection upon request and at no cost the 
information required in this section as follows:

[[Page 927]]

    (1) At the main office and, if an interstate savings association, 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 savings association'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 savings association 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 savings 
association 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 
savings association shall ensure that the information required by this 
section is current as of April 1 of each year.



Sec. 195.44  Public notice by savings associations.

    A savings association 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 savings association 
having more than one assessment area shall include the bracketed 
material in the notice for branch offices. Only a savings association 
that is an affiliate of a holding company shall include the last two 
sentences of the notices.



Sec. 195.45  Publication of planned examination schedule.

    The appropriate Federal banking agency publishes at least 30 days in 
advance of the beginning of each calendar quarter a list of savings 
associations scheduled for CRA examinations in that quarter.



                  Sec. Appendix A to Part 195--Ratings

    (a) Ratings in general. (1) In assigning a rating, the appropriate 
Federal banking agency evaluates a savings association's performance 
under the applicable performance criteria in this part, in accordance 
with Sec. Sec. 195.21 and 195.28. This includes consideration of low-
cost education loans provided to low-income borrowers and activities in 
cooperation with minority- or women-owned financial institutions and 
low-income credit unions, as well as adjustments on the basis of 
evidence of discriminatory or other illegal credit practices.
    (2) A savings association'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 savings association's 
overall performance, however, must be consistent with safe and sound 
banking practices and generally with the appropriate rating profile as 
follows.
    (b) Savings associations evaluated under the lending, investment, 
and service tests--(1) Lending performance rating. The appropriate 
Federal banking agency assigns each savings association's lending 
performance one of the five following ratings.
    (i) Outstanding. The appropriate Federal banking agency rates a 
savings association'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 savings association;
    (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 appropriate Federal banking agency rates 
a savings association'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);

[[Page 928]]

    (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 savings association;
    (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 appropriate Federal banking agency rates 
a savings association'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 savings association;
    (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.
    (iv) Needs to improve. The appropriate Federal banking agency rates 
a savings association'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 savings association;
    (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 appropriate Federal banking 
agency rates a savings association'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 savings association;
    (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 appropriate Federal banking 
agency assigns each savings association's investment performance one of 
the five following ratings.
    (i) Outstanding. The appropriate Federal banking agency rates a 
savings association'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;

[[Page 929]]

    (B) Extensive use of innovative or complex qualified investments; 
and
    (C) Excellent responsiveness to credit and community development 
needs.
    (ii) High satisfactory. The appropriate Federal banking agency rates 
a savings association'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 appropriate Federal banking agency rates 
a savings association'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 appropriate Federal banking agency rates 
a savings association'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 appropriate Federal banking 
agency rates a savings association'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 appropriate Federal banking 
agency assigns each savings association's service performance one of the 
five following ratings.
    (i) Outstanding. The appropriate Federal banking agency rates a 
savings association's service performance ``outstanding'' if, in 
general, the savings association 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 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 appropriate Federal banking agency rates 
a savings association's service performance ``high satisfactory'' if, in 
general, the savings association 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 appropriate Federal banking agency rates 
a savings association's service performance ``low satisfactory'' if, in 
general, the savings association 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 appropriate Federal banking agency rates 
a savings association's service performance ``needs to improve'' if, in 
general, the savings association demonstrates:

[[Page 930]]

    (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 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 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 appropriate Federal banking 
agency rates a savings association's service performance as being in 
``substantial noncompliance'' if, in general, the savings association 
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 savings associations. The 
appropriate Federal banking agency assigns each wholesale or limited 
purpose savings association's community development performance one of 
the four following ratings.
    (1) Outstanding. The appropriate Federal banking agency rates a 
wholesale or limited purpose savings association'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 appropriate Federal banking agency rates a 
wholesale or limited purpose savings association'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
    (iii) Adequate responsiveness to credit and community development 
needs in its assessment area(s).
    (3) Needs to improve. The appropriate Federal banking agency rates a 
wholesale or limited purpose savings association'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 appropriate Federal banking 
agency rates a wholesale or limited purpose savings association'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) Savings associations evaluated under the small savings 
association performance standard.--(1) Lending test ratings. (i) 
Eligibility for a satisfactory lending test rating. The appropriate 
Federal banking agency rates a small savings association's lending 
performance ``satisfactory'' if, in general, the savings association 
demonstrates:
    (A) A reasonable loan-to-deposit ratio (considering seasonal 
variations) given the savings association'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

[[Page 931]]

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 savings 
association's assessment area(s);
    (D) A record of taking appropriate action, when warranted, in 
response to written complaints, if any, about the savings association's 
performance in helping to meet the credit needs of its assessment 
area(s); and
    (E) A reasonable geographic distribution of loans given the savings 
association's assessment area(s).
    (ii) Eligibility for an ``outstanding'' lending test rating. A small 
savings association 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 
savings association 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 
savings associations--(i) Eligibility for a satisfactory community 
development test rating. The appropriate Federal banking agency rates an 
intermediate small savings association's community development 
performance ``satisfactory'' if the savings association 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 
savings association'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 savings association's 
assessment area(s).
    (ii) Eligibility for an outstanding community development test 
rating. The appropriate Federal banking agency rates an intermediate 
small savings association's community development performance 
``outstanding'' if the savings association 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 savings 
association's capacity and the need and availability of such 
opportunities for community development in the savings association's 
assessment area(s).
    (iii) Needs to improve or substantial noncompliance ratings. An 
intermediate small savings association 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 savings association 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 savings association that receives an ``outstanding'' 
rating on one test and at least ``satisfactory'' on the other test may 
receive an assigned overall rating of ``outstanding.''
    (B) A small savings association that is not an intermediate small 
savings association 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 savings association's 
performance is ``outstanding,'' the appropriate Federal banking agency 
considers the extent to which the savings association 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 savings association 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 appropriate Federal banking agency approves as ``satisfactory'' 
measurable goals that adequately help to meet the credit needs of the 
savings association'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 appropriate Federal banking agency will approve 
those goals as ``outstanding.''
    (3) Rating. The appropriate Federal banking agency assesses the 
performance of a savings association operating under an approved plan to 
determine if the savings association has met its plan goals:

[[Page 932]]

    (i) If the savings association substantially achieves its plan goals 
for a satisfactory rating, the appropriate Federal banking agency will 
rate the savings association's performance under the plan as 
``satisfactory.''
    (ii) If the savings association exceeds its plan goals for a 
satisfactory rating and substantially achieves its plan goals for an 
outstanding rating, the appropriate Federal banking agency will rate the 
savings association's performance under the plan as ``outstanding.''
    (iii) If the savings association fails to meet substantially its 
plan goals for a satisfactory rating, the appropriate Federal banking 
agency will rate the savings association as either ``needs to improve'' 
or ``substantial noncompliance,'' depending on the extent to which it 
falls short of its plan goals, unless the savings association elected in 
its plan to be rated otherwise, as provided in Sec. 195.27(f)(4).



                 Sec. Appendix B to Part 195--CRA Notice

    (a) Notice for main offices and, if an interstate savings 
association, one branch office in each state.

                    Community Reinvestment Act Notice

    Under the Federal Community Reinvestment Act (CRA), the [Office of 
the Comptroller of the Currency (OCC) or Federal Deposit Insurance 
Corporation (FDIC)] evaluates our record of helping to meet the credit 
needs of this community consistent with safe and sound operations. The 
[OCC or FDIC] 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 [OCC or FDIC]; 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 [OCC or 
FDIC] publishes a nationwide list of the savings associations that are 
scheduled for CRA examination in that quarter. This list is available 
from the [OCC Deputy Comptroller (address) or FDIC appropriate regional 
director (address)]. You may send written comments about our performance 
in helping to meet community credit needs to (name and address of 
official at savings association) and the [OCC Deputy Comptroller 
(address) or FDIC appropriate regional director (address)]. Your letter, 
together with any response by us, will be considered by the [OCC or 
FDIC] in evaluating our CRA performance and may be made public.
    You may ask to look at any comments received by the [OCC Deputy 
Comptroller or FDIC appropriate regional director]. You may also request 
from the [OCC Deputy Comptroller or FDIC appropriate regional director] 
an announcement of our applications covered by the CRA filed with the 
[OCC or FDIC]. We are an affiliate of (name of holding company), a 
savings and loan 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 savings and 
loan holding companies.
    (b) Notice for branch offices.

                    Community Reinvestment Act Notice

    Under the Federal Community Reinvestment Act (CRA), the [Office of 
the Comptroller of the Currency (OCC) or Federal Deposit Insurance 
Corporation (FDIC)] evaluates our record of helping to meet the credit 
needs of this community consistent with safe and sound operations. The 
[OCC or FDIC] 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 [OCC or FDIC] 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 [OCC or FDIC] evaluates our CRA 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 
savings association is available at (name of office located in state), 
located at (address).]
    At least 30 days before the beginning of each quarter, the [OCC or 
FDIC] publishes a nationwide list of the savings associations that are 
scheduled for CRA examination in that quarter. This list is available 
from the

[[Page 933]]

[OCC Deputy Comptroller (address) or FDIC appropriate regional office 
(address)]. You may send written comments about our performance in 
helping to meet community credit needs to (name and address of official 
at savings association) and the [OCC or FDIC]. Your letter, together 
with any response by us, will be considered by the [OCC or FDIC] in 
evaluating our CRA performance and may be made public.
    You may ask to look at any comments received by the [OCC Deputy 
Comptroller or FDIC appropriate regional director]. You may also request 
an announcement of our applications covered by the CRA filed with the 
[OCC Deputy Comptroller or FDIC appropriate regional director]. We are 
an affiliate of (name of holding company), a savings and loan 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 savings and loan holding 
companies.



PART 196_MANAGEMENT OFFICIAL INTERLOCKS--Table of Contents



Sec.
196.1 Authority, purpose, and scope.
196.2 Definitions.
196.3 Prohibitions.
196.4 Interlocking relationships permitted by statute.
196.5 Small market share exemption.
196.6 General exemption.
196.7 Change in circumstances.
196.8 Enforcement.
196.9 Interlocking relationships permitted pursuant to Federal Deposit 
          Insurance Act.

    Authority: 12 U.S.C. 3201-3208; 5412(b)(2)(B).

    Source: 76 FR 49192, Aug. 9, 2011, unless otherwise noted.



Sec. 196.1  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.
    (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 Federal 
savings associations and their affiliates.



Sec. 196.2  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 savings 
association 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
    (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

[[Page 934]]

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) 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.
    (j) 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 Sec. 
163.555 of this chapter;
    (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 paragraph (j)(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).
    (k) 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.
    (l) Person means a natural person, corporation, or other business 
entity.
    (m) 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.
    (n) 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.
    (o) Savings association means:
    (1) Any Federal savings association (as defined in section 3(b)(2) 
of the Federal Deposit Insurance Act (12 U.S.C. 1813(b)(2));
    (2) [Reserved]; and
    (3) Any corporation (other than a bank as defined in section 3(a)(1) 
of the Federal Deposit Insurance Act (12 U.S.C. 1813(a)(1)) the deposits 
of which are insured by the Federal Deposit Insurance Corporation, that 
the Board of Directors of the Federal Deposit Insurance Corporation and 
the Comptroller of the Currency jointly determine to be operating in 
substantially the same

[[Page 935]]

manner as a Federal savings association.
    (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.



Sec. 196.3  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.



Sec. 196.4  Interlocking relationships permitted by statute.

    The prohibitions of Sec. 196.3 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 date the 
depository organization is acquired;
    (h)(1) A diversified savings and loan holding company (as defined in 
section 10(a)(1)(F) of the Home Owners' Loan

[[Page 936]]

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; and
    (i) Any savings association which has issued stock in connection 
with a qualified stock issuance pursuant to section 10(q) of the Home 
Owners' Loan Act, except that this paragraph (i) shall apply only with 
regard to service as a single management official of such savings 
association, or any subsidiary of such savings association, by a single 
management official of the savings and loan holding company which 
purchased the stock issued in connection with such qualified stock 
issuance, and shall apply only when the OCC has determined that such 
service is consistent with the purposes of the Interlocks Act and the 
Home Owners' Loan Act.



Sec. 196.5  Small market share exemption.

    (a) Exemption. A management interlock that is prohibited by Sec. 
196.3 is permissible, if:
    (1) The interlock is not prohibited by Sec. 196.3(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.



Sec. 196.6  General exemption.

    (a) Exemption. The OCC may by agency order exempt an interlock from 
the prohibitions in Sec. 196.3 if it finds that the interlock would not 
result in a monopoly or substantial lessening of competition and would 
not present safety and soundness concerns. A depository organization may 
apply to the OCC for an exemption under part 116, subpart E, of this 
chapter.
    (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 Sec. 
163.555 of this chapter.
    (c) Duration. Unless a shorter 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

[[Page 937]]

paragraph (b) of this section, the interlock may continue for three 
years, unless otherwise provided by the OCC in writing.



Sec. 196.7  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 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 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.



Sec. 196.8  Enforcement.

    Except as provided in this section, the OCC administers and enforces 
the Interlocks Act with respect to savings associations and their 
affiliates, 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 savings association 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.



Sec. 196.9  Interlocking relationships permitted pursuant to Federal Deposit 

Insurance Act.

    A management official or prospective management official of a 
depository organization may enter into an otherwise prohibited 
interlocking relationship with another depository organization for a 
period of up to 10 years if such relationship is approved by the Federal 
Deposit Insurance Corporation pursuant to section 13(k)(1)(A)(v) of the 
Federal Deposit Insurance Act, as amended (12 U.S.C. 1823(k)(1)(A)(v)).



PART 197_SECURITIES OFFERINGS--Table of Contents



Sec.
197.1 Definitions.
197.2 Offering circular requirement.
197.3 Exemptions.
197.4 Non-public offering.
197.5 Filing and signature requirements.
197.6 Effective date.
197.7 Form, content, and accounting.
197.8 Use of the offering circular.
197.9 Escrow requirement.
197.10 Unsafe or unsound practices.
197.11 Withdrawal or abandonment.
197.12 Securities sale report.
197.13 Public disclosure and confidential treatment.
197.14 Waiver.
197.15 Requests for interpretive advice or waiver.
197.16 Delayed or continuous offering and sale of securities.
197.17 Sales of securities at an office of a savings association.
197.18 Current and periodic reports.
197.19 Approval of the security.
197.21 Filing of copies of offering circulars in certain exempt 
          offerings.

Appendix A to Part 197--Form for Securities Sale Report

    Authority: 12 U.S.C. 1462a, 1463, 1464 5412(b)(2)(B); 15 U.S.C. 
78c(b), 78l, 78m, 78n, 78p, 78w.

    Source: 76 FR 49194, Aug. 9, 2011, unless otherwise noted.



Sec. 197.1  Definitions.

    (a) For purposes of this part, the following definitions apply:
    (1) Accredited investor means the same as in Commission Rule 501(a) 
(17 CFR 230.501(a)) under the Securities Act, and includes any savings 
association.
    (2) Commission means the Securities and Exchange Commission.
    (3) Dividend or interest reinvestment plan means a plan which is 
offered solely to existing security holders of the savings association 
which allows such persons to reinvest dividends or interest paid to them 
on securities issued by the savings association, and which also may 
allow additional cash amounts to be contributed by the participants in 
the plan, provided that the securities to be issued are newly issued, or 
are

[[Page 938]]

purchased for the account of plan participants, at prices not in excess 
of current market prices at the time of purchase, or at prices not in 
excess of an amount determined in accordance with a pricing formula 
specified in the plan and based upon average or current market prices at 
the time of purchase.
    (4) Employee benefit plan means any purchase, savings, option, 
rights, bonus, ownership, appreciation, profit sharing, thrift, 
incentive, pension or similar plan solely for officers, directors or 
employees.
    (5) Exchange Act means the Securities Exchange Act of 1934 (15 
U.S.C. 78a-78jj).
    (6) Filing date means the date on which a document is actually 
received during business hours, 9 a.m. to 5 p.m. Eastern Standard Time, 
by the OCC. However if the last date on which a document can be accepted 
falls on a Saturday, Sunday, or holiday, such document may be filed on 
the next business day.
    (7) Issuer means a savings association which issues or proposes to 
issue any security.
    (8) Offer; Sale or sell. For purposes of this part, the term offer, 
offer to sell, or offer for sale shall include every attempt or offer to 
dispose of, or solicitation of an offer to buy, a security or interest 
in a security, for value. However, these terms shall not include 
preliminary negotiations or agreements between an issuer and any 
underwriter or among underwriters who are or are to be in privity of 
contract with the issuer. Sale and sell includes every contract to sell 
or otherwise dispose of a security or interest in a security for value. 
Every offer or sale of a warrant or right to purchase or subscribe to 
another security of the same or another issuer, as well as every sale or 
offer of a security which gives the holder a present or future right or 
privilege to convert the security into another security of the same or 
another issuer, includes an offer and sale of the other security only at 
the time of the offer or sale of the warrant or right or convertible 
security; but neither the exercise of the right to purchase or subscribe 
or to convert nor the issuance of securities pursuant thereto is an 
offer or sale.
    (9) Person means the same as in Sec. 192.25 of this chapter, and 
includes a savings association.
    (10) Purchase and buy mean the same as in Sec. 192.25 of this 
chapter.
    (11) Savings association means a Federal savings association and 
includes a Federally-chartered savings association in organization under 
this chapter, which is granted conditional approval of insurance of 
accounts by the Federal Deposit Insurance Corporation (FDIC). In 
addition, for purposes of Sec. 197.2 of this part, savings association 
includes any underwriter participating in the distribution of securities 
of a savings association.
    (12) Securities Act means the Securities Act of 1933 (15 U.S.C. 77a-
77aa).
    (13) Security means any non-withdrawable account, note, stock, 
treasury stock, bond, debenture, evidence of indebtedness, certificate 
of interest or participation in any profit-sharing agreement, 
collateral-trust certificate, preorganization or subscription, 
transferable share, investment contract, voting trust certificate or, in 
general, any interest or instrument commonly known as a security, or any 
certificate of interest or participation in, temporary or interim 
certificate for, receipt for, guarantee of, or warrant or right to 
subscribe to or purchase any of the foregoing, except that a security 
shall not include an account insured, in whole or in part, by the FDIC.
    (14) Underwriter means any person who has purchased from an issuer 
with a view to, or offers or sells for an issuer in connection with, the 
distribution of any security, or participates or has a participation in 
the direct or indirect underwriting of any such undertaking; but such 
term shall not include a person whose interest is limited to a 
commission from an underwriter or dealer not in excess of the usual and 
customary distributors' or sellers' commission and such term shall also 
not include any person who has continually held the securities being 
transferred for a period of two (2) consecutive years provided that the 
securities sold in any one (1) transaction shall be less than ten 
percent (10%) of the issued and outstanding securities of the same 
class. The following shall apply for the

[[Page 939]]

purpose of determining the period securities have been held:
    (i) Stock dividends, splits and recapitalizations. Securities 
acquired from the issuer as a dividend or pursuant to a stock split, 
reverse split or recapitalization shall be deemed to have been acquired 
at the same time as the securities on which the dividend or, if more 
than one, the initial dividend was paid, the securities involved in the 
split or reverse split, or the securities surrendered in connection with 
the recapitalization.
    (ii) Conversions. If the securities sold were acquired from the 
issuer for consideration consisting solely of other securities of the 
same issuer surrendered for conversion, the securities so acquired shall 
be deemed to have been acquired at the same time as the securities 
surrendered for conversion.
    (iii) Contingent issuance of securities. Securities acquired as a 
contingent payment of the purchase price of an equity interest in a 
business, or the assets of a business, sold to the issuer or an 
affiliate of the issuer shall be deemed to have been acquired at the 
time of such sale if the issuer was then committed to issue the 
securities subject only to conditions other than the payment of further 
consideration for such securities. An agreement entered into in 
connection with any such purchase to remain in the employment of, or not 
to compete with, the issuer or affiliate or the rendering of services 
pursuant to such agreement shall not be deemed to be the payment of 
further consideration for such securities.
    (iv) Pledged securities. Securities which are bona fide pledged by 
any person other than the issuer when sold by the pledgee, or by a 
purchaser, after a default in the obligation secured by the pledge, 
shall be deemed to have been acquired when they were acquired by the 
pledgor, except that if the securities were pledged without recourse 
they shall be deemed to have been acquired by the pledgee at the time of 
the pledge or by the purchaser at the time of purchase.
    (v) Gifts of securities. Securities acquired from any person, other 
than the issuer, by gift shall be deemed to have been acquired by the 
donee when they were acquired by the donor.
    (vi) Trusts. Securities acquired from the settler of a trust by the 
trust or acquired from the trust by the beneficiaries thereof shall be 
deemed to have been acquired when they were acquired by the settler.
    (vii) Estates. Securities held by the estate of a deceased person or 
acquired from such an estate by the beneficiaries thereof shall be 
deemed to have been acquired when they were acquired by the deceased 
person, except that no holding period is required if the estate is not 
an affiliate of the issuer or if the securities are sold by a 
beneficiary of the estate who is not such an affiliate.
    (viii) Exchange transactions. A person receiving securities in a 
transaction involving an exchange of the securities of one issuer for 
securities of another issuer shall be deemed to have acquired the 
securities received when such person acquired the securities exchanged.
    (b) A term not defined in this part but defined in another part of 
this chapter, when used in this part, shall have the meanings given in 
such other part, unless the context otherwise requires.
    (c) 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, the term registrant shall be deemed to refer to an issuer 
defined in this part, and the term registration statement or prospectus 
shall be deemed to refer to an offering circular filed under this part, 
unless the context otherwise requires.



Sec. 197.2  Offering circular requirement.

    (a) General. No savings association shall offer or sell, directly or 
indirectly, any security issued by it unless:
    (1) The offer or sale is accompanied or preceded by an offering 
circular which includes the information required by this part and which 
has been filed and declared effective pursuant to this part; or
    (2) An exemption is available under this part.
    (b) Communications not deemed an offer. The following communications 
shall not be deemed an offer under this section:

[[Page 940]]

    (1) Prior to filing an offering circular, any notice of a proposed 
offering which satisfies the requirements of Commission Rule 135 (17 CFR 
230.135) under the Securities Act;
    (2) Subsequent to filing an offering circular, any notice circular, 
advertisement, letter, or other communication published or transmitted 
to any person which satisfies the requirements of Commission Rule 134 
(17 CFR 230.134) under the Securities Act; and
    (3) Oral offers of securities covered by an offering circular made 
after filing the offering circular with the OCC.
    (c) Preliminary offering circular. Notwithstanding paragraph (a) of 
this section, a preliminary offering circular may be used for an offer 
of any security prior to the effective date of the offering circular if:
    (1) The preliminary offering circular has been filed pursuant to 
this part;
    (2) The preliminary offering circular includes the information 
required by this part, except for the omission of information relating 
to offering price, discounts or commissions, amount of proceeds, 
conversion rates, call prices, or other matters dependent on the 
offering price; and
    (3) The offering circular declared effective by the OCC is furnished 
to the purchaser prior to, or simultaneously with, the sale of any such 
security.



Sec. 197.3  Exemptions.

    The offering circular requirement of Sec. 197.2 of this part shall 
not apply to an issuer's offer or sale of securities:
    (a) [Reserved]
    (b) Exempt from registration under either section 3(a) or section 4 
of the Securities Act, but only by reason of an exemption other than 
section 3(a)(5) (for regulated savings associations), and section 
3(a)(11) (for intrastate offerings) of the Securities Act;
    (c) In a conversion from the mutual to the stock form of 
organization pursuant to part 192 of this chapter, except for a 
supervisory conversion undertaken pursuant to subpart C of part 192 of 
this chapter;
    (d) In a non-public offering which satisfies the requirements of 
Sec. 197.4 of this part;
    (e) That are debt securities issued in denominations of $100,000 or 
more, which are fully collateralized by cash, any security issued, or 
guaranteed as to principal and interest, by the United States, the 
Federal Home Loan Mortgage Corporation, Federal National Mortgage 
Association, Government National Mortgage Association or by interests in 
mortgage notes secured by real property;
    (f) Distributed exclusively abroad to foreign nationals: Provided, 
That (1) the offering is made subject to safeguards reasonably designed 
to preclude distribution or redistribution of the securities within, or 
to nationals of, the United States, and (2) such safeguards include, 
without limitation, measures that would be sufficient to ensure that 
registration of the securities would not be required if the securities 
were not exempt under the Securities Act; or
    (g) To its officers, directors or employees pursuant to an employee 
benefit plan or a dividend or interest reinvestment plan, and provided 
that any such plan has been approved by the majority of shareholders 
present in person or by proxy at an annual or special meeting of the 
shareholders of the savings association.



Sec. 197.4  Non-public offering.

    Offers and sales of securities by an issuer that satisfy the 
conditions of paragraph (a) or (b) of this section and the requirements 
of paragraphs (c) and (d) of this section shall be deemed to be 
transactions not involving any public offering within the meaning of 
section 4(2) of the Securities Act and Sec. Sec. 197.3(b) and 197.3(d) 
of this part. However, an issuer shall not be deemed to be not in 
compliance with the provisions of this section solely by reason of 
making an untimely filing of the notice required to be filed by 
paragraph (c) of this section so long as the notice is actually filed 
and all other conditions and requirements of this section are satisfied.
    (a) Regulation D. The offer and sale of all securities in the 
transaction satisfies the Commission's Regulation D (17 CFR 230.501-
230.506), except for the notice requirements of Commission Rule 503 (17 
CFR 230.503) and the limitations on resale in Commission Rule 502(d) (17 
CFR 230.502(d)).
    (b) Sales to 35 persons. The offer and sale of all securities in the 
transaction

[[Page 941]]

satisfies each of the following conditions:
    (1) Sales of the security are not made to more than 35 persons 
during the offering period, as determined under the integration 
provisions of Commission Rule 502(a) (17 CFR 230.502(a)). The number of 
purchasers referred to above is exclusive of any accredited investor, 
officer, director or affiliate of the issuer. For purposes of paragraph 
(b) of this section, a husband and wife (together with any custodian or 
trustee acting for the account of their minor children) are counted as 
one person and a partnership, corporation or other organization which 
was not specifically formed for the purpose of purchasing the security 
offered in reliance upon this exemption, is counted as one person.
    (2) All purchasers either have a preexisting personal or business 
relationship with the issuer or any of its officers, directors or 
controlling persons, or by reason of their business or financial 
experience or the business or financial experience of their professional 
advisors who are unaffiliated with and who are not compensated by the 
issuer or any affiliate or selling agent of the issuer, directly or 
indirectly, could reasonably be assumed to have the capacity to protect 
their own interests in connection with the transaction.
    (3) Each purchaser represents that the purchaser is purchasing for 
the purchaser's own account (or a trust account if the purchaser is a 
trustee) and not with a view to or for sale in connection with any 
distribution of the security.
    (4) The offer and sale of the security is not accomplished by the 
publication of any advertisement.
    (c) Filing of notice of sales. Within 30 days after the first sale 
of the securities, every six months after the first sale of the 
securities and not later than 30 days after the last sale of securities 
in an offering pursuant to this section, the issuer, shall file with the 
OCC's Securities and Corporate Practices Division, a report describing 
the results of the sale of securities as required by Sec. 197.12(b) of 
this part.
    (d) Limitation on resale. The issuer shall exercise reasonable care 
to assure that the purchasers of the securities are not underwriters 
within the meaning of Sec. 197.1(a)(14) of this part, which reasonable 
care shall include, but not be limited to, the following:
    (1) Reasonable inquiry to determine if the purchaser is acquiring 
the securities for the purchaser or for other persons;
    (2) Written disclosure to each purchaser prior to the sale that the 
securities are not offered by an offering circular filed with, and 
declared effective by, the OCC pursuant to Sec. 197.2 of this part, but 
instead are being sold in reliance upon the exemption from the offering 
circular requirement provided for by this section; and
    (3) Placement of a legend on the certificate, or other document 
evidencing the securities, indicating that the securities have not been 
offered by an offering circular filed with, and declared effective by, 
the OCC and that due care should be taken to ensure that the seller of 
the securities is not an underwriter within the meaning of Sec. 
197.1(a)(14) of this part.



Sec. 197.5  Filing and signature requirements.

    (a) Procedures. An offering circular, amendment, notice, report, or 
other document required by this part shall, unless otherwise indicated, 
be filed in accordance with the requirements of Sec. Sec. 192.115(a), 
192.150(a)(6), 192.155, 192.180(b), and Form AC, General Instruction B, 
of this chapter.
    (b) Number of copies. (1) Unless otherwise required, any filing 
under this part shall include four copies of the document, one manually 
signed copy with exhibits and three conformed copies with exhibits, to 
be filed as follows:
    (i) For a de novo savings association, with the appropriate District 
Counsel office; and
    (ii) For an existing savings association, with the OCC's Securities 
and Corporate Practices Division.
    (2) Within five days after the effective date of an offering 
circular or the commencement of a public offering after the effective 
date, whichever occurs later, four copies of the offering circular used 
shall be filed with the OCC, as described in (b)(1).
    (3) After the effective date of an offering circular, an offering 
circular

[[Page 942]]

which varies from the form previously filed shall not be used, unless it 
includes only non-material supplemental or additional information and 
until 4 copies have been filed with the OCC in the manner required.
    (c) Signature. (1) Any offering circular, amendment, or consent 
filed with the OCC pursuant to this part shall include an attached 
manually signed signature page which authorizes the filing and has been 
signed by:
    (i) The issuer, by its duly authorized representative;
    (ii) The issuer's principal executive officer;
    (iii) The issuer's principal financial officer;
    (iv) The issuer's principal accounting officer; and
    (v) At least a majority of the issuer's directors.
    (2) Any other document filed pursuant to this part shall be signed 
by a person authorized to do so.
    (3) At least one copy of every document filed pursuant to this part 
shall be manually signed, and every copy of a document filed shall:
    (i) Have the name of each person who signs typed or printed beneath 
the signature;
    (ii) State the capacity or capacities in which the signature is 
provided;
    (iii) Provide the name of each director of the issuer, if a majority 
of directors is required to sign the document; and
    (iv) With regard to any copies not manually signed, bear typed or 
printed signatures.



Sec. 197.6  Effective date.

    (a) Except as provided for in paragraph (d) of this section, an 
offering circular filed by a savings association shall be deemed to be 
automatically declared effective by the OCC on the twentieth day after 
filing or on such earlier date as the OCC may determine for good cause 
shown.
    (b) If any amendment is filed prior to the effective date, the 
offering circular shall be deemed to have been filed when such amendment 
was filed.
    (c) The period until automatic effectiveness under this section 
shall be stated at the bottom of the facing page of the Form OC or any 
amendment.
    (d) The effectiveness will be delayed if a duly authorized 
amendment, telegram confirmed in writing, or letter states that the 
effective date is delayed until a further amendment is filed 
specifically stating that the offering circular will become effective in 
accordance with this section.
    (e) An amendment filed after the effective date of the offering 
circular shall become effective on such date as the OCC may determine.
    (f) If it appears to the OCC at any time that the offering circular 
includes any untrue statement of a material fact or omits to state any 
material fact required to be stated therein or necessary to make the 
statements therein not misleading, then the OCC may pursue any remedy it 
is authorized to pursue under section 5(d) of the Home Owners' Loan Act 
of 1933, as amended (12 U.S.C. 1464(d)) or section 8 of the Federal 
Deposit Insurance Act, as amended (12 U.S.C. 1818), including, but not 
limited to, institution of cease-and-desist proceedings.



Sec. 197.7  Form, content, and accounting.

    (a) Form and content. Any offering circular or amendment filed 
pursuant to this part shall:
    (1) Be filed under cover of Form OC, which is under part 192 of this 
chapter;
    (2) Comply with the requirements of Items 3 and 4 of Form OC and the 
requirements of all items of the form for registration (17 CFR part 239) 
that the issuer would be eligible to use were it required to register 
the securities under the Securities Act;
    (3) Comply with all item requirements of the Form S-1 (17 CFR part 
239) for registration under the Securities Act, if the association 
issuing the securities is not in compliance with the OCC's regulatory 
capital requirements during the time the offering is made;
    (4) Where a form specifies that the information required by an item 
in the Commission's Regulation S-K (17 CFR part 229) should be 
furnished, include such information and all of the information required 
by Item 7 of Form PS, which is under part 192 of this chapter;
    (5) Include after the facing page of the Form OC a cross-reference 
sheet listing each item requirement of the

[[Page 943]]

form for registration under the Securities Act and indicate for each 
item the applicable heading or subheading in the offering circular under 
which the required information is disclosed;
    (6) Include in part II of the Form OC the applicable undertakings 
required by the form for registration under the Securities Act;
    (7) If the issuer has not previously been required to file reports 
pursuant to section 13(a) of the Exchange Act or Sec. 197.18 of this 
part, include in part II of Form OC the following undertaking: ``The 
issuer hereby undertakes, in connection with any distribution of the 
offering circular, to have a preliminary or effective offering circular 
including the information required by this part distributed to all 
persons expected to be mailed confirmations of sale not less than 48 
hours prior to the time such confirmations are expected to be mailed'';
    (8) In offerings involving the issuance of options, warrants, 
subscription rights or conversion rights within the meaning of Sec. 
197.1(a)(8) of this part, include in part II of Form OC an undertaking 
to provide a copy of the issuer's most recent audited financial 
statements to persons exercising such options, warrants or rights 
promptly upon receiving written notification of the exercise thereof;
    (9) Include as supplemental information and not as part of the Form 
OC and only with respect to de novo offerings, a copy of the application 
for permission to organize as submitted to the OCC for Federally-
chartered associations, or a copy of the application for insurance of 
accounts as submitted to the FDIC for state-chartered associations; and
    (10) In addition to the information expressly required to be 
included by this section, there shall be added such further material 
information, if any, as may be necessary to make the required 
statements, in light of the circumstances under which they are made, not 
misleading.
    (b) Accounting requirements. To be declared effective an offering 
circular or amendment shall satisfy the accounting requirements in 
subpart A of part 193 of this chapter.



Sec. 197.8  Use of the offering circular.

    (a) An offering circular or amendment declared effective by the OCC 
shall not be used more than nine months after the effective date, unless 
the information contained therein is as of a date not more than 16 
months prior to such use.
    (b) An offering circular filed under Sec. 197.5(b)(3) of this part 
shall not extend the period for which an effective offering circular or 
amendment may be used under paragraph (c) of this section.
    (c) If any event arises, or change in fact occurs, after the 
effective date and such event or change in fact, individually or in the 
aggregate, results in the offering circular containing any untrue 
statement of material fact, or omitting to state a material fact 
necessary in order to make statements made in the offering circular not 
misleading under the circumstances, then no offering circular, which has 
been declared effective under this part, shall be used until an 
amendment reflecting such event or change in fact has been filed with, 
and declared effective by, the OCC.



Sec. 197.9  Escrow requirement.

    (a) Any funds received in an offering which is offered and sold on a 
best efforts all-or-none condition or with a minimum-maximum amount to 
be sold shall be held in an escrow or similar separate account until 
such time as all of the securities are sold with respect to a best 
efforts all-or-none offering or the stated minimum amount of securities 
are sold in a minimum-maximum offering.
    (b) If the amount of securities required to be sold under escrow 
conditions in paragraph (a) of this section are not sold within the time 
period for the offering as disclosed in the offering circular, all funds 
in the escrow account shall be promptly refunded unless the OCC 
otherwise approves an extension of the offering period upon a showing of 
good cause and provided that the extension is consistent with the public 
interest and the protection of investors.



Sec. 197.10  Unsafe or unsound practices.

    (a) No person shall directly or indirectly,

[[Page 944]]

    (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 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 savings association.
    (b) Violations of this section shall constitute an unsafe or unsound 
practice within the meaning of section (3)(a) of the Home Owners' Loan 
Act of 1933, as amended, 12 U.S.C. 1462a(a), and section 8 of the 
Federal Deposit Insurance Act, as amended, 12 U.S.C. 1818.
    (c) Nothing in this section shall be construed as a limitation on 
the applicability of section 10(b) of the Exchange Act (15 U.S.C. 
78j(b)) or Rule 10b-5 promulgated thereunder (17 CFR 240.10b-5).



Sec. 197.11  Withdrawal or abandonment.

    (a) Any offering circular, amendment, or exhibit may be withdrawn 
prior to the effective date. A withdrawal shall be signed and state the 
grounds upon which it is made. Any document withdrawn will not be 
removed from the files of the OCC, but will be marked ``Withdrawn upon 
the request of the issuer on (date).''
    (b) When an offering circular 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, 
after notifying the issuer 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 such notice. When 
a filing is abandoned, the filing will not be removed from the files of 
the OCC, but will be marked ``Declared abandoned by the OCC on (date).''



Sec. 197.12  Securities sale report.

    (a) Within 30 days after the first sale of the securities, every six 
months after such 30 day period and not later than 30 days after the 
later of the last sale of securities in an offering pursuant to Sec. 
197.2 of this part or the application of the proceeds therefrom, the 
issuer shall file with the OCC, a report describing the results of the 
sale of the securities and the application of the proceeds, which shall 
include all of the information required by Form G-12 set forth appendix 
A to this part and shall also include the following:
    (1) The name, address, and docket number of the issuer;
    (2) The title, number, aggregate and per-unit offering price of the 
securities sold;
    (3) The aggregate and per-unit dollar amounts of actual itemized 
expenses, discounts or commissions, and other fees;
    (4) The aggregate and per-unit dollar amounts of the net proceeds 
raised, and the use of proceeds therefrom; and
    (5) The number of purchasers of each class of securities sold and 
the number of owners of record of each class of the issuer's equity 
securities after the issuance of the securities or termination of the 
offer.
    (b) Within 30 days after the first sale of the securities, every six 
months after the first sale of the securities and not later than 30 days 
after the last sale of securities in an offering pursuant to Sec. 197.4 
of this part, the issuer shall file with the OCC a report describing the 
results of the sale of securities, which shall include all of the 
information required by Form G-12 set forth at appendix A to this part, 
and shall also include the following:
    (1) All of the information required by paragraph (a) of this 
section; and
    (2) A detailed statement of the factual and legal grounds for the 
exemption claimed.



Sec. 197.13  Public disclosure and confidential treatment.

    (a) Any offering circular, amendment, exhibit, notice, or report 
filed pursuant to this part will be publicly available. Any other 
related documents will be treated in accordance with the provisions of 
the Freedom of Information Act (5 U.S.C. 552), the Privacy Act of 1974 
(5 U.S.C. 552a), and part 4 of this chapter.

[[Page 945]]

    (b) Any requests for confidential treatment of information in a 
document required to be filed under this part shall be made as required 
under Commission Rule 24b-2 (17 CFR 240.24b-2) under the Exchange Act.



Sec. 197.14  Waiver.

    (a) The OCC may waive any requirement of this part, or any required 
information:
    (1) Determined to be unnecessary by the OCC;
    (2) In connection with a transaction approved by the OCC for 
supervisory reasons, or
    (3) Where a provision of this part conflicts with a requirement of 
applicable state law.
    (b) Any condition, stipulation or provision binding any person 
acquiring a security issued by a savings association which seeks to 
waive compliance with any provision of this part shall be void, unless 
approved by the OCC.



Sec. 197.15  Requests for interpretive advice or waiver.

    Any requests to the OCC for interpretive advice or a waiver with 
respect to any provision of this part shall satisfy the following 
requirements:
    (a) A copy of the request, including any attachments, shall be filed 
consistent with the procedures in Sec. 197.5 of this part;
    (b) The provisions of this part to which the request relates, the 
participants in the proposed transaction, and the reasons for the 
request, shall be specifically identified or described; and
    (c) The request shall include a legal opinion as to each legal issue 
raised and an accounting opinion as to each accounting issue raised.



Sec. 197.16  Delayed or continuous offering and sale of securities.

    Any offer or sale of securities under Sec. 197.2 of this part may 
be made on a continuous or delayed basis in the future, if:
    (a) The securities would satisfy all of the eligibility requirements 
of the Commission's Rule 415, 17 CFR 230.415; and
    (b) The association issuing the securities is in compliance with the 
OCC's regulatory capital requirements during the time the offering is 
made.



Sec. 197.17  Sales of securities at an office of a savings association.

    Sales of securities of a savings association or its affiliates at an 
office of a savings association may only be made in accordance with the 
provisions of 12 CFR 197.76.



Sec. 197.18  Current and periodic reports.

    (a) Each savings association which files an offering circular which 
becomes effective pursuant to this part, after such effective date, 
shall file with the OCC periodic and current reports on Forms 8-K, 10-Q 
and 10-K as may be required by section 13 of the Exchange Act (15 U.S.C. 
78m) as if the securities sold by such offering circular were securities 
registered pursuant to section 12 of the Exchange Act (15 U.S.C. 78l). 
The duty to file periodic and current reports under this section shall 
be automatically suspended if and so long as any issue of securities of 
the savings association is registered pursuant to section 12 of the 
Exchange Act (15 U.S.C. 78l). The duty to file under this section shall 
also be automatically suspended as to any fiscal year, other than the 
fiscal year within which such offering circular became effective, if, at 
the beginning of such fiscal year, the securities of each class to which 
the offering circular relates are held of record by less than three 
hundred persons and upon the filing of a Form 15.
    (b) For purposes of registering securities under section 12(b) or 
12(g) of the Exchange Act, an issuer subject to the reporting 
requirements of paragraph (a) of this section may use the Commission's 
registration statement on Form 10 or Form 8-A or 8-B as applicable.



Sec. 197.19  Approval of the security.

    Any securities of a savings association which are not exempt under 
this part and are offered or sold pursuant to an offering circular which 
becomes effective under this part, are deemed to be approved as to form 
and terms for purposes of Sec. 197.3 of this chapter.

[[Page 946]]



Sec. 197.21  Filing of copies of offering circulars in certain exempt 

offerings.

    A copy of the offering circular, or similar document, if any, used 
in connection with an offering exempt from the offering circular 
requirement of Sec. 197.2 by reason of Sec. 197.3(e) or Sec. 197.4 of 
this part shall be mailed to the OCC, in the manner described in Sec. 
197.5, within 30 days after the first sale of such securities. Such copy 
of the offering circular, or similar document, is solely for the 
information of the OCC and shall not be deemed to be ``filed'' with the 
OCC pursuant to Sec. 197.2 of this part. The mailing to the OCC of such 
offering circular, or similar document, shall not be a pre-condition of 
the applicable exemption from the offering circular requirements of 
Sec. 197.2 of this part.



      Sec. Appendix A to Part 197--Form for Securities Sale Report

    Office of the Comptroller of the Currency

    [Form G-12]

             Securities Sale Report Pursuant to Sec. 197.12

OCC No._________________________________________________________________
Issuer's Name:__________________________________________________________
Address:________________________________________________________________

    If in organization, state the date of FDIC certification of 
insurance of accounts: --------

    State the title, number, aggregate and per-unit offering price of 
the securities sold: --------

    State the aggregate and per-unit dollar amounts of actual itemized 
offering expenses, discounts, commissions, and other fees: --------

    State the aggregate and per-unit dollar amounts of the net proceeds 
raised: --------

    Describe the use of proceeds. If unknown, provide reasonable 
estimates of the dollar amount allocated to each purpose for which the 
proceeds will be used: --------

    State the number of purchasers of each class of securities sold and 
the number of owners of record of each class of the issuer's equity 
securities at the close or termination of the offering: --------

    For a non-public offering, also state the factual and legal grounds 
for the exemption claimed (attach additional pages if necessary): ------
--

    For a non-public offering, all offering materials used should be 
listed: --------

Person to Contact:______________________________________________________
Telephone No.:__________________________________________________________

    This issuer has duly caused this securities sale report to be signed 
on its behalf by the undersigned person.

Date of securities sale report__________________________________________
Issuer:_________________________________________________________________
Signature:______________________________________________________________
Name:___________________________________________________________________
Title:__________________________________________________________________

    Instruction: Print the name and title of the signing representative 
under his or her signature. Ten copies of the securities sale report 
should be filed, including one copy manually signed, as required under 
12 CFR 197.5.

                                Attention

    Intentional misstatements or omissions of fact constitute violations 
of Federal law (see 18 U.S.C. 1001 and 12 CFR 197.180(b)).


[[Page 947]]



                              FINDING AIDS




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

  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 949]]



                    Table of CFR Titles and Chapters




                     (Revised as of January 1, 2012)

                      Title 1--General Provisions

         I  Administrative Committee of the Federal Register 
                (Parts 1--49)
        II  Office of the Federal Register (Parts 50--299)
       III  Administrative Conference of the United States (Parts 
                300--399)
        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 2--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)
        IV  Department of Agriculture (Parts 400--499)
        VI  Department of State (Parts 600--699)
       VII  Agency for International Development (Parts 700--799)
      VIII  Department of Veterans Affairs (Parts 800--899)
        IX  Department of Energy (Parts 900--999)
        XI  Department of Defense (Parts 1100--1199)
       XII  Department of Transportation (Parts 1200--1299)
      XIII  Department of Commerce (Parts 1300--1399)
       XIV  Department of the Interior (Parts 1400--1499)
        XV  Environmental Protection Agency (Parts 1500--1599)
     XVIII  National Aeronautics and Space Administration (Parts 
                1800--1899)
        XX  United States Nuclear Regulatory Commission (Parts 
                2000--2099)
      XXII  Corporation for National and Community Service (Parts 
                2200--2299)
     XXIII  Social Security Administration (Parts 2300--2399)
      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)

[[Page 950]]

       XXX  Department of Homeland Security (Parts 3000--3099)
      XXXI  Institute of Museum and Library Services (Parts 3100--
                3199)
     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)
     LVIII  Election Assistance Commission (Parts 5800--5899)

                        Title 3--The President

         I  Executive Office of the President (Parts 100--199)

                           Title 4--Accounts

         I  Government Accountability Office (Parts 1--99)
        II  Recovery Accountability and Transparency Board (Parts 
                200--299)

                   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)

[[Page 951]]

     XXXIV  Securities and Exchange Commission (Parts 4400--4499)
      XXXV  Office of Personnel Management (Parts 4500--4599)
    XXXVII  Federal Election Commission (Parts 4700--4799)
        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)
      XLIX  Federal Labor Relations Authority (Parts 5900--5999)
         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)
       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)
    LXVIII  Commission on Civil Rights (Parts 7800--7899)
      LXIX  Tennessee Valley Authority (Parts 7900--7999)
       LXX  Court Services and Offender Supervision Agency for the 
                District of Columbia (Parts 8000--8099)
      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)
      LXXX  Federal Housing Finance Agency (Parts 9000--9099)
    LXXXII  Special Inspector General for Iraq Reconstruction 
                (Parts 9200--9299)

[[Page 952]]

     XCVII  Department of Homeland Security Human Resources 
                Management System (Department of Homeland 
                Security--Office of Personnel Management) (Parts 
                9700--9799)

                      Title 6--Domestic Security

         I  Department of Homeland Security, Office of the 
                Secretary (Parts 1--99)

                         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)
        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)

[[Page 953]]

       XXV  Office of Advocacy and Outreach, Department of 
                Agriculture (Parts 2500--2599)
      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  National Institute of Food and Agriculture (Parts 
                3400--3499)
      XXXV  Rural Housing Service, Department of Agriculture 
                (Parts 3500--3599)
     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)

[[Page 954]]

                           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 1300--
                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)
        II  Election Assistance Commission (Parts 9400--9499)

                      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)
         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)
         X  Bureau of Consumer Financial Protection (Parts 1000--
                1099)
        XI  Federal Financial Institutions Examination Council 
                (Parts 1100--1199)
       XII  Federal Housing Finance Agency (Parts 1200--1299)
      XIII  Financial Stability Oversight Council (Parts 1300--
                1399)
       XIV  Farm Credit System Insurance Corporation (Parts 1400--
                1499)
        XV  Department of the Treasury (Parts 1500--1599)
       XVI  Office of Financial Research (Parts 1600--1699)
      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 (Parts 400--499)
         V  Emergency Oil and Gas Guaranteed Loan Board (Parts 
                500--599)

[[Page 955]]

                    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--1199)
         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)
        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)

[[Page 956]]

             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  U.S. 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)
        IV  U.S. 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  Office of Workers' Compensation Programs, 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)

[[Page 957]]

                      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  Millennium 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)
        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)

[[Page 958]]

         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)
       XII  Office of Inspector General, Department of Housing and 
                Urban Development (Parts 2000--2099)
        XV  Emergency Mortgage Insurance and Loan Programs, 
                Department of Housing and Urban Development (Parts 
                2700--2799)
        XX  Office of Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Parts 3200--3899)
      XXIV  Board of Directors of the HOPE for Homeowners Program 
                (Parts 4000--4099)
       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)

[[Page 959]]

                      Title 26--Internal Revenue

         I  Internal Revenue Service, Department of the Treasury 
                (Parts 1--End)

           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)
        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)

[[Page 960]]

     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  Bureau of Safety and Environmental Enforcement, 
                Department of the Interior (Parts 200--299)
        IV  Geological Survey, Department of the Interior (Parts 
                400--499)
         V  Bureau of Ocean Energy Management, Department of the 
                Interior (Parts 500--599)
       VII  Office of Surface Mining Reclamation and Enforcement, 
                Department of the Interior (Parts 700--999)
       XII  Office of Natural Resources Revenue, Department of the 
                Interior (Parts 1200--1299)

                 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)
        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)
         X  Financial Crimes Enforcement Network, Department of 
                the Treasury (Parts 1000--1099)

                      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

[[Page 961]]

       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)
        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)
       VII  Office of Educational Research and Improvement, 
                Department of Education [Reserved]
        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)

[[Page 962]]

        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)
        VI  [Reserved]
       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 
                300--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)
        II  Armed Forces Retirement Home (Parts 200--299)

                       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)

[[Page 963]]

          Title 41--Public Contracts and Property Management

            Subtitle A--Federal Procurement Regulations System 
                [Note]
            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)
   62--100  [Reserved]
            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)
  103--104  [Reserved]
       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)
  129--200  [Reserved]
            Subtitle D--Other Provisions Relating to Property 
                Management [Reserved]
            Subtitle E--Federal Information Resources Management 
                Regulations System [Reserved]
            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)

                        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--599)
         V  Office of Inspector General-Health Care, Department of 
                Health and Human Services (Parts 1000--1999)

[[Page 964]]

                   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--599)
        II  Bureau of Land Management, Department of the Interior 
                (Parts 1000--9999)
       III  Utah Reclamation Mitigation and Conservation 
                Commission (Parts 10000--10099)

             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) 
                [Reserved]
         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)
       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)

[[Page 965]]

     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)
        IV  National Telecommunications and Information 
                Administration, Department of Commerce, and 
                National Highway Traffic Safety Administration, 
                Department of Transportation (Parts 400--499)

           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  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)
        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)

[[Page 966]]

        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  Civilian Board of Contract Appeals, General Services 
                Administration (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)
         V  National Highway Traffic Safety Administration, 
                Department of Transportation (Parts 500--599)
        VI  Federal Transit Administration, Department of 
                Transportation (Parts 600--699)

[[Page 967]]

       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 969]]





           Alphabetical List of Agencies Appearing in the CFR




                     (Revised as of January 1, 2012)

                                                  CFR Title, Subtitle or 
                     Agency                               Chapter

Administrative Committee of the Federal Register  1, I
Administrative Conference of the United States    1, III
Advisory Council on Historic Preservation         36, VIII
Advocacy and Outreach, Office of                  7, XXV
African Development Foundation                    22, XV
  Federal Acquisition Regulation                  48, 57
Agency for International Development              2, VII; 22, II
  Federal Acquisition Regulation                  48, 7
Agricultural Marketing Service                    7, I, IX, X, XI
Agricultural Research Service                     7, V
Agriculture Department                            2, IV; 5, LXXIII
  Advocacy and Outreach, Office of                7, XXV
  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
  Economic Research Service                       7, XXXVII
  Energy Policy and New Uses, 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
  National Institute of Food and Agriculture      7, XXXIV
  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, L
  Rural Development Administration                7, XLII
  Rural Housing Service                           7, XVIII, XXXV, L
  Rural Telephone Bank                            7, XVI
  Rural Utilities Service                         7, XVII, XVIII, XLII, L
  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

[[Page 970]]

Appalachian Regional Commission                   5, IX
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
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
Bureau of Ocean Energy Management, Regulation,    30, II
     and Enforcement
Census Bureau                                     15, I
Centers for Medicare & Medicaid Services          42, IV
Central Intelligence Agency                       32, XIX
Chemical Safety and Hazardous Investigation       40, VI
     Board
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                       5, LXVIII; 45, VII
Civil Rights, Office for                          34, I
Court Services and Offender Supervision Agency    5, LXX
     for the District of Columbia
Coast Guard                                       33, I; 46, I; 49, IV
Coast Guard (Great Lakes Pilotage)                46, III
Commerce Department                               2, XIII; 44, IV; 50, VI
  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
  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
  National Oceanic and Atmospheric                15, IX; 50, II, III, IV, 
       Administration                             VI
  National Telecommunications and Information     15, XXIII; 47, III, IV
       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 Financial Protection Bureau              12, X
Consumer Product Safety Commission                5, LXXI; 16, II
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    5, LXX; 28, VIII
   for the District of Columbia
[[Page 971]]

Customs and Border Protection                     19, I
Defense Contract Audit Agency                     32, I
Defense Department                                2, XI; 5, XXVI; 32, 
                                                  Subtitle A; 40, VII
  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, 2
  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          5, LXX; 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
Election Assistance Commission                    2, LVIII; 11, II
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                             2, IX; 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

[[Page 972]]

  Environmental Quality, Council on               40, V
  Management and Budget, Office of                2, Subtitle A; 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
  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                       5, XXXVII; 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 Agency                    5, LXXX; 12, XII
Federal Housing Finance Board                     12, IX
Federal Labor Relations Authority                 5, XIV, XLIX; 22, XIV
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
Financial Crimes Enforcement Network              31, X
Financial Research Office                         12, XVI
Financial Stability Oversight Council             12, XIII
Fine Arts, Commission on                          45, XXI
Fiscal Service                                    31, II
Fish and Wildlife Service, United States          50, I, IV
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

[[Page 973]]

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
  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                  2, XXX; 6, I
  Coast Guard                                     33, I; 46, I; 49, IV
  Coast Guard (Great Lakes Pilotage)              46, III
  Customs and Border Protection                   19, I
  Federal Emergency Management Agency             44, I
  Human Resources Management and Labor Relations  5, XCVII
       Systems
  Immigration and Customs Enforcement Bureau      19, IV
  Immigration and Naturalization                  8, I
  Transportation Security Administration          49, XII
HOPE for Homeowners Program, Board of Directors   24, XXIV
     of
Housing and Urban Development, Department of      2, XXIV; 5, LXV; 24, 
                                                  Subtitle B
  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

[[Page 974]]

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
Inspector General
  Agriculture Department                          7, XXVI
  Health and Human Services Department            42, V
  Housing and Urban Development Department        24, XII, XV
Institute of Peace, United States                 22, XVII
Inter-American Foundation                         5, LXIII; 22, X
Interior Department                               2, XIV
  American Indians, Office of the Special         25, VII
       Trustee
  Bureau of Ocean Energy Management, Regulation,  30, II
       and Enforcement
  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
  National Indian Gaming Commission               25, III
  National Park Service                           36, I
  Natural Resource Revenue, Office of             30, XII
  Ocean Energy Management, Bureau of              30, V
  Reclamation, Bureau of                          43, I
  Secretary of the Interior, Office of            2, XIV; 43, Subtitle A
  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 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
Investment Security, Office of                    31, VIII
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, XXVIII; 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

[[Page 975]]

Labor Department                                  5, XLII
  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
  Office of Workers' Compensation Programs        20, VII
  Public Contracts                                41, 50
  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
Millennium Challenge Corporation                  22, XIII
Mine Safety and Health Administration             30, I
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
Museum and Library Services, Institute of         2, XXXI
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   2, XXII; 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; 47, VI; 49, V
National Imagery and Mapping Agency               32, I
National Indian Gaming Commission                 25, III
National Institute for Literacy                   34, XI
National Institute of Food and Agriculture        7, XXXIV
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

[[Page 976]]

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, IV
     Administration
National Transportation Safety Board              49, VIII
Natural Resources Conservation Service            7, VI
Natural Resource Revenue, Office of               30, XII
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                     2, XX; 5, XLVIII; 10, I
  Federal Acquisition Regulation                  48, 20
Occupational Safety and Health Administration     29, XVII
Occupational Safety and Health Review Commission  29, XX
Ocean Energy Management, Bureau of                30, V
Offices of Independent Counsel                    28, VI
Office of Workers' Compensation Programs          20, VII
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                                       2, XXXVII; 22, III
Pennsylvania Avenue Development Corporation       36, IX
Pension Benefit Guaranty Corporation              29, XL
Personnel Management, Office of                   5, I, XXXV; 45, VIII
  Human Resources Management and Labor Relations  5, XCVII
       Systems, Department of Homeland Security
  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
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
Recovery Accountability and Transparency Board    4, II
Refugee Resettlement, Office of                   45, IV
Relocation Allowances                             41, 302
Research and Innovative Technology                49, XI
     Administration
Rural Business-Cooperative Service                7, XVIII, XLII, L
Rural Development Administration                  7, XLII

[[Page 977]]

Rural Housing Service                             7, XVIII, XXXV, L
Rural Telephone Bank                              7, XVI
Rural Utilities Service                           7, XVII, XVIII, XLII, L
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                5, XXXIV; 17, II
Selective Service System                          32, XVI
Small Business Administration                     2, XXVII; 13, I
Smithsonian Institution                           36, V
Social Security Administration                    2, XXIII; 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
Special Inspector General for Iraq                5, LXXXVII
     Reconstruction
State Department                                  2, VI; 22, I; 28, XI
  Federal Acquisition Regulation                  48, 6
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                     2, XII; 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; 47, IV; 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                   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
  Financial Crimes Enforcement Network            31, X
  Fiscal Service                                  31, II
  Foreign Assets Control, Office of               31, V
  Internal Revenue Service                        26, I
  Investment Security, Office of                  31, VIII
  Monetary Offices                                31, I
  Secret Service                                  31, IV
  Secretary of the Treasury, Office of            31, Subtitle A

[[Page 978]]

  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 979]]



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 980]]

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 981]]

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 982]]

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

                                  2008

12 CFR
                                                                   73 FR
                                                                    Page
Chapter I
1.1 Heading revised; (c) amended; (d) added........................22235
1.3 (h) heading revised; (h)(1)(i), (2) and (i)(1) amended; (h)(2) 
        added......................................................22235
2.2 (a) revised....................................................22236
2.205 (j) revised..................................................54673
3 Technical correction.............................................21690
    Policy statement...............................................44620
3.2 (b) revised....................................................22236
3 Appendix A amended...............................................22236
    Appendix A amended; interim....................................55706
    Appendix A amended; eff. 1-29-09...............................79605
4 Authority citation revised.......................................22236
4.4 Amended........................................................22236
4.5 (a) table amended..............................................22236
5.3 (j) removed; (h) and (l) redesignated as new (j) and (k).......22236
5.4 (d) amended....................................................22236
5.13 (c) and (f) amended...........................................22236
5.20 (i)(3) and (5)(i) amended; (i)(5) heading revised; (i)(5)(i) 
        in part, (i)(5)(ii) and (iii) redesignated as (i)(5)(ii), 
        (iii) and (iv).............................................22237
5.26 (e)(2)(i)(B) and (3)(ii) removed; (e)(2)(i)(C), (D), (E) and 
        (3)(i) redesignated as new (e)(2)(i)(B), (C), (D) and (3); 
        new (e)(2)(i)(C) and (D) amended; new (e)(2)(i)(E) added 
                                                                   22237
5.30 (d)(1)(i) amended; (d)(3), (4), (5), (f)(4) and (5) 
        redesignated as (d)(4), (5), (6), (f)(5) and (6); new 
        (d)(3) and (f)(4) added....................................22237

[[Page 983]]

5.33 (e)(1) introductory text, (g), (1), (3) and (h) revised; 
        (e)(1)(i), (A), (B), (ii), (iii), (iv) and (v) 
        redesignated as (e)(1)(i)(A) introductory text, (1), (2), 
        (B), (C), (ii) and (iii); (d) introductory text and new 
        (e)(1)(i) introductory text added; (e)(8)(ii), (g)(2)(ii) 
        and (3)(i) amended.........................................22237
5.34 (e)(5)(iv) removed; (e)(2) introductory text, (i), (ii), 
        (5)(ii), (iii) and (6) redesignated as (e)(2)(i) and 
        introductory text, (ii)(A), (B), (5)(iii), (iv) and (7); 
        new (e)(2)(i), (5)(i) and (vi) introductory text revised; 
        (e)(5)(v)(X), (Y), (vi)(B) and (C) amended; new 
        (e)(5)(ii), (v)(Z), (AA) through (FF), (vi)(D) and (6) 
        added......................................................22238
5.35 (d)(4) and (5) redesignated as (d)(5) and (6); new (d)(4) 
        added; (d)(1), (3), new (6) and (g)(3) amended; (g)(4) and 
        (i) heading revised; (g)(5), (i)(1) designation and (2) 
        removed....................................................22239
5.36 (b) amended; (e)(5) removed; (e)(6), (7), (8), (f) and (g) 
        redesignated as new (e)(5), (6), (7), (h) and (i); (e) 
        introductory text and new (6) revised; new (f) and (g) 
        added......................................................22239
5.39 (h)(5)(v) redesignated as (h)(5)(vi); (d)(1), (h)(5) 
        introductory text, (iv) and new (vi) amended; (h)(5)(iii) 
        revised; new (h)(5)(v) added...............................22240
5.46 Amended; (e)(3)(iii) revised; (i)(2) and (3) amended..........22240
5.50 (a) revised; (d)(4), (5), (6), (f)(2)(ii) through (v), (4), 
        (5) and (h) redesignated as (d)(5), (6), (7), (f)(2)(iii) 
        through (vi), (5), (6) and (i); new (d)(4), (f)(2)(ii), 
        (4) and (h) added; new (f)(2)(vi), (3)(i)(A) and new 
        (5)(iii) amended...........................................22240
5.64 Revised.......................................................22241
7 Footnote 1 amended...............................................22241
7.1017 Introductory text, (a), (b) introductory text, (1), (2), 
        (i) through (iv) and (3) redesignated as (a) introductory 
        text, (1), (2) introductory text, (i), (ii), (A) through 
        (D) and (iii); new (b) added...............................22241
7.2006 Amended.....................................................22241
7.5001 (d)(3) added................................................22242
7.5002 (a)(3) and (4) amended; (a)(5) added........................22242
7.5006 (c) added...................................................22242
8.2 (a) introductory text revised; (a)(1) amended; interim..........9014
    (a) table correctly reprinted...................................9625
    Regulations at 73 FR 9014 and 9625 confirmed...................52577
9.20 Revised.......................................................22242
10 Authority citation revised......................................22242
10.1 (a) revised...................................................22242
11.1 (a) revised...................................................22242
12.7 (a)(4) amended................................................22243
13.3 (a)(1)(iv) and (b)(1)(ii) revised.............................54673
16.2 (b) revised...................................................22243
16.5 (a) revised; (f) and (g) amended; (h) added...................22243
16.6 (a) introductory text and (3) amended.........................22243
16.7 (a)(1) and (2) amended; (a)(3) removed........................22243
16.9 Added.........................................................22243
16.15 (e) added....................................................12010
16.20 Removed......................................................22243
19.3 (g) revised...................................................22243
19.100 Amended.....................................................22243
19.110 Amended.....................................................22243
19.111 Revised.....................................................22243
19.112 (a), (b) and (c) amended....................................22244
19.113 (c) amended.................................................22244
19.240 Revised.....................................................66495
19.241 Revised.....................................................22244
21.1 (a) amended...................................................22244
22.2 (b) revised...................................................22244
23.6 Amended.......................................................22244
24.1 (a) amended; (b) and (d) revised; (e) added...................22244
24.2 (c) and (f) amended; (g), (h) and (i) redesignated as (h), 
        (i) and (j); new (g) added.................................22244
    (c) amended; (g) removed; (h), (i) and (j) redesignated as new 
(g), (h) and (i); interim..........................................46534
24.3 Revised.......................................................22244
    Revised; interim...............................................46534
24.4 (a) amended...................................................22244
24.5 (a)(2), (5) and (b)(1) amended................................22245
24.6 Introductory text, (b)(2) and (d)(1) revised; (b)(1), (3), 
        (4), (d)(2) and (3) amended; (d)(4) added..................22245

[[Page 984]]

    Introductory text, (b)(1) through (4), (d)(1) and (4) revised; 
interim............................................................46534
24 Appendix 1 revised..............................................22245
    Appendix 1 revised; interim....................................46535
25.12 (u)(1) revised...............................................78154
26.1 (c) revised...................................................22251
26.2 (i) removed; (j) through (q) redesignated as new (i) through 
        (p)........................................................22251
26.8 Revised.......................................................22251
27.1 (a) revised...................................................22251
27.2 (c) revised...................................................22251
28.11 (s) amended..................................................22251
28.12 (e)(3) amended...............................................22251
28.50 (c) revised..................................................22251
28.51 (a) revised..................................................22251
31 Authority citation revised......................................22251
31.1 Amended.......................................................22251
31 Appendix A revised; Appendix B amended..........................22251
32.1 (c)(1) amended................................................22251
32.8 Added; interim................................................14924
34.21 (b) revised; (c) added.......................................22251
34.22 Existing text designated as (a) and amended; new (a) heading 
        and (b) added..............................................22252
37.7 (a) amended...................................................22252
40.1 (b)(1) amended................................................22252

                                  2009

12 CFR
                                                                   74 FR
                                                                    Page
Chapter I
3 Appendix A amended........................................13337, 60141
    Appendix A amended; interim....................................31165
    Appendix A correctly amended...................................34500
24 Appendix 1 revised..............................................15659
25.12 (u)(1) revised...............................................68663
40.2 Revised.......................................................62916
40.6 (b) and (f) revised; (g) added; (g) removed eff. 1-1-12.......62916
40.7 (i) added.....................................................62916
40 Appendix A redesignated as Appendix B; new Appendix A added.....62916
    Appendix B amended; Appendix B removed eff. 1-1-2012...........62925
41 Authority citation revised......................................31512
41.40--41.43 (Subpart E) Added.....................................31512
41.82 (a), (b), (c)(2)(i)(A), (d)(1) and (3) added.................22642
41 Appendices C and J amended......................................22642
    Appendix E added...............................................31513

                                  2010

12 CFR
                                                                   75 FR
                                                                    Page
Chapter I
3.4 (c) added.......................................................4645
3 Appendix A amended................................................4645
    Appendix C amended..............................................4646
4 Authority citation revised.......................................75576
4.12 (d) amended...................................................17850
4.15 Heading, (c)(1) heading, (i), (f) heading and (1) revised; 
        (f)(3)(ii) and (iii) amended; (f)(3)(iv) added.............17850
4.17 Heading and (a)(8) revised; (b)(6) added; (d) amended.........17850
4.18 Added.........................................................17851
4.31 (b)(4) added; eff. 1-3-11.....................................75576
4.32 (b)(1)(v) and (vi) amended; (b)(1)(vii) removed; eff. 1-3-11 
                                                                   75576
4.35 (a)(2)(iv) and (v) amended; (a)(2)(vi) added; eff. 1-3-11.....75576
4.37 (c) amended; eff. 1-3-11......................................75576
21.11 (b)(3), (c) introductory text, (k) and (l) revised; eff. 1-
        3-11.......................................................57783
25 Authority citation revised......................................61044
25.12 (g)(3) and (4)(iii)(B) amended; (g)(5) added; eff. 1-19-11 
                                                                   79285
    (u)(1) revised.................................................82218
25.21 (e) and (f) added............................................61044
25 Appendix A(V)...................................................61044
34 Authority citation revised......................................44684
    Technical correction...........................................51623
34.101--34.105 (Subpart F) Added...................................44684

                                  2011

12 CFR
                                                                   76 FR
                                                                    Page
Chapter I
Chapter I OTS regulations list.....................................39246
3 Appendix A amended...............................................37627
    Appendix C amended.............................................37628
4 Authority citation revised.......................................43560
4.2 Revised......