[Title 12 CFR ]
[Code of Federal Regulations (annual edition) - January 1, 2020 Edition]
[From the U.S. Government Publishing Office]
[[Page i]]
Title 12
Banks and Banking
________________________
Parts 1 to 199
Revised as of January 1, 2020
Containing a codification of documents of general
applicability and future effect
As of January 1, 2020
Published by the Office of the Federal Register
National Archives and Records Administration as a
Special Edition of the Federal Register
[[Page ii]]
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[[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........................ 1039
Alphabetical List of Agencies Appearing in the CFR...... 1059
List of CFR Sections Affected........................... 1069
[[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
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To determine whether a Code volume has been amended since its
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OMB CONTROL NUMBERS
The Paperwork Reduction Act of 1980 (Pub. L. 96-511) requires
Federal agencies to display an OMB control number with their information
collection request.
[[Page vi]]
Many agencies have begun publishing numerous OMB control numbers as
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``[RESERVED]'' TERMINOLOGY
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This material, like any other properly issued regulation, has the force
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What is a proper incorporation by reference? The Director of the
Federal Register will approve an incorporation by reference only when
the requirements of 1 CFR part 51 are met. Some of the elements on which
approval is based are:
(a) The incorporation will substantially reduce the volume of
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(b) The matter incorporated is in fact available to the extent
necessary to afford fairness and uniformity in the administrative
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(c) The incorporating document is drafted and submitted for
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What if the material incorporated by reference cannot be found? If
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that volume.
[[Page vii]]
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Oliver A. Potts,
Director,
Office of the Federal Register
January 1, 2020
[[Page ix]]
THIS TITLE
Title 12--Banks and Banking is composed of ten volumes. The parts in
these volumes are arranged in the following order: Parts 1-199, 200-219,
220-229, 230-299, 300-346, 347-599, 600-899, 900-1025, 1026-1099, and
1100-end. The contents of these volumes represent all current
regulations codified under this title of the CFR as of January 1, 2020.
For this volume, Ann Worley was Chief Editor. The Code of Federal
Regulations publication program is under the direction of John Hyrum
Martinez, assisted by Stephen J. Frattini.
[[Page 1]]
TITLE 12--BANKS AND BANKING
(This book contains parts 1 to 199)
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Part
chapter i--Comptroller of the Currency, Department of the
Treasury.................................................. 1
[[Page 3]]
CHAPTER I--COMPTROLLER OF THE CURRENCY, DEPARTMENT OF THE TREASURY
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Part Page
1 Investment securities....................... 7
2 Sales of credit life insurance.............. 14
3 Capital adequacy standards.................. 15
4 Organization and functions, availability and
release of information, contracting
outreach program, post-employment
restrictions for senior examiners....... 229
5 Rules, policies, and procedures for
corporate activities.................... 254
6 Prompt corrective action.................... 365
7 Activities and operations................... 375
8 Assessment of fees.......................... 399
9 Fiduciary activities of national banks...... 405
10 Municipal securities dealers................ 418
11 Securities Exchange Act disclosure rules.... 419
12 Recordkeeping and confirmation requirements
for securities transactions............. 421
13 Government securities sales practices....... 428
14 Consumer protection in sales of insurance... 431
15
[Reserved]
16 Securities offering disclosure rules........ 435
19 Rules of practice and procedure............. 442
21 Minimum security devices and procedures,
reports of suspicious activities, and
Bank Secrecy Act Compliance Program..... 483
22 Loans in areas having special flood hazards. 487
23 Leasing..................................... 496
24 Community and economic development entities,
community development projects, and
other public welfare investments........ 500
25 Community Reinvestment Act and interstate
deposit production regulations.......... 510
26 Management official interlocks.............. 532
27 Fair housing home loan data system.......... 537
28 International banking activities............ 548
[[Page 4]]
29
[Reserved]
30 Safety and soundness standards.............. 562
31 Extensions of credit to insiders and
transactions with affiliates............ 587
32 Lending limits.............................. 591
33
[Reserved]
34 Real estate lending and appraisals.......... 614
35 Disclosure and reporting of CRA-related
agreements.............................. 645
36
[Reserved]
37 Debt cancellation contracts and debt
suspension agreements................... 658
38-40
[Reserved]
41 Fair credit reporting....................... 662
42
[Reserved]
43 Credit risk retention....................... 668
44 Proprietary trading and certain interests in
and relationships with covered funds.... 710
45 Margin and capital requirements for covered
swap entities........................... 787
46 Stress testing.............................. 809
47 Mandatory contractual stay requirements for
qualified financial contracts........... 813
48 Retail foreign exchange transactions........ 824
49
[Reserved]
50 Liquidity risk measurement standards........ 838
51 Receiverships for uninsured national banks.. 870
52 Regulatory reporting........................ 872
53-99
[Reserved]
100 Rules applicable to savings associations.... 873
101 Covered savings associations................ 874
102-107
[Reserved]
108 Removals, suspensions, and prohibitions
where a crime is charged or proven...... 877
109 Rules of practice and procedure in
adjudicatory proceedings................ 880
110-111
[Reserved]
112 Rules for investigative proceedings and
formal examination proceedings.......... 902
113-127
[Reserved]
128 Nondiscrimination requirements.............. 904
129-140
[Reserved]
141 Definitions for regulations affecting
Federal savings associations............ 909
142
[Reserved]
143 Federal savings associations--grandfathered
authority............................... 911
[[Page 5]]
144 Federal mutual savings associations--
communication between members........... 912
145 Federal savings associations--operations.... 913
146-149
[Reserved]
150 Fiduciary powers of Federal savings
associations............................ 916
151 Recordkeeping and confirmation requirements
for securities transactions............. 925
152-154
[Reserved]
155 Electronic operations of Federal savings
associations............................ 933
156
[Reserved]
157 Deposits.................................... 933
158-159
[Reserved]
160 Lending and investment...................... 934
161 Definitions for regulations affecting all
savings associations.................... 951
162 Accounting and disclosure standards......... 957
163 Savings associations--operations............ 957
165 Prompt corrective action.................... 970
166
[Reserved]
168 Security procedures......................... 973
169 Proxies..................................... 974
170-189
[Reserved]
190 Preemption of State usury laws.............. 975
191 Preemption of State due-on-sale laws........ 980
192 Conversions from mutual to stock form....... 985
195 Community reinvestment...................... 1013
196-199
[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) For qualifying community banking organizations that have elected
to use the community bank leverage ratio framework, as set forth under
the OCC's Capital Adequacy Standards at part 3 of this chapter:
(i) A qualifying community banking organization's tier 1 capital, as
used under Sec. 3.12 of this chapter; plus
(ii) A qualifying community banking organization's allowance for
loan and lease losses or adjusted allowances for credit losses, as
applicable, as reported in the bank's Consolidated Report of Condition
and Income (Call Report); or
(2) For all other banks:
(i) A bank's tier 1 and tier 2 capital calculated under the OCC's
risk-based capital standards set forth in part 3 of this chapter, as
applicable (or comparable capital guidelines of the appropriate Federal
banking agency), as reported in the bank's Call Report; plus
(ii) The balance of a bank's allowance for loan and lease losses or
adjusted allowances for credit losses, as applicable, not included in
the bank's tier 2 capital, for purposes of the calculation
[[Page 8]]
of risk-based capital described in paragraph (a)(2)(i) of this section,
as reported in the bank's Call Report.
(b) General obligation of a State or political subdivision means:
(1) An obligation supported by the full faith and credit of an
obligor possessing general powers of taxation, including property
taxation; or
(2) An obligation payable from a special fund or by an obligor not
possessing general powers of taxation, when an obligor possessing
general powers of taxation, including property taxation, has
unconditionally promised to make payments into the fund or otherwise
provide funds to cover all required payments on the obligation.
(c) Investment company means an investment company, including a
mutual fund, registered under section 8 of the Investment Company Act of
1940, 15 U.S.C. 80a-8.
(d) Investment grade means the issuer of a security has an adequate
capacity to meet financial commitments under the security for the
projected life of the asset or exposure. An issuer has an adequate
capacity to meet financial commitments if the risk of default by the
obligor is low and the full and timely repayment of principal and
interest is expected.
(e) Investment security means a marketable debt obligation that is
investment grade and not predominately speculative in nature.
(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 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) [Reserved]
(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;
(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);
[[Page 9]]
(3) Other obligations listed in 12 U.S.C. 24 (Seventh) as
permissible for a bank to deal in, underwrite, purchase, and sell for
the bank's own account, subject to a limitation per obligor of 10
percent of the bank's capital and surplus; and
(4) Other securities the OCC determines to be eligible as Type II
securities under 12 U.S.C. 24 (Seventh).
(l) Type III security means an investment security that does not
qualify as a Type I, II, IV, or V security. Examples of Type III
securities include corporate bonds and municipal bonds that do not
satisfy the definition of Type I securities pursuant to paragraph (j) of
Sec. 1.2 or the definition of Type II securities pursuant to paragraph
(k) of Sec. 1.2.
(m) Type IV security means:
(1) A small business-related security as defined in section
3(a)(53)(A) of the Securities Exchange Act of 1934, 15 U.S.C.
78c(a)(53)(A), that is 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 investment grade, 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 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 investment grade, 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 does not otherwise qualify as a Type
I security.
(n) Type V security means a security that is:
(1) 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; 77
FR 35257, June 13, 2012; 79 FR 11309, Feb. 28, 2014; 84 FR 4237, Feb.
14, 2019; 84 FR 61792, Nov. 13, 2019; 84 FR 69297, Dec. 18, 2019]
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
[[Page 10]]
may apply the 10 percent investment limitation separately to each issue
of a single obligor.
(e) Type IV securities. A national bank may purchase and sell Type
IV securities for its own account. 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.
(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 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. 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; 77 FR 35257, June 13, 2012]
Sec. 1.4 Calculation of limits.
(a) Calculation date. For purposes of determining compliance with 12
U.S.C. 24 (Seventh) and this part, a bank shall determine its investment
limitations as of the most recent of the following dates:
(1) The last day of the preceding calendar quarter; or
(2) The date on which there is a change in the bank's capital
category for purposes of 12 U.S.C. 1831o and 12 CFR 6.3.
(b) Effective date. (1) A bank's investment limit calculated in
accordance with paragraph (a)(1) of this section will be effective on
the earlier of the following dates:
(i) The date on which the bank's Consolidated Report of Condition
and Income (Call Report) is submitted; or
(ii) The date on which the bank's Consolidated Report of Condition
and Income is required to be submitted.
(2) A bank's investment limit calculated in accordance with
paragraph (a)(2) of this section will be effective on the date that the
limit is to be calculated.
(c) Authority of OCC to require more frequent calculations. If the
OCC determines for safety and soundness reasons that a bank should
calculate its investment limits more frequently than required by
paragraph (a) of this section, the OCC may provide written notice to the
bank directing the bank to calculate its investment limitations at a
more frequent interval. The bank shall
[[Page 11]]
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.
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.
[[Page 12]]
(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. 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,
[[Page 13]]
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.
(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.
[[Page 14]]
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 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
[[Page 15]]
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_CAPITAL ADEQUACY STANDARDS--Table of Contents
Subpart A_General Provisions
Sec.
3.1 Purpose, applicability, reservations of authority, and timing.
3.2 Definitions.
3.3 Operational requirements for certain exposures.
3.4-3.9 [Reserved]
Subpart B_Capital Ratio Requirements and Buffers
3.10 Minimum capital requirements.
3.11 Capital conservation buffer and countercyclical capital buffer
amount.
3.12 Community bank leverage ratio framework.
3.13-3.19 [Reserved]
Subpart C_Definition of Capital
3.20 Capital components and eligibility criteria for regulatory capital
instruments.
3.21 Minority interest.
3.22 Regulatory capital adjustments and deductions.
3.23-3.29 [Reserved]
Subpart D_Risk-Weighted Assets_Standardized Approach
3.30 Applicability.
[[Page 16]]
Risk-Weighted Assets for General Credit Risk
3.31 Mechanics for calculating risk-weighted assets for general credit
risk.
3.32 General risk weights.
3.33 Off-balance sheet exposures.
3.34 OTC derivative contracts.
3.35 Cleared transactions.
3.36 Guarantees and credit derivatives: Substitution treatment.
3.37 Collateralized transactions.
Risk-Weighted Assets for Unsettled Transactions
3.38 Unsettled transactions.
3.39-3.40 [Reserved]
Risk-Weighted Assets for Securitization Exposures
3.41 Operational requirements for securitization exposures.
3.42 Risk-weighted assets for securitization exposures.
3.43 Simplified supervisory formula approach (SSFA) and the gross-up
approach.
3.44 Securitization exposures to which the SSFA and gross-up approach do
not apply.
3.45 Recognition of credit risk mitigants for securitization exposures.
3.46-3.50 [Reserved]
Risk-Weighted Assets for Equity Exposures
3.51 Introduction and exposure measurement.
3.52 Simple risk-weight approach (SRWA).
3.53 Equity exposures to investment funds.
3.54-3.60 [Reserved]
Disclosures
3.61 Purpose and scope.
3.62 Disclosure requirements.
3.63 Disclosures by national banks or Federal savings associations
described in Sec. 3.61.
3.64-3.99 [Reserved]
Subpart E_Risk-Weighted Assets_Internal Ratings-Based and Advanced
Measurement Approaches
3.100 Purpose, applicability, and principle of conservatism.
3.101 Definitions.
3.102-3.120 [Reserved]
Qualification
3.121 Qualification process.
3.122 Qualification requirements.
3.123 Ongoing qualification.
3.124 Merger and acquisition transitional arrangements.
3.125-3.130 [Reserved]
Risk-Weighted Assets For General Credit Risk
3.131 Mechanics for calculating total wholesale and retail risk-weighted
assets.
3.132 Counterparty credit risk of repo-style transactions, eligible
margin loans, and OTC derivative contracts.
3.133 Cleared transactions.
3.134 Guarantees and credit derivatives: PD substitution and LGD
adjustment approaches.
3.135 Guarantees and credit derivatives: Double default treatment.
3.136 Unsettled transactions.
3.137-3.140 [Reserved]
Risk-Weighted Assets for Securitization Exposures
3.141 Operational criteria for recognizing the transfer of risk.
3.142 Risk-weighted assets for securitization exposures.
3.143 Supervisory formula approach (SFA).
3.144 Simplified supervisory formula approach (SSFA).
3.145 Recognition of credit risk mitigants for securitization exposures.
3.146-3.150 [Reserved]
Risk-Weighted Assets For Equity Exposures
3.151 Introduction and exposure measurement.
3.152 Simple risk weight approach (SRWA).
3.153 Internal models approach (IMA).
3.154 Equity exposures to investment funds.
3.155 Equity derivative contracts.
3.156-3.160 [Reserved]
Risk-Weighted Assets For Operational Risk
3.161 Qualification requirements for incorporation of operational risk
mitigants.
3.162 Mechanics of risk-weighted asset calculation.
3.163-3.170 [Reserved]
Disclosures
3.171 Purpose and scope.
3.172 Disclosure requirements.
3.173 Disclosures by certain advanced approaches national banks or
Federal savings associations and Category III national banks
or Federal savings associations.
3.174-3.200 [Reserved]
Subpart F_Risk-Weighted Assets_Market Risk
3.201 Purpose, applicability, and reservation of authority.
3.202 Definitions.
3.203 Requirements for application of this subpart F.
[[Page 17]]
3.204 Measure for market risk.
3.205 VaR-based measure.
3.206 Stressed VaR-based measure.
3.207 Specific risk.
3.208 Incremental risk.
3.209 Comprehensive risk.
3.210 Standardized measurement method for specific risk.
3.211 Simplified supervisory formula approach (SSFA).
3.212 Market risk disclosures.
3.213-3.299 [Reserved]
Subpart G_Transition Provisions
3.300 Transitions.
3.301 Current Expected Credit Losses (CECL) transition.
Subpart H_Establishment of Minimum Capital Ratios for an Individual Bank
or Individual Federal Savings Association
3.401 Purpose and scope.
3.402 Applicability.
3.403 Standards for determination of appropriate individual minimum
capital ratios.
3.404 Procedures.
3.405 Relation to other actions.
Subpart I_Enforcement
3.501 Remedies.
Subpart J_Issuance of a Directive
3.601 Purpose and scope.
3.602 Notice of intent to issue a directive.
3.603 Response to notice.
3.604 Decision.
3.605 Issuance of a directive.
3.606 Change in circumstances.
3.607 Relation to other administrative actions.
Subpart K_Interpretations
3.701 Capital and surplus.
Authority: 12 U.S.C. 93a, 161, 1462, 1462a, 1463, 1464, 1818,
1828(n), 1828 note, 1831n note, 1835, 3907, 3909, and 5412(b)(2)(B).
Source: 50 FR 10216, Mar. 14, 1985, unless otherwise noted.
Subpart A_General Provisions
Source: 78 FR 62157, 62273, Oct. 11, 2013, unless otherwise noted.
Sec. 3.1 Purpose, applicability, reservations of authority, and timing.
(a) Purpose. This part establishes minimum capital requirements and
overall capital adequacy standards for national banks and Federal
savings associations. This part does not apply to Federal branches and
agencies of foreign banks. This part includes methodologies for
calculating minimum capital requirements, public disclosure requirements
related to the capital requirements, and transition provisions for the
application of this part.
(b) Limitation of authority. Nothing in this part shall be read to
limit the authority of the OCC to take action under other provisions of
law, including action to address unsafe or unsound practices or
conditions, deficient capital levels, or violations of law or
regulation, under section 8 of the Federal Deposit Insurance Act.
(c) Applicability. Subject to the requirements in paragraphs (d) and
(f) of this section:
(1) Minimum capital requirements and overall capital adequacy
standards. Each national bank or Federal savings association must
calculate its minimum capital requirements and meet the overall capital
adequacy standards in subpart B of this part.
(2) Regulatory capital. Each national bank or Federal savings
association must calculate its regulatory capital in accordance with
subpart C of this part.
(3) Risk-weighted assets. (i) Each national bank or Federal savings
association must use the methodologies in subpart D of this part (and
subpart F of this part for a market risk national bank or Federal
savings association) to calculate standardized total risk-weighted
assets.
(ii) Each advanced approaches national bank or Federal savings
association must use the methodologies in subpart E (and subpart F of
this part for a market risk national bank or Federal savings
association) to calculate advanced approaches total risk-weighted
assets.
(4) Disclosures. (i) Except for an advanced approaches national bank
or Federal savings association that is making public disclosures
pursuant to the requirements in subpart E of this part, each national
bank or Federal savings association with total consolidated assets of
$50 billion or more must make the public disclosures described in
subpart D of this part.
[[Page 18]]
(ii) Each market risk national bank or Federal savings association
must make the public disclosures described in subpart F of this part.
(iii) Each advanced approaches national bank or Federal savings
association must make the public disclosures described in subpart E of
this part.
(d) Reservation of authority--(1) Additional capital in the
aggregate. The OCC may require a national bank or Federal savings
association to hold an amount of regulatory capital greater than
otherwise required under this part if the OCC determines that the
national bank's or Federal savings association's capital requirements
under this part are not commensurate with the national bank's or Federal
savings association's credit, market, operational, or other risks.
(2) Regulatory capital elements. (i) If the OCC determines that a
particular common equity tier 1, additional tier 1, or tier 2 capital
element has characteristics or terms that diminish its ability to absorb
losses, or otherwise present safety and soundness concerns, the OCC may
require the national bank or Federal savings association to exclude all
or a portion of such element from common equity tier 1 capital,
additional tier 1 capital, or tier 2 capital, as appropriate.
(ii) Notwithstanding the criteria for regulatory capital instruments
set forth in subpart C of this part, the OCC may find that a capital
element may be included in a national bank's or Federal savings
association's common equity tier 1 capital, additional tier 1 capital,
or tier 2 capital on a permanent or temporary basis consistent with the
loss absorption capacity of the element and in accordance with Sec.
3.20(e).
(3) Risk-weighted asset amounts. If the OCC determines that the
risk-weighted asset amount calculated under this part by the national
bank or Federal savings association for one or more exposures is not
commensurate with the risks associated with those exposures, the OCC may
require the national bank or Federal savings association to assign a
different risk-weighted asset amount to the exposure(s) or to deduct the
amount of the exposure(s) from its regulatory capital.
(4) Total leverage. If the OCC determines that the total leverage
exposure, or the amount reflected in the national bank's or Federal
savings association's reported average total consolidated assets, for an
on- or off-balance sheet exposure calculated by a national bank or
Federal savings association under Sec. 3.10 is inappropriate for the
exposure(s) or the circumstances of the national bank or Federal savings
association, the OCC may require the national bank or Federal savings
association to adjust this exposure amount in the numerator and the
denominator for purposes of the leverage ratio calculations.
(5) Consolidation of certain exposures. The OCC may determine that
the risk-based capital treatment for an exposure or the treatment
provided to an entity that is not consolidated on the national bank's or
Federal savings association's balance sheet is not commensurate with the
risk of the exposure and the relationship of the national bank or
Federal savings association to the entity. Upon making this
determination, the OCC may require the national bank or Federal savings
association to treat the exposure or entity as if it were consolidated
on the balance sheet of the national bank or Federal savings association
for purposes of determining the national bank's or Federal savings
association's risk-based capital requirements and calculating the
national bank's or Federal savings association's risk-based capital
ratios accordingly. 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.
(6) Other reservation of authority. With respect to any deduction or
limitation required under this part, the OCC may require a different
deduction or limitation, provided that such alternative deduction or
limitation is commensurate with the national bank's or Federal savings
association's risk and consistent with safety and soundness.
(e) Notice and response procedures. In making a determination under
this section, the OCC will apply notice and response procedures in the
same manner
[[Page 19]]
as the notice and response procedures in Sec. 3.404.
(f) Timing. (1) Subject to the transition provisions in subpart G of
this part, an advanced approaches national bank or Federal savings
association that is not a savings and loan holding company must:
(i) Except as described in paragraph (f)(1)(ii) of this section,
beginning on January 1, 2014, calculate advanced approaches total risk-
weighted assets in accordance with subpart E and, if applicable, subpart
F of this part and, beginning on January 1, 2015, calculate standardized
total risk-weighted assets in accordance with subpart D and, if
applicable, subpart F of this part;
(ii) [Reserved]
(iii) Beginning on January 1, 2014, calculate and maintain minimum
capital ratios in accordance with subparts A, B, and C of this part,
provided, however, that such national bank or Federal savings
association must:
(A) From January 1, 2014 to December 31, 2014, maintain a minimum
common equity tier 1 capital ratio of 4 percent, a minimum tier 1
capital ratio of 5.5 percent, a minimum total capital ratio of 8
percent, and a minimum leverage ratio of 4 percent; and
(B) From January 1, 2015 to December 31, 2017, an advanced
approaches national bank or Federal savings association:
(1) Is not required to maintain a supplementary leverage ratio; and
(2) Must calculate a supplementary leverage ratio in accordance with
Sec. 3.10(c), and must report the calculated supplementary leverage
ratio on any applicable regulatory reports.
(2) Subject to the transition provisions in subpart G of this part,
a national bank or Federal savings association that is not an advanced
approaches national bank or Federal savings association or a savings and
loan holding company that is an advanced approaches national bank or
Federal savings association must:
(i) Beginning on January 1, 2015, calculate standardized total risk-
weighted assets in accordance with subpart D, and if applicable, subpart
F of this part; and
(ii) Beginning on January 1, 2015, calculate and maintain minimum
capital ratios in accordance with subparts A, B and C of this part,
provided, however, that from January 1, 2015 to December 31, 2017, a
savings and loan holding company that is an advanced approaches national
bank or Federal savings association:
(A) Is not required to maintain a supplementary leverage ratio; and
(B) Must calculate a supplementary leverage ratio in accordance with
Sec. 3.10(c), and must report the calculated supplementary leverage
ratio on any applicable regulatory reports.
(3) Beginning on January 1, 2016, and subject to the transition
provisions in subpart G of this part, a national bank or Federal savings
association is subject to limitations on distributions and discretionary
bonus payments with respect to its capital conservation buffer and any
applicable countercyclical capital buffer amount, in accordance with
subpart B of this part.
(4) No national bank or Federal savings association that is not an
advanced approaches bank or advanced approaches savings association is
subject to this part 3 until January 1, 2015.
(5) A national bank or Federal savings association that changes from
one category of national bank or Federal savings association to another
of such categories must comply with the requirements of its category in
this part, including applicable transition provisions of the
requirements in this part, no later than on the first day of the second
quarter following the change in the national bank's or Federal savings
association's category.
[78 FR 62157, 62273, Oct. 11, 2013, as amended at 79 FR 57740, Sept. 26,
2014; 84 FR 35248, July 22, 2019; 84 FR 56374, Oct. 22, 2019; 84 FR
59263, Nov. 1, 2019]
Sec. 3.2 Definitions.
As used in this part:
Additional tier 1 capital is defined in Sec. 3.20(c).
Adjusted allowances for credit losses (AACL) means, with respect to
a national bank or Federal savings association that has adopted CECL,
valuation allowances that have been established through a charge against
earnings or retained earnings for expected credit losses on financial
assets measured at
[[Page 20]]
amortized cost and a lessor's net investment in leases that have been
established to reduce the amortized cost basis of the assets to amounts
expected to be collected as determined in accordance with GAAP. For
purposes of this part, adjusted allowances for credit losses include
allowances for expected credit losses on off-balance sheet credit
exposures not accounted for as insurance as determined in accordance
with GAAP. Adjusted allowances for credit losses exclude ``allocated
transfer risk reserves'' and allowances created that reflect credit
losses on purchased credit deteriorated assets and available-for-sale
debt securities.
Advanced approaches national bank or Federal savings association
means a national bank or Federal savings association that is described
in Sec. 3.100(b)(1).
Advanced approaches total risk-weighted assets means:
(1) The sum of:
(i) Credit-risk-weighted assets;
(ii) Credit valuation adjustment (CVA) risk-weighted assets;
(iii) Risk-weighted assets for operational risk; and
(iv) For a market risk national bank or Federal savings association
only, advanced market risk-weighted assets; minus
(2) Excess eligible credit reserves not included in the national
bank's or Federal savings association's tier 2 capital.
Advanced market risk-weighted assets means the advanced measure for
market risk calculated under Sec. 3.204 multiplied by 12.5.
Affiliate with respect to a company, means any company that
controls, is controlled by, or is under common control with, the
company.
Allocated transfer risk reserves means reserves that have been
established in accordance with section 905(a) of the International
Lending Supervision Act, against certain assets whose value U.S.
supervisory authorities have found to be significantly impaired by
protracted transfer risk problems.
Allowances for loan and lease losses (ALLL) means valuation
allowances that have been established through a charge against earnings
to cover estimated credit losses on loans, lease financing receivables
or other extensions of credit as determined in accordance with GAAP.
ALLL excludes ``allocated transfer risk reserves.'' For purposes of this
part, ALLL includes allowances that have been established through a
charge against earnings to cover estimated credit losses associated with
off-balance sheet credit exposures as determined in accordance with
GAAP.
Asset-backed commercial paper (ABCP) program means a program
established primarily for the purpose of issuing commercial paper that
is investment grade and backed by underlying exposures held in a
bankruptcy-remote special purpose entity (SPE).
Asset-backed commercial paper (ABCP) program sponsor means a
national bank or 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.
Bank holding company means a bank holding company as defined in
section 2 of the Bank Holding Company Act.
Bank Holding Company Act means the Bank Holding Company Act of 1956,
as amended (12 U.S.C. 1841 et seq.).
Bankruptcy remote means, with respect to an entity or asset, that
the entity or asset would be excluded from an insolvent entity's estate
in receivership, insolvency, liquidation, or similar proceeding.
Call Report means Consolidated Reports of Condition and Income.
Carrying value means, with respect to an asset, the value of the
asset on the balance sheet of the national bank or Federal savings
association as determined in accordance with GAAP. For all assets other
than available-for-sale debt securities or purchased credit deteriorated
assets, the carrying value is not reduced by any associated credit loss
allowance that is determined in accordance with GAAP.
Category II national bank or Federal savings association means:
[[Page 21]]
(1) A national bank or Federal savings association that is a
subsidiary of a Category II banking organization, as defined pursuant to
12 CFR 252.5 or 12 CFR 238.10, as applicable; or
(2) A national bank or Federal savings association that:
(i) Is not a subsidiary of a depository institution holding company;
and
(ii)(A) Has total consolidated assets, calculated based on the
average of the national bank's or Federal savings association's total
consolidated assets for the four most recent calendar quarters as
reported on the Call Report, equal to $700 billion or more. If the
national bank or Federal savings association has not filed the Call
Report for each of the four most recent calendar quarters, total
consolidated assets is calculated based on its total consolidated
assets, as reported on the Call Report, for the most recent quarter or
the average of the most recent quarters, as applicable; or
(B) Has:
(1) Total consolidated assets, calculated based on the average of
the national bank's or Federal savings association's total consolidated
assets for the four most recent calendar quarters as reported on the
Call Report, of $100 billion or more but less than $700 billion. If the
national bank or Federal savings association has not filed the Call
Report for each of the four most recent quarters, total consolidated
assets is based on its total consolidated assets, as reported on the
Call Report, for the most recent quarter or average of the most recent
quarters, as applicable; and
(2) Cross-jurisdictional activity, calculated based on the average
of its cross-jurisdictional activity for the four most recent calendar
quarters, of $75 billion or more. Cross-jurisdictional activity is the
sum of cross-jurisdictional claims and cross-jurisdictional liabilities,
calculated in accordance with the instructions to the FR Y-15 or
equivalent reporting form.
(iii) After meeting the criteria in paragraph (2)(ii) of this
definition, a national bank or Federal savings association continues to
be a Category II national bank or Federal savings association until the
national bank or Federal savings association has:
(A)(1) Less than $700 billion in total consolidated assets, as
reported on the Call Report, for each of the four most recent calendar
quarters; and
(2) Less than $75 billion in cross-jurisdictional activity for each
of the four most recent calendar quarters. Cross-jurisdictional activity
is the sum of cross-jurisdictional claims and cross-jurisdictional
liabilities, calculated in accordance with the instructions to the FR Y-
15 or equivalent reporting form; or
(B) Less than $100 billion in total consolidated assets, as reported
on the Call Report, for each of the four most recent calendar quarters.
Category III national bank or Federal savings association means:
(1) A national bank or Federal savings association that is a
subsidiary of a Category III banking organization, as defined pursuant
to 12 CFR 252.5 or 12 CFR 238.10, as applicable;
(2) A national bank or Federal savings association that is a
subsidiary of a depository institution that meets the criteria in
paragraph (3)(ii)(A) or (B) of this definition; or
(3) A national bank or Federal savings association that:
(i) Is not a subsidiary of a depository institution holding company;
and
(ii)(A) Has total consolidated assets, calculated based on the
average of the depository institution's total consolidated assets for
the four most recent calendar quarters as reported on the Call Report,
equal to $250 billion or more. If the depository institution has not
filed the Call Report for each of the four most recent calendar
quarters, total consolidated assets is calculated based on its total
consolidated assets, as reported on the Call Report, for the most recent
quarter or average of the most recent quarters, as applicable; or
(B) Has:
(1) Total consolidated assets, calculated based on the average of
the depository institution's total consolidated assets for the four most
recent calendar quarters as reported on the Call Report, of $100 billion
or more but less than $250 billion. If the depository institution has
not filed the Call Report for each of the four most recent calendar
quarters, total consolidated assets is calculated based on its total
[[Page 22]]
consolidated assets, as reported on the Call Report, for the most recent
quarter or average of the most recent quarters, as applicable; and
(2) At least one of the following in paragraphs (3)(ii)(B)(2)(i)
through (iii) of this definition, each calculated as the average of the
four most recent calendar quarters, or if the depository institution has
not filed each applicable reporting form for each of the four most
recent calendar quarters, for the most recent quarter or quarters, as
applicable:
(i) Total nonbank assets, calculated in accordance with the
instructions to the FR Y-9LP or equivalent reporting form, equal to $75
billion or more;
(ii) Off-balance sheet exposure equal to $75 billion or more. Off-
balance sheet exposure is a depository institution's total exposure,
calculated in accordance with the instructions to the FR Y-15 or
equivalent reporting form, minus the total consolidated assets of the
depository institution, as reported on the Call Report; or
(iii) Weighted short-term wholesale funding, calculated in
accordance with the instructions to the FR Y-15 or equivalent reporting
form, equal to $75 billion or more.
(iii) After meeting the criteria in paragraph (3)(ii) of this
definition, a national bank or Federal savings association continues to
be a Category III national bank or Federal savings association until the
national bank or Federal savings association:
(A) Has:
(1) Less than $250 billion in total consolidated assets, as reported
on the Call Report, for each of the four most recent calendar quarters;
(2) Less than $75 billion in total nonbank assets, calculated in
accordance with the instructions to the FR Y-9LP or equivalent reporting
form, for each of the four most recent calendar quarters;
(3) Less than $75 billion in weighted short-term wholesale funding,
calculated in accordance with the instructions to the FR Y-15 or
equivalent reporting form, for each of the four most recent calendar
quarters; and
(4) Less than $75 billion in off-balance sheet exposure for each of
the four most recent calendar quarters. Off-balance sheet exposure is a
national bank's or Federal savings association's total exposure,
calculated in accordance with the instructions to the FR Y-15 or
equivalent reporting form, minus the total consolidated assets of the
national bank or Federal savings association, as reported on the Call
Report; or
(B) Has less than $100 billion in total consolidated assets, as
reported on the Call Report, for each of the four most recent calendar
quarters; or
(C) Is a Category II national bank or Federal savings association.
Central counterparty (CCP) means a counterparty (for example, a
clearing house) that facilitates trades between counterparties in one or
more financial markets by either guaranteeing trades or novating
contracts.
CFTC means the U.S. Commodity Futures Trading Commission.
Clean-up call means a contractual provision that permits an
originating national bank or Federal savings association or servicer to
call securitization exposures before their stated maturity or call date.
Cleared transaction means an exposure associated with an outstanding
derivative contract or repo-style transaction that a national bank or
Federal savings association or clearing member has entered into with a
central counterparty (that is, a transaction that a central counterparty
has accepted).
(1) The following transactions are cleared transactions:
(i) A transaction between a CCP and a national bank or Federal
savings association that is a clearing member of the CCP where the
national bank or Federal savings association enters into the transaction
with the CCP for the national bank's or Federal savings association's
own account;
(ii) A transaction between a CCP and a national bank or Federal
savings association that is a clearing member of the CCP where the
national bank or Federal savings association is acting as a financial
intermediary on behalf of a clearing member client and the transaction
offsets another transaction that satisfies the requirements set forth in
Sec. 3.3(a);
[[Page 23]]
(iii) A transaction between a clearing member client national bank
or Federal savings association and a clearing member where the clearing
member acts as a financial intermediary on behalf of the clearing member
client and enters into an offsetting transaction with a CCP, provided
that the requirements set forth in Sec. 3.3(a) are met; or
(iv) A transaction between a clearing member client national bank or
Federal savings association and a CCP where a clearing member guarantees
the performance of the clearing member client national bank or Federal
savings association to the CCP and the transaction meets the
requirements of Sec. 3.3(a)(2) and (3).
(2) The exposure of a national bank or Federal savings association
that is a clearing member to its clearing member client is not a cleared
transaction where the national bank or Federal savings association is
either acting as a financial intermediary and enters into an offsetting
transaction with a CCP or where the national bank or Federal savings
association provides a guarantee to the CCP on the performance of the
client.\3\
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\3\ For the standardized approach treatment of these exposures, see
Sec. 3.34(e) (OTC derivative contracts) or Sec. 3.37(c) (repo-style
transactions). For the advanced approaches treatment of these exposures,
see Sec. Sec. 3.132(c)(8) and (d) (OTC derivative contracts) or
Sec. Sec. 3.132(b) and 3.132(d) (repo-style transactions) and for
calculation of the margin period of risk, see Sec. Sec.
3.132(d)(5)(iii)(C) (OTC derivative contracts) and 3.132(d)(5)(iii)(A)
(repo-style transactions).
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Clearing member means a member of, or direct participant in, a CCP
that is entitled to enter into transactions with the CCP.
Clearing member client means a party to a cleared transaction
associated with a CCP in which a clearing member acts either as a
financial intermediary with respect to the party or guarantees the
performance of the party to the CCP.
Collateral agreement means a legal contract that specifies the time
when, and circumstances under which, a counterparty is required to
pledge collateral to a national bank or Federal savings association for
a single financial contract or for all financial contracts in a netting
set and confers upon the national bank or Federal 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 national bank or
Federal 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 national bank's or
Federal savings association's exercise of rights under the agreement may
be stayed or avoided:
(1) Under applicable law in the relevant jurisdictions, other than:
(i) In receivership, conservatorship, or resolution under the
Federal Deposit Insurance Act, Title II of the Dodd-Frank Act, or under
any similar insolvency law applicable to GSEs, or laws of foreign
jurisdictions that are substantially similar \4\ to the U.S. laws
referenced in this paragraph (1)(i) in order to facilitate the orderly
resolution of the defaulting counterparty;
---------------------------------------------------------------------------
\4\ The OCC expects to evaluate jointly with the Board and FDIC
whether foreign special resolution regimes meet the requirements of this
paragraph.
---------------------------------------------------------------------------
(ii) Where the agreement is subject by its terms to any of the laws
referenced in paragraph (1)(i) of this definition; or
(2) Other than to the extent necessary for the counterparty to
comply with the requirements of part 47, subpart I of part 252, and part
382 of this title 12, as applicable.
Commitment means any legally binding arrangement that obligates a
national bank or Federal savings association to extend credit or to
purchase assets.
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.
[[Page 24]]
Commodity Exchange Act means the Commodity Exchange Act of 1936 (7
U.S.C. 1 et seq.)
Common equity tier 1 capital is defined in Sec. 3.20(b).
Common equity tier 1 minority interest means the common equity tier
1 capital of a depository institution or foreign bank that is:
(1) A consolidated subsidiary of a national bank or Federal savings
association; and
(2) Not owned by the national bank or Federal savings association.
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.
Core capital means tier 1 capital, as calculated in accordance with
subpart B of this part.
Corporate exposure means an exposure to a company that is not:
(1) An exposure to a sovereign, the Bank for International
Settlements, the European Central Bank, the European Commission, the
International Monetary Fund, the European Stability Mechanism, the
European Financial Stability Facility, a multi-lateral development bank
(MDB), a depository institution, a foreign bank, a credit union, or a
public sector entity (PSE);
(2) An exposure to a GSE;
(3) A residential mortgage exposure;
(4) A pre-sold construction loan;
(5) A statutory multifamily mortgage;
(6) A high volatility commercial real estate (HVCRE) exposure;
(7) A cleared transaction;
(8) A default fund contribution;
(9) A securitization exposure;
(10) An equity exposure; or
(11) An unsettled transaction.
(12) A policy loan; or
(13) A separate account.
Country risk classification (CRC) with respect to a sovereign, means
the most recent consensus CRC published by the Organization for Economic
Cooperation and Development (OECD) as of December 31st of the prior
calendar year that provides a view of the likelihood that the sovereign
will service its external debt.
Covered savings and loan holding company means a top-tier savings
and loan holding company other than:
(1) A top-tier savings and loan holding company that is:
(i) A grandfathered unitary savings and loan holding company as
defined in section 10(c)(9)(A) of HOLA; and
(ii) As of June 30 of the previous calendar year, derived 50 percent
or more of its total consolidated assets or 50 percent of its total
revenues on an enterprise-wide basis (as calculated under GAAP) from
activities that are not financial in nature under section 4(k) of the
Bank Holding Company Act (12 U.S.C. 1842(k));
(2) A top-tier savings and loan holding company that is an insurance
underwriting company; or
(3)(i) A top-tier savings and loan holding company that, as of June
30 of the previous calendar year, held 25 percent or more of its total
consolidated assets in subsidiaries that are insurance underwriting
companies (other than assets associated with insurance for credit risk);
and
(ii) For purposes of paragraph (3)(i) of this definition, the
company must calculate its total consolidated assets in accordance with
GAAP, or if the company does not calculate its total consolidated assets
under GAAP for any regulatory purpose (including compliance with
applicable securities laws), the company may estimate its total
consolidated assets, subject to review and adjustment by the Board.
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(s)) to another party (the protection
provider) for a certain period of time.
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
[[Page 25]]
no more than a minimal amount of principal due on the underlying
exposures of a securitization; and
(2) Exposes the holder of the CEIO 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 national bank or 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 the counterparties 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 covering, 1-4 family residential
first mortgage loans that qualify for a 50 percent risk weight 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;
(2) Premium refund clauses that cover assets guaranteed, in whole or
in part, by the U.S. Government, a U.S. Government agency or a GSE,
provided the premium refund 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 as calculated
under Sec. 3.131;
(2) Risk-weighted assets for securitization exposures as calculated
under Sec. 3.142; and
(3) Risk-weighted assets for equity exposures as calculated under
Sec. 3.151.
Credit union means an insured credit union as defined under the
Federal Credit Union Act (12 U.S.C. 1752 et seq.).
Current Expected Credit Losses (CECL) means the current expected
credit losses methodology under GAAP.
Current exposure means, with respect to a netting set, the larger of
zero or the fair 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.
Current exposure methodology means the method of calculating the
exposure amount for over-the-counter derivative contracts in Sec.
3.34(a) and exposure at default (EAD) in Sec. 3.132(c)(5) or (6), as
applicable.
Custodian means a financial institution that has legal custody of
collateral provided to a CCP.
Default fund contribution means the funds contributed or commitments
made by a clearing member to a CCP's mutualized loss sharing
arrangement.
Depository institution means a depository institution as defined in
section 3 of the Federal Deposit Insurance Act.
Depository institution holding company means a bank holding company
or savings and loan holding company.
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 derivative contracts, 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.
[[Page 26]]
Discretionary bonus payment means a payment made to an executive
officer of a national bank or Federal savings association, where:
(1) The national bank or Federal savings association retains
discretion as to whether to make, and the amount of, the payment until
the payment is awarded to the executive officer;
(2) The amount paid is determined by the national bank or Federal
savings association without prior promise to, or agreement with, the
executive officer; and
(3) The executive officer has no contractual right, whether express
or implied, to the bonus payment.
Distribution means:
(1) A reduction of tier 1 capital through the repurchase of a tier 1
capital instrument or by other means, except when a national bank or
Federal savings association, within the same quarter when the repurchase
is announced, fully replaces a tier 1 capital instrument it has
repurchased by issuing another capital instrument that meets the
eligibility criteria for:
(i) A common equity tier 1 capital instrument if the instrument
being repurchased was part of the national bank's or Federal savings
association's common equity tier 1 capital, or
(ii) A common equity tier 1 or additional tier 1 capital instrument
if the instrument being repurchased was part of the national bank's or
Federal savings association's tier 1 capital;
(2) A reduction of tier 2 capital through the repurchase, or
redemption prior to maturity, of a tier 2 capital instrument or by other
means, except when a national bank or Federal savings association,
within the same quarter when the repurchase or redemption is announced,
fully replaces a tier 2 capital instrument it has repurchased by issuing
another capital instrument that meets the eligibility criteria for a
tier 1 or tier 2 capital instrument;
(3) A dividend declaration or payment on any tier 1 capital
instrument;
(4) A dividend declaration or interest payment on any tier 2 capital
instrument if the national bank or Federal savings association has full
discretion to permanently or temporarily suspend such payments without
triggering an event of default; or
(5) Any similar transaction that the OCC determines to be in
substance a distribution of capital.
Dodd-Frank Act means the Dodd-Frank Wall Street Reform and Consumer
Protection Act of 2010 (Pub. L. 111-203, 124 Stat. 1376).
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 national bank
or Federal savings association (such as material changes in tax laws or
regulations); or
(2) Leaves investors fully exposed to future draws by borrowers on
the underlying exposures even after the provision is triggered.
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 exposure amount (or EAD for
purposes of subpart E of this part) of the hedged exposure, multiplied
by the percentage coverage of the credit risk mitigant.
Eligible ABCP liquidity facility means a liquidity facility
supporting ABCP, in form or in substance, that is subject to an asset
quality test at the time of draw that precludes funding against assets
that are 90 days or more past due or in default. Notwithstanding the
preceding sentence, a liquidity facility is an eligible ABCP liquidity
facility if the assets or exposures funded under the liquidity facility
that do not meet the eligibility requirements are guaranteed by a
sovereign that qualifies for a 20 percent risk weight or lower.
Eligible clean-up call means a clean-up call that:
(1) Is exercisable solely at the discretion of the originating
national bank or 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
[[Page 27]]
(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) Receivership, insolvency, liquidation, conservatorship or
inability of the reference exposure issuer 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 provide 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 national
bank or Federal savings association records net payments received on the
swap as net income, the national bank or Federal 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:
(1) For a national bank or Federal savings association that has not
adopted CECL, all general allowances that have been established through
a charge against earnings to cover estimated credit losses associated
with on- or off-balance sheet wholesale and retail exposures, including
the 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; and
(2) For a national bank or Federal savings association that has
adopted CECL, all general allowances that have been established through
a charge against earnings or retained earnings to cover expected credit
losses associated with on- or off-balance sheet wholesale and retail
exposures, including AACL associated with such exposures. Eligible
credit reserves exclude allocated transfer risk reserves established
pursuant to 12 U.S.C. 3904, allowances that reflect credit losses on
purchased credit deteriorated assets and available-for-sale debt
securities, and other specific reserves created against recognized
losses.
Eligible guarantee means a guarantee that:
(1) Is written;
(2) Is either:
[[Page 28]]
(i) Unconditional; or
(ii) A contingent obligation of the U.S. government or its agencies,
the enforceability of which is dependent upon some affirmative action on
the part of the beneficiary of the guarantee or a third party (for
example, meeting servicing requirements);
(3) Covers all or a pro rata portion of all contractual payments of
the obligated party on the reference exposure;
(4) Gives the beneficiary a direct claim against the protection
provider;
(5) Is not unilaterally cancelable by the protection provider for
reasons other than the breach of the contract by the beneficiary;
(6) Except for a guarantee by a sovereign, 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;
(7) Requires the protection provider to make payment to the
beneficiary on the occurrence of a default (as defined in the guarantee)
of the obligated party on the reference exposure in a timely manner
without the beneficiary first having to take legal actions to pursue the
obligor for payment;
(8) 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;
(9) Is not provided by an affiliate of the national bank or Federal
savings association, unless the affiliate is an insured depository
institution, foreign bank, securities broker or dealer, or insurance
company that:
(i) Does not control the national bank or Federal savings
association; and
(ii) Is subject to consolidated supervision and regulation
comparable to that imposed on depository institutions, U.S. securities
broker-dealers, or U.S. insurance companies (as the case may be); and
(10) For purposes of Sec. Sec. 3.141 through 3.145 and subpart D of
this part, is provided by an eligible guarantor.
Eligible guarantor means:
(1) A sovereign, 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), the European Stability Mechanism, the European
Financial Stability Facility, a multilateral development bank (MDB), a
depository institution, a bank holding company, a savings and loan
holding company, a credit union, a foreign bank, or a qualifying central
counterparty; or
(2) An entity (other than a special purpose entity):
(i) That at the time the guarantee is issued or anytime thereafter,
has issued and outstanding an unsecured debt security without credit
enhancement that is investment grade;
(ii) Whose creditworthiness is not positively correlated with the
credit risk of the exposures for which it has provided guarantees; and
(iii) That is not an insurance company engaged predominately in the
business of providing credit protection (such as a monoline bond insurer
or re-insurer).
Eligible margin loan means:
(1) An extension of credit where:
(i) The extension of credit is collateralized exclusively by liquid
and readily marketable debt or equity securities, or gold;
(ii) The collateral is marked-to-fair value daily, and the
transaction is subject to daily margin maintenance requirements; and
(iii) The extension of credit is conducted under an agreement that
provides the national bank or Federal 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 receivership, insolvency, liquidation, conservatorship, or
similar proceeding, of the counterparty, provided that, in any such
case:
(A) Any exercise of rights under the agreement will not be stayed or
avoided under applicable law in the relevant jurisdictions, other than
in receivership, conservatorship, or resolution under the Federal
Deposit Insurance Act, Title II of the Dodd-Frank Act, or
[[Page 29]]
under any similar insolvency law applicable to GSEs,\5\ or laws of
foreign jurisdictions that are substantially similar \6\ to the U.S.
laws referenced in this paragraph (1)(iii)(A) in order to facilitate the
orderly resolution of the defaulting counterparty; and
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\5\ 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, or netting contracts between or among
financial institutions under sections 401-407 of the Federal Deposit
Insurance Corporation Improvement Act or the Federal Reserve Board's
Regulation EE (12 CFR part 231).
\6\ The OCC expects to evaluate jointly with the Board and FDIC
whether foreign special resolution regimes meet the requirements of this
paragraph.
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(B) The agreement may limit 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 of the
counterparty to the extent necessary for the counterparty to comply with
the requirements of part 47, subpart I of part 252, and part 382, of
this title 12, as applicable.
(2) In order to recognize an exposure as an eligible margin loan for
purposes of this subpart, a national bank or Federal savings association
must comply with the requirements of Sec. 3.3(b) with respect to that
exposure.
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.
Employee stock ownership plan has the same meaning as in 29 CFR
2550.407d-6.
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 an 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 national bank or
Federal savings association under GAAP;
(ii) The national bank or Federal savings association is required to
deduct the ownership interest from tier 1 or tier 2 capital under this
part;
(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.
ERISA means the Employee Retirement Income and Security Act of 1974
(29 U.S.C. 1001 et seq.).
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.
Executive officer means a person who holds the title or, without
regard to title, salary, or compensation, performs the function of one
or more of
[[Page 30]]
the following positions: President, chief executive officer, executive
chairman, chief operating officer, chief financial officer, chief
investment officer, chief legal officer, chief lending officer, chief
risk officer, or head of a major business line, and other staff that the
board of directors of the national bank or Federal savings association
deems to have equivalent responsibility.
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 the
probability of default (PD) times the loss given default (LGD) times the
exposure at default (EAD) for the exposure or segment.
(3) For a wholesale exposure to a defaulted obligor or segment of
defaulted retail exposures, the national bank's or 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 national bank or
Federal savings association has applied the double default treatment in
Sec. 3.135.
Exposure amount means:
(1) For the on-balance sheet component of an exposure (other than an
available-for-sale or held-to-maturity security, if the national bank or
Federal savings association has made an AOCI opt-out election (as
defined in Sec. 3.22(b)(2)); an OTC derivative contract; a repo-style
transaction or an eligible margin loan for which the national bank or
Federal savings association determines the exposure amount under Sec.
3.37; a cleared transaction; a default fund contribution; or a
securitization exposure), the national bank's or Federal savings
association's carrying value of the exposure.
(2) For a security (that is not a securitization exposure, equity
exposure, or preferred stock classified as an equity security under
GAAP) classified as available-for-sale or held-to-maturity if the
national bank or Federal savings association has made an AOCI opt-out
election (as defined in Sec. 3.22(b)(2)), the national bank's or
Federal savings association's carrying value (including net accrued but
unpaid interest and fees) for the exposure less any net unrealized gains
on the exposure and plus any net unrealized losses on the exposure.
(3) For available-for-sale preferred stock classified as an equity
security under GAAP if the national bank or Federal savings association
has made an AOCI opt-out election (as defined in Sec. 3.22(b)(2)), the
national bank's or Federal savings association's carrying value of the
exposure less any net unrealized gains on the exposure that are
reflected in such carrying value but excluded from the national bank's
or Federal savings association's regulatory capital components.
(4) For the off-balance sheet component of an exposure (other than
an OTC derivative contract; a repo-style transaction or an eligible
margin loan for which the national bank or Federal savings association
calculates the exposure amount under Sec. 3.37; a cleared transaction;
a default fund contribution; or a securitization exposure), the notional
amount of the off-balance sheet component multiplied by the appropriate
credit conversion factor (CCF) in Sec. 3.33.
(5) For an exposure that is an OTC derivative contract, the exposure
amount determined under Sec. 3.34.
(6) For an exposure that is a cleared transaction, the exposure
amount determined under Sec. 3.35.
(7) For an exposure that is an eligible margin loan or repo-style
transaction for which the bank calculates the exposure amount as
provided in Sec. 3.37, the exposure amount determined under Sec. 3.37.
(8) For an exposure that is a securitization exposure, the exposure
amount determined under Sec. 3.42.
Federal Deposit Insurance Act means the Federal Deposit Insurance
Act (12 U.S.C. 1813).
[[Page 31]]
Federal Deposit Insurance Corporation Improvement Act means the
Federal Deposit Insurance Corporation Improvement Act of 1991 (12 U.S.C.
4401).
Financial collateral means collateral:
(1) In the form of:
(i) Cash on deposit with the national bank or Federal savings
association (including cash held for the national bank or Federal
savings association by a third-party custodian or trustee);
(ii) Gold bullion;
(iii) Long-term debt securities that are not resecuritization
exposures and that are investment grade;
(iv) Short-term debt instruments that are not resecuritization
exposures and that are investment grade;
(v) Equity securities that are publicly traded;
(vi) Convertible bonds that are publicly traded; or
(vii) Money market fund shares and other mutual fund shares if a
price for the shares is publicly quoted daily; and
(2) In which the national bank or Federal 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).
Federal savings association means an insured Federal savings
association or an insured Federal savings bank chartered under section 5
of the Home Owners' Loan Act of 1933.
Financial institution means:
(1) A bank holding company; savings and loan holding company;
nonbank financial institution supervised by the Board under Title I of
the Dodd-Frank Act; depository institution; foreign bank; credit union;
industrial loan company, industrial bank, or other similar institution
described in section 2 of the Bank Holding Company Act; national
association, state member bank, or state non-member bank that is not a
depository institution; insurance company; securities holding company as
defined in section 618 of the Dodd-Frank Act; broker or dealer
registered with the SEC under section 15 of the Securities Exchange Act;
futures commission merchant as defined in section 1a of the Commodity
Exchange Act; swap dealer as defined in section 1a of the Commodity
Exchange Act; or security-based swap dealer as defined in section 3 of
the Securities Exchange Act;
(2) Any designated financial market utility, as defined in section
803 of the Dodd-Frank Act;
(3) Any entity not domiciled in the United States (or a political
subdivision thereof) that is supervised and regulated in a manner
similar to entities described in paragraphs (1) or (2) of this
definition; or
(4) Any other company:
(i) Of which the national bank or Federal savings association owns:
(A) An investment in GAAP equity instruments of the company with an
adjusted carrying value or exposure amount equal to or greater than $10
million; or
(B) More than 10 percent of the company's issued and outstanding
common shares (or similar equity interest), and
(ii) Which is predominantly engaged in the following activities:
(A) Lending money, securities or other financial instruments,
including servicing loans;
(B) Insuring, guaranteeing, indemnifying against loss, harm, damage,
illness, disability, or death, or issuing annuities;
(C) Underwriting, dealing in, making a market in, or investing as
principal in securities or other financial instruments; or
(D) Asset management activities (not including investment or
financial advisory activities).
(5) For the purposes of this definition, a company is
``predominantly engaged'' in an activity or activities if:
(i) 85 percent or more of the total consolidated annual gross
revenues (as determined in accordance with applicable accounting
standards) of the company is either of the two most recent calendar
years were derived, directly or indirectly, by the company on a
consolidated basis from the activities; or
(ii) 85 percent or more of the company's consolidated total assets
(as determined in accordance with applicable accounting standards) as of
the end of either of the two most recent calendar years were related to
the activities.
[[Page 32]]
(6) Any other company that the OCC may determine is a financial
institution based on activities similar in scope, nature, or operation
to those of the entities included in paragraphs (1) through (4) of this
definition.
(7) For purposes of this part, ``financial institution'' does not
include the following entities:
(i) GSEs;
(ii) Small business investment companies, as defined in section 102
of the Small Business Investment Act of 1958 (15 U.S.C. 662);
(iii) Entities designated as Community Development Financial
Institutions (CDFIs) under 12 U.S.C. 4701 et seq. and 12 CFR part 1805;
(iv) Entities registered with the SEC under the Investment Company
Act of 1940 (15 U.S.C. 80a-1) or foreign equivalents thereof;
(v) Entities to the extent that the national bank's or Federal
savings association's investment in such entities would qualify as a
community development investment under section 24 (Eleventh) of the
National Bank Act; and
(vi) An employee benefit plan as defined in paragraphs (3) and (32)
of section 3 of ERISA, a ``governmental plan'' (as defined in 29 U.S.C.
1002(32)) that complies with the tax deferral qualification requirements
provided in the Internal Revenue Code, or any similar employee benefit
plan established under the laws of a foreign jurisdiction.
First-lien residential mortgage exposure means a residential
mortgage exposure secured by a first lien.
Foreign bank means a foreign bank as defined in Sec. 211.2 of the
Federal Reserve Board's Regulation K (12 CFR 211.2) (other than a
depository institution).
Forward agreement means a legally binding contractual obligation to
purchase assets with certain drawdown at a specified future date, not
including commitments to make residential mortgage loans or forward
foreign exchange contracts.
FR Y-9LP means the Parent Company Only Financial Statements for
Large Holding Companies.
FR Y-15 means the Systemic Risk Report.
GAAP means generally accepted accounting principles as used in the
United States.
Gain-on-sale means an increase in the equity capital of a national
bank or Federal savings association (as reported on [Schedule RC of the
Call Report or Schedule HC of the FR Y-9C]) resulting from a traditional
securitization (other than an increase in equity capital resulting from
the national bank's or Federal savings association's receipt of cash in
connection with the securitization or reporting of a mortgage servicing
asset on [Schedule RC of the Call Report or Schedule HC of the FRY-9C]).
General obligation means a bond or similar obligation that is backed
by the full faith and credit of a public sector entity (PSE).
Government-sponsored enterprise (GSE) means an entity established or
chartered by the U.S. government to serve public purposes specified by
the U.S. Congress but whose debt obligations are not explicitly
guaranteed by the full faith and credit of the U.S. government.
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).
High volatility commercial real estate (HVCRE) exposure means a
credit facility that, prior to conversion to permanent financing,
finances or has financed the acquisition, development, or construction
(ADC) of real property, unless the facility finances:
(1) One- to four-family residential properties;
(2) Real property that:
(i) Would qualify as an investment in community development under 12
U.S.C. 338a or 12 U.S.C. 24 (Eleventh), as applicable, or as a
``qualified investment'' under 12 CFR parts 25 (national banks) and 195
(Federal savings associations), and
(ii) Is not an ADC loan to any entity described in 12 CFR
25.12(g)(3) (national banks) and 12 CFR 195.12(g)(3) (Federal
[[Page 33]]
savings associations), unless it is otherwise described in paragraph
(1), (2)(i), (3) or (4) of this definition;
(3) The purchase or development of agricultural land, which includes
all land known to be used or usable for agricultural purposes (such as
crop and livestock production), provided that the valuation of the
agricultural land is based on its value for agricultural purposes and
the valuation does not take into consideration any potential use of the
land for non-agricultural commercial development or residential
development; or
(4) 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 (national banks) and 12 CFR part
160, subparts A and B (Federal savings associations);
(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 (4)(ii) of this definition before the national bank or 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 national bank or
Federal savings association that provided the ADC facility as long as
the permanent financing is subject to the national bank's or Federal
savings association's underwriting criteria for long-term mortgage
loans.
Home country means the country where an entity is incorporated,
chartered, or similarly established.
Indirect exposure means an exposure that arises from the national
bank's or Federal savings association's investment in an investment fund
which holds an investment in the national bank's or Federal savings
association's own capital instrument or an investment in the capital of
an unconsolidated financial institution.
Insurance company means an insurance company as defined in section
201 of the Dodd-Frank Act (12 U.S.C. 5381).
Insurance underwriting company means an insurance company as defined
in section 201 of the Dodd-Frank Act (12 U.S.C. 5381) that engages in
insurance underwriting activities.
Insured depository institution means an insured depository
institution as defined in section 3 of the Federal Deposit Insurance
Act.
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.
International Lending Supervision Act means the International
Lending Supervision Act of 1983 (12 U.S.C. 3901 et seq.).
Investing bank means, with respect to a securitization, a national
bank or Federal savings association that assumes the credit risk of a
securitization exposure (other than an originating national bank or
Federal savings association of the securitization). In the typical
synthetic securitization, the investing national bank or Federal savings
association sells credit protection on a pool of underlying exposures to
the originating national bank or Federal savings association.
Investment fund means a company:
(1) Where all or substantially all of the assets of the company are
financial assets; and
(2) That has no material liabilities.
Investment grade means that the entity to which the national bank or
Federal savings association is exposed through a loan or security, or
the reference entity with respect to a credit derivative, has adequate
capacity to meet financial commitments for the projected life of the
asset or exposure. Such an entity or reference entity has adequate
capacity to meet financial
[[Page 34]]
commitments if the risk of its default is low and the full and timely
repayment of principal and interest is expected.
Investment in the capital of an unconsolidated financial institution
means a net long position calculated in accordance with Sec. 3.22(h) in
an instrument that is recognized as capital for regulatory purposes by
the primary supervisor of an unconsolidated regulated financial
institution or is an instrument that is part of the GAAP equity of an
unconsolidated unregulated financial institution, including direct,
indirect, and synthetic exposures to capital instruments, excluding
underwriting positions held by the national bank or Federal savings
association for five or fewer business days.
Investment in the national bank's or Federal savings association's
own capital instrument means a net long position calculated in
accordance with Sec. 3.22(h) in the national bank's or Federal savings
association's own common stock instrument, own additional tier 1 capital
instrument or own tier 2 capital instrument, including direct, indirect,
or synthetic exposures to such capital instruments. An investment in the
national bank's or Federal savings association's own capital instrument
includes any contractual obligation to purchase such capital instrument.
Junior-lien residential mortgage exposure means a residential
mortgage exposure that is not a first-lien residential mortgage
exposure.
Main index means the Standard & Poor's 500 Index, the FTSE All-World
Index, and any other index for which the national bank or 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.
Market risk national bank or Federal savings association means a
national bank or Federal savings association that is described in Sec.
3.201(b).
Money market fund means an investment fund that is subject to 17 CFR
270.2a-7 or any foreign equivalent thereof.
Mortgage servicing assets (MSAs) means the contractual rights owned
by a national bank or Federal savings association to service for a fee
mortgage loans that are owned by others.
Multilateral development bank (MDB) means the International Bank for
Reconstruction and Development, the Multilateral Investment Guarantee
Agency, 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.
National Bank Act means the National Bank Act (12 U.S.C. 24).
Netting set means a group of transactions with a single counterparty
that are subject to a qualifying master netting agreement or a
qualifying cross-product master netting agreement. For purposes of
calculating risk-based capital requirements using the internal models
methodology in subpart E of this part, this term does not cover a
transaction:
(1) That is not subject to such a master netting agreement; or
(2) Where the national bank or Federal savings association has
identified specific wrong-way risk.
Non-significant investment in the capital of an unconsolidated
financial institution means an investment by an advanced approaches
national bank or Federal savings association in the capital of an
unconsolidated financial institution where the advanced approaches
national bank or Federal savings association owns 10 percent or less of
the issued and outstanding common stock of the unconsolidated financial
institution.
Nth-to-default credit derivative means a credit
derivative that provides credit protection only for the nth-
defaulting
[[Page 35]]
reference exposure in a group of reference exposures.
Operating entity means a company established to conduct business
with clients with the intention of earning a profit in its own right.
Original maturity with respect to an off-balance sheet commitment
means the length of time between the date a commitment is issued and:
(1) For a commitment that is not subject to extension or renewal,
the stated expiration date of the commitment; or
(2) For a commitment that is subject to extension or renewal, the
earliest date on which the national bank or Federal savings association
can, at its option, unconditionally cancel the commitment.
Originating national bank or Federal savings association, with
respect to a securitization, means a national bank or Federal 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.
Over-the-counter (OTC) derivative contract means a derivative
contract that is not a cleared transaction. An OTC derivative includes a
transaction:
(1) Between a national bank or Federal savings association that is a
clearing member and a counterparty where the national bank or Federal
savings association is acting as a financial intermediary and enters
into a cleared transaction with a CCP that offsets the transaction with
the counterparty; or
(2) In which a national bank or Federal savings association that is
a clearing member provides a CCP a guarantee on the performance of the
counterparty to the transaction.
Performance standby letter of credit (or performance bond) means an
irrevocable obligation of a national bank or Federal savings association
to pay a third-party beneficiary when a customer (account party) fails
to perform on any contractual nonfinancial or commercial obligation. To
the extent permitted by law or regulation, performance standby letters
of credit include arrangements backing, among other things,
subcontractors' and suppliers' performance, labor and materials
contracts, and construction bids.
Pre-sold construction loan means any one-to-four family residential
construction loan to a builder that meets the requirements of section
618(a)(1) or (2) of the Resolution Trust Corporation Refinancing,
Restructuring, and Improvement Act of 1991 (12 U.S.C. 1831n note) and
the following criteria:
(1) The loan is made in accordance with prudent underwriting
standards, meaning that the national bank or Federal savings association
has obtained sufficient documentation that the buyer of the home has a
legally binding written sales contract and has a firm written commitment
for permanent financing of the home upon completion;
(2) The purchaser is an individual(s) that intends to occupy the
residence and is 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 residences for
speculative purposes;
(3) The purchaser has entered into a legally binding written sales
contract for the residence;
(4) The purchaser has not terminated the contract;
(5) The purchaser has made a substantial earnest money deposit of no
less than 3 percent of the sales price, which is subject to forfeiture
if the purchaser terminates the sales contract; provided that, 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;
(6) The earnest money deposit must be held in escrow by the national
bank or Federal savings association or an independent party in a
fiduciary capacity, and the escrow agreement must provide that in an
event of default arising from the cancellation of the sales contract by
the purchaser of the residence, the escrow funds shall be used to defray
any cost incurred by the national bank or Federal savings association;
(7) The builder must incur at least the first 10 percent of the
direct costs of construction of the residence (that is, actual costs of
the land, labor, and
[[Page 36]]
material) before any drawdown is made under the loan;
(8) The loan may not exceed 80 percent of the sales price of the
presold residence; and
(9) The loan is not more than 90 days past due, or on nonaccrual.
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 Sec. 3.36 or Sec. 3.134, as
appropriate).
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; 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.
Public sector entity (PSE) means a state, local authority, or other
governmental subdivision below the sovereign level.
Qualifying central counterparty (QCCP) means a central counterparty
that:
(1)(i) Is a designated financial market utility (FMU) under Title
VIII of the Dodd-Frank Act;
(ii) If not located in the United States, is regulated and
supervised in a manner equivalent to a designated FMU; or
(iii) Meets the following standards:
(A) The central counterparty requires all parties to contracts
cleared by the counterparty to be fully collateralized on a daily basis;
(B) The national bank or Federal savings association demonstrates to
the satisfaction of the OCC that the central counterparty:
(1) Is in sound financial condition;
(2) Is subject to supervision by the Board, the CFTC, or the
Securities Exchange Commission (SEC), or, if the central counterparty is
not located in the United States, is subject to effective oversight by a
national supervisory authority in its home country; and
(3) Meets or exceeds the risk-management standards for central
counterparties set forth in regulations established by the Board, the
CFTC, or the SEC under Title VII or Title VIII of the Dodd-Frank Act; or
if the central counterparty is not located in the United States, meets
or exceeds similar risk-management standards established under the law
of its home country that are consistent with international standards for
central counterparty risk management as established by the relevant
standard setting body of the Bank of International Settlements; and
(2)(i) Provides the national bank or Federal savings association
with the central counterparty's hypothetical capital requirement or the
information necessary to calculate such hypothetical capital
requirement, and other information the national bank or Federal savings
association is required to obtain under Sec. Sec. 3.35(d)(3) and
3.133(d)(3);
(ii) Makes available to the OCC and the CCP's regulator the
information described in paragraph (2)(i) of this definition; and
(iii) Has not otherwise been determined by the OCC to not be a QCCP
due to its financial condition, risk profile, failure to meet
supervisory risk management standards, or other weaknesses or
supervisory concerns that are inconsistent with the risk weight assigned
to qualifying central counterparties under Sec. Sec. 3.35 and 3.133.
(3) Exception. A QCCP that fails to meet the requirements of a QCCP
in the future may still be treated as a QCCP under the conditions
specified in Sec. 3.3(f).
Qualifying master netting agreement means a written, legally
enforceable agreement provided that:
(1) The agreement creates a single legal obligation for all
individual transactions covered by the agreement upon an event of
default following any stay permitted by paragraph (2) of this
definition, including upon an event of receivership, conservatorship,
insolvency, liquidation, or similar proceeding, of the counterparty;
[[Page 37]]
(2) The agreement provides the national bank or 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
receivership, conservatorship, insolvency, liquidation, or similar
proceeding, of the counterparty, provided that, in any such case:
(i) Any exercise of rights under the agreement will not be stayed or
avoided under applicable law in the relevant jurisdictions, other than:
(A) In receivership, conservatorship, or resolution under the
Federal Deposit Insurance Act, Title II of the Dodd-Frank Act, or under
any similar insolvency law applicable to GSEs, or laws of foreign
jurisdictions that are substantially similar \7\ to the U.S. laws
referenced in this paragraph (2)(i)(A) in order to facilitate the
orderly resolution of the defaulting counterparty; or
---------------------------------------------------------------------------
\7\ The OCC expects to evaluate jointly with the Board and FDIC
whether foreign special resolution regimes meet the requirements of this
paragraph.
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(B) Where the agreement is subject by its terms to, or incorporates,
any of the laws referenced in paragraph (2)(i)(A) of this definition;
and
(ii) The agreement may limit 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 of the
counterparty to the extent necessary for the counterparty to comply with
the requirements of part 47, subpart I of part 252, and part 382, of
this title 12, as applicable.
Regulated financial institution means a financial institution
subject to consolidated supervision and regulation comparable to that
imposed on the following U.S. financial institutions: Depository
institutions, depository institution holding companies, nonbank
financial companies supervised by the Board, designated financial market
utilities, securities broker-dealers, credit unions, or insurance
companies.
Repo-style transaction means a repurchase or reverse repurchase
transaction, or a securities borrowing or securities lending
transaction, including a transaction in which the national bank or
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, or gold;
(2) The transaction is marked-to-fair value 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, or a netting
contract between or among financial institutions under sections 401-407
of the Federal Deposit Insurance Corporation Improvement Act 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
national bank or Federal 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 receivership, insolvency, liquidation, or similar
proceeding, of the counterparty, provided that, in any such case:
(1) Any exercise of rights under the agreement will not be stayed or
avoided under applicable law in the relevant jurisdictions, other than
in receivership, conservatorship, or resolution under the Federal
Deposit Insurance Act, Title II of the Dodd-Frank Act, or under any
similar insolvency law applicable to GSEs, or laws of foreign
jurisdictions that are substantially similar \8\ to the U.S. laws
referenced in this paragraph (3)(ii)(A)(1) in order to facilitate the
orderly resolution of the defaulting counterparty; and
---------------------------------------------------------------------------
\8\ The OCC expects to evaluate jointly with the Board and FDIC
whether foreign special resolution regimes meet the requirements of this
paragraph.
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[[Page 38]]
(2) The agreement may limit 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 of the
counterparty to the extent necessary for the counterparty to comply with
the requirements of part 47, subpart I of part 252, and part 382, of
this title 12, as applicable; or
(B) The transaction is:
(1) Either overnight or unconditionally cancelable at any time by
the national bank or Federal savings association; and
(2) Executed under an agreement that provides the national bank or
Federal 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) In order to recognize an exposure as a repo-style transaction
for purposes of this subpart, a national bank or Federal savings
association must comply with the requirements of Sec. 3.3(e) of this
part with respect to that exposure.
Resecuritization means a securitization which has more than one
underlying exposure and in which one or more of the underlying exposures
is a securitization exposure.
Resecuritization exposure means:
(1) An on- or off-balance sheet exposure to a resecuritization;
(2) An exposure that directly or indirectly references a
resecuritization exposure.
(3) An exposure to an asset-backed commercial paper program is not a
resecuritization exposure if either:
(i) The program-wide credit enhancement does not meet the definition
of a resecuritization exposure; or
(ii) The entity sponsoring the program fully supports the commercial
paper through the provision of liquidity so that the commercial paper
holders effectively are exposed to the default risk of the sponsor
instead of the underlying exposures.
Residential mortgage exposure means an exposure (other than a
securitization exposure, equity exposure, statutory multifamily
mortgage, or presold construction loan):
(1)(i) That is primarily secured by a first or subsequent lien on
one-to-four family residential property; or
(ii) 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; and
(2) For purposes of calculating capital requirements under subpart E
of this part, managed as part of a segment of exposures with homogeneous
risk characteristics and not on an individual-exposure basis.
Revenue obligation means a bond or similar obligation that is an
obligation of a PSE, but which the PSE is committed to repay with
revenues from the specific project financed rather than general tax
funds.
Savings and loan holding company means a savings and loan holding
company as defined in section 10 of the Home Owners' Loan Act (12 U.S.C.
1467a).
Securities and Exchange Commission (SEC) means the U.S. Securities
and Exchange Commission.
Securities Exchange Act means the Securities Exchange Act of 1934
(15 U.S.C. 78).
Securitization exposure means:
(1) An on-balance sheet or off-balance sheet credit exposure
(including credit-enhancing representations and warranties) that arises
from a traditional securitization or synthetic securitization (including
a resecuritization), or
(2) An exposure that directly or indirectly references a
securitization exposure described in paragraph (1) of this definition.
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.
Separate account means a legally segregated pool of assets owned and
held by an insurance company and maintained separately from the
insurance
[[Page 39]]
company's general account assets for the benefit of an individual
contract holder. To be a separate account:
(1) The account must be legally recognized as a separate account
under applicable law;
(2) The assets in the account must be insulated from general
liabilities of the insurance company under applicable law in the event
of the insurance company's insolvency;
(3) The insurance company must invest the funds within the account
as directed by the contract holder in designated investment alternatives
or in accordance with specific investment objectives or policies; and
(4) All investment gains and losses, net of contract fees and
assessments, must be passed through to the contract holder, provided
that the contract may specify conditions under which there may be a
minimum guarantee but must not include contract terms that limit the
maximum investment return available to the policyholder.
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.
Significant investment in the capital of an unconsolidated financial
institution means an investment by an advanced approaches national bank
or Federal savings association in the capital of an unconsolidated
financial institution where the advanced approaches national bank or
Federal savings association owns more than 10 percent of the issued and
outstanding common stock of the unconsolidated financial institution.
Small Business Act means the Small Business Act (15 U.S.C. 632).
Small Business Investment Act means the Small Business Investment
Act of 1958 (15 U.S.C. 682).
Sovereign means a central government (including the U.S. government)
or an agency, department, ministry, or central bank of a central
government.
Sovereign default means noncompliance by a sovereign with its
external debt service obligations or the inability or unwillingness of a
sovereign government to service an existing loan according to its
original terms, as evidenced by failure to pay principal and interest
timely and fully, arrearages, or restructuring.
Sovereign exposure means:
(1) A direct exposure to a sovereign; or
(2) An exposure directly and unconditionally backed by the full
faith and credit of a sovereign.
Specific wrong-way risk means wrong-way risk that arises when
either:
(1) The counterparty and issuer of the collateral supporting the
transaction; or
(2) The counterparty and the reference asset of the transaction, are
affiliates or are the same entity.
Standardized market risk-weighted assets means the standardized
measure for market risk calculated under Sec. 3.204 multiplied by 12.5.
Standardized total risk-weighted assets means:
(1) The sum of:
(i) Total risk-weighted assets for general credit risk as calculated
under Sec. 3.31;
(ii) Total risk-weighted assets for cleared transactions and default
fund contributions as calculated under Sec. 3.35;
(iii) Total risk-weighted assets for unsettled transactions as
calculated under Sec. 3.38;
(iv) Total risk-weighted assets for securitization exposures as
calculated under Sec. 3.42;
(v) Total risk-weighted assets for equity exposures as calculated
under Sec. Sec. 3.52 and 3.53; and
(vi) For a market risk national bank or Federal savings association
only, standardized market risk-weighted assets; minus
(2) Any amount of a national bank's or Federal savings association's
allowance for loan and lease losses or adjusted allowance for credit
losses, as applicable, that is not included in tier 2 capital and any
amount of ``allocated transfer risk reserves.
Statutory multifamily mortgage means a loan secured by a multifamily
residential property that meets the requirements under section 618(b)(1)
of
[[Page 40]]
the Resolution Trust Corporation Refinancing, Restructuring, and
Improvement Act of 1991, and that meets the following criteria: \9\
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\9\ The types of loans that qualify as loans secured by multifamily
residential properties are listed in the instructions for preparation of
the Call Report.
---------------------------------------------------------------------------
(1) The loan is made in accordance with prudent underwriting
standards;
(2) The principal amount of the loan at origination does not exceed
80 percent of the value of the property (or 75 percent of the value of
the property if the loan is based on an interest rate that changes over
the term of the loan) where the value of the property is the lower of
the acquisition cost of the property or the appraised (or, if
appropriate, evaluated) value of the property;
(3) All principal and interest payments on the loan must have been
made on a timely basis in accordance with the terms of the loan for at
least one year prior to applying a 50 percent risk weight to the loan,
or in the case where an existing owner is refinancing a loan on the
property, all principal and interest payments on the loan being
refinanced must have been made on a timely basis in accordance with the
terms of the loan for at least one year prior to applying a 50 percent
risk weight to the loan;
(4) Amortization of principal and interest on the loan must occur
over a period of not more than 30 years and the minimum original
maturity for repayment of principal must not be less than 7 years;
(5) Annual net operating income (before making any payment on the
loan) generated by the property securing the loan during its most recent
fiscal year must not be less than 120 percent of the loan's current
annual debt service (or 115 percent of current annual debt service if
the loan is based on an interest rate that changes over the term of the
loan) or, in the case of a cooperative or other not-for-profit housing
project, the property must generate sufficient cash flow to provide
comparable protection to the national bank or Federal savings
association; and
(6) The loan is not more than 90 days past due, or on nonaccrual.
Subsidiary means, with respect to a company, a company controlled by
that company.
Synthetic exposure means an exposure whose value is linked to the
value of an investment in the national bank's or Federal savings
association's own capital instrument or to the value of an investment in
the capital of an unconsolidated financial institution.
Synthetic securitization means a transaction in which:
(1) All or a portion of the credit risk of one or more underlying
exposures is retained or 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).
Tangible capital means the amount of core capital (tier 1 capital),
as calculated in accordance with subpart B of this part, plus the amount
of outstanding perpetual preferred stock (including related surplus) not
included in tier 1 capital.
Tier 1 capital means the sum of common equity tier 1 capital and
additional tier 1 capital.
Tier 1 minority interest means the tier 1 capital of a consolidated
subsidiary of a national bank or Federal savings association that is not
owned by the national bank or Federal savings association.
Tier 2 capital is defined in Sec. 3.20(d).
Total capital means the sum of tier 1 capital and tier 2 capital.
Total capital minority interest means the total capital of a
consolidated subsidiary of a national bank or Federal savings
association that is not owned by the national bank or Federal savings
association.
[[Page 41]]
Total leverage exposure is defined in Sec. 3.10(c)(4)(ii) of this
part.
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 defined in section 302 of the Small Business
Investment Act;
(7) The underlying exposures are not owned by a firm an investment
in which qualifies as a community development investment under section
24(Eleventh) of the National Bank Act;
(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; and
(10) The transaction is not:
(i) An investment fund;
(ii) A collective investment fund (as defined in 12 CFR 9.18
(national banks), 12 CFR 151.40 (Federal saving associations);
(iii) An employee benefit plan (as defined in paragraphs (3) and
(32) of section 3 of ERISA), a ``governmental plan'' (as defined in 29
U.S.C. 1002(32)) that complies with the tax deferral qualification
requirements provided in the Internal Revenue Code, or any similar
employee benefit plan established under the laws of a foreign
jurisdiction;
(iv) A synthetic exposure to the capital of a financial institution
to the extent deducted from capital under Sec. 3.22; or
(v) Registered with the SEC under the Investment Company Act of 1940
(15 U.S.C. 80a-1) or foreign equivalents thereof.
Tranche means all securitization exposures associated with a
securitization that have the same seniority level.
Two-way market means a market where there are independent bona fide
offers to buy and sell so that a price reasonably related to the last
sales price or current bona fide competitive bid and offer quotations
can be determined within one day and settled at that price within a
relatively short time frame conforming to trade custom.
Unconditionally cancelable means with respect to a commitment, that
a national bank or Federal savings association may, at any time, with or
without cause, refuse to extend credit under the commitment (to the
extent permitted under applicable law).
Underlying exposures means one or more exposures that have been
securitized in a securitization transaction.
Unregulated financial institution means, for purposes of Sec.
3.131, a financial institution that is not a regulated financial
institution, including any financial institution that would meet the
definition of ``financial institution'' under this section but for the
ownership interest thresholds set forth in paragraph (4)(i) of that
definition.
U.S. Government agency means an instrumentality of the U.S.
Government whose obligations are fully and explicitly guaranteed as to
the timely payment of principal and interest by the full faith and
credit of the U.S. Government.
[[Page 42]]
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.
Wrong-way risk means the risk that arises when an exposure to a
particular counterparty is positively correlated with the probability of
default of such counterparty itself.
[78 FR 62157, 62273, Oct. 11, 2013, as amended at 79 FR 44123, July 30,
2014; 79 FR 57740, Sept. 26, 2014; 79 FR 78293, Dec. 30, 2014; 80 FR
41415, July 15, 2015; 82 FR 56661, Nov. 29, 2017; 84 FR 4237, Feb. 14,
2019; 84 FR 35248, July 22, 2019; 84 FR 59263, Nov. 1, 2019; 84 FR
61792, Nov. 13, 2019]
Effective Date Note: At 84 FR 68031, Dec. 13, 2019, Sec. 3.2 was
amended by revising the definition of a ``high volatility commercial
real estate (HVCRE) exposure'', effective Apr. 1, 2020. For the
convenience of the user, the revised text is set forth as follows:
Sec. 3.2 Definitions.
* * * * *
High volatility commercial real estate (HVCRE) exposure means:
(1) A credit facility secured by land or improved real property
that, prior to being reclassified by the depository institution as a
non-HVCRE exposure pursuant to paragraph (6) of this definition--
(i) Primarily finances, has financed, or refinances the acquisition,
development, or construction of real property;
(ii) Has the purpose of providing financing to acquire, develop, or
improve such real property into income-producing real property; and
(iii) Is dependent upon future income or sales proceeds from, or
refinancing of, such real property for the repayment of such credit
facility;
(2) An HVCRE exposure does not include a credit facility financing--
(i) The acquisition, development, or construction of properties that
are--
(A) One- to four-family residential properties. Credit facilities
that do not finance the construction of one- to four-family residential
structures, but instead solely finance improvements such as the laying
of sewers, water pipes, and similar improvements to land, do not qualify
for the one- to four-family residential properties exclusion;
(B) Real property that would qualify as an investment in community
development; or
(C) Agricultural land;
(ii) The acquisition or refinance of existing income-producing real
property secured by a mortgage on such property, if the cash flow being
generated by the real property is sufficient to support the debt service
and expenses of the real property, in accordance with the national
bank's or Federal savings association's applicable loan underwriting
criteria for permanent financings;
(iii) Improvements to existing income-producing improved real
property secured by a mortgage on such property, if the cash flow being
generated by the real property is sufficient to support the debt service
and expenses of the real property, in accordance with the national
bank's or Federal savings association's applicable loan underwriting
criteria for permanent financings; or
(iv) Commercial real property projects in which--
(A) The loan-to-value ratio is less than or equal to the applicable
maximum supervisory loan-to-value ratio as determined by the OCC;
(B) The borrower has contributed capital of at least 15 percent of
the real property's appraised, `as completed' value to the project in
the form of--
(1) Cash;
(2) Unencumbered readily marketable assets;
(3) Paid development expenses out-of-pocket; or
(4) Contributed real property or improvements; and
(C) The borrower contributed the minimum amount of capital described
under paragraph (2)(iv)(B) of this definition before the national bank
or Federal savings association advances funds (other than the advance of
a nominal sum made in order to secure the national bank's or Federal
savings association's lien against the real property) under the credit
facility, and such minimum amount of capital contributed by the borrower
is contractually required to remain in the project until the HVCRE
exposure has been reclassified by the national bank or Federal savings
association as a non-HVCRE exposure under paragraph (6) of this
definition;
(3) An HVCRE exposure does not include any loan made prior to
January 1, 2015; and
(4) An HVCRE exposure does not include a credit facility
reclassified as a non-HVCRE exposure under paragraph (6) of this
definition.
(5) Value of contributed real property: For the purposes of this
HVCRE exposure definition, the value of any real property contributed by
a borrower as a capital contribution shall be the appraised value of the
property as determined under standards prescribed
[[Page 43]]
pursuant to section 1110 of the Financial Institutions Reform, Recovery,
and Enforcement Act of 1989 (12 U.S.C. 3339), in connection with the
extension of the credit facility or loan to such borrower.
(6) Reclassification as a non-HVCRE exposure: For purposes of this
HVCRE exposure definition and with respect to a credit facility and a
national bank or Federal savings association, a national bank or Federal
savings association may reclassify an HVCRE exposure as a non-HVCRE
exposure upon--
(i) The substantial completion of the development or construction of
the real property being financed by the credit facility; and
(ii) Cash flow being generated by the real property being sufficient
to support the debt service and expenses of the real property, in
accordance with the national bank's or Federal savings association's
applicable loan underwriting criteria for permanent financings.
(7) For purposes of this definition, a national bank or Federal
savings association is not required to reclassify a credit facility that
was originated on or after January 1, 2015 and prior to April 1, 2020.
* * * * *
Sec. 3.3 Operational requirements for counterparty credit risk.
For purposes of calculating risk-weighted assets under subparts D
and E of this part:
(a) Cleared transaction. In order to recognize certain exposures as
cleared transactions pursuant to paragraphs (1)(ii), (iii) or (iv) of
the definition of ``cleared transaction'' in Sec. 3.2, the exposures
must meet the applicable requirements set forth in this paragraph (a).
(1) The offsetting transaction must be identified by the CCP as a
transaction for the clearing member client.
(2) The collateral supporting the transaction must be held in a
manner that prevents the national bank or Federal savings association
from facing any loss due to an event of default, including from a
liquidation, receivership, insolvency, or similar proceeding of either
the clearing member or the clearing member's other clients. Omnibus
accounts established under 17 CFR parts 190 and 300 satisfy the
requirements of this paragraph (a).
(3) The national bank or Federal savings association must conduct
sufficient legal review to conclude with a well-founded basis (and
maintain sufficient written documentation of that legal review) that in
the event of a legal challenge (including one resulting from a default
or receivership, insolvency, liquidation, or similar proceeding) the
relevant court and administrative authorities would find the
arrangements of paragraph (a)(2) of this section to be legal, valid,
binding and enforceable under the law of the relevant jurisdictions.
(4) The offsetting transaction with a clearing member must be
transferable under the transaction documents and applicable laws in the
relevant jurisdiction(s) to another clearing member should the clearing
member default, become insolvent, or enter receivership, insolvency,
liquidation, or similar proceedings.
(b) Eligible margin loan. In order to recognize an exposure as an
eligible margin loan as defined in Sec. 3.2, a national bank or Federal
savings association must conduct sufficient legal review to conclude
with a well-founded basis (and maintain sufficient written documentation
of that legal review) that the agreement underlying the exposure:
(1) Meets the requirements of paragraph (1)(iii) of the definition
of eligible margin loan in Sec. 3.2, and
(2) Is legal, valid, binding, and enforceable under applicable law
in the relevant jurisdictions.
(c) Qualifying cross-product master netting agreement. In order to
recognize an agreement as a qualifying cross-product master netting
agreement as defined in Sec. 3.101, a national bank or Federal savings
association must obtain 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 receivership, insolvency, liquidation, or
similar proceeding.
(d) Qualifying master netting agreement. In order to recognize an
agreement as a qualifying master netting agreement as defined in Sec.
3.2, a national bank or Federal savings association must:
(1) Conduct sufficient legal review to conclude with a well-founded
basis (and maintain sufficient written documentation of that legal
review) that:
[[Page 44]]
(i) The agreement meets the requirements of paragraph (2) of the
definition of qualifying master netting agreement in Sec. 3.2; and
(ii) In the event of a legal challenge (including one resulting from
default or from receivership, insolvency, liquidation, 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; and
(2) Establish and maintain written procedures to monitor possible
changes in relevant law and to ensure that the agreement continues to
satisfy the requirements of the definition of qualifying master netting
agreement in Sec. 3.2.
(e) Repo-style transaction. In order to recognize an exposure as a
repo-style transaction as defined in Sec. 3.2, a national bank or
Federal savings association must conduct sufficient legal review to
conclude with a well-founded basis (and maintain sufficient written
documentation of that legal review) that the agreement underlying the
exposure:
(1) Meets the requirements of paragraph (3) of the definition of
repo-style transaction in Sec. 3.2, and
(2) Is legal, valid, binding, and enforceable under applicable law
in the relevant jurisdictions.
(f) Failure of a QCCP to satisfy the rule's requirements. If a
national bank or Federal savings association determines that a CCP
ceases to be a QCCP due to the failure of the CCP to satisfy one or more
of the requirements set forth in paragraphs (2)(i) through (2)(iii) of
the definition of a QCCP in Sec. 3.2, the national bank or Federal
savings association may continue to treat the CCP as a QCCP for up to
three months following the determination. If the CCP fails to remedy the
relevant deficiency within three months after the initial determination,
or the CCP fails to satisfy the requirements set forth in paragraphs
(2)(i) through (2)(iii) of the definition of a QCCP continuously for a
three-month period after remedying the relevant deficiency, a national
bank or Federal savings association may not treat the CCP as a QCCP for
the purposes of this part until after the national bank or Federal
savings association has determined that the CCP has satisfied the
requirements in paragraphs (2)(i) through (2)(iii) of the definition of
a QCCP for three continuous months.
Sec. Sec. 3.4-3.9 [Reserved]
Subpart B_Capital Ratio Requirements and Buffers
Source: 78 FR 62157, 62273, Oct. 11, 2013, unless otherwise noted.
Sec. 3.10 Minimum capital requirements.
(a) Minimum capital requirements. (1) A national bank or Federal
savings association must maintain the following minimum capital ratios:
(i) A common equity tier 1 capital ratio of 4.5 percent.
(ii) A tier 1 capital ratio of 6 percent.
(iii) A total capital ratio of 8 percent.
(iv) A leverage ratio of 4 percent.
(v) For advanced approaches national banks or Federal savings
associations or, for Category III OCC-regulated institutions, a
supplementary leverage ratio of 3 percent.
(vi) For Federal savings associations, a tangible capital ratio of
1.5 percent.
(2) A qualifying community banking organization (as defined in Sec.
3.12), that is subject to the community bank leverage ratio framework
(as defined in Sec. 3.12), is considered to have met the minimum
capital requirements in this paragraph (a).
(b) Standardized capital ratio calculations. Other than as provided
in paragraph (c) of this section:
(1) Common equity tier 1 capital ratio. A national bank's or Federal
savings association's common equity tier 1 capital ratio is the ratio of
the national bank's or Federal savings association's common equity tier
1 capital to standardized total risk-weighted assets;
(2) Tier 1 capital ratio. A national bank's or Federal savings
association's tier 1 capital ratio is the ratio of the national bank's
or Federal savings association's tier 1 capital to standardized total
risk-weighted assets;
(3) Total capital ratio. A national bank's or Federal savings
association's total capital ratio is the ratio of the
[[Page 45]]
national bank's or Federal savings association's total capital to
standardized total risk-weighted assets; and
(4) Leverage ratio. A national bank's or Federal savings
association's leverage ratio is the ratio of the national bank's or
Federal savings association's tier 1 capital to the national bank's or
Federal savings association's average total consolidated assets as
reported on the national bank's or Federal savings association's Call
Report minus amounts deducted from tier 1 capital under Sec. 3.22(a),
(c) and (d).
(5) Federal savings association tangible capital ratio. A Federal
savings association's tangible capital ratio is the ratio of the Federal
savings association's core capital (tier 1 capital) to average total
assets as calculated under this subpart B. For purposes of this
paragraph (b)(5), the term ``total assets'' means ``total assets'' as
defined in part 6, subpart A of this chapter, subject to subpart G of
this part.
(c) Advanced approaches and Category III capital ratio calculations.
An advanced approaches national bank or Federal savings association that
has completed the parallel run process and received notification from
the OCC pursuant to Sec. 3.121(d) must determine its regulatory capital
ratios as described in paragraphs (c)(1) through (3) of this section. An
advanced approaches national bank or Federal savings association must
determine its supplementary leverage ratio in accordance with paragraph
(c)(4) of this section, beginning with the calendar quarter immediately
following the quarter in which the national bank or Federal savings
association institution meets any of the criteria in Sec. 3.100(b)(1).
A Category III national bank or Federal savings association must
determine its supplementary leverage ratio in accordance with paragraph
(c)(4) of this section, beginning with the calendar quarter immediately
following the quarter in which the national bank or Federal savings
association is identified as a Category III national bank or Federal
savings association.
(1) Common equity tier 1 capital ratio. The national bank's or
Federal savings association's common equity tier 1 capital ratio is the
lower of:
(i) The ratio of the national bank's or Federal savings
association's common equity tier 1 capital to standardized total risk-
weighted assets; and
(ii) The ratio of the national bank's or Federal savings
association's common equity tier 1 capital to advanced approaches total
risk-weighted assets.
(2) Tier 1 capital ratio. The national bank's or Federal savings
association's tier 1 capital ratio is the lower of:
(i) The ratio of the national bank's or Federal savings
association's tier 1 capital to standardized total risk-weighted assets;
and
(ii) The ratio of the national bank's or Federal savings
association's tier 1 capital to advanced approaches total risk-weighted
assets.
(3) Total capital ratio. The national bank's or Federal savings
association's total capital ratio is the lower of:
(i) The ratio of the national bank's or Federal savings
association's total capital to standardized total risk-weighted assets;
and
(ii) The ratio of the national bank's or Federal savings
association's advanced-approaches-adjusted total capital to advanced
approaches total risk-weighted assets. A national bank's or Federal
savings association's advanced-approaches-adjusted total capital is the
national bank's or Federal savings association's total capital after
being adjusted as follows:
(A) An advanced approaches national bank or Federal savings
association must deduct from its total capital any allowance for loan
and lease losses or adjusted allowance for credit losses, as applicable,
included in its tier 2 capital in accordance with Sec. 3.20(d)(3); and
(B) An advanced approaches national bank or Federal savings
association must add to its total capital any eligible credit reserves
that exceed the national bank's or Federal savings association's total
expected credit losses to the extent that the excess reserve amount does
not exceed 0.6 percent of the national bank's or Federal savings
association's credit risk-weighted assets.
(4) Supplementary leverage ratio. (i) An advanced approaches
national bank's or Federal savings association's or a Category III
national bank's or Federal
[[Page 46]]
savings association's supplementary leverage ratio is the ratio of its
tier 1 capital to total leverage exposure, the latter of which is
calculated as the sum of:
(A) The mean of the on-balance sheet assets calculated as of each
day of the reporting quarter; and
(B) The mean of the off-balance sheet exposures calculated as of the
last day of each of the most recent three months, minus the applicable
deductions under Sec. 3.22(a), (c), and (d).
(ii) For purposes of this part, total leverage exposure means the
sum of the items described in paragraphs (c)(4)(ii)(A) through (H) of
this section, as adjusted pursuant to paragraph (c)(4)(ii)(I) for a
clearing member national bank or Federal savings association:
(A) The balance sheet carrying value of all of the national bank's
or Federal savings association's on-balance sheet assets, plus the value
of securities sold under a repurchase transaction or a securities
lending transaction that qualifies for sales treatment under U.S. GAAP,
less amounts deducted from tier 1 capital under Sec. 3.22(a), (c), and
(d), and less the value of securities received in security-for-security
repo-style transactions, where the national bank or Federal savings
association acts as a securities lender and includes the securities
received in its on-balance sheet assets but has not sold or re-
hypothecated the securities received;
(B) The PFE for each derivative contract or each single-product
netting set of derivative contracts (including a cleared transaction
except as provided in paragraph (c)(4)(ii)(I) of this section and, at
the discretion of the national bank or Federal savings association,
excluding a forward agreement treated as a derivative contract that is
part of a repurchase or reverse repurchase or a securities borrowing or
lending transaction that qualifies for sales treatment under U.S. GAAP),
to which the national bank or Federal savings association is a
counterparty as determined under Sec. 3.34, but without regard to Sec.
3.34(b), provided that:
(1) A national bank or Federal savings association may choose to
exclude the PFE of all credit derivatives or other similar instruments
through which it provides credit protection when calculating the PFE
under Sec. 3.34, but without regard to Sec. 3.34(b), provided that it
does not adjust the net-to-gross ratio (NGR); and
(2) A national bank or Federal savings association that chooses to
exclude the PFE of credit derivatives or other similar instruments
through which it provides credit protection pursuant to paragraph
(c)(4)(ii)(B)(1) of this section must do so consistently over time for
the calculation of the PFE for all such instruments;
(C) The amount of cash collateral that is received from a
counterparty to a derivative contract and that has offset the mark-to-
fair value of the derivative asset, or cash collateral that is posted to
a counterparty to a derivative contract and that has reduced the
national bank's or Federal savings association's on-balance sheet
assets, unless such cash collateral is all or part of variation margin
that satisfies the following requirements:
(1) For derivative contracts that are not cleared through a QCCP,
the cash collateral received by the recipient counterparty is not
segregated (by law, regulation or an agreement with the counterparty);
(2) Variation margin is calculated and transferred on a daily basis
based on the mark-to-fair value of the derivative contract;
(3) The variation margin transferred under the derivative contract
or the governing rules for a cleared transaction is the full amount that
is necessary to fully extinguish the net current credit exposure to the
counterparty of the derivative contracts, subject to the threshold and
minimum transfer amounts applicable to the counterparty under the terms
of the derivative contract or the governing rules for a cleared
transaction;
(4) The variation margin is in the form of cash in the same currency
as the currency of settlement set forth in the derivative contract,
provided that for the purposes of this paragraph, currency of settlement
means any currency for settlement specified in the governing qualifying
master netting agreement and the credit support annex to the qualifying
master netting
[[Page 47]]
agreement, or in the governing rules for a cleared transaction;
(5) The derivative contract and the variation margin are governed by
a qualifying master netting agreement between the legal entities that
are the counterparties to the derivative contract or by the governing
rules for a cleared transaction, and the qualifying master netting
agreement or the governing rules for a cleared transaction must
explicitly stipulate that the counterparties agree to settle any payment
obligations on a net basis, taking into account any variation margin
received or provided under the contract if a credit event involving
either counterparty occurs;
(6) The variation margin is used to reduce the current credit
exposure of the derivative contract, calculated as described in Sec.
3.34(a), and not the PFE; and
(7) For the purpose of the calculation of the NGR described in Sec.
3.34(a)(2)(ii)(B), variation margin described in paragraph
(c)(4)(ii)(C)(6) of this section may not reduce the net current credit
exposure or the gross current credit exposure;
(D) The effective notional principal amount (that is, the apparent
or stated notional principal amount multiplied by any multiplier in the
derivative contract) of a credit derivative, or other similar
instrument, through which the national bank or Federal savings
association provides credit protection, provided that:
(1) The national bank or Federal savings association may reduce the
effective notional principal amount of the credit derivative by the
amount of any reduction in the mark-to-fair value of the credit
derivative if the reduction is recognized in common equity tier 1
capital;
(2) The national bank or Federal savings association may reduce the
effective notional principal amount of the credit derivative by the
effective notional principal amount of a purchased credit derivative or
other similar instrument, provided that the remaining maturity of the
purchased credit derivative is equal to or greater than the remaining
maturity of the credit derivative through which the national bank or
Federal savings association provides credit protection and that:
(i) With respect to a credit derivative that references a single
exposure, the reference exposure of the purchased credit derivative is
to the same legal entity and ranks pari passu with, or is junior to, the
reference exposure of the credit derivative through which the national
bank or Federal savings association provides credit protection; or
(ii) With respect to a credit derivative that references multiple
exposures, the reference exposures of the purchased credit derivative
are to the same legal entities and rank pari passu with the reference
exposures of the credit derivative through which the national bank or
Federal savings association provides credit protection, and the level of
seniority of the purchased credit derivative ranks pari passu to the
level of seniority of the credit derivative through which the national
bank or Federal savings association provides credit protection;
(iii) Where a national bank or Federal savings association has
reduced the effective notional amount of a credit derivative through
which the national bank or Federal savings association provides credit
protection in accordance with paragraph (c)(4)(ii)(D)(1) of this
section, the national bank or Federal savings association must also
reduce the effective notional principal amount of a purchased credit
derivative used to offset the credit derivative through which the
national bank or Federal savings association provides credit protection,
by the amount of any increase in the mark-to-fair value of the purchased
credit derivative that is recognized in common equity tier 1 capital;
and
(iv) Where the national bank or Federal savings association
purchases credit protection through a total return swap and records the
net payments received on a credit derivative through which the national
bank or Federal savings association provides credit protection in net
income, but does not record offsetting deterioration in the mark-to-fair
value of the credit derivative through which the national bank or
Federal savings association provides credit protection in net income
(either through reductions in fair
[[Page 48]]
value or by additions to reserves), the national bank or Federal savings
association may not use the purchased credit protection to offset the
effective notional principal amount of the related credit derivative
through which the national bank or Federal savings association provides
credit protection;
(E) Where a national bank or Federal savings association acting as a
principal has more than one repo-style transaction with the same
counterparty and has offset the gross value of receivables due from a
counterparty under reverse repurchase transactions by the gross value of
payables under repurchase transactions due to the same counterparty, the
gross value of receivables associated with the repo-style transactions
less any on-balance sheet receivables amount associated with these repo-
style transactions included under paragraph (c)(4)(ii)(A) of this
section, unless the following criteria are met:
(1) The offsetting transactions have the same explicit final
settlement date under their governing agreements;
(2) The right to offset the amount owed to the counterparty with the
amount owed by the counterparty is legally enforceable in the normal
course of business and in the event of receivership, insolvency,
liquidation, or similar proceeding; and
(3) Under the governing agreements, the counterparties intend to
settle net, settle simultaneously, or settle according to a process that
is the functional equivalent of net settlement, (that is, the cash flows
of the transactions are equivalent, in effect, to a single net amount on
the settlement date), where both transactions are settled through the
same settlement system, the settlement arrangements are supported by
cash or intraday credit facilities intended to ensure that settlement of
both transactions will occur by the end of the business day, and the
settlement of the underlying securities does not interfere with the net
cash settlement;
(F) The counterparty credit risk of a repo-style transaction,
including where the national bank or Federal savings association acts as
an agent for a repo-style transaction and indemnifies the customer with
respect to the performance of the customer's counterparty in an amount
limited to the difference between the fair value of the security or cash
its customer has lent and the fair value of the collateral the borrower
has provided, calculated as follows:
(1) If the transaction is not subject to a qualifying master netting
agreement, the counterparty credit risk (E*) for transactions with a
counterparty must be calculated on a transaction by transaction basis,
such that each transaction i is treated as its own netting set, in
accordance with the following formula, where Ei is the fair
value of the instruments, gold, or cash that the national bank or
Federal savings association has lent, sold subject to repurchase, or
provided as collateral to the counterparty, and Ci is the
fair value of the instruments, gold, or cash that the national bank or
Federal savings association has borrowed, purchased subject to resale,
or received as collateral from the counterparty:
Ei* = max {0, [Ei - Ci]{time} ; and
(2) If the transaction is subject to a qualifying master netting
agreement, the counterparty credit risk (E*) must be calculated as the
greater of zero and the total fair value of the instruments, gold, or
cash that the national bank or Federal savings association has lent,
sold subject to repurchase or provided as collateral to a counterparty
for all transactions included in the qualifying master netting agreement
([Sigma]Ei), less the total fair value of the instruments,
gold, or cash that the national bank or Federal savings association
borrowed, purchased subject to resale or received as collateral from the
counterparty for those transactions ([Sigma]Ci), in
accordance with the following formula:
E* = max {0, [[Sigma]Ei - [Sigma]Ci]{time}
(G) If a national bank or Federal savings association acting as an
agent for a repo-style transaction provides a guarantee to a customer of
the security or cash its customer has lent or borrowed with respect to
the performance of the customer's counterparty and the guarantee is not
limited to the difference between the fair value of the security or cash
its customer has lent and the fair value of the collateral the borrower
has provided, the amount of the guarantee that is greater than the
difference between the fair value of the security or cash its customer
has lent
[[Page 49]]
and the value of the collateral the borrower has provided;
(H) The credit equivalent amount of all off-balance sheet exposures
of the national bank or Federal savings association, excluding repo-
style transactions, repurchase or reverse repurchase or securities
borrowing or lending transactions that qualify for sales treatment under
U.S. GAAP, and derivative transactions, determined using the applicable
credit conversion factor under Sec. 3.33(b), provided, however, that
the minimum credit conversion factor that may be assigned to an off-
balance sheet exposure under this paragraph is 10 percent; and
(I) For a national bank or Federal savings association that is a
clearing member:
(1) A clearing member national bank or Federal savings association
that guarantees the performance of a clearing member client with respect
to a cleared transaction must treat its exposure to the clearing member
client as a derivative contract for purposes of determining its total
leverage exposure;
(2) A clearing member national bank or Federal savings association
that guarantees the performance of a CCP with respect to a transaction
cleared on behalf of a clearing member client must treat its exposure to
the CCP as a derivative contract for purposes of determining its total
leverage exposure;
(3) A clearing member national bank or Federal savings association
that does not guarantee the performance of a CCP with respect to a
transaction cleared on behalf of a clearing member client may exclude
its exposure to the CCP for purposes of determining its total leverage
exposure;
(4) A national bank or Federal savings association that is a
clearing member may exclude from its total leverage exposure the
effective notional principal amount of credit protection sold through a
credit derivative contract, or other similar instrument, that it clears
on behalf of a clearing member client through a CCP as calculated in
accordance with part (c)(4)(ii)(D); and
(5) Notwithstanding paragraphs (c)(4)(ii)(I)(1) through (3) of this
section, a national bank or Federal savings association may exclude from
its total leverage exposure a clearing member's exposure to a clearing
member client for a derivative contract, if the clearing member client
and the clearing member are affiliates and consolidated for financial
reporting purposes on the national bank's or Federal savings
association's balance sheet.
(5) Federal savings association tangible capital ratio. A Federal
savings association's tangible capital ratio is the ratio of the Federal
savings association's core capital (tier 1 capital) to average total
assets as calculated under this subpart B. For purposes of this
paragraph (c)(5), the term ``total assets'' means ``total assets'' as
defined in part 6, subpart A of this chapter, subject to subpart G of
this part.
(d) Capital adequacy. (1) Notwithstanding the minimum requirements
in this part, a national bank or Federal savings association must
maintain capital commensurate with the level and nature of all risks to
which the national bank or Federal savings association is exposed. The
supervisory evaluation of a national bank's or Federal savings
association's capital adequacy is based on an individual assessment of
numerous factors, including those listed at this section (national
banks), 12 CFR 167.3(c) (Federal savings associations).
(2) A national bank or Federal savings association must have a
process for assessing its overall capital adequacy in relation to its
risk profile and a comprehensive strategy for maintaining an appropriate
level of capital.
[78 FR 62157, 62273, Oct. 11, 2013, as amended at 79 FR 57740, Sept. 26,
2014; 80 FR 41415, July 15, 2015; 84 FR 4238, Feb. 14, 2019; 84 FR
35248, July 22, 2019; 84 FR 59264, Nov. 1, 2019; 84 FR 61792, Nov. 13,
2019]
Sec. 3.11 Capital conservation buffer and countercyclical capital
buffer amount.
(a) Capital conservation buffer--(1) Composition of the capital
conservation buffer. The capital conservation buffer is composed solely
of common equity tier 1 capital.
(2) Definitions. For purposes of this section, the following
definitions apply:
[[Page 50]]
(i) Eligible retained income. The eligible retained income of a
national bank or Federal savings association is the national bank's or
Federal savings association's net income, calculated in accordance with
the instructions to the Call Report, for the four calendar quarters
preceding the current calendar quarter, net of any distributions and
associated tax effects not already reflected in net income.
(ii) Maximum payout ratio. The maximum payout ratio is the
percentage of eligible retained income that a national bank or Federal
savings association can pay out in the form of distributions and
discretionary bonus payments during the current calendar quarter. The
maximum payout ratio is based on the national bank's or Federal savings
association's capital conservation buffer, calculated as of the last day
of the previous calendar quarter, as set forth in Table 1 to Sec. 3.11.
(iii) Maximum payout amount. A national bank's or Federal savings
association's maximum payout amount for the current calendar quarter is
equal to the national bank's or Federal savings association's eligible
retained income, multiplied by the applicable maximum payout ratio, as
set forth in Table 1 to Sec. 3.11.
(iv) Private sector credit exposure. Private sector credit exposure
means an exposure to a company or an individual that is not an exposure
to a sovereign, the Bank for International Settlements, the European
Central Bank, the European Commission, the European Stability Mechanism,
the European Financial Stability Facility, the International Monetary
Fund, a MDB, a PSE, or a GSE.
(3) Calculation of capital conservation buffer. (i) A national
bank's or Federal savings association's capital conservation buffer is
equal to the lowest of the following ratios, calculated as of the last
day of the previous calendar quarter:
(A) The national bank or Federal savings association's common equity
tier 1 capital ratio minus the national bank or Federal savings
association 's minimum common equity tier 1 capital ratio requirement
under Sec. 3.10;
(B) The national bank or Federal savings association's tier 1
capital ratio minus the national bank or Federal savings association's
minimum tier 1 capital ratio requirement under Sec. 3.10; and
(C) The national bank or Federal savings association's total capital
ratio minus the national bank or Federal savings association's minimum
total capital ratio requirement under Sec. 3.10; or
(ii) Notwithstanding paragraphs (a)(3)(i)(A)-(C) of this section, if
the national bank's or Federal savings association's common equity tier
1, tier 1 or total capital ratio is less than or equal to the national
bank's or Federal savings association's minimum common equity tier 1,
tier 1 or total capital ratio requirement under Sec. 3.10,
respectively, the national bank's or Federal savings association's
capital conservation buffer is zero.
(4) Limits on distributions and discretionary bonus payments. (i) A
national bank or Federal savings association shall not make
distributions or discretionary bonus payments or create an obligation to
make such distributions or payments during the current calendar quarter
that, in the aggregate, exceed the maximum payout amount.
(ii) A national bank or Federal savings association with a capital
conservation buffer that is greater than 2.5 percent plus 100 percent of
its applicable countercyclical capital buffer, in accordance with
paragraph (b) of this section, is not subject to a maximum payout amount
under this section.
(iii) Negative eligible retained income. Except as provided in
paragraph (a)(4)(iv) of this section, a national bank or Federal savings
association may not make distributions or discretionary bonus payments
during the current calendar quarter if the national bank's or Federal
savings association's:
(A) Eligible retained income is negative; and
(B) Capital conservation buffer was less than 2.5 percent as of the
end of the previous calendar quarter.
(iv) Prior approval. Notwithstanding the limitations in paragraphs
(a)(4)(i) through (iii) of this section, the OCC may permit a national
bank or Federal savings association to make a distribution or
discretionary bonus payment
[[Page 51]]
upon a request of the national bank or Federal savings association, if
the OCC determines that the distribution or discretionary bonus payment
would not be contrary to the purposes of this section, or to the safety
and soundness of the national bank or Federal savings association. In
making such a determination, the OCC will consider the nature and extent
of the request and the particular circumstances giving rise to the
request.
Table 1 to Sec. 3.11--Calculation of Maximum Payout Amount
------------------------------------------------------------------------
Capital conservation buffer Maximum payout ratio
------------------------------------------------------------------------
Greater than 2.5 percent plus 100 No payout ratio limitation applies.
percent of the national bank's
or Federal savings association's
applicable countercyclical
capital buffer amount.
Less than or equal to 2.5 percent 60 percent.
plus 100 percent of the national
bank's or Federal savings
association's applicable
countercyclical capital buffer
amount, and greater than 1.875
percent plus 75 percent of the
national bank's or Federal
savings association's applicable
countercyclical capital buffer
amount.
Less than or equal to 1.875 40 percent.
percent plus 75 percent of the
national bank's or Federal
savings association's applicable
countercyclical capital buffer
amount, and greater than 1.25
percent plus 50 percent of the
national bank's or Federal
savings association's applicable
countercyclical capital buffer
amount.
Less than or equal to 1.25 20 percent.
percent plus 50 percent of the
national bank's or Federal
savings association's applicable
countercyclical capital buffer
amount, and greater than 0.625
percent plus 25 percent of the
national bank's or Federal
savings association's applicable
countercyclical capital buffer
amount.
Less than or equal to 0.625 0 percent.
percent plus 25 percent of the
national bank's or Federal
savings association's applicable
countercyclical capital buffer
amount.
------------------------------------------------------------------------
(v) Other limitations on distributions. Additional limitations on
distributions may apply to a national bank or Federal savings
association under subparts H and I of this part; 12 CFR 5.46, 12 CFR
part 5, subpart E; 12 CFR part 6.
(b) Countercyclical capital buffer amount--(1) General. An advanced
approaches national bank or Federal savings association, and a Category
III national bank or Federal savings association, must calculate a
countercyclical capital buffer amount in accordance with paragraphs
(b)(1)(i) through (iv) of this section for purposes of determining its
maximum payout ratio under Table 1 to this section.
(i) Extension of capital conservation buffer. The countercyclical
capital buffer amount is an extension of the capital conservation buffer
as described in paragraph (a) of this section.
(ii) Amount. An advanced approaches national bank or Federal savings
association, and a Category III national bank or Federal savings
association, has a countercyclical capital buffer amount determined by
calculating the weighted average of the countercyclical capital buffer
amounts established for the national jurisdictions where the national
bank's or Federal savings association's private sector credit exposures
are located, as specified in paragraphs (b)(2) and (3) of this section.
(iii) Weighting. The weight assigned to a jurisdiction's
countercyclical capital buffer amount is calculated by dividing the
total risk-weighted assets for the national bank's or Federal savings
association's private sector credit exposures located in the
jurisdiction by the total risk-weighted assets for all of the national
bank's or Federal savings association's private sector credit exposures.
The methodology a national bank or Federal savings association uses for
determining risk-weighted assets for purposes of this paragraph (b) must
be the methodology that determines its risk-based capital ratios under
Sec. 3.10. Notwithstanding the previous sentence, the risk-weighted
asset amount for a private sector credit exposure that is a covered
position under subpart F of this part is its specific risk add-on as
determined under Sec. 3.210 multiplied by 12.5.
(iv) Location. (A) Except as provided in paragraphs (b)(1)(iv)(B)
and (b)(1)(iv)(C) of this section, the location of a private sector
credit exposure is the national jurisdiction where the borrower is
located (that is, where it is incorporated, chartered, or similarly
established or, if the borrower is an individual, where the borrower
resides).
[[Page 52]]
(B) If, in accordance with subparts D or E of this part, the
national bank or Federal savings association has assigned to a private
sector credit exposure a risk weight associated with a protection
provider on a guarantee or credit derivative, the location of the
exposure is the national jurisdiction where the protection provider is
located.
(C) The location of a securitization exposure is the location of the
underlying exposures, or, if the underlying exposures are located in
more than one national jurisdiction, the national jurisdiction where the
underlying exposures with the largest aggregate unpaid principal balance
are located. For purposes of this paragraph (b), the location of an
underlying exposure shall be the location of the borrower, determined
consistent with paragraph (b)(1)(iv)(A) of this section.
(2) Countercyclical capital buffer amount for credit exposures in
the United States--(i) Initial countercyclical capital buffer amount
with respect to credit exposures in the United States. The initial
countercyclical capital buffer amount in the United States is zero.
(ii) Adjustment of the countercyclical capital buffer amount. The
OCC will adjust the countercyclical capital buffer amount for credit
exposures in the United States in accordance with applicable law.\10\
---------------------------------------------------------------------------
\10\ The OCC expects that any adjustment will be based on a
determination made jointly by the Board, OCC, and FDIC.
---------------------------------------------------------------------------
(iii) Range of countercyclical capital buffer amount. The OCC will
adjust the countercyclical capital buffer amount for credit exposures in
the United States between zero percent and 2.5 percent of risk-weighted
assets.
(iv) Adjustment determination. The OCC will base its decision to
adjust the countercyclical capital buffer amount under this section on a
range of macroeconomic, financial, and supervisory information
indicating an increase in systemic risk including, but not limited to,
the ratio of credit to gross domestic product, a variety of asset
prices, other factors indicative of relative credit and liquidity
expansion or contraction, funding spreads, credit condition surveys,
indices based on credit default swap spreads, options implied
volatility, and measures of systemic risk.
(v) Effective date of adjusted countercyclical capital buffer
amount--(A) Increase adjustment. A determination by the OCC under
paragraph (b)(2)(ii) of this section to increase the countercyclical
capital buffer amount will be effective 12 months from the date of
announcement, unless the OCC establishes an earlier effective date and
includes a statement articulating the reasons for the earlier effective
date.
(B) Decrease adjustment. A determination by the OCC to decrease the
established countercyclical capital buffer amount under paragraph
(b)(2)(ii) of this section will be effective on the day following
announcement of the final determination or the earliest date permissible
under applicable law or regulation, whichever is later.
(vi) Twelve month sunset. The countercyclical capital buffer amount
will return to zero percent 12 months after the effective date that the
adjusted countercyclical capital buffer amount is announced, unless the
OCC announces a decision to maintain the adjusted countercyclical
capital buffer amount or adjust it again before the expiration of the
12-month period.
(3) Countercyclical capital buffer amount for foreign jurisdictions.
The OCC will adjust the countercyclical capital buffer amount for
private sector credit exposures to reflect decisions made by foreign
jurisdictions consistent with due process requirements described in
paragraph (b)(2) of this section.
[78 FR 62157, 62273, Oct. 11, 2013, as amended at 84 FR 35249, July 22,
2019; 84 FR 59265, Nov. 1, 2019]
Sec. 3.12 Community bank leverage ratio framework.
(a) Community bank leverage ratio framework. (1) Notwithstanding any
other provision in this part, a qualifying community banking
organization that has made an election to use the community bank
leverage ratio framework under paragraph (a)(3) of this section shall be
considered to have met the minimum capital requirements under Sec.
3.10, the capital ratio requirements for the well capitalized capital
[[Page 53]]
category under Sec. 6.4(b)(1) of this chapter, and any other capital or
leverage requirements to which the qualifying community banking
organization is subject, if it has a leverage ratio greater than 9
percent.
(2) For purposes of this section, a qualifying community banking
organization means a national bank or Federal savings association that
is not an advanced approaches national bank or Federal savings
association and that satisfies all of the following criteria:
(i) Has a leverage ratio of greater than 9 percent;
(ii) Has total consolidated assets of less than $10 billion,
calculated in accordance with the reporting instructions to the Call
Report as of the end of the most recent calendar quarter;
(iii) Has off-balance sheet exposures of 25 percent or less of its
total consolidated assets as of the end of the most recent calendar
quarter, calculated as the sum of the notional amounts of the exposures
listed in paragraphs (a)(2)(iii)(A) through (I) of this section, divided
by total consolidated assets, each as of the end of the most recent
calendar quarter:
(A) The unused portion of commitments (except for unconditionally
cancellable commitments);
(B) Self-liquidating, trade-related contingent items that arise from
the movement of goods;
(C) Transaction-related contingent items, including performance
bonds, bid bonds, warranties, and performance standby letters of credit;
(D) Sold credit protection through
(1) Guarantees; and
(2) Credit derivatives;
(E) Credit-enhancing representations and warranties;
(F) Securities lent and borrowed, calculated in accordance with the
reporting instructions to the Call Report;
(G) Financial standby letters of credit;
(H) Forward agreements that are not derivative contracts; and
(I) Off-balance sheet securitization exposures; and
(iv) Has total trading assets plus trading liabilities, calculated
in accordance with the reporting instructions to the Call Report of 5
percent or less of the national bank's or Federal savings association's
total consolidated assets, each as of the end of the most recent
calendar quarter.
(3)(i) A qualifying community banking organization may elect to use
the community bank leverage ratio framework if it makes an opt-in
election under this paragraph (a)(3).
(ii) For purposes of this paragraph (a)(3), a qualifying community
banking organization makes an election to use the community bank
leverage ratio framework by completing the applicable reporting
requirements of its Call Report.
(iii)(A) A qualifying community banking organization that has
elected to use the community bank leverage ratio framework may opt out
of the community bank leverage ratio framework by completing the
applicable risk-based and leverage ratio reporting requirements
necessary to demonstrate compliance with Sec. 3.10(a)(1) in its Call
Report or by otherwise providing this information to the OCC.
(B) A qualifying community banking organization that opts out of the
community bank leverage ratio framework pursuant to paragraph
(a)(3)(iii)(A) of this section must comply with Sec. 3.10(a)(1)
immediately.
(b) Calculation of the leverage ratio. A qualifying community
banking organization's leverage ratio is calculated in accordance with
Sec. 3.10(b)(4), except that a qualifying community banking
organization is not required to:
(1) Make adjustments and deductions from tier 2 capital for purposes
of Sec. 3.22(c); or
(2) Calculate and deduct from tier 1 capital an amount resulting
from insufficient tier 2 capital under Sec. 3.22(f).
(c) Treatment when ceasing to meet the qualifying community banking
organization requirements. (1) Except as provided in paragraphs (c)(5)
and (6) of this section, if a national bank or Federal savings
association ceases to meet the definition of a qualifying community
banking organization, the national bank or Federal savings association
has two reporting periods under its Call Report (grace period) to either
satisfy the requirements to be a qualifying community banking
organization or to comply with Sec. 3.10(a)(1) and report
[[Page 54]]
the required capital measures under Sec. 3.10(a)(1) on its Call Report.
(2) The grace period begins as of the end of the calendar quarter in
which the national bank or Federal savings association ceases to satisfy
the criteria to be a qualifying community banking organization provided
in paragraph (a)(2) of this section. The grace period ends on the last
day of the second consecutive calendar quarter following the beginning
of the grace period.
(3) During the grace period, the national bank or Federal savings
association continues to be treated as a qualifying community banking
organization for the purpose of this part and must continue calculating
and reporting its leverage ratio under this section unless the national
bank or Federal savings association has opted out of using the community
bank leverage ratio framework under paragraph (a)(3) of this section.
(4) During the grace period, the qualifying community banking
organization continues to be considered to have met the minimum capital
requirements under Sec. 3.10(a)(1), the capital ratio requirements for
the well capitalized capital category under Sec. 6.4(b)(1)(i)(A)
through (D) of this chapter, and any other capital or leverage
requirements to which the qualifying community banking organization is
subject, and must continue calculating and reporting its leverage ratio
under this section.
(5) Notwithstanding paragraphs (c)(1) through (4) of this section, a
national bank or Federal savings association that no longer meets the
definition of a qualifying community banking organization as a result of
a merger or acquisition has no grace period and immediately ceases to be
a qualifying community banking organization. Such a national bank or
Federal savings association must comply with the minimum capital
requirements under Sec. 3.10(a)(1) and must report the required capital
measures under Sec. 3.10(a)(1) for the quarter in which it ceases to be
a qualifying community banking organization.
(6) Notwithstanding paragraphs (c)(1) through (4) of this section, a
national bank or Federal savings association that has a leverage ratio
of 8 percent or less does not have a grace period and must comply with
the minimum capital requirements under Sec. 3.10(a)(1) and must report
the required capital measures under Sec. 3.10(a)(1) for the quarter in
which it reports a leverage ratio of 8 percent or less.
[84 FR 61792, Nov. 13, 2019]
Sec. Sec. 3.13-3.19 [Reserved]
Subpart C_Definition of Capital
Source: 78 FR 62157, 62273, Oct. 11, 2013, unless otherwise noted.
Sec. 3.20 Capital components and eligibility criteria for regulatory
capital instruments.
(a) Regulatory capital components. A national bank's or Federal
savings association's regulatory capital components are:
(1) Common equity tier 1 capital;
(2) Additional tier 1 capital; and
(3) Tier 2 capital.
(b) Common equity tier 1 capital. Common equity tier 1 capital is
the sum of the common equity tier 1 capital elements in this paragraph
(b), minus regulatory adjustments and deductions in Sec. 3.22. The
common equity tier 1 capital elements are:
(1) Any common stock instruments (plus any related surplus) issued
by the national bank or Federal savings association, net of treasury
stock, and any capital instruments issued by mutual banking
organizations, that meet all the following criteria:
(i) The instrument is paid-in, issued directly by the national bank
or Federal savings association, and represents the most subordinated
claim in a receivership, insolvency, liquidation, or similar proceeding
of the national bank or Federal savings association;
(ii) The holder of the instrument is entitled to a claim on the
residual assets of the national bank or Federal savings association that
is proportional with the holder's share of the national bank's or
Federal savings association's issued capital after all senior claims
have been satisfied in a receivership, insolvency, liquidation, or
similar proceeding;
[[Page 55]]
(iii) The instrument has no maturity date, can only be redeemed via
discretionary repurchases with the prior approval of the OCC, and does
not contain any term or feature that creates an incentive to redeem;
(iv) The national bank or Federal savings association did not create
at issuance of the instrument through any action or communication an
expectation that it will buy back, cancel, or redeem the instrument, and
the instrument does not include any term or feature that might give rise
to such an expectation;
(v) Any cash dividend payments on the instrument are paid out of the
national bank's or Federal savings association's net income or retained
earnings and are not subject to a limit imposed by the contractual terms
governing the instrument.
(vi) The national bank or Federal savings association has full
discretion at all times to refrain from paying any dividends and making
any other distributions on the instrument without triggering an event of
default, a requirement to make a payment-in-kind, or an imposition of
any other restrictions on the national bank or Federal savings
association;
(vii) Dividend payments and any other distributions on the
instrument may be paid only after all legal and contractual obligations
of the national bank or Federal savings association have been satisfied,
including payments due on more senior claims;
(viii) The holders of the instrument bear losses as they occur
equally, proportionately, and simultaneously with the holders of all
other common stock instruments before any losses are borne by holders of
claims on the national bank or Federal savings association with greater
priority in a receivership, insolvency, liquidation, or similar
proceeding;
(ix) The paid-in amount is classified as equity under GAAP;
(x) The national bank or Federal savings association, or an entity
that the national bank or Federal savings association controls, did not
purchase or directly or indirectly fund the purchase of the instrument;
(xi) The instrument is not secured, not covered by a guarantee of
the national bank or Federal savings association or of an affiliate of
the national bank or Federal savings association, and is not subject to
any other arrangement that legally or economically enhances the
seniority of the instrument;
(xii) The instrument has been issued in accordance with applicable
laws and regulations; and
(xiii) The instrument is reported on the national bank's or Federal
savings association's regulatory financial statements separately from
other capital instruments.
(2) Retained earnings.
(3) Accumulated other comprehensive income (AOCI) as reported under
GAAP.\11\
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\11\ See Sec. 3.22 for specific adjustments related to AOCI.
---------------------------------------------------------------------------
(4) Any common equity tier 1 minority interest, subject to the
limitations in Sec. 3.21.
(5) Notwithstanding the criteria for common stock instruments
referenced above, a national bank's or Federal savings association's
common stock issued and held in trust for the benefit of its employees
as part of an employee stock ownership plan does not violate any of the
criteria in paragraph (b)(1)(iii), paragraph (b)(1)(iv) or paragraph
(b)(1)(xi) of this section, provided that any repurchase of the stock is
required solely by virtue of ERISA for an instrument of a national bank
or Federal savings association that is not publicly-traded. In addition,
an instrument issued by a national bank or Federal savings association
to its employee stock ownership plan does not violate the criterion in
paragraph (b)(1)(x) of this section.
(c) Additional tier 1 capital. Additional tier 1 capital is the sum
of additional tier 1 capital elements and any related surplus, minus the
regulatory adjustments and deductions in Sec. 3.22. Additional tier 1
capital elements are:
(1) Instruments (plus any related surplus) that meet the following
criteria:
(i) The instrument is issued and paid-in;
(ii) The instrument is subordinated to depositors, general
creditors, and
[[Page 56]]
subordinated debt holders of the national bank or Federal savings
association in a receivership, insolvency, liquidation, or similar
proceeding;
(iii) The instrument is not secured, not covered by a guarantee of
the national bank or Federal savings association or of an affiliate of
the national bank or Federal savings association, and not subject to any
other arrangement that legally or economically enhances the seniority of
the instrument;
(iv) The instrument has no maturity date and does not contain a
dividend step-up or any other term or feature that creates an incentive
to redeem; and
(v) If callable by its terms, the instrument may be called by the
national bank or Federal savings association only after a minimum of
five years following issuance, except that the terms of the instrument
may allow it to be called earlier than five years upon the occurrence of
a regulatory event that precludes the instrument from being included in
additional tier 1 capital, a tax event, or if the issuing entity is
required to register as an investment company pursuant to the Investment
Company Act of 1940 (15 U.S.C. 80a-1 et seq.). In addition:
(A) The national bank or Federal savings association must receive
prior approval from the OCC to exercise a call option on the instrument.
(B) The national bank or Federal savings association does not create
at issuance of the instrument, through any action or communication, an
expectation that the call option will be exercised.
(C) Prior to exercising the call option, or immediately thereafter,
the national bank or Federal savings association must either: Replace
the instrument to be called with an equal amount of instruments that
meet the criteria under paragraph (b) of this section or this paragraph
(c); \12\ or demonstrate to the satisfaction of the OCC that following
redemption, the national bank or Federal savings association will
continue to hold capital commensurate with its risk.
---------------------------------------------------------------------------
\12\ Replacement can be concurrent with redemption of existing
additional tier 1 capital instruments.
---------------------------------------------------------------------------
(vi) Redemption or repurchase of the instrument requires prior
approval from the OCC.
(vii) The national bank or Federal savings association has full
discretion at all times to cancel dividends or other distributions on
the instrument without triggering an event of default, a requirement to
make a payment-in-kind, or an imposition of other restrictions on the
national bank or Federal savings association except in relation to any
distributions to holders of common stock or instruments that are pari
passu with the instrument.
(viii) Any cash dividend payments on the instrument are paid out of
the national bank's or Federal savings association's net income or
retained earnings.
(ix) The instrument does not have a credit-sensitive feature, such
as a dividend rate that is reset periodically based in whole or in part
on the national bank's or Federal savings association's credit quality,
but may have a dividend rate that is adjusted periodically independent
of the national bank's or Federal savings association's credit quality,
in relation to general market interest rates or similar adjustments.
(x) The paid-in amount is classified as equity under GAAP.
(xi) The national bank or Federal savings association, or an entity
that the national bank or Federal savings association controls, did not
purchase or directly or indirectly fund the purchase of the instrument.
(xii) The instrument does not have any features that would limit or
discourage additional issuance of capital by the national bank or
Federal savings association, such as provisions that require the
national bank or Federal savings association to compensate holders of
the instrument if a new instrument is issued at a lower price during a
specified time frame.
(xiii) If the instrument is not issued directly by the national bank
or Federal savings association or by a subsidiary of the national bank
or Federal savings association that is an operating entity, the only
asset of the issuing entity is its investment in the capital of the
national bank or Federal savings association, and proceeds must
[[Page 57]]
be immediately available without limitation to the national bank or
Federal savings association or to the national bank's or Federal savings
association's top-tier holding company in a form which meets or exceeds
all of the other criteria for additional tier 1 capital instruments.\13\
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\13\ De minimis assets related to the operation of the issuing
entity can be disregarded for purposes of this criterion.
---------------------------------------------------------------------------
(xiv) For an advanced approaches national bank or Federal savings
association, the governing agreement, offering circular, or prospectus
of an instrument issued after the date upon which the national bank or
Federal savings association becomes subject to this part as set forth in
Sec. 3.1(f) must disclose that the holders of the instrument may be
fully subordinated to interests held by the U.S. government in the event
that the national bank or Federal savings association enters into a
receivership, insolvency, liquidation, or similar proceeding.
(2) Tier 1 minority interest, subject to the limitations in Sec.
3.21, that is not included in the national bank's or Federal savings
association's common equity tier 1 capital.
(3) Any and all instruments that qualified as tier 1 capital under
the OCC's general risk-based capital rules under appendix A to this part
(national banks), 12 CFR part 167 (Federal savings associations) as then
in effect, that were issued under the Small Business Jobs Act of 2010
\14\ or prior to October 4, 2010, under the Emergency Economic
Stabilization Act of 2008.\15\
---------------------------------------------------------------------------
\14\ Public Law 111-240; 124 Stat. 2504 (2010).
\15\ Public Law 110-343, 122 Stat. 3765 (2008).
---------------------------------------------------------------------------
(4) Notwithstanding the criteria for additional tier 1 capital
instruments referenced above:
(i) An instrument issued by a national bank or Federal savings
association and held in trust for the benefit of its employees as part
of an employee stock ownership plan does not violate any of the criteria
in paragraph (c)(1)(iii) of this section, provided that any repurchase
is required solely by virtue of ERISA for an instrument of a national
bank or Federal savings association that is not publicly-traded. In
addition, an instrument issued by a national bank or Federal savings
association to its employee stock ownership plan does not violate the
criteria in paragraph (c)(1)(v) or paragraph (c)(1)(xi) of this section;
and
(ii) An instrument with terms that provide that the instrument may
be called earlier than five years upon the occurrence of a rating agency
event does not violate the criterion in paragraph (c)(1)(v) of this
section provided that the instrument was issued and included in a
national bank's or Federal savings association's tier 1 capital prior to
January 1, 2014, and that such instrument satisfies all other criteria
under this Sec. 3.20(c).
(d) Tier 2 Capital. Tier 2 capital is the sum of tier 2 capital
elements and any related surplus, minus regulatory adjustments and
deductions in Sec. 3.22. Tier 2 capital elements are:
(1) Instruments (plus related surplus) that meet the following
criteria:
(i) The instrument is issued and paid-in;
(ii) The instrument is subordinated to depositors and general
creditors of the national bank or Federal savings association;
(iii) The instrument is not secured, not covered by a guarantee of
the national bank or Federal savings association or of an affiliate of
the national bank or Federal savings association, and not subject to any
other arrangement that legally or economically enhances the seniority of
the instrument in relation to more senior claims;
(iv) The instrument has a minimum original maturity of at least five
years. At the beginning of each of the last five years of the life of
the instrument, the amount that is eligible to be included in tier 2
capital is reduced by 20 percent of the original amount of the
instrument (net of redemptions) and is excluded from regulatory capital
when the remaining maturity is less than one year. In addition, the
instrument must not have any terms or features that require, or create
significant incentives for, the national bank or Federal savings
association to redeem the instrument prior to maturity; \16\ and
---------------------------------------------------------------------------
\16\ An instrument that by its terms automatically converts into a
tier 1 capital instrument prior to five years after issuance complies
with the five-year maturity requirement of this criterion.
---------------------------------------------------------------------------
[[Page 58]]
(v) The instrument, by its terms, may be called by the national bank
or Federal savings association only after a minimum of five years
following issuance, except that the terms of the instrument may allow it
to be called sooner upon the occurrence of an event that would preclude
the instrument from being included in tier 2 capital, a tax event, or if
the issuing entity is required to register as an investment company
pursuant to the Investment Company Act of 1940 (15 U.S.C. 80a-1 et
seq.). In addition:
(A) The national bank or Federal savings association must receive
the prior approval of the OCC to exercise a call option on the
instrument.
(B) The national bank or Federal savings association does not create
at issuance, through action or communication, an expectation the call
option will be exercised.
(C) Prior to exercising the call option, or immediately thereafter,
the national bank or Federal savings association must either: Replace
any amount called with an equivalent amount of an instrument that meets
the criteria for regulatory capital under this section; \17\ or
demonstrate to the satisfaction of the OCC that following redemption,
the national bank or Federal savings association would continue to hold
an amount of capital that is commensurate with its risk.
---------------------------------------------------------------------------
\17\ A national bank or Federal savings association may replace tier
2 capital instruments concurrent with the redemption of existing tier 2
capital instruments.
---------------------------------------------------------------------------
(vi) The holder of the instrument must have no contractual right to
accelerate payment of principal or interest on the instrument, except in
the event of a receivership, insolvency, liquidation, or similar
proceeding of the national bank or Federal savings association.
(vii) The instrument has no credit-sensitive feature, such as a
dividend or interest rate that is reset periodically based in whole or
in part on the national bank's or Federal savings association's credit
standing, but may have a dividend rate that is adjusted periodically
independent of the national bank's or Federal savings association's
credit standing, in relation to general market interest rates or similar
adjustments.
(viii) The national bank or Federal savings association, or an
entity that the national bank or Federal savings association controls,
has not purchased and has not directly or indirectly funded the purchase
of the instrument.
(ix) If the instrument is not issued directly by the national bank
or Federal savings association or by a subsidiary of the national bank
or Federal savings association that is an operating entity, the only
asset of the issuing entity is its investment in the capital of the
national bank or Federal savings association, and proceeds must be
immediately available without limitation to the national bank or Federal
savings association or the national bank's or Federal savings
association's top-tier holding company in a form that meets or exceeds
all the other criteria for tier 2 capital instruments under this
section.\18\
---------------------------------------------------------------------------
\18\ A national bank or Federal savings association may disregard de
minimis assets related to the operation of the issuing entity for
purposes of this criterion.
---------------------------------------------------------------------------
(x) Redemption of the instrument prior to maturity or repurchase
requires the prior approval of the OCC.
(xi) For an advanced approaches national bank or Federal savings
association, the governing agreement, offering circular, or prospectus
of an instrument issued after the date on which the advanced approaches
national bank or Federal savings association becomes subject to this
part under Sec. 3.1(f) must disclose that the holders of the instrument
may be fully subordinated to interests held by the U.S. government in
the event that the national bank or Federal savings association enters
into a receivership, insolvency, liquidation, or similar proceeding.
(2) Total capital minority interest, subject to the limitations set
forth in Sec. 3.21, that is not included in the national bank's or
Federal savings association's tier 1 capital.
(3) ALLL or AACL, as applicable, up to 1.25 percent of the national
bank's or Federal savings association's standardized total risk-weighted
assets not including any amount of the ALLL or
[[Page 59]]
AACL, as applicable (and excluding in the case of a market risk national
bank or Federal savings association, its standardized market risk-
weighted assets).
(4) Any instrument that qualified as tier 2 capital under the OCC's
general risk-based capital rules under appendix A to this part, 12 CFR
part 167 as then in effect, that were issued under the Small Business
Jobs Act of 2010,\19\ or prior to October 4, 2010, under the Emergency
Economic Stabilization Act of 2008.\20\
---------------------------------------------------------------------------
\19\ Public Law 111-240; 124 Stat. 2504 (2010).
\20\ Public Law 110-343, 122 Stat. 3765 (2008).
---------------------------------------------------------------------------
(5) For a national bank or Federal savings association that makes an
AOCI opt-out election (as defined in paragraph (b)(2) of Sec. 3.22), 45
percent of pretax net unrealized gains on available-for-sale preferred
stock classified as an equity security under GAAP and available-for-sale
equity exposures.
(6) Notwithstanding the criteria for tier 2 capital instruments
referenced above, an instrument with terms that provide that the
instrument may be called earlier than five years upon the occurrence of
a rating agency event does not violate the criterion in paragraph
(d)(1)(v) of this section provided that the instrument was issued and
included in a national bank's or Federal savings association's tier 1 or
tier 2 capital prior to January 1, 2014, and that such instrument
satisfies all other criteria under this paragraph (d).
(e) OCC approval of a capital element. (1) A national bank or
Federal savings association must receive OCC prior approval to include a
capital element (as listed in this section) in its common equity tier 1
capital, additional tier 1 capital, or tier 2 capital unless the
element:
(i) Was included in a national bank's or Federal savings
association's tier 1 capital or tier 2 capital prior to May 19, 2010 in
accordance with the OCC's risk-based capital rules that were effective
as of that date and the underlying instrument may continue to be
included under the criteria set forth in this section; or
(ii) Is equivalent, in terms of capital quality and ability to
absorb losses with respect to all material terms, to a regulatory
capital element the OCC determined may be included in regulatory capital
pursuant to paragraph (e)(3) of this section.
(2) When considering whether a national bank or Federal savings
association may include a regulatory capital element in its common
equity tier 1 capital, additional tier 1 capital, or tier 2 capital, the
OCC will consult with the Federal Deposit Insurance Corporation and
Federal Reserve Board.
(3) After determining that a regulatory capital element may be
included in a national bank's or Federal savings association's common
equity tier 1 capital, additional tier 1 capital, or tier 2 capital, the
OCC will make its decision publicly available, including a brief
description of the material terms of the regulatory capital element and
the rationale for the determination.
[78 FR 62157, 62273, Oct. 11, 2013, as amended at 84 FR 4238, Feb. 14,
2019; 84 FR 35249, July 22, 2019]
Sec. 3.21 Minority interest.
(a)(1) Applicability. For purposes of Sec. 3.20, a national bank or
Federal savings association that is not an advanced approaches national
bank or Federal savings association is subject to the minority interest
limitations in this paragraph (a) if a consolidated subsidiary of the
national bank or Federal savings association has issued regulatory
capital that is not owned by the national bank or Federal savings
association.
(2) Common equity tier 1 minority interest includable in the common
equity tier 1 capital of the national bank or Federal savings
association. The amount of common equity tier 1 minority interest that a
national bank or Federal savings association may include in common
equity tier 1 capital must be no greater than 10 percent of the sum of
all common equity tier 1 capital elements of the national bank or
Federal savings association (not including the common equity tier 1
minority interest itself), less any common equity tier 1 capital
regulatory adjustments and deductions in accordance with Sec. 3.22(a)
and (b).
(3) Tier 1 minority interest includable in the tier 1 capital of the
national bank or
[[Page 60]]
Federal savings association. The amount of tier 1 minority interest that
a national bank or Federal savings association may include in tier 1
capital must be no greater than 10 percent of the sum of all tier 1
capital elements of the national bank or Federal savings association
(not including the tier 1 minority interest itself), less any tier 1
capital regulatory adjustments and deductions in accordance with Sec.
3.22(a) and (b).
(4) Total capital minority interest includable in the total capital
of the national bank or Federal savings association. The amount of total
capital minority interest that a national bank or Federal savings
association may include in total capital must be no greater than 10
percent of the sum of all total capital elements of the national bank or
Federal savings association (not including the total capital minority
interest itself), less any total capital regulatory adjustments and
deductions in accordance with Sec. 3.22(a) and (b).
(b)(1) Applicability. For purposes of Sec. 3.20, an advanced
approaches national bank or Federal savings association is subject to
the minority interest limitations in this paragraph (b) if:
(i) A consolidated subsidiary of the advanced approaches national
bank or Federal savings association has issued regulatory capital that
is not owned by the national bank or Federal savings association; and
(ii) For each relevant regulatory capital ratio of the consolidated
subsidiary, the ratio exceeds the sum of the subsidiary's minimum
regulatory capital requirements plus its capital conservation buffer.
(2) Difference in capital adequacy standards at the subsidiary
level. For purposes of the minority interest calculations in this
section, if the consolidated subsidiary issuing the capital is not
subject to capital adequacy standards similar to those of the advanced
approaches national bank or Federal savings association, the advanced
approaches national bank or Federal savings association must assume that
the capital adequacy standards of the advanced approaches national bank
or Federal savings association apply to the subsidiary.
(3) Common equity tier 1 minority interest includable in the common
equity tier 1 capital of the national bank or Federal savings
association. For each consolidated subsidiary of an advanced approaches
national bank or Federal savings association, the amount of common
equity tier 1 minority interest the advanced approaches national bank or
Federal savings association may include in common equity tier 1 capital
is equal to:
(i) The common equity tier 1 minority interest of the subsidiary;
minus
(ii) The percentage of the subsidiary's common equity tier 1 capital
that is not owned by the advanced approaches national bank or Federal
savings association, multiplied by the difference between the common
equity tier 1 capital of the subsidiary and the lower of:
(A) The amount of common equity tier 1 capital the subsidiary must
hold, or would be required to hold pursuant to this paragraph (b), to
avoid restrictions on distributions and discretionary bonus payments
under Sec. 3.11 or equivalent standards established by the subsidiary's
home country supervisor; or
(B)(1) The standardized total risk-weighted assets of the advanced
approaches national bank or Federal savings association that relate to
the subsidiary multiplied by
(2) The common equity tier 1 capital ratio the subsidiary must
maintain to avoid restrictions on distributions and discretionary bonus
payments under Sec. 3.11 or equivalent standards established by the
subsidiary's home country supervisor.
(4) Tier 1 minority interest includable in the tier 1 capital of the
advanced approaches national bank or Federal savings association. For
each consolidated subsidiary of the advanced approaches national bank or
Federal savings association, the amount of tier 1 minority interest the
advanced approaches national bank or Federal savings association may
include in tier 1 capital is equal to:
(i) The tier 1 minority interest of the subsidiary; minus
(ii) The percentage of the subsidiary's tier 1 capital that is not
owned by the advanced approaches national bank
[[Page 61]]
or Federal savings association multiplied by the difference between the
tier 1 capital of the subsidiary and the lower of:
(A) The amount of tier 1 capital the subsidiary must hold, or would
be required to hold pursuant to this paragraph (b), to avoid
restrictions on distributions and discretionary bonus payments under
Sec. 3.11 or equivalent standards established by the subsidiary's home
country supervisor, or
(B)(1) The standardized total risk-weighted assets of the advanced
approaches national bank or Federal savings association that relate to
the subsidiary multiplied by
(2) The tier 1 capital ratio the subsidiary must maintain to avoid
restrictions on distributions and discretionary bonus payments under
Sec. 3.11 or equivalent standards established by the subsidiary's home
country supervisor.
(5) Total capital minority interest includable in the total capital
of the national bank or Federal savings association. For each
consolidated subsidiary of the advanced approaches national bank or
Federal savings association, the amount of total capital minority
interest the advanced approaches national bank or Federal savings
association may include in total capital is equal to:
(i) The total capital minority interest of the subsidiary; minus
(ii) The percentage of the subsidiary's total capital that is not
owned by the advanced approaches national bank or Federal savings
association multiplied by the difference between the total capital of
the subsidiary and the lower of:
(A) The amount of total capital the subsidiary must hold, or would
be required to hold pursuant to this paragraph (b), to avoid
restrictions on distributions and discretionary bonus payments under
Sec. 3.11 or equivalent standards established by the subsidiary's home
country supervisor, or
(B)(1) The standardized total risk-weighted assets of the advanced
approaches national bank or Federal savings association that relate to
the subsidiary multiplied by
(2) The total capital ratio the subsidiary must maintain to avoid
restrictions on distributions and discretionary bonus payments under
Sec. 3.11 or equivalent standards established by the subsidiary's home
country supervisor.
[84 FR 35249, July 22, 2019]
Sec. 3.22 Regulatory capital adjustments and deductions.
(a) Regulatory capital deductions from common equity tier 1 capital.
A national bank or Federal savings association must deduct from the sum
of its common equity tier 1 capital elements the items set forth in this
paragraph (a):
(1)(i) Goodwill, net of associated deferred tax liabilities (DTLs)
in accordance with paragraph (e) of this section; and
(ii) For an advanced approaches national bank or Federal savings
association, goodwill that is embedded in the valuation of a significant
investment in the capital of an unconsolidated financial institution in
the form of common stock (and that is reflected in the consolidated
financial statements of the advanced approaches national bank or Federal
savings association), in accordance with paragraph (d) of this section;
(2) Intangible assets, other than MSAs, net of associated DTLs in
accordance with paragraph (e) of this section;
(3) Deferred tax assets (DTAs) that arise from net operating loss
and tax credit carryforwards net of any related valuation allowances and
net of DTLs in accordance with paragraph (e) of this section;
(4) Any gain-on-sale in connection with a securitization exposure;
(5)(i) Any defined benefit pension fund net asset, net of any
associated DTL in accordance with paragraph (e) of this section, held by
a depository institution holding company. With the prior approval of the
OCC, this deduction is not required for any defined benefit pension fund
net asset to the extent the depository institution holding company has
unrestricted and unfettered access to the assets in that fund.
(ii) For an insured depository institution, no deduction is
required.
(iii) A national bank or Federal savings association must risk
weight any portion of the defined benefit pension fund asset that is not
deducted under
[[Page 62]]
paragraphs (a)(5)(i) or (a)(5)(ii) of this section as if the national
bank or Federal savings association directly holds a proportional
ownership share of each exposure in the defined benefit pension fund.
(6) For an advanced approaches national bank or Federal savings
association that has completed the parallel run process and that has
received notification from the OCC pursuant to Sec. 3.121(d), the
amount of expected credit loss that exceeds its eligible credit
reserves; and
(7) With respect to a financial subsidiary, the aggregate amount of
the national bank's or Federal savings association's outstanding equity
investment, including retained earnings, in its financial subsidiaries
(as defined in [12 CFR 5.39 (OCC); 12 CFR 208.77 (Board))]. A national
bank or Federal savings association must not consolidate the assets and
liabilities of a financial subsidiary with those of the parent bank, and
no other deduction is required under paragraph (c) of this section for
investments in the capital instruments of financial subsidiaries.
(8)(i) A Federal savings association must deduct the aggregate
amount of its outstanding investments (both equity and debt) in, and
extensions of credit to, subsidiaries that are not includable
subsidiaries as defined in paragraph (a)(8)(iv) of this section and may
not consolidate the assets and liabilities of the subsidiary with those
of the Federal savings association. Any such deductions shall be
deducted from assets and common equity tier 1 except as provided in
paragraphs (a)(8)(ii) and (iii) of this section.
(ii) If a Federal savings association has any investments (both debt
and equity) in, or extensions or credit to, one or more subsidiaries
engaged in any activity that would not fall within the scope of
activities in which includable subsidiaries as defined in paragraph
(a)(8)(iv) of this section may engage, it must deduct such investments
and extensions of credit from assets and, thus, common equity tier 1 in
accordance with paragraph (a)(8)(i) of this section.
(iii) 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 common equity tier 1 that would be required would be
higher if the assets and liabilities of such subsidiary were
consolidated with those of the parent Federal savings association than
the amount that would be required if the parent Federal savings
association's investment were deducted pursuant to paragraphs (a)(8)(i)
and (ii) of this section, consolidate the assets and liabilities of that
subsidiary with those of the parent Federal savings association in
calculating the capital adequacy of the parent Federal savings
association, regardless of whether the subsidiary would otherwise be an
includable subsidiary as defined in paragraph (a)(8)(iv) of this
section.
(iv) For purposes of this section, the term includable subsidiary
means a subsidiary of a Federal savings association that:
(A) Is engaged solely in activities not impermissible for a national
bank;
(B) Is 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 Federal savings association's
files;
(C) Is engaged solely in mortgage-banking activities;
(D)(1) Is itself an insured depository institution or a company the
sole investment of which is an insured depository institution; and
(2) Was acquired by the parent Federal savings association prior to
May 1, 1989; or
(E) Was a subsidiary of any Federal savings association existing as
a Federal savings association on August 9, 1989:
(1) That was chartered prior to October 15, 1982, as a savings bank
or a cooperative bank under state law; or
(2) That 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.
(b) Regulatory adjustments to common equity tier 1 capital. (1) A
national bank or Federal savings association must adjust the sum of
common equity tier 1
[[Page 63]]
capital elements pursuant to the requirements set forth in this
paragraph (b). Such adjustments to common equity tier 1 capital must be
made net of the associated deferred tax effects.
(i) A national bank or Federal savings association that makes an
AOCI opt-out election (as defined in paragraph (b)(2) of this section),
must make the adjustments required under Sec. 3.22(b)(2)(i).
(ii) A national bank or Federal savings association that is an
advanced approaches national bank or Federal savings association, and a
national bank or Federal savings association that has not made an AOCI
opt-out election (as defined in paragraph (b)(2) of this section), must
deduct any accumulated net gains and add any accumulated net losses on
cash flow hedges included in AOCI that relate to the hedging of items
that are not recognized at fair value on the balance sheet.
(iii) A national bank or Federal savings association must deduct any
net gain and add any net loss related to changes in the fair value of
liabilities that are due to changes in the national bank's or Federal
savings association's own credit risk. An advanced approaches national
bank or Federal savings association must deduct the difference between
its credit spread premium and the risk-free rate for derivatives that
are liabilities as part of this adjustment.
(2) AOCI opt-out election. (i) A national bank or Federal savings
association that is not an advanced approaches national bank or Federal
savings association may make a one-time election to opt out of the
requirement to include all components of AOCI (with the exception of
accumulated net gains and losses on cash flow hedges related to items
that are not fair-valued on the balance sheet) in common equity tier 1
capital (AOCI opt-out election). A national bank or Federal savings
association that makes an AOCI opt-out election in accordance with this
paragraph (b)(2) must adjust common equity tier 1 capital as follows:
(A) Subtract any net unrealized gains and add any net unrealized
losses on available-for-sale securities;
(B) Subtract any net unrealized losses on available-for-sale
preferred stock classified as an equity security under GAAP and
available-for-sale equity exposures;
(C) Subtract any accumulated net gains and add any accumulated net
losses on cash flow hedges;
(D) Subtract any amounts recorded in AOCI attributed to defined
benefit postretirement plans resulting from the initial and subsequent
application of the relevant GAAP standards that pertain to such plans
(excluding, at the national bank's or Federal savings association's
option, the portion relating to pension assets deducted under paragraph
(a)(5) of this section); and
(E) Subtract any net unrealized gains and add any net unrealized
losses on held-to-maturity securities that are included in AOCI.
(ii) A national bank or Federal savings association that is not an
advanced approaches national bank or Federal savings association must
make its AOCI opt-out election in the Call Report:
(A) If the national bank or Federal savings association is a
Category III national bank or Federal savings association, during the
first reporting period after the national bank or Federal savings
association meets the definition of a Category III national bank or
Federal savings association in Sec. 3.2; or
(B) If the national bank or Federal savings association is not a
Category III national bank or Federal savings association, during the
first reporting period after the national bank or Federal savings
association is required to comply with subpart A of this part as set
forth in Sec. 3.1(f).
(iii) With respect to a national bank or Federal savings association
that is not an advanced approaches national bank or Federal savings
association, each of its subsidiary banking organizations that is
subject to regulatory capital requirements issued by the Board of
Governors of the Federal Reserve, the Federal Deposit Insurance
Corporation, or the Office of the Comptroller of the Currency \21\ must
elect the
[[Page 64]]
same option as the national bank or Federal savings association pursuant
to this paragraph (b)(2).
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\21\ These rules include the regulatory capital requirements set
forth at 12 CFR part 3 (OCC); 12 CFR part 225 (Board); 12 CFR part 325,
and 12 CFR part 390 (FDIC).
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(iv) With prior notice to the OCC, a national bank or Federal
savings association resulting from a merger, acquisition, or purchase
transaction and that is not an advanced approaches national bank or
Federal savings association may change its AOCI opt-out election in its
Call Report filed for the first reporting period after the date required
for such national bank or Federal savings association to comply with
subpart A of this part as set forth in Sec. 3.1(f) if:
(A) Other than as set forth in paragraph (b)(2)(iv)(C) of this
section, the merger, acquisition, or purchase transaction involved the
acquisition or purchase of all or substantially all of either the assets
or voting stock of another banking organization that is subject to
regulatory capital requirements issued by the Board of Governors of the
Federal Reserve, the Federal Deposit Insurance Corporation, or the
Office of the Comptroller of the Currency; \22\
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\22\ These rules include the regulatory capital requirements set
forth at 12 CFR part 3 (OCC); 12 CFR part 225 (Board); 12 CFR part 325,
and 12 CFR part 390 (FDIC).
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(B) Prior to the merger, acquisition, or purchase transaction, only
one of the banking organizations involved in the transaction made an
AOCI opt-out election under this section; and
(C) A national bank or Federal savings association may, with the
prior approval of the OCC, change its AOCI opt-out election under this
paragraph (b) in the case of a merger, acquisition, or purchase
transaction that meets the requirements set forth at paragraph
(b)(2)(iv)(B) of this section, but does not meet the requirements of
paragraph (b)(2)(iv)(A). In making such a determination, the OCC may
consider the terms of the merger, acquisition, or purchase transaction,
as well as the extent of any changes to the risk profile, complexity,
and scope of operations of the national bank or Federal savings
association resulting from the merger, acquisition, or purchase
transaction.
(c) Deductions from regulatory capital related to investments in
capital instruments \23\--(1) Investment in the national bank's or
Federal savings association's own capital instruments. A national bank
or Federal savings association must deduct an investment in the national
bank's or Federal savings association's own capital instruments as
follows:
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\23\ The national bank or Federal savings association must calculate
amounts deducted under paragraphs (c) through (f) of this section after
it calculates the amount of ALLL or AACL, as applicable, includable in
tier 2 capital under Sec. 3.20(d)(3).
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(i) A national bank or Federal savings association must deduct an
investment in the national bank's or Federal savings association's own
common stock instruments from its common equity tier 1 capital elements
to the extent such instruments are not excluded from regulatory capital
under Sec. 3.20(b)(1);
(ii) A national bank or Federal savings association must deduct an
investment in the national bank's or Federal savings association's own
additional tier 1 capital instruments from its additional tier 1 capital
elements; and
(iii) A national bank or Federal savings association must deduct an
investment in the national bank's or Federal savings association's own
tier 2 capital instruments from its tier 2 capital elements.
(2) Corresponding deduction approach. For purposes of subpart C of
this part, the corresponding deduction approach is the methodology used
for the deductions from regulatory capital related to reciprocal cross
holdings (as described in paragraph (c)(3) of this section), investments
in the capital of unconsolidated financial institutions for a national
bank or Federal savings association that is not an advanced approaches
national bank or Federal savings association (as described in paragraph
(c)(4) of this section), non-significant investments in the capital of
unconsolidated financial institutions for an advanced approaches
national bank or Federal savings association (as described in paragraph
(c)(5) of this section), and non-common stock significant investments in
the capital of unconsolidated financial institutions for an advanced
approaches national bank or Federal savings association (as
[[Page 65]]
described in paragraph (c)(6) of this section). Under the corresponding
deduction approach, a national bank or Federal savings association must
make deductions from the component of capital for which the underlying
instrument would qualify if it were issued by the national bank or
Federal savings association itself, as described in paragraphs (c)(2)(i)
through (iii) of this section. If the national bank or Federal savings
association does not have a sufficient amount of a specific component of
capital to effect the required deduction, the shortfall must be deducted
according to paragraph (f) of this section.
(i) If an investment is in the form of an instrument issued by a
financial institution that is not a regulated financial institution, the
national bank or Federal savings association must treat the instrument
as:
(A) A common equity tier 1 capital instrument if it is common stock
or represents the most subordinated claim in liquidation of the
financial institution; and
(B) An additional tier 1 capital instrument if it is subordinated to
all creditors of the financial institution and is senior in liquidation
only to common shareholders.
(ii) If an investment is in the form of an instrument issued by a
regulated financial institution and the instrument does not meet the
criteria for common equity tier 1, additional tier 1 or tier 2 capital
instruments under Sec. 3.20, the national bank or Federal savings
association must treat the instrument as:
(A) A common equity tier 1 capital instrument if it is common stock
included in GAAP equity or represents the most subordinated claim in
liquidation of the financial institution;
(B) An additional tier 1 capital instrument if it is included in
GAAP equity, subordinated to all creditors of the financial institution,
and senior in a receivership, insolvency, liquidation, or similar
proceeding only to common shareholders; and
(C) A tier 2 capital instrument if it is not included in GAAP equity
but considered regulatory capital by the primary supervisor of the
financial institution.
(iii) If an investment is in the form of a non-qualifying capital
instrument (as defined in Sec. 3.300(c)), the national bank or Federal
savings association must treat the instrument as:
(A) An additional tier 1 capital instrument if such instrument was
included in the issuer's tier 1 capital prior to May 19, 2010; or
(B) A tier 2 capital instrument if such instrument was included in
the issuer's tier 2 capital (but not includable in tier 1 capital) prior
to May 19, 2010.
(3) Reciprocal cross holdings in the capital of financial
institutions. A national bank or Federal savings association must deduct
investments in the capital of other financial institutions it holds
reciprocally, where such reciprocal cross holdings result from a formal
or informal arrangement to swap, exchange, or otherwise intend to hold
each other's capital instruments, by applying the corresponding
deduction approach.
(4) Investments in the capital of unconsolidated financial
institutions. A national bank or Federal savings association that is not
an advanced approaches national bank or Federal savings association must
deduct its investments in the capital of unconsolidated financial
institutions (as defined in Sec. 3.2) that exceed 25 percent of the sum
of the national bank's or Federal savings association's common equity
tier 1 capital elements minus all deductions from and adjustments to
common equity tier 1 capital elements required under paragraphs (a)
through (c)(3) of this section by applying the corresponding deduction
approach.\24\ The deductions described in this section are net of
associated DTLs in accordance with paragraph (e) of this section. In
addition, a national bank or Federal savings association that
underwrites a failed underwriting, with the prior
[[Page 66]]
written approval of the OCC, for the period of time stipulated by the
OCC, is not required to deduct an investment in the capital of an
unconsolidated financial institution pursuant to this paragraph (c) to
the extent the investment is related to the failed underwriting.\25\
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\24\ With the prior written approval of the OCC, for the period of
time stipulated by the OCC, a national bank or Federal savings
association that is not an advanced approaches national bank or Federal
savings association is not required to deduct an investment in the
capital of an unconsolidated financial institution pursuant to this
paragraph if the financial institution is in distress and if such
investment is made for the purpose of providing financial support to the
financial institution, as determined by the OCC.
\25\ Any investments in the capital of unconsolidated financial
institutions that do not exceed the 25 percent threshold for investments
in the capital of unconsolidated financial institutions under this
section must be assigned the appropriate risk weight under subparts D or
F of this part, as applicable.
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(5) Non-significant investments in the capital of unconsolidated
financial institutions. (i) An advanced approaches national bank or
Federal savings association must deduct its non-significant investments
in the capital of unconsolidated financial institutions (as defined in
Sec. 3.2) that, in the aggregate, exceed 10 percent of the sum of the
advanced approaches national bank's or Federal savings association's
common equity tier 1 capital elements minus all deductions from and
adjustments to common equity tier 1 capital elements required under
paragraphs (a) through (c)(3) of this section (the 10 percent threshold
for non-significant investments) by applying the corresponding deduction
approach.\26\ The deductions described in this section are net of
associated DTLs in accordance with paragraph (e) of this section. In
addition, an advanced approaches national bank or Federal savings
association that underwrites a failed underwriting, with the prior
written approval of the OCC, for the period of time stipulated by the
OCC, is not required to deduct a non-significant investment in the
capital of an unconsolidated financial institution pursuant to this
paragraph (c) to the extent the investment is related to the failed
underwriting.\27\
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\26\ With the prior written approval of the OCC, for the period of
time stipulated by the OCC, an advanced approaches national bank or
Federal savings association is not required to deduct a non-significant
investment in the capital of an unconsolidated financial institution
pursuant to this paragraph if the financial institution is in distress
and if such investment is made for the purpose of providing financial
support to the financial institution, as determined by the OCC.
\27\ Any non-significant investments in the capital of
unconsolidated financial institutions that do not exceed the 10 percent
threshold for non-significant investments under this section must be
assigned the appropriate risk weight under subparts D, E, or F of this
part, as applicable.
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(ii) The amount to be deducted under this section from a specific
capital component is equal to:
(A) The advanced approaches national bank's or Federal savings
association's non-significant investments in the capital of
unconsolidated financial institutions exceeding the 10 percent threshold
for non-significant investments, multiplied by
(B) The ratio of the advanced approaches national bank's or Federal
savings association's non-significant investments in the capital of
unconsolidated financial institutions in the form of such capital
component to the advanced approaches national bank's or Federal savings
association's total non-significant investments in unconsolidated
financial institutions.
(6) Significant investments in the capital of unconsolidated
financial institutions that are not in the form of common stock. An
advanced approaches national bank or Federal savings association must
deduct its significant investments in the capital of unconsolidated
financial institutions that are not in the form of common stock by
applying the corresponding deduction approach.\28\ The deductions
described in this section are net of associated DTLs in accordance with
paragraph (e) of this section. In addition, with the prior written
approval of the OCC, for the period of time stipulated by the OCC, an
advanced approaches national bank or
[[Page 67]]
Federal savings association that underwrites a failed underwriting is
not required to deduct a significant investment in the capital of an
unconsolidated financial institution pursuant to this paragraph (c) if
such investment is related to such failed underwriting.
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\28\ With prior written approval of the OCC, for the period of time
stipulated by the OCC, an advanced approaches national bank or Federal
savings association is not required to deduct a significant investment
in the capital instrument of an unconsolidated financial institution in
distress which is not in the form of common stock pursuant to this
section if such investment is made for the purpose of providing
financial support to the financial institution as determined by the OCC.
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(d) MSAs and certain DTAs subject to common equity tier 1 capital
deduction thresholds. (1) A national bank or Federal savings association
that is not an advanced approaches national bank or Federal savings
association must make deductions from regulatory capital as described in
this paragraph (d)(1).
(i) The national bank or Federal savings association must deduct
from common equity tier 1 capital elements the amount of each of the
items set forth in this paragraph (d)(1) that, individually, exceeds 25
percent of the sum of the national bank's or Federal savings
association's common equity tier 1 capital elements, less adjustments to
and deductions from common equity tier 1 capital required under
paragraphs (a) through (c)(3) of this section (the 25 percent common
equity tier 1 capital deduction threshold).\29\
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\29\ The amount of the items in paragraph (d)(1) of this section
that is not deducted from common equity tier 1 capital must be included
in the risk-weighted assets of the national bank or Federal savings
association and assigned a 250 percent risk weight.
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(ii) The national bank or Federal savings association must deduct
from common equity tier 1 capital elements the amount of DTAs arising
from temporary differences that the national bank or Federal savings
association could not realize through net operating loss carrybacks, net
of any related valuation allowances and net of DTLs, in accordance with
paragraph (e) of this section. A national bank or Federal savings
association is not required to deduct from the sum of its common equity
tier 1 capital elements DTAs (net of any related valuation allowances
and net of DTLs, in accordance with Sec. 3.22(e)) arising from timing
differences that the national bank or Federal savings association could
realize through net operating loss carrybacks. The national bank or
Federal savings association must risk weight these assets at 100
percent. For a national bank or Federal savings association that is a
member of a consolidated group for tax purposes, the amount of DTAs that
could be realized through net operating loss carrybacks may not exceed
the amount that the national bank or Federal savings association could
reasonably expect to have refunded by its parent holding company.
(iii) The national bank or Federal savings association must deduct
from common equity tier 1 capital elements the amount of MSAs net of
associated DTLs, in accordance with paragraph (e) of this section.
(iv) For purposes of calculating the amount of DTAs subject to
deduction pursuant to paragraph (d)(1) of this section, a national bank
or Federal savings association may exclude DTAs and DTLs relating to
adjustments made to common equity tier 1 capital under paragraph (b) of
this section. A national bank or Federal savings association that elects
to exclude DTAs relating to adjustments under paragraph (b) of this
section also must exclude DTLs and must do so consistently in all future
calculations. A national bank or Federal savings association may change
its exclusion preference only after obtaining the prior approval of the
OCC.
(2) An advanced approaches national bank or Federal savings
association must make deductions from regulatory capital as described in
this paragraph (d)(2).
(i) An advanced approaches national bank or Federal savings
association must deduct from common equity tier 1 capital elements the
amount of each of the items set forth in this paragraph (d)(2) that,
individually, exceeds 10 percent of the sum of the advanced approaches
national bank's or Federal savings association's common equity tier 1
capital elements, less adjustments to and deductions from common equity
tier 1 capital required under paragraphs (a) through (c) of this section
(the 10 percent common equity tier 1 capital deduction threshold).
(A) DTAs arising from temporary differences that the advanced
approaches national bank or Federal savings association could not
realize through net operating loss carrybacks, net of any related
valuation allowances and net of DTLs, in accordance with paragraph (e)
[[Page 68]]
of this section. An advanced approaches national bank or Federal savings
association is not required to deduct from the sum of its common equity
tier 1 capital elements DTAs (net of any related valuation allowances
and net of DTLs, in accordance with Sec. 3.22(e)) arising from timing
differences that the advanced approaches national bank or Federal
savings association could realize through net operating loss carrybacks.
The advanced approaches national bank or Federal savings association
must risk weight these assets at 100 percent. For a national bank or
Federal savings association that is a member of a consolidated group for
tax purposes, the amount of DTAs that could be realized through net
operating loss carrybacks may not exceed the amount that the national
bank or Federal savings association could reasonably expect to have
refunded by its parent holding company.
(B) MSAs net of associated DTLs, in accordance with paragraph (e) of
this section.
(C) Significant investments in the capital of unconsolidated
financial institutions in the form of common stock, net of associated
DTLs in accordance with paragraph (e) of this section.\30\ Significant
investments in the capital of unconsolidated financial institutions in
the form of common stock subject to the 10 percent common equity tier 1
capital deduction threshold may be reduced by any goodwill embedded in
the valuation of such investments deducted by the advanced approaches
national bank or Federal savings association pursuant to paragraph
(a)(1) of this section. In addition, with the prior written approval of
the OCC, for the period of time stipulated by the OCC, an advanced
approaches national bank or Federal savings association that underwrites
a failed underwriting is not required to deduct a significant investment
in the capital of an unconsolidated financial institution in the form of
common stock pursuant to this paragraph (d)(2) if such investment is
related to such failed underwriting.
---------------------------------------------------------------------------
\30\ With the prior written approval of the OCC, for the period of
time stipulated by the OCC, an advanced approaches national bank or
Federal savings association is not required to deduct a significant
investment in the capital instrument of an unconsolidated financial
institution in distress in the form of common stock pursuant to this
section if such investment is made for the purpose of providing
financial support to the financial institution as determined by the OCC.
---------------------------------------------------------------------------
(ii) An advanced approaches national bank or Federal savings
association must deduct from common equity tier 1 capital elements the
items listed in paragraph (d)(2)(i) of this section that are not
deducted as a result of the application of the 10 percent common equity
tier 1 capital deduction threshold, and that, in aggregate, exceed 17.65
percent of the sum of the advanced approaches national bank's or Federal
savings association's common equity tier 1 capital elements, minus
adjustments to and deductions from common equity tier 1 capital required
under paragraphs (a) through (c) of this section, minus the items listed
in paragraph (d)(2)(i) of this section (the 15 percent common equity
tier 1 capital deduction threshold). Any goodwill that has been deducted
under paragraph (a)(1) of this section can be excluded from the
significant investments in the capital of unconsolidated financial
institutions in the form of common stock.\31\
---------------------------------------------------------------------------
\31\ The amount of the items in paragraph (d)(2) of this section
that is not deducted from common equity tier 1 capital pursuant to this
section must be included in the risk-weighted assets of the advanced
approaches national bank or Federal savings association and assigned a
250 percent risk weight.
---------------------------------------------------------------------------
(iii) For purposes of calculating the amount of DTAs subject to the
10 and 15 percent common equity tier 1 capital deduction thresholds, an
advanced approaches national bank or Federal savings association may
exclude DTAs and DTLs relating to adjustments made to common equity tier
1 capital under paragraph (b) of this section. An advanced approaches
national bank or Federal savings association that elects to exclude DTAs
relating to adjustments under paragraph (b) of this section also must
exclude DTLs and must do so consistently in all future calculations. An
advanced approaches national bank or Federal savings association may
change its exclusion preference only after obtaining the prior approval
of the OCC.
[[Page 69]]
(e) Netting of DTLs against assets subject to deduction. (1) Except
as described in paragraph (e)(3) of this section, netting of DTLs
against assets that are subject to deduction under this section is
permitted, but not required, if the following conditions are met:
(i) The DTL is associated with the asset; and
(ii) The DTL would be extinguished if the associated asset becomes
impaired or is derecognized under GAAP.
(2) A DTL may only be netted against a single asset.
(3) For purposes of calculating the amount of DTAs subject to the
threshold deduction in paragraph (d) of this section, the amount of DTAs
that arise from net operating loss and tax credit carryforwards, net of
any related valuation allowances, and of DTAs arising from temporary
differences that the national bank or Federal savings association could
not realize through net operating loss carrybacks, net of any related
valuation allowances, may be offset by DTLs (that have not been netted
against assets subject to deduction pursuant to paragraph (e)(1) of this
section) subject to the conditions set forth in this paragraph (e).
(i) Only the DTAs and DTLs that relate to taxes levied by the same
taxation authority and that are eligible for offsetting by that
authority may be offset for purposes of this deduction.
(ii) The amount of DTLs that the national bank or Federal savings
association nets against DTAs that arise from net operating loss and tax
credit carryforwards, net of any related valuation allowances, and
against DTAs arising from temporary differences that the national bank
or Federal savings association could not realize through net operating
loss carrybacks, net of any related valuation allowances, must be
allocated in proportion to the amount of DTAs that arise from net
operating loss and tax credit carryforwards (net of any related
valuation allowances, but before any offsetting of DTLs) and of DTAs
arising from temporary differences that the national bank or Federal
savings association could not realize through net operating loss
carrybacks (net of any related valuation allowances, but before any
offsetting of DTLs), respectively.
(4) A national bank or Federal savings association may offset DTLs
embedded in the carrying value of a leveraged lease portfolio acquired
in a business combination that are not recognized under GAAP against
DTAs that are subject to paragraph (d) of this section in accordance
with this paragraph (e).
(5) A national bank or Federal savings association must net DTLs
against assets subject to deduction under this section in a consistent
manner from reporting period to reporting period. A national bank or
Federal savings association may change its preference regarding the
manner in which it nets DTLs against specific assets subject to
deduction under this section only after obtaining the prior approval of
the OCC.
(f) Insufficient amounts of a specific regulatory capital component
to effect deductions. Under the corresponding deduction approach, if a
national bank or Federal savings association does not have a sufficient
amount of a specific component of capital to effect the required
deduction after completing the deductions required under paragraph (d)
of this section, the national bank or Federal savings association must
deduct the shortfall from the next higher (that is, more subordinated)
component of regulatory capital. Notwithstanding any other provision of
this section, a qualifying community banking organization (as defined in
Sec. 3.12) that has elected to use the community bank leverage ratio
framework pursuant to Sec. 3.12 is not required to deduct any shortfall
of tier 2 capital from its additional tier 1 capital or common equity
tier 1 capital.
(g) Treatment of assets that are deducted. A national bank or
Federal savings association must exclude from standardized total risk-
weighted assets and, as applicable, advanced approaches total risk-
weighted assets any item that is required to be deducted from regulatory
capital.
(h) Net long position. (1) For purposes of calculating an investment
in the national bank's or Federal savings association's own capital
instrument and an investment in the capital of an unconsolidated
financial institution
[[Page 70]]
under this section, the net long position is the gross long position in
the underlying instrument determined in accordance with paragraph (h)(2)
of this section, as adjusted to recognize a short position in the same
instrument calculated in accordance with paragraph (h)(3) of this
section.
(2) Gross long position. The gross long position is determined as
follows:
(i) For an equity exposure that is held directly, the adjusted
carrying value as that term is defined in Sec. 3.51(b);
(ii) For an exposure that is held directly and is not an equity
exposure or a securitization exposure, the exposure amount as that term
is defined in Sec. 3.2;
(iii) For an indirect exposure, the national bank's or Federal
savings association's carrying value of the investment in the investment
fund, provided that, alternatively:
(A) A national bank or Federal savings association may, with the
prior approval of the Board, use a conservative estimate of the amount
of its investment in the national bank's or Federal savings
association's own capital instruments or its investment in the capital
of an unconsolidated financial institution held through a position in an
index; or
(B) A national bank or Federal savings association may calculate the
gross long position for investments in the national bank's or Federal
savings association's own capital instruments or investments in the
capital of an unconsolidated financial institution by multiplying the
national bank's or Federal savings association's carrying value of its
investment in the investment fund by either:
(1) The highest stated investment limit (in percent) for investments
in the national bank's or Federal savings association's own capital
instruments or investments in the capital of unconsolidated financial
institutions as stated in the prospectus, partnership agreement, or
similar contract defining permissible investments of the investment
fund; or
(2) The investment fund's actual holdings of investments in the
national bank's or Federal savings association's own capital instruments
or investments in the capital of unconsolidated financial institutions.
(iv) For a synthetic exposure, the amount of the national bank's or
Federal savings association's loss on the exposure if the reference
capital instrument were to have a value of zero.
(3) Adjustments to reflect a short position. In order to adjust the
gross long position to recognize a short position in the same
instrument, the following criteria must be met:
(i) The maturity of the short position must match the maturity of
the long position, or the short position has a residual maturity of at
least one year (maturity requirement); or
(ii) For a position that is a trading asset or trading liability
(whether on- or off-balance sheet) as reported on the national bank's or
Federal savings association's Call Report, if the national bank or
Federal savings association has a contractual right or obligation to
sell the long position at a specific point in time and the counterparty
to the contract has an obligation to purchase the long position if the
national bank or Federal savings association exercises its right to
sell, this point in time may be treated as the maturity of the long
position such that the maturity of the long position and short position
are deemed to match for purposes of the maturity requirement, even if
the maturity of the short position is less than one year; and
(iii) For an investment in the national bank's or Federal savings
association's own capital instrument under paragraph (c)(1) of this
section or an investment in the capital of an unconsolidated financial
institution under paragraphs (c) and (d) of this section:
(A) A national bank or Federal savings association may only net a
short position against a long position in an investment in the national
bank's or Federal savings association's own capital instrument under
paragraph (c) of this section if the short position involves no
counterparty credit risk.
(B) A gross long position in an investment in the national bank's or
Federal savings association's own capital instrument or an investment in
the capital of an unconsolidated financial institution resulting from a
position in an index may be netted against
[[Page 71]]
a short position in the same index. Long and short positions in the same
index without maturity dates are considered to have matching maturities.
(C) A short position in an index that is hedging a long cash or
synthetic position in an investment in the national bank's or Federal
savings association's own capital instrument or an investment in the
capital of an unconsolidated financial institution can be decomposed to
provide recognition of the hedge. More specifically, the portion of the
index that is composed of the same underlying instrument that is being
hedged may be used to offset the long position if both the long position
being hedged and the short position in the index are reported as a
trading asset or trading liability (whether on- or off-balance sheet) on
the national bank's or Federal savings association's Call Report, and
the hedge is deemed effective by the national bank's or Federal savings
association's internal control processes, which have not been found to
be inadequate by the OCC.
[78 FR 62157, 62273, Oct. 11, 2013, as amended at 80 FR 41415, July 15,
2015; 84 FR 4238, Feb. 14, 2019; 84 FR 35250, July 22, 2019; 84 FR
59265, Nov. 1, 2019; 84 FR 61793, Nov. 13, 2019]
Sec. Sec. 3.23-3.29 [Reserved]
Subpart D_Risk-Weighted Assets_Standardized Approach
Source: 78 FR 62157, 62273, Oct. 11, 2013, unless otherwise noted.
Sec. 3.30 Applicability.
(a) This subpart sets forth methodologies for determining risk-
weighted assets for purposes of the generally applicable risk-based
capital requirements for all national banks or Federal savings
associations.
(b) Notwithstanding paragraph (a) of this section, a market risk
national bank or Federal savings association must exclude from its
calculation of risk-weighted assets under this subpart the risk-weighted
asset amounts of all covered positions, as defined in subpart F of this
part (except foreign exchange positions that are not trading positions,
OTC derivative positions, cleared transactions, and unsettled
transactions).
Risk-Weighted Assets For General Credit Risk
Sec. 3.31 Mechanics for calculating risk-weighted assets for general
credit risk.
(a) General risk-weighting requirements. A national bank or Federal
savings association must apply risk weights to its exposures as follows:
(1) A national bank or Federal savings association must determine
the exposure amount of each on-balance sheet exposure, each OTC
derivative contract, and each off-balance sheet commitment, trade and
transaction-related contingency, guarantee, repo-style transaction,
financial standby letter of credit, forward agreement, or other similar
transaction that is not:
(i) An unsettled transaction subject to Sec. 3.38;
(ii) A cleared transaction subject to Sec. 3.35;
(iii) A default fund contribution subject to Sec. 3.35;
(iv) A securitization exposure subject to Sec. Sec. 3.41 through
3.45; or
(v) An equity exposure (other than an equity OTC derivative
contract) subject to Sec. Sec. 3.51 through 3.53.
(2) The national bank or Federal savings association must multiply
each exposure amount by the risk weight appropriate to the exposure
based on the exposure type or counterparty, eligible guarantor, or
financial collateral to determine the risk-weighted asset amount for
each exposure.
(b) Total risk-weighted assets for general credit risk equals the
sum of the risk-weighted asset amounts calculated under this section.
Sec. 3.32 General risk weights.
(a) Sovereign exposures--(1) Exposures to the U.S. government. (i)
Notwithstanding any other requirement in this subpart, a national bank
or Federal savings association must assign a zero percent risk weight
to:
(A) An exposure to the U.S. government, its central bank, or a U.S.
government agency; and
[[Page 72]]
(B) The portion of an exposure that is directly and unconditionally
guaranteed by the U.S. government, its central bank, or a U.S.
government agency. This includes a deposit or other exposure, or the
portion of a deposit or other exposure, that is insured or otherwise
unconditionally guaranteed by the FDIC or National Credit Union
Administration.
(ii) A national bank or Federal savings association must assign a 20
percent risk weight to the portion of an exposure that is conditionally
guaranteed by the U.S. government, its central bank, or a U.S.
government agency. This includes an exposure, or the portion of an
exposure, that is conditionally guaranteed by the FDIC or National
Credit Union Administration.
(2) Other sovereign exposures. In accordance with Table 1 to Sec.
3.32, a national bank or Federal savings association must assign a risk
weight to a sovereign exposure based on the CRC applicable to the
sovereign or the sovereign's OECD membership status if there is no CRC
applicable to the sovereign.
Table 1 to Sec. 3.32--Risk Weights for Sovereign Exposures
------------------------------------------------------------------------
Risk weight
(in percent)
------------------------------------------------------------------------
CRC:
0-1................................................... 0
2..................................................... 20
3..................................................... 50
4-6................................................... 100
7..................................................... 150
OECD Member with No CRC................................. 0
Non-OECD Member with No CRC............................. 100
Sovereign Default....................................... 150
------------------------------------------------------------------------
(3) Certain sovereign exposures. Notwithstanding paragraph (a)(2) of
this section, a national bank or Federal savings association may assign
to a sovereign exposure a risk weight that is lower than the applicable
risk weight in Table 1 to Sec. 3.32 if:
(i) The exposure is denominated in the sovereign's currency;
(ii) The national bank or Federal savings association has at least
an equivalent amount of liabilities in that currency; and
(iii) The risk weight is not lower than the risk weight that the
home country supervisor allows national banks or Federal savings
associations under its jurisdiction to assign to the same exposures to
the sovereign.
(4) Exposures to a non-OECD member sovereign with no CRC. Except as
provided in paragraphs (a)(3), (a)(5) and (a)(6) of this section, a
national bank or Federal savings association must assign a 100 percent
risk weight to an exposure to a sovereign if the sovereign does not have
a CRC.
(5) Exposures to an OECD member sovereign with no CRC. Except as
provided in paragraph (a)(6) of this section, a national bank or Federal
savings association must assign a 0 percent risk weight to an exposure
to a sovereign that is a member of the OECD if the sovereign does not
have a CRC.
(6) Sovereign default. A national bank or Federal savings
association must assign a 150 percent risk weight to a sovereign
exposure immediately upon determining that an event of sovereign default
has occurred, or if an event of sovereign default has occurred during
the previous five years.
(b) Certain supranational entities and multilateral development
banks (MDBs). A national bank or Federal savings association must assign
a zero percent risk weight to an exposure to the Bank for International
Settlements, the European Central Bank, the European Commission, the
International Monetary Fund, the European Stability Mechanism, the
European Financial Stability Facility, or an MDB.
(c) Exposures to GSEs. (1) A national bank or Federal savings
association must assign a 20 percent risk weight to an exposure to a GSE
other than an equity exposure or preferred stock.
(2) A national bank or Federal savings association must assign a 100
percent risk weight to preferred stock issued by a GSE.
(d) Exposures to depository institutions, foreign banks, and credit
unions--(1) Exposures to U.S. depository institutions and credit unions.
A national bank or Federal savings association must assign a 20 percent
risk weight to an exposure to a depository institution or credit union
that is organized under the laws of the United States or any state
thereof, except as otherwise provided under paragraph (d)(3) of this
section.
[[Page 73]]
(2) Exposures to foreign banks. (i) Except as otherwise provided
under paragraphs (d)(2)(iii), (d)(2)(v), and (d)(3) of this section, a
national bank or Federal savings association must assign a risk weight
to an exposure to a foreign bank, in accordance with Table 2 to Sec.
3.32, based on the CRC that corresponds to the foreign bank's home
country or the OECD membership status of the foreign bank's home country
if there is no CRC applicable to the foreign bank's home country.
Table 2 to Sec. 3.32--Risk Weights for Exposures to Foreign Banks
------------------------------------------------------------------------
Risk weight
(in percent)
------------------------------------------------------------------------
CRC:
0-1................................................... 20
2..................................................... 50
3..................................................... 100
4-7................................................... 150
OECD Member with No CRC................................. 20
Non-OECD Member with No CRC............................. 100
Sovereign Default....................................... 150
------------------------------------------------------------------------
(ii) A national bank or Federal savings association must assign a 20
percent risk weight to an exposure to a foreign bank whose home country
is a member of the OECD and does not have a CRC.
(iii) A national bank or Federal savings association must assign a
20 percent risk-weight to an exposure that is a self-liquidating, trade-
related contingent item that arises from the movement of goods and that
has a maturity of three months or less to a foreign bank whose home
country has a CRC of 0, 1, 2, or 3, or is an OECD member with no CRC.
(iv) A national bank or Federal savings association must assign a
100 percent risk weight to an exposure to a foreign bank whose home
country is not a member of the OECD and does not have a CRC, with the
exception of self-liquidating, trade-related contingent items that arise
from the movement of goods, and that have a maturity of three months or
less, which may be assigned a 20 percent risk weight.
(v) A national bank or Federal savings association must assign a 150
percent risk weight to an exposure to a foreign bank immediately upon
determining that an event of sovereign default has occurred in the
bank's home country, or if an event of sovereign default has occurred in
the foreign bank's home country during the previous five years.
(3) A national bank or Federal savings association must assign a 100
percent risk weight to an exposure to a financial institution if the
exposure may be included in that financial institution's capital unless
the exposure is:
(i) An equity exposure;
(ii) A significant investment in the capital of an unconsolidated
financial institution in the form of common stock pursuant to Sec.
3.22(d)(2)(i)(c);
(iii) Deducted from regulatory capital under Sec. 3.22; or
(iv) Subject to a 150 percent risk weight under paragraph (d)(2)(iv)
or Table 2 of paragraph (d)(2) of this section.
(e) Exposures to public sector entities (PSEs)--(1) Exposures to
U.S. PSEs. (i) A national bank or Federal savings association must
assign a 20 percent risk weight to a general obligation exposure to a
PSE that is organized under the laws of the United States or any state
or political subdivision thereof.
(ii) A national bank or Federal savings association must assign a 50
percent risk weight to a revenue obligation exposure to a PSE that is
organized under the laws of the United States or any state or political
subdivision thereof.
(2) Exposures to foreign PSEs. (i) Except as provided in paragraphs
(e)(1) and (e)(3) of this section, a national bank or Federal savings
association must assign a risk weight to a general obligation exposure
to a PSE, in accordance with Table 3 to Sec. 3.32, based on the CRC
that corresponds to the PSE's home country or the OECD membership status
of the PSE's home country if there is no CRC applicable to the PSE's
home country.
(ii) Except as provided in paragraphs (e)(1) and (e)(3) of this
section, a national bank or Federal savings association must assign a
risk weight to a revenue obligation exposure to a PSE, in accordance
with Table 4 to Sec. 3.32, based on the CRC that corresponds to the
PSE's home country; or the OECD membership status of the PSE's home
country if there is no CRC applicable to the PSE's home country.
[[Page 74]]
(3) A national bank or Federal savings association may assign a
lower risk weight than would otherwise apply under Tables 3 or 4 to
Sec. 3.32 to an exposure to a foreign PSE if:
(i) The PSE's home country supervisor allows banks under its
jurisdiction to assign a lower risk weight to such exposures; and
(ii) The risk weight is not lower than the risk weight that
corresponds to the PSE's home country in accordance with Table 1 to
Sec. 3.32.
Table 3 to Sec. 3.32--Risk Weights for Non-U.S. PSE General
Obligations
------------------------------------------------------------------------
Risk weight
(in percent)
------------------------------------------------------------------------
CRC:
0-1................................................... 20
2..................................................... 50
3..................................................... 100
4-7................................................... 150
OECD Member with No CRC................................. 20
Non-OECD Member with No CRC............................. 100
Sovereign Default....................................... 150
------------------------------------------------------------------------
Table 4 to Sec. 3.32--Risk Weights for Non-U.S. PSE Revenue
Obligations
------------------------------------------------------------------------
Risk weight
(in percent)
------------------------------------------------------------------------
CRC:
0-1................................................... 50
2-3................................................... 100
4-7................................................... 150
OECD Member with No CRC................................. 50
Non-OECD Member with No CRC............................. 100
Sovereign Default....................................... 150
------------------------------------------------------------------------
(4) Exposures to PSEs from an OECD member sovereign with no CRC. (i)
A national bank or Federal savings association must assign a 20 percent
risk weight to a general obligation exposure to a PSE whose home country
is an OECD member sovereign with no CRC.
(ii) A national bank or Federal savings association must assign a 50
percent risk weight to a revenue obligation exposure to a PSE whose home
country is an OECD member sovereign with no CRC.
(5) Exposures to PSEs whose home country is not an OECD member
sovereign with no CRC. A national bank or Federal savings association
must assign a 100 percent risk weight to an exposure to a PSE whose home
country is not a member of the OECD and does not have a CRC.
(6) A national bank or Federal savings association must assign a 150
percent risk weight to a PSE exposure immediately upon determining that
an event of sovereign default has occurred in a PSE's home country or if
an event of sovereign default has occurred in the PSE's home country
during the previous five years.
(f) Corporate exposures. A national bank or Federal savings
association must assign a 100 percent risk weight to all its corporate
exposures.
(g) Residential mortgage exposures. (1) A national bank or Federal
savings association must assign a 50 percent risk weight to a first-lien
residential mortgage exposure that:
(i) Is secured by a property that is either owner-occupied or
rented;
(ii) Is made in accordance with prudent underwriting standards,
including standards relating to the loan amount as a percent of the
appraised value of the property;
(iii) Is not 90 days or more past due or carried in nonaccrual
status; and
(iv) Is not restructured or modified.
(2) A national bank or Federal savings association must assign a 100
percent risk weight to a first-lien residential mortgage exposure that
does not meet the criteria in paragraph (g)(1) of this section, and to
junior-lien residential mortgage exposures.
(3) For the purpose of this paragraph (g), if a national bank or
Federal savings association holds the first-lien and junior-lien(s)
residential mortgage exposures, and no other party holds an intervening
lien, the national bank or Federal savings association must combine the
exposures and treat them as a single first-lien residential mortgage
exposure.
(4) A loan modified or restructured solely pursuant to the U.S.
Treasury's Home Affordable Mortgage Program is not modified or
restructured for purposes of this section.
(h) Pre-sold construction loans. A national bank or Federal savings
association must assign a 50 percent risk weight to a pre-sold
construction loan unless the purchase contract is cancelled, in which
case a national bank or Federal savings association must assign a 100
percent risk weight.
[[Page 75]]
(i) Statutory multifamily mortgages. A national bank or Federal
savings association must assign a 50 percent risk weight to a statutory
multifamily mortgage.
(j) High-volatility commercial real estate (HVCRE) exposures. A
national bank or Federal savings association must assign a 150 percent
risk weight to an HVCRE exposure.
(k) Past due exposures. Except for an exposure to a sovereign entity
or a residential mortgage exposure or a policy loan, if an exposure is
90 days or more past due or on nonaccrual:
(1) A national bank or Federal savings association must assign a 150
percent risk weight to the portion of the exposure that is not
guaranteed or that is unsecured;
(2) A national bank or Federal savings association may assign a risk
weight to the guaranteed portion of a past due exposure based on the
risk weight that applies under Sec. 3.36 if the guarantee or credit
derivative meets the requirements of that section; and
(3) A national bank or Federal savings association may assign a risk
weight to the collateralized portion of a past due exposure based on the
risk weight that applies under Sec. 3.37 if the collateral meets the
requirements of that section.
(l) Other assets. (1) A national bank or Federal savings association
must assign a zero percent risk weight to cash owned and held in all
offices of the national bank or Federal savings association or in
transit; to gold bullion held in the national bank's or Federal savings
association's own vaults or held in another depository institution's
vaults on an allocated basis, to the extent the gold bullion assets are
offset by gold bullion liabilities; and to exposures that arise from the
settlement of cash transactions (such as equities, fixed income, spot
foreign exchange and spot commodities) with a central counterparty where
there is no assumption of ongoing counterparty credit risk by the
central counterparty after settlement of the trade and associated
default fund contributions.
(2) A national bank or Federal savings association must assign a 20
percent risk weight to cash items in the process of collection.
(3) A national bank or Federal savings association must assign a 100
percent risk weight to DTAs arising from temporary differences that the
national bank or Federal savings association could realize through net
operating loss carrybacks.
(4) A national bank or Federal savings association must assign a 250
percent risk weight to the portion of each of the following items to the
extent it is not deducted from common equity tier 1 capital pursuant to
Sec. 3.22(d):
(i) MSAs; and
(ii) DTAs arising from temporary differences that the national bank
or Federal savings association could not realize through net operating
loss carrybacks.
(5) A national bank or Federal savings association must assign a 100
percent risk weight to all assets not specifically assigned a different
risk weight under this subpart and that are not deducted from tier 1 or
tier 2 capital pursuant to Sec. 3.22.
(6) Notwithstanding the requirements of this section, a national
bank or Federal savings association may assign an asset that is not
included in one of the categories provided in this section to the risk
weight category applicable under the capital rules applicable to bank
holding companies and savings and loan holding companies at 12 CFR part
217, provided that all of the following conditions apply:
(i) The national bank or Federal savings association is not
authorized to hold the asset under applicable law other than debt
previously contracted or similar authority; and
(ii) The risks associated with the asset are substantially similar
to the risks of assets that are otherwise assigned to a risk weight
category of less than 100 percent under this subpart.
[78 FR 62157, 62273, Oct. 11, 2013, as amended at 84 FR 35254, July 22,
2019]
Sec. 3.33 Off-balance sheet exposures.
(a) General. (1) A national bank or Federal savings association must
calculate the exposure amount of an off-balance sheet exposure using the
credit conversion factors (CCFs) in paragraph (b) of this section.
(2) Where a national bank or Federal savings association commits to
provide
[[Page 76]]
a commitment, the national bank or Federal savings association may apply
the lower of the two applicable CCFs.
(3) Where a national bank or Federal savings association provides a
commitment structured as a syndication or participation, the national
bank or Federal savings association is only required to calculate the
exposure amount for its pro rata share of the commitment.
(4) Where a national bank or Federal savings association provides a
commitment, enters into a repurchase agreement, or provides a credit-
enhancing representation and warranty, and such commitment, repurchase
agreement, or credit-enhancing representation and warranty is not a
securitization exposure, the exposure amount shall be no greater than
the maximum contractual amount of the commitment, repurchase agreement,
or credit-enhancing representation and warranty, as applicable.
(b) Credit conversion factors--(1) Zero percent CCF. A national bank
or Federal savings association must apply a zero percent CCF to the
unused portion of a commitment that is unconditionally cancelable by the
national bank or Federal savings association.
(2) 20 percent CCF. A national bank or Federal savings association
must apply a 20 percent CCF to the amount of:
(i) Commitments with an original maturity of one year or less that
are not unconditionally cancelable by the national bank or Federal
savings association; and
(ii) Self-liquidating, trade-related contingent items that arise
from the movement of goods, with an original maturity of one year or
less.
(3) 50 percent CCF. A national bank or Federal savings association
must apply a 50 percent CCF to the amount of:
(i) Commitments with an original maturity of more than one year that
are not unconditionally cancelable by the national bank or Federal
savings association; and
(ii) Transaction-related contingent items, including performance
bonds, bid bonds, warranties, and performance standby letters of credit.
(4) 100 percent CCF. A national bank or Federal savings association
must apply a 100 percent CCF to the amount of the following off-balance-
sheet items and other similar transactions:
(i) Guarantees;
(ii) Repurchase agreements (the off-balance sheet component of which
equals the sum of the current fair values of all positions the national
bank or Federal savings association has sold subject to repurchase);
(iii) Credit-enhancing representations and warranties that are not
securitization exposures;
(iv) Off-balance sheet securities lending transactions (the off-
balance sheet component of which equals the sum of the current fair
values of all positions the national bank or Federal savings association
has lent under the transaction);
(v) Off-balance sheet securities borrowing transactions (the off-
balance sheet component of which equals the sum of the current fair
values of all non-cash positions the national bank or Federal savings
association has posted as collateral under the transaction);
(vi) Financial standby letters of credit; and
(vii) Forward agreements.
Sec. 3.34 OTC derivative contracts.
(a) Exposure amount--(1) Single OTC derivative contract. Except as
modified by paragraph (b) of this section, the exposure amount for a
single OTC derivative contract that is not subject to a qualifying
master netting agreement is equal to the sum of the national bank's or
Federal savings association's current credit exposure and potential
future credit exposure (PFE) on the OTC derivative contract.
(i) Current credit exposure. The current credit exposure for a
single OTC derivative contract is the greater of the mark-to-fair value
of the OTC derivative contract or zero.
(ii) PFE. (A) The PFE for a single OTC derivative contract,
including an OTC derivative contract with a negative mark-to-fair value,
is calculated by multiplying the notional principal amount of the OTC
derivative contract by the appropriate conversion factor in Table 1 to
Sec. 3.34.
(B) For purposes of calculating either the PFE under this paragraph
(a) or the gross PFE under paragraph (a)(2) of
[[Page 77]]
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.
(C) For an OTC derivative contract that does not fall within one of
the specified categories in Table 1 to Sec. 3.34, the PFE must be
calculated using the appropriate ``other'' conversion factor.
(D) A national bank or Federal savings association must use an OTC
derivative contract's effective notional principal amount (that is, the
apparent or stated notional principal amount multiplied by any
multiplier in the OTC derivative contract) rather than the apparent or
stated notional principal amount in calculating PFE.
(E) The PFE of the protection provider of a credit derivative is
capped at the net present value of the amount of unpaid premiums.
Table 1 to Sec. 3.34--Conversion Factor Matrix for Derivative Contracts \1\
--------------------------------------------------------------------------------------------------------------------------------------------------------
Credit Credit (non-
Foreign (investment investment- Precious
Remaining maturity \2\ Interest exchange grade grade Equity metals Other
rate rate and reference reference (except
gold asset) \3\ asset) gold)
--------------------------------------------------------------------------------------------------------------------------------------------------------
One year or less............................................. 0.00 0.01 0.05 0.10 0.06 0.07 0.10
Greater than one year and less than or equal to five years... 0.005 0.05 0.05 0.10 0.08 0.07 0.12
Greater than five years...................................... 0.015 0.075 0.05 0.10 0.10 0.08 0.15
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ For a 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 fair 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 national bank or Federal savings association must use the column labeled ``Credit (investment-grade reference asset)'' for a credit derivative
whose reference asset is an outstanding unsecured long-term debt security without credit enhancement that is investment grade. A national bank or
Federal savings association must use the column labeled ``Credit (non-investment-grade reference asset)'' for all other credit derivatives.
(2) Multiple OTC derivative contracts subject to a qualifying master
netting agreement. Except as modified by paragraph (b) of this section,
the exposure amount 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 amounts 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 the net sum of all positive and negative mark-to-fair
values of the individual OTC derivative contracts subject to the
qualifying master netting agreement or zero.
(ii) Adjusted sum of the PFE amounts. The adjusted sum of the PFE
amounts, 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 (a)(1)(ii) of this section for each
individual derivative contract subject to the qualifying master netting
agreement); and
(B) Net-to-gross Ratio (NGR) = 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 (a)(1)(i) of this
section) of all individual derivative contracts subject to the
qualifying master netting agreement.
(b) Recognition of credit risk mitigation of collateralized OTC
derivative contracts: (1) A national bank or Federal savings association
may recognize the credit risk mitigation benefits of financial
collateral that secures an OTC derivative contract or multiple OTC
derivative contracts subject to a qualifying master netting agreement
(netting set) by using the simple approach in Sec. 3.37(b).
[[Page 78]]
(2) As an alternative to the simple approach, a national bank or
Federal savings association may recognize the credit risk mitigation
benefits of financial collateral that secures such a contract or netting
set if the financial collateral is marked-to-fair value on a daily basis
and subject to a daily margin maintenance requirement by applying a risk
weight to the exposure as if it were uncollateralized and adjusting the
exposure amount calculated under paragraph (a)(1) or (2) of this section
using the collateral haircut approach in Sec. 3.37(c). The national
bank or Federal savings association must substitute the exposure amount
calculated under paragraph (a)(1) or (2) of this section for [Sigma]E in
the equation in Sec. 3.37(c)(2).
(c) Counterparty credit risk for OTC credit derivatives--(1)
Protection purchasers. A national bank or Federal savings association
that purchases an OTC credit derivative that is recognized under Sec.
3.36 as a credit risk mitigant for an exposure that is not a covered
position under subpart F is not required to compute a separate
counterparty credit risk capital requirement under this subpart D
provided that the national bank or Federal savings association does so
consistently for all such credit derivatives. The national bank or
Federal savings association must either include all or exclude all such
credit derivatives that are subject to a qualifying master netting
agreement from any measure used to determine counterparty credit risk
exposure to all relevant counterparties for risk-based capital purposes.
(2) Protection providers. (i) A national bank or Federal savings
association that is the protection provider under an OTC credit
derivative must treat the OTC credit derivative as an exposure to the
underlying reference asset. The national bank or Federal savings
association is not required to compute a counterparty credit risk
capital requirement for the OTC credit derivative under this subpart D,
provided that this treatment is applied consistently for all such OTC
credit derivatives. The national bank or Federal savings association
must either include all or exclude all such OTC credit derivatives that
are subject to a qualifying master netting agreement from any measure
used to determine counterparty credit risk exposure.
(ii) The provisions of this paragraph (c)(2) apply to all relevant
counterparties for risk-based capital purposes unless the national bank
or Federal savings association is treating the OTC credit derivative as
a covered position under subpart F, in which case the national bank or
Federal savings association must compute a supplemental counterparty
credit risk capital requirement under this section.
(d) Counterparty credit risk for OTC equity derivatives. (1) A
national bank or Federal savings association must treat an OTC equity
derivative contract as an equity exposure and compute a risk-weighted
asset amount for the OTC equity derivative contract under Sec. Sec.
3.51 through 3.53 (unless the national bank or Federal savings
association is treating the contract as a covered position under subpart
F of this part).
(2) In addition, the national bank or Federal savings association
must also calculate a risk-based capital requirement for the
counterparty credit risk of an OTC equity derivative contract under this
section if the national bank or Federal savings association is treating
the contract as a covered position under subpart F of this part.
(3) If the national bank or Federal savings association risk weights
the contract under the Simple Risk-Weight Approach (SRWA) in Sec. 3.52,
the national bank or Federal savings association may choose not to hold
risk-based capital against the counterparty credit risk of the OTC
equity derivative contract, as long as it does so for all such
contracts. Where the OTC equity derivative contracts are subject to a
qualified master netting agreement, a national bank or 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.
(e) Clearing member national bank's or Federal savings association's
exposure amount. A clearing member national bank's or Federal savings
association's exposure amount for an OTC derivative contract or netting
set of OTC derivative contracts where the national bank or Federal
savings association is either
[[Page 79]]
acting as a financial intermediary and enters into an offsetting
transaction with a QCCP or where the national bank or Federal savings
association provides a guarantee to the QCCP on the performance of the
client equals the exposure amount calculated according to paragraph
(a)(1) or (2) of this section multiplied by the scaling factor 0.71. If
the national bank or Federal savings association determines that a
longer period is appropriate, the national bank or Federal savings
association must use a larger scaling factor to adjust for a longer
holding period as follows:
[GRAPHIC] [TIFF OMITTED] TR11OC13.015
where
H = the holding period greater than five days. Additionally, the OCC may
require the national bank or Federal savings association to
set a longer holding period if the OCC determines that a
longer period is appropriate due to the nature, structure, or
characteristics of the transaction or is commensurate with the
risks associated with the transaction.
[78 FR 62157, 62273, Oct. 11, 2013, as amended at 84 FR 35255, July 22,
2019]
Sec. 3.35 Cleared transactions.
(a) General requirements--(1) Clearing member clients. A national
bank or Federal savings association that is a clearing member client
must use the methodologies described in paragraph (b) of this section to
calculate risk-weighted assets for a cleared transaction.
(2) Clearing members. A national bank or Federal savings association
that is a clearing member must use the methodologies described in
paragraph (c) of this section to calculate its risk-weighted assets for
a cleared transaction and paragraph (d) of this section to calculate its
risk-weighted assets for its default fund contribution to a CCP.
(b) Clearing member client national banks or Federal savings
associations--(1) Risk-weighted assets for cleared transactions. (i) To
determine the risk-weighted asset amount for a cleared transaction, a
national bank or Federal savings association that is a clearing member
client must multiply the trade exposure amount for the cleared
transaction, calculated in accordance with paragraph (b)(2) of this
section, by the risk weight appropriate for the cleared transaction,
determined in accordance with paragraph (b)(3) of this section.
(ii) A clearing member client national bank's or Federal savings
association's total risk-weighted assets for cleared transactions is the
sum of the risk-weighted asset amounts for all its cleared transactions.
(2) Trade exposure amount. (i) For a cleared transaction that is
either a derivative contract or a netting set of derivative contracts,
the trade exposure amount equals:
(A) The exposure amount for the derivative contract or netting set
of derivative contracts, calculated using the methodology used to
calculate exposure amount for OTC derivative contracts under Sec. 3.34;
plus
(B) The fair value of the collateral posted by the clearing member
client national bank or Federal savings association and held by the CCP,
clearing member, or custodian in a manner that is not bankruptcy remote.
(ii) For a cleared transaction that is a repo-style transaction or
netting set of repo-style transactions, the trade exposure amount
equals:
(A) The exposure amount for the repo-style transaction calculated
using the methodologies under Sec. 3.37(c); plus
(B) The fair value of the collateral posted by the clearing member
client national bank or Federal savings association and held by the CCP,
clearing member, or custodian in a manner that is not bankruptcy remote.
(3) Cleared transaction risk weights. (i) For a cleared transaction
with a QCCP, a clearing member client national bank or Federal savings
association must apply a risk weight of:
[[Page 80]]
(A) 2 percent if the collateral posted by the national bank or
Federal savings association to the QCCP or clearing member is subject to
an arrangement that prevents any losses to the clearing member client
national bank or Federal savings association due to the joint default or
a concurrent insolvency, liquidation, or receivership proceeding of the
clearing member and any other clearing member clients of the clearing
member; and the clearing member client national bank or 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 in the event of a legal challenge (including one
resulting from an event of default or from liquidation, insolvency, or
receivership proceedings) the relevant court and administrative
authorities would find the arrangements to be legal, valid, binding and
enforceable under the law of the relevant jurisdictions; or
(B) 4 percent if the requirements of Sec. 3.35(b)(3)(A) are not
met.
(ii) For a cleared transaction with a CCP that is not a QCCP, a
clearing member client national bank or Federal savings association must
apply the risk weight appropriate for the CCP according to this subpart
D.
(4) Collateral. (i) Notwithstanding any other requirements in this
section, collateral posted by a clearing member client national bank or
Federal savings association that is held by a custodian (in its capacity
as custodian) in a manner that is bankruptcy remote from the CCP, the
custodian, clearing member and other clearing member clients of the
clearing member, is not subject to a capital requirement under this
section.
(ii) A clearing member client national bank or Federal savings
association must calculate a risk-weighted asset amount for any
collateral provided to a CCP, clearing member, or custodian in
connection with a cleared transaction in accordance with the
requirements under this subpart D.
(c) Clearing member national banks or Federal savings associations--
(1) Risk-weighted assets for cleared transactions. (i) To determine the
risk-weighted asset amount for a cleared transaction, a clearing member
national bank or Federal savings association must multiply the trade
exposure amount for the cleared transaction, calculated in accordance
with paragraph (c)(2) of this section, by the risk weight appropriate
for the cleared transaction, determined in accordance with paragraph
(c)(3) of this section.
(ii) A clearing member national bank's or Federal savings
association's total risk-weighted assets for cleared transactions is the
sum of the risk-weighted asset amounts for all of its cleared
transactions.
(2) Trade exposure amount. A clearing member national bank or
Federal savings association must calculate its trade exposure amount for
a cleared transaction as follows:
(i) For a cleared transaction that is either a derivative contract
or a netting set of derivative contracts, the trade exposure amount
equals:
(A) The exposure amount for the derivative contract, calculated
using the methodology to calculate exposure amount for OTC derivative
contracts under Sec. 3.34; plus
(B) The fair value of the collateral posted by the clearing member
national bank or Federal savings association and held by the CCP in a
manner that is not bankruptcy remote.
(ii) For a cleared transaction that is a repo-style transaction or
netting set of repo-style transactions, trade exposure amount equals:
(A) The exposure amount for repo-style transactions calculated using
methodologies under Sec. 3.37(c); plus
(B) The fair value of the collateral posted by the clearing member
national bank or Federal savings association and held by the CCP in a
manner that is not bankruptcy remote.
(3) Cleared transaction risk weight. (i) A clearing member national
bank or Federal savings association must apply a risk weight of 2
percent to the trade exposure amount for a cleared transaction with a
QCCP.
(ii) For a cleared transaction with a CCP that is not a QCCP, a
clearing member national bank or Federal savings association must apply
the risk weight appropriate for the CCP according to this subpart D.
[[Page 81]]
(4) Collateral. (i) Notwithstanding any other requirement in this
section, collateral posted by a clearing member national bank or Federal
savings association that is held by a custodian in a manner that is
bankruptcy remote from the CCP is not subject to a capital requirement
under this section.
(ii) A clearing member national bank or Federal savings association
must calculate a risk-weighted asset amount for any collateral provided
to a CCP, clearing member, or a custodian in connection with a cleared
transaction in accordance with requirements under this subpart D.
(d) Default fund contributions--(1) General requirement. A clearing
member national bank or Federal savings association must determine the
risk-weighted asset amount for a default fund contribution to a CCP at
least quarterly, or more frequently if, in the opinion of the national
bank or Federal savings association or the OCC, there is a material
change in the financial condition of the CCP.
(2) Risk-weighted asset amount for default fund contributions to
non-qualifying CCPs. A clearing member national bank's or Federal
savings association's risk-weighted asset amount for default fund
contributions to CCPs that are not QCCPs equals the sum of such default
fund contributions multiplied by 1,250 percent, or an amount determined
by the OCC, based on factors such as size, structure and membership
characteristics of the CCP and riskiness of its transactions, in cases
where such default fund contributions may be unlimited.
(3) Risk-weighted asset amount for default fund contributions to
QCCPs. A clearing member national bank's or Federal savings
association's risk-weighted asset amount for default fund contributions
to QCCPs equals the sum of its capital requirement, KCM for
each QCCP, as calculated under the methodology set forth in paragraphs
(d)(3)(i) through (iii) of this section (Method 1), multiplied by 1,250
percent or in paragraphs (d)(3)(iv) of this section (Method 2).
(i) Method 1. The hypothetical capital requirement of a QCCP
(KCCP) equals:
[GRAPHIC] [TIFF OMITTED] TR11OC13.058
(A) EBRMi = the exposure amount for each transaction
cleared through the QCCP by clearing member i, calculated in accordance
with Sec. 3.34 for OTC derivative contracts and Sec. 3.37(c)(2) for
repo-style transactions, provided that:
(1) For purposes of this section, in calculating the exposure amount
the national bank or Federal savings association may replace the formula
provided in Sec. 3.34(a)(2)(ii) with the following: Anet = (0.15 x
Agross) + (0.85 x NGR x Agross); and
(2) For option derivative contracts that are cleared transactions,
the PFE described in Sec. 3.34(a)(1)(ii) must be adjusted by
multiplying the notional principal amount of the derivative contract by
the appropriate conversion factor in Table 1 to Sec. 3.34 and the
absolute value of the option's delta, that is, the ratio of the change
in the value of the derivative contract to the corresponding change in
the price of the underlying asset.
(3) For repo-style transactions, when applying Sec. 3.37(c)(2), the
national bank or Federal savings association must use the methodology in
Sec. 3.37(c)(3);
(B) VMi = any collateral posted by clearing member i to
the QCCP that it is entitled to receive from the QCCP, but has not yet
received, and any collateral that the QCCP has actually received from
clearing member i;
(C) IMi = the collateral posted as initial margin by
clearing member i to the QCCP;
(D) DFi = the funded portion of clearing member i's
default fund contribution that will be applied to reduce the QCCP's loss
upon a default by clearing member i;
(E) RW = 20 percent, except when the OCC has determined that a
higher risk weight is more appropriate based on
[[Page 82]]
the specific characteristics of the QCCP and its clearing members; and
(F) Where a QCCP has provided its KCCP, a national bank
or Federal savings association must rely on such disclosed figure
instead of calculating KCCP under this paragraph (d), unless
the national bank or Federal savings association determines that a more
conservative figure is appropriate based on the nature, structure, or
characteristics of the QCCP.
(ii) For a national bank or Federal savings association that is a
clearing member of a QCCP with a default fund supported by funded
commitments, KCM equals:
[GRAPHIC] [TIFF OMITTED] TR11OC13.016
Subscripts 1 and 2 denote the clearing members with the two largest
ANet values. For purposes of this paragraph (d), for
derivatives ANet is defined in Sec. 3.34(a)(2)(ii) and for
repo-style transactions, ANet means the exposure amount as
defined in Sec. 3.37(c)(2) using the methodology in Sec. 3.37(c)(3);
(B) N = the number of clearing members in the QCCP;
(C) DFCCP = the QCCP's own funds and other financial
resources that would be used to cover its losses before clearing
members' default fund contributions are used to cover losses;
(D) DFCM = funded default fund contributions from all
clearing members and any other clearing member contributed financial
resources that are available to absorb mutualized QCCP losses;
(E) DF = DFCCP + DFCM (that is, the total
funded default fund contribution);
[[Page 83]]
[GRAPHIC] [TIFF OMITTED] TR11OC13.017
Where:
(1) DFi = the national bank's or Federal savings
association's unfunded commitment to the default fund;
(2) DFCM = the total of all clearing members' unfunded
commitment to the default fund; and
(3) K*CM as defined in paragraph (d)(3)(ii) of this section.
(B) For a national bank or Federal savings association that is a
clearing member of a QCCP with a default fund supported by unfunded
commitments and is unable to calculate KCM using the
methodology described in paragraph (d)(3)(iii) of this section,
KCM equals:
[[Page 84]]
[GRAPHIC] [TIFF OMITTED] TR11OC13.018
Where:
(1) IMi = the national bank's or Federal savings
association's initial margin posted to the QCCP;
(2) IMCM = the total of initial margin posted to the
QCCP; and
(3)K*CM as defined in paragraph (d)(3)(ii) of this section.
(iv) Method 2. A clearing member national bank's or Federal savings
association's risk-weighted asset amount for its default fund
contribution to a QCCP, RWADF, equals:
RWADF = Min {12.5 * DF; 0.18 * TE{time}
Where:
(A) TE = the national bank's or Federal savings association's trade
exposure amount to the QCCP, calculated according to section 35(c)(2);
(B) DF = the funded portion of the national bank's or Federal
savings association's default fund contribution to the QCCP.
(4) Total risk-weighted assets for default fund contributions. Total
risk-weighted assets for default fund contributions is the sum of a
clearing member national bank's or Federal savings association's risk-
weighted assets for all of its default fund contributions to all CCPs of
which the national bank or Federal savings association is a clearing
member.
[78 FR 62157, 62273, Oct. 11, 2013, as amended at 84 FR 35255, July 22,
2019]
Sec. 3.36 Guarantees and credit derivatives: substitution treatment.
(a) Scope--(1) General. A national bank or Federal savings
association may recognize the credit risk mitigation benefits of an
eligible guarantee or eligible credit derivative by substituting the
risk weight associated with the protection provider for the risk weight
assigned to an exposure, as provided under this section.
(2) This section applies to 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 national bank or Federal savings association and the
protection provider share losses proportionately) by an eligible
guarantee or eligible credit derivative.
(3) Exposures on which there is a tranching of credit risk
(reflecting at least two different levels of seniority) generally are
securitization exposures subject to Sec. Sec. 3.41 through 3.45.
(4) If multiple eligible guarantees or eligible credit derivatives
cover a single exposure described in this section, a national bank or
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-weighted
asset amount for each separate exposure as described in paragraph (c) of
this section.
(5) If a single eligible guarantee or eligible credit derivative
covers multiple hedged exposures described in paragraph (a)(2) of this
section, a national bank or 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-weighted asset
amount for each exposure as described in paragraph (c) of this section.
(b) Rules of recognition. (1) A national bank or Federal savings
association may only recognize the credit risk mitigation benefits of
eligible guarantees and eligible credit derivatives.
(2) A national bank or 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
[[Page 85]]
cash settlement value, deliverable obligation, or occurrence of a credit
event if:
(i) The reference exposure ranks pari passu with, or is subordinated
to, the hedged exposure; and
(ii) The reference exposure and the hedged exposure are to the same
legal entity, and legally enforceable cross-default or cross-
acceleration clauses are in place to ensure payments under the credit
derivative are triggered when the obligated party of the hedged exposure
fails to pay under the terms of the hedged exposure.
(c) Substitution approach--(1) 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
exposure amount of the hedged exposure, a national bank or Federal
savings association may recognize the guarantee or credit derivative in
determining the risk-weighted asset amount for the hedged exposure by
substituting the risk weight applicable to the guarantor or credit
derivative protection provider under this subpart D for the risk weight
assigned to the exposure.
(2) 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 exposure amount of the hedged exposure, the
national bank or 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.
(i) The national bank or Federal savings association may calculate
the risk-weighted asset amount for the protected exposure under this
subpart D, where the applicable risk weight is the risk weight
applicable to the guarantor or credit derivative protection provider.
(ii) The national bank or Federal savings association must calculate
the risk-weighted asset amount for the unprotected exposure under this
subpart D, where the applicable risk weight is that of the unprotected
portion of the hedged exposure.
(iii) The treatment provided in this section is applicable when the
credit risk of an exposure is covered on a partial pro rata basis and
may be applicable when an adjustment is made to the effective notional
amount of the guarantee or credit derivative under paragraphs (d), (e),
or (f) of this section.
(d) Maturity mismatch adjustment. (1) A national bank or Federal
savings association that recognizes an eligible guarantee or eligible
credit derivative in determining the risk-weighted asset amount 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 obligated party of the hedged
exposure is scheduled to fulfil its obligation on the hedged exposure.
If a credit risk mitigant has embedded options that may reduce its term,
the national bank or Federal 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 national bank or Federal savings
association (protection purchaser), but the terms of the arrangement at
origination of the credit risk mitigant contain a positive incentive for
the national bank or Federal 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.
(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 national bank or Federal
savings
[[Page 86]]
association must apply the following adjustment to reduce 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) Adjustment for credit derivatives without restructuring as a
credit event. If a national bank or 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 national bank
or Federal savings association must apply the following adjustment to
reduce 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 adjustment. (1) If a national bank or 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 national bank or Federal
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 national bank or Federal savings association must set
HFX equal to eight 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. A national bank or Federal savings
association qualifies for the use of its own internal estimates of
foreign exchange volatility if it qualifies for the use of its own-
estimates haircuts in Sec. 3.37(c)(4).
(3) A national bank or Federal savings association must adjust
HFX calculated in paragraph (f)(2) of this section upward if
the national bank or Federal savings association revalues the guarantee
or credit derivative less frequently than once every 10 business days
using the following square root of time formula:
[GRAPHIC] [TIFF OMITTED] TR11OC13.021
[78 FR 62157, 62273, Oct. 11, 2013, as amended at 84 FR 35255, July 22,
2019]
Sec. 3.37 Collateralized transactions.
(a) General. (1) To recognize the risk-mitigating effects of
financial collateral, a national bank or Federal savings association may
use:
(i) The simple approach in paragraph (b) of this section for any
exposure; or
(ii) The collateral haircut approach in paragraph (c) of this
section for
[[Page 87]]
repo-style transactions, eligible margin loans, collateralized
derivative contracts, and single-product netting sets of such
transactions.
(2) A national bank or Federal savings association may use any
approach described in this section that is valid for a particular type
of exposure or transaction; however, it must use the same approach for
similar exposures or transactions.
(b) The simple approach--(1) General requirements. (i) A national
bank or Federal savings association may recognize the credit risk
mitigation benefits of financial collateral that secures any exposure.
(ii) To qualify for the simple approach, the financial collateral
must meet the following requirements:
(A) The collateral must be subject to a collateral agreement for at
least the life of the exposure;
(B) The collateral must be revalued at least every six months; and
(C) The collateral (other than gold) and the exposure must be
denominated in the same currency.
(2) Risk weight substitution. (i) A national bank or Federal savings
association may apply a risk weight to the portion of an exposure that
is secured by the fair value of financial collateral (that meets the
requirements of paragraph (b)(1) of this section) based on the risk
weight assigned to the collateral under this subpart D. For repurchase
agreements, reverse repurchase agreements, and securities lending and
borrowing transactions, the collateral is the instruments, gold, and
cash the national bank or Federal savings association has borrowed,
purchased subject to resale, or taken as collateral from the
counterparty under the transaction. Except as provided in paragraph
(b)(3) of this section, the risk weight assigned to the collateralized
portion of the exposure may not be less than 20 percent.
(ii) A national bank or Federal savings association must apply a
risk weight to the unsecured portion of the exposure based on the risk
weight applicable to the exposure under this subpart.
(3) Exceptions to the 20 percent risk-weight floor and other
requirements. Notwithstanding paragraph (b)(2)(i) of this section:
(i) A national bank or Federal savings association may assign a zero
percent risk weight to an exposure to an OTC derivative contract that is
marked-to-market on a daily basis and subject to a daily margin
maintenance requirement, to the extent the contract is collateralized by
cash on deposit.
(ii) A national bank or Federal savings association may assign a 10
percent risk weight to an exposure to an OTC derivative contract that is
marked-to-market daily and subject to a daily margin maintenance
requirement, to the extent that the contract is collateralized by an
exposure to a sovereign that qualifies for a zero percent risk weight
under Sec. 3.32.
(iii) A national bank or Federal savings association may assign a
zero percent risk weight to the collateralized portion of an exposure
where:
(A) The financial collateral is cash on deposit; or
(B) The financial collateral is an exposure to a sovereign that
qualifies for a zero percent risk weight under Sec. 3.32, and the
national bank or Federal savings association has discounted the fair
value of the collateral by 20 percent.
(c) Collateral haircut approach--(1) General. A national bank or
Federal savings association may recognize the credit risk mitigation
benefits of financial collateral that secures an eligible margin loan,
repo-style transaction, collateralized derivative contract, or single-
product netting set of such transactions, and of any collateral that
secures a repo-style transaction that is included in the national bank's
or Federal savings association's VaR-based measure under subpart F of
this part by using the collateral haircut approach in this section. A
national bank or Federal savings association may use the standard
supervisory haircuts in paragraph (c)(3) of this section or, with prior
written approval of the OCC, its own estimates of haircuts according to
paragraph (c)(4) of this section.
(2) Exposure amount equation. A national bank or Federal savings
association must determine the exposure amount for an eligible margin
loan, repo-style transaction, collateralized
[[Page 88]]
derivative contract, or a single-product netting set of such
transactions by setting the exposure amount equal to max {0, [([Sigma]E
- [Sigma]C) + [Sigma](Es x Hs) + [Sigma](Efx x Hfx)]{time} , where:
(i)(A) For eligible margin loans and repo-style transactions and
netting sets thereof, [Sigma]E equals the value of the exposure (the sum
of the current fair values of all instruments, gold, and cash the
national bank or Federal savings association has lent, sold subject to
repurchase, or posted as collateral to the counterparty under the
transaction (or netting set)); and
(B) For collateralized derivative contracts and netting sets
thereof, [Sigma]E equals the exposure amount of the OTC derivative
contract (or netting set) calculated under Sec. 3.34 (a)(1) or (2).
(ii) [Sigma]C equals the value of the collateral (the sum of the
current fair values of all instruments, gold and cash the national bank
or Federal savings association has borrowed, purchased subject to
resale, or taken as collateral from the counterparty under the
transaction (or netting set));
(iii) Es equals the absolute value of the net position in a given
instrument or in gold (where the net position in the instrument or gold
equals the sum of the current fair values of the instrument or gold the
national bank or Federal savings association has lent, sold subject to
repurchase, or posted as collateral to the counterparty minus the sum of
the current fair values of that same instrument or gold the national
bank or Federal savings association has borrowed, purchased subject to
resale, or taken as collateral from the counterparty);
(iv) Hs equals the market price volatility haircut appropriate to
the instrument or gold referenced in Es;
(v) 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 fair values of any instruments or cash in the currency the
national bank or Federal savings association has lent, sold subject to
repurchase, or posted as collateral to the counterparty minus the sum of
the current fair values of any instruments or cash in the currency the
national bank or Federal savings association has borrowed, purchased
subject to resale, or taken as collateral from the counterparty); and
(vi) Hfx equals the haircut appropriate to the mismatch between the
currency referenced in Efx and the settlement currency.
(3) Standard supervisory haircuts. (i) A national bank or Federal
savings association must use the haircuts for market price volatility
(Hs) provided in Table 1 to Sec. 3.37, as adjusted in certain
circumstances in accordance with the requirements of paragraphs
(c)(3)(iii) and (iv) of this section.
Table 1 to Sec. 3.37--Standard Supervisory Market Price Volatility Haircuts \1\
----------------------------------------------------------------------------------------------------------------
Haircut (in percent) assigned based on:
------------------------------------------------------------------ Investment
Sovereign issuers risk weight Non-sovereign issuers risk grade
Residual maturity under Sec. 3.32 (in percent) weight under Sec. 3.32 (in securitization
\2\ percent) exposures (in
------------------------------------------------------------------ percent)
Zero 20 or 50 100 20 50 100
----------------------------------------------------------------------------------------------------------------
Less than or equal to 1 year.. 0.5 1.0 15.0 1.0 2.0 4.0 4.0
Greater than 1 year and less 2.0 3.0 15.0 4.0 6.0 8.0 12.0
than or equal to 5 years.....
Greater than 5 years.......... 4.0 6.0 15.0 8.0 12.0 16.0 24.0
----------------------------------------------------------------------------------------------------------------
Main index equities (including convertible bonds) a15.0old.....
----------------------------------------------------------------------------------------------------------------
Other publicly traded equities (including convertib25.0onds)...
----------------------------------------------------------------------------------------------------------------
Mutual funds....................Highest haircut applicable to any security
in which the fund can invest.
----------------------------------------------------------------------------------------------------------------
Cash collateral held...............................Zero........
----------------------------------------------------------------------------------------------------------------
Other exposure types...............................25.0........
----------------------------------------------------------------------------------------------------------------
\1\ The market price volatility haircuts in Table 1 to Sec. 3.37 are based on a 10 business-day holding
period.
\2\ Includes a foreign PSE that receives a zero percent risk weight.
[[Page 89]]
(ii) For currency mismatches, a national bank or Federal savings
association must use a haircut for foreign exchange rate volatility
(Hfx) of 8.0 percent, as adjusted in certain circumstances under
paragraphs (c)(3)(iii) and (iv) of this section.
(iii) For repo-style transactions, a national bank or Federal
savings association may multiply the standard supervisory haircuts
provided in paragraphs (c)(3)(i) and (ii) of this section by the square
root of \1/2\ (which equals 0.707107).
(iv) If the number of trades in a netting set exceeds 5,000 at any
time during a quarter, a national bank or Federal savings association
must adjust the supervisory haircuts provided in paragraphs (c)(3)(i)
and (ii) of this section upward on the basis of a holding period of
twenty business days for the following quarter except in the calculation
of the exposure amount for purposes of Sec. 3.35. If a netting set
contains one or more trades involving illiquid collateral or an OTC
derivative that cannot be easily replaced, a national bank or Federal
savings association must adjust the supervisory haircuts upward on the
basis of a holding period of twenty business days. If over the two
previous quarters more than two margin disputes on a netting set have
occurred that lasted more than the holding period, then the national
bank or Federal savings association must adjust the supervisory haircuts
upward for that netting set on the basis of a holding period that is at
least two times the minimum holding period for that netting set. A
national bank or Federal savings association must adjust the standard
supervisory haircuts upward using the following formula:
[GRAPHIC] [TIFF OMITTED] TR11OC13.022
(A) TM equals a holding period of longer than 10 business
days for eligible margin loans and derivative contracts or longer than 5
business days for repo-style transactions;
(B) HS equals the standard supervisory haircut; and
(C) TS equals 10 business days for eligible margin loans
and derivative contracts or 5 business days for repo-style transactions.
(v) If the instrument a national bank or Federal savings association
has lent, sold subject to repurchase, or posted as collateral does not
meet the definition of financial collateral, the national bank or
Federal savings association must use a 25.0 percent haircut for market
price volatility (Hs).
(4) Own internal estimates for haircuts. With the prior written
approval of the OCC, a national bank or Federal savings association may
calculate haircuts (Hs and Hfx) using its own internal estimates of the
volatilities of market prices and foreign exchange rates:
(i) To receive OCC approval to use its own internal estimates, a
national bank or Federal savings association must satisfy the following
minimum standards:
(A) A national bank or Federal savings association must use a 99th
percentile one-tailed confidence interval.
(B) The minimum holding period for a repo-style transaction is five
business days and for an eligible margin loan is ten business days
except for transactions or netting sets for which paragraph (c)(4)(i)(C)
of this section applies. When a national bank or 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:
[[Page 90]]
[GRAPHIC] [TIFF OMITTED] TR11OC13.023
(1) TM equals 5 for repo-style transactions and 10 for
eligible margin loans;
(2) TN equals the holding period used by the national
bank or Federal savings association to derive HN; and
(3) HN equals the haircut based on the holding period
TN.
(C) If the number of trades in a netting set exceeds 5,000 at any
time during a quarter, a national bank or Federal savings association
must calculate the haircut using a minimum holding period of twenty
business days for the following quarter except in the calculation of the
exposure amount for purposes of Sec. 3.35. If a netting set contains
one or more trades involving illiquid collateral or an OTC derivative
that cannot be easily replaced, a national bank or Federal savings
association must calculate the haircut using a minimum holding period of
twenty business days. If over the two previous quarters more than two
margin disputes on a netting set have occurred that lasted more than the
holding period, then the national bank or Federal savings association
must calculate the haircut for transactions in that netting set on the
basis of a holding period that is at least two times the minimum holding
period for that netting set.
(D) A national bank or Federal savings association is required to
calculate its own internal estimates with inputs calibrated to
historical data from a continuous 12-month period that reflects a period
of significant financial stress appropriate to the security or category
of securities.
(E) A national bank or Federal savings association must have
policies and procedures that describe how it determines the period of
significant financial stress used to calculate the national bank's or
Federal savings association's own internal estimates for haircuts under
this section and must be able to provide empirical support for the
period used. The national bank or Federal savings association must
obtain the prior approval of the OCC for, and notify the OCC if the
national bank or Federal savings association makes any material changes
to, these policies and procedures.
(F) Nothing in this section prevents the OCC from requiring a
national bank or Federal savings association to use a different period
of significant financial stress in the calculation of own internal
estimates for haircuts.
(G) A national bank or Federal savings association must update its
data sets and calculate haircuts no less frequently than quarterly and
must also reassess data sets and haircuts whenever market prices change
materially.
(ii) With respect to debt securities that are investment grade, a
national bank or Federal savings association may calculate haircuts for
categories of securities. For a category of securities, the national
bank or Federal savings association 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
national bank or Federal 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 national
bank or Federal savings association must at a minimum take into account:
(A) The type of issuer of the security;
(B) The credit quality of the security;
(C) The maturity of the security; and
(D) The interest rate sensitivity of the security.
(iii) With respect to debt securities that are not investment grade
and equity securities, a national bank or Federal savings association
must calculate a separate haircut for each individual security.
(iv) 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 national bank or Federal savings association
must calculate a separate currency mismatch haircut for its net
[[Page 91]]
position in each mismatched currency based on estimated volatilities of
foreign exchange rates between the mismatched currency and the
settlement currency.
(v) A national bank's or 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).
[78 FR 62157, 62273, Oct. 11, 2013, as amended at 84 FR 35256, July 22,
2019]
Risk-Weighted Assets for Unsettled Transactions
Sec. 3.38 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) 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 of a national bank or 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
national bank or Federal 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) Cleared transactions that are marked-to-market daily and subject
to daily receipt and payment of variation margin;
(2) Repo-style transactions, including unsettled repo-style
transactions;
(3) One-way cash payments on OTC derivative contracts; or
(4) Transactions with a contractual settlement period that is longer
than the normal settlement period (which are treated as OTC derivative
contracts as provided in Sec. 3.34).
(c) System-wide failures. In the case of a system-wide failure of a
settlement, clearing system or central counterparty, 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 national bank or Federal savings association must hold
risk-based capital against any DvP or PvP transaction with a normal
settlement period if the national bank's or Federal savings
association's counterparty has not made delivery or payment within five
business days after the settlement date. The national bank or Federal
savings association must determine its risk-weighted asset amount for
such a transaction by multiplying the positive current exposure of the
transaction for the national bank or Federal savings association by the
appropriate risk weight in Table 1 to Sec. 3.38.
Table 1 to Sec. 3.38--Risk Weights for Unsettled DvP and PvP
Transactions
------------------------------------------------------------------------
Risk weight to
be applied to
Number of business days after contractual settlement positive current
date exposure (in
percent)
------------------------------------------------------------------------
From 5 to 15.......................................... 100.0
From 16 to 30......................................... 625.0
From 31 to 45......................................... 937.5
46 or more............................................ 1,250.0
------------------------------------------------------------------------
[[Page 92]]
(e) Non-DvP/non-PvP (non-delivery-versus-payment/non-payment-versus-
payment) transactions. (1) A national bank or Federal savings
association must hold risk-based capital against any non-DvP/non-PvP
transaction with a normal settlement period if the national bank or
Federal 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 national bank or
Federal savings association must continue to hold risk-based capital
against the transaction until the national bank or Federal savings
association has received its corresponding deliverables.
(2) From the business day after the national bank or Federal savings
association has made its delivery until five business days after the
counterparty delivery is due, the national bank or Federal savings
association must calculate the risk-weighted asset amount for the
transaction by treating the current fair value of the deliverables owed
to the national bank or Federal savings association as an exposure to
the counterparty and using the applicable counterparty risk weight under
this subpart D.
(3) If the national bank or Federal savings association has not
received its deliverables by the fifth business day after counterparty
delivery was due, the national bank or Federal savings association must
assign a 1,250 percent risk weight to the current fair value of the
deliverables owed to the national bank or Federal savings association.
(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.
[78 FR 62157, 62273, Oct. 11, 2013, as amended at 84 FR 35256, July 22,
2019]
Sec. Sec. 3.39-3.40 [Reserved]
Risk-Weighted Assets for Securitization Exposures
Sec. 3.41 Operational requirements for securitization exposures.
(a) Operational criteria for traditional securitizations. A national
bank or 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 condition
in this section is satisfied. A national bank or Federal savings
association that meets these conditions must hold risk-based capital
against any credit risk it retains in connection with the
securitization. A national bank or Federal 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 common equity tier 1 capital any after-tax gain-on-sale
resulting from the transaction. The conditions are:
(1) The exposures are not reported on the national bank's or Federal
savings association's consolidated balance sheet under GAAP;
(2) The national bank or Federal savings association has transferred
to one or more third parties credit risk associated with the underlying
exposures;
(3) Any clean-up calls relating to the securitization are eligible
clean-up calls; and
(4) The securitization does not:
(i) Include 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) Contain an early amortization provision.
(b) Operational criteria for synthetic securitizations. For
synthetic securitizations, a national bank or Federal savings
association may recognize for risk-based capital purposes the use of a
credit risk mitigant to hedge underlying exposures only if each
condition in this paragraph (b) is satisfied. A national bank or Federal
savings association that meets these conditions
[[Page 93]]
must hold risk-based capital against any credit risk of the exposures it
retains in connection with the synthetic securitization. A national bank
or Federal savings association that fails to meet these conditions or
chooses not to recognize the credit risk mitigant for purposes of this
section must instead 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:
(i) Financial collateral;
(ii) A guarantee that meets all criteria as set forth in the
definition of ``eligible guarantee'' in Sec. 3.2, except for the
criteria in paragraph (3) of that definition; or
(iii) A credit derivative that meets all criteria as set forth in
the definition of ``eligible credit derivative'' in Sec. 3.2, except
for the criteria in paragraph (3) of the definition of ``eligible
guarantee'' in Sec. 3.2.
(2) The national bank or Federal savings association transfers
credit risk associated with the underlying exposures to one or more
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 national bank or Federal savings association to
alter or replace the underlying exposures to improve the credit quality
of the underlying exposures;
(iii) Increase the national bank's or Federal 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 national
bank or Federal 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 national bank or Federal savings
association after the inception of the securitization;
(3) The national bank or Federal savings association 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.
(c) Due diligence requirements for securitization exposures. (1)
Except for exposures that are deducted from common equity tier 1 capital
and exposures subject to Sec. 3.42(h), if a national bank or Federal
savings association is unable to demonstrate to the satisfaction of the
OCC a comprehensive understanding of the features of a securitization
exposure that would materially affect the performance of the exposure,
the national bank or Federal savings association must assign the
securitization exposure a risk weight of 1,250 percent. The national
bank's or Federal savings association's analysis must be commensurate
with the complexity of the securitization exposure and the materiality
of the exposure in relation to its capital.
(2) A national bank or Federal savings association must demonstrate
its comprehensive understanding of a securitization exposure under
paragraph (c)(1) of this section, for each securitization exposure by:
(i) Conducting an analysis of the risk characteristics of a
securitization exposure prior to acquiring the exposure, and documenting
such analysis within three business days after acquiring the exposure,
considering:
(A) Structural features of the securitization that would materially
impact the performance of the exposure, for example, the contractual
cash flow waterfall, waterfall-related triggers, credit enhancements,
liquidity enhancements, fair value triggers, the performance of
organizations that service the exposure, and deal-specific definitions
of default;
(B) Relevant information regarding the performance of the underlying
credit exposure(s), for example, the percentage of loans 30, 60, and 90
days past due; default rates; prepayment rates; loans in foreclosure;
property types; occupancy; average credit score or other measures of
creditworthiness; average LTV ratio; and industry and geographic
diversification data on the underlying exposure(s);
[[Page 94]]
(C) Relevant market data of the securitization, for example, bid-ask
spread, most recent sales price and historic price volatility, trading
volume, implied market rating, and size, depth and concentration level
of the market for the securitization; and
(D) For resecuritization exposures, performance information on the
underlying securitization exposures, for example, the issuer name and
credit quality, and the characteristics and performance of the exposures
underlying the securitization exposures; and
(ii) On an on-going basis (no less frequently than quarterly),
evaluating, reviewing, and updating as appropriate the analysis required
under paragraph (c)(1) of this section for each securitization exposure.
Sec. 3.42 Risk-weighted assets for securitization exposures.
(a) Securitization risk weight approaches. Except as provided
elsewhere in this section or in Sec. 3.41:
(1) A national bank or Federal savings association must deduct from
common equity tier 1 capital any after-tax gain-on-sale resulting from a
securitization and apply a 1,250 percent risk weight to the portion of a
CEIO that does not constitute after-tax gain-on-sale.
(2) If a securitization exposure does not require deduction under
paragraph (a)(1) of this section, a national bank or Federal savings
association may assign a risk weight to the securitization exposure
using the simplified supervisory formula approach (SSFA) in accordance
with Sec. Sec. 3.43(a) through 3.43(d) and subject to the limitation
under paragraph (e) of this section. Alternatively, a national bank or
Federal savings association that is not subject to subpart F of this
part may assign a risk weight to the securitization exposure using the
gross-up approach in accordance with Sec. 3.43(e), provided, however,
that such national bank or Federal savings association must apply either
the SSFA or the gross-up approach consistently across all of its
securitization exposures, except as provided in paragraphs (a)(1),
(a)(3), and (a)(4) of this section.
(3) If a securitization exposure does not require deduction under
paragraph (a)(1) of this section and the national bank or Federal
savings association cannot, or chooses not to apply the SSFA or the
gross-up approach to the exposure, the national bank or Federal savings
association must assign a risk weight to the exposure as described in
Sec. 3.44.
(4) If a securitization exposure is a derivative contract (other
than protection provided by a national bank or Federal savings
association in the form of 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), a national bank or
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 (c) of this section.
(b) Total risk-weighted assets for securitization exposures. A
national bank's or Federal savings association's total risk-weighted
assets for securitization exposures equals the sum of the risk-weighted
asset amount for securitization exposures that the national bank or
Federal savings association risk weights under Sec. Sec. 3.41(c),
3.42(a)(1), and 3.43, 3.44, or Sec. 3.45, and paragraphs (e) through
(j) of this section, as applicable.
(c) Exposure amount of a securitization exposure--(1) On-balance
sheet securitization exposures. The exposure amount of an on-balance
sheet securitization exposure (excluding an available-for-sale or held-
to-maturity security where the national bank or Federal savings
association has made an AOCI opt-out election under Sec. 3.22(b)(2), a
repo-style transaction, eligible margin loan, OTC derivative contract,
or cleared transaction) is equal to the carrying value of the exposure.
(2) On-balance sheet securitization exposures held by a national
bank or Federal savings association that has made an AOCI opt-out
election. The exposure amount of an on-balance sheet securitization
exposure that is an available-for-sale or held-to-maturity security held
by a national bank or Federal savings association that has made an AOCI
opt-out election under
[[Page 95]]
Sec. 3.22(b)(2) is the national bank's or Federal savings association's
carrying value (including net accrued but unpaid interest and fees),
less any net unrealized gains on the exposure and plus any net
unrealized losses on the exposure.
(3) Off-balance sheet securitization exposures. (i) Except as
provided in paragraph (j) of this section, the exposure amount of an
off-balance sheet securitization exposure that is not a repo-style
transaction, eligible margin loan, cleared transaction (other than a
credit derivative), or 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 an eligible
ABCP liquidity facility, the notional amount may be reduced to the
maximum potential amount that the national bank or 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).
(ii) A national bank or Federal savings association must determine
the exposure amount of an eligible ABCP liquidity facility for which the
SSFA does not apply by multiplying the notional amount of the exposure
by a CCF of 50 percent.
(iii) A national bank or Federal savings association must determine
the exposure amount of an eligible ABCP liquidity facility for which the
SSFA applies by multiplying the notional amount of the exposure by a CCF
of 100 percent.
(4) Repo-style transactions, eligible margin loans, and derivative
contracts. The exposure amount of a securitization exposure that is a
repo-style transaction, eligible margin loan, or derivative contract
(other than a credit derivative) is the exposure amount of the
transaction as calculated under Sec. 3.34 or Sec. 3.37, as applicable.
(d) Overlapping exposures. If a national bank or Federal savings
association has multiple securitization exposures that provide
duplicative coverage to the underlying exposures of a securitization
(such as when a national bank or Federal savings association provides a
program-wide credit enhancement and multiple pool-specific liquidity
facilities to an ABCP program), the national bank or Federal savings
association is not required to hold duplicative risk-based capital
against the overlapping position. Instead, the national bank or Federal
savings association may apply to the overlapping position the applicable
risk-based capital treatment that results in the highest risk-based
capital requirement.
(e) Implicit support. If a national bank or Federal savings
association provides support to a securitization in excess of the
national bank's or Federal savings association's contractual obligation
to provide credit support to the securitization (implicit support):
(1) The national bank or Federal savings association must include in
risk-weighted assets all of the underlying exposures associated with the
securitization as if the exposures had not been securitized and must
deduct from common equity tier 1 capital any after-tax gain-on-sale
resulting from the securitization; and
(2) The national bank or Federal savings association must disclose
publicly:
(i) That it has provided implicit support to the securitization; and
(ii) The risk-based capital impact to the national bank or Federal
savings association of providing such implicit support.
(f) Undrawn portion of a servicer cash advance facility. (1)
Notwithstanding any other provision of this subpart, a national bank or
Federal savings association that is a servicer under an eligible
servicer cash advance facility is not required to hold risk-based
capital against potential future cash advance payments that it may be
required to provide under the contract governing the facility.
(2) For a national bank or Federal savings association that acts as
a servicer, the exposure amount for a servicer cash advance facility
that is not an eligible servicer cash advance facility is equal to the
amount of all potential future cash advance payments that the national
bank or Federal savings association may be contractually required to
provide during the subsequent 12 month period under the contract
governing the facility.
[[Page 96]]
(g) Interest-only mortgage-backed securities. Regardless of any
other provisions in this subpart, the risk weight for a non-credit-
enhancing interest-only mortgage-backed security may not be less than
100 percent.
(h) Small-business loans and leases on personal property transferred
with retained contractual exposure. (1) Regardless of any other
provision of this subpart, a national bank or 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 its contractual exposure to the
small-business obligations if all the following conditions are met:
(i) The transaction must be treated as a sale under GAAP.
(ii) The national bank or Federal savings association establishes
and maintains, pursuant to GAAP, a non-capital reserve sufficient to
meet the national bank's or Federal savings association's reasonably
estimated liability under the contractual obligation.
(iii) The small-business obligations 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 et seq.).
(iv) The national bank or Federal savings association is well
capitalized, as defined in 12 CFR 6.4. For purposes of determining
whether a national bank or Federal savings association is well
capitalized for purposes of this paragraph (h), the national bank's or
Federal savings association's capital ratios must be calculated without
regard to the capital treatment for transfers of small-business
obligations under this paragraph (h).
(2) The total outstanding amount of contractual exposure retained by
a national bank or Federal savings association on transfers of small-
business obligations receiving the capital treatment specified in
paragraph (h)(1) of this section cannot exceed 15 percent of the
national bank's or Federal savings association's total capital.
(3) If a national bank or Federal savings association ceases to be
well capitalized under 12 CFR 6.4 or exceeds the 15 percent capital
limitation provided in paragraph (h)(2) of this section, the capital
treatment under paragraph (h)(1) of this section will continue to apply
to any transfers of small-business obligations with retained contractual
exposure that occurred during the time that the national bank or Federal
savings association was well capitalized and did not exceed the capital
limit.
(4) The risk-based capital ratios of the national bank or Federal
savings association must be calculated without regard to the capital
treatment for transfers of small-business obligations specified in
paragraph (h)(1) of this section for purposes of:
(i) Determining whether a national bank or Federal savings
association is adequately capitalized, undercapitalized, significantly
undercapitalized, or critically undercapitalized under the OCC's prompt
corrective action regulations; and
(ii) Reclassifying a well-capitalized national bank or Federal
savings association to adequately capitalized and requiring an
adequately capitalized national bank or Federal savings association to
comply with certain mandatory or discretionary supervisory actions as if
the national bank or Federal savings association were in the next lower
prompt-corrective-action category.
(i) Nth-to-default credit derivatives--(1) Protection provider. A
national bank or Federal savings association may assign a risk weight
using the SSFA in Sec. 3.43 to an nth-to-default credit
derivative in accordance with this paragraph (i). A national bank or
Federal savings association must determine its exposure in the
nth-to-default credit derivative as the largest notional
amount of all the underlying exposures.
(2) For purposes of determining the risk weight for an
nth-to-default credit derivative using the SSFA, the national
bank or Federal savings association must calculate the attachment point
and detachment point of its exposure as follows:
(i) The attachment point (parameter A) is the ratio of the sum of
the notional amounts of all underlying exposures that are subordinated
to the national bank's or Federal savings association's exposure to the
total notional amount of all underlying exposures.
[[Page 97]]
The ratio is expressed as a decimal value between zero and one. In the
case of a first-to-default credit derivative, there are no underlying
exposures that are subordinated to the national bank's or Federal
savings association's exposure. In the case of a second-or-subsequent-
to-default credit derivative, the smallest (n-1) notional amounts of the
underlying exposure(s) are subordinated to the national bank's or
Federal savings association's exposure.
(ii) The detachment point (parameter D) equals the sum of parameter
A plus the ratio of the notional amount of the national bank's or
Federal savings association's exposure in the nth-to-default
credit derivative to the total notional amount of all underlying
exposures. The ratio is expressed as a decimal value between zero and
one.
(3) A national bank or Federal savings association that does not use
the SSFA to determine a risk weight for its nth-to-default
credit derivative must assign a risk weight of 1,250 percent to the
exposure.
(4) Protection purchaser--(i) First-to-default credit derivatives. A
national bank or Federal savings association that obtains credit
protection on a group of underlying exposures through a first-to-default
credit derivative that meets the rules of recognition of Sec. 3.36(b)
must determine its risk-based capital requirement for the underlying
exposures as if the national bank or Federal savings association
synthetically securitized the underlying exposure with the smallest
risk-weighted asset amount and had obtained no credit risk mitigant on
the other underlying exposures. A national bank or Federal savings
association must calculate a risk-based capital requirement for
counterparty credit risk according to Sec. 3.34 for a first-to-default
credit derivative that does not meet the rules of recognition of Sec.
3.36(b).
(ii) Second-or-subsequent-to-default credit derivatives. (A) A
national bank or Federal savings association that obtains credit
protection on a group of underlying exposures through a nth-
to-default credit derivative that meets the rules of recognition of
Sec. 3.36(b) (other than a first-to-default credit derivative) may
recognize the credit risk mitigation benefits of the derivative only if:
(1) The national bank or Federal savings association 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 national bank or Federal savings association satisfies the
requirements of paragraph (i)(4)(ii)(A) of this section, the national
bank or Federal savings association must determine its risk-based
capital requirement for the underlying exposures as if the national bank
or Federal savings association had only synthetically securitized the
underlying exposure with the nth smallest risk-weighted asset
amount and had obtained no credit risk mitigant on the other underlying
exposures.
(C) A national bank or Federal savings association must calculate a
risk-based capital requirement for counterparty credit risk according to
Sec. 3.34 for a nth-to-default credit derivative that does
not meet the rules of recognition of Sec. 3.36(b).
(j) Guarantees and credit derivatives other than nth-to-default
credit derivatives--(1) Protection provider. For a guarantee or credit
derivative (other than an nth-to-default credit derivative)
provided by a national bank or Federal savings association that covers
the full amount or a pro rata share of a securitization exposure's
principal and interest, the national bank or Federal savings association
must risk weight the guarantee or credit derivative as if it holds the
portion of the reference exposure covered by the guarantee or credit
derivative.
(2) Protection purchaser. (i) A national bank or Federal savings
association that purchases a guarantee or OTC credit derivative (other
than an nth-to-default credit derivative) that is recognized
under Sec. 3.45 as a credit risk mitigant (including via collateral
recognized under Sec. 3.37) is not required to compute a separate
counterparty credit risk capital requirement under Sec. 3.31, in
accordance with 34(c).
(ii) If a national bank or Federal savings association cannot, or
chooses not to, recognize a purchased credit derivative as a credit risk
mitigant under
[[Page 98]]
Sec. 3.45, the national bank or Federal savings association must
determine the exposure amount of the credit derivative under Sec. 3.34.
(A) If the national bank or Federal savings association purchases
credit protection from a counterparty that is not a securitization SPE,
the national bank or Federal savings association must determine the risk
weight for the exposure according to this subpart D.
(B) If the national bank or Federal savings association purchases
the credit protection from a counterparty that is a securitization SPE,
the national bank or Federal savings association must determine the risk
weight for the exposure according to section Sec. 3.42, including Sec.
3.42(a)(4) for a credit derivative that has a first priority claim on
the cash flows from the underlying exposures of the securitization SPE
(notwithstanding amounts due under interest rate or currency derivative
contracts, fees due, or other similar payments).
[78 FR 62157, 62273, Oct. 11, 2013, as amended at 84 FR 35256, July 22,
2019]
Sec. 3.43 Simplified supervisory formula approach (SSFA) and the
gross-up approach.
(a) General requirements for the SSFA. To use the SSFA to determine
the risk weight for a securitization exposure, a national bank or
Federal savings association must have data that enables it to assign
accurately the parameters described in paragraph (b) of this section.
Data used to assign the parameters described in paragraph (b) of this
section must be the most currently available data; if the contracts
governing the underlying exposures of the securitization require
payments on a monthly or quarterly basis, the data used to assign the
parameters described in paragraph (b) of this section must be no more
than 91 calendar days old. A national bank or Federal savings
association that does not have the appropriate data to assign the
parameters described in paragraph (b) of this section must assign a risk
weight of 1,250 percent to the exposure.
(b) SSFA parameters. To calculate the risk weight for a
securitization exposure using the SSFA, a national bank or Federal
savings association must have accurate information on the following five
inputs to the SSFA calculation:
(1) KG is the weighted-average (with unpaid principal
used as the weight for each exposure) total capital requirement of the
underlying exposures calculated using this subpart. KG is
expressed as a decimal value between zero and one (that is, an average
risk weight of 100 percent represents a value of KG equal to
0.08).
(2) Parameter W is expressed as a decimal value between zero and
one. Parameter W is the ratio of the sum of the dollar amounts of any
underlying exposures of the securitization that meet any of the criteria
as set forth in paragraphs (b)(2)(i) through (vi) of this section to the
balance, measured in dollars, of underlying exposures:
(i) Ninety days or more past due;
(ii) Subject to a bankruptcy or insolvency proceeding;
(iii) In the process of foreclosure;
(iv) Held as real estate owned;
(v) Has contractually deferred payments for 90 days or more, other
than principal or interest payments deferred on:
(A) Federally-guaranteed student loans, in accordance with the terms
of those guarantee programs; or
(B) Consumer loans, including non-federally-guaranteed student
loans, provided that such payments are deferred pursuant to provisions
included in the contract at the time funds are disbursed that provide
for period(s) of deferral that are not initiated based on changes in the
creditworthiness of the borrower; or
(vi) Is in default.
(3) Parameter A is the attachment point for the exposure, which
represents the threshold at which credit losses will first be allocated
to the exposure. Except as provided in Sec. 3.42(i) for nth-
to-default credit derivatives, parameter A equals the ratio of the
current dollar amount of underlying exposures that are subordinated to
the exposure of the national bank or Federal savings association to the
current dollar amount of underlying exposures. Any reserve account
funded by the accumulated cash flows from the underlying exposures that
is subordinated to the national bank's or Federal savings
[[Page 99]]
association's securitization exposure may be included in the calculation
of parameter A to the extent that cash is present in the account.
Parameter A is expressed as a decimal value between zero and one.
(4) Parameter D is the detachment point for the exposure, which
represents the threshold at which credit losses of principal allocated
to the exposure would result in a total loss of principal. Except as
provided in section 42(i) for nth-to-default credit
derivatives, parameter D equals parameter A plus the ratio of the
current dollar amount of the securitization exposures that are pari
passu with the exposure (that is, have equal seniority with respect to
credit risk) to the current dollar amount of the underlying exposures.
Parameter D is expressed as a decimal value between zero and one.
(5) A supervisory calibration parameter, p, is equal to 0.5 for
securitization exposures that are not resecuritization exposures and
equal to 1.5 for resecuritization exposures.
(c) Mechanics of the SSFA. KG and W are used to calculate
KA, the augmented value of KG, which reflects the
observed credit quality of the underlying exposures. KA is
defined in paragraph (d) of this section. The values of parameters A and
D, relative to KA determine the risk weight assigned to a
securitization exposure as described in paragraph (d) of this section.
The risk weight assigned to a securitization exposure, or portion of a
securitization exposure, as appropriate, is the larger of the risk
weight determined in accordance with this paragraph (c) or paragraph (d)
of this section and a risk weight of 20 percent.
(1) When the detachment point, parameter D, for a securitization
exposure is less than or equal to KA, the exposure must be
assigned a risk weight of 1,250 percent.
(2) When the attachment point, parameter A, for a securitization
exposure is greater than or equal to KA, the national bank or
Federal savings association must calculate the risk weight in accordance
with paragraph (d) of this section.
(3) When A is less than KA and D is greater than
KA, the risk weight is a weighted-average of 1,250 percent
and 1,250 percent times KSSFA calculated in accordance with
paragraph (d) of this section. For the purpose of this weighted-average
calculation:
[[Page 100]]
[GRAPHIC] [TIFF OMITTED] TR11OC13.024
(e) Gross-up approach--(1) Applicability. A national bank or Federal
savings association that is not subject to subpart F of this part may
apply the gross-up approach set forth in this section instead of the
SSFA to determine the risk weight of its securitization exposures,
provided that it applies the gross-up approach to all of its
securitization exposures, except as otherwise provided for certain
securitization exposures in Sec. Sec. 3.44 and 3.45.
(2) To use the gross-up approach, a national bank or Federal savings
association must calculate the following four inputs:
(i) Pro rata share, which is the par value of the national bank's or
Federal
[[Page 101]]
savings association's securitization exposure as a percent of the par
value of the tranche in which the securitization exposure resides;
(ii) Enhanced amount, which is the par value of tranches that are
more senior to the tranche in which the national bank's or Federal
savings association's securitization resides;
(iii) Exposure amount of the national bank's or Federal savings
association's securitization exposure calculated under Sec. 3.42(c);
and
(iv) Risk weight, which is the weighted-average risk weight of
underlying exposures of the securitization as calculated under this
subpart.
(3) Credit equivalent amount. The credit equivalent amount of a
securitization exposure under this section equals the sum of:
(i) The exposure amount of the national bank's or Federal savings
association's securitization exposure; and
(ii) The pro rata share multiplied by the enhanced amount, each
calculated in accordance with paragraph (e)(2) of this section.
(4) Risk-weighted assets. To calculate risk-weighted assets for a
securitization exposure under the gross-up approach, a national bank or
Federal savings association must apply the risk weight required under
paragraph (e)(2) of this section to the credit equivalent amount
calculated in paragraph (e)(3) of this section.
(f) Limitations. Notwithstanding any other provision of this
section, a national bank or Federal savings association must assign a
risk weight of not less than 20 percent to a securitization exposure.
Sec. 3.44 Securitization exposures to which the SSFA and gross-up
approach do not apply.
(a) General requirement. A national bank or Federal savings
association must assign a 1,250 percent risk weight to all
securitization exposures to which the national bank or Federal savings
association does not apply the SSFA or the gross-up approach under Sec.
3.43, except as set forth in this section.
(b) Eligible ABCP liquidity facilities. A national bank or Federal
savings association may determine the risk-weighted asset amount of an
eligible ABCP liquidity facility by multiplying the exposure amount by
the highest risk weight applicable to any of the individual underlying
exposures covered by the facility.
(c) A securitization exposure in a second loss position or better to
an ABCP program--(1) Risk weighting. A national bank or Federal savings
association may determine the risk-weighted asset amount of a
securitization exposure that is in a second loss position or better to
an ABCP program that meets the requirements of paragraph (c)(2) of this
section by multiplying the exposure amount by the higher of the
following risk weights:
(i) 100 percent; and
(ii) The highest risk weight applicable to any of the individual
underlying exposures of the ABCP program.
(2) Requirements. (i) The exposure is not an eligible ABCP liquidity
facility;
(ii) The exposure must be economically in a second loss position or
better, and the first loss position must provide significant credit
protection to the second loss position;
(iii) The exposure qualifies as investment grade; and
(iv) The national bank or Federal savings association holding the
exposure must not retain or provide protection to the first loss
position.
Sec. 3.45 Recognition of credit risk mitigants for securitization
exposures.
(a) General. (1) An originating national bank or Federal savings
association that has obtained a credit risk mitigant to hedge its
exposure to a synthetic or traditional securitization that satisfies the
operational criteria provided in Sec. 3.41 may recognize the credit
risk mitigant under Sec. 3.36 or Sec. 3.37, but only as provided in
this section.
(2) An investing national bank or Federal savings association that
has obtained a credit risk mitigant to hedge a securitization exposure
may recognize the credit risk mitigant under Sec. 3.36 or Sec. 3.37,
but only as provided in this section.
(b) Mismatches. A national bank or Federal savings association must
make
[[Page 102]]
any applicable adjustment to the protection amount of an eligible
guarantee or credit derivative as required in Sec. 3.36(d), (e), and
(f) for any hedged securitization exposure. 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 national bank or Federal savings association must use
the longest residual maturity of any of the hedged exposures as the
residual maturity of all hedged exposures.
Sec. Sec. 3.46-3.50 [Reserved]
Risk-Weighted Assets for Equity Exposures
Sec. 3.51 Introduction and exposure measurement.
(a) General. (1) To calculate its risk-weighted asset amounts for
equity exposures that are not equity exposures to an investment fund, a
national bank or Federal savings association must use the Simple Risk-
Weight Approach (SRWA) provided in 3.52. A national bank or Federal
savings association must use the look-through approaches provided in
Sec. 3.53 to calculate its risk-weighted asset amounts for equity
exposures to investment funds.
(2) A national bank or Federal savings association must treat an
investment in a separate account (as defined in Sec. 3.2) as if it were
an equity exposure to an investment fund as provided in Sec. 3.53.
(3) Stable value protection. (i) Stable value protection means a
contract where the provider of the contract is obligated to pay:
(A) The policy owner of a separate account an amount equal to the
shortfall between the fair value and cost basis of the separate account
when the policy owner of the separate account surrenders the policy; or
(B) The beneficiary of the contract an amount equal to the shortfall
between the fair value and book value of a specified portfolio of
assets.
(ii) A national bank or Federal savings association that purchases
stable value protection on its investment in a separate account must
treat the portion of the carrying value of its investment in the
separate account attributable to the stable value protection as an
exposure to the provider of the protection and the remaining portion of
the carrying value of its separate account as an equity exposure to an
investment fund.
(iii) A national bank or Federal savings association that provides
stable value protection must treat the exposure as an equity derivative
with an adjusted carrying value determined as the sum of paragraphs
(b)(1) and (3) of this section.
(b) Adjusted carrying value. For purposes of Sec. Sec. 3.51 through
3.53, the adjusted carrying value of an equity exposure is:
(1) For the on-balance sheet component of an equity exposure (other
than an equity exposure that is classified as available-for-sale where
the national bank or Federal savings association has made an AOCI opt-
out election under Sec. 3.22(b)(2)), the national bank's or Federal
savings association's carrying value of the exposure;
(2) For the on-balance sheet component of an equity exposure that is
classified as available-for-sale where the national bank or Federal
savings association has made an AOCI opt-out election under Sec.
3.22(b)(2), the national bank's or Federal savings association's
carrying value of the exposure less any net unrealized gains on the
exposure that are reflected in such carrying value but excluded from the
national bank's or Federal savings association's regulatory capital
components;
(3) For the off-balance sheet component of an equity exposure that
is not an equity commitment, 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) given a
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; and
(4) For a commitment to acquire an equity exposure (an equity
commitment), the effective notional principal amount of the exposure is
multiplied
[[Page 103]]
by the following conversion factors (CFs):
(i) Conditional equity commitments with an original maturity of one
year or less receive a CF of 20 percent.
(ii) Conditional equity commitments with an original maturity of
over one year receive a CF of 50 percent.
(iii) Unconditional equity commitments receive a CF of 100 percent.
Sec. 3.52 Simple risk-weight approach (SRWA).
(a) General. Under the SRWA, a national bank's or Federal savings
association's total risk-weighted assets for equity exposures equals the
sum of the risk-weighted asset amounts for each of the national bank's
or Federal savings association's individual equity exposures (other than
equity exposures to an investment fund) as determined under this section
and the risk-weighted asset amounts for each of the national bank's or
Federal savings association's individual equity exposures to an
investment fund as determined under Sec. 3.53.
(b) SRWA computation for individual equity exposures. A national
bank or 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) Zero percent risk weight equity exposures. An equity exposure to
a sovereign, the Bank for International Settlements, the European
Central Bank, the European Commission, the International Monetary Fund,
the European Stability Mechanism, the European Financial Stability
Facility, an MDB, and any other entity whose credit exposures receive a
zero percent risk weight under Sec. 3.32 may be assigned a zero percent
risk weight.
(2) 20 percent risk weight equity exposures. An equity exposure to a
PSE, Federal Home Loan Bank or the Federal Agricultural Mortgage
Corporation (Farmer Mac) must be assigned a 20 percent risk weight.
(3) 100 percent risk weight equity exposures. The equity exposures
set forth in this paragraph (b)(3) must be assigned a 100 percent risk
weight.
(i) Community development equity exposures. An equity exposure that
qualifies as a community development investment under section 24
(Eleventh) of the National Bank Act, 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.
(ii) Effective portion of hedge pairs. The effective portion of a
hedge pair.
(iii) Non-significant equity exposures. Equity exposures, excluding
significant investments in the capital of an unconsolidated financial
institution in the form of common stock and exposures to an investment
firm that would meet the definition of a traditional securitization were
it not for the application of paragraph (8) of that definition in Sec.
3.2 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 national bank's or Federal savings association's total
capital.
(A) To compute the aggregate adjusted carrying value of a national
bank's or Federal savings association's equity exposures for purposes of
this section, the national bank or Federal 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 national
bank or Federal savings association does not know the actual holdings of
the investment fund, the national bank or Federal 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
[[Page 104]]
limits for all exposure classes within the fund exceeds 100 percent, the
national bank or Federal savings association must assume for purposes of
this section that the investment fund invests to the maximum extent
possible in equity exposures.
(B) When determining which of a national bank's or Federal savings
association's equity exposures qualify for a 100 percent risk weight
under this paragraph (b), a national bank or Federal 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, 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) 250 percent risk weight equity exposures. Significant
investments in the capital of unconsolidated financial institutions in
the form of common stock that are not deducted from capital pursuant to
Sec. 3.22(d)(2) are assigned a 250 percent risk weight.
(5) 300 percent risk weight equity exposures. A publicly traded
equity exposure (other than an equity exposure described in paragraph
(b)(7) of this section and including the ineffective portion of a hedge
pair) must be assigned a 300 percent risk weight.
(6) 400 percent risk weight equity exposures. An equity exposure
(other than an equity exposure described in paragraph (b)(7)) of this
section that is not publicly traded must be assigned a 400 percent risk
weight.
(7) 600 percent risk weight equity exposures. An equity exposure to
an investment firm must be assigned a 600 percent risk weight, provided
that the investment firm:
(i) Would meet the definition of a traditional securitization were
it not for the application of paragraph (8) of that definition; and
(ii) Has greater than immaterial leverage.
(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
national bank or Federal savings association acquires at least one of
the equity exposures); the documentation specifies the measure of
effectiveness (E) the national bank or 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
national bank or Federal savings association must measure E at least
quarterly and must use one of three alternative measures of E as set
forth in this paragraph (c).
(i) Under the dollar-offset method of measuring effectiveness, the
national bank or Federal savings association must determine the ratio of
value change (RVC). The RVC is the ratio of the cumulative sum of the
changes in value of one equity exposure to the cumulative sum of the
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 105]]
[GRAPHIC] [TIFF OMITTED] TR11OC13.027
(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 E equals 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.
[78 FR 62157, 62273, Oct. 11, 2013, as amended at 84 FR 35256, July 22,
2019]
Sec. 3.53 Equity exposures to investment funds.
(a) Available approaches. (1) Unless the exposure meets the
requirements for a community development equity exposure under Sec.
3.52(b)(3)(i), a national bank or Federal savings association must
determine the risk-weighted asset amount of an equity exposure to an
investment fund under the full look-through approach described in
paragraph (b) of this section, the simple modified look-through approach
described in paragraph (c) of this section, or the alterative modified
look-through approach described paragraph (d) of this section, provided,
however, that the minimum risk weight that may be assigned to an equity
exposure under this section is 20 percent.
(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 Sec. 3.52(b)(3)(i) is its adjusted carrying value.
(3) If an equity exposure to an investment fund is part of a hedge
pair and the national bank or Federal savings association does not use
the full look-through approach, the national bank or Federal savings
association must use the ineffective portion of the hedge pair as
determined under Sec. 3.52(c) 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 national bank or 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 subpart as if the proportional ownership
share of the adjusted carrying value of each exposure were held directly
by the national bank or Federal savings association) may set the risk-
weighted asset amount of the national bank's or Federal savings
association's exposure to the fund equal to the product of:
(1) The aggregate risk-weighted asset amounts of the exposures held
by the fund as if they were held directly by
[[Page 106]]
the national bank or Federal savings association; and
(2) The national bank's or Federal savings association's
proportional ownership share of the fund.
(c) Simple modified look-through approach. Under the simple modified
look-through approach, the risk-weighted asset amount for a national
bank's or 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 that applies to any exposure the
fund is permitted to hold under the prospectus, partnership agreement,
or similar agreement 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).
(d) Alternative modified look-through approach. Under the
alternative modified look-through approach, a national bank or 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 under this subpart 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 national bank's or Federal savings association's equity
exposure to the investment fund equals the sum of each portion of the
adjusted carrying value assigned to an exposure type multiplied by the
applicable risk weight under this subpart. If the sum of the investment
limits for all exposure types within the fund exceeds 100 percent, the
national bank or Federal savings association must assume that the fund
invests to the maximum extent permitted under its investment limits in
the exposure type with the highest applicable risk weight under this
subpart and continues to make investments in order of the exposure type
with the next highest applicable risk weight under this subpart until
the maximum total investment level is reached. If more than one exposure
type applies to an exposure, the national bank or Federal savings
association must use the highest applicable risk weight. A national bank
or 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.
Sec. Sec. 3.54-3.60 [Reserved]
Disclosures
Sec. 3.61 Purpose and scope.
Sections 3.61 through 3.63 of this subpart establish public
disclosure requirements related to the capital requirements described in
subpart B of this part for a national bank or Federal savings
association with total consolidated assets of $50 billion or more as
reported on the national bank's or Federal savings association's most
recent year-end Call Report that is not an advanced approaches national
bank or Federal savings association making public disclosures pursuant
to Sec. 3.172. An advanced approaches national bank or Federal savings
association that has not received approval from the OCC to exit parallel
run pursuant to Sec. 3.121(d) is subject to the disclosure requirements
described in Sec. Sec. 3.62 and 3.63. A national bank or Federal
savings association with total consolidated assets of $50 billion or
more as reported on the national bank's or Federal savings association's
most recent year-end Call Report that is not an advanced approaches
national bank or Federal savings association making public disclosures
subject to Sec. 3.172 must comply with Sec. 3.62 unless it is a
consolidated subsidiary of a bank holding company, savings and loan
holding company, or depository institution that is subject to the
disclosure requirements of Sec. 3.62 or a subsidiary of a non-U.S.
banking organization that is subject to comparable public disclosure
requirements in its home jurisdiction. For purposes of this section,
total consolidated assets are determined based on the average of the
national bank's or Federal savings association's total consolidated
assets in the four most recent quarters as reported on the Call Report
or the
[[Page 107]]
average of the national bank or Federal savings association's total
consolidated assets in the most recent consecutive quarters as reported
quarterly on the national bank's or Federal savings association's Call
Report if the national bank or Federal savings association has not filed
such a report for each of the most recent four quarters.
[84 FR 35256, July 22, 2019]
Sec. 3.62 Disclosure requirements.
(a) A national bank or Federal savings association described in
Sec. 3.61 must provide timely public disclosures each calendar quarter
of the information in the applicable tables in Sec. 3.63. If a
significant change occurs, such that the most recent reported amounts
are no longer reflective of the national bank's or Federal savings
association's capital adequacy and risk profile, then a brief discussion
of this change and its likely impact must be disclosed as soon as
practicable thereafter. Qualitative disclosures that typically do not
change each quarter (for example, a general summary of the national
bank's or Federal savings association's risk management objectives and
policies, reporting system, and definitions) may be disclosed annually
after the end of the fourth calendar quarter, provided that any
significant changes are disclosed in the interim. The national bank's or
Federal savings association's management may provide all of the
disclosures required by Sec. Sec. 3.61 through 3.63 in one place on the
national bank's or Federal savings association's public Web site or may
provide the disclosures in more than one public financial report or
other regulatory reports, provided that the national bank or Federal
savings association publicly provides a summary table specifically
indicating the location(s) of all such disclosures.
(b) A national bank or Federal savings association described in
Sec. 3.61 must have a formal disclosure policy approved by the board of
directors that addresses its approach for determining the disclosures it
makes. 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 subpart, and must ensure that appropriate
review of the disclosures takes place. One or more senior officers of
the national bank or Federal savings association must attest that the
disclosures meet the requirements of this subpart.
(c) If a national bank or Federal savings association described in
Sec. 3.61 concludes that specific commercial or financial information
that it would otherwise be required to disclose under this section would
be exempt from disclosure by the OCC under the Freedom of Information
Act (5 U.S.C. 552), then the national bank or Federal savings
association is not required to disclose that specific information
pursuant to this section, 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.
Sec. 3.63 Disclosures by national banks or Federal savings
associations described in Sec. 3.61.
(a) Except as provided in Sec. 3.62, a national bank or Federal
savings association described in Sec. 3.61 must make the disclosures
described in Tables 1 through 10 of this section. The national bank or
Federal savings association must make these disclosures publicly
available for each of the last three years (that is, twelve quarters) or
such shorter period beginning on January 1, 2015.
(b) A national bank or Federal savings association must publicly
disclose each quarter the following:
(1) Common equity tier 1 capital, additional tier 1 capital, tier 2
capital, tier 1 and total capital ratios, including the regulatory
capital elements and all the regulatory adjustments and deductions
needed to calculate the numerator of such ratios;
(2) Total risk-weighted assets, including the different regulatory
adjustments and deductions needed to calculate total risk-weighted
assets;
(3) Regulatory capital ratios during any transition periods,
including a description of all the regulatory capital
[[Page 108]]
elements and all regulatory adjustments and deductions needed to
calculate the numerator and denominator of each capital ratio during any
transition period; and
(4) A reconciliation of regulatory capital elements as they relate
to its balance sheet in any audited consolidated financial statements.
Table 1 to Sec. 3.63--Scope of Application
------------------------------------------------------------------------
------------------------------------------------------------------------
Qualitative Disclosures....... (a).............. The name of the top
corporate entity in
the group to which
subpart D of this
part applies.
(b).............. A brief description
of the differences
in the basis for
consolidating
entities \1\ for
accounting and
regulatory purposes,
with a description
of those entities:
(1) That are fully
consolidated;
(2) That are
deconsolidated and
deducted from total
capital;
(3) For which the
total capital
requirement is
deducted; and
(4) That are neither
consolidated nor
deducted (for
example, where the
investment in the
entity is assigned a
risk weight in
accordance with this
subpart).
(c).............. Any restrictions, or
other major
impediments, on
transfer of funds or
total capital within
the group.
(d).............. The aggregate amount
of surplus capital
of insurance
subsidiaries
included in the
total capital of the
consolidated group.
(e).............. The aggregate amount
by which actual
total capital is
less than the
minimum total
capital requirement
in all subsidiaries,
with total capital
requirements and the
name(s) of the
subsidiaries with
such deficiencies.
------------------------------------------------------------------------
\1\ Entities include securities, insurance and other financial
subsidiaries, commercial subsidiaries (where permitted), and
significant minority equity investments in insurance, financial and
commercial entities.
Table 2 to Sec. 3.63--Capital Structure
------------------------------------------------------------------------
------------------------------------------------------------------------
Qualitative Disclosures....... (a).............. Summary information
on the terms and
conditions of the
main features of all
regulatory capital
instruments.
Quantitative Disclosures...... (b).............. The amount of common
equity tier 1
capital, with
separate disclosure
of:
(1) Common stock and
related surplus;
(2) Retained
earnings;
(3) Common equity
minority interest;
(4) AOCI; and
(5) Regulatory
adjustments and
deductions made to
common equity tier 1
capital.
(c).............. The amount of tier 1
capital, with
separate disclosure
of:
(1) Additional tier 1
capital elements,
including additional
tier 1 capital
instruments and tier
1 minority interest
not included in
common equity tier 1
capital; and
(2) Regulatory
adjustments and
deductions made to
tier 1 capital.
(d).............. The amount of total
capital, with
separate disclosure
of:
(1) Tier 2 capital
elements, including
tier 2 capital
instruments and
total capital
minority interest
not included in tier
1 capital; and
(2) Regulatory
adjustments and
deductions made to
total capital.
------------------------------------------------------------------------
Table 3 to Sec. 3.63--Capital Adequacy
------------------------------------------------------------------------
------------------------------------------------------------------------
Qualitative disclosures..... (a) A summary discussion of the national
bank's or 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:
(1) Exposures to sovereign entities;
(2) Exposures to certain supranational
entities and MDBs;
(3) Exposures to depository
institutions, foreign banks, and
credit unions;
(4) Exposures to PSEs;
(5) Corporate exposures;
(6) Residential mortgage exposures;
(7) Statutory multifamily mortgages and
pre-sold construction loans;
(8) HVCRE exposures;
(9) Past due loans;
[[Page 109]]
(10) Other assets;
(11) Cleared transactions;
(12) Default fund contributions;
(13) Unsettled transactions;
(14) Securitization exposures; and
(15) Equity exposures.
(c) Standardized market risk-weighted
assets as calculated under subpart F of
this part.
(d) Common equity tier 1, tier 1 and total
risk-based capital ratios:
(1) For the top consolidated group; and
(2) For each depository institution
subsidiary.
(e) Total standardized risk-weighted
assets.
------------------------------------------------------------------------
Table 4 to Sec. 3.63--Capital Conservation Buffer
------------------------------------------------------------------------
------------------------------------------------------------------------
Quantitative Disclosures...... (a).............. At least quarterly,
the national bank or
Federal savings
association must
calculate and
publicly disclose
the capital
conservation buffer
as described under
Sec. 3.11.
(b).............. At least quarterly,
the national bank or
Federal savings
association must
calculate and
publicly disclose
the eligible
retained income of
the national bank or
Federal savings
association, as
described under Sec.
3.11.
(c).............. At least quarterly,
the national bank or
Federal savings
association must
calculate and
publicly disclose
any limitations it
has on distributions
and discretionary
bonus payments
resulting from the
capital conservation
buffer framework
described under Sec.
3.11, including
the maximum payout
amount for the
quarter.
------------------------------------------------------------------------
(c) General qualitative disclosure requirement. For each separate
risk area described in Tables 5 through 10, the national bank or 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.
Table 5 to Sec. 3.63 \1\--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 6), including
the:
(1) Policy for
determining past due
or delinquency
status;
(2) Policy for
placing loans on
nonaccrual;
(3) Policy for
returning loans to
accrual status;
(4) Definition of and
policy for
identifying impaired
loans (for financial
accounting
purposes);
(5) Description of
the methodology that
the national bank or
Federal savings
association uses to
estimate its
allowance for loan
and lease losses or
adjusted allowance
for credit losses,
as applicable,
including
statistical methods
used where
applicable;
(6) Policy for
charging-off
uncollectible
amounts; and
(7) Discussion of the
national bank's or
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, without taking
into account the
effects of credit
risk mitigation
techniques (for
example, collateral
and netting not
permitted under
GAAP), over the
period categorized
by major types of
credit exposure. For
example, national
banks or Federal
savings associations
could use categories
similar to that used
for financial
statement purposes.
Such categories
might include, for
instance
(1) Loans, off-
balance sheet
commitments, and
other non-derivative
off-balance sheet
exposures;
[[Page 110]]
(2) Debt securities;
and
(3) OTC
derivatives.\2\
(c).............. Geographic
distribution of
exposures,
categorized in
significant areas by
major types of
credit exposure.\3\
(d).............. Industry or
counterparty type
distribution of
exposures,
categorized by major
types of credit
exposure.
(e).............. By major industry or
counterparty type:
(1) Amount of
impaired loans for
which there was a
related allowance
under GAAP;
(2) Amount of
impaired loans for
which there was no
related allowance
under GAAP;
(3) Amount of loans
past due 90 days and
on nonaccrual;
(4) Amount of loans
past due 90 days and
still accruing; \4\
(5) The balance in
the allowance for
loan and lease
losses or adjusted
allowance for credit
losses, as
applicable, at the
end of each period,
disaggregated on the
basis of the
national bank's or
Federal savings
association's
impairment method.
To disaggregate the
information required
on the basis of
impairment
methodology, an
entity shall
separately disclose
the amounts based on
the requirements in
GAAP; and
(6) Charge-offs
during the period.
(f).............. Amount of impaired
loans and, if
available, the
amount of past due
loans categorized by
significant
geographic areas
including, if
practical, the
amounts of
allowances related
to each geographical
area,\5\ further
categorized as
required by GAAP.
(g).............. Reconciliation of
changes in ALLL or
AACL, as
applicable.\6\
(h).............. Remaining contractual
maturity delineation
(for example, one
year or less) of the
whole portfolio,
categorized by
credit exposure.
------------------------------------------------------------------------
\1\ Table 5 does not cover equity exposures, which should be reported in
Table 9.
\2\ See, for example, ASC Topic 815-10 and 210, as they may be amended
from time to time.
\3\ Geographical areas may consist of individual countries, groups of
countries, or regions within countries. A national bank or Federal
savings association might choose to define the geographical areas
based on the way the national bank's or Federal savings association's
portfolio is geographically managed. The criteria used to allocate the
loans to geographical areas must be specified.
\4\ A national bank or Federal savings association is encouraged also to
provide an analysis of the aging of past-due loans.
\5\ The portion of the general allowance that is not allocated to a
geographical area should be disclosed separately.
\6\ 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.
Table 6 to Sec. 3.63--General Disclosure for Counterparty Credit Risk-
Related Exposures
------------------------------------------------------------------------
------------------------------------------------------------------------
Qualitative Disclosures....... (a).............. The general
qualitative
disclosure
requirement with
respect to OTC
derivatives,
eligible margin
loans, and repo-
style transactions,
including a
discussion of:
(1) The methodology
used to assign
credit limits for
counterparty credit
exposures;
(2) Policies for
securing collateral,
valuing and managing
collateral, and
establishing credit
reserves;
(3) The primary types
of collateral taken;
and
(4) The impact of the
amount of collateral
the national bank or
Federal savings
association would
have to provide
given a
deterioration in the
national bank's or
Federal savings
association's own
creditworthiness.
Quantitative Disclosures...... (b).............. Gross positive fair
value of contracts,
collateral held
(including type, for
example, cash,
government
securities), and net
unsecured credit
exposure.\1\ A
national bank or
Federal savings
association also
must disclose the
notional value of
credit derivative
hedges purchased for
counterparty credit
risk protection and
the distribution of
current credit
exposure by exposure
type.\2\
(c).............. Notional amount of
purchased and sold
credit derivatives,
segregated between
use for the national
bank's or Federal
savings
association's own
credit portfolio and
in its
intermediation
activities,
including the
distribution of the
credit derivative
products used,
categorized further
by protection bought
and sold within each
product group.
------------------------------------------------------------------------
\1\ Net unsecured credit exposure is the credit exposure after
considering both the benefits from legally enforceable netting
agreements and collateral arrangements without taking into account
haircuts for price volatility, liquidity, etc.
\2\ 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.
[[Page 111]]
Table 7 to Sec. 3.63--Credit Risk Mitigation \1 2\
------------------------------------------------------------------------
------------------------------------------------------------------------
Qualitative Disclosures....... (a).............. The general
qualitative
disclosure
requirement with
respect to credit
risk mitigation,
including:
(1) Policies and
processes for
collateral valuation
and management;
(2) A description of
the main types of
collateral taken by
the national bank or
Federal savings
association;
(3) The main types of
guarantors/credit
derivative
counterparties and
their
creditworthiness;
and
(4) Information about
(market or credit)
risk concentrations
with respect to
credit risk
mitigation.
Quantitative Disclosures...... (b).............. For each separately
disclosed credit
risk portfolio, the
total exposure that
is covered by
eligible financial
collateral, and
after the
application of
haircuts.
(c).............. For each separately
disclosed portfolio,
the total exposure
that is covered by
guarantees/credit
derivatives and the
risk-weighted asset
amount associated
with that exposure.
------------------------------------------------------------------------
\1\ At a minimum, a national bank or Federal savings association must
provide the disclosures in Table 7 in relation to credit risk
mitigation that has been recognized for the purposes of reducing
capital requirements under this subpart. Where relevant, national
banks or Federal savings associations are encouraged to give further
information about mitigants that have not been recognized for that
purpose.
\2\ Credit derivatives that are treated, for the purposes of this
subpart, as synthetic securitization exposures should be excluded from
the credit risk mitigation disclosures and included within those
relating to securitization (Table 8).
Table 8 to Sec. 3.63--Securitization
------------------------------------------------------------------------
------------------------------------------------------------------------
Qualitative Disclosures. (a) The general qualitative disclosure
requirement with respect to a securitization
(including synthetic securitizations),
including a discussion of:
(1) The national bank's or Federal savings
association 's objectives for securitizing
assets, including the extent to which
these activities transfer credit risk of
the underlying exposures away from the
national bank or Federal savings
association to other entities and
including the type of risks assumed and
retained with resecuritization activity;
\1\
(2) The nature of the risks (e.g.,
liquidity risk) inherent in the
securitized assets;
(3) The roles played by the national bank
or Federal savings association in the
securitization process \2\ and an
indication of the extent of the national
bank's or Federal savings association 's
involvement in each of them;
(4) The processes in place to monitor
changes in the credit and market risk of
securitization exposures including how
those processes differ for
resecuritization exposures;
(5) The national bank's or Federal savings
association's policy for mitigating the
credit risk retained through
securitization and resecuritization
exposures; and
(6) The risk-based capital approaches that
the national bank or Federal savings
association follows for its securitization
exposures including the type of
securitization exposure to which each
approach applies.
(b) A list of:
(1) The type of securitization SPEs that
the national bank or Federal savings
association, as sponsor, uses to
securitize third-party exposures. The
national bank or Federal savings
association must indicate whether it has
exposure to these SPEs, either on- or off-
balance sheet; and
(2) Affiliated entities:
(i) That the national bank or Federal
savings association manages or advises;
and
(ii) That invest either in the
securitization exposures that the
national bank or Federal savings
association has securitized or in
securitization SPEs that the national
bank or Federal savings association
sponsors.\3\
(c) Summary of the national bank's or Federal
savings association's accounting policies for
securitization activities, including:
(1) Whether the transactions are treated as
sales or financings;
(2) Recognition of gain-on-sale;
[[Page 112]]
(3) Methods and key assumptions applied in
valuing retained or purchased interests;
(4) Changes in methods and key assumptions
from the previous period for valuing
retained interests and impact of the
changes;
(5) Treatment of synthetic securitizations;
(6) How exposures intended to be
securitized are valued and whether they
are recorded under subpart D of this part;
and
(7) Policies for recognizing liabilities on
the balance sheet for arrangements that
could require the national bank or Federal
savings association to provide financial
support for securitized assets.
(d) An explanation of significant changes to
any quantitative information since the last
reporting period.
Quantitative Disclosures (e) The total outstanding exposures
securitized by the national bank or Federal
savings association in securitizations that
meet the operational criteria provided in
Sec. 3.41 (categorized into traditional and
synthetic securitizations), by exposure type,
separately for securitizations of third-party
exposures for which the bank acts only as
sponsor.\4\
(f) For exposures securitized by the national
bank or Federal savings association in
securitizations that meet the operational
criteria in Sec. 3.41:
(1) Amount of securitized assets that are
impaired/past due categorized by exposure
type; \5\ and
(2) Losses recognized by the national bank
or Federal savings association during the
current period categorized by exposure
type.\6\
(g) The total amount of outstanding exposures
intended to be securitized categorized by
exposure type.
(h) Aggregate amount of:
(1) On-balance sheet securitization
exposures retained or purchased
categorized by exposure type; and
(2) Off-balance sheet securitization
exposures categorized by exposure type.
(i)(1) Aggregate amount of securitization
exposures retained or purchased and the
associated capital requirements for these
exposures, categorized between securitization
and resecuritization exposures, further
categorized into a meaningful number of risk
weight bands and by risk-based capital
approach (e.g., SSFA); and
(2) Aggregate amount disclosed separately
by type of underlying exposure in the pool
of any:
(i) After-tax gain-on-sale on a
securitization that has been deducted
from common equity tier 1 capital; and
(ii) Credit-enhancing interest-only strip
that is assigned a 1,250 percent risk
weight.
(j) Summary of current year's securitization
activity, including the amount of exposures
securitized (by exposure type), and
recognized gain or loss on sale by exposure
type.
(k) Aggregate amount of resecuritization
exposures retained or purchased categorized
according to:
(1) Exposures to which credit risk
mitigation is applied and those not
applied; and
(2) Exposures to guarantors categorized
according to guarantor creditworthiness
categories or guarantor name.
------------------------------------------------------------------------
\1\ The national bank or Federal savings association should describe the
structure of resecuritizations in which it participates; this
description should be provided for the main categories of
resecuritization products in which the national bank or Federal
savings association is active.
\2\ For example, these roles may include originator, investor, servicer,
provider of credit enhancement, sponsor, liquidity provider, or swap
provider.
\3\ Such affiliated entities may include, for example, money market
funds, to be listed individually, and personal and private trusts, to
be noted collectively.
[[Page 113]]
\4\ ``Exposures securitized'' include underlying exposures originated by
the national bank or Federal savings association, whether generated by
them or purchased, and recognized in the balance sheet, from third
parties, and third-party exposures included in sponsored transactions.
Securitization transactions (including underlying exposures originally
on the national bank's or Federal savings association's balance sheet
and underlying exposures acquired by the national bank or Federal
savings association from third-party entities) in which the
originating bank does not retain any securitization exposure should be
shown separately but need only be reported for the year of inception.
National banks and Federal savings associations are required to
disclose exposures regardless of whether there is a capital charge
under this part.
\5\ Include credit-related other than temporary impairment (OTTI).
\6\ For example, charge-offs/allowances (if the assets remain on the
national bank's or Federal savings association's balance sheet) or
credit-related OTTI of interest-only strips and other retained
residual interests, as well as recognition of liabilities for probable
future financial support required of the national bank or Federal
savings association with respect to securitized assets.
Table 9 to Sec. 3.63--Equities Not Subject to Subpart F of This Part
------------------------------------------------------------------------
------------------------------------------------------------------------
Qualitative Disclosures....... (a).............. The general
qualitative
disclosure
requirement with
respect to equity
risk for equities
not subject to
subpart F of this
part, including:
(1) Differentiation
between holdings on
which capital gains
are expected and
those taken under
other objectives
including for
relationship and
strategic reasons;
and
(2) Discussion of
important policies
covering the
valuation of and
accounting for
equity holdings not
subject to subpart F
of this part. 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 on
the balance sheet of
investments, as well
as the fair value of
those investments;
for securities that
are publicly traded,
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: (1)
Publicly traded; and
(2) Non publicly
traded.
(d).............. The cumulative
realized gains
(losses) arising
from sales and
liquidations in the
reporting period.
(e).............. (1) Total unrealized
gains (losses).\1\
(2) Total latent
revaluation gains
(losses).\2\
(3) Any amounts of
the above included
in tier 1 or tier 2
capital.
(f).............. Capital requirements
categorized by
appropriate equity
groupings,
consistent with the
national bank's or
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.
------------------------------------------------------------------------
\1\ Unrealized gains (losses) recognized on the balance sheet but not
through earnings.
\2\ Unrealized gains (losses) not recognized either on the balance sheet
or through earnings.
Table 10 to Sec. 3.63--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,
categorized by
currency (as
appropriate).
------------------------------------------------------------------------
(d) A Category III national bank or Federal savings association that
is required to publicly disclose its supplementary leverage ratio
pursuant to Sec. 3.172(d) is subject to the supplementary leverage
ratio disclosure requirement at Sec. 3.173(a)(2).
(e) A Category III national bank or Federal savings association that
is required to calculate a countercyclical capital buffer pursuant to
Sec. 3.11 is subject to the disclosure requirement at Table 4 to Sec.
3.173, ``Capital Conservation and Countercyclical Capital Buffers,'' and
not to the disclosure requirement at Table 4 to this section, ``Capital
Conservation Buffer.''
[78 FR 62157, 62273, Oct. 11, 2013, as amended at 84 FR 4238, Feb. 14,
2019; 84 FR 35256, July 22, 2019; 84 FR 59265, Nov. 1, 2019]
[[Page 114]]
Sec. Sec. 3.64-3.99 [Reserved]
Subpart E_Risk-Weighted Assets_Internal Ratings-Based and Advanced
Measurement Approaches
Source: 78 FR 62157, 62273, Oct. 11, 2013, unless otherwise noted.
Sec. 3.100 Purpose, applicability, and principle of conservatism.
(a) Purpose. This subpart E establishes:
(1) Minimum qualifying criteria for national banks or Federal
savings associations using institution-specific internal risk
measurement and management processes for calculating risk-based capital
requirements; and
(2) Methodologies for such national banks or Federal savings
associations to calculate their total risk-weighted assets.
(b) Applicability. (1) This subpart applies to a national bank or
Federal savings association that:
(i) Is a subsidiary of a global systemically important BHC, as
identified pursuant to 12 CFR 217.402;
(ii) Is a Category II national bank or Federal savings association;
(iii) Is a subsidiary of a depository institution that uses the
advanced approaches pursuant to this subpart (OCC), 12 CFR part 217,
subpart E (Board), or 12 CFR part 324 (FDIC), to calculate its risk-
based capital requirements;
(iv) Is a subsidiary of a bank holding company or savings and loan
holding company that uses the advanced approaches pursuant to subpart E
of 12 CFR part 217 to calculate its risk-based capital requirements; or
(v) Elects to use this subpart to calculate its risk-based capital
requirements.
(2) A market risk national bank or Federal savings association must
exclude from its calculation of risk-weighted assets under this subpart
the risk-weighted asset amounts of all covered positions, as defined in
subpart F of this part (except foreign exchange positions that are not
trading positions, over-the-counter derivative positions, cleared
transactions, and unsettled transactions).
(c) Principle of conservatism. Notwithstanding the requirements of
this subpart, a national bank or Federal savings association may choose
not to apply a provision of this subpart to one or more exposures
provided that:
(1) The national bank or Federal 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 subpart;
(2) The national bank or Federal savings association appropriately
manages the risk of each such exposure;
(3) The national bank or Federal savings association notifies the
OCC in writing prior to applying this principle to each such exposure;
and
(4) The exposures to which the national bank or Federal savings
association applies this principle are not, in the aggregate, material
to the national bank or Federal savings association.
[78 FR 62157, 62273, Oct. 11, 2013, as amended at 80 FR 41415, July 15,
2015; 84 FR 59265, Nov. 1, 2019]
Sec. 3.101 Definitions.
(a) Terms that are set forth in Sec. 3.2 and used in this subpart
have the definitions assigned thereto in Sec. 3.2.
(b) For the purposes of this subpart, the following terms are
defined as follows:
Advanced internal ratings-based (IRB) systems means an advanced
approaches national bank's or 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 an advanced approaches national bank's or
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 used by the
national bank or Federal savings association, the internal
[[Page 115]]
models methodology, advanced CVA approach, double default excessive
correlation detection process, and internal models approach (IMA) for
equity exposures.
Backtesting means the comparison of a national bank's or Federal
savings association'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.
Benchmarking means the comparison of a national bank's or Federal
savings association's internal estimates with relevant internal and
external data or with estimates based on other estimation techniques.
Bond option contract means a bond option, bond future, or any other
instrument linked to a bond that gives rise to similar counterparty
credit risk.
Business environment and internal control factors means the
indicators of a national bank's or Federal savings association's
operational risk profile that reflect a current and forward-looking
assessment of the national bank's or Federal savings association's
underlying business risk factors and internal control environment.
Credit default swap (CDS) means a financial contract executed under
standard industry documentation that allows one party (the protection
purchaser) to transfer the credit risk of one or more exposures
(reference exposure(s)) to another party (the protection provider) for a
certain period of time.
Credit valuation adjustment (CVA) means the fair value adjustment to
reflect counterparty credit risk in valuation of OTC derivative
contracts.
Default--For the purposes of calculating capital requirements under
this subpart:
(1) Retail. (i) A retail exposure of a national bank or 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 retail
exposures that are not residential mortgage exposures or revolving
exposures; or
(C) The national bank or Federal 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 national bank or
Federal 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 national bank or Federal savings association may elect to use the
definition of default that is used in that jurisdiction, provided that
the national bank or Federal 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
national bank or Federal savings association has reasonable assurance of
repayment and performance for all contractual principal and interest
payments on the exposure.
(2) Wholesale. (i) A national bank's or Federal savings
association's wholesale obligor is in default if:
(A) The national bank or Federal savings association determines that
the obligor is unlikely to pay its credit obligations to the national
bank or Federal savings association in full, without recourse by the
national bank or Federal 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 national bank or Federal savings association.\29\
---------------------------------------------------------------------------
\29\ 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 national
bank or Federal savings association has reasonable assurance of
repayment and performance for all contractual principal and interest
payments on all exposures of the national bank or Federal savings
association to the obligor (other than
[[Page 116]]
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.
Economic downturn conditions means, with respect to an exposure held
by the national bank or Federal 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 national bank or Federal savings association) in the exposure's
national jurisdiction (or subdivision of such jurisdiction selected by
the national bank or Federal 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 national bank or Federal savings association does not
apply the internal models approach in section 132(d), 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 national bank or Federal savings
association applies the internal models approach in Sec. 3.132(d), the
value determined in Sec. 3.132(d)(4).
Eligible double default guarantor, with respect to a guarantee or
credit derivative obtained by a national bank or Federal savings
association, means:
(1) U.S.-based entities. A depository institution, a bank holding
company, a savings and loan holding company, or a securities broker or
dealer registered with the SEC under the Securities Exchange Act, if at
the time the guarantee is issued or anytime thereafter, has issued and
outstanding an unsecured debt security without credit enhancement that
is investment grade.
(2) Non-U.S.-based entities. A foreign bank, or a non-U.S.-based
securities firm if the national bank or Federal savings association
demonstrates that the guarantor is subject to consolidated supervision
and regulation comparable to that imposed on U.S. depository
institutions, or securities broker-dealers) if at the time the guarantee
is issued or anytime thereafter, has issued and outstanding an unsecured
debt security without credit enhancement that is investment grade.
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 national bank or Federal 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 national bank or Federal 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
[[Page 117]]
(5) When consolidated by obligor, does not represent a concentrated
exposure relative to the portfolio of purchased wholesale exposures.
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 fair values in the
probability distribution of fair values to a counterparty at a specified
future date are set to zero to convert the probability distribution of
fair 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 national bank's or 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) means:
(1) For the on-balance sheet component of a wholesale exposure or
segment of retail exposures (other than an OTC derivative contract, a
repo-style transaction or eligible margin loan for which the national
bank or Federal savings association determines EAD under Sec. 3.132, a
cleared transaction, or default fund contribution), EAD means the
national bank's or Federal savings association'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, a
repo-style transaction or eligible margin loan for which the national
bank or Federal savings association determines EAD under Sec. 3.132,
cleared transaction, or default fund contribution) in the form of a loan
commitment, line of credit, trade-related letter of credit, or
transaction-related contingency, EAD means the national bank's or
Federal savings association's best estimate of net additions to the
outstanding amount owed the national bank or Federal 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. For the purposes of this definition:
(i) 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.
(ii) 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, a
repo-style transaction, or eligible margin loan for which the national
bank or Federal savings association determines EAD under Sec. 3.132,
cleared transaction, or default fund contribution) 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
Sec. 3.132. A national bank or Federal savings association also may
determine EAD for repo-style transactions and eligible margin loans as
described in Sec. 3.132.
Exposure category means any of the wholesale, retail,
securitization, or equity exposure categories.
External operational loss event data means, with respect to a
national bank or Federal savings association, gross operational loss
amounts, dates, recoveries, and relevant causal information for
operational loss events occurring at organizations other than the
national bank or Federal savings association.
[[Page 118]]
IMM exposure means a repo-style transaction, eligible margin loan,
or OTC derivative for which a national bank or Federal savings
association calculates its EAD using the internal models methodology of
Sec. 3.132(d).
Internal operational loss event data means, with respect to a
national bank or Federal savings association, gross operational loss
amounts, dates, recoveries, and relevant causal information for
operational loss events occurring at the national bank or Federal
savings association.
Loss given default (LGD) means:
(1) For a wholesale exposure, the greatest of:
(i) Zero;
(ii) The national bank's or Federal savings association's
empirically based best estimate of the long-run default-weighted average
economic loss, per dollar of EAD, the national bank or Federal savings
association would expect to incur if the obligor (or a typical obligor
in the loss severity grade assigned by the national bank or Federal
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 national bank's or Federal savings association's
empirically based best estimate of the economic loss, per dollar of EAD,
the national bank or Federal savings association would expect to incur
if the obligor (or a typical obligor in the loss severity grade assigned
by the national bank or Federal 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 national bank's or Federal savings association's
empirically based best estimate of the long-run default-weighted average
economic loss, per dollar of EAD, the national bank or Federal 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 national bank's or Federal savings association's
empirically based best estimate of the economic loss, per dollar of EAD,
the national bank or Federal 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.
Obligor means the legal entity or natural person contractually
obligated on a wholesale exposure, except that a national bank or
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 national bank or Federal 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
[[Page 119]]
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.
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 national bank's or 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).
Other retail exposure means an exposure (other than a securitization
exposure, an equity exposure, a residential mortgage exposure, a pre-
sold construction loan, 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 national bank's or Federal savings association's consolidated
business credit exposure to the individual or company is $1 million or
less.
Probability of default (PD) means:
[[Page 120]]
(1) For a wholesale exposure to a non-defaulted obligor, the
national bank's or Federal savings association's empirically based best
estimate of the long-run average one-year default rate for the rating
grade assigned by the national bank or Federal 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 national
bank's or Federal 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.
(3) For a wholesale exposure to a defaulted obligor or segment of
defaulted retail exposures, 100 percent.
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 the underlying financial transactions are OTC derivative
contracts, eligible margin loans, or repo-style transactions. In order
to treat an agreement as a qualifying cross-product master netting
agreement for purposes of this subpart, a national bank or Federal
savings association must comply with the requirements of Sec. 3.3(c) of
this part with respect to that 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 a borrower's decision to borrow and repay up to a
pre-established maximum amount, except for an outstanding amount that
the borrower is required to pay in full every month);
(2) Is unsecured and unconditionally cancelable by the national bank
or Federal savings association to the fullest extent permitted by
Federal law; and
(3)(i) Has a maximum contractual exposure amount (drawn plus
undrawn) of up to $100,000; or
(ii) With respect to a product with an outstanding amount that the
borrower is required to pay in full every month, the total outstanding
amount does not in practice exceed $100,000.
(4) A segment of exposures that contains one or more exposures that
fails to meet paragraph (3)(ii) of this definition must be treated as a
segment of other retail exposures for the 24 month period following the
month in which the total outstanding amount of one or more exposures
individually exceeds $100,000.
Retail exposure means a residential mortgage exposure, a qualifying
revolving exposure, or an other retail exposure.
Retail exposure subcategory means the residential mortgage exposure,
qualifying revolving exposure, or other retail exposure subcategory.
Risk parameter means a variable used in determining risk-based
capital requirements for wholesale and retail exposures, specifically
probability of default (PD), loss given default (LGD), exposure at
default (EAD), or effective maturity (M).
Scenario analysis means a systematic process of obtaining expert
opinions from business managers and risk management experts to derive
reasoned assessments of the likelihood and loss impact of plausible
high-severity operational losses. Scenario analysis may include the
well-reasoned evaluation and use of external operational loss event
data, adjusted as appropriate to ensure relevance to a national bank's
or Federal savings association's operational risk profile and control
structure.
Total wholesale and retail risk-weighted assets means the sum of:
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(1) Risk-weighted assets for wholesale exposures that are not IMM
exposures, cleared transactions, or default fund contributions to non-
defaulted obligors and segments of non-defaulted retail exposures;
(2) Risk-weighted assets for wholesale exposures to defaulted
obligors and segments of defaulted retail exposures;
(3) Risk-weighted assets for assets not defined by an exposure
category;
(4) Risk-weighted assets for non-material portfolios of exposures;
(5) Risk-weighted assets for IMM exposures (as determined in Sec.
3.132(d));
(6) Risk-weighted assets for cleared transactions and risk-weighted
assets for default fund contributions (as determined in Sec. 3.133);
and
(7) Risk-weighted assets for unsettled transactions (as determined
in Sec. 3.136).
Unexpected operational loss (UOL) means the difference between the
national bank's or Federal savings association's operational risk
exposure and the national bank's or Federal savings association's
expected operational loss.
Unit of measure means the level (for example, organizational unit or
operational loss event type) at which the national bank's or Federal
savings association's operational risk quantification system generates a
separate distribution of potential operational losses.
Wholesale exposure means a credit exposure to a company, natural
person, sovereign, or governmental entity (other than a securitization
exposure, retail exposure, pre-sold construction loan, or equity
exposure).
Wholesale exposure subcategory means the HVCRE or non-HVCRE
wholesale exposure subcategory.
Qualification
Sec. 3.121 Qualification process.
(a) Timing. (1) A national bank or Federal savings association that
is described in Sec. 3.100(b)(1)(i) through (iv) must adopt a written
implementation plan no later than six months after the date the national
bank or Federal savings association meets a criterion in that section.
The implementation plan must incorporate an explicit start date no later
than 36 months after the date the national bank or Federal savings
association meets at least one criterion under Sec. 3.100(b)(1)(i)
through (iv). The OCC may extend the start date.
(2) A national bank or Federal savings association that elects to be
subject to this appendix under Sec. 3.100(b)(1)(v) must adopt a written
implementation plan.
(b) Implementation plan. (1) The national bank's or Federal savings
association's implementation plan must address in detail how the
national bank or Federal savings association complies, or plans to
comply, with the qualification requirements in Sec. 3.122. The national
bank or Federal 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 Sec.
3.122 for the national bank or Federal savings association and each
consolidated subsidiary (U.S. and foreign-based) of the national bank or
Federal savings association with respect to all portfolios and exposures
of the national bank or Federal 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 the
application of the advanced approaches in this subpart (which business
lines, portfolios, and exposures must be, in the aggregate, immaterial
to the national bank or Federal savings association);
(iii) Include the national bank's or Federal savings association's
self-assessment of:
(A) The national bank's or Federal savings association's current
status in meeting the qualification requirements in Sec. 3.122; and
(B) The consistency of the national bank's or Federal savings
association's current practices with the OCC's supervisory guidance on
the qualification requirements;
(iv) Based on the national bank's or Federal savings association's
self-assessment, identify and describe the areas in which the national
bank or Federal savings association proposes to undertake additional
work to comply
[[Page 122]]
with the qualification requirements in Sec. 3.122 or to improve the
consistency of the national bank's or Federal savings association's
current practices with the OCC's supervisory guidance on the
qualification requirements (gap analysis);
(v) Describe what specific actions the national bank or 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 national bank's or Federal savings
association's implementation of the methodologies described in this
subpart will be fully operational;
(vii) Describe resources that have been budgeted and are available
to implement the plan; and
(viii) Receive approval of the national bank's or Federal savings
association's board of directors.
(2) The national bank or Federal 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 national
bank or Federal savings association proposes to begin its parallel run,
unless the OCC waives prior notice.
(c) Parallel run. Before determining its risk-weighted assets under
this subpart and following adoption of the implementation plan, the
national bank or Federal 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 national bank or
Federal savings association complies with the qualification requirements
in Sec. 3.122 to the satisfaction of the OCC. During the parallel run,
the national bank or Federal savings association must report to the OCC
on a calendar quarterly basis its risk-based capital ratios determined
in accordance with Sec. 3.10(b)(1) through (3) and Sec. 3.10 (c)(1)
through (3). During this period, the national bank's or Federal savings
association's minimum risk-based capital ratios are determined as set
forth in subpart D of this part.
(d) Approval to calculate risk-based capital requirements under this
subpart. The OCC will notify the national bank or Federal savings
association of the date that the national bank or Federal savings
association must begin to use this subpart for purposes of Sec. 3.10 if
the OCC determines that:
(1) The national bank or Federal savings association fully complies
with all the qualification requirements in Sec. 3.122;
(2) The national bank or Federal savings association has conducted a
satisfactory parallel run under paragraph (c) of this section; and
(3) The national bank or Federal savings association has an adequate
process to ensure ongoing compliance with the qualification requirements
in Sec. 3.122.
Sec. 3.122 Qualification requirements.
(a) Process and systems requirements. (1) A national bank or 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 national bank or Federal
savings association for risk-based capital purposes under this subpart
must be consistent with the national bank's or Federal savings
association's internal risk management processes and management
information reporting systems.
(3) Each national bank or 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 national bank's or Federal savings
association's size and level of complexity. Regardless of whether the
systems and models that generate the risk parameters necessary for
calculating a national bank's or Federal savings association's risk-
based capital requirements are located at any affiliate of the national
bank or Federal savings association, the national bank or Federal
savings association itself must ensure that the risk parameters and
reference data used to determine its risk-based capital requirements are
representative of long run experience with respect to its own
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credit risk and operational risk exposures.
(b) Risk rating and segmentation systems for wholesale and retail
exposures. (1)(i) A national bank or Federal savings association must
have an internal risk rating and segmentation system that accurately,
reliably, and meaningfully differentiates among degrees of credit risk
for the national bank's or Federal savings association's wholesale and
retail exposures. When assigning an internal risk rating, a national
bank or Federal savings association may consider a third-party
assessment of credit risk, provided that the national bank's or Federal
savings association's internal risk rating assignment does not rely
solely on the external assessment.
(ii) If a national bank or Federal savings association uses multiple
rating or segmentation systems, the national bank's or Federal savings
association's rationale for assigning an obligor or exposure to a
particular system must be documented and applied in a manner that best
reflects the obligor's or exposure's level of risk. A national bank or
Federal savings association must not inappropriately allocate obligors
or exposures across systems to minimize regulatory capital requirements.
(iii) In assigning ratings to wholesale obligors and exposures,
including loss severity ratings grades to wholesale exposures, and
assigning retail exposures to retail segments, a national bank or
Federal savings association must use all relevant and material
information and ensure that the information is current.
(iv) When assigning an obligor to a PD rating or retail exposure to
a PD segment, a national bank or Federal savings association must assess
the obligor or retail borrower's ability and willingness to
contractually perform, taking a conservative view of projected
information.
(2) For wholesale exposures:
(i) A national bank or 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 national bank or Federal savings association may elect,
however, not to assign to a rating grade an obligor to whom the national
bank or Federal savings association extends credit based solely on the
financial strength of a guarantor, provided that all of the national
bank's or Federal savings association's exposures to the obligor are
fully covered by eligible guarantees, the national bank or Federal
savings association applies the PD substitution approach in Sec.
3.134(c)(1) to all exposures to that obligor, and the national bank or
Federal savings association immediately assigns the obligor to a rating
grade if a guarantee can no longer be recognized under this part. The
national bank's or Federal 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 national bank or Federal savings association has
chosen to directly assign LGD estimates to each wholesale exposure, the
national bank or Federal 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 national bank's
or Federal savings association's estimate of the LGD of the exposure). A
national bank or 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.
(iii) A national bank or Federal savings association must have an
effective process to obtain and update in a timely manner relevant and
material information on obligor and exposure characteristics that affect
PD, LGD and EAD.
(3) For retail exposures:
(i) A national bank or Federal savings association must have an
internal system that groups retail exposures into the appropriate retail
exposure subcategory and groups the retail exposures in each retail
exposure subcategory into separate segments with homogeneous risk
characteristics that provide a meaningful differentiation of risk. The
national bank's or Federal savings association's system must identify
and group in separate segments by subcategories exposures identified in
Sec. 3.131(c)(2)(ii) and (iii).
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(ii) A national bank or Federal savings association must have an
internal system that captures all relevant exposure risk
characteristics, including borrower credit score, product and collateral
types, as well as exposure delinquencies, and must consider cross-
collateral provisions, where present.
(iii) The national bank or Federal savings association must review
and, if appropriate, update assignments of individual retail exposures
to segments and the loss characteristics and delinquency status of each
identified risk segment. These reviews must occur whenever the national
bank or Federal savings association receives new material information,
but generally no less frequently than quarterly, and, in all cases, at
least annually.
(4) The national bank's or Federal savings association's internal
risk rating policy for wholesale exposures must describe the national
bank's or Federal savings association's rating philosophy (that is, must
describe how wholesale obligor rating assignments are affected by the
national bank's or Federal savings association's choice of the range of
economic, business, and industry conditions that are considered in the
obligor rating process).
(5) The national bank's or Federal 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 national bank or Federal savings
association obtains relevant and material information on the obligor or
exposure that affects PD, LGD and EAD, but no less frequently than
annually.
(c) Quantification of risk parameters for wholesale and retail
exposures. (1) The national bank or Federal savings association must
have a comprehensive risk parameter quantification process that produces
accurate, timely, and reliable estimates of the risk parameters on a
consistent basis for the national bank's or Federal savings
association's wholesale and retail exposures.
(2) A national bank's or Federal savings association's estimates of
PD, LGD, and EAD must incorporate all relevant, material, and available
data that is reflective of the national bank's or Federal savings
association's actual wholesale and retail exposures and of sufficient
quality to support the determination of risk-based capital requirements
for the exposures. In particular, the population of exposures in the
data used for estimation purposes, the lending standards in use when the
data were generated, and other relevant characteristics, should closely
match or be comparable to the national bank's or Federal savings
association's exposures and standards. In addition, a national bank or
Federal savings association must:
(i) Demonstrate that its estimates are representative of long run
experience, including periods of economic downturn conditions, whether
internal or external data are used;
(ii) Take into account any changes in lending practice or the
process for pursuing recoveries over the observation period;
(iii) Promptly reflect technical advances, new data, and other
information as they become available;
(iv) Demonstrate that the data used to estimate risk parameters
support the accuracy and robustness of those estimates; and
(v) Demonstrate that its estimation technique performs well in out-
of-sample tests whenever possible.
(3) The national bank's or Federal savings association's risk
parameter quantification process must produce appropriately conservative
risk parameter estimates where the national bank or Federal 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 national bank's or Federal 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) The national bank or Federal savings association must be able to
demonstrate which variables have been found to be statistically
significant with regard to EAD. The national bank's or Federal savings
association's
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EAD estimates must reflect its specific policies and strategies with
regard to account management, including account monitoring and payment
processing, and its ability and willingness to prevent further drawdowns
in circumstances short of payment default. The national bank or Federal
savings association must have adequate systems and procedures in place
to monitor current outstanding amounts against committed lines, and
changes in outstanding amounts per obligor and obligor rating grade and
per retail segment. The national bank or Federal savings association
must be able to monitor outstanding amounts on a daily basis.
(6) At a minimum, 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. If the national bank or
Federal savings association has relevant and material reference data
that span a longer period of time than the minimum time periods
specified above, the national bank or Federal savings association must
incorporate such data in its estimates, provided that it does not place
undue weight on periods of favorable or benign economic conditions
relative to periods of economic downturn conditions.
(7) Default, loss severity, and exposure amount data must include
periods of economic downturn conditions, or the national bank or Federal
savings association must adjust its estimates of risk parameters to
compensate for the lack of data from periods of economic downturn
conditions.
(8) The national bank's or Federal savings association's PD, LGD,
and EAD estimates must be based on the definition of default in Sec.
3.101.
(9) If a national bank or Federal savings association uses internal
data obtained prior to becoming subject to this subpart E or external
data to arrive at PD, LGD, or EAD estimates, the national bank or
Federal savings association must demonstrate to the OCC that the
national bank or Federal savings association has made appropriate
adjustments if necessary to be consistent with the definition of default
in Sec. 3.101. Internal data obtained after the national bank or
Federal savings association becomes subject to this subpart E must be
consistent with the definition of default in Sec. 3.101.
(10) The national bank or Federal savings association must review
and update (as appropriate) its risk parameters and its risk parameter
quantification process at least annually.
(11) The national bank or Federal savings association must, at least
annually, conduct a comprehensive review and analysis of reference data
to determine relevance of the reference data to the national bank's or
Federal 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 in Sec. 3.101.
(d) Counterparty credit risk model. A national bank or Federal
savings association must obtain the prior written approval of the OCC
under Sec. 3.132 to use the internal models methodology for
counterparty credit risk and the advanced CVA approach for the CVA
capital requirement.
(e) Double default treatment. A national bank or Federal savings
association must obtain the prior written approval of the OCC under
Sec. 3.135 to use the double default treatment.
(f) Equity exposures model. A national bank or Federal savings
association must obtain the prior written approval of the OCC under
Sec. 3.153 to use the internal models approach for equity exposures.
(g) Operational risk. (1) Operational risk management processes. A
national bank or Federal savings association must:
(i) Have an operational risk management function that:
(A) Is independent of business line management; and
[[Page 126]]
(B) Is responsible for designing, implementing, and overseeing the
national bank's or Federal 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 national bank's
or Federal savings association's operational risk profile) to identify,
measure, monitor, and control operational risk in the national bank's or
Federal savings association's 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 national bank or
Federal savings association must have operational risk data and
assessment systems that capture operational risks to which the national
bank or Federal savings association is exposed. The national bank's or
Federal savings association's operational risk data and assessment
systems must:
(i) Be structured in a manner consistent with the national bank's or
Federal 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 national bank or
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 national bank's or Federal 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 national bank or Federal savings association must be able to
map its internal operational loss event data into the seven operational
loss event type categories.
(3) The national bank or Federal savings association may refrain
from collecting internal operational loss event data for individual
operational losses below established dollar threshold amounts if the
national bank or Federal 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
national bank or Federal savings association to capture substantially
all the dollar value of the national bank's or Federal savings
association's operational losses.
(B) External operational loss event data. The national bank or
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 national bank or 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 national
bank or Federal savings association must incorporate business
environment and internal control factors into its operational risk data
and assessment systems. The national bank or 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 national bank's
or Federal savings association's operational risk quantification
systems:
(A) Must generate estimates of the national bank's or Federal
savings association's operational risk exposure
[[Page 127]]
using its operational risk data and assessment systems;
(B) Must employ a unit of measure that is appropriate for the
national bank's or Federal 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
(g)(2)(ii) of this section, that a national bank or Federal 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 national bank or
Federal 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
uncertainty surrounding the estimates. If the national bank or Federal
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
national bank or Federal savings association becomes aware of
information that may have a material effect on the national bank's or
Federal 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 national bank or
Federal savings association may generate an estimate of its operational
risk exposure using an alternative approach to that specified in
paragraph (g)(3)(i) of this section. A national bank or Federal 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 national bank's or Federal 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 national bank or Federal savings
association;
(B) The national bank or Federal 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 national bank or Federal 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.
(h) Data management and maintenance. (1) A national bank or 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 national bank or 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 national bank or Federal savings association must retain
sufficient data elements related to key risk drivers to permit adequate
monitoring, validation, and refinement of its advanced systems.
(i) Control, oversight, and validation mechanisms. (1) The national
bank's or Federal savings association's senior management must ensure
that all components of the national bank's or Federal savings
association's advanced systems function effectively and comply with the
qualification requirements in this section.
(2) The national bank's or Federal savings association's board of
directors (or a designated committee of the board) must at least
annually review the effectiveness of, and approve, the
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national bank's or Federal savings association's advanced systems.
(3) A national bank or Federal 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
national bank's or Federal savings association's advanced systems; and
(iii) Includes adequate governance and project management processes.
(4) The national bank or Federal savings association must validate,
on an ongoing basis, its advanced systems. The national bank's or
Federal 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 backtesting.
(5) The national bank or Federal savings association must have an
internal audit function or equivalent function that is independent of
business-line management that at least annually:
(i) Reviews the national bank's or Federal savings association's
advanced systems and associated operations, including the operations of
its credit function and estimations of PD, LGD, and EAD;
(ii) Assesses the effectiveness of the controls supporting the
national bank's or Federal savings association's advanced systems; and
(iii) Documents and reports its findings to the national bank's or
Federal savings association's board of directors (or a committee
thereof).
(6) The national bank or 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).
(j) Documentation. The national bank or Federal savings association
must adequately document all material aspects of its advanced systems.
[78 FR 62157, 62273, Oct. 11, 2013, as amended at 80 FR 41415, July 15,
2015]
Sec. 3.123 Ongoing qualification.
(a) Changes to advanced systems. A national bank or Federal savings
association must meet all the qualification requirements in Sec. 3.122
on an ongoing basis. A national bank or Federal savings association must
notify the OCC when the national bank or Federal savings association
makes any change to an advanced system that would result in a material
change in the national bank's or Federal savings association's advanced
approaches total risk-weighted asset amount for an exposure type or when
the national bank or Federal savings association makes any significant
change to its modeling assumptions.
(b) Failure to comply with qualification requirements. (1) If the
OCC determines that a national bank or Federal savings association that
uses this subpart and that has conducted a satisfactory parallel run
fails to comply with the qualification requirements in Sec. 3.122, the
OCC will notify the national bank or Federal savings association in
writing of the national bank's or Federal savings association's failure
to comply.
(2) The national bank or 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 national bank's or
Federal savings association's advanced approaches total risk-weighted
assets are not commensurate with the national bank's or Federal savings
association's credit, market, operational, or other risks, the OCC may
require such a national bank or Federal savings association to calculate
its advanced approaches total risk-weighted assets with any
modifications provided by the OCC.
[[Page 129]]
Sec. 3.124 Merger and acquisition transitional arrangements.
(a) Mergers and acquisitions of companies without advanced systems.
If a national bank or Federal savings association merges with or
acquires a company that does not calculate its risk-based capital
requirements using advanced systems, the national bank or Federal
savings association may use subpart D of this part to determine the
risk-weighted asset amounts for 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 national bank or Federal
savings association must submit to the OCC an implementation plan for
using its advanced systems for the acquired company. During the period
in which subpart D of this part applies to the merged or acquired
company, any ALLL or AACL, as applicable, 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
national bank's or Federal 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
national bank's or Federal savings association's eligible credit
reserves. In addition, the risk-weighted assets of the merged or
acquired company are not included in the national bank's or Federal
savings association's credit-risk-weighted assets but are included in
total risk-weighted assets. If a national bank or Federal savings
association relies on this paragraph (a), the national bank or Federal
savings association must disclose publicly the amounts of risk-weighted
assets and qualifying capital calculated under this subpart for the
acquiring national bank or Federal savings association and under subpart
D of this part for the acquired company.
(b) Mergers and acquisitions of companies with advanced systems. (1)
If a national bank or Federal savings association merges with or
acquires a company that calculates its risk-based capital requirements
using advanced systems, the national bank or Federal savings association
may use the acquired company's advanced systems to determine total risk-
weighted assets for 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 national bank or Federal 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 national bank or Federal savings association is
not subject to the advanced approaches in this subpart at the time of
acquisition or merger, during the period when subpart D of this part
applies to the acquiring national bank or Federal savings association,
the ALLL or AACL, as applicable 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 national
bank's or Federal savings association's tier 2 capital up to 0.6 percent
of the credit-risk-weighted assets associated with those exposures.
[78 FR 62157, 62273, Oct. 11, 2013, as amended at 84 FR 4238, Feb. 14,
2019]
Sec. Sec. 3.125-3.130 [Reserved]
Risk-Weighted Assets for General Credit Risk
Sec. 3.131 Mechanics for calculating total wholesale and retail
risk-weighted assets.
(a) Overview. A national bank or 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;
[[Page 130]]
(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 national bank or Federal savings
association must determine which of its exposures are wholesale
exposures, retail exposures, securitization exposures, or equity
exposures. The national bank or Federal savings association must
categorize each retail exposure as a residential mortgage exposure, a
QRE, or an other retail exposure. The national bank or Federal 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, cleared
transactions, default fund contributions, unsettled transactions to
which Sec. 3.136 applies, and eligible guarantees or eligible credit
derivatives that are used as credit risk mitigants. The national bank or
Federal 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 national bank
or Federal 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 national bank or Federal savings association must identify
which of its wholesale obligors are in default.
(2) Segmentation of retail exposures. (i) The national bank or
Federal savings association must group the retail exposures in each
retail subcategory into segments that have homogeneous risk
characteristics.
(ii) The national bank or Federal savings association must identify
which of its retail exposures are in default. The national bank or
Federal savings association must segment defaulted retail exposures
separately from non-defaulted retail exposures.
(iii) If the national bank or Federal savings association determines
the EAD for eligible margin loans using the approach in Sec. 3.132(b),
the national bank or Federal savings association must identify which of
its retail exposures are eligible margin loans for which the national
bank or Federal savings association uses this EAD approach and must
segment such eligible margin loans separately from other retail
exposures.
(3) Eligible purchased wholesale exposures. A national bank or
Federal savings association may group its eligible purchased wholesale
exposures into segments that have homogeneous risk characteristics. A
national bank or Federal savings association must use the wholesale
exposure formula in Table 1 of 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 national bank or Federal
savings association 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, the European Stability
Mechanism, the European Financial Stability Facility, or a multilateral
development bank, to which the national bank or Federal savings
association assigns a rating grade associated with a PD of less than
0.03 percent.
[[Page 131]]
(3) Floor on LGD estimation. The LGD for each segment of residential
mortgage exposures may not be less than 10 percent, except for segments
of residential mortgage exposures for which all or substantially all of
the principal of each exposure is either:
(i) Directly and unconditionally guaranteed by the full faith and
credit of a sovereign entity; or
(ii) Guaranteed by a contingent obligation of the U.S. government or
its agencies, the enforceability of which is dependent upon some
affirmative action on the part of the beneficiary of the guarantee or a
third party (for example, meeting servicing requirements).
(4) Eligible purchased wholesale exposures. A national bank or
Federal savings association must assign a PD, LGD, EAD, and M to each
segment of eligible purchased wholesale exposures. If the national bank
or Federal savings association can estimate ECL (but not PD or LGD) for
a segment of eligible purchased wholesale exposures, the national bank
or Federal 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 national bank or 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 Sec. 3.134 or, if applicable, applying double default
treatment to the exposure as provided in Sec. 3.135. A national bank or
Federal savings association may decide separately for each wholesale
exposure that qualifies for the double default treatment under Sec.
3.135 whether to apply the double default treatment or to use the PD
substitution or LGD adjustment treatment without recognizing double
default effects.
(ii) A national bank or 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. In doing so, a national bank or Federal savings
association must consider all relevant available information.
(iii) Except as provided in paragraph (d)(6) of this section, a
national bank or 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. In order to do so, a national
bank or Federal savings association must have established internal
requirements for collateral management, legal certainty, and risk
management processes.
(6) EAD for OTC derivative contracts, repo-style transactions, and
eligible margin loans. A national bank or Federal savings association
must calculate its EAD for an OTC derivative contract as provided in
Sec. 3.132 (c) and (d). A national bank or 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 national bank's or Federal savings association's VaR-based
measure under subpart F of this part through an adjustment to EAD as
provided in Sec. 3.132(b) and (d). A national bank or Federal savings
association that takes collateral into account through such an
adjustment to EAD under Sec. 3.132 may not reflect such collateral in
LGD.
(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 is a trade related letter of credit,
or if the exposure has an original maturity of less than one year and is
not part of a national bank's or Federal savings association's ongoing
financing of the obligor. An exposure is not part of a national bank's
or Federal savings association's ongoing financing of the obligor if the
[[Page 132]]
national bank or Federal 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.
(8) EAD for exposures to certain central counterparties. A national
bank or Federal savings association may attribute an EAD of zero to
exposures that arise from the settlement of cash transactions (such as
equities, fixed income, spot foreign exchange, and spot commodities)
with a central counterparty where there is no assumption of ongoing
counterparty credit risk by the central counterparty after settlement of
the trade and associated default fund contributions.
(e) Phase 4--Calculation of risk-weighted assets--(1) Non-defaulted
exposures. (i) A national bank or Federal savings association must
calculate the dollar risk-based capital requirement for each of its
wholesale exposures to a non-defaulted obligor (except for eligible
guarantees and eligible credit derivatives that hedge another wholesale
exposure, IMM exposures, cleared transactions, default fund
contributions, unsettled transactions, and exposures to which the
national bank or Federal savings association applies the double default
treatment in Sec. 3.135) 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 1 and multiplying the output of the formula
(K) by the EAD of the exposure or segment. Alternatively, a national
bank or Federal savings association may apply a 300 percent risk weight
to the EAD of an eligible margin loan if the national bank or Federal
savings association is not able to meet the OCC's requirements for
estimation of PD and LGD for the margin loan.
[[Page 133]]
[GRAPHIC] [TIFF OMITTED] TR11OC13.028
[[Page 134]]
[GRAPHIC] [TIFF OMITTED] TR11OC13.029
(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 Sec. 3.135(e) 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 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) Not covered by an eligible U.S.
government guarantee: The dollar risk-based capital requirement for each
wholesale exposure not covered by an eligible guarantee from the U.S.
government to a defaulted obligor and each segment of defaulted retail
exposures not covered by an eligible guarantee from the U.S. government
equals 0.08 multiplied by the EAD of the exposure or segment.
(ii) Covered by an eligible U.S. government guarantee: The dollar
risk-based capital requirement for each wholesale exposure to a
defaulted obligor covered by an eligible guarantee from the U.S.
government and each segment of defaulted retail exposures covered by an
eligible guarantee from the U.S. government equals the sum of:
[[Page 135]]
(A) The sum of the EAD of the portion of each wholesale exposure to
a defaulted obligor covered by an eligible guarantee from the U.S.
government plus the EAD of the portion of each segment of defaulted
retail exposures that is covered by an eligible guarantee from the U.S.
government and the resulting sum is multiplied by 0.016, and
(B) The sum of the EAD of the portion of each wholesale exposure to
a defaulted obligor not covered by an eligible guarantee from the U.S.
government plus the EAD of the portion of each segment of defaulted
retail exposures that is not covered by an eligible guarantee from the
U.S. government and the resulting sum is multiplied by 0.08.
(iii) The sum of all the dollar risk-based capital requirements for
each wholesale exposure to a defaulted obligor and each segment of
defaulted retail exposures calculated in paragraph (e)(2)(i) of this
section plus the dollar risk-based capital requirements each wholesale
exposure to a defaulted obligor and 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
national bank or Federal savings association may assign a risk-weighted
asset amount of zero to cash owned and held in all offices of the
national bank or Federal savings association or in transit and for gold
bullion held in the national bank's or Federal savings association's own
vaults, or held in another national bank's or Federal savings
association's vaults on an allocated basis, to the extent the gold
bullion assets are offset by gold bullion liabilities.
(ii) A national bank or Federal savings association must assign a
risk-weighted asset amount equal to 20 percent of the carrying value of
cash items in the process of collection.
(iii) A national bank or Federal savings association must assign a
risk-weighted asset amount equal to 50 percent of the carrying value to
a pre-sold construction loan unless the purchase contract is cancelled,
in which case a national bank or Federal savings association must assign
a risk-weighted asset amount equal to a 100 percent of the carrying
value of the pre-sold construction loan.
(iv) The risk-weighted asset amount for the residual value of a
retail lease exposure equals such residual value.
(v) The risk-weighted asset amount for DTAs arising from temporary
differences that the national bank or Federal savings association could
realize through net operating loss carrybacks equals the carrying value,
netted in accordance with Sec. 3.22.
(vi) The risk-weighted asset amount for MSAs, DTAs arising from
temporary timing differences that the national bank or Federal savings
association could not realize through net operating loss carrybacks, and
significant investments in the capital of unconsolidated financial
institutions in the form of common stock that are not deducted pursuant
to Sec. 3.22(d) equals the amount not subject to deduction multiplied
by 250 percent.
(vii) The risk-weighted asset amount for any other on-balance-sheet
asset that does not meet the definition of a wholesale, retail,
securitization, IMM, or equity exposure, cleared transaction, or default
fund contribution and is not subject to deduction under Sec. 3.22(a),
(c), or (d) 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 national bank or
Federal savings association has demonstrated to the OCC's satisfaction
that the portfolio (when combined with all other portfolios of exposures
that the national bank or Federal savings association seeks to treat
under this paragraph (e)) is not material to the national bank or
Federal 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
[[Page 136]]
derivative contract that is not a credit derivative is the EAD of the
derivative as calculated in Sec. 3.132.
[78 FR 62157, 62273, Oct. 11, 2013, as amended at 80 FR 41416, July 15,
2015; 84 FR 35258, July 22, 2019]
Sec. 3.132 Counterparty credit risk of repo-style transactions,
eligible margin loans, and OTC derivative contracts.
(a) Methodologies for collateral recognition. (1) Instead of an LGD
estimation methodology, a national bank or Federal savings association
may use the following methodologies 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 national
bank's or Federal savings association's VaR-based measure under subpart
F of this part:
(i) The collateral haircut approach set forth in paragraph (b)(2) of
this section;
(ii) The internal models methodology set forth in paragraph (d) of
this section; and
(iii) For single product netting sets of repo-style transactions and
eligible margin loans, the simple VaR methodology set forth in paragraph
(b)(3) of this section.
(2) A national bank or Federal savings association may use any
combination of the three methodologies for collateral recognition;
however, it must use the same methodology for transactions in the same
category.
(3) A national bank or Federal savings association must use the
methodology in paragraph (c) of this section, or with prior written
approval of the OCC, the internal model methodology in paragraph (d) of
this section, to calculate EAD for an OTC derivative contract or a set
of OTC derivative contracts subject to a qualifying master netting
agreement. To estimate EAD for qualifying cross-product master netting
agreements, a national bank or Federal savings association may only use
the internal models methodology in paragraph (d) of this section.
(4) A national bank or Federal savings association must also use the
methodology in paragraph (e) of this section to calculate the risk-
weighted asset amounts for CVA for OTC derivatives.
(b) EAD for eligible margin loans and repo-style transactions--(1)
General. A national bank or Federal savings association 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 national bank or
Federal savings association may estimate an unsecured LGD for the
exposure, as well as for any repo-style transaction that is included in
the national bank's or Federal savings association's VaR-based measure
under subpart F of this part, 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 national bank
or 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 fair values of all instruments, gold, and cash the national bank
or 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 fair values of all instruments, gold, and cash the
[[Page 137]]
national bank or 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 fair values of the
instrument or gold the national bank or Federal savings association has
lent, sold subject to repurchase, or posted as collateral to the
counterparty minus the sum of the current fair values of that same
instrument or gold the national bank or Federal 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 fair values of any instruments or cash in the currency the
national bank or Federal savings association has lent, sold subject to
repurchase, or posted as collateral to the counterparty minus the sum of
the current fair values of any instruments or cash in the currency the
national bank or Federal 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 national bank or Federal savings association must use the
haircuts for market price volatility (Hs) in Table 1 to Sec.
3.132, as adjusted in certain circumstances as provided in paragraphs
(b)(2)(ii)(A)(3) and (4) of this section;
Table 1 to Sec. 3.132--Standard Supervisory Market Price Volatility Haircuts \1\
--------------------------------------------------------------------------------------------------------------------------------------------------------
Haircut (in percent) assigned based on:
------------------------------------------------------------------------------ Investment
Sovereign issuers risk weight under Non-sovereign issuers risk weight grade
Residual maturity Sec. 3.32 \2\ (in percent) under Sec. 3.32 (in percent) securitization
------------------------------------------------------------------------------ exposures (in
Zero 20 or 50 100 20 50 100 percent)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Less than or equal to 1 year.............................. 0.5 1.0 15.0 1.0 2.0 4.0 4.0
Greater than 1 year and less than or equal to 5 years..... 2.0 3.0 15.0 4.0 6.0 8.0 12.0
Greater than 5 years...................................... 4.0 6.0 15.0 8.0 12.0 16.0 24.0
--------------------------------------------------------------------------------------------------------------------------------------------------------
Main index equities (including convertible bonds) and gold.........................15.0..........
--------------------------------------------------------------------------------------------------------------------------------------------------------
Other publicly traded equities (including convertible bonds).......................25.0..........
--------------------------------------------------------------------------------------------------------------------------------------------------------
Mutual funds...................................................Highest haircut applicable to any security in
which the fund can invest.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Cash collateral held...............................................................Zero..........
--------------------------------------------------------------------------------------------------------------------------------------------------------
Other exposure types...............................................................25.0 .........
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ The market price volatility haircuts in Table 1 to Sec. 3.132 are based on a 10 business-day holding period.
\2\ Includes a foreign PSE that receives a zero percent risk weight.
(2) For currency mismatches, a national bank or Federal savings
association must use a haircut for foreign exchange rate volatility
(Hfx) of 8 percent, as adjusted in certain circumstances as
provided in paragraphs (b)(2)(ii)(A)(3) and (4) of this section.
(3) For repo-style transactions, a national bank or 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).
[[Page 138]]
(4) A national bank or 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 the following conditions apply. If the
number of trades in a netting set exceeds 5,000 at any time during a
quarter, a national bank or Federal savings association must adjust the
supervisory haircuts upward on the basis of a holding period of twenty
business days for the following quarter (except when a national bank or
Federal savings association is calculating EAD for a cleared transaction
under Sec. 3.133). If a netting set contains one or more trades
involving illiquid collateral or an OTC derivative that cannot be easily
replaced, a national bank or Federal savings association must adjust the
supervisory haircuts upward on the basis of a holding period of twenty
business days. If over the two previous quarters more than two margin
disputes on a netting set have occurred that lasted more than the
holding period, then the national bank or Federal savings association
must adjust the supervisory haircuts upward for that netting set on the
basis of a holding period that is at least two times the minimum holding
period for that netting set. A national bank or Federal savings
association must adjust the standard supervisory haircuts upward using
the following formula:
[GRAPHIC] [TIFF OMITTED] TR11OC13.030
(i) TM equals a holding period of longer than 10 business
days for eligible margin loans and derivative contracts or longer than 5
business days for repo-style transactions;
(ii) Hs equals the standard supervisory haircut; and
(iii) Ts equals 10 business days for eligible margin
loans and derivative contracts or 5 business days for repo-style
transactions.
(5) If the instrument a national bank or Federal savings association
has lent, sold subject to repurchase, or posted as collateral does not
meet the definition of financial collateral, the national bank or
Federal savings association must use a 25.0 percent haircut for market
price volatility (Hs).
(iii) Own internal estimates for haircuts. With the prior written
approval of the OCC, a national bank or 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 OCC approval to use its own internal estimates, a
national bank or Federal savings association must satisfy the following
minimum quantitative standards:
(1) A national bank or 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
except for transactions or netting sets for which paragraph
(b)(2)(iii)(A)(3) of this section applies. When a national bank or
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] TR11OC13.031
[[Page 139]]
(i) TM equals 5 for repo-style transactions and 10 for
eligible margin loans;
(ii) TN equals the holding period used by the national
bank or Federal savings association to derive HN; and
(iii) HN equals the haircut based on the holding period
TN
(3) If the number of trades in a netting set exceeds 5,000 at any
time during a quarter, a national bank or Federal savings association
must calculate the haircut using a minimum holding period of twenty
business days for the following quarter (except when a national bank or
Federal savings association is calculating EAD for a cleared transaction
under Sec. 3.133). If a netting set contains one or more trades
involving illiquid collateral or an OTC derivative that cannot be easily
replaced, a national bank or Federal savings association must calculate
the haircut using a minimum holding period of twenty business days. If
over the two previous quarters more than two margin disputes on a
netting set have occurred that lasted more than the holding period, then
the national bank or Federal savings association must calculate the
haircut for transactions in that netting set on the basis of a holding
period that is at least two times the minimum holding period for that
netting set.
(4) A national bank or Federal savings association is required to
calculate its own internal estimates with inputs calibrated to
historical data from a continuous 12-month period that reflects a period
of significant financial stress appropriate to the security or category
of securities.
(5) A national bank or Federal savings association must have
policies and procedures that describe how it determines the period of
significant financial stress used to calculate the national bank's or
Federal savings association's own internal estimates for haircuts under
this section and must be able to provide empirical support for the
period used. The national bank or Federal savings association must
obtain the prior approval of the OCC for, and notify the OCC if the
national bank or Federal savings association makes any material changes
to, these policies and procedures.
(6) Nothing in this section prevents the OCC from requiring a
national bank or Federal savings association to use a different period
of significant financial stress in the calculation of own internal
estimates for haircuts.
(7) A national bank or Federal savings association must update its
data sets and calculate 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 are investment grade, a
national bank or Federal savings association may calculate haircuts for
categories of securities. For a category of securities, the national
bank or Federal savings association 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
national bank or Federal 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 national
bank or Federal savings association must at a minimum take into account:
(1) The type of issuer of the security;
(2) The credit quality 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 are not investment grade
and equity securities, a national bank or 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 national bank or 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 national bank's or Federal savings association's own estimates
of market price and foreign exchange rate volatilities may not take into
account the correlations among securities and
[[Page 140]]
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 national bank or 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 national bank or Federal
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 fair values of all instruments, gold, and cash the national bank
or Federal 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 fair values of all instruments, gold, and cash the national bank
or Federal 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 national bank's or
Federal 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 except for netting sets for which paragraph
(b)(3)(iv) of this section applies using a minimum one-year historical
observation period of price data representing the instruments that the
national bank or Federal savings association has lent, sold subject to
repurchase, posted as collateral, borrowed, purchased subject to resale,
or taken as collateral. The national bank or Federal savings association
must validate its VaR model by establishing and maintaining a rigorous
and regular backtesting regime.
(iv) If the number of trades in a netting set exceeds 5,000 at any
time during a quarter, a national bank or Federal savings association
must use a twenty-business-day holding period for the following quarter
(except when a national bank or Federal savings association is
calculating EAD for a cleared transaction under Sec. 3.133). If a
netting set contains one or more trades involving illiquid collateral, a
national bank or Federal savings association must use a twenty-business-
day holding period. If over the two previous quarters more than two
margin disputes on a netting set have occurred that lasted more than the
holding period, then the national bank or Federal savings association
must set its PFE for that netting set equal to an estimate over a
holding period that is at least two times the minimum holding period for
that netting set.
(c) EAD for OTC derivative contracts--(1) OTC derivative contracts
not subject to a qualifying master netting agreement. A national bank or
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. A national bank or Federal savings association may
reduce the EAD calculated according to paragraph (c)(5) of this section
by the credit valuation adjustment that the national bank or Federal
savings association has recognized in its balance sheet valuation of any
OTC derivative contracts in the netting set. For purposes of this
paragraph (c)(1), the credit valuation adjustment does not include any
adjustments to common equity tier 1 capital attributable to changes in
the fair value of the national bank's or Federal savings association's
liabilities that are due to changes in its own credit risk since the
inception of the transaction with the counterparty.
(2) OTC derivative contracts subject to a qualifying master netting
agreement. A national bank or 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. A
national
[[Page 141]]
bank or Federal savings association may reduce the EAD calculated
according to paragraph (c)(6) of this section by the credit valuation
adjustment that the national bank or Federal savings association has
recognized in its balance sheet valuation of any OTC derivative
contracts in the netting set. For purposes of this paragraph (c)(2), the
credit valuation adjustment does not include any adjustments to common
equity tier 1 capital attributable to changes in the fair value of the
national bank's or Federal savings association's liabilities that are
due to changes in its own credit risk since the inception of the
transaction with the counterparty.
(3) Credit derivatives. Notwithstanding paragraphs (c)(1) and (c)(2)
of this section:
(i) A national bank or Federal savings association that purchases a
credit derivative that is recognized under Sec. 3.134 or Sec. 3.135 as
a credit risk mitigant for an exposure that is not a covered position
under subpart F of this part is not required to calculate a separate
counterparty credit risk capital requirement under this section so long
as the national bank or Federal savings association does so consistently
for all such credit derivatives and either includes 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 national bank or 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 is not
required to calculate 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 national bank or Federal savings association is
treating the credit derivative as a covered position under subpart F of
this part, in which case the national bank or Federal savings
association must calculate a supplemental counterparty credit risk
capital requirement under this section).
(4) Equity derivatives. A national bank or 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 Sec. Sec. 3.151-3.155 (unless the national
bank or Federal savings association is treating the contract as a
covered position under subpart F of this part). In addition, if the
national bank or Federal savings association is treating the contract as
a covered position under subpart F of this part, and under certain other
circumstances described in Sec. 3.155, the national bank or Federal
savings association must also calculate a risk-based capital requirement
for the counterparty credit risk of an equity derivative contract under
this section.
(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 national bank's or 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-fair value
of the derivative contract or zero; and
(ii) PFE. The PFE for a single OTC derivative contract, including an
OTC derivative contract with a negative mark-to-fair value, is
calculated by multiplying the notional principal amount of the
derivative contract by the appropriate conversion factor in Table 2 to
Sec. 3.132. For purposes of calculating either the PFE under paragraph
(c)(5) of this section 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, the
notional principal amount is the net receipts to each party falling due
on each value date in each currency. For any OTC derivative
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contract that does not fall within one of the specified categories in
Table 2 to Sec. 3.132, the PFE must be calculated using the ``other''
conversion factors. A national bank or 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.
Table 2 to Sec. 3.132--Conversion Factor Matrix for OTC Derivative Contracts \1\
--------------------------------------------------------------------------------------------------------------------------------------------------------
Credit Credit (non-
Foreign (investment- investment- Precious
Remaining maturity \2\ Interest exchange grade grade Equity metals Other
rate rate and reference reference (except
gold asset) \3\ asset) 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 fair 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 national bank or Federal savings association must use the column labeled ``Credit (investment-grade reference asset)'' for a credit derivative
whose reference asset is an outstanding unsecured long-term debt security without credit enhancement that is investment grade. A national bank or
Federal savings association must use the column labeled ``Credit (non-investment-grade reference asset)'' for all other credit derivatives.
(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 fair values of the
individual OTC derivative contracts subject to the qualifying master
netting agreement; or
(B) Zero; and
(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 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)(6)(i) of this section) of all individual derivative contracts
subject to the qualifying master netting agreement.
(7) Collateralized OTC derivative contracts. A national bank or
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 national bank or 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
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national bank or Federal savings association must substitute the EAD
calculated under paragraph (c)(5) or (c)(6) of this section for [sum]E
in the equation in paragraph (b)(2)(i) of this section and must use a
ten-business day minimum holding period (TM = 10) unless a
longer holding period is required by paragraph (b)(2)(iii)(A)(3) of this
section.
(8) Clearing member national bank's or Federal savings association's
EAD. A clearing member national bank's or Federal savings association's
EAD for an OTC derivative contract or netting set of OTC derivative
contracts where the national bank or Federal savings association is
either acting as a financial intermediary and enters into an offsetting
transaction with a QCCP or where the national bank or Federal savings
association provides a guarantee to the QCCP on the performance of the
client equals the exposure amount calculated according to paragraph
(c)(5) or (6) of this section multiplied by the scaling factor 0.71. If
the national bank or Federal savings association determines that a
longer period is appropriate, it must use a larger scaling factor to
adjust for a longer holding period as follows:
[GRAPHIC] [TIFF OMITTED] TR11OC13.032
where
H = the holding period greater than five days. Additionally, the OCC may
require the national bank or Federal savings association to
set a longer holding period if the OCC determines that a
longer period is appropriate due to the nature, structure, or
characteristics of the transaction or is commensurate with the
risks associated with the transaction.
(d) Internal models methodology. (1)(i) With prior written approval
from the OCC, a national bank or Federal savings association may use the
internal models methodology in this paragraph (d) to determine EAD for
counterparty credit risk for 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.
(ii) A national bank or Federal savings association that uses the
internal models methodology for a particular transaction type
(derivative contracts, eligible margin loans, or repo-style
transactions) must use the internal models methodology for all
transactions of that transaction type. A national bank or 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.
(iii) A national bank or Federal savings association may also use
the internal models methodology for derivative contracts, eligible
margin loans, and repo-style transactions subject to a qualifying cross-
product netting agreement if:
(A) The national bank or Federal savings association effectively
integrates the risk mitigating effects of cross-product netting into its
risk management and other information technology systems; and
(B) The national bank or Federal savings association obtains the
prior written approval of the OCC.
(iv) A national bank or Federal 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) Risk-weighted assets using IMM. Under the IMM, a national bank
or Federal savings association uses an internal model to estimate the
expected exposure (EE) for a netting set and then calculates EAD based
on that EE. A national bank or Federal savings association must
calculate two EEs and two EADs (one stressed and one
[[Page 144]]
unstressed) for each netting set as follows:
(i) EADunstressed is calculated using an EE estimate
based on the most recent data meeting the requirements of paragraph
(d)(3)(vii) of this section;
(ii) EADstressed is calculated using an EE estimate based
on a historical period that includes a period of stress to the credit
default spreads of the national bank's or Federal savings association's
counterparties according to paragraph (d)(3)(viii) of this section;
(iii) The national bank or Federal savings association must use its
internal model's probability distribution for changes in the fair value
of a netting set that are attributable to changes in market variables to
determine EE; and
(iv) Under the internal models methodology, EAD = Max (0, [alpha] x
effective EPE - CVA), or, subject to the prior written approval of OCC
as provided in paragraph (d)(10) of this section, a more conservative
measure of EAD.
(A) CVA equals the credit valuation adjustment that the national
bank or Federal savings association has recognized in its balance sheet
valuation of any OTC derivative contracts in the netting set. For
purposes of this paragraph (d), CVA does not include any adjustments to
common equity tier 1 capital attributable to changes in the fair value
of the national bank's or Federal savings association's liabilities that
are due to changes in its own credit risk since the inception of the
transaction with the counterparty.
[GRAPHIC] [TIFF OMITTED] TR11OC13.033
(C) [alpha] = 1.4 except as provided in paragraph (d)(6) of this
section, or when the OCC has determined that the national bank or
Federal savings association must set [alpha] higher based on the
national bank's or Federal savings association's specific
characteristics of counterparty credit risk or model performance.
(v) A national bank or 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.
(vi) If a national bank or Federal savings association hedges some
or all of the counterparty credit risk associated with a netting set
using an eligible credit derivative, the national bank or Federal
savings association may take the reduction in exposure to the
counterparty into account when estimating EE. If the national bank or
Federal 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 national bank's or Federal savings
association's
[[Page 145]]
exposure to the protection provider of the credit derivative.
(3) Prior approval relating to EAD calculation. To obtain OCC
approval to calculate the distributions of exposures upon which the EAD
calculation is based, the national bank or 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 national bank or Federal 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 national bank or Federal 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 national bank or Federal savings association must be able to
measure and manage current exposures gross and net of collateral held,
where appropriate. The national bank or Federal savings association must
estimate expected exposures for OTC derivative contracts both with and
without the effect of collateral agreements;
(vi) The national bank or Federal savings association must have
procedures to identify, monitor, and control wrong-way risk throughout
the life of an exposure. The procedures must include stress testing and
scenario analysis;
(vii) The model must use current market data to compute current
exposures. The national bank or Federal savings association must
estimate model parameters using historical data from the most recent
three-year period and update the data quarterly or more frequently if
market conditions warrant. The national bank or Federal savings
association should consider using model parameters based on forward-
looking measures, where appropriate;
(viii) When estimating model parameters based on a stress period,
the national bank or Federal savings association must use at least three
years of historical data that include a period of stress to the credit
default spreads of the national bank's or Federal savings association's
counterparties. The national bank or Federal savings association must
review the data set and update the data as necessary, particularly for
any material changes in its counterparties. The national bank or Federal
savings association must demonstrate, at least quarterly, and maintain
documentation of such demonstration, that the stress period coincides
with increased CDS or other credit spreads of the national bank's or
Federal savings association's counterparties. The national bank or
Federal savings association must have procedures to evaluate the
effectiveness of its stress calibration that include a process for using
benchmark portfolios that are vulnerable to the same risk factors as the
national bank's or Federal savings association's portfolio. The OCC may
require the national bank or Federal savings association to modify its
stress calibration to better reflect actual historic losses of the
portfolio;
(ix) A national bank or Federal 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. As part of the model review
process, the national bank or Federal savings association must have a
backtesting program for its model that includes a process by which
unacceptable model performance will be determined and remedied;
(x) A national bank or Federal savings association must have
policies for the measurement, management and control of collateral and
margin amounts; and
(xi) A national bank or Federal savings association must have a
comprehensive stress testing program that captures all credit exposures
to
[[Page 146]]
counterparties, and incorporates stress testing of principal market risk
factors and creditworthiness of counterparties.
(4) Calculating the maturity of exposures. (i) If the remaining
maturity of the exposure or the longest-dated contract in the netting
set is greater than one year, the national bank or Federal savings
association must set M for the exposure or netting set equal to the
lower of five years or M(EPE), where:
[GRAPHIC] [TIFF OMITTED] TR11OC13.034
(ii) If the remaining maturity of the exposure or the longest-dated
contract in the netting set is one year or less, the national bank or
Federal savings association must set M for the exposure or netting set
equal to one year, except as provided in Sec. 3.131(d)(7).
(iii) Alternatively, a national bank or 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)(i) of this
section.
(5) Effects of collateral agreements on EAD. A national bank or
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. Two methods are available to
capture the effect of a collateral agreement, as set forth in paragraphs
(d)(5)(i) and (ii) of this section:
(i) With prior written approval from the OCC, a national bank or
Federal savings association may include the effect of a collateral
agreement within its internal model used to calculate EAD. The national
bank or Federal 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 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 set according to
paragraph (d)(5)(iii) of this section; or
(ii) As an alternative to paragraph (d)(5)(i) of this section, a
national bank or Federal 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) An add-on that reflects the potential increase in exposure of
the netting set over the margin period of risk, plus the larger of:
(1) The current exposure of the netting set reflecting all
collateral held or
[[Page 147]]
posted by the national bank or Federal savings association excluding any
collateral called or in dispute; or
(2) The largest net exposure including all collateral held or posted
under the margin agreement that would not trigger a collateral call. For
purposes of this section, the add-on is computed as the expected
increase in the netting set's exposure over the margin period of risk
(set in accordance with paragraph (d)(5)(iii) of this section); or
(B) Effective EPE without a collateral agreement plus any collateral
the national bank or Federal savings association posts to the
counterparty that exceeds the required margin amount.
(iii) For purposes of this part, including paragraphs (d)(5)(i) and
(ii) of this section, the margin period of risk for a netting set
subject to a collateral agreement is:
(A) Five business days for repo-style transactions subject to daily
remargining and daily marking-to-market, and ten business days for other
transactions when liquid financial collateral is posted under a daily
margin maintenance requirement, or
(B) Twenty business days if the number of trades in a netting set
exceeds 5,000 at any time during the previous quarter (except if the
national bank or Federal savings association is calculating EAD for a
cleared transaction under Sec. 3.133) or contains one or more trades
involving illiquid collateral or any derivative contract that cannot be
easily replaced. If over the two previous quarters more than two margin
disputes on a netting set have occurred that lasted more than the margin
period of risk, then the national bank or Federal savings association
must use a margin period of risk for that netting set that is at least
two times the minimum margin period of risk for that netting set. If the
periodicity of the receipt of collateral is N-days, the minimum margin
period of risk is the minimum margin period of risk under this paragraph
(d) plus N minus 1. This period should be extended to cover any
impediments to prompt re-hedging of any market risk.
(C) Five business days for an OTC derivative contract or netting set
of OTC derivative contracts where the national bank or Federal savings
association is either acting as a financial intermediary and enters into
an offsetting transaction with a CCP or where the national bank or
Federal savings association provides a guarantee to the CCP on the
performance of the client. A national bank or Federal savings
association must use a longer holding period if the national bank or
Federal savings association determines that a longer period is
appropriate. Additionally, the OCC may require the national bank or
Federal savings association to set a longer holding period if the OCC
determines that a longer period is appropriate due to the nature,
structure, or characteristics of the transaction or is commensurate with
the risks associated with the transaction.
(6) Own estimate of alpha. With prior written approval of the OCC, a
national bank or 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 national bank or
Federal savings association must meet the following minimum standards to
the satisfaction of the OCC:
(i) The national bank's or Federal 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 fair 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
[[Page 148]]
in the proportion of each counterparty's exposure that is driven by a
particular risk factor).
(ii) The national bank or Federal savings association must assess
the potential model uncertainty in its estimates of alpha.
(iii) The national bank or Federal 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 national bank or Federal 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) Risk-based capital requirements for transactions with specific
wrong-way risk. A national bank or Federal savings association must
determine if a repo-style transaction, eligible margin loan, bond
option, or equity derivative contract or purchased credit derivative to
which the national bank or Federal savings association applies the
internal models methodology under this paragraph (d) has specific wrong-
way risk. If a transaction has specific wrong-way risk, the national
bank or Federal savings association must treat the transaction as its
own netting set and exclude it from the model described in Sec.
3.132(d)(2) and instead calculate the risk-based capital requirement for
the transaction as follows:
(i) For an equity derivative contract, by multiplying:
(A) K, calculated using the appropriate risk-based capital formula
specified in Table 1 of Sec. 3.131 using the PD of the counterparty and
LGD equal to 100 percent, by
(B) The maximum amount the national bank or Federal savings
association could lose on the equity derivative.
(ii) For a purchased credit derivative by multiplying:
(A) K, calculated using the appropriate risk-based capital formula
specified in Table 1 of Sec. 3.131 using the PD of the counterparty and
LGD equal to 100 percent, by
(B) The fair value of the reference asset of the credit derivative.
(iii) For a bond option, by multiplying:
(A) K, calculated using the appropriate risk-based capital formula
specified in Table 1 of Sec. 3.131 using the PD of the counterparty and
LGD equal to 100 percent, by
(B) The smaller of the notional amount of the underlying reference
asset and the maximum potential loss under the bond option contract.
(iv) For a repo-style transaction or eligible margin loan by
multiplying:
(A) K, calculated using the appropriate risk-based capital formula
specified in Table 1 of Sec. 3.131 using the PD of the counterparty and
LGD equal to 100 percent, by
(B) The EAD of the transaction determined according to the EAD
equation in Sec. 3.132(b)(2), substituting the estimated value of the
collateral assuming a default of the counterparty for the value of the
collateral in [Sigma]c of the equation.
(8) Risk-weighted asset amount for IMM exposures with specific
wrong-way risk. The aggregate risk-weighted asset amount for IMM
exposures with specific wrong-way risk is the sum of a national bank's
or Federal savings association's risk-based capital requirement for
purchased credit derivatives that are not bond options with specific
wrong-way risk as calculated under paragraph (d)(7)(ii) of this section,
a national bank's or Federal savings association's risk-based capital
requirement for equity derivatives with specific wrong-way risk as
calculated under paragraph (d)(7)(i) of this section, a national bank's
or Federal savings association's risk-based capital requirement for bond
options with specific wrong-way risk as calculated under paragraph
(d)(7)(iii) of this section, and a national bank's or Federal savings
association's risk-based capital requirement for repo-style transactions
and eligible margin loans with specific wrong-way risk as calculated
under paragraph (d)(7)(iv) of this section, multiplied by 12.5.
(9) Risk-weighted assets for IMM exposures. (i) The national bank or
Federal savings association must insert the assigned risk parameters for
each
[[Page 149]]
counterparty and netting set into the appropriate formula specified in
Table 1 of Sec. 3.131 and multiply the output of the formula by the
EADunstressed of the netting set to obtain the unstressed
capital requirement for each netting set. A national bank or Federal
savings association that uses an advanced CVA approach that captures
migrations in credit spreads under paragraph (e)(3) of this section must
set the maturity adjustment (b) in the formula equal to zero. The sum of
the unstressed capital requirement calculated for each netting set
equals Kunstressed.
(ii) The national bank or Federal savings association must insert
the assigned risk parameters for each wholesale obligor and netting set
into the appropriate formula specified in Table 1 of Sec. 3.131 and
multiply the output of the formula by the EADstressed of the
netting set to obtain the stressed capital requirement for each netting
set. A national bank or Federal savings association that uses an
advanced CVA approach that captures migrations in credit spreads under
paragraph (e)(6) of this section must set the maturity adjustment (b) in
the formula equal to zero. The sum of the stressed capital requirement
calculated for each netting set equals Kstressed.
(iii) The national bank's or Federal savings association's dollar
risk-based capital requirement under the internal models methodology
equals the larger of Kunstressed and Kstressed. A
national bank's or Federal savings association's risk-weighted assets
amount for IMM exposures is equal to the capital requirement multiplied
by 12.5, plus risk-weighted assets for IMM exposures with specific
wrong-way risk in paragraph (d)(8) of this section and those in
paragraph (d)(10) of this section.
(10) Other measures of counterparty exposure. (i) With prior written
approval of the OCC, a national bank or 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)(7)(iv)(C) of this section) times the
larger of EPEunstressed and EPEstressed for every
counterparty whose EAD will be measured under the alternative measure of
counterparty exposure. The national bank or Federal savings association
must demonstrate the conservatism of the measure of counterparty credit
risk exposure used for EAD. With respect to paragraph (d)(10)(i) of this
section:
(A) For material portfolios of new OTC derivative products, the
national bank or Federal 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 section for a period not to
exceed 180 days.
(B) For immaterial portfolios of OTC derivative contracts, the
national bank or Federal 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 section.
(ii) To calculate risk-weighted assets for purposes of the approach
in paragraph (d)(10)(i) of this section, the national bank or Federal
savings association must insert the assigned risk parameters for each
counterparty and netting set into the appropriate formula specified in
Table 1 of Sec. 3.131, multiply the output of the formula by the EAD
for the exposure as specified above, and multiply by 12.5.
(e) Credit valuation adjustment (CVA) risk-weighted assets--(1) In
general. With respect to its OTC derivative contracts, a national bank
or Federal savings association must calculate a CVA risk-weighted asset
amount for its portfolio of OTC derivative transactions that are subject
to the CVA capital requirement using the simple CVA approach described
in paragraph (e)(5) of this section or, with prior written approval of
the OCC, the advanced CVA approach described in paragraph (e)(6) of this
section. A national bank or Federal savings association that receives
prior OCC approval to calculate its CVA risk-weighted asset amounts for
a class of counterparties using the advanced CVA approach must continue
to use that approach for that class of counterparties until it notifies
the OCC in writing that the national bank or Federal savings association
expects to begin calculating its CVA risk-weighted asset amount using
the simple CVA approach. Such notice must include an
[[Page 150]]
explanation of the national bank's or Federal savings association's
rationale and the date upon which the national bank or Federal savings
association will begin to calculate its CVA risk-weighted asset amount
using the simple CVA approach.
(2) Market risk national banks or Federal savings associations.
Notwithstanding the prior approval requirement in paragraph (e)(1) of
this section, a market risk national bank or Federal savings association
may calculate its CVA risk-weighted asset amount using the advanced CVA
approach if the national bank or Federal savings association has OCC
approval to:
(i) Determine EAD for OTC derivative contracts using the internal
models methodology described in paragraph (d) of this section; and
(ii) Determine its specific risk add-on for debt positions issued by
the counterparty using a specific risk model described in Sec.
3.207(b).
(3) Recognition of hedges. (i) A national bank or Federal savings
association may recognize a single name CDS, single name contingent CDS,
any other equivalent hedging instrument that references the counterparty
directly, and index credit default swaps (CDSind) as a CVA
hedge under paragraph (e)(5)(ii) of this section or paragraph (e)(6) of
this section, provided that the position is managed as a CVA hedge in
accordance with the national bank's or Federal savings association's
hedging policies.
(ii) A national bank or Federal savings association shall not
recognize as a CVA hedge any tranched or nth-to-default
credit derivative.
(4) Total CVA risk-weighted assets. Total CVA risk-weighted assets
is the CVA capital requirement, KCVA, calculated for a
national bank's or Federal savings association's entire portfolio of OTC
derivative counterparties that are subject to the CVA capital
requirement, multiplied by 12.5.
(5) Simple CVA approach. (i) Under the simple CVA approach, the CVA
capital requirement, KCVA, is calculated according to the
following formula:
[GRAPHIC] [TIFF OMITTED] TR11OC13.035
(A) wi = the weight applicable to counterparty i under Table 3 to
Sec. 3.132;
(B) Mi = the EAD-weighted average of the effective maturity of each
netting set with counterparty i (where each netting set's effective
maturity can be no less than one year.)
(C) EADitotal = the sum of the EAD for all netting sets of OTC
derivative contracts with counterparty i calculated using the current
exposure methodology described in paragraph (c) of this section or the
internal models methodology described in paragraph (d) of this section.
When the national bank or Federal savings association calculates EAD
under paragraph (c) of this section, such EAD may be adjusted for
purposes of calculating EADitotal by multiplying EAD by (1-exp(-0.05 x
Mi))/(0.05 x Mi), where ``exp'' is the exponential function. When the
national bank or Federal savings association calculates EAD under
paragraph (d) of this section, EADitotal equals EADunstressed.
(D) Mihedge = the notional weighted average maturity of the hedge
instrument.
(E) Bi = the sum of the notional amounts of any purchased single
name CDS referencing counterparty i that is used to hedge CVA risk to
counterparty i multiplied by (1-exp(-0.05 x Mihedge))/(0.05 x Mihedge).
[[Page 151]]
(F) Mind = the maturity of the CDSind or the
notional weighted average maturity of any CDSind purchased to
hedge CVA risk of counterparty i.
(G) Bind = the notional amount of one or more CDSind
purchased to hedge CVA risk for counterparty i multiplied by (1-exp(-
0.05 x Mind))/(0.05 x Mind)
(H) wind = the weight applicable to the CDSind based on
the average weight of the underlying reference names that comprise the
index under Table 3 to Sec. 3.132.
(ii) The national bank or Federal savings association may treat the
notional amount of the index attributable to a counterparty as a single
name hedge of counterparty i (Bi,) when calculating KCVA, and
subtract the notional amount of Bi from the notional amount of the
CDSind. A national bank or Federal savings association must
treat the CDSind hedge with the notional amount reduced by Bi
as a CVA hedge.
Table 3 to Sec. 3.132--Assignment of Counterparty Weight
------------------------------------------------------------------------
Weight wi (in
Internal PD (in percent) percent)
------------------------------------------------------------------------
0.00-0.07............................................... 0.70
0.070-0.15................................... 0.80
0.15-0.40.................................... 1.00
0.40-2.00.................................... 2.00
2.00-6.00.................................... 3.00
6.00......................................... 10.00
------------------------------------------------------------------------
(6) Advanced CVA approach. (i) A national bank or Federal savings
association may use the VaR model that it uses to determine specific
risk under Sec. 3.207(b) or another VaR model that meets the
quantitative requirements of Sec. Sec. 3.205(b) and 3.207(b)(1) to
calculate its CVA capital requirement for a counterparty by modeling the
impact of changes in the counterparties' credit spreads, together with
any recognized CVA hedges, on the CVA for the counterparties, subject to
the following requirements:
(A) The VaR model must incorporate only changes in the
counterparties' credit spreads, not changes in other risk factors. The
VaR model does not need to capture jump-to-default risk;
(B) A national bank or Federal savings association that qualifies to
use the advanced CVA approach must include in that approach any
immaterial OTC derivative portfolios for which it uses the current
exposure methodology in paragraph (c) of this section according to
paragraph (e)(6)(viii) of this section; and
(C) A national bank or Federal savings association must have the
systems capability to calculate the CVA capital requirement for a
counterparty on a daily basis (but is not required to calculate the CVA
capital requirement on a daily basis).
(ii) Under the advanced CVA approach, the CVA capital requirement,
KCVA, is calculated according to the following formulas:
[GRAPHIC] [TIFF OMITTED] TR11OC13.037
[[Page 152]]
Where
(A) ti = the time of the i-th revaluation time bucket starting from
t0 = 0.
(B) tT = the longest contractual maturity across the OTC derivative
contracts with the counterparty.
(C) si = the CDS spread for the counterparty at tenor ti used to
calculate the CVA for the counterparty. If a CDS spread is not
available, the national bank or Federal savings association must use a
proxy spread based on the credit quality, industry and region of the
counterparty.
(D) LGDMKT = the loss given default of the counterparty based on the
spread of a publicly traded debt instrument of the counterparty, or,
where a publicly traded debt instrument spread is not available, a proxy
spread based on the credit quality, industry, and region of the
counterparty. Where no market information and no reliable proxy based on
the credit quality, industry, and region of the counterparty are
available to determine LGDMKT, a national bank or Federal
savings association may use a conservative estimate when determining
LGDMKT, subject to approval by the OCC.
(E) EEi = the sum of the expected exposures for all netting sets
with the counterparty at revaluation time ti, calculated according to
paragraphs (e)(6)(iv)(A) and (e)(6)(v)(A) of this section.
(F) Di = the risk-free discount factor at time ti, where D0 = 1.
(G) Exp is the exponential function.
(H) The subscript j refers either to a stressed or an unstressed
calibration as described in paragraphs (e)(6)(iv) and (v) of this
section.
(iii) Notwithstanding paragraphs (e)(6)(i) and (e)(6)(ii) of this
section, a national bank or Federal savings association must use the
formulas in paragraphs (e)(6)(iii)(A) or (e)(6)(iii)(B) of this section
to calculate credit spread sensitivities if its VaR model is not based
on full repricing.
(A) If the VaR model is based on credit spread sensitivities for
specific tenors, the national bank or Federal savings association must
calculate each credit spread sensitivity according to the following
formula:
[GRAPHIC] [TIFF OMITTED] TR11OC13.039
(iv) To calculate the CVAUnstressed measure for purposes
of paragraph (e)(6)(ii) of this section, the national bank or Federal
savings association must:
[[Page 153]]
(A) Use the EEi calculated using the calibration of
paragraph (d)(3)(vii) of this section, except as provided in Sec.
3.132(e)(6)(vi), and
(B) Use the historical observation period required under Sec.
3.205(b)(2).
(v) To calculate the CVAStressed measure for purposes of
paragraph (e)(6)(ii) of this section, the national bank or Federal
savings association must:
(A) Use the EEi calculated using the stress calibration
in paragraph (d)(3)(viii) of this section except as provided in
paragraph (e)(6)(vi) of this section.
(B) Calibrate VaR model inputs to historical data from the most
severe twelve-month stress period contained within the three-year stress
period used to calculate EEi. The OCC may require a national
bank or Federal savings association to use a different period of
significant financial stress in the calculation of the
CVAStressed measure.
(vi) If a national bank or Federal savings association captures the
effect of a collateral agreement on EAD using the method described in
paragraph (d)(5)(ii) of this section, for purposes of paragraph
(e)(6)(ii) of this section, the national bank or Federal savings
association must calculate EEi using the method in paragraph
(d)(5)(ii) of this section and keep that EE constant with the maturity
equal to the maximum of:
(A) Half of the longest maturity of a transaction in the netting
set, and
(B) The notional weighted average maturity of all transactions in
the netting set.
(vii) For purposes of paragraph (e)(6) of this section, the national
bank's or Federal savings association's VaR model must capture the basis
between the spreads of any CDSind that is used as the hedging
instrument and the hedged counterparty exposure over various time
periods, including benign and stressed environments. If the VaR model
does not capture that basis, the national bank or Federal savings
association must reflect only 50 percent of the notional amount of the
CDSind hedge in the VaR model.
(viii) If a national bank or Federal savings association uses the
current exposure methodology described in paragraphs (c)(5) and (c)(6)
of this section to calculate the EAD for any immaterial portfolios of
OTC derivative contracts, the national bank or Federal savings
association must use that EAD as a constant EE in the formula for the
calculation of CVA with the maturity equal to the maximum of:
(A) Half of the longest maturity of a transaction in the netting
set, and
(B) The notional weighted average maturity of all transactions in
the netting set.
[78 FR 62157, 62273, Oct. 11, 2013, as amended at 80 FR 41417, July 15,
2015]
Sec. 3.133 Cleared transactions.
(a) General requirements. (1) A national bank or Federal savings
association that is a clearing member client must use the methodologies
described in paragraph (b) of this section to calculate risk-weighted
assets for a cleared transaction.
(2) A national bank or Federal savings association that is a
clearing member must use the methodologies described in paragraph (c) of
this section to calculate its risk-weighted assets for cleared
transactions and paragraph (d) of this section to calculate its risk-
weighted assets for its default fund contribution to a CCP.
(b) Clearing member client national banks or Federal savings
associations--(1) Risk-weighted assets for cleared transactions. (i) To
determine the risk-weighted asset amount for a cleared transaction, a
national bank or Federal savings association that is a clearing member
client must multiply the trade exposure amount for the cleared
transaction, calculated in accordance with paragraph (b)(2) of this
section, by the risk weight appropriate for the cleared transaction,
determined in accordance with paragraph (b)(3) of this section.
(ii) A clearing member client national bank's or Federal savings
association's total risk-weighted assets for cleared transactions is the
sum of the risk-weighted asset amounts for all of its cleared
transactions.
(2) Trade exposure amount. (i) For a cleared transaction that is a
derivative contract or a netting set of derivative contracts, trade
exposure amount
[[Page 154]]
equals the EAD for the derivative contract or netting set of derivative
contracts calculated using the methodology used to calculate EAD for OTC
derivative contracts set forth in Sec. 3.132(c) or (d), plus the fair
value of the collateral posted by the clearing member client national
bank or Federal savings association and held by the CCP or a clearing
member in a manner that is not bankruptcy remote. When the national bank
or Federal savings association calculates EAD for the cleared
transaction using the methodology in Sec. 3.132(d), EAD equals
EADunstressed.
(ii) For a cleared transaction that is a repo-style transaction or
netting set of repo-style transactions, trade exposure amount equals the
EAD for the repo-style transaction calculated using the methodology set
forth in Sec. 3.132(b)(2), (b)(3), or (d), plus the fair value of the
collateral posted by the clearing member client national bank or Federal
savings association and held by the CCP or a clearing member in a manner
that is not bankruptcy remote. When the national bank or Federal savings
association calculates EAD for the cleared transaction under Sec.
3.132(d), EAD equals EADunstressed.
(3) Cleared transaction risk weights. (i) For a cleared transaction
with a QCCP, a clearing member client national bank or Federal savings
association must apply a risk weight of:
(A) 2 percent if the collateral posted by the national bank or
Federal savings association to the QCCP or clearing member is subject to
an arrangement that prevents any loss to the clearing member client
national bank or Federal savings association due to the joint default or
a concurrent insolvency, liquidation, or receivership proceeding of the
clearing member and any other clearing member clients of the clearing
member; and the clearing member client national bank or 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 in the event of a legal challenge (including one
resulting from an event of default or from liquidation, insolvency or
receivership proceedings) the relevant court and administrative
authorities would find the arrangements to be legal, valid, binding and
enforceable under the law of the relevant jurisdictions.
(B) 4 percent, if the requirements of paragraph (b)(3)(i)(A) of this
section are not met.
(ii) For a cleared transaction with a CCP that is not a QCCP, a
clearing member client national bank or Federal savings association must
apply the risk weight applicable to the CCP under subpart D of this
part.
(4) Collateral. (i) Notwithstanding any other requirement of this
section, collateral posted by a clearing member client national bank or
Federal savings association that is held by a custodian (in its capacity
as custodian) in a manner that is bankruptcy remote from the CCP, the
custodian, clearing member, and other clearing member clients of the
clearing member, is not subject to a capital requirement under this
section.
(ii) A clearing member client national bank or Federal savings
association must calculate a risk-weighted asset amount for any
collateral provided to a CCP, clearing member or a custodian in
connection with a cleared transaction in accordance with requirements
under subparts E or F of this part, as applicable.
(c) Clearing member national bank or Federal savings association--
(1) Risk-weighted assets for cleared transactions. (i) To determine the
risk-weighted asset amount for a cleared transaction, a clearing member
national bank or Federal savings association must multiply the trade
exposure amount for the cleared transaction, calculated in accordance
with paragraph (c)(2) of this section by the risk weight appropriate for
the cleared transaction, determined in accordance with paragraph (c)(3)
of this section.
(ii) A clearing member national bank's or Federal savings
association's total risk-weighted assets for cleared transactions is the
sum of the risk-weighted asset amounts for all of its cleared
transactions.
(2) Trade exposure amount. A clearing member national bank or
Federal savings association must calculate its trade exposure amount for
a cleared transaction as follows:
[[Page 155]]
(i) For a cleared transaction that is a derivative contract or a
netting set of derivative contracts, trade exposure amount equals the
EAD calculated using the methodology used to calculate EAD for OTC
derivative contracts set forth in Sec. 3.132(c) or Sec. 3.132(d), plus
the fair value of the collateral posted by the clearing member national
bank or Federal savings association and held by the CCP in a manner that
is not bankruptcy remote. When the clearing member national bank or
Federal savings association calculates EAD for the cleared transaction
using the methodology in Sec. 3.132(d), EAD equals
EADunstressed.
(ii) For a cleared transaction that is a repo-style transaction or
netting set of repo-style transactions, trade exposure amount equals the
EAD calculated under Sec. Sec. 3.132(b)(2), (b)(3), or (d), plus the
fair value of the collateral posted by the clearing member national bank
or Federal savings association and held by the CCP in a manner that is
not bankruptcy remote. When the clearing member national bank or Federal
savings association calculates EAD for the cleared transaction under
Sec. 3.132(d), EAD equals EADunstressed.
(3) Cleared transaction risk weights. (i) A clearing member national
bank or Federal savings association must apply a risk weight of 2
percent to the trade exposure amount for a cleared transaction with a
QCCP.
(ii) For a cleared transaction with a CCP that is not a QCCP, a
clearing member national bank or Federal savings association must apply
the risk weight applicable to the CCP according to subpart D of this
part.
(iii) Notwithstanding paragraphs (c)(3)(i) and (ii) of this section,
a clearing member national bank or Federal savings association may apply
a risk weight of 0 percent to the trade exposure amount for a cleared
transaction with a CCP where the clearing member national bank or
Federal savings association is acting as a financial intermediary on
behalf of a clearing member client, the transaction offsets another
transaction that satisfies the requirements set forth in Sec. 3.3(a),
and the clearing member national bank or Federal savings association is
not obligated to reimburse the clearing member client in the event of
the CCP default.
(4) Collateral. (i) Notwithstanding any other requirement of this
section, collateral posted by a clearing member national bank or Federal
savings association that is held by a custodian in a manner that is
bankruptcy remote from the CCP is not subject to a capital requirement
under this section.
(ii) A clearing member national bank or Federal savings association
must calculate a risk-weighted asset amount for any collateral provided
to a CCP, clearing member or a custodian in connection with a cleared
transaction in accordance with requirements under subparts E or F of
this part, as applicable
(d) Default fund contributions--(1) General requirement. A clearing
member national bank or Federal savings association must determine the
risk-weighted asset amount for a default fund contribution to a CCP at
least quarterly, or more frequently if, in the opinion of the national
bank or Federal savings association or the OCC, there is a material
change in the financial condition of the CCP.
(2) Risk-weighted asset amount for default fund contributions to
non-qualifying CCPs. A clearing member national bank's or Federal
savings association's risk-weighted asset amount for default fund
contributions to CCPs that are not QCCPs equals the sum of such default
fund contributions multiplied by 1,250 percent or an amount determined
by the OCC, based on factors such as size, structure and membership
characteristics of the CCP and riskiness of its transactions, in cases
where such default fund contributions may be unlimited.
(3) Risk-weighted asset amount for default fund contributions to
QCCPs. A clearing member national bank's or Federal savings
association's risk-weighted asset amount for default fund contributions
to QCCPs equals the sum of its capital requirement, KCM for
each QCCP, as calculated under the methodology set forth in paragraph
(d)(3)(i) of this section (Method 1), multiplied by 1,250 percent or
paragraph (d)(3)(iv) of this section (Method 2).
(i) Method 1. The hypothetical capital requirement of a QCCP
(KCCP) equals:
[[Page 156]]
[GRAPHIC] [TIFF OMITTED] TR11OC13.042
Where
(A) EBRMi = the EAD for each transaction cleared through
the QCCP by clearing member i, calculated using the methodology used to
calculate EAD for OTC derivative contracts set forth in Sec.
3.132(c)(5) and Sec. 3.132(c)(6) or the methodology used to calculate
EAD for repo-style transactions set forth in Sec. 3.132(b)(2) for repo-
style transactions, provided that:
(1) For purposes of this section, when calculating the EAD, the
national bank or Federal savings association may replace the formula
provided in Sec. 3.132(c)(6)(ii) with the following formula:
Anet = (0.15 x Agross) + (0.85 x NGR x
Agross); and
(2) For option derivative contracts that are cleared transactions,
the PFE described in Sec. 3.132(c)(5) must be adjusted by multiplying
the notional principal amount of the derivative contract by the
appropriate conversion factor in Table 2 to Sec. 3.132 and the absolute
value of the option's delta, that is, the ratio of the change in the
value of the derivative contract to the corresponding change in the
price of the underlying asset.
(3) For repo-style transactions, when applying Sec. 3.132(b)(2),
the national bank or Federal savings association must use the
methodology in Sec. 3.132(b)(2)(ii).
(B) VMi = any collateral posted by clearing member i to
the QCCP that it is entitled to receive from the QCCP but has not yet
received, and any collateral that the QCCP has actually received from
clearing member i;
(C) IMi = the collateral posted as initial margin by
clearing member i to the QCCP;
(D) DFi = the funded portion of clearing member i's
default fund contribution that will be applied to reduce the QCCP's loss
upon a default by clearing member i; and
(E) RW = 20 percent, except when the OCC has determined that a
higher risk weight is more appropriate based on the specific
characteristics of the QCCP and its clearing members; and
(F) Where a QCCP has provided its KCCP, a national bank
or Federal savings association must rely on such disclosed figure
instead of calculating KCCP under this paragraph (d), unless
the national bank or Federal savings association determines that a more
conservative figure is appropriate based on the nature, structure, or
characteristics of the QCCP.
(ii) For a national bank or Federal savings association that is a
clearing member of a QCCP with a default fund supported by funded
commitments, KCM equals:
[[Page 157]]
[GRAPHIC] [TIFF OMITTED] TR11OC13.043
[[Page 158]]
[GRAPHIC] [TIFF OMITTED] TR11OC13.044
Where:
(A) DFi = the national bank's or Federal savings
association's unfunded commitment to the default fund;
(B) DFCM = the total of all clearing members' unfunded
commitments to the default fund; and
(C) K*CM as defined in paragraph (d)(3)(ii) of this section.
(D) For a national bank or Federal savings association that is a
clearing member of a QCCP with a default fund supported by unfunded
commitments and that is unable to calculate KCM using the
methodology described above in this paragraph (d)(3)(iii),
KCM equals:
[GRAPHIC] [TIFF OMITTED] TR11OC13.046
[[Page 159]]
Where:
(1) IMi = the national bank's or Federal savings
association's initial margin posted to the QCCP;
(2) IMCM = the total of initial margin posted to the
QCCP; and
(3) K*CM as defined above in this paragraph (d)(3)(iii).
(iv) Method 2. A clearing member national bank's or Federal savings
association's risk-weighted asset amount for its default fund
contribution to a QCCP, RWADF, equals:
RWADF = Min {12.5 * DF; 0.18 * TE{time}
Where:
(A) TE = the national bank's or Federal savings association's trade
exposure amount to the QCCP calculated according to section 133(c)(2);
(B) DF = the funded portion of the national bank's or Federal
savings association's default fund contribution to the QCCP.
(v) Total risk-weighted assets for default fund contributions. Total
risk-weighted assets for default fund contributions is the sum of a
clearing member national bank's or Federal savings association's risk-
weighted assets for all of its default fund contributions to all CCPs of
which the national bank or Federal savings association is a clearing
member.
[78 FR 62157, 62273, Oct. 11, 2013, as amended at 80 FR 41417, July 15,
2015; 84 FR 35258, July 22, 2019]
Sec. 3.134 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 national bank or 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 Sec. Sec. 3.141 through 3.145.
(3) A national bank or 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 Sec.
3.135. A national bank's or Federal savings association's PD and LGD for
the hedged exposure may not be lower than the PD and LGD floors
described in Sec. 3.131(d)(2) and (d)(3).
(4) If multiple eligible guarantees or eligible credit derivatives
cover a single exposure described in paragraph (a)(1) of this section, a
national bank or 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 national bank or 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 national bank or 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 national bank or Federal savings
association may only recognize the credit risk mitigation benefits of
eligible guarantees and eligible credit derivatives.
(2) A national bank or 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
[[Page 160]]
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
national bank or Federal savings association may recognize the guarantee
or credit derivative in determining the national bank's or Federal
savings association'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 1 of Sec. 3.131 and using the appropriate
LGD as described in paragraph (c)(1)(iii) of this section. If the
national bank or Federal savings association determines that full
substitution of the protection provider's PD leads to an inappropriate
degree of risk mitigation, the national bank or Federal 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 P of the guarantee or credit derivative is less than the EAD
of the hedged exposure, the national bank or 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 national bank or Federal savings association must calculate
its risk-based capital requirement for the protected exposure under
Sec. 3.131, 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
national bank or Federal savings association determines that full
substitution leads to an inappropriate degree of risk mitigation, the
national bank or Federal savings association may use a higher PD than
that of the protection provider.
(B) The national bank or Federal savings association must calculate
its risk-based capital requirement for the unprotected exposure under
Sec. 3.131, 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 paragraph (c)(1)(ii) of this section 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 paragraphs
(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
national bank or 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 national bank or 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
[[Page 161]]
hedged exposure, the national bank's or 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 Sec. 3.131, 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 Sec. 3.131, 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 national
bank or 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 national bank's or Federal 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 Sec. 3.131, 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 Sec. 3.131, using the PD for the
protection provider, the LGD for the guarantee or credit derivative, and
an EAD set equal to P.
(B) The national bank or Federal savings association must calculate
its risk-based capital requirement for the unprotected exposure under
Sec. 3.131, 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. For purposes of this paragraph (c), the M
of the hedged exposure is the same as the M of the exposure if it were
unhedged.
(d) Maturity mismatch. (1) A national bank or 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 fulfil its
obligation on the exposure. If a credit risk mitigant has embedded
options that may reduce its term, the national bank or Federal 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 national bank or Federal savings association
(protection purchaser), but the terms of the arrangement at origination
of the credit risk mitigant contain a positive incentive for the
national bank or Federal 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.\30\
---------------------------------------------------------------------------
\30\ 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 national bank or Federal
savings association must apply the following adjustment to the effective
notional amount of the credit risk mitigant:
[[Page 162]]
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
national bank or 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 national bank or Federal
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
(2) Pm = effective notional amount of the credit risk
mitigant adjusted for maturity mismatch (if applicable).
(f) Currency mismatch. (1) If a national bank or 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 national bank or Federal
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 national bank or 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 national bank or Federal 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 Sec. 3.132(b)(2)(iii);
(ii) The simple VaR methodology in Sec. 3.132(b)(3); or
(iii) The internal models methodology in Sec. 3.132(d).
(3) A national bank or Federal savings association must adjust
HFX calculated in paragraph (f)(2) of this section upward if
the national bank or Federal 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 Sec.
3.132(b)(2)(iii)(A)(2).
Sec. 3.135 Guarantees and credit derivatives: double default treatment.
(a) Eligibility and operational criteria for double default
treatment. A national bank or Federal savings association may recognize
the credit risk mitigation benefits of a guarantee or credit derivative
covering an exposure described in Sec. 3.134(a)(1) 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
Sec. 3.134(b)(2) and that is issued by an eligible double default
guarantor.
(2) The guarantee or credit derivative is:
(i) An uncollateralized guarantee or uncollateralized credit
derivative (for
[[Page 163]]
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 Sec. 3.142(m).
(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 national bank or 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 national bank or 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 national bank or Federal savings association
may not use the double default treatment for the hedged exposure.
(b) Full coverage. If a 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 national bank or Federal savings association may determine its risk-
weighted asset amount for the hedged exposure under paragraph (e) of
this section.
(c) Partial coverage. If a 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 national bank or 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 national bank or Federal savings
association must set EAD equal to P and calculate its risk-weighted
asset amount as provided in paragraph (e) of this section; and
(2) For the unprotected exposure, the national bank or Federal
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 Sec. 3.131.
(d) Mismatches. For any hedged exposure to which a national bank or
Federal savings association applies double default treatment under this
part, the national bank or Federal savings association must make
applicable adjustments to the protection amount as required in Sec.
3.134(d), (e), and (f).
(e) The double default dollar risk-based capital requirement. The
dollar risk-based capital requirement for a hedged exposure to which a
national bank or 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] TR11OC13.048
(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
[[Page 164]]
credit derivative provides the national bank or Federal 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 national bank or Federal
savings association with the option to receive immediate payout on
triggering the protection; and
(5) [rho]os (asset value correlation of the obligor) is
calculated according to the appropriate formula for (R) provided in
Table 1 in Sec. 3.131, with PD equal to PDo.
(6) b (maturity adjustment coefficient) is calculated according to
the formula for b provided in Table 1 in Sec. 3.131, with PD equal to
the lesser of PDo and PDg; and
(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.
Sec. 3.136 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) 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) The positive current exposure of a national bank or 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 national bank or Federal 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) Cleared transactions 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 Sec. Sec. 3.131 and 132);
(3) One-way cash payments on OTC derivative contracts (which are
addressed in Sec. Sec. 3. 131 and 132); 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 Sec. Sec. 3.131 and 132).
(c) System-wide failures. In the case of a system-wide failure of a
settlement or clearing system, or a central counterparty, 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 national bank or Federal savings association must hold
risk-based capital against any DvP or PvP transaction with a normal
settlement period if the national bank's or Federal savings
association's counterparty has not made delivery or payment within five
business days after the settlement date. The national bank or Federal
savings association must determine its risk-weighted asset amount for
such a transaction by multiplying the positive current exposure of the
transaction for the national bank or Federal savings association by the
appropriate risk weight in Table 1 to Sec. 3.136.
Table 1 to Sec. 3.136--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 (in
percent)
------------------------------------------------------------------------
From 5 to 15............................................ 100
From 16 to 30........................................... 625
[[Page 165]]
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 national bank or Federal savings
association must hold risk-based capital against any non-DvP/non-PvP
transaction with a normal settlement period if the national bank or
Federal 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 national bank or
Federal savings association must continue to hold risk-based capital
against the transaction until the national bank or Federal savings
association has received its corresponding deliverables.
(2) From the business day after the national bank or Federal savings
association has made its delivery until five business days after the
counterparty delivery is due, the national bank or Federal savings
association must calculate its risk-based capital requirement for the
transaction by treating the current fair value of the deliverables owed
to the national bank or Federal savings association as a wholesale
exposure.
(i) A national bank or Federal savings association may use a 45
percent LGD for the transaction rather than estimating LGD for the
transaction provided the national bank or Federal savings association
uses the 45 percent LGD for all transactions described in paragraphs
(e)(1) and (2) of this section.
(ii) A national bank or Federal savings association may use a 100
percent risk weight for the transaction provided the national bank or
Federal savings association uses this risk weight for all transactions
described in paragraphs (e)(1) and (2) of this section.
(3) If the national bank or Federal savings association has not
received its deliverables by the fifth business day after the
counterparty delivery was due, the national bank or Federal savings
association must apply a 1,250 percent risk weight to the current fair
value of the deliverables owed to the national bank or Federal savings
association.
(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.
[78 FR 62157, 62273, Oct. 11, 2013, as amended at 80 FR 41417, July 15,
2015]
Sec. Sec. 3.137-3.140 [Reserved]
Risk-Weighted Assets for Securitization Exposures
Sec. 3.141 Operational criteria for recognizing the transfer of risk.
(a) Operational criteria for traditional securitizations. A national
bank or 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 national bank or
Federal savings association that meets these conditions must hold risk-
based capital against any securitization exposures it retains in
connection with the securitization. A national bank or Federal 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 common equity tier 1 capital any after-
tax gain-on-sale resulting from the transaction. The conditions are:
(1) The exposures are not reported on the national bank's or Federal
savings association's consolidated balance sheet under GAAP;
(2) The national bank or Federal savings association has transferred
to one or more third parties credit risk associated with the underlying
exposures;
(3) Any clean-up calls relating to the securitization are eligible
clean-up calls; and
[[Page 166]]
(4) The securitization does not:
(i) Include 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) Contain an early amortization provision.
(b) Operational criteria for synthetic securitizations. For
synthetic securitizations, a national bank or Federal savings
association may recognize for risk-based capital purposes under this
subpart the use of a credit risk mitigant to hedge underlying exposures
only if each of the conditions in this paragraph (b) is satisfied. A
national bank or Federal savings association that meets these conditions
must hold risk-based capital against any credit risk of the exposures it
retains in connection with the synthetic securitization. A national bank
or Federal savings association that fails to meet these conditions or
chooses not to recognize the credit risk mitigant for purposes of this
section must hold risk-based capital under this subpart against the
underlying exposures as if they had not been synthetically securitized.
The conditions are:
(1) The credit risk mitigant is:
(i) Financial collateral; or
(ii) A guarantee that meets all of the requirements of an eligible
guarantee in Sec. 3.2 except for paragraph (3) of the definition; or
(iii) A credit derivative that meets all of the requirements of an
eligible credit derivative except for paragraph (3) of the definition of
eligible guarantee in Sec. 3.2.
(2) The national bank or Federal 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 national bank or Federal savings association to
alter or replace the underlying exposures to improve the credit quality
of the underlying exposures;
(iii) Increase the national bank's or Federal 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 national
bank or Federal 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 national bank or Federal savings
association after the inception of the securitization;
(3) The national bank or Federal savings association 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.
(c) Due diligence requirements for securitization exposures. (1)
Except for exposures that are deducted from common equity tier 1 capital
and exposures subject to Sec. 3.142(k), if a national bank or Federal
savings association is unable to demonstrate to the satisfaction of the
OCC a comprehensive understanding of the features of a securitization
exposure that would materially affect the performance of the exposure,
the national bank or Federal savings association must assign a 1,250
percent risk weight to the securitization exposure. The national bank's
or Federal savings association's analysis must be commensurate with the
complexity of the securitization exposure and the materiality of the
position in relation to regulatory capital according to this part.
(2) A national bank or Federal savings association must demonstrate
its comprehensive understanding of a securitization exposure under
paragraph (c)(1) of this section, for each securitization exposure by:
(i) Conducting an analysis of the risk characteristics of a
securitization exposure prior to acquiring the exposure and document
such analysis within three business days after acquiring the exposure,
considering:
(A) Structural features of the securitization that would materially
[[Page 167]]
impact the performance of the exposure, for example, the contractual
cash flow waterfall, waterfall-related triggers, credit enhancements,
liquidity enhancements, fair value triggers, the performance of
organizations that service the position, and deal-specific definitions
of default;
(B) Relevant information regarding the performance of the underlying
credit exposure(s), for example, the percentage of loans 30, 60, and 90
days past due; default rates; prepayment rates; loans in foreclosure;
property types; occupancy; average credit score or other measures of
creditworthiness; average loan-to-value ratio; and industry and
geographic diversification data on the underlying exposure(s);
(C) Relevant market data of the securitization, for example, bid-ask
spreads, most recent sales price and historical price volatility,
trading volume, implied market rating, and size, depth and concentration
level of the market for the securitization; and
(D) For resecuritization exposures, performance information on the
underlying securitization exposures, for example, the issuer name and
credit quality, and the characteristics and performance of the exposures
underlying the securitization exposures; and
(ii) On an on-going basis (no less frequently than quarterly),
evaluating, reviewing, and updating as appropriate the analysis required
under this section for each securitization exposure.
Sec. 3.142 Risk-weighted assets for securitization exposures.
(a) Hierarchy of approaches. Except as provided elsewhere in this
section and in Sec. 3.141:
(1) A national bank or Federal savings association must deduct from
common equity tier 1 capital any after-tax gain-on-sale resulting from a
securitization and must apply a 1,250 percent risk weight to the portion
of any CEIO that does not constitute after tax gain-on-sale;
(2) If a securitization exposure does not require deduction or a
1,250 percent risk weight under paragraph (a)(1) of this section, the
national bank or Federal savings association must apply the supervisory
formula approach in Sec. 3.143 to the exposure if the national bank or
Federal savings association and the exposure qualify for the supervisory
formula approach according to Sec. 3.143(a);
(3) If a securitization exposure does not require deduction or a
1,250 percent risk weight under paragraph (a)(1) of this section and
does not qualify for the supervisory formula approach, the national bank
or Federal savings association may apply the simplified supervisory
formula approach under Sec. 3.144;
(4) If a securitization exposure does not require deduction or a
1,250 percent risk weight under paragraph (a)(1) of this section, does
not qualify for the supervisory formula approach in Sec. 3.143, and the
national bank or Federal savings association does not apply the
simplified supervisory formula approach in Sec. 3.144, the national
bank or Federal savings association must apply a 1,250 percent risk
weight to the exposure; and
(5) If a securitization exposure is a derivative contract (other
than protection provided by a national bank or Federal savings
association in the form of 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), a national bank or
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
national bank's or Federal savings association's total risk-weighted
assets for securitization exposures is equal to the sum of its risk-
weighted assets calculated using Sec. Sec. 3.141 through 146.
(c) Deductions. A national bank or Federal savings association may
calculate any deduction from common equity tier 1 capital for a
securitization exposure net of any DTLs associated with the
securitization exposure.
(d) Maximum risk-based capital requirement. Except as provided in
Sec. 3.141(c), unless one or more underlying exposures does not meet
the definition of a
[[Page 168]]
wholesale, retail, securitization, or equity exposure, the total risk-
based capital requirement for all securitization exposures held by a
single national bank or Federal savings association associated with a
single securitization (excluding any risk-based capital requirements
that relate to the national bank's or Federal savings association's
gain-on-sale or CEIOs associated with the securitization) may not exceed
the sum of:
(1) The national bank's or Federal savings association's total risk-
based capital requirement for the underlying exposures calculated under
this subpart as if the national bank or Federal savings association
directly held the underlying exposures; and
(2) The total ECL of the underlying exposures calculated under this
subpart.
(e) Exposure amount of a securitization exposure. (1) The exposure
amount of an on-balance sheet securitization exposure that is not a
repo-style transaction, eligible margin loan, OTC derivative contract,
or cleared transaction is the national bank's or Federal savings
association's carrying value.
(2) Except as provided in paragraph (m) of this section, the
exposure amount of an off-balance sheet securitization exposure that is
not an OTC derivative contract (other than a credit derivative), repo-
style transaction, eligible margin loan, or cleared transaction (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 an
eligible ABCP liquidity facility, the notional amount may be reduced to
the maximum potential amount that the national bank or 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 exposure amount of a securitization exposure that is a repo-
style transaction, eligible margin loan, or OTC derivative contract
(other than a credit derivative) or cleared transaction (other than a
credit derivative) is the EAD of the exposure as calculated in Sec.
3.132 or Sec. 3.133.
(f) Overlapping exposures. If a national bank or Federal savings
association has multiple securitization exposures that provide
duplicative coverage of the underlying exposures of a securitization
(such as when a national bank or Federal savings association provides a
program-wide credit enhancement and multiple pool-specific liquidity
facilities to an ABCP program), the national bank or Federal savings
association is not required to hold duplicative risk-based capital
against the overlapping position. Instead, the national bank or Federal
savings association may assign to the overlapping securitization
exposure the applicable risk-based capital treatment under this subpart
that results in the highest risk-based capital requirement.
(g) Securitizations of non-IRB exposures. Except as provided in
Sec. 3.141(c), if a national bank or Federal savings association has a
securitization exposure where any underlying exposure is not a wholesale
exposure, retail exposure, securitization exposure, or equity exposure,
the national bank or Federal savings association:
(1) Must deduct from common equity tier 1 capital any after-tax
gain-on-sale resulting from the securitization and apply a 1,250 percent
risk weight to the portion of any CEIO that does not constitute gain-on-
sale, if the national bank or Federal savings association is an
originating national bank or Federal savings association;
(2) May apply the simplified supervisory formula approach in Sec.
3.144 to the exposure, if the securitization exposure does not require
deduction or a 1,250 percent risk weight under paragraph (g)(1) of this
section;
(3) Must assign a 1,250 percent risk weight to the exposure if the
securitization exposure does not require deduction or a 1,250 percent
risk weight under paragraph (g)(1) of this section, does not qualify for
the supervisory formula approach in Sec. 3.143, and the national bank
or Federal savings association does not apply the simplified supervisory
formula approach in Sec. 3.144 to the exposure.
(h) Implicit support. If a national bank or Federal savings
association provides support to a securitization in excess of the
national bank's or Federal savings
[[Page 169]]
association's contractual obligation to provide credit support to the
securitization (implicit support):
(1) The national bank or Federal savings association must calculate
a risk-weighted asset amount for underlying exposures associated with
the securitization as if the exposures had not been securitized and must
deduct from common equity tier 1 capital any after-tax gain-on-sale
resulting from the securitization; and
(2) The national bank or Federal savings association must disclose
publicly:
(i) That it has provided implicit support to the securitization; and
(ii) The regulatory capital impact to the national bank or Federal
savings association of providing such implicit support.
(i) Undrawn portion of a servicer cash advance facility. (1)
Notwithstanding any other provision of this subpart, a national bank or
Federal savings association that is a servicer under an eligible
servicer cash advance facility is not required to hold risk-based
capital against potential future cash advance payments that it may be
required to provide under the contract governing the facility.
(2) For a national bank or Federal savings association that acts as
a servicer, the exposure amount for a servicer cash advance facility
that is not an eligible servicer cash advance facility is equal to the
amount of all potential future cash advance payments that the national
bank or Federal savings association may be contractually required to
provide during the subsequent 12 month period under the contract
governing the facility.
(j) Interest-only mortgage-backed securities. Regardless of any
other provisions in 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) Notwithstanding any other provisions of this subpart
E, a national bank or 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 national bank or Federal savings association establishes
and maintains, pursuant to GAAP, a non-capital reserve sufficient to
meet the national bank's or Federal 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 et seq.); and
(iv) The national bank or Federal savings association is well-
capitalized, as defined in 12 CFR 6.4. For purposes of determining
whether a national bank or Federal savings association is well
capitalized for purposes of this paragraph (k), the national bank's or
Federal 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 national
bank or Federal savings association on transfers of small-business
obligations subject to paragraph (k)(1) of this section cannot exceed 15
percent of the national bank's or Federal savings association's total
capital.
(3) If a national bank or Federal savings association ceases to be
well capitalized or exceeds the 15 percent capital limitation in
paragraph (k)(2) of this section, 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 national bank or Federal savings association
was well capitalized and did not exceed the capital limit.
(4) The risk-based capital ratios of a national bank or Federal
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.
[[Page 170]]
(l) Nth-to-default credit derivatives--(1) Protection provider. A
national bank or Federal savings association must determine a risk
weight using the supervisory formula approach (SFA) pursuant to Sec.
3.143 or the simplified supervisory formula approach (SSFA) pursuant to
Sec. 3.144 for an nth-to-default credit derivative in accordance with
this paragraph (l). In the case of credit protection sold, a national
bank or Federal savings association must determine its exposure in the
nth-to-default credit derivative as the largest notional
amount of all the underlying exposures.
(2) For purposes of determining the risk weight for an
nth-to-default credit derivative using the SFA or the SSFA,
the national bank or Federal savings association must calculate the
attachment point and detachment point of its exposure as follows:
(i) The attachment point (parameter A) is the ratio of the sum of
the notional amounts of all underlying exposures that are subordinated
to the national bank's or Federal savings association's exposure to the
total notional amount of all underlying exposures. For purposes of the
SSFA, parameter A is expressed as a decimal value between zero and one.
For purposes of using the SFA to calculate the risk weight for its
exposure in an nth-to-default credit derivative, parameter A
must be set equal to the credit enhancement level (L) input to the SFA
formula. In the case of a first-to-default credit derivative, there are
no underlying exposures that are subordinated to the national bank's or
Federal savings association's exposure. In the case of a second-or-
subsequent-to-default credit derivative, the smallest (n-1) risk-
weighted asset amounts of the underlying exposure(s) are subordinated to
the national bank's or Federal savings association's exposure.
(ii) The detachment point (parameter D) equals the sum of parameter
A plus the ratio of the notional amount of the national bank's or
Federal savings association's exposure in the nth-to-default
credit derivative to the total notional amount of all underlying
exposures. For purposes of the SSFA, parameter W is expressed as a
decimal value between zero and one. For purposes of the SFA, parameter D
must be set to equal L plus the thickness of tranche T input to the SFA
formula.
(3) A national bank or Federal savings association that does not use
the SFA or the SSFA to determine a risk weight for its exposure in an
nth-to-default credit derivative must assign a risk weight of
1,250 percent to the exposure.
(4) Protection purchaser--(i) First-to-default credit derivatives. A
national bank or Federal savings association that obtains credit
protection on a group of underlying exposures through a first-to-default
credit derivative that meets the rules of recognition of Sec. 3.134(b)
must determine its risk-based capital requirement under this subpart for
the underlying exposures as if the national bank or Federal 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. A national bank or Federal
savings association must calculate a risk-based capital requirement for
counterparty credit risk according to Sec. 3.132 for a first-to-default
credit derivative that does not meet the rules of recognition of Sec.
3.134(b).
(ii) Second-or-subsequent-to-default credit derivatives. (A) A
national bank or Federal savings association that obtains credit
protection on a group of underlying exposures through a nth-
to-default credit derivative that meets the rules of recognition of
Sec. 3.134(b) (other than a first-to-default credit derivative) may
recognize the credit risk mitigation benefits of the derivative only if:
(1) The national bank or Federal savings association 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 national bank or Federal savings association satisfies the
requirements of paragraph (l)(3)(ii)(A) of this section, the national
bank or Federal savings association must determine its risk-based
capital requirement for the underlying exposures as if the bank had only
synthetically securitized the
[[Page 171]]
underlying exposure with the nth smallest risk-based capital
requirement and had obtained no credit risk mitigant on the other
underlying exposures.
(C) A national bank or Federal savings association must calculate a
risk-based capital requirement for counterparty credit risk according to
Sec. 3.132 for a nth-to-default credit derivative that does
not meet the rules of recognition of Sec. 3.134(b).
(m) Guarantees and credit derivatives other than nth-to-default
credit derivatives--(1) Protection provider. For a guarantee or credit
derivative (other than an nth-to-default credit derivative)
provided by a national bank or Federal savings association that covers
the full amount or a pro rata share of a securitization exposure's
principal and interest, the national bank or Federal savings association
must risk weight the guarantee or credit derivative as if it holds the
portion of the reference exposure covered by the guarantee or credit
derivative.
(2) Protection purchaser. (i) A national bank or Federal savings
association that purchases an OTC credit derivative (other than an
nth-to-default credit derivative) that is recognized under
Sec. 3.145 as a credit risk mitigant (including via recognized
collateral) is not required to compute a separate counterparty credit
risk capital requirement under Sec. 3.131 in accordance with Sec.
3.132(c)(3).
(ii) If a national bank or Federal savings association cannot, or
chooses not to, recognize a purchased credit derivative as a credit risk
mitigant under Sec. 3.145, the national bank or Federal savings
association must determine the exposure amount of the credit derivative
under Sec. 3.132(c).
(A) If the national bank or Federal savings association purchases
credit protection from a counterparty that is not a securitization SPE,
the national bank or Federal savings association must determine the risk
weight for the exposure according Sec. 3.131.
(B) If the national bank or Federal savings association purchases
the credit protection from a counterparty that is a securitization SPE,
the national bank or Federal savings association must determine the risk
weight for the exposure according to this section, including paragraph
(a)(5) of this section for a credit derivative that has a first priority
claim on the cash flows from the underlying exposures of the
securitization SPE (notwithstanding amounts due under interest rate or
currency derivative contracts, fees due, or other similar payments.
Sec. 3.143 Supervisory formula approach (SFA).
(a) Eligibility requirements. A national bank or Federal savings
association must use the SFA to determine its risk-weighted asset amount
for a securitization exposure if the national bank or Federal savings
association can calculate on an ongoing basis each of the SFA parameters
in paragraph (e) of this section.
(b) Mechanics. The risk-weighted asset amount for a securitization
exposure equals its SFA risk-based capital requirement as calculated
under paragraph (c) and (d) of this section, multiplied by 12.5.
(c) The SFA risk-based capital requirement. (1) If KIRB
is greater than or equal to L + T, an exposure's SFA risk-based capital
requirement equals the exposure amount.
(2) If KIRB is less than or equal to L, an exposure's SFA
risk-based capital requirement is UE multiplied by TP multiplied by the
greater of:
(i) F [middot] T (where F is 0.016 for all securitization
exposures); or
(ii) S[L + T]-S[L].
(3) If KIRB is greater than L and less than L + T, the
national bank or Federal savings association must apply a 1,250 percent
risk weight to an amount equal to UE [middot] TP (KIRB-L),
and the exposure's SFA risk-based capital requirement is UE multiplied
by TP multiplied by the greater of:
(i) F [middot] (T-(KIRB-L)) (where F is 0.016 for all
other securitization exposures); or
(ii) S[L + T]-S[KIRB].
(d) The supervisory formula:
[[Page 172]]
[GRAPHIC] [TIFF OMITTED] TR11OC13.049
(e) SFA parameters. For purposes of the calculations in paragraphs
(c) and (d) of this section:
(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
Sec. 3.142(e)) plus the adjusted carrying value of any underlying
exposures that are equity exposures (as defined in Sec. 3.151(b)).
(2) Tranche percentage (TP). TP is the ratio of the amount of the
national bank's or 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)
KIRB is the ratio of:
(A) The sum of the risk-based capital requirements for the
underlying exposures plus the expected credit losses of
[[Page 173]]
the underlying exposures (as determined under this subpart E as if the
underlying exposures were directly held by the national bank or Federal
savings association); 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 all of the 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 national bank's or Federal savings
association's securitization exposure; to
(B) UE.
(ii) A national bank or 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 national bank's or 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 national bank's or
Federal savings association's securitization exposure; to
(ii) UE.
(6) Effective number of exposures (N). (i) Unless the national bank
or Federal savings association elects to use the formula provided in
paragraph (f) of this section,
[GRAPHIC] [TIFF OMITTED] TR11OC13.050
where EADi represents the EAD associated with the ith
instrument in the underlying exposures.
(ii) Multiple exposures to one obligor must be treated as a single
underlying exposure.
(iii) In the case of a resecuritization, the national bank or
Federal 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:
[[Page 174]]
[GRAPHIC] [TIFF OMITTED] TR11OC13.051
where LGDi represents the average LGD associated with all
exposures to the ith obligor. In the case of a resecuritization, 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
national bank or Federal savings association may apply the SFA using the
following simplifications:
(i) h = 0; and
(ii) v = 0.
(2) Under the conditions in Sec. Sec. 3.143(f)(3) and (f)(4), a
national bank or Federal savings association may employ a simplified
method for calculating N and EWALGD.
(3) If C1 is no more than 0.03, a national bank or
Federal savings association may set EWALGD = 0.50 if none of the
underlying exposures is a securitization exposure, or may set 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] TR11OC13.052
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 national bank or
Federal savings association.
(4) Alternatively, if only C1 is available and
C1 is no more than 0.03, the national bank or Federal savings
association may set EWALGD = 0.50 if none of the underlying exposures is
a securitization exposure, or may set EWALGD = 1 if one or more of the
underlying exposures is a securitization exposure and may set N = 1/
C1.
Sec. 3.144 Simplified supervisory formula approach (SSFA).
(a) General requirements for the SSFA. To use the SSFA to determine
the risk weight for a securitization exposure, a national bank or
Federal savings association must have data that enables it to assign
accurately the parameters described in paragraph (b) of this section.
Data used to assign the parameters described in paragraph (b) of this
section must be the most currently available data; if the contracts
governing the underlying exposures of the securitization require
payments on a monthly or quarterly basis, the data used to assign the
parameters described in paragraph (b) of this section must be no more
than 91 calendar days old. A national bank or Federal savings
association that does not have the appropriate data to assign the
parameters described in paragraph (b) of this section must assign a risk
weight of 1,250 percent to the exposure.
(b) SSFA parameters. To calculate the risk weight for a
securitization exposure using the SSFA, a national bank or Federal
savings association must have accurate information on the following five
inputs to the SSFA calculation:
(1) KG is the weighted-average (with unpaid principal
used as the weight for each exposure) total capital requirement of the
underlying exposures calculated using subpart D of this part.
KG
[[Page 175]]
is expressed as a decimal value between zero and one (that is, an
average risk weight of 100 percent represents a value of KG
equal to 0.08).
(2) Parameter W is expressed as a decimal value between zero and
one. Parameter W is the ratio of the sum of the dollar amounts of any
underlying exposures of the securitization that meet any of the criteria
as set forth in paragraphs (b)(2)(i) through (vi) of this section to the
balance, measured in dollars, of underlying exposures:
(i) Ninety days or more past due;
(ii) Subject to a bankruptcy or insolvency proceeding;
(iii) In the process of foreclosure;
(iv) Held as real estate owned;
(v) Has contractually deferred payments for 90 days or more, other
than principal or interest payments deferred on:
(A) Federally-guaranteed student loans, in accordance with the terms
of those guarantee programs; or
(B) Consumer loans, including non-federally-guaranteed student
loans, provided that such payments are deferred pursuant to provisions
included in the contract at the time funds are disbursed that provide
for period(s) of deferral that are not initiated based on changes in the
creditworthiness of the borrower; or
(vi) Is in default.
(3) Parameter A is the attachment point for the exposure, which
represents the threshold at which credit losses will first be allocated
to the exposure. Except as provided in section 142(l) for
nth-to-default credit derivatives, parameter A equals the
ratio of the current dollar amount of underlying exposures that are
subordinated to the exposure of the national bank or Federal savings
association to the current dollar amount of underlying exposures. Any
reserve account funded by the accumulated cash flows from the underlying
exposures that is subordinated to the national bank's or Federal savings
association's securitization exposure may be included in the calculation
of parameter A to the extent that cash is present in the account.
Parameter A is expressed as a decimal value between zero and one.
(4) Parameter D is the detachment point for the exposure, which
represents the threshold at which credit losses of principal allocated
to the exposure would result in a total loss of principal. Except as
provided in section 142(l) for nth-to-default credit
derivatives, parameter D equals parameter A plus the ratio of the
current dollar amount of the securitization exposures that are pari
passu with the exposure (that is, have equal seniority with respect to
credit risk) to the current dollar amount of the underlying exposures.
Parameter D is expressed as a decimal value between zero and one.
(5) A supervisory calibration parameter, p, is equal to 0.5 for
securitization exposures that are not resecuritization exposures and
equal to 1.5 for resecuritization exposures.
(c) Mechanics of the SSFA. KG and W are used to calculate
KA, the augmented value of KG, which reflects the
observed credit quality of the underlying exposures. KA is
defined in paragraph (d) of this section. The values of parameters A and
D, relative to KA determine the risk weight assigned to a
securitization exposure as described in paragraph (d) of this section.
The risk weight assigned to a securitization exposure, or portion of a
securitization exposure, as appropriate, is the larger of the risk
weight determined in accordance with this paragraph (c), paragraph (d)
of this section, and a risk weight of 20 percent.
(1) When the detachment point, parameter D, for a securitization
exposure is less than or equal to KA, the exposure must be
assigned a risk weight of 1,250 percent;
(2) When the attachment point, parameter A, for a securitization
exposure is greater than or equal to KA, the national bank or
Federal savings association must calculate the risk weight in accordance
with paragraph (d) of this section;
(3) When A is less than KA and D is greater than
KA, the risk weight is a weighted-average of 1,250 percent
and 1,250 percent times KSSFA calculated in accordance with
paragraph (d) of this section. For the purpose of this weighted-average
calculation:
[[Page 176]]
[GRAPHIC] [TIFF OMITTED] TR11OC13.053
Sec. 3.145 Recognition of credit risk mitigants for securitization
exposures.
(a) General. An originating national bank or 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 Sec. 3.141 may recognize the
credit risk mitigant, but only as provided in this section. An investing
national bank or Federal 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.
(b) Collateral--(1) Rules of recognition. A national bank or Federal
savings association may recognize financial collateral in determining
the national bank's or Federal savings association's risk-weighted asset
amount for a securitization exposure (other than a repo-style
transaction, an eligible margin loan, or an OTC derivative contract for
which the national bank or Federal savings association has reflected
collateral in its determination of exposure
[[Page 177]]
amount under Sec. 3.132) as follows. The national bank's or Federal
savings association's risk-weighted asset amount for the collateralized
securitization exposure is equal to the risk-weighted asset amount for
the securitization exposure as calculated under the SSFA in Sec. 3.144
or under the SFA in Sec. 3.143 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
Sec. 3.142(e);
(iii) C = the current fair 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.
[GRAPHIC] [TIFF OMITTED] TR11OC13.054
(3) Standard supervisory haircuts. Unless a national bank or Federal
savings association qualifies for use of and uses own-estimates haircuts
in paragraph (b)(4) of this section:
(i) A national bank or Federal savings association must use the
collateral type haircuts (Hs) in Table 1 to Sec. 3.132 of
this subpart;
(ii) A national bank or Federal 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 national bank or Federal savings association must multiply
the supervisory haircuts obtained in paragraphs (b)(3)(i) and (ii) of
this section by the square root of 6.5 (which equals 2.549510); and
(iv) A national bank or Federal 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 national bank or Federal savings association may calculate
haircuts using its own internal estimates of market price volatility and
foreign exchange volatility, subject to Sec. 3.132(b)(2)(iii). The
minimum holding period (TM) for securitization exposures is
65 business days.
(c) Guarantees and credit derivatives--(1) Limitations on
recognition. A national bank or Federal savings association may only
recognize an eligible guarantee or eligible credit derivative provided
by an eligible guarantor in determining the national bank's or Federal
savings association's risk-weighted asset amount for a securitization
exposure.
(2) ECL for securitization exposures. When a national bank or
Federal savings association recognizes an eligible guarantee or eligible
credit derivative provided by an eligible guarantor in determining the
national bank's or Federal savings association's risk-weighted asset
amount for a securitization exposure, the national bank or Federal
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 national bank's or Federal
savings association's total ECL.
[[Page 178]]
(3) Rules of recognition. A national bank or Federal savings
association may recognize an eligible guarantee or eligible credit
derivative provided by an eligible guarantor in determining the national
bank's or Federal savings association's risk-weighted asset amount 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 national bank or 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 guarantor (as determined in the
wholesale risk weight function described in Sec. 3.131), using the
national bank's or Federal savings association's PD for the guarantor,
the national bank's or Federal savings association's LGD for the
guarantee or credit derivative, and an EAD equal to the amount of the
securitization exposure (as determined in Sec. 3.142(e)).
(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 national bank or Federal 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 guarantor (as determined in the wholesale risk
weight function described in Sec. 3.131), using the national bank's or
Federal savings association's PD for the guarantor, the national bank's
or Federal 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 Sec. Sec. 3.142
through 146).
(4) Mismatches. The national bank or Federal savings association
must make applicable adjustments to the protection amount as required in
Sec. 3.134(d), (e), and (f) 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 national bank or Federal savings
association must use the longest residual maturity of any of the hedged
exposures as the residual maturity of all the hedged exposures.
Sec. Sec. 3.146-3.150 [Reserved]
Risk-Weighted Assets for Equity Exposures
Sec. 3.151 Introduction and exposure measurement.
(a) General. (1) To calculate its risk-weighted asset amounts for
equity exposures that are not equity exposures to investment funds, a
national bank or Federal savings association may apply either the Simple
Risk Weight Approach (SRWA) in Sec. 3.152 or, if it qualifies to do so,
the Internal Models Approach (IMA) in Sec. 3.153. A national bank or
Federal savings association must use the look-through approaches
provided in Sec. 3.154 to calculate its risk-weighted asset amounts for
equity exposures to investment funds.
(2) A national bank or Federal savings association must treat an
investment in a separate account (as defined in Sec. 3.2), as if it
were an equity exposure to an investment fund as provided in Sec.
3.154.
(3) Stable value protection. (i) Stable value protection means a
contract where the provider of the contract is obligated to pay:
(A) The policy owner of a separate account an amount equal to the
shortfall between the fair value and cost basis of the separate account
when the policy owner of the separate account surrenders the policy, or
(B) The beneficiary of the contract an amount equal to the shortfall
between the fair value and book value of a specified portfolio of
assets.
[[Page 179]]
(ii) A national bank or Federal savings association that purchases
stable value protection on its investment in a separate account must
treat the portion of the carrying value of its investment in the
separate account attributable to the stable value protection as an
exposure to the provider of the protection and the remaining portion of
the carrying value of its separate account as an equity exposure to an
investment fund.
(iii) A national bank or Federal savings association that provides
stable value protection must treat the exposure as an equity derivative
with an adjusted carrying value determined as the sum of Sec.
3.151(b)(1) and (2).
(b) Adjusted carrying value. For purposes of this subpart, the
adjusted carrying value of an equity exposure is:
(1) For the on-balance sheet component of an equity exposure, the
national bank's or Federal savings association's carrying value of the
exposure;
(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.
(3) 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 national bank's or Federal
savings association's best estimate of the amount that would be funded
under economic downturn conditions.
Sec. 3.152 Simple risk weight approach (SRWA).
(a) General. Under the SRWA, a national bank's or 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 national bank's or Federal 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 national bank's or Federal savings association's individual
equity exposures to an investment fund as determined in Sec. 3.154.
(b) SRWA computation for individual equity exposures. A national
bank or 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 section.
(1) Zero percent risk weight equity exposures. An equity exposure to
an entity whose credit exposures are exempt from the 0.03 percent PD
floor in Sec. 3.131(d)(2) is assigned a zero percent risk weight.
(2) 20 percent risk weight equity exposures. An equity exposure to a
Federal Home Loan Bank or the Federal Agricultural Mortgage Corporation
(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 section 24
(Eleventh) of the National Bank Act, 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.
(ii) Effective portion of hedge pairs. The effective portion of a
hedge pair.
(iii) Non-significant equity exposures. Equity exposures, excluding
significant investments in the capital of an unconsolidated institution
in the form of common stock and exposures to an investment firm that
would meet the definition of a traditional securitization were it not
for the OCC's application of
[[Page 180]]
paragraph (8) of that definition in Sec. 3.2 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 national bank's
or Federal savings association's total capital.
(A) To compute the aggregate adjusted carrying value of a national
bank's or Federal savings association's equity exposures for purposes of
this section, the national bank or Federal 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 national
bank or Federal savings association does not know the actual holdings of
the investment fund, the national bank or Federal 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 national bank or
Federal savings association must assume for purposes of this section
that the investment fund invests to the maximum extent possible in
equity exposures.
(B) When determining which of a national bank's or Federal savings
association's equity exposures qualifies for a 100 percent risk weight
under this section, a national bank or Federal 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, 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) 250 percent risk weight equity exposures. Significant
investments in the capital of unconsolidated financial institutions in
the form of common stock that are not deducted from capital pursuant to
Sec. 3.22(b)(4) are assigned a 250 percent risk weight.
(5) 300 percent risk weight equity exposures. A publicly traded
equity exposure (other than an equity exposure described in paragraph
(b)(7) of this section and including the ineffective portion of a hedge
pair) is assigned a 300 percent risk weight.
(6) 400 percent risk weight equity exposures. An equity exposure
(other than an equity exposure described in paragraph (b)(7) of this
section) that is not publicly traded is assigned a 400 percent risk
weight.
(7) 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 in
Sec. 3.2; 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
national bank or Federal savings association acquires at least one of
the equity exposures); the documentation specifies the measure of
effectiveness (E) the national bank or 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
national bank or 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
national bank or Federal savings association
[[Page 181]]
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 zero. 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] TR11OC13.055
(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.
[78 FR 62157, 62273, Oct. 11, 2013, as amended at 84 FR 35258, July 22,
2019]
Sec. 3.153 Internal models approach (IMA).
(a) General. A national bank or 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 paragraphs (c) and
(d) of this section).
(b) Qualifying criteria. To qualify to use the IMA to calculate
risk-weighted assets for equity exposures, a national bank or Federal
savings association must receive prior written approval from the OCC. To
receive such approval, the national bank or Federal savings association
must demonstrate to the OCC's satisfaction that the national bank or
Federal savings association meets the following criteria:
(1) The national bank or Federal 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 national bank's or Federal savings association's modeled equity
exposures; and
(iii) Adequately capture both general market risk and idiosyncratic
risk.
[[Page 182]]
(2) The national bank's or Federal 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 99th percentile one-tailed confidence interval
of the distribution of quarterly returns for a benchmark portfolio of
equity exposures comparable to the national bank's or Federal 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 national bank's or Federal
savings association's model and benchmarking exercise must be sufficient
to provide confidence in the accuracy and robustness of the national
bank's or Federal savings association's estimates.
(4) The national bank's or Federal savings association's model and
benchmarking process must incorporate data that are relevant in
representing the risk profile of the national bank's or Federal 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 national bank's or Federal savings
association's modeled equity exposures. In addition, the national bank's
or Federal savings association's benchmarking exercise must be based on
daily market prices for the benchmark portfolio. If the national bank's
or Federal savings association's model uses a scenario methodology, the
national bank or Federal savings association must demonstrate that the
model produces a conservative estimate of potential losses on the
national bank's or Federal savings association's modeled equity
exposures over a relevant long-term market cycle. If the national bank
or Federal savings association employs risk factor models, the national
bank or Federal savings association must demonstrate through empirical
analysis the appropriateness of the risk factors used.
(5) The national bank or Federal 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 national
bank's or Federal savings association's modeled equity exposures and
that the national bank or Federal savings association has made
appropriate adjustments for differences. The national bank or Federal
savings association must derive any proxies for its modeled equity
exposures and benchmark portfolio using historical market data that are
relevant to the national bank's or Federal 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 national bank's or Federal savings association's
modeled equity exposures.
(c) Risk-weighted assets calculation for a national bank or Federal
savings association using the IMA for publicly traded and non-publicly
traded equity exposures. If a national bank or Federal savings
association models publicly traded and non-publicly traded equity
exposures, the national bank's or Federal 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
Sec. 3.152(b)(1) through (b)(3)(i) (as determined under Sec. 3.152)
and each equity exposure to an investment fund (as determined under
Sec. 3.154); and
(2) The greater of:
(i) The estimate of potential losses on the national bank's or
Federal savings association's equity exposures (other than equity
exposures referenced in paragraph (c)(1) of this section) generated by
the national bank's or Federal 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 national bank's or 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 Sec.
3.152(b)(1) through (b)(3)(i), and
[[Page 183]]
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 national bank's or Federal 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 Sec. 3.152(b)(1) through
(b)(3)(i), and are not equity exposures to an investment fund.
(d) Risk-weighted assets calculation for a national bank or Federal
savings association using the IMA only for publicly traded equity
exposures. If a national bank or Federal savings association models only
publicly traded equity exposures, the national bank's or Federal 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
Sec. Sec. 3.152(b)(1) through (b)(3)(i) (as determined under Sec.
3.152), each equity exposure that qualifies for a 400 percent risk
weight under Sec. 3.152(b)(5) or a 600 percent risk weight under Sec.
3.152(b)(6) (as determined under Sec. 3.152), and each equity exposure
to an investment fund (as determined under Sec. 3.154); and
(2) The greater of:
(i) The estimate of potential losses on the national bank's or
Federal savings association's equity exposures (other than equity
exposures referenced in paragraph (d)(1) of this section) generated by
the national bank's or Federal 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 national bank's or 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 Sec.
3.152(b)(1) through (b)(3)(i), and are not equity exposures to an
investment fund; and
(B) 200 percent multiplied by the aggregate ineffective portion of
all hedge pairs.
Sec. 3.154 Equity exposures to investment funds.
(a) Available approaches. (1) Unless the exposure meets the
requirements for a community development equity exposure in Sec.
3.152(b)(3)(i), a national bank or 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, or the alternative modified look-through approach in
paragraph (d) 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 Sec. 3.152(b)(3)(i) is its adjusted carrying value.
(3) If an equity exposure to an investment fund is part of a hedge
pair and the national bank or Federal savings association does not use
the full look-through approach, the national bank or Federal savings
association may use the ineffective portion of the hedge pair as
determined under Sec. 3.152(c) 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 national bank or 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 subpart E of this part as if the
proportional ownership share of each exposure were held directly by the
national bank or Federal savings association) may either:
(1) Set the risk-weighted asset amount of the national bank's or
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 national bank or
Federal savings association; and
[[Page 184]]
(ii) The national bank's or Federal savings association's
proportional ownership share of the fund; or
(2) Include the national bank's or Federal savings association's
proportional ownership share of each exposure held by the fund in the
national bank's or Federal savings association's IMA.
(c) Simple modified look-through approach. Under this approach, the
risk-weighted asset amount for a national bank's or 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 assigned according to subpart D of this part 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).
(d) Alternative modified look-through approach. Under this approach,
a national bank or 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 assigned according to subpart
D of this part 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 national
bank's or Federal 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 all exposure types
within the fund exceeds 100 percent, the national bank or Federal
savings association must assume that the fund invests to the maximum
extent permitted under its investment limits in the exposure type with
the highest risk weight under subpart D of this part, and continues to
make investments in order of the exposure type with the next highest
risk weight under subpart D of this part until the maximum total
investment level is reached. If more than one exposure type applies to
an exposure, the national bank or Federal savings association must use
the highest applicable risk weight. A national bank or 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.
Sec. 3.155 Equity derivative contracts.
(a) Under the IMA, in addition to holding risk-based capital against
an equity derivative contract under this part, a national bank or
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 Sec. 3.132.
(b) Under the SRWA, a national bank or 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 national bank or 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.
Sec. Sec. 3.156-3.160 [Reserved]
Risk-Weighted Assets for Operational Risk
Sec. 3.161 Qualification requirements for incorporation of operational
risk mitigants.
(a) Qualification to use operational risk mitigants. A national bank
or Federal savings association may adjust its estimate of operational
risk exposure to reflect qualifying operational risk mitigants if:
(1) The national bank's or Federal savings association's operational
risk quantification system is able to generate an estimate of the
national bank's or Federal savings association's operational risk
exposure (which does
[[Page 185]]
not incorporate qualifying operational risk mitigants) and an estimate
of the national bank's or Federal savings association's operational risk
exposure adjusted to incorporate qualifying operational risk mitigants;
and
(2) The national bank's or Federal savings association's methodology
for incorporating the effects of insurance, if the national bank or
Federal 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 the national bank or
Federal savings association deems to have strong capacity to meet its
claims payment obligations and the obligor rating category to which the
national bank or Federal savings association assigns the company is
assigned a PD equal to or less than 10 basis points;
(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;
(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 total capital.
Sec. 3.162 Mechanics of risk-weighted asset calculation.
(a) If a national bank or Federal savings association does not
qualify to use or does not have qualifying operational risk mitigants,
the national bank's or Federal 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 national bank or Federal savings association qualifies to
use operational risk mitigants and has qualifying operational risk
mitigants, the national bank's or Federal savings association's dollar
risk-based capital requirement for operational risk is the greater of:
(1) The national bank's or 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 national bank's or Federal savings association's operational
risk exposure; and
(ii) Eligible operational risk offsets (if any).
(c) The national bank's or Federal savings association's risk-
weighted asset amount for operational risk equals the national bank's or
Federal savings association's dollar risk-based capital requirement for
operational risk determined under sections 162(a) or (b) multiplied by
12.5.
Sec. Sec. 3.163-3.170 [Reserved]
Disclosures
Sec. 3.171 Purpose and scope.
Sec. Sec. 3.171 through 3.173 establish public disclosure
requirements related to the capital requirements of a national bank or
Federal savings association that is an advanced approaches national bank
or Federal savings association.
Sec. 3.172 Disclosure requirements.
(a) A national bank or Federal savings association that is an
advanced approaches national bank or Federal savings association that
has completed the parallel run process and that has
[[Page 186]]
received notification from the OCC pursuant to section 121(d) of subpart
E of this part must publicly disclose each quarter its total and tier 1
risk-based capital ratios and their components as calculated under this
subpart (that is, common equity tier 1 capital, additional tier 1
capital, tier 2 capital, total qualifying capital, and total risk-
weighted assets).
(b) A national bank or Federal savings association that is an
advanced approaches national bank or Federal savings association that
has completed the parallel run process and that has received
notification from the OCC pursuant to section 121(d) of subpart E of
this part must comply with paragraph (c) of this section unless it is a
consolidated subsidiary of a bank holding company, savings and loan
holding company, or depository institution that is subject to these
disclosure requirements or a subsidiary of a non-U.S. banking
organization that is subject to comparable public disclosure
requirements in its home jurisdiction.
(c)(1) A national bank or Federal savings association described in
paragraph (b) of this section must provide timely public disclosures
each calendar quarter of the information in the applicable tables in
Sec. 3.173. If a significant change occurs, such that the most recent
reported amounts are no longer reflective of the national bank's or
Federal savings association's capital adequacy and risk profile, then a
brief discussion of this change and its likely impact must be disclosed
as soon as practicable thereafter. Qualitative disclosures that
typically do not change each quarter (for example, a general summary of
the national bank's or Federal savings association's risk management
objectives and policies, reporting system, and definitions) may be
disclosed annually after the end of the fourth calendar quarter,
provided that any significant changes to these are disclosed in the
interim. Management may provide all of the disclosures required by this
subpart in one place on the national bank's or Federal savings
association's public Web site or may provide the disclosures in more
than one public financial report or other regulatory reports, provided
that the national bank or Federal savings association publicly provides
a summary table specifically indicating the location(s) of all such
disclosures.
(2) A national bank or Federal savings association described in
paragraph (b) of this section must have a formal disclosure policy
approved by the board of directors that addresses its approach for
determining the disclosures it makes. 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
subpart, and must ensure that appropriate review of the disclosures
takes place. One or more senior officers of the national bank or Federal
savings association must attest that the disclosures meet the
requirements of this subpart.
(3) If a national bank or Federal savings association described in
paragraph (b) of this section 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 national bank or Federal savings association
is not required to 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.
(d)(1) A national bank or Federal savings association that meets any
of the criteria in Sec. 3.100(b)(1) before January 1, 2015, must
publicly disclose each quarter its supplementary leverage ratio and the
components thereof (that is, tier 1 capital and total leverage exposure)
as calculated under subpart B of this part, beginning with the first
quarter in 2015. This disclosure requirement applies without regard to
whether the national bank or Federal savings association has completed
the parallel run process and received notification from the OCC pursuant
to Sec. 3.121(d).
(2) A national bank or Federal savings association that meets any of
the criteria in Sec. 3.100(b)(1) on or after January 1, 2015, or a
Category III national
[[Page 187]]
bank or Federal savings association must publicly disclose each quarter
its supplementary leverage ratio and the components thereof (that is,
tier 1 capital and total leverage exposure) as calculated under subpart
B of this part beginning with the calendar quarter immediately following
the quarter in which the national bank or Federal savings association
becomes an advanced approaches national bank or Federal savings
association or a Category III national bank or Federal savings
association. This disclosure requirement applies without regard to
whether the national bank or Federal savings association has completed
the parallel run process and has received notification from the OCC
pursuant to Sec. 3.121(d).
[78 FR 62157, 62273, Oct. 11, 2013, as amended at 79 FR 57743, Sept. 26,
2014; 80 FR 41417, July 15, 2015; 84 FR 59265, Nov. 1, 2019]
Sec. 3.173 Disclosures by certain advanced approaches national banks
or Federal savings associations and Category III national banks or
Federal savings associations.
(a)(1) An advanced approaches national bank or Federal savings
association described in Sec. 3.172(b) must make the disclosures
described in Tables 1 through 12 to Sec. 3.173.
(2) An advanced approaches national bank or Federal savings
association and a Category III national bank or Federal savings
association that is required to publicly disclose its supplementary
leverage ratio pursuant to Sec. 3.172(d) must make the disclosures
required under Table 13 to this section unless the national bank or
Federal savings association is a consolidated subsidiary of a bank
holding company, savings and loan holding company, or depository
institution that is subject to these disclosure requirements or a
subsidiary of a non-U.S. banking organization that is subject to
comparable public disclosure requirements in its home jurisdiction.
(3) The disclosures described in Tables 1 through 12 to Sec. 3.173
must be made publicly available for twelve consecutive quarters
beginning on January 1, 2014, or a shorter period, as applicable, for
the quarters after the national bank or Federal savings association has
completed the parallel run process and received notification from the
OCC pursuant to Sec. 3.121(d). The disclosures described in Table 13 to
Sec. 3.173 must be made publicly available for twelve consecutive
quarters beginning on January 1, 2015, or a shorter period, as
applicable, for the quarters after the national bank or Federal savings
association becomes subject to the disclosure of the supplementary
leverage ratio pursuant to Sec. Sec. 3.172(d) and 3.173(a)(2).
Table 1 to Sec. 3.173--Scope of Application
------------------------------------------------------------------------
------------------------------------------------------------------------
Qualitative disclosures....... (a).............. The name of the top
corporate entity in
the group to which
subpart E of this
part applies.
(b).............. A brief description
of the differences
in the basis for
consolidating
entities\1\ for
accounting and
regulatory purposes,
with a description
of those entities:
(1) That are fully
consolidated;
(2) That are
deconsolidated and
deducted from total
capital;
(3) For which the
total capital
requirement is
deducted; and
(4) That are neither
consolidated nor
deducted (for
example, where the
investment in the
entity is assigned a
risk weight in
accordance with this
subpart).
(c).............. Any restrictions, or
other major
impediments, on
transfer of funds or
total capital within
the group.
Quantitative disclosures...... (d).............. The aggregate amount
of surplus capital
of insurance
subsidiaries
included in the
total capital of the
consolidated group.
(e).............. The aggregate amount
by which actual
total capital is
less than the
minimum total
capital requirement
in all subsidiaries,
with total capital
requirements and the
name(s) of the
subsidiaries with
such deficiencies.
------------------------------------------------------------------------
\1\ Such entities include securities, insurance and other financial
subsidiaries, commercial subsidiaries (where permitted), and
significant minority equity investments in insurance, financial and
commercial entities.
[[Page 188]]
Table 2 to Sec. 3.173--Capital Structure
------------------------------------------------------------------------
------------------------------------------------------------------------
Qualitative disclosures....... (a).............. Summary information
on the terms and
conditions of the
main features of all
regulatory capital
instruments.
Quantitative disclosures...... (b).............. The amount of common
equity tier 1
capital, with
separate disclosure
of:
(1) Common stock and
related surplus;
(2) Retained
earnings;
(3) Common equity
minority interest;
(4) AOCI (net of tax)
and other reserves;
and
(5) Regulatory
adjustments and
deductions made to
common equity tier 1
capital.
(c).............. The amount of tier 1
capital, with
separate disclosure
of:
(1) Additional tier 1
capital elements,
including additional
tier 1 capital
instruments and tier
1 minority interest
not included in
common equity tier 1
capital; and
(2) Regulatory
adjustments and
deductions made to
tier 1 capital.
(d).............. The amount of total
capital, with
separate disclosure
of:
(1) Tier 2 capital
elements, including
tier 2 capital
instruments and
total capital
minority interest
not included in tier
1 capital; and
(2) Regulatory
adjustments and
deductions made to
total capital.
(e).............. (1) Whether the
national bank or
Federal savings
association has
elected to phase in
recognition of the
transitional amounts
as defined in Sec.
3.301.
(2) The national
bank's or Federal
savings
association's common
equity tier 1
capital, tier 1
capital, and total
capital without
including the
transitional
amounts.
------------------------------------------------------------------------
Table 3 to Sec. 3.173--Capital Adequacy
------------------------------------------------------------------------
------------------------------------------------------------------------
Qualitative disclosures....... (a).............. A summary discussion
of the national
bank's or 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:
(1) Wholesale
exposures;
(2) Residential
mortgage exposures;
(3) Qualifying
revolving exposures;
(4) Other retail
exposures;
(5) Securitization
exposures;
(6) Equity exposures:
(7) Equity exposures
subject to the
simple risk weight
approach; and
(8) Equity exposures
subject to the
internal models
approach.
(c).............. Standardized market
risk-weighted assets
and advanced market
risk-weighted assets
as calculated under
subpart F of this
part:
(1) Standardized
approach for
specific risk; and
(2) Internal models
approach for
specific risk.
(d).............. Risk-weighted assets
for operational
risk.
(e).............. (1) Common equity
tier 1, tier 1 and
total risk-based
capital ratios
reflecting the
transition
provisions described
in Sec. 3.301:
(A) For the top
consolidated group;
and
(2) For each
depository
institution
subsidiary.
(f).............. Common equity tier 1,
tier 1 and total
risk-based capital
ratios reflecting
the full adoption of
CECL:
(1) For the top
consolidated group;
and
(2) For each
depository
institution
subsidiary.
(g).............. Total risk-weighted
assets.
------------------------------------------------------------------------
Table 4 to Sec. 3.173--Capital Conservation and Countercyclical
Capital Buffers
------------------------------------------------------------------------
------------------------------------------------------------------------
Qualitative disclosures....... (a).............. The national bank or
Federal savings
association must
publicly disclose
the geographic
breakdown of its
private sector
credit exposures
used in the
calculation of the
countercyclical
capital buffer.
Quantitative disclosures...... (b).............. At least quarterly,
the national bank or
Federal savings
association must
calculate and
publicly disclose
the capital
conservation buffer
and the
countercyclical
capital buffer as
described under Sec.
3.11 of subpart B.
(c).............. At least quarterly,
the national bank or
Federal savings
association must
calculate and
publicly disclose
the buffer retained
income of the
national bank or
Federal savings
association, as
described under Sec.
3.11 of subpart B.
[[Page 189]]
(d).............. At least quarterly,
the national bank or
Federal savings
association must
calculate and
publicly disclose
any limitations it
has on distributions
and discretionary
bonus payments
resulting from the
capital conservation
buffer and the
countercyclical
capital buffer
framework described
under Sec. 3.11 of
subpart B, including
the maximum payout
amount for the
quarter.
------------------------------------------------------------------------
(b) General qualitative disclosure requirement. For each separate
risk area described in Tables 5 through 12 to Sec. 3.173, the national
bank or Federal savings association must describe its risk management
objectives and policies, including:
(1) Strategies and processes;
(2) The structure and organization of the relevant risk management
function;
(3) The scope and nature of risk reporting and/or measurement
systems; and
(4) Policies for hedging and/or mitigating risk and strategies and
processes for monitoring the continuing effectiveness of hedges/
mitigants.
Table 5 \1\ to Sec. 3.173--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 7 to Sec.
3.173), including:
(1) Policy for
determining past due
or delinquency
status;
(2) Policy for
placing loans on
nonaccrual;
(3) Policy for
returning loans to
accrual status;
(4) Definition of and
policy for
identifying impaired
loans (for financial
accounting
purposes).
(5) Description of
the methodology that
the entity uses to
estimate its
allowance for loan
and lease losses or
adjusted allowance
for credit losses,
as applicable,
including
statistical methods
used where
applicable;
(6) Policy for
charging-off
uncollectible
amounts; and
(7) Discussion of the
national bank's or
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,\2\ without
taking into account
the effects of
credit risk
mitigation
techniques (for
example, collateral
and netting not
permitted under
GAAP), over the
period categorized
by major types of
credit exposure. For
example, national
banks or Federal
savings associations
could use categories
similar to that used
for financial
statement purposes.
Such categories
might include, for
instance:
(1) Loans, off-
balance sheet
commitments, and
other non-derivative
off-balance sheet
exposures;
(2) Debt securities;
and
(3) OTC derivatives.
(c).............. Geographic \3\
distribution of
exposures,
categorized in
significant areas by
major types of
credit exposure.
(d).............. Industry or
counterparty type
distribution of
exposures,
categorized by major
types of credit
exposure.
(e).............. By major industry or
counterparty type:
(1) Amount of
impaired loans for
which there was a
related allowance
under GAAP;
(2) Amount of
impaired loans for
which there was no
related allowance
under GAAP;
(3) Amount of loans
past due 90 days and
on nonaccrual;
(4) Amount of loans
past due 90 days and
still accruing; \4\
(5) The balance in
the allowance for
loan and lease
losses at the end of
each period,
disaggregated on the
basis of the
entity's impairment
method. To
disaggregate the
information required
on the basis of
impairment
methodology, an
entity shall
separately disclose
the amounts based on
the requirements in
GAAP; and
(6) Charge-offs
during the period.
(f).............. Amount of impaired
loans and, if
available, the
amount of past due
loans categorized by
significant
geographic areas
including, if
practical, the
amounts of
allowances related
to each geographical
area,\5\ further
categorized as
required by GAAP.
[[Page 190]]
(g).............. Reconciliation of
changes in ALLL or
AACL, as
applicable.\6\
(h).............. Remaining contractual
maturity breakdown
(for example, one
year or less) of the
whole portfolio,
categorized by
credit exposure.
------------------------------------------------------------------------
\1\ Table 5 to Sec. 3.173 does not cover equity exposures, which
should be reported in Table 9.
\2\ See, for example, ASC Topic 815-10 and 210-20 as they may be amended
from time to time.
\3\ Geographical areas may comprise individual countries, groups of
countries, or regions within countries. A national bank or 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.
\4\ A national bank or Federal savings association is encouraged also to
provide an analysis of the aging of past-due loans.
\5\ The portion of the general allowance that is not allocated to a
geographical area should be disclosed separately.
\6\ 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.
Table 6 to Sec. 3.173--Credit Risk: Disclosures for Portfolios Subject
to IRB Risk-Based Capital Formulas
------------------------------------------------------------------------
------------------------------------------------------------------------
Qualitative disclosures....... (a).............. Explanation and
review of the:
(1) Structure of
internal rating
systems and if the
national bank or
Federal savings
association
considers external
ratings, the
relation between
internal and
external ratings;
(2) Use of risk
parameter estimates
other than for
regulatory capital
purposes;
(3) Process for
managing and
recognizing credit
risk mitigation (see
Table 8 to Sec.
3.173); and
(4) 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:
(1) Wholesale
category;
(2) Retail
subcategories;
(i) Residential
mortgage exposures;
(ii) Qualifying
revolving exposures;
and
(iii) Other retail
exposures.
For each category and
subcategory above
the description
should include:
(A) The types of
exposure included in
the category/
subcategories; and
(B) The definitions,
methods and data for
estimation and
validation of PD,
LGD, and EAD,
including
assumptions employed
in the derivation of
these variables.\1\
Quantitative disclosures: risk (c).............. (1) For wholesale
assessment. exposures, present
the following
information across a
sufficient number of
PD grades (including
default) to allow
for a meaningful
differentiation of
credit risk: \2\
(i) Total EAD; \3\
(ii) Exposure-
weighted average LGD
(percentage);
(iii) Exposure-
weighted average
risk weight; and
(iv) Amount of
undrawn commitments
and exposure-
weighted average EAD
including average
drawdowns prior to
default for
wholesale exposures.
(2) 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: (d).............. Actual losses in the
historical 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
national bank or
Federal savings
association
experienced higher
than average default
rates, loss rates or
EADs.
[[Page 191]]
(e).............. The national bank's
or Federal savings
association's
estimates compared
against actual
outcomes over a
longer period.\4\ 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.\5\
Where appropriate,
the national bank or
Federal 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.\6\
------------------------------------------------------------------------
\1\ This disclosure item 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 national bank or Federal savings
association must disclose any significant differences in approach to
estimating these variables within each category/subcategories.
\2\ The PD, LGD and EAD disclosures in Table 6 (c) to Sec. 3.173
should reflect the effects of collateral, qualifying master netting
agreements, eligible guarantees and eligible credit derivatives as
defined under this part. Disclosure of each PD grade should include
the exposure-weighted average PD for each grade. Where a national bank
or 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.
\3\ Outstanding loans and EAD on undrawn commitments can be presented on
a combined basis for these disclosures.
\4\ 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 national bank or
Federal savings association sufficient time to build up a longer run
of data that will make these disclosures meaningful.
\5\ This disclosure item is not intended to be prescriptive about the
period used for this assessment. Upon implementation, it is expected
that a national bank or Federal savings association would provide
these disclosures for as long a set of data as possible--for example,
if a national bank or Federal 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.
\6\ A national bank or Federal savings association must 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 must 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
national bank or Federal savings association must also provide
explanations for such differences.
Table 7 to Sec. 3.173--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:
(1) Discussion of
methodology used to
assign economic
capital and credit
limits for
counterparty credit
exposures;
(2) Discussion of
policies for
securing collateral,
valuing and managing
collateral, and
establishing credit
reserves;
(3) Discussion of the
primary types of
collateral taken;
(4) Discussion of
policies with
respect to wrong-way
risk exposures; and
(5) Discussion of the
impact of the amount
of collateral the
national bank or
Federal savings
association would
have to provide if
the national bank or
Federal 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.\1\ 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 national
banks or Federal
savings associations
not using the
internal models
methodology in Sec.
3.132(d) , the
distribution of
current credit
exposure by types of
credit exposure.\2\
(c).............. Notional amount of
purchased and sold
credit derivatives,
segregated between
use for the national
bank's or Federal
savings
association's own
credit portfolio and
for its
intermediation
activities,
including the
distribution of the
credit derivative
products used,
categorized further
by protection bought
and sold within each
product group.
(d).............. The estimate of alpha
if the national bank
or Federal savings
association has
received supervisory
approval to estimate
alpha.
------------------------------------------------------------------------
\1\ 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.
\2\ 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.
[[Page 192]]
Table 8 To Sec. 3.173--Credit Risk Mitigation \1 2\
------------------------------------------------------------------------
------------------------------------------------------------------------
Qualitative disclosures....... (a).............. The general
qualitative
disclosure
requirement with
respect to credit
risk mitigation,
including:
(1) Policies and
processes for, and
an indication of the
extent to which the
national bank or
Federal savings
association uses, on-
or off-balance
sheet netting;
(2) Policies and
processes for
collateral valuation
and management;
(3) A description of
the main types of
collateral taken by
the national bank or
Federal savings
association;
(4) The main types of
guarantors/credit
derivative
counterparties and
their
creditworthiness;
and
(5) 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.
------------------------------------------------------------------------
\1\ At a minimum, a national bank or Federal savings association must
provide the disclosures in Table 8 in relation to credit risk
mitigation that has been recognized for the purposes of reducing
capital requirements under this subpart. Where relevant, national
banks or Federal savings associations are encouraged to give further
information about mitigants that have not been recognized for that
purpose.
\2\ Credit derivatives and other credit mitigation that are treated for
the purposes of this subpart as synthetic securitization exposures
should be excluded from the credit risk mitigation disclosures (in
Table 8 to Sec. 3.173) and included within those relating to
securitization (in Table 9 to Sec. 3.173).
Table 9 to Sec. 3.173--Securitization
------------------------------------------------------------------------
------------------------------------------------------------------------
Qualitative disclosures....... (a).............. The general
qualitative
disclosure
requirement with
respect to
securitization
(including synthetic
securitizations),
including a
discussion of:
(1) The national
bank's or Federal
savings
association's
objectives for
securitizing assets,
including the extent
to which these
activities transfer
credit risk of the
underlying exposures
away from the
national bank or
Federal savings
association to other
entities and
including the type
of risks assumed and
retained with
resecuritization
activity; \1\
(2) The nature of the
risks (e.g.
liquidity risk)
inherent in the
securitized assets;
(3) The roles played
by the national bank
or Federal savings
association in the
securitization
process \2\ and an
indication of the
extent of the
national bank's or
Federal savings
association's
involvement in each
of them;
(4) The processes in
place to monitor
changes in the
credit and market
risk of
securitization
exposures including
how those processes
differ for
resecuritization
exposures;
(5) The national
bank's or Federal
savings
association's policy
for mitigating the
credit risk retained
through
securitization and
resecuritization
exposures; and
(6) The risk-based
capital approaches
that the national
bank or Federal
savings association
follows for its
securitization
exposures including
the type of
securitization
exposure to which
each approach
applies.
(b).............. A list of:
(1) The type of
securitization SPEs
that the national
bank or Federal
savings association,
as sponsor, uses to
securitize third-
party exposures. The
national bank or
Federal savings
association must
indicate whether it
has exposure to
these SPEs, either
on- or off- balance
sheet; and
(2) Affiliated
entities:
(i) That the national
bank or Federal
savings association
manages or advises;
and
(ii) That invest
either in the
securitization
exposures that the
national bank or
Federal savings
association has
securitized or in
securitization SPEs
that the national
bank or Federal
savings association
sponsors.\3\
(c).............. Summary of the
national bank's or
Federal savings
association's
accounting policies
for securitization
activities,
including:
(1) Whether the
transactions are
treated as sales or
financings;
(2) Recognition of
gain-on-sale;
(3) Methods and key
assumptions and
inputs applied in
valuing retained or
purchased interests;
(4) Changes in
methods and key
assumptions and
inputs from the
previous period for
valuing retained
interests and impact
of the changes;
(5) Treatment of
synthetic
securitizations;
[[Page 193]]
(6) How exposures
intended to be
securitized are
valued and whether
they are recorded
under subpart E of
this part; and
(7) Policies for
recognizing
liabilities on the
balance sheet for
arrangements that
could require the
national bank or
Federal savings
association to
provide financial
support for
securitized assets.
(d).............. An explanation of
significant changes
to any of the
quantitative
information set
forth below since
the last reporting
period.
Quantitative disclosures...... (e).............. The total outstanding
exposures
securitized \4\ by
the national bank or
Federal savings
association in
securitizations that
meet the operational
criteria in Sec.
3.141 (categorized
into traditional/
synthetic), by
underlying exposure
type \5\ separately
for securitizations
of third-party
exposures for which
the bank acts only
as sponsor.
(f).............. For exposures
securitized by the
national bank or
Federal savings
association in
securitizations that
meet the operational
criteria in Sec.
3.141:
(1) Amount of
securitized assets
that are impaired
\6\/past due
categorized by
exposure type; and
(2) Losses recognized
by the national bank
or Federal savings
association during
the current period
categorized by
exposure type.\7\
(g).............. The total amount of
outstanding
exposures intended
to be securitized
categorized by
exposure type.
(h).............. Aggregate amount of:
(1) On-balance sheet
securitization
exposures retained
or purchased
categorized by
exposure type; and
(2) Off-balance sheet
securitization
exposures
categorized by
exposure type.
(i).............. (1) Aggregate amount
of securitization
exposures retained
or purchased and the
associated capital
requirements for
these exposures,
categorized between
securitization and
resecuritization
exposures, further
categorized into a
meaningful number of
risk weight bands
and by risk-based
capital approach
(e.g. SA, SFA, or
SSFA).
(2) Aggregate amount
disclosed separately
by type of
underlying exposure
in the pool of any:
(i) After-tax gain-on-
sale on a
securitization that
has been deducted
from common equity
tier 1 capital: And
(ii) Credit-enhancing
interest-only strip
that is assigned a
1,250 percent risk
weight.
(j).............. 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.
(k).............. Aggregate amount of
resecuritization
exposures retained
or purchased
categorized
according to:
(1) Exposures to
which credit risk
mitigation is
applied and those
not applied; and
(2) Exposures to
guarantors
categorized
according to
guarantor
creditworthiness
categories or
guarantor name.
------------------------------------------------------------------------
\1\ The national bank or Federal savings association must describe the
structure of resecuritizations in which it participates; this
description must be provided for the main categories of
resecuritization products in which the national bank or Federal
savings association is active.
\2\ For example, these roles would include originator, investor,
servicer, provider of credit enhancement, sponsor, liquidity provider,
or swap provider.
\3\ For example, money market mutual funds should be listed
individually, and personal and private trusts, should be noted
collectively.
\4\ ``Exposures securitized'' include underlying exposures originated by
the bank, whether generated by them or purchased, and recognized in
the balance sheet, from third parties, and third-party exposures
included in sponsored transactions. Securitization transactions
(including underlying exposures originally on the bank's balance sheet
and underlying exposures acquired by the bank from third-party
entities) in which the originating bank does not retain any
securitization exposure should be shown separately but need only be
reported for the year of inception.
\5\ A national bank or Federal savings association is required to
disclose exposures regardless of whether there is a capital charge
under this part.
\6\ A national bank or Federal savings association must include credit-
related other than temporary impairment (OTTI).
\7\ For example, charge-offs/allowances (if the assets remain on the
bank's balance sheet) or credit-related OTTI of I/O strips and other
retained residual interests, as well as recognition of liabilities for
probable future financial support required of the bank with respect to
securitized assets.
Table 10 to Sec. 3.173--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
national bank's or
Federal savings
association's
measurement
approach.
(c).............. A description of the
use of insurance for
the purpose of
mitigating
operational risk.
------------------------------------------------------------------------
[[Page 194]]
Table 11 to Sec. 3.173--Equities Not Subject to Subpart F of This Part
------------------------------------------------------------------------
------------------------------------------------------------------------
Qualitative disclosures....... (a).............. The general
qualitative
disclosure
requirement with
respect to the
equity risk of
equity holdings not
subject to subpart F
of this part,
including:
(1) Differentiation
between holdings on
which capital gains
are expected and
those held for other
objectives,
including for
relationship and
strategic reasons;
and
(2) Discussion of
important policies
covering the
valuation of and
accounting for
equity holdings not
subject to subpart F
of this part. This
includes the
accounting
methodology and
valuation
methodologies used,
including key
assumptions and
practices affecting
valuation as well as
significant changes
in these practices.
Quantitative disclosures...... (b).............. Carrying value on the
balance sheet of
equity investments,
as well as the fair
value of those
investments.
(c).............. The types and nature
of investments,
including the amount
that is:
(1) Publicly traded;
and
(2) Non-publicly
traded.
(d).............. The cumulative
realized gains
(losses) arising
from sales and
liquidations in the
reporting period.
(e).............. (1) Total unrealized
gains (losses) \1\
(2) Total latent
revaluation gains
(losses) \2\
(3) Any amounts of
the above included
in tier 1 and/or
tier 2 capital.
(f).............. Capital requirements
categorized by
appropriate equity
groupings,
consistent with the
national bank's or
Federal savings
association's
methodology, as well
as the aggregate
amounts and the type
of equity
investments subject
to any supervisory
transition regarding
total capital
requirements.\3\
------------------------------------------------------------------------
\1\ Unrealized gains (losses) recognized in the balance sheet but not
through earnings.
\2\ Unrealized gains (losses) not recognized either in the balance sheet
or through earnings.
\3\ This disclosure must 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.
Table 12 to Sec. 3.173--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,
categorized by
currency (as
appropriate).
------------------------------------------------------------------------
(c) Except as provided in Sec. 3.172(b), a national bank or Federal
savings association described in Sec. 3.172(d) must make the
disclosures described in Table 13 to Sec. 3.173; provided, however, the
disclosures required under this paragraph are required without regard to
whether the national bank or Federal savings association has completed
the parallel run process and has received notification from the OCC
pursuant to Sec. 3.121(d). The national bank or Federal savings
association must make these disclosures publicly available beginning on
January 1, 2015.
Table 13 to Sec. 3.173--Supplementary Leverage Ratio
----------------------------------------------------------------------------------------------------------------
Dollar amounts in thousands
---------------------------------------------------
Tril Bil Mil Thou
----------------------------------------------------------------------------------------------------------------
Part 1: Summary comparison of accounting assets and total leverage exposure
----------------------------------------------------------------------------------------------------------------
1 Total consolidated assets as reported in published
financial statements.......................................
2 Adjustment for investments in banking, financial,
insurance or commercial entities that are consolidated for
accounting purposes but outside the scope of regulatory
consolidation..............................................
3 Adjustment for fiduciary assets recognized on balance
sheet but excluded from total leverage exposure............
[[Page 195]]
4 Adjustment for derivative exposures.......................
5 Adjustment for repo-style transactions....................
6 Adjustment for off-balance sheet exposures (that is,
conversion to credit equivalent amounts of off-balance
sheet exposures)...........................................
7 Other adjustments.........................................
8 Total leverage exposure...................................
----------------------------------------------------------------------------------------------------------------
Part 2: Supplementary leverage ratio
----------------------------------------------------------------------------------------------------------------
On-balance sheet exposures
1 On-balance sheet assets (excluding on-balance sheet assets
for repo-style transactions and derivative exposures, but
including cash collateral received in derivative
transactions)..............................................
2 LESS: Amounts deducted from tier 1 capital................
3 Total on-balance sheet exposures (excluding on-balance
sheet assets for repo-style transactions and derivative
exposures, but including cash collateral received in
derivative transactions) (sum of lines 1 and 2)............
Derivative exposures
4 Replacement cost for derivative exposures (that is, net of
cash variation margin).....................................
5 Add-on amounts for potential future exposure (PFE) for
derivative exposures.......................................
6 Gross-up for cash collateral posted if deducted from the
on-balance sheet assets, except for cash variation margin..
7 LESS: Deductions of receivable assets for cash variation
margin posted in derivative transactions, if included in on-
balance sheet assets.......................................
8 LESS: Exempted CCP leg of client-cleared transactions.....
9 Effective notional principal amount of sold credit
protection.................................................
10 LESS: Effective notional principal amount offsets and PFE
adjustments for sold credit protection.....................
11 Total derivative exposures (sum of lines 4 to 10)........
Repo-style transactions
12 On-balance sheet assets for repo-style transactions,
except include the gross value of receivables for reverse
repurchase transactions. Exclude from this item the value
of securities received in a security-for-security repo-
style transaction where the securities lender has not sold
or re-hypothecated the securities received. Include in this
item the value of securities that qualified for sales
treatment that must be reversed............................
13 LESS: Reduction of the gross value of receivables in
reverse repurchase transactions by cash payables in
repurchase transactions under netting agreements...........
14 Counterparty credit risk for all repo-style transactions.
15 Exposure for repo-style transactions where a banking
organization acts as an agent..............................
16 Total exposures for repo-style transactions (sum of lines
12 to 15)..................................................
Other off-balance sheet exposures
17 Off-balance sheet exposures at gross notional amounts....
18 LESS: Adjustments for conversion to credit equivalent
amounts....................................................
19 Off-balance sheet exposures (sum of lines 17 and 18).....
Capital and total leverage exposure
20 Tier 1 capital...........................................
21 Total leverage exposure (sum of lines 3, 11, 16 and 19)..
Supplementary leverage ratio
---------------------------------------------------
22 Supplementary leverage ratio............................. (in percent)
----------------------------------------------------------------------------------------------------------------
[[Page 196]]
[78 FR 62157, 62273, Oct. 11, 2013, as amended at 79 FR 57743, Sept. 26,
2014; 80 FR 41418, July 15, 2015; 84 FR 4238, Feb. 14, 2019; 84 FR
59265, Nov. 1, 2019]
Sec. Sec. 3.174-3.200 [Reserved]
Subpart F_Risk-Weighted Assets_Market Risk
Source: 78 FR 62157, 62273, Oct. 11, 2013, unless otherwise noted.
Sec. 3.201 Purpose, applicability, and reservation of authority.
(a) Purpose. This subpart F establishes risk-based capital
requirements for national banks or Federal savings associations with
significant exposure to market risk, provides methods for these national
banks or Federal savings associations to calculate their standardized
measure for market risk and, if applicable, advanced measure for market
risk, and establishes public disclosure requirements.
(b) Applicability. (1) This subpart F applies to any national bank
or Federal savings association with aggregate trading assets and trading
liabilities (as reported in the national bank's or Federal savings
association's most recent quarterly [regulatory report]), equal to:
(i) 10 percent or more of quarter-end total assets as reported on
the most recent quarterly [Call Report or FR Y-9C]; or
(ii) $1 billion or more.
(2) The OCC may apply this subpart to any national bank or Federal
savings association if the OCC deems it necessary or appropriate because
of the level of market risk of the national bank or Federal savings
association or to ensure safe and sound banking practices.
(3) The OCC may exclude a national bank or Federal savings
association that meets the criteria of paragraph (b)(1) of this section
from application of this subpart if the OCC determines that the
exclusion is appropriate based on the level of market risk of the
national bank or Federal savings association and is consistent with safe
and sound banking practices.
(c) Reservation of authority. (1) The OCC may require a national
bank or Federal savings association to hold an amount of capital greater
than otherwise required under this subpart if the OCC determines that
the national bank's or Federal savings association's capital requirement
for market risk as calculated under this subpart is not commensurate
with the market risk of the national bank's or Federal savings
association's covered positions. In making determinations under
paragraphs (c)(1) through (c)(3) of this section, the OCC will apply
notice and response procedures generally in the same manner as the
notice and response procedures set forth in 12 CFR 3.404.
(2) If the OCC determines that the risk-based capital requirement
calculated under this subpart by the national bank or Federal savings
association for one or more covered positions or portfolios of covered
positions is not commensurate with the risks associated with those
positions or portfolios, the OCC may require the national bank or
Federal savings association to assign a different risk-based capital
requirement to the positions or portfolios that more accurately reflects
the risk of the positions or portfolios.
(3) The OCC may also require a national bank or Federal savings
association to calculate risk-based capital requirements for specific
positions or portfolios under this subpart, or under subpart D or
subpart E of this part, as appropriate, to more accurately reflect the
risks of the positions.
(4) Nothing in this subpart 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.
Sec. 3.202 Definitions.
(a) Terms set forth in Sec. 3.2 and used in this subpart have the
definitions assigned thereto in Sec. 3.2.
(b) For the purposes of this subpart, the following terms are
defined as follows:
Backtesting means the comparison of a national bank's or Federal
savings
[[Page 197]]
association's internal estimates with actual outcomes during a sample
period not used in model development. For purposes of this subpart,
backtesting is one form of out-of-sample testing.
Commodity position means a position for which price risk arises from
changes in the price of a commodity.
Corporate debt position means a debt position that is an exposure to
a company that is not a sovereign entity, the Bank for International
Settlements, the European Central Bank, the European Commission, the
International Monetary Fund, the European Stability Mechanism, the
European Financial Stability Facility, a multilateral development bank,
a depository institution, a foreign bank, a credit union, a public
sector entity, a GSE, or a securitization.
Correlation trading position means:
(1) A securitization position for which all or substantially all of
the value of the underlying exposures is based on the credit quality of
a single company for which a two-way market exists, or on commonly
traded indices based on such exposures for which a two-way market exists
on the indices; or
(2) A position that is not a securitization position and that hedges
a position described in paragraph (1) of this definition; and
(3) A correlation trading position does not include:
(i) A resecuritization position;
(ii) A derivative of a securitization position that does not provide
a pro rata share in the proceeds of a securitization tranche; or
(iii) A securitization position for which the underlying assets or
reference exposures are retail exposures, residential mortgage
exposures, or commercial mortgage exposures.
Covered position means the following positions:
(1) A trading asset or trading liability (whether on- or off-balance
sheet),\31\ as reported on Call Report, that meets the following
conditions:
---------------------------------------------------------------------------
\31\ Securities subject to repurchase and lending agreements are
included as if they are still owned by the lender.
---------------------------------------------------------------------------
(i) The position is a trading position or hedges another covered
position; \32\ and
---------------------------------------------------------------------------
\32\ A position that hedges a trading position must be within the
scope of the bank's hedging strategy as described in paragraph (a)(2) of
section 203 of this subpart.
---------------------------------------------------------------------------
(ii) The position is free of any restrictive covenants on its
tradability or the national bank or Federal savings association is able
to hedge the material risk elements of the position in a two-way market;
(2) A foreign exchange or commodity position, regardless of whether
the position is a trading asset or trading liability (excluding any
structural foreign currency positions that the national bank or Federal
savings association chooses to exclude with prior supervisory approval);
and
(3) Notwithstanding paragraphs (1) and (2) of this definition, a
covered position does not include:
(i) An intangible asset, including any servicing asset;
(ii) Any hedge of a trading position that the OCC determines to be
outside the scope of the national bank's or Federal savings
association's hedging strategy required in paragraph (a)(2) of Sec.
3.203;
(iii) Any position that, in form or substance, acts as a liquidity
facility that provides support to asset-backed commercial paper;
(iv) A credit derivative the national bank or Federal savings
association recognizes as a guarantee for risk-weighted asset amount
calculation purposes under subpart D or subpart E of this part;
(v) Any position that is recognized as a credit valuation adjustment
hedge under Sec. 3.132(e)(5) or Sec. 3.132(e)(6), except as provided
in Sec. 3.132(e)(6)(vii);
(vi) Any equity position that is not publicly traded, other than a
derivative that references a publicly traded equity and other than a
position in an investment company as defined in and registered with the
SEC under the Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.),
provided that all the underlying equities held by the investment company
are publicly traded;
(vii) Any equity position that is not publicly traded, other than a
derivative
[[Page 198]]
that references a publicly traded equity and other than a position in an
entity not domiciled in the United States (or a political subdivision
thereof) that is supervised and regulated in a manner similar to
entities described in paragraph (3)(vi) of this definition;
(viii) Any position a national bank or Federal savings association
holds with the intent to securitize; or
(ix) Any direct real estate holding.
Debt position means a covered position that is not a securitization
position or a correlation trading position and that has a value that
reacts primarily to changes in interest rates or credit spreads.
Default by a sovereign entity has the same meaning as the term
sovereign default under Sec. 3.2.
Equity position means a covered position that is not a
securitization position or a correlation trading position and that has a
value that reacts primarily to changes in equity prices.
Event risk means the risk of loss on equity or hybrid equity
positions as a result of a financial event, such as the announcement or
occurrence of a company merger, acquisition, spin-off, or dissolution.
Foreign exchange position means a position for which price risk
arises from changes in foreign exchange rates.
General market risk means the risk of loss that could result from
broad market movements, such as changes in the general level of interest
rates, credit spreads, equity prices, foreign exchange rates, or
commodity prices.
Hedge means a position or positions that offset all, or
substantially all, of one or more material risk factors of another
position.
Idiosyncratic risk means the risk of loss in the value of a position
that arises from changes in risk factors unique to that position.
Incremental risk means the default risk and credit migration risk of
a position. Default risk means the risk of loss on a position that could
result from the failure of an obligor to make timely payments of
principal or interest on its debt obligation, and the risk of loss that
could result from bankruptcy, insolvency, or similar proceeding. Credit
migration risk means the price risk that arises from significant changes
in the underlying credit quality of the position.
Market risk means the risk of loss on a position that could result
from movements in market prices.
Resecuritization position means a covered position that is:
(1) An on- or off-balance sheet exposure to a resecuritization; or
(2) An exposure that directly or indirectly references a
resecuritization exposure in paragraph (1) of this definition.
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;
(2) The credit risk associated with the underlying exposures has
been separated into at least two tranches that reflect 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) For non-synthetic securitizations, 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;
(7) The underlying exposures are not owned by a firm an investment
in which qualifies as a community development investment under section
24(Eleventh) of the National Bank Act;
(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 securitization
based on the transaction's leverage, risk profile, or economic
substance;
(9) The OCC may deem an exposure to a transaction that meets the
definition of a securitization, notwithstanding
[[Page 199]]
paragraph (5), (6), or (7) of this definition, to be a securitization
based on the transaction's leverage, risk profile, or economic
substance; and
(10) The transaction is not:
(i) An investment fund;
(ii) A collective investment fund (as defined in [12 CFR 208.34
(Board), 12 CFR 9.18 (OCC)]);
(iii) An employee benefit plan as defined in paragraphs (3) and (32)
of section 3 of ERISA, a ``governmental plan'' (as defined in 29 U.S.C.
1002(32)) that complies with the tax deferral qualification requirements
provided in the Internal Revenue Code, or any similar employee benefit
plan established under the laws of a foreign jurisdiction; or
(iv) Registered with the SEC under the Investment Company Act of
1940 (15 U.S.C. 80a-1 et seq.) or foreign equivalents thereof.
Securitization position means a covered position that is:
(1) An on-balance sheet or off-balance sheet credit exposure
(including credit-enhancing representations and warranties) that arises
from a securitization (including a resecuritization); or
(2) An exposure that directly or indirectly references a
securitization exposure described in paragraph (1) of this definition.
Sovereign debt position means a direct exposure to a sovereign
entity.
Specific risk means the risk of loss on a position that could result
from factors other than broad market movements and includes event risk,
default risk, and idiosyncratic risk.
Structural position in a foreign currency means a position that is
not a trading position and that is:
(1) Subordinated debt, equity, or minority interest in a
consolidated subsidiary that is denominated in a foreign currency;
(2) Capital assigned to foreign branches that is denominated in a
foreign currency;
(3) A position related to an unconsolidated subsidiary or another
item that is denominated in a foreign currency and that is deducted from
the national bank's or Federal savings association's tier 1 or tier 2
capital; or
(4) A position designed to hedge a national bank's or Federal
savings association's capital ratios or earnings against the effect on
paragraphs (1), (2), or (3) of this definition of adverse exchange rate
movements.
Term repo-style transaction means a repo-style transaction that has
an original maturity in excess of one business day.
Trading position means a position that is held by the national bank
or Federal savings association for the purpose of short-term resale or
with the intent of benefiting from actual or expected short-term price
movements, or to lock in arbitrage profits.
Two-way market means a market where there are independent bona fide
offers to buy and sell so that a price reasonably related to the last
sales price or current bona fide competitive bid and offer quotations
can be determined within one day and settled at that price within a
relatively short time frame conforming to trade custom.
Value-at-Risk (VaR) means the estimate of the maximum amount that
the value of one or more positions could decline due to market price or
rate movements during a fixed holding period within a stated confidence
interval.
[78 FR 62157, 62273, Oct. 11, 2013, as amended at 84 FR 35258, July 22,
2019]
Sec. 3.203 Requirements for application of this subpart F.
(a) Trading positions--(1) Identification of trading positions. A
national bank or Federal savings association must have clearly defined
policies and procedures for determining which of its trading assets and
trading liabilities are trading positions and which of its trading
positions are correlation trading positions. These policies and
procedures must take into account:
(i) The extent to which a position, or a hedge of its material
risks, can be marked-to-market daily by reference to a two-way market;
and
(ii) Possible impairments to the liquidity of a position or its
hedge.
[[Page 200]]
(2) Trading and hedging strategies. A national bank or Federal
savings association must have clearly defined trading and hedging
strategies for its trading positions that are approved by senior
management of the national bank or Federal savings association.
(i) The trading strategy must articulate the expected holding period
of, and the market risk associated with, each portfolio of trading
positions.
(ii) The hedging strategy must articulate for each portfolio of
trading positions the level of market risk the national bank or Federal
savings association is willing to accept and must detail the
instruments, techniques, and strategies the national bank or Federal
savings association will use to hedge the risk of the portfolio.
(b) Management of covered positions--(1) Active management. A
national bank or Federal savings association must have clearly defined
policies and procedures for actively managing all covered positions. At
a minimum, these policies and procedures must require:
(i) Marking positions to market or to model on a daily basis;
(ii) Daily assessment of the national bank's or Federal savings
association's ability to hedge position and portfolio risks, and of the
extent of market liquidity;
(iii) Establishment and daily monitoring of limits on positions by a
risk control unit independent of the trading business unit;
(iv) Daily monitoring by senior management of information described
in paragraphs (b)(1)(i) through (b)(1)(iii) of this section;
(v) At least annual reassessment of established limits on positions
by senior management; and
(vi) At least annual assessments by qualified personnel of the
quality of market inputs to the valuation process, the soundness of key
assumptions, the reliability of parameter estimation in pricing models,
and the stability and accuracy of model calibration under alternative
market scenarios.
(2) Valuation of covered positions. The national bank or Federal
savings association must have a process for prudent valuation of its
covered positions that includes policies and procedures on the valuation
of positions, marking positions to market or to model, independent price
verification, and valuation adjustments or reserves. The valuation
process must consider, as appropriate, unearned credit spreads, close-
out costs, early termination costs, investing and funding costs,
liquidity, and model risk.
(c) Requirements for internal models. (1) A national bank or Federal
savings association must obtain the prior written approval of the OCC
before using any internal model to calculate its risk-based capital
requirement under this subpart.
(2) A national bank or Federal savings association must meet all of
the requirements of this section on an ongoing basis. The national bank
or Federal savings association must promptly notify the OCC when:
(i) The national bank or Federal savings association plans to extend
the use of a model that the OCC has approved under this subpart to an
additional business line or product type;
(ii) The national bank or Federal savings association makes any
change to an internal model approved by the OCC under this subpart that
would result in a material change in the national bank's or Federal
savings association's risk-weighted asset amount for a portfolio of
covered positions; or
(iii) The national bank or Federal savings association makes any
material change to its modeling assumptions.
(3) The OCC may rescind its approval of the use of any internal
model (in whole or in part) or of the determination of the approach
under Sec. 3.209(a)(2)(ii) for a national bank's or Federal savings
association's modeled correlation trading positions and determine an
appropriate capital requirement for the covered positions to which the
model would apply, if the OCC determines that the model no longer
complies with this subpart or fails to reflect accurately the risks of
the national bank's or Federal savings association's covered positions.
(4) The national bank or Federal savings association must
periodically, but no less frequently than annually, review its internal
models in light of developments in financial markets and modeling
technologies, and enhance
[[Page 201]]
those models as appropriate to ensure that they continue to meet the
OCC's standards for model approval and employ risk measurement
methodologies that are most appropriate for the national bank's or
Federal savings association's covered positions.
(5) The national bank or Federal savings association must
incorporate its internal models into its risk management process and
integrate the internal models used for calculating its VaR-based measure
into its daily risk management process.
(6) The level of sophistication of a national bank's or Federal
savings association's internal models must be commensurate with the
complexity and amount of its covered positions. A national bank's or
Federal savings association's internal models may use any of the
generally accepted approaches, including but not limited to variance-
covariance models, historical simulations, or Monte Carlo simulations,
to measure market risk.
(7) The national bank's or Federal savings association's internal
models must properly measure all the material risks in the covered
positions to which they are applied.
(8) The national bank's or Federal savings association's internal
models must conservatively assess the risks arising from less liquid
positions and positions with limited price transparency under realistic
market scenarios.
(9) The national bank or Federal savings association must have a
rigorous and well-defined process for re-estimating, re-evaluating, and
updating its internal models to ensure continued applicability and
relevance.
(10) If a national bank or Federal savings association uses internal
models to measure specific risk, the internal models must also satisfy
the requirements in paragraph (b)(1) of Sec. 3.207.
(d) Control, oversight, and validation mechanisms. (1) The national
bank or Federal savings association must have a risk control unit that
reports directly to senior management and is independent from the
business trading units.
(2) The national bank or Federal savings association must validate
its internal models initially and on an ongoing basis. The national
bank's or Federal savings association's validation process must be
independent of the internal models' 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 internal models;
(ii) An ongoing monitoring process that includes verification of
processes and the comparison of the national bank's or Federal savings
association's model outputs with relevant internal and external data
sources or estimation techniques; and
(iii) An outcomes analysis process that includes backtesting. For
internal models used to calculate the VaR-based measure, this process
must include a comparison of the changes in the national bank's or
Federal savings association's portfolio value that would have occurred
were end-of-day positions to remain unchanged (therefore, excluding
fees, commissions, reserves, net interest income, and intraday trading)
with VaR-based measures during a sample period not used in model
development.
(3) The national bank or Federal savings association must stress
test the market risk of its covered positions at a frequency appropriate
to each portfolio, and in no case less frequently than quarterly. The
stress tests must take into account concentration risk (including but
not limited to concentrations in single issuers, industries, sectors, or
markets), illiquidity under stressed market conditions, and risks
arising from the national bank's or Federal savings association's
trading activities that may not be adequately captured in its internal
models.
(4) The national bank or 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
national bank's or Federal savings association's market risk measurement
systems, including the activities of the business
[[Page 202]]
trading units and independent risk control unit, compliance with
policies and procedures, and calculation of the national bank's or
Federal savings association's measures for market risk under this
subpart. At least annually, the internal audit function must report its
findings to the national bank's or Federal savings association's board
of directors (or a committee thereof).
(e) Internal assessment of capital adequacy. The national bank or
Federal savings association must have a rigorous process for assessing
its overall capital adequacy in relation to its market risk. The
assessment must take into account risks that may not be captured fully
in the VaR-based measure, including concentration and liquidity risk
under stressed market conditions.
(f) Documentation. The national bank or Federal savings association
must adequately document all material aspects of its internal models,
management and valuation of covered positions, control, oversight,
validation and review processes and results, and internal assessment of
capital adequacy.
Sec. 3.204 Measure for market risk.
(a) General requirement. (1) A national bank or Federal savings
association must calculate its standardized measure for market risk by
following the steps described in paragraph (a)(2) of this section. An
advanced approaches national bank or Federal savings association also
must calculate an advanced measure for market risk by following the
steps in paragraph (a)(2) of this section.
(2) Measure for market risk. A national bank or Federal savings
association must calculate the standardized measure for market risk,
which equals the sum of the VaR-based capital requirement, stressed VaR-
based capital requirement, specific risk add-ons, incremental risk
capital requirement, comprehensive risk capital requirement, and capital
requirement for de minimis exposures all as defined under this paragraph
(a)(2), (except, that the national bank or Federal savings association
may not use the SFA in section 210(b)(2)(vii)(B) of this subpart for
purposes of this calculation)[, plus any additional capital requirement
established by the OCC]. An advanced approaches national bank or Federal
savings association that has completed the parallel run process and that
has received notifications from the OCC pursuant to Sec. 3.121(d) also
must calculate the advanced measure for market risk, which equals the
sum of the VaR-based capital requirement, stressed VaR-based capital
requirement, specific risk add-ons, incremental risk capital
requirement, comprehensive risk capital requirement, and capital
requirement for de minimis exposures as defined under this paragraph
(a)(2) [, plus any additional capital requirement established by the
OCC].
(i) VaR-based capital requirement. A national bank's or Federal
savings association's VaR-based capital requirement equals the greater
of:
(A) The previous day's VaR-based measure as calculated under Sec.
3.205; or
(B) The average of the daily VaR-based measures as calculated under
Sec. 3.205 for each of the preceding 60 business days multiplied by
three, except as provided in paragraph (b) of this section.
(ii) Stressed VaR-based capital requirement. A national bank's or
Federal savings association's stressed VaR-based capital requirement
equals the greater of:
(A) The most recent stressed VaR-based measure as calculated under
Sec. 3.206; or
(B) The average of the stressed VaR-based measures as calculated
under Sec. 3.206 for each of the preceding 12 weeks multiplied by
three, except as provided in paragraph (b) of this section.
(iii) Specific risk add-ons. A national bank's or Federal savings
association's specific risk add-ons equal any specific risk add-ons that
are required under Sec. 3.207 and are calculated in accordance with
Sec. 3.210.
(iv) Incremental risk capital requirement. A national bank's or
Federal savings association's incremental risk capital requirement
equals any incremental risk capital requirement as calculated under
section 208 of this subpart.
[[Page 203]]
(v) Comprehensive risk capital requirement. A national bank's or
Federal savings association's comprehensive risk capital requirement
equals any comprehensive risk capital requirement as calculated under
section 209 of this subpart.
(vi) Capital requirement for de minimis exposures. A national bank's
or Federal savings association's capital requirement for de minimis
exposures equals:
(A) The absolute value of the fair value of those de minimis
exposures that are not captured in the national bank's or Federal
savings association's VaR-based measure or under paragraph (a)(2)(vi)(B)
of this section; and
(B) With the prior written approval of the OCC, the capital
requirement for any de minimis exposures using alternative techniques
that appropriately measure the market risk associated with those
exposures.
(b) Backtesting. A national bank or Federal savings association must
compare each of its most recent 250 business days' trading losses
(excluding fees, commissions, reserves, net interest income, and
intraday trading) with the corresponding daily VaR-based measures
calibrated to a one-day holding period and at a one-tail, 99.0 percent
confidence level. A national bank or Federal savings association must
begin backtesting as required by this paragraph (b) no later than one
year after the later of January 1, 2014 and the date on which the
national bank or Federal savings association becomes subject to this
subpart. In the interim, consistent with safety and soundness
principles, a national bank or Federal savings association subject to
this subpart as of January 1, 2014 should continue to follow backtesting
procedures in accordance with the OCC's supervisory expectations.
(1) Once each quarter, the national bank or Federal savings
association must identify the number of exceptions (that is, the number
of business days for which the actual daily net trading loss, if any,
exceeds the corresponding daily VaR-based measure) that have occurred
over the preceding 250 business days.
(2) A national bank or Federal savings association must use the
multiplication factor in Table 1 to Sec. 3.204 that corresponds to the
number of exceptions identified in paragraph (b)(1) of this section to
determine its VaR-based capital requirement for market risk under
paragraph (a)(2)(i) of this section and to determine its stressed VaR-
based capital requirement for market risk under paragraph (a)(2)(ii) of
this section until it obtains the next quarter's backtesting results,
unless the OCC notifies the national bank or Federal savings association
in writing that a different adjustment or other action is appropriate.
Table 1 to Sec. 3.204--Multiplication Factors 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
------------------------------------------------------------------------
Sec. 3.205 VaR-based measure.
(a) General requirement. A national bank or Federal savings
association must use one or more internal models to calculate daily a
VaR-based measure of the general market risk of all covered positions.
The daily VaR-based measure also may reflect the national bank's or
Federal savings association's specific risk for one or more portfolios
of debt and equity positions, if the internal models meet the
requirements of paragraph (b)(1) of Sec. 3.207. The daily VaR-based
measure must also reflect the national bank's or Federal savings
association's specific risk for any portfolio of correlation trading
positions that is modeled under Sec. 3.209. A national bank or Federal
savings association may elect to include term repo-style transactions in
its VaR-based measure, provided that the national bank or Federal
savings association includes all such term repo-style transactions
consistently over time.
(1) The national bank's or Federal savings association's internal
models for calculating its VaR-based measure must use risk factors
sufficient to measure the market risk inherent in all covered positions.
The market risk
[[Page 204]]
categories must include, as appropriate, interest rate risk, credit
spread risk, equity price risk, foreign exchange risk, and commodity
price risk. For material positions in the major currencies and markets,
modeling techniques must incorporate enough segments of the yield
curve--in no case less than six--to capture differences in volatility
and less than perfect correlation of rates along the yield curve.
(2) The VaR-based measure may incorporate empirical correlations
within and across risk categories, provided the national bank or Federal
savings association validates and demonstrates the reasonableness of its
process for measuring correlations. If the VaR-based measure does not
incorporate empirical correlations across risk categories, the national
bank or Federal savings association must add the separate measures from
its internal models used to calculate the VaR-based measure for the
appropriate market risk categories (interest rate risk, credit spread
risk, equity price risk, foreign exchange rate risk, and/or commodity
price risk) to determine its aggregate VaR-based measure.
(3) The VaR-based measure must include the risks arising from the
nonlinear price characteristics of options positions or positions with
embedded optionality and the sensitivity of the fair value of the
positions to changes in the volatility of the underlying rates, prices,
or other material risk factors. A national bank or Federal savings
association with a large or complex options portfolio must measure the
volatility of options positions or positions with embedded optionality
by different maturities and/or strike prices, where material.
(4) The national bank or Federal savings association must be able to
justify to the satisfaction of the OCC the omission of any risk factors
from the calculation of its VaR-based measure that the national bank or
Federal savings association uses in its pricing models.
(5) The national bank or Federal savings association must
demonstrate to the satisfaction of the OCC the appropriateness of any
proxies used to capture the risks of the national bank's or Federal
savings association's actual positions for which such proxies are used.
(b) Quantitative requirements for VaR-based measure. (1) The VaR-
based measure must be calculated on a daily basis using a one-tail, 99.0
percent confidence level, and a holding period equivalent to a 10-
business-day movement in underlying risk factors, such as rates,
spreads, and prices. To calculate VaR-based measures using a 10-
business-day holding period, the national bank or Federal savings
association may calculate 10-business-day measures directly or may
convert VaR-based measures using holding periods other than 10 business
days to the equivalent of a 10-business-day holding period. A national
bank or Federal savings association that converts its VaR-based measure
in such a manner must be able to justify the reasonableness of its
approach to the satisfaction of the OCC.
(2) The VaR-based measure must be based on a historical observation
period of at least one year. Data used to determine the VaR-based
measure must be relevant to the national bank's or Federal savings
association's actual exposures and of sufficient quality to support the
calculation of risk-based capital requirements. The national bank or
Federal savings association must update data sets at least monthly or
more frequently as changes in market conditions or portfolio composition
warrant. For a national bank or Federal savings association that uses a
weighting scheme or other method for the historical observation period,
the national bank or Federal savings association must either:
(i) Use an effective observation period of at least one year in
which the average time lag of the observations is at least six months;
or
(ii) Demonstrate to the OCC that its weighting scheme is more
effective than a weighting scheme with an average time lag of at least
six months representing the volatility of the national bank's or Federal
savings association's trading portfolio over a full business cycle. A
national bank or Federal savings association using this option must
update its data more frequently than monthly and in a manner appropriate
for the type of weighting scheme.
[[Page 205]]
(c) A national bank or Federal savings association must divide its
portfolio into a number of significant subportfolios approved by the OCC
for subportfolio backtesting purposes. These subportfolios must be
sufficient to allow the national bank or Federal savings association and
the OCC to assess the adequacy of the VaR model at the risk factor
level; the OCC will evaluate the appropriateness of these subportfolios
relative to the value and composition of the national bank's or Federal
savings association's covered positions. The national bank or Federal
savings association must retain and make available to the OCC the
following information for each subportfolio for each business day over
the previous two years (500 business days), with no more than a 60-day
lag:
(1) A daily VaR-based measure for the subportfolio calibrated to a
one-tail, 99.0 percent confidence level;
(2) The daily profit or loss for the subportfolio (that is, the net
change in price of the positions held in the portfolio at the end of the
previous business day); and
(3) The p-value of the profit or loss on each day (that is, the
probability of observing a profit that is less than, or a loss that is
greater than, the amount reported for purposes of paragraph (c)(2) of
this section based on the model used to calculate the VaR-based measure
described in paragraph (c)(1) of this section).
Sec. 3.206 Stressed VaR-based measure.
(a) General requirement. At least weekly, a national bank or Federal
savings association must use the same internal model(s) used to
calculate its VaR-based measure to calculate a stressed VaR-based
measure.
(b) Quantitative requirements for stressed VaR-based measure. (1) A
national bank or Federal savings association must calculate a stressed
VaR-based measure for its covered positions using the same model(s) used
to calculate the VaR-based measure, subject to the same confidence level
and holding period applicable to the VaR-based measure under Sec.
3.205, but with model inputs calibrated to historical data from a
continuous 12-month period that reflects a period of significant
financial stress appropriate to the national bank's or Federal savings
association's current portfolio.
(2) The stressed VaR-based measure must be calculated at least
weekly and be no less than the national bank's or Federal savings
association's VaR-based measure.
(3) A national bank or Federal savings association must have
policies and procedures that describe how it determines the period of
significant financial stress used to calculate the national bank's or
Federal savings association's stressed VaR-based measure under this
section and must be able to provide empirical support for the period
used. The national bank or Federal savings association must obtain the
prior approval of the OCC for, and notify the OCC if the national bank
or Federal savings association makes any material changes to, these
policies and procedures. The policies and procedures must address:
(i) How the national bank or Federal savings association links the
period of significant financial stress used to calculate the stressed
VaR-based measure to the composition and directional bias of its current
portfolio; and
(ii) The national bank's or Federal savings association's process
for selecting, reviewing, and updating the period of significant
financial stress used to calculate the stressed VaR-based measure and
for monitoring the appropriateness of the period to the national bank's
or Federal savings association's current portfolio.
(4) Nothing in this section prevents the OCC from requiring a
national bank or Federal savings association to use a different period
of significant financial stress in the calculation of the stressed VaR-
based measure.
Sec. 3.207 Specific risk.
(a) General requirement. A national bank or Federal savings
association must use one of the methods in this section to measure the
specific risk for each of its debt, equity, and securitization positions
with specific risk.
(b) Modeled specific risk. A national bank or Federal savings
association may use models to measure the specific risk of covered
positions as provided in
[[Page 206]]
paragraph (a) of section 205 of this subpart (therefore, excluding
securitization positions that are not modeled under section 209 of this
subpart). A national bank or Federal savings association must use models
to measure the specific risk of correlation trading positions that are
modeled under Sec. 3.209.
(1) Requirements for specific risk modeling. (i) If a national bank
or Federal savings association uses internal models to measure the
specific risk of a portfolio, the internal models must:
(A) Explain the historical price variation in the portfolio;
(B) Be responsive to changes in market conditions;
(C) Be robust to an adverse environment, including signaling rising
risk in an adverse environment; and
(D) Capture all material components of specific risk for the debt
and equity positions in the portfolio. Specifically, the internal models
must:
(1) Capture event risk and idiosyncratic risk; and
(2) Capture and demonstrate sensitivity to material differences
between positions that are similar but not identical and to changes in
portfolio composition and concentrations.
(ii) If a national bank or Federal savings association calculates an
incremental risk measure for a portfolio of debt or equity positions
under section 208 of this subpart, the national bank or Federal savings
association is not required to capture default and credit migration
risks in its internal models used to measure the specific risk of those
portfolios.
(2) Specific risk fully modeled for one or more portfolios. If the
national bank's or Federal savings association's VaR-based measure
captures all material aspects of specific risk for one or more of its
portfolios of debt, equity, or correlation trading positions, the
national bank or Federal savings association has no specific risk add-on
for those portfolios for purposes of paragraph (a)(2)(iii) of Sec.
3.204.
(c) Specific risk not modeled. (1) If the national bank's or Federal
savings association's VaR-based measure does not capture all material
aspects of specific risk for a portfolio of debt, equity, or correlation
trading positions, the national bank or Federal savings association must
calculate a specific-risk add-on for the portfolio under the
standardized measurement method as described in Sec. 3.210.
(2) A national bank or Federal savings association must calculate a
specific risk add-on under the standardized measurement method as
described in Sec. 3.210 for all of its securitization positions that
are not modeled under Sec. 3.209.
Sec. 3.208 Incremental risk.
(a) General requirement. A national bank or Federal savings
association that measures the specific risk of a portfolio of debt
positions under Sec. 3.207(b) using internal models must calculate at
least weekly an incremental risk measure for that portfolio according to
the requirements in this section. The incremental risk measure is the
national bank's or Federal savings association's measure of potential
losses due to incremental risk over a one-year time horizon at a one-
tail, 99.9 percent confidence level, either under the assumption of a
constant level of risk, or under the assumption of constant positions.
With the prior approval of the OCC, a national bank or Federal savings
association may choose to include portfolios of equity positions in its
incremental risk model, provided that it consistently includes such
equity positions in a manner that is consistent with how the national
bank or Federal savings association internally measures and manages the
incremental risk of such positions at the portfolio level. If equity
positions are included in the model, for modeling purposes default is
considered to have occurred upon the default of any debt of the issuer
of the equity position. A national bank or Federal savings association
may not include correlation trading positions or securitization
positions in its incremental risk measure.
(b) Requirements for incremental risk modeling. For purposes of
calculating the incremental risk measure, the incremental risk model
must:
(1) Measure incremental risk over a one-year time horizon and at a
one-
[[Page 207]]
tail, 99.9 percent confidence level, either under the assumption of a
constant level of risk, or under the assumption of constant positions.
(i) A constant level of risk assumption means that the national bank
or Federal savings association rebalances, or rolls over, its trading
positions at the beginning of each liquidity horizon over the one-year
horizon in a manner that maintains the national bank's or Federal
savings association's initial risk level. The national bank or Federal
savings association must determine the frequency of rebalancing in a
manner consistent with the liquidity horizons of the positions in the
portfolio. The liquidity horizon of a position or set of positions is
the time required for a national bank or Federal savings association to
reduce its exposure to, or hedge all of its material risks of, the
position(s) in a stressed market. The liquidity horizon for a position
or set of positions may not be less than the shorter of three months or
the contractual maturity of the position.
(ii) A constant position assumption means that the national bank or
Federal savings association maintains the same set of positions
throughout the one-year horizon. If a national bank or Federal savings
association uses this assumption, it must do so consistently across all
portfolios.
(iii) A national bank's or Federal savings association's selection
of a constant position or a constant risk assumption must be consistent
between the national bank's or Federal savings association's incremental
risk model and its comprehensive risk model described in section 209 of
this subpart, if applicable.
(iv) A national bank's or Federal savings association's treatment of
liquidity horizons must be consistent between the national bank's or
Federal savings association's incremental risk model and its
comprehensive risk model described in section 209, if applicable.
(2) Recognize the impact of correlations between default and
migration events among obligors.
(3) Reflect the effect of issuer and market concentrations, as well
as concentrations that can arise within and across product classes
during stressed conditions.
(4) Reflect netting only of long and short positions that reference
the same financial instrument.
(5) Reflect any material mismatch between a position and its hedge.
(6) Recognize the effect that liquidity horizons have on dynamic
hedging strategies. In such cases, a national bank or Federal savings
association must:
(i) Choose to model the rebalancing of the hedge consistently over
the relevant set of trading positions;
(ii) Demonstrate that the inclusion of rebalancing results in a more
appropriate risk measurement;
(iii) Demonstrate that the market for the hedge is sufficiently
liquid to permit rebalancing during periods of stress; and
(iv) Capture in the incremental risk model any residual risks
arising from such hedging strategies.
(7) Reflect the nonlinear impact of options and other positions with
material nonlinear behavior with respect to default and migration
changes.
(8) Maintain consistency with the national bank's or Federal savings
association's internal risk management methodologies for identifying,
measuring, and managing risk.
(c) Calculation of incremental risk capital requirement. The
incremental risk capital requirement is the greater of:
(1) The average of the incremental risk measures over the previous
12 weeks; or
(2) The most recent incremental risk measure.
Sec. 3.209 Comprehensive risk.
(a) General requirement. (1) Subject to the prior approval of the
OCC, a national bank or Federal savings association may use the method
in this section to measure comprehensive risk, that is, all price risk,
for one or more portfolios of correlation trading positions.
(2) A national bank or Federal savings association that measures the
price risk of a portfolio of correlation trading positions using
internal models must calculate at least weekly a comprehensive risk
measure that captures
[[Page 208]]
all price risk according to the requirements of this section. The
comprehensive risk measure is either:
(i) The sum of:
(A) The national bank's or Federal savings association's modeled
measure of all price risk determined according to the requirements in
paragraph (b) of this section; and
(B) A surcharge for the national bank's or Federal savings
association's modeled correlation trading positions equal to the total
specific risk add-on for such positions as calculated under section 210
of this subpart multiplied by 8.0 percent; or
(ii) With approval of the OCC and provided the national bank or
Federal savings association has met the requirements of this section for
a period of at least one year and can demonstrate the effectiveness of
the model through the results of ongoing model validation efforts
including robust benchmarking, the greater of:
(A) The national bank's or Federal savings association's modeled
measure of all price risk determined according to the requirements in
paragraph (b) of this section; or
(B) The total specific risk add-on that would apply to the bank's
modeled correlation trading positions as calculated under section 210 of
this subpart multiplied by 8.0 percent.
(b) Requirements for modeling all price risk. If a national bank or
Federal savings association uses an internal model to measure the price
risk of a portfolio of correlation trading positions:
(1) The internal model must measure comprehensive risk over a one-
year time horizon at a one-tail, 99.9 percent confidence level, either
under the assumption of a constant level of risk, or under the
assumption of constant positions.
(2) The model must capture all material price risk, including but
not limited to the following:
(i) The risks associated with the contractual structure of cash
flows of the position, its issuer, and its underlying exposures;
(ii) Credit spread risk, including nonlinear price risks;
(iii) The volatility of implied correlations, including nonlinear
price risks such as the cross-effect between spreads and correlations;
(iv) Basis risk;
(v) Recovery rate volatility as it relates to the propensity for
recovery rates to affect tranche prices; and
(vi) To the extent the comprehensive risk measure incorporates the
benefits of dynamic hedging, the static nature of the hedge over the
liquidity horizon must be recognized. In such cases, a national bank or
Federal savings association must:
(A) Choose to model the rebalancing of the hedge consistently over
the relevant set of trading positions;
(B) Demonstrate that the inclusion of rebalancing results in a more
appropriate risk measurement;
(C) Demonstrate that the market for the hedge is sufficiently liquid
to permit rebalancing during periods of stress; and
(D) Capture in the comprehensive risk model any residual risks
arising from such hedging strategies;
(3) The national bank or Federal savings association must use market
data that are relevant in representing the risk profile of the national
bank's or Federal savings association's correlation trading positions in
order to ensure that the national bank or Federal savings association
fully captures the material risks of the correlation trading positions
in its comprehensive risk measure in accordance with this section; and
(4) The national bank or Federal savings association must be able to
demonstrate that its model is an appropriate representation of
comprehensive risk in light of the historical price variation of its
correlation trading positions.
(c) Requirements for stress testing. (1) A national bank or Federal
savings association must at least weekly apply specific, supervisory
stress scenarios to its portfolio of correlation trading positions that
capture changes in:
(i) Default rates;
(ii) Recovery rates;
(iii) Credit spreads;
(iv) Correlations of underlying exposures; and
(v) Correlations of a correlation trading position and its hedge.
[[Page 209]]
(2) Other requirements. (i) A national bank or Federal savings
association must retain and make available to the OCC the results of the
supervisory stress testing, including comparisons with the capital
requirements generated by the national bank's or Federal savings
association's comprehensive risk model.
(ii) A national bank or Federal savings association must report to
the OCC promptly any instances where the stress tests indicate any
material deficiencies in the comprehensive risk model.
(d) Calculation of comprehensive risk capital requirement. The
comprehensive risk capital requirement is the greater of:
(1) The average of the comprehensive risk measures over the previous
12 weeks; or
(2) The most recent comprehensive risk measure.
Sec. 3.210 Standardized measurement method for specific risk.
(a) General requirement. A national bank or Federal savings
association must calculate a total specific risk add-on for each
portfolio of debt and equity positions for which the national bank's or
Federal savings association's VaR-based measure does not capture all
material aspects of specific risk and for all securitization positions
that are not modeled under Sec. 3.209. A national bank or Federal
savings association must calculate each specific risk add-on in
accordance with the requirements of this section. Notwithstanding any
other definition or requirement in this subpart, a position that would
have qualified as a debt position or an equity position but for the fact
that it qualifies as a correlation trading position under paragraph (2)
of the definition of correlation trading position in Sec. 3.202, shall
be considered a debt position or an equity position, respectively, for
purposes of this section 210 of this subpart.
(1) The specific risk add-on for an individual debt or
securitization position that represents sold credit protection is capped
at the notional amount of the credit derivative contract. The specific
risk add-on for an individual debt or securitization position that
represents purchased credit protection is capped at the current fair
value of the transaction plus the absolute value of the present value of
all remaining payments to the protection seller under the transaction.
This sum is equal to the value of the protection leg of the transaction.
(2) For debt, equity, or securitization positions that are
derivatives with linear payoffs, a national bank or Federal savings
association must assign a specific risk-weighting factor to the fair
value of the effective notional amount of the underlying instrument or
index portfolio, except for a securitization position for which the
national bank or Federal savings association directly calculates a
specific risk add-on using the SFA in paragraph (b)(2)(vii)(B) of this
section. A swap must be included as an effective notional position in
the underlying instrument or portfolio, with the receiving side treated
as a long position and the paying side treated as a short position. For
debt, equity, or securitization positions that are derivatives with
nonlinear payoffs, a national bank or Federal savings association must
risk weight the fair value of the effective notional amount of the
underlying instrument or portfolio multiplied by the derivative's delta.
(3) For debt, equity, or securitization positions, a national bank
or Federal savings association may net long and short positions
(including derivatives) in identical issues or identical indices. A
national bank or Federal savings association may also net positions in
depositary receipts against an opposite position in an identical equity
in different markets, provided that the national bank or Federal savings
association includes the costs of conversion.
(4) A set of transactions consisting of either a debt position and
its credit derivative hedge or a securitization position and its credit
derivative hedge has a specific risk add-on of zero if:
(i) The debt or securitization position is fully hedged by a total
return swap (or similar instrument where there is a matching of swap
payments and changes in fair value of the debt or securitization
position);
(ii) There is an exact match between the reference obligation of the
swap and the debt or securitization position;
[[Page 210]]
(iii) There is an exact match between the currency of the swap and
the debt or securitization position; and
(iv) There is either an exact match between the maturity date of the
swap and the maturity date of the debt or securitization position; or,
in cases where a total return swap references a portfolio of positions
with different maturity dates, the total return swap maturity date must
match the maturity date of the underlying asset in that portfolio that
has the latest maturity date.
(5) The specific risk add-on for a set of transactions consisting of
either a debt position and its credit derivative hedge or a
securitization position and its credit derivative hedge that does not
meet the criteria of paragraph (a)(4) of this section is equal to 20.0
percent of the capital requirement for the side of the transaction with
the higher specific risk add-on when:
(i) The credit risk of the position is fully hedged by a credit
default swap or similar instrument;
(ii) There is an exact match between the reference obligation of the
credit derivative hedge and the debt or securitization position;
(iii) There is an exact match between the currency of the credit
derivative hedge and the debt or securitization position; and
(iv) There is either an exact match between the maturity date of the
credit derivative hedge and the maturity date of the debt or
securitization position; or, in the case where the credit derivative
hedge has a standard maturity date:
(A) The maturity date of the credit derivative hedge is within 30
business days of the maturity date of the debt or securitization
position; or
(B) For purchased credit protection, the maturity date of the credit
derivative hedge is later than the maturity date of the debt or
securitization position, but is no later than the standard maturity date
for that instrument that immediately follows the maturity date of the
debt or securitization position. The maturity date of the credit
derivative hedge may not exceed the maturity date of the debt or
securitization position by more than 90 calendar days.
(6) The specific risk add-on for a set of transactions consisting of
either a debt position and its credit derivative hedge or a
securitization position and its credit derivative hedge that does not
meet the criteria of either paragraph (a)(4) or (a)(5) of this section,
but in which all or substantially all of the price risk has been hedged,
is equal to the specific risk add-on for the side of the transaction
with the higher specific risk add-on.
(b) Debt and securitization positions. (1) The total specific risk
add-on for a portfolio of debt or securitization positions is the sum of
the specific risk add-ons for individual debt or securitization
positions, as computed under this section. To determine the specific
risk add-on for individual debt or securitization positions, a national
bank or Federal savings association must multiply the absolute value of
the current fair value of each net long or net short debt or
securitization position in the portfolio by the appropriate specific
risk-weighting factor as set forth in paragraphs (b)(2)(i) through
(b)(2)(vii) of this section.
(2) For the purpose of this section, the appropriate specific risk-
weighting factors include:
(i) Sovereign debt positions. (A) In accordance with Table 1 to
Sec. 3.210, a national bank or Federal savings association must assign
a specific risk-weighting factor to a sovereign debt position based on
the CRC applicable to the sovereign, and, as applicable, the remaining
contractual maturity of the position, or if there is no CRC applicable
to the sovereign, based on whether the sovereign entity is a member of
the OECD. Notwithstanding any other provision in this subpart, sovereign
debt positions that are backed by the full faith and credit of the
United States are treated as having a CRC of 0.
Table 1 to Sec. 3.210--Specific Risk-Weighting Factors for Sovereign
Debt Positions
------------------------------------------------------------------------
------------------------------------------------------------------------
Specific risk-weighting factor
(in percent)
------------------------------------------------------------------------
CRC:
[[Page 211]]
0-1.......................... 0.0
--------------------------------------
2-3.......................... Remaining 0.25
contractual
maturity of 6
months or less.
Remaining 1.0
contractual
maturity of
greater than 6 and
up to and
including 24
months.
Remaining 1.6
contractual
maturity exceeds
24 months.
--------------------------------------
4-6.......................... 8.0
--------------------------------------
7............................ 12.0
------------------------------------------------------------------------
OECD Member with No CRC.......... 0.0
------------------------------------------------------------------------
Non-OECD Member with No CRC...... 8.0
------------------------------------------------------------------------
Sovereign Default................ 12.0
------------------------------------------------------------------------
(B) Notwithstanding paragraph (b)(2)(i)(A) of this section, a
national bank or Federal savings association may assign to a sovereign
debt position a specific risk-weighting factor that is lower than the
applicable specific risk-weighting factor in Table 1 to Sec. 3.210 if:
(1) The position is denominated in the sovereign entity's currency;
(2) The national bank or Federal savings association has at least an
equivalent amount of liabilities in that currency; and
(3) The sovereign entity allows banks under its jurisdiction to
assign the lower specific risk-weighting factor to the same exposures to
the sovereign entity.
(C) A national bank or Federal savings association must assign a
12.0 percent specific risk-weighting factor to a sovereign debt position
immediately upon determination a default has occurred; or if a default
has occurred within the previous five years.
(D) A national bank or Federal savings association must assign a 0.0
percent specific risk-weighting factor to a sovereign debt position if
the sovereign entity is a member of the OECD and does not have a CRC
assigned to it, except as provided in paragraph (b)(2)(i)(C) of this
section.
(E) A national bank or Federal savings association must assign an
8.0 percent specific risk-weighting factor to a sovereign debt position
if the sovereign is not a member of the OECD and does not have a CRC
assigned to it, except as provided in paragraph (b)(2)(i)(C) of this
section.
(ii) Certain supranational entity and multilateral development bank
debt positions. A national bank or Federal savings association may
assign a 0.0 percent specific risk-weighting factor to a debt position
that is an exposure to the Bank for International Settlements, the
European Central Bank, the European Commission, the International
Monetary Fund, the European Stability Mechanism, the European Financial
Stability Facility, or an MDB.
(iii) GSE debt positions. A national bank or Federal savings
association must assign a 1.6 percent specific risk-weighting factor to
a debt position that is an exposure to a GSE. Notwithstanding the
foregoing, a national bank or Federal savings association must assign an
8.0 percent specific risk-weighting factor to preferred stock issued by
a GSE.
(iv) Depository institution, foreign bank, and credit union debt
positions. (A) Except as provided in paragraph (b)(2)(iv)(B) of this
section, a national bank or Federal savings association must assign a
specific risk-weighting factor to a debt position that is an exposure to
a depository institution, a foreign bank, or a credit union, in
accordance with Table 2 to Sec. 3.210, based on the CRC that
corresponds to that entity's home country or the OECD membership status
of that entity's home country if there is no CRC applicable to the
entity's home country, and, as applicable, the remaining contractual
maturity of the position.
[[Page 212]]
Table 2 to Sec. 3.210--Specific Risk-Weighting Factors for Depository
Institution, Foreign Bank, and Credit Union Debt Positions
------------------------------------------------------------------------
------------------------------------------------------------------------
Specific risk-weighting factor
(in percent)
------------------------------------------------------------------------
CRC 0-2 or OECD Member with No Remaining contractual 0.25
CRC. maturity of 6 months
or less.
Remaining contractual 1.0
maturity of greater
than 6 and up to and
including 24 months.
Remaining contractual 1.6
maturity exceeds 24
months.
------------------------------------------------------------------------
CRC 3......................... 8.0
------------------------------------------------------------------------
CRC 4-7....................... 12.0
------------------------------------------------------------------------
Non-OECD Member with No CRC... 8.0
------------------------------------------------------------------------
Sovereign Default............. 12.0
------------------------------------------------------------------------
(B) A national bank or Federal savings association must assign a
specific risk-weighting factor of 8.0 percent to a debt position that is
an exposure to a depository institution or a foreign bank that is
includable in the depository institution's or foreign bank's regulatory
capital and that is not subject to deduction as a reciprocal holding
under Sec. 3.22.
(C) A national bank or Federal savings association must assign a
12.0 percent specific risk-weighting factor to a debt position that is
an exposure to a foreign bank immediately upon determination that a
default by the foreign bank's home country has occurred or if a default
by the foreign bank's home country has occurred within the previous five
years.
(v) PSE debt positions. (A) Except as provided in paragraph
(b)(2)(v)(B) of this section, a national bank or Federal savings
association must assign a specific risk-weighting factor to a debt
position that is an exposure to a PSE in accordance with Tables 3 and 4
to Sec. 3.210 depending on the position's categorization as a general
obligation or revenue obligation based on the CRC that corresponds to
the PSE's home country or the OECD membership status of the PSE's home
country if there is no CRC applicable to the PSE's home country, and, as
applicable, the remaining contractual maturity of the position, as set
forth in Tables 3 and 4 of this section.
(B) A national bank or Federal savings association may assign a
lower specific risk-weighting factor than would otherwise apply under
Tables 3 and 4 of this section to a debt position that is an exposure to
a foreign PSE if:
(1) The PSE's home country allows banks under its jurisdiction to
assign a lower specific risk-weighting factor to such position; and
(2) The specific risk-weighting factor is not lower than the risk
weight that corresponds to the PSE's home country in accordance with
Tables 3 and 4 of this section.
(C) A national bank or Federal savings association must assign a
12.0 percent specific risk-weighting factor to a PSE debt position
immediately upon determination that a default by the PSE's home country
has occurred or if a default by the PSE's home country has occurred
within the previous five years.
Table 3 to Sec. 3.210--Specific Risk-Weighting Factors for PSE General
Obligation Debt Positions
------------------------------------------------------------------------
------------------------------------------------------------------------
General obligation specific risk-
weighting factor
(in percent)
------------------------------------------------------------------------
CRC 0-2 or OECD Member with No Remaining contractual 0.25
CRC. maturity of 6 months
or less.
Remaining contractual 1.0
maturity of greater
than 6 and up to and
including 24 months.
Remaining contractual 1.6
maturity exceeds 24
months.
------------------------------------------------------------------------
CRC 3......................... 8.0
------------------------------------------------------------------------
[[Page 213]]
CRC 4-7....................... 12.0
------------------------------------------------------------------------
Non-OECD Member with No CRC... 8.0
------------------------------------------------------------------------
Sovereign Default............. 12.0
------------------------------------------------------------------------
Table 4 to Sec. 3.210--Specific Risk-Weighting Factors for PSE Revenue
Obligation Debt Positions
------------------------------------------------------------------------
------------------------------------------------------------------------
Revenue obligation specific risk-
weighting factor
(in percent)
------------------------------------------------------------------------
CRC 0-1 or OECD Member with No Remaining contractual 0.25
CRC. maturity of 6 months
or less.
Remaining contractual 1.0
maturity of greater
than 6 and up to and
including 24 months.
Remaining contractual 1.6
maturity exceeds 24
months.
------------------------------------------------------------------------
CRC 2-3....................... 8.0
------------------------------------------------------------------------
CRC 4-7....................... 12.0
------------------------------------------------------------------------
Non-OECD Member with No CRC... 8.0
------------------------------------------------------------------------
Sovereign Default............. 12.0
------------------------------------------------------------------------
(vi) Corporate debt positions. Except as otherwise provided in
paragraph (b)(2)(vi)(B) of this section, a national bank or Federal
savings association must assign a specific risk-weighting factor to a
corporate debt position in accordance with the investment grade
methodology in paragraph (b)(2)(vi)(A) of this section.
(A) Investment grade methodology. (1) For corporate debt positions
that are exposures to entities that have issued and outstanding publicly
traded instruments, a national bank or Federal savings association must
assign a specific risk-weighting factor based on the category and
remaining contractual maturity of the position, in accordance with Table
5 to Sec. 3.210. For purposes of this paragraph (b)(2)(vi)(A)(1), the
national bank or Federal savings association must determine whether the
position is in the investment grade or not investment grade category.
Table 5 to Sec. 3.210--Specific Risk-Weighting Factors for Corporate
Debt Positions Under the Investment Grade Methodology
------------------------------------------------------------------------
Specific risk-
Category Remaining contractual weighting factor
maturity (in percent)
------------------------------------------------------------------------
Investment Grade.............. 6 months or less...... 0.50
Greater than 6 and up 2.00
to and including 24
months.
Greater than 24 months 4.00
------------------------------------------------------------------------
Non-investment Grade.................................. 12.00
------------------------------------------------------------------------
(2) A national bank or Federal savings association must assign an
8.0 percent specific risk-weighting factor for corporate debt positions
that are exposures to entities that do not have publicly traded
instruments outstanding.
(B) Limitations. (1) A national bank or Federal savings association
must assign a specific risk-weighting factor of at least 8.0 percent to
an interest-only mortgage-backed security that is not a securitization
position.
(2) A national bank or Federal savings association shall not assign
a corporate debt position a specific risk-weighting factor that is lower
than the specific risk-weighting factor that corresponds to the CRC of
the issuer's home country, if applicable, in table 1 of this section.
[[Page 214]]
(vii) Securitization positions. (A) General requirements. (1) A
national bank or Federal savings association that is not an advanced
approaches national bank or Federal savings association must assign a
specific risk-weighting factor to a securitization position using either
the simplified supervisory formula approach (SSFA) in paragraph
(b)(2)(vii)(C) of this section (and Sec. 3.211) or assign a specific
risk-weighting factor of 100 percent to the position.
(2) A national bank or Federal savings association that is an
advanced approaches national bank or Federal savings association must
calculate a specific risk add-on for a securitization position in
accordance with paragraph (b)(2)(vii)(B) of this section if the national
bank or Federal savings association and the securitization position each
qualifies to use the SFA in Sec. 3.143. A national bank or Federal
savings association that is an advanced approaches national bank or
Federal savings association with a securitization position that does not
qualify for the SFA under paragraph (b)(2)(vii)(B) of this section may
assign a specific risk-weighting factor to the securitization position
using the SSFA in accordance with paragraph (b)(2)(vii)(C) of this
section or assign a specific risk-weighting factor of 100 percent to the
position.
(3) A national bank or Federal savings association must treat a
short securitization position as if it is a long securitization position
solely for calculation purposes when using the SFA in paragraph
(b)(2)(vii)(B) of this section or the SSFA in paragraph (b)(2)(vii)(C)
of this section.
(B) SFA. To calculate the specific risk add-on for a securitization
position using the SFA, a national bank or Federal savings association
that is an advanced approaches national bank or Federal savings
association must set the specific risk add-on for the position equal to
the risk-based capital requirement as calculated under Sec. 3.143.
(C) SSFA. To use the SSFA to determine the specific risk-weighting
factor for a securitization position, a national bank or Federal savings
association must calculate the specific risk-weighting factor in
accordance with Sec. 3.211.
(D) Nth-to-default credit derivatives. A national bank or Federal
savings association must determine a specific risk add-on using the SFA
in paragraph (b)(2)(vii)(B) of this section, or assign a specific risk-
weighting factor using the SSFA in paragraph (b)(2)(vii)(C) of this
section to an nth-to-default credit derivative in accordance
with this paragraph (b)(2)(vii)(D), regardless of whether the national
bank or Federal savings association is a net protection buyer or net
protection seller. A national bank or Federal savings association must
determine its position in the nth-to-default credit
derivative as the largest notional amount of all the underlying
exposures.
(1) For purposes of determining the specific risk add-on using the
SFA in paragraph (b)(2)(vii)(B) of this section or the specific risk-
weighting factor for an nth-to-default credit derivative
using the SSFA in paragraph (b)(2)(vii)(C) of this section the national
bank or Federal savings association must calculate the attachment point
and detachment point of its position as follows:
(i) The attachment point (parameter A) is the ratio of the sum of
the notional amounts of all underlying exposures that are subordinated
to the national bank's or Federal savings association's position to the
total notional amount of all underlying exposures. For purposes of the
SSFA, parameter A is expressed as a decimal value between zero and one.
For purposes of using the SFA in paragraph (b)(2)(vii)(B) of this
section to calculate the specific add-on for its position in an
nth-to-default credit derivative, parameter A must be set
equal to the credit enhancement level (L) input to the SFA formula in
section 143 of this subpart. In the case of a first-to-default credit
derivative, there are no underlying exposures that are subordinated to
the national bank's or Federal savings association's position. In the
case of a second-or-subsequent-to-default credit derivative, the
smallest (n-1) notional amounts of the underlying exposure(s) are
subordinated to the national bank's or Federal savings association's
position.
(ii) The detachment point (parameter D) equals the sum of parameter
A plus the ratio of the notional amount of the
[[Page 215]]
national bank's or Federal savings association's position in the
nth-to-default credit derivative to the total notional amount
of all underlying exposures. For purposes of the SSFA, parameter A is
expressed as a decimal value between zero and one. For purposes of using
the SFA in paragraph (b)(2)(vii)(B) of this section to calculate the
specific risk add-on for its position in an nth-to-default
credit derivative, parameter D must be set to equal the L input plus the
thickness of tranche T input to the SFA formula in Sec. 3.143 of this
subpart.
(2) A national bank or Federal savings association that does not use
the SFA in paragraph (b)(2)(vii)(B) of this section to determine a
specific risk-add on, or the SSFA in paragraph (b)(2)(vii)(C) of this
section to determine a specific risk-weighting factor for its position
in an nth-to-default credit derivative must assign a specific
risk-weighting factor of 100 percent to the position.
(c) Modeled correlation trading positions. For purposes of
calculating the comprehensive risk measure for modeled correlation
trading positions under either paragraph (a)(2)(i) or (a)(2)(ii) of
Sec. 3.209, the total specific risk add-on is the greater of:
(1) The sum of the national bank's or Federal savings association's
specific risk add-ons for each net long correlation trading position
calculated under this section; or
(2) The sum of the national bank's or Federal savings association's
specific risk add-ons for each net short correlation trading position
calculated under this section.
(d) Non-modeled securitization positions. For securitization
positions that are not correlation trading positions and for
securitizations that are correlation trading positions not modeled under
Sec. 3.209, the total specific risk add-on is the greater of:
(1) The sum of the national bank's or Federal savings association's
specific risk add-ons for each net long securitization position
calculated under this section; or
(2) The sum of the national bank's or Federal savings association's
specific risk add-ons for each net short securitization position
calculated under this section.
(e) Equity positions. The total specific risk add-on for a portfolio
of equity positions is the sum of the specific risk add-ons of the
individual equity positions, as computed under this section. To
determine the specific risk add-on of individual equity positions, a
national bank or Federal savings association must multiply the absolute
value of the current fair value of each net long or net short equity
position by the appropriate specific risk-weighting factor as determined
under this paragraph (e):
(1) The national bank or Federal savings association must multiply
the absolute value of the current fair value of each net long or net
short equity position by a specific risk-weighting factor of 8.0
percent. For equity positions that are index contracts comprising a
well-diversified portfolio of equity instruments, the absolute value of
the current fair value of each net long or net short position is
multiplied by a specific risk-weighting factor of 2.0 percent.\33\
---------------------------------------------------------------------------
\33\ A portfolio is well-diversified if it contains a large number
of individual equity positions, with no single position representing a
substantial portion of the portfolio's total fair value.
---------------------------------------------------------------------------
(2) For equity positions arising from the following futures-related
arbitrage strategies, a national bank or Federal savings association may
apply a 2.0 percent specific risk-weighting factor to one side (long or
short) of each position with the opposite side exempt from an additional
capital requirement:
(i) Long and short positions in exactly the same index at different
dates or in different market centers; or
(ii) Long and short positions in index contracts at the same date in
different, but similar indices.
(3) For futures contracts on main indices that are matched by
offsetting positions in a basket of stocks comprising the index, a
national bank or Federal savings association may apply a 2.0 percent
specific risk-weighting factor to the futures and stock basket positions
(long and short), provided that such trades are deliberately entered
into and separately controlled,
[[Page 216]]
and that the basket of stocks is comprised of stocks representing at
least 90.0 percent of the capitalization of the index. A main index
refers to the Standard & Poor's 500 Index, the FTSE All-World Index, and
any other index for which the national bank or Federal savings
association can demonstrate to the satisfaction of the OCC that the
equities represented in the index have liquidity, depth of market, and
size of bid-ask spreads comparable to equities in the Standard & Poor's
500 Index and FTSE All-World Index.
(f) Due diligence requirements for securitization positions. (1) A
national bank or Federal savings association must demonstrate to the
satisfaction of the OCC a comprehensive understanding of the features of
a securitization position that would materially affect the performance
of the position by conducting and documenting the analysis set forth in
paragraph (f)(2) of this section. The national bank's or Federal savings
association's analysis must be commensurate with the complexity of the
securitization position and the materiality of the position in relation
to capital.
(2) A national bank or Federal savings association must demonstrate
its comprehensive understanding for each securitization position by:
(i) Conducting an analysis of the risk characteristics of a
securitization position prior to acquiring the position and document
such analysis within three business days after acquiring position,
considering:
(A) Structural features of the securitization that would materially
impact the performance of the position, for example, the contractual
cash flow waterfall, waterfall-related triggers, credit enhancements,
liquidity enhancements, fair value triggers, the performance of
organizations that service the position, and deal-specific definitions
of default;
(B) Relevant information regarding the performance of the underlying
credit exposure(s), for example, the percentage of loans 30, 60, and 90
days past due; default rates; prepayment rates; loans in foreclosure;
property types; occupancy; average credit score or other measures of
creditworthiness; average loan-to-value ratio; and industry and
geographic diversification data on the underlying exposure(s);
(C) Relevant market data of the securitization, for example, bid-ask
spreads, most recent sales price and historical price volatility,
trading volume, implied market rating, and size, depth and concentration
level of the market for the securitization; and
(D) For resecuritization positions, performance information on the
underlying securitization exposures, for example, the issuer name and
credit quality, and the characteristics and performance of the exposures
underlying the securitization exposures.
(ii) On an on-going basis (no less frequently than quarterly),
evaluating, reviewing, and updating as appropriate the analysis required
under paragraph (f)(1) of this section for each securitization position.
[78 FR 62157, 62273, Oct. 11, 2013, as amended at 84 FR 35258, July 22,
2019]
Sec. 3.211 Simplified supervisory formula approach (SSFA).
(a) General requirements. To use the SSFA to determine the specific
risk-weighting factor for a securitization position, a national bank or
Federal savings association must have data that enables it to assign
accurately the parameters described in paragraph (b) of this section.
Data used to assign the parameters described in paragraph (b) of this
section must be the most currently available data; if the contracts
governing the underlying exposures of the securitization require
payments on a monthly or quarterly basis, the data used to assign the
parameters described in paragraph (b) of this section must be no more
than 91 calendar days old. A national bank or Federal savings
association that does not have the appropriate data to assign the
parameters described in paragraph (b) of this section must assign a
specific risk-weighting factor of 100 percent to the position.
(b) SSFA parameters. To calculate the specific risk-weighting factor
for a securitization position using the SSFA, a national bank or Federal
savings association must have accurate information on the five inputs to
the SSFA
[[Page 217]]
calculation described in paragraphs (b)(1) through (b)(5) of this
section.
(1) KG is the weighted-average (with unpaid principal
used as the weight for each exposure) total capital requirement of the
underlying exposures calculated using subpart D. KG is
expressed as a decimal value between zero and one (that is, an average
risk weight of 100 percent represents a value of KG equal to
0.08).
(2) Parameter W is expressed as a decimal value between zero and
one. Parameter W is the ratio of the sum of the dollar amounts of any
underlying exposures of the securitization that meet any of the criteria
as set forth in paragraphs (b)(2)(i) through (vi) of this section to the
balance, measured in dollars, of underlying exposures:
(i) Ninety days or more past due;
(ii) Subject to a bankruptcy or insolvency proceeding;
(iii) In the process of foreclosure;
(iv) Held as real estate owned;
(v) Has contractually deferred payments for 90 days or more, other
than principal or interest payments deferred on:
(A) Federally-guaranteed student loans, in accordance with the terms
of those guarantee programs; or
(B) Consumer loans, including non-federally-guaranteed student
loans, provided that such payments are deferred pursuant to provisions
included in the contract at the time funds are disbursed that provide
for period(s) of deferral that are not initiated based on changes in the
creditworthiness of the borrower; or
(vi) Is in default.
(3) Parameter A is the attachment point for the position, which
represents the threshold at which credit losses will first be allocated
to the position. Except as provided in Sec. 3.210(b)(2)(vii)(D) for
nth-to-default credit derivatives, parameter A equals the
ratio of the current dollar amount of underlying exposures that are
subordinated to the position of the national bank or Federal savings
association to the current dollar amount of underlying exposures. Any
reserve account funded by the accumulated cash flows from the underlying
exposures that is subordinated to the position that contains the
national bank's or Federal savings association's securitization exposure
may be included in the calculation of parameter A to the extent that
cash is present in the account. Parameter A is expressed as a decimal
value between zero and one.
(4) Parameter D is the detachment point for the position, which
represents the threshold at which credit losses of principal allocated
to the position would result in a total loss of principal. Except as
provided in Sec. 3.210(b)(2)(vii)(D) for nth-to-default
credit derivatives, parameter D equals parameter A plus the ratio of the
current dollar amount of the securitization positions that are pari
passu with the position (that is, have equal seniority with respect to
credit risk) to the current dollar amount of the underlying exposures.
Parameter D is expressed as a decimal value between zero and one.
(5) A supervisory calibration parameter, p, is equal to 0.5 for
securitization positions that are not resecuritization positions and
equal to 1.5 for resecuritization positions.
(c) Mechanics of the SSFA. KG and W are used to calculate
KA, the augmented value of KG, which reflects the
observed credit quality of the underlying exposures. KA is
defined in paragraph (d) of this section. The values of parameters A and
D, relative to KA determine the specific risk-weighting
factor assigned to a position as described in this paragraph (c) and
paragraph (d) of this section. The specific risk-weighting factor
assigned to a securitization position, or portion of a position, as
appropriate, is the larger of the specific risk-weighting factor
determined in accordance with this paragraph (c), paragraph (d) of this
section, and a specific risk-weighting factor of 1.6 percent.
(1) When the detachment point, parameter D, for a securitization
position is less than or equal to KA, the position must be
assigned a specific risk-weighting factor of 100 percent.
(2) When the attachment point, parameter A, for a securitization
position is greater than or equal to KA, the national bank or
Federal savings association must calculate the specific risk-weighting
factor in accordance with paragraph (d) of this section.
[[Page 218]]
(3) When A is less than KA and D is greater than
KA, the specific risk-weighting factor is a weighted-average
of 1.00 and KSSFA calculated under paragraphs (c)(3)(i) and
(c)(3)(ii) of this section. For the purpose of this calculation:
(i) The weight assigned to 1.00 equals
[GRAPHIC] [TIFF OMITTED] TR11OC13.057
Sec. 3.212 Market risk disclosures.
(a) Scope. A national bank or Federal savings association must
comply with this section unless it is a consolidated subsidiary of a
bank holding company or a depository institution that is subject to
these requirements or of a non-U.S. banking organization that is subject
to comparable public disclosure requirements in its home jurisdiction. A
national bank or Federal savings association must make timely public
disclosures each calendar quarter. If a significant change occurs, such
that the most recent reporting amounts are no longer reflective of the
national bank's or Federal 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 may be disclosed
annually, provided any significant changes are disclosed in the interim.
If a national bank or Federal savings association believes that
disclosure of specific commercial or financial information
[[Page 219]]
would prejudice seriously its position by making public certain
information that is either proprietary or confidential in nature, the
national bank or Federal savings association is not required to disclose
these 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. The national bank's or Federal savings association's
management may provide all of the disclosures required by this section
in one place on the national bank's or Federal savings association's
public Web site or may provide the disclosures in more than one public
financial report or other regulatory reports, provided that the national
bank or Federal savings association publicly provides a summary table
specifically indicating the location(s) of all such disclosures.
(b) Disclosure policy. The national bank or Federal savings
association must have a formal disclosure policy approved by the board
of directors that addresses the national bank's or Federal savings
association's approach for determining its market risk disclosures. The
policy must address the associated internal controls and disclosure
controls and procedures. The board of directors and senior management
must ensure that appropriate verification of the disclosures takes place
and that effective internal controls and disclosure controls and
procedures are maintained. One or more senior officers of the national
bank or Federal savings association must attest that the disclosures
meet the requirements of this subpart, and 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 section.
(c) Quantitative disclosures. (1) For each material portfolio of
covered positions, the national bank or Federal savings association must
provide timely public disclosures of the following information at least
quarterly:
(i) The high, low, and mean VaR-based measures over the reporting
period and the VaR-based measure at period-end;
(ii) The high, low, and mean stressed VaR-based measures over the
reporting period and the stressed VaR-based measure at period-end;
(iii) The high, low, and mean incremental risk capital requirements
over the reporting period and the incremental risk capital requirement
at period-end;
(iv) The high, low, and mean comprehensive risk capital requirements
over the reporting period and the comprehensive risk capital requirement
at period-end, with the period-end requirement broken down into
appropriate risk classifications (for example, default risk, migration
risk, correlation risk);
(v) Separate measures for interest rate risk, credit spread risk,
equity price risk, foreign exchange risk, and commodity price risk used
to calculate the VaR-based measure; and
(vi) A comparison of VaR-based estimates with actual gains or losses
experienced by the national bank or Federal savings association, with an
analysis of important outliers.
(2) In addition, the national bank or Federal savings association
must disclose publicly the following information at least quarterly:
(i) The aggregate amount of on-balance sheet and off-balance sheet
securitization positions by exposure type; and
(ii) The aggregate amount of correlation trading positions.
(d) Qualitative disclosures. For each material portfolio of covered
positions, the national bank or Federal savings association must provide
timely public disclosures of the following information at least annually
after the end of the fourth calendar quarter, or more frequently in the
event of material changes for each portfolio:
(1) The composition of material portfolios of covered positions;
(2) The national bank's or Federal savings association's valuation
policies, procedures, and methodologies for covered positions including,
for securitization positions, the methods and key assumptions used for
valuing such positions, any significant changes
[[Page 220]]
since the last reporting period, and the impact of such change;
(3) The characteristics of the internal models used for purposes of
this subpart. For the incremental risk capital requirement and the
comprehensive risk capital requirement, this must include:
(i) The approach used by the national bank or Federal savings
association to determine liquidity horizons;
(ii) The methodologies used to achieve a capital assessment that is
consistent with the required soundness standard; and
(iii) The specific approaches used in the validation of these
models;
(4) A description of the approaches used for validating and
evaluating the accuracy of internal models and modeling processes for
purposes of this subpart;
(5) For each market risk category (that is, interest rate risk,
credit spread risk, equity price risk, foreign exchange risk, and
commodity price risk), a description of the stress tests applied to the
positions subject to the factor;
(6) The results of the comparison of the national bank's or Federal
savings association's internal estimates for purposes of this subpart
with actual outcomes during a sample period not used in model
development;
(7) The soundness standard on which the national bank's or Federal
savings association's internal capital adequacy assessment under this
subpart is based, including a description of the methodologies used to
achieve a capital adequacy assessment that is consistent with the
soundness standard;
(8) A description of the national bank's or Federal savings
association's processes for monitoring changes in the credit and market
risk of securitization positions, including how those processes differ
for resecuritization positions; and
(9) A description of the national bank's or Federal savings
association's policy governing the use of credit risk mitigation to
mitigate the risks of securitization and resecuritization positions.
Sec. Sec. 3.213-3.299 [Reserved]
Subpart G_Transition Provisions
Source: 78 FR 62157, 62273, Oct. 11, 2013, unless otherwise noted.
Sec. 3.300 Transitions.
(a) Capital conservation and countercyclical capital buffer. (1)
From January 1, 2014 through December 31, 2015, a national bank or
Federal savings association is not subject to limits on distributions
and discretionary bonus payments under Sec. 3.11 of subpart B of this
part notwithstanding the amount of its capital conservation buffer or
any applicable countercyclical capital buffer amount.
(2) Beginning January 1, 2016 through December 31, 2018 a national
bank's or Federal savings association's maximum payout ratio shall be
determined as set forth in Table 1 to Sec. 3.300.
Table 1 to Sec. 3.300
----------------------------------------------------------------------------------------------------------------
Maximum payout ratio (as
Transition period Capital conservation buffer a percentage of eligible
retained income)
----------------------------------------------------------------------------------------------------------------
Calendar year 2016.................... Greater than 0.625 percent (plus 25 percent of No payout ratio
any applicable countercyclical capital buffer limitation applies
amount). under this section.
Less than or equal to 0.625 percent (plus 25 60 percent.
percent of any applicable countercyclical
capital buffer amount), and greater than
0.469 percent (plus 17.25 percent of any
applicable countercyclical capital buffer
amount).
Less than or equal to 0.469 percent (plus 40 percent.
17.25 percent of any applicable
countercyclical capital buffer amount), and
greater than 0.313 percent (plus 12.5 percent
of any applicable countercyclical capital
buffer amount).
Less than or equal to 0.313 percent (plus 12.5 20 percent.
percent of any applicable countercyclical
capital buffer amount), and greater than
0.156 percent (plus 6.25 percent of any
applicable countercyclical capital buffer
amount).
Less than or equal to 0.156 percent (plus 6.25 0 percent.
percent of any applicable countercyclical
capital buffer amount).
Calendar year 2017.................... Greater than 1.25 percent (plus 50 percent of No payout ratio
any applicable countercyclical capital buffer limitation applies
amount). under this section.
[[Page 221]]
Less than or equal to 1.25 percent (plus 50 60 percent.
percent of any applicable countercyclical
capital buffer amount), and greater than
0.938 percent (plus 37.5 percent of any
applicable countercyclical capital buffer
amount).
Less than or equal to 0.938 percent (plus 37.5 40 percent.
percent of any applicable countercyclical
capital buffer amount), and greater than
0.625 percent (plus 25 percent of any
applicable countercyclical capital buffer
amount).
Less than or equal to 0.625 percent (plus 25 20 percent.
percent of any applicable countercyclical
capital buffer amount), and greater than
0.313 percent (plus 12.5 percent of any
applicable countercyclical capital buffer
amount).
Less than or equal to 0.313 percent (plus 12.5 0 percent.
percent of any applicable countercyclical
capital buffer amount).
Calendar year 2018.................... Greater than 1.875 percent (plus 75 percent of No payout ratio
any applicable countercyclical capital buffer limitation applies
amount). under this section.
Less than or equal to 1.875 percent (plus 75 60 percent.
percent of any applicable countercyclical
capital buffer amount), and greater than
1.406 percent (plus 56.25 percent of any
applicable countercyclical capital buffer
amount).
Less than or equal to 1.406 percent (plus 40 percent.
56.25 percent of any applicable
countercyclical capital buffer amount), and
greater than 0.938 percent (plus 37.5 percent
of any applicable countercyclical capital
buffer amount).
Less than or equal to 0.938 percent (plus 37.5 20 percent.
percent of any applicable countercyclical
capital buffer amount), and greater than
0.469 percent (plus 18.75 percent of any
applicable countercyclical capital buffer
amount).
Less than or equal to 0.469 percent (plus 0 percent.
18.75 percent of any applicable
countercyclical capital buffer amount).
----------------------------------------------------------------------------------------------------------------
(b) [Reserved]
(c) Non-qualifying capital instruments.
(1)-(3) [Reserved]
(4) Depository institutions. (i) Beginning on January 1, 2014, a
depository institution that is an advanced approaches national bank or
Federal savings association, and beginning on January 1, 2015, all other
depository institutions, may include in regulatory capital debt or
equity instruments issued prior to September 12, 2010 that do not meet
the criteria for additional tier 1 or tier 2 capital instruments in
Sec. 3.20 but that were included in tier 1 or tier 2 capital
respectively as of September 12, 2010 (non-qualifying capital
instruments issued prior to September 12, 2010) up to the percentage of
the outstanding principal amount of such non-qualifying capital
instruments as of January 1, 2014 in accordance with Table 9 to Sec.
3.300.
(ii) Table 9 to Sec. 3.300 applies separately to tier 1 and tier 2
non-qualifying capital instruments.
(iii) The amount of non-qualifying capital instruments that cannot
be included in additional tier 1 capital under this section may be
included in tier 2 capital without limitation, provided that the
instruments meet the criteria for tier 2 capital instruments under Sec.
3.20(d).
Table 9 to Sec. 3.300
------------------------------------------------------------------------
Percentage of non-
qualifying
capital
Transition period (calendar year) instruments
includable in
additional tier 1
or tier 2 capital
-----------------------------------------------------------------------
Calendar year 2014................................. 80
Calendar year 2015................................. 70
Calendar year 2016................................. 60
Calendar year 2017................................. 50
Calendar year 2018................................. 40
Calendar year 2019................................. 30
Calendar year 2020................................. 20
Calendar year 2021................................. 10
Calendar year 2022 and thereafter.................. 0
------------------------------------------------------------------------
(d) [Reserved]
(e) Prompt corrective action. For purposes of 12 CFR part 6, a
national bank or Federal savings association must calculate its capital
measures and tangible equity ratio in accordance with the transition
provisions in this section.
(f) A national bank or Federal savings association that is not an
advanced approaches national bank or Federal savings association may
apply the treatment under Sec. Sec. 3.21 and 3.22(c)(2), (5), (6), and
(d)(2) applicable to an advanced approaches national
[[Page 222]]
bank or Federal savings association during the calendar quarter
beginning January 1, 2020. During the quarter beginning January 1, 2020,
a national bank or Federal savings association that makes such an
election must deduct 80 percent of the amount otherwise required to be
deducted under Sec. 3.22(d)(2) and must apply a 100 percent risk weight
to assets not deducted under Sec. 3.22(d)(2). In addition, during the
quarter beginning January 1, 2020, a national bank or Federal savings
association that makes such an election must include in its regulatory
capital 20 percent of any minority interest that exceeds the amount of
minority interest includable in regulatory capital under Sec. 3.21 as
it applies to an advanced approaches national bank or Federal savings
association. A national bank or Federal savings association that is not
an advanced approaches national bank or Federal savings association must
apply the treatment under Sec. Sec. 3.21 and 3.22 applicable to a
national bank or Federal savings association that is not an advanced
approaches national bank or Federal savings association beginning April
1, 2020, and thereafter.
[78 FR 62157, 62273, Oct. 11, 2013, as amended at 82 FR 55315, Nov. 21,
2017; 84 FR 35258, July 22, 2019; 84 FR 61807, Nov. 13, 2019]
Sec. 3.301 Current Expected Credit Losses (CECL) transition.
(a) CECL transition provision criteria. (1) A national bank or
Federal savings association may elect to use a CECL transition provision
pursuant to this section only if the national bank or Federal savings
association records a reduction in retained earnings due to the adoption
of CECL as of the beginning of the fiscal year in which the national
bank or Federal savings association adopts CECL.
(2) A national bank or Federal savings association that elects to
use the CECL transition provision must use the CECL transition provision
in the first Call Report filed by the national bank or Federal savings
association after it adopts CECL.
(3) A national bank or Federal savings association that does not
elect to use the CECL transition provision as of the first Call Report
filed as described in paragraph (a)(2) of this section may not elect to
use the CECL transition provision in subsequent reporting periods.
(b) Definitions. For purposes of this section, the following
definitions apply:
(1) Transition period means the three-year period beginning the
first day of the fiscal year in which a national bank or Federal savings
association adopts CECL.
(2) CECL transitional amount means the decrease net of any DTAs, in
the amount of a national bank's or Federal savings association's
retained earnings as of the beginning of the fiscal year in which the
national bank or Federal savings association adopts CECL from the amount
of the national bank's or Federal savings association's retained
earnings as of the closing of the fiscal year-end immediately prior to
the national bank's or Federal savings association's adoption of CECL.
(3) DTA transitional amount means the increase in the amount of a
national bank's or Federal savings association's DTAs arising from
temporary differences as of the beginning of the fiscal year in which
the national bank or Federal savings association adopts CECL from the
amount of the national bank's or Federal savings association's DTAs
arising from temporary differences as of the closing of the fiscal year-
end immediately prior to the national bank's or Federal savings
association's adoption of CECL.
(4) AACL transitional amount means the difference in the amount of a
national bank's or Federal savings association's AACL as of the
beginning of the fiscal year in which the national bank or Federal
savings association adopts CECL and the amount of the national bank's or
Federal savings association's ALLL as of the closing of the fiscal year-
end immediately prior to the national bank's or Federal savings
association's adoption of CECL.
(5) Eligible credit reserves transitional amount means the increase
in the amount of a national bank's or Federal savings association's
eligible credit reserves as of the beginning of the fiscal year in which
the national bank or Federal savings association adopts CECL from the
amount of the national
[[Page 223]]
bank's or Federal savings association's eligible credit reserves as of
the closing of the fiscal year-end immediately prior to the national
bank's or Federal savings association's adoption of CECL.
(c) Calculation of CECL transition provision. (1) For purposes of
the election described in paragraph (a)(1) of this section, a national
bank or Federal savings association must make the following adjustments
in its calculation of regulatory capital ratios:
(i) Increase retained earnings by seventy-five percent of its CECL
transitional amount during the first year of the transition period,
increase retained earnings by fifty percent of its CECL transitional
amount during the second year of the transition period, and increase
retained earnings by twenty-five percent of its CECL transitional amount
during the third year of the transition period;
(ii) Decrease amounts of DTAs arising from temporary differences by
seventy-five percent of its DTA transitional amount during the first
year of the transition period, decrease amounts of DTAs arising from
temporary differences by fifty percent of its DTA transitional amount
during the second year of the transition period, and decrease amounts of
DTAs arising from temporary differences by twenty-five percent of its
DTA transitional amount during the third year of the transition period;
(iii) Decrease amounts of AACL by seventy-five percent of its AACL
transitional amount during the first year of the transition period,
decrease amounts of AACL by fifty percent of its AACL transitional
amount during the second year of the transition period, and decrease
amounts of AACL by twenty-five percent of its AACL transitional amount
during the third year of the transition period;
(iv) Increase average total consolidated assets as reported on the
Call Report for purposes of the leverage ratio by seventy-five percent
of its CECL transitional amount during the first year of the transition
period, increase average total consolidated assets as reported on the
Call Report for purposes of the leverage ratio by fifty percent of its
CECL transitional amount during the second year of the transition
period, and increase average total consolidated assets as reported on
the Call Report for purposes of the leverage ratio by twenty-five
percent of its CECL transitional amount during the third year of the
transition period;
(2) For purposes of the election described in paragraph (a)(1) of
this section, an advanced approaches national bank or Federal savings
association must make the following additional adjustments to its
calculation of regulatory capital ratios:
(i) Increase total leverage exposure for purposes of the
supplementary leverage ratio by seventy-five percent of its CECL
transitional amount during the first year of the transition period,
increase total leverage exposure for purposes of the supplementary
leverage ratio by fifty percent of its CECL transitional amount during
the second year of the transition period, and increase total leverage
exposure for purposes of the supplementary leverage ratio by twenty-five
percent of its CECL transitional amount during the third year of the
transition period; and
(ii) An advanced approaches national bank or Federal savings
association that has completed the parallel run process and that has
received notification from the OCC pursuant to Sec. 3.121(d) must
decrease amounts of eligible credit reserves by seventy-five percent of
its eligible credit reserves transitional amount during the first year
of the transition period, decrease amounts of eligible credit reserves
by fifty percent of its eligible credit reserves transitional amount
during the second year of the transition provision, and decrease amounts
of eligible credit reserves by twenty-five percent of its eligible
credit reserves transitional amount during the third year of the
transition provision.
(3) An advanced approaches national bank or Federal savings
association that has completed the parallel run process and that has
received notification from the OCC pursuant to Sec. 3.121(d), and whose
amount of expected credit loss exceeded its eligible credit reserves
immediately prior to the adoption of CECL, and that this has an increase
in common equity tier
[[Page 224]]
1 capital as of the beginning of the fiscal year in which it adopts CECL
after including the first year portion of the CECL transitional amount
must decrease its CECL transitional amount used in paragraph (c) of this
section by the full amount of its DTA transitional amount.
(4) Notwithstanding any other requirement in this section, for
purposes of this paragraph, in the event of a business combination
involving a national bank or Federal savings association where one or
both of the national banks or Federal savings associations have elected
the treatment described in this section:
(i) If the acquirer national bank or Federal savings association (as
determined under GAAP) elected the treatment described in this section,
the acquirer national bank or Federal savings association must continue
to use the transitional amounts (unaffected by the business combination)
that it calculated as of the date that it adopted CECL through the end
of its transition period.
(ii) If the acquired insured depository institution (as determined
under GAAP) elected the treatment described in this section, any
transitional amount of the acquired insured depository institution does
not transfer to the resulting national bank or Federal savings
association.
[84 FR 4239, Feb. 14, 2019]
Subpart H_Establishment of Minimum Capital Ratios for an Individual Bank
or Individual Federal Savings Association
Source: 78 FR 62269, Oct. 11, 2013, unless otherwise noted.
Sec. 3.401 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 national bank or Federal savings
association under subpart B of this part. The OCC is authorized under 12
U.S.C. 1464(s)(2) and 3907(a)(2) to establish such minimum capital
requirements for a national bank or Federal savings association as the
OCC, in its discretion, deems appropriate in light of the particular
circumstances at that national bank or Federal savings association.
Proceedings under this subpart also may be initiated to require a
national bank or Federal savings association having capital ratios above
those set forth in subpart B of this part, or other legal authority to
continue to maintain those higher ratios.
Sec. 3.402 Applicability.
The OCC may require higher minimum capital ratios for an individual
national bank or Federal savings association in view of its
circumstances. For example, higher capital ratios may be appropriate
for:
(a) A newly chartered national bank or Federal savings association;
(b) A national bank or Federal savings association receiving special
supervisory attention;
(c) A national bank or Federal savings association that has, or is
expected to have, losses resulting in capital inadequacy;
(d) A national bank or Federal savings association 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 national bank or Federal savings association with significant
exposure to declines in the economic value of its capital due to changes
in interest rates;
(f) A national bank or Federal savings association with significant
exposure due to fiduciary or operational risk;
(g) A national bank or Federal savings association exposed to a high
degree of asset depreciation, or a low level of liquid assets in
relation to short term liabilities;
(h) A national bank or Federal savings association exposed to a high
volume of, or particularly severe, problem loans;
(i) A national bank or Federal savings association that is growing
rapidly, either internally or through acquisitions; or
[[Page 225]]
(j) A national bank or Federal savings association 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.
Sec. 3.403 Standards for determination of appropriate individual
minimum capital ratios.
The appropriate minimum capital ratios for an individual national
bank or 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:
(a) The conditions or circumstances leading to the OCC's
determination that higher minimum capital ratios are appropriate or
necessary for the national bank or Federal savings association;
(b) The exigency of those circumstances or potential problems;
(c) The overall condition, management strength, and future prospects
of the national bank or Federal savings association and, if applicable,
its holding company and/or affiliate(s);
(d) The national bank's or Federal savings association's liquidity,
capital, risk asset and other ratios compared to the ratios of its peer
group; and
(e) The views of the national bank's or Federal savings
association's directors and senior management.
Sec. 3.404 Procedures.
(a) Notice. When the OCC determines that minimum capital ratios
above those set forth in subpart B of this part or other legal authority
are necessary or appropriate for a particular national bank or Federal
savings association, the OCC will notify the national bank or Federal
savings association 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 national bank or Federal savings
association.
(b) Response. (1) The national bank or Federal savings association
may respond to any or all of the items in the notice. The response
should include any matters which the national bank or Federal savings
association would have the OCC consider in deciding whether individual
minimum capital ratios should be established for the national bank or
Federal savings association, 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 national bank or Federal savings association
received the notice. The OCC may shorten the time period when, in the
opinion of the OCC, the condition of the national bank or Federal
savings association so requires, provided that the national bank or
Federal savings association is informed promptly of the new time period,
or with the consent of the national bank or Federal savings association.
In its discretion, the OCC 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 OCC 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 national bank's or Federal
savings association's response period, the OCC will decide, based on a
review of the national bank's or Federal savings association's response
and other information concerning the national bank or Federal savings
association, whether individual minimum capital ratios should be
established for the national bank or Federal savings association and, if
so, the ratios and the date the requirements will become effective. The
national bank or Federal savings association 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 national bank or Federal savings
association.
[[Page 226]]
(d) Submission of plan. The decision may require the national bank
or Federal savings association to develop and submit to the OCC, within
a time period specified, an acceptable plan to reach the minimum capital
ratios established for the national bank or Federal savings association
by the date required.
(e) Change in circumstances. If, after the OCC's decision in
paragraph (c) of this section, there is a change in the circumstances
affecting the national bank's or Federal savings association's capital
adequacy or its ability to reach the required minimum capital ratios by
the specified date, the national bank or Federal savings association may
propose to the OCC, or the OCC may propose to the national bank or
Federal savings association, a change in the minimum capital ratios for
the national bank or Federal savings association, the date when the
minimums must be achieved, or the national bank's or Federal savings
association's plan (if applicable). The OCC 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
OCC's original decision and any plan required under that decision shall
continue in full force and effect.
Sec. 3.405 Relation to other actions.
In lieu of, or in addition to, the procedures in this subpart, the
required minimum capital ratios for a national bank or Federal savings
association 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 for national banks and 12 CFR part 109 for Federal
savings associations) or as a condition for approval of an application.
Subpart I_Enforcement
Source: 78 FR 62269, Oct. 11, 2013, unless otherwise noted.
Sec. 3.501 Remedies.
A national bank or Federal savings association that does not have or
maintain the minimum capital ratios applicable to it, whether required
in subpart B of this part, in a decision pursuant to subpart H 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
national bank or Federal savings association 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 J 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 or Federal savings
association's failure to achieve or maintain minimum capital ratios in
subpart B of this part may also be the basis for an action by the
Federal Deposit Insurance Corporation to terminate Federal deposit
insurance. See 12 CFR part 308, subpart F.
Subpart J_Issuance of a Directive
Source: 78 FR 62269, Oct. 11, 2013, unless otherwise noted.
Sec. 3.601 Purpose and scope.
(a) This subpart is applicable to proceedings by the OCC to issue a
directive under 12 U.S.C. 3907(b)(2) or 12 U.S.C. 1464(s), as
appropriate. A directive is an order issued to a national bank or
Federal savings association that does not have or maintain capital at or
above the minimum ratios set forth in subpart B of this part, or
established for the national bank or Federal savings association under
subpart H of this part, 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 national bank or Federal savings association to:
(1) Achieve the minimum capital ratios applicable to it by a
specified date;
(2) Adhere to a previously submitted plan to achieve the applicable
capital ratios;
(3) Submit and adhere to a plan acceptable to the OCC describing the
means and time schedule by which the national bank or Federal savings
association shall achieve the applicable capital ratios;
[[Page 227]]
(4) 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
(5) A combination of any of these or similar actions.
(b) 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. 3.602 Notice of intent to issue a directive.
The OCC will notify a national bank or Federal savings association
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. 3.603 Response to notice.
(a) A national bank or Federal savings association 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 national bank or Federal savings
association would have the OCC 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 national bank or Federal savings association. The
response must be in writing and delivered to the designated OCC official
within 30 days after the date on which the national bank or Federal
savings association received the notice. The OCC may shorten the 30-day
time period:
(1) When, in the opinion of the OCC, the condition of the national
bank or Federal savings association so requires, provided that the
national bank or Federal savings association shall be informed promptly
of the new time period;
(2) With the consent of the national bank or Federal savings
association; or
(3) When the national bank or Federal savings association already
has advised the OCC that it cannot or will not achieve its applicable
minimum capital ratios.
(b) In its discretion, the OCC may extend the time period for good
cause.
(c) Failure to respond within 30 days or such other time period as
may be specified by the OCC shall constitute a waiver of any objections
to the proposed directive.
Sec. 3.604 Decision.
After the closing date of the national bank's or Federal savings
association's response period, or receipt of the national bank's or
Federal savings association's response, if earlier, the OCC will
consider the national bank's or Federal 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 directive,
and if one is to be issued, whether it should be as originally proposed
or in modified form.
Sec. 3.605 Issuance of a directive.
(a) A directive will be served by delivery to the national bank or
Federal savings association. 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
national bank or Federal savings association, 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 OCC.
Sec. 3.606 Change in circumstances.
Upon a change in circumstances, a national bank or Federal savings
association may request the OCC to reconsider the terms of its directive
or may propose changes in the plan to achieve the national bank's or
Federal savings association's applicable minimum capital ratios. The OCC
also may take such action on its own motion. The OCC may decline to
consider requests or proposals that are not based on a significant
change in circumstances or are repetitive or frivolous. Pending a
[[Page 228]]
decision on reconsideration, the directive and plan shall continue in
full force and effect.
Sec. 3.607 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 OCC
also may, in its discretion, take any action authorized by law, in lieu
of a directive, in response to a national bank's or Federal savings
association's failure to achieve or maintain the applicable minimum
capital ratios.
Subpart K_Interpretations
Source: 78 FR 62272, Oct. 11, 2013, unless otherwise noted.
Sec. 3.701 Capital and surplus.
For purposes of determining statutory limits that are based on the
amount of a national bank's capital and/or surplus, the provisions of
this section are to be used, rather than the definitions of capital
contained in subparts A through J of this part.
(a) Capital. The term capital as used in provisions of law relating
to the capital of national banks 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 banks, 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 banks 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 percent 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 banks 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 national bank other than for capital
stock;
(iii) Amounts transferred from undivided profits pursuant to 12
U.S.C. 60; and
(iv) Other amounts transferred from undivided profits.
(3) Intangible assets means those purchased assets that are to be
reported as intangible assets in accordance with the Instructions--
Consolidated Reports of Condition and Income (Call Report).
(4) Limited life preferred stock means preferred stock which has a
maturity or which may be redeemed at the option of the holder.
(5) Mandatory convertible debt means subordinated debt instruments
which unqualifiedly require the issuer to exchange either common or
perpetual preferred stock for such instruments by a date at or before
the maturity of the instrument. The maturity of these instruments must
be 12 years or less. In addition, the instrument must meet the
requirements of paragraphs (f)(1)(i)
[[Page 229]]
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
national bank that is allocated to minority shareholders of such
subsidiaries.
(7) Mortgage servicing assets means the national 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 national
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 national bank remains an eligible
bank, as defined in 12 CFR 5.3(g), after the prepayment.
(2) Restrictions. The total amount of mandatory convertible debt not
included in paragraph (c)(3) of this section, limited life preferred
stock, and subordinated notes and debentures considered as surplus is
limited to 50 percent of the sum of paragraphs (a) and (c) (1), (2) and
(3) of this section.
(3) Reservation of authority. The OCC expressly reserves the
authority to waive the requirements and restrictions set forth in
paragraphs (f)(1) and (2) of this section, in order to allow the
inclusion of other limited life preferred stock, mandatory convertible
notes and subordinated notes and debentures in the capital base of any
national bank for capital adequacy purposes or for purposes of
determining statutory limits. The OCC further expressly reserves the
authority to impose more stringent conditions than those set forth in
paragraphs (f)(1) and (2) of this section to exclude any component of
tier 1 or tier 2 capital, in whole or in part, as part of a national
bank's capital and surplus for any purpose.
(g) Transitional rules. (1) Equity commitment notes approved by the
OCC as capital and issued prior to April 15, 1985, may continue to be
included in paragraph (c)(3) of this section. All other instruments
approved by the OCC as capital and issued prior to April 15, 1985, are
to be included in paragraph (c)(4) of this section.
(2) Intangible assets (other than mortgage servicing assets)
purchased prior to April 15, 1985, and accounted for in accordance with
OCC instructions, may continue to be included as surplus up to 25
percent of the sum of paragraphs (a) and (c)(1) of this section.
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 Other OCC supervisory 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.
[[Page 230]]
4.13 Publication in the Federal Register.
4.14 Public inspection in an electronic format.
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.
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 of Part 4--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: 5 U.S.C. 301, 552; 12 U.S.C. 1, 93a, 161, 481, 482,
484(a), 1442, 1462a, 1463, 1464 1817(a), 1818, 1820, 1821, 1831m, 1831p-
1, 1831o, 1833e, 1867, 1951 et seq., 2601 et seq., 2801 et seq., 2901 et
seq., 3101 et seq., 3401 et seq., 5321, 5412, 5414; 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; E.O. 12600 (3
CFR, 1987 Comp., p. 235).
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
[[Page 231]]
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 located at 400 7th Street SW., Washington, DC
20219. The OCC's Web site is at http://www.occ.gov.
[76 FR 43561, July 21, 2011, as amended at 79 FR 15641, Mar. 21, 2014]
Sec. 4.5 Other OCC supervisory offices.
(a) Midsize Bank Supervision (MBS). Midsize Bank Supervision is
responsible for supervising midsize national banks and Federal savings
associations that present unique supervisory challenges based on size,
complexity, and/or product line. MBS also supervises credit card and
certain other special purpose banks. MBS is headquartered in Chicago, IL
and located at 1 South Wacker Drive, Suite 2000, Chicago, IL 60606.
(b) 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
pursuant to Sec. 4.4 of this part or Midsize Bank Supervision pursuant
to Sec. 4.5(a). The four district offices cover the United States,
Puerto Rico, the Virgin Islands, Guam, American Samoa, and the Northern
Mariana Islands. The geographical composition of each district follows:
------------------------------------------------------------------------
Geographical
District Office location composition
------------------------------------------------------------------------
Northeastern District.......... Office of the Connecticut,
Comptroller of Delaware, District
the Currency, 340 of Columbia,
Madison Avenue, northeast
5th Floor, New Kentucky, Maine,
York, NY 10173- Maryland,
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 Illinois, Indiana,
Comptroller of central and
the Currency, One southern Kentucky,
Financial Place, Michigan, northern
Suite 2700, 440 and eastern
South LaSalle Minnesota, eastern
Street, Chicago, Missouri, North
IL 60605. Dakota, Ohio, and
Wisconsin.
Southern District.............. Office of the Alabama, Arkansas,
Comptroller of Florida, Georgia,
the Currency, 500 Louisiana,
North Akard Mississippi,
Street, Suite Oklahoma,
1600, Dallas, TX Tennessee, and
75201. Texas.
Western District............... Office of the Alaska, American
Comptroller of Samoa, Arizona,
the Currency, California,
1225 17th Street, Colorado, Guam,
Suite 300, Hawaii, Idaho,
Denver, CO 80202. Iowa, Kansas,
southwestern
Minnesota, western
Missouri, Montana,
Nebraska, Nevada,
New Mexico,
Northern Mariana
Islands, Oregon,
South Dakota,
Utah, Washington,
and Wyoming.
------------------------------------------------------------------------
(c) Field offices and other supervisory offices. Field offices and
other supervisory offices support the bank and savings association
supervision responsibilities of the district offices.
[80 FR 28414, May 18, 2015]
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 $3 billion;
[[Page 232]]
(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 bank or 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.
(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.
[81 FR 10068, Feb. 29, 2016, as amended at 83 FR 43965, Aug. 29, 2018]
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 $3 billion;
(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 paragraph (b)(1)(iii)(A)
or (B) of this section:
(A) The foreign bank's most recently reported capital adequacy
position consists of, or is equivalent to, common equity tier 1, tier 1
and total risk-based capital ratios that satisfy the definition of
``well capitalized'' set forth at 12 CFR 6.4, 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)
[[Page 233]]
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.
[81 FR 10068, Feb. 29, 2016, as amended at 83 FR 43965, Aug. 29, 2018]
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 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.
[60 FR 57322, Nov. 15, 1995, as amended at 76 FR 43561, July 21, 2011;
81 FR 94244, Dec. 23, 2016]
Sec. 4.12 Information available under the FOIA.
(a) General. Except as otherwise provided by the FOIA, OCC and
Office of Thrift Supervision (OTS) records are available to the public.
(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; and, if enacted after the
date of enactment of the OPEN FOIA Act of 2009, specifically cites to 5
U.S.C. 552(b)(3);
(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,
provided that the deliberative process privilege shall not apply to
records created 25 years or more before the date on which the records
were requested;
(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;
[[Page 234]]
(iv) Disclose the identity of a confidential source, including a
State, local, or foreign agency or authority, or any private institution
that furnished information on a confidential basis;
(v) Disclose information furnished by a confidential source, in the
case of a record or information compiled by a criminal law enforcement
authority in the course of a criminal investigation, or by an agency
conducting a lawful national security intelligence investigation;
(vi) Disclose techniques and procedures for law enforcement
investigations or prosecutions, or disclose guidelines for law
enforcement investigations or prosecutions if such disclosure reasonably
could be expected to risk circumvention of the law; or
(vii) Endanger the life or physical safety of any individual;
(8) A record contained in or related to an examination, operating,
or condition report prepared by, on behalf of, or for the use of the OCC
or any other agency responsible for regulating or supervising financial
institutions; and
(9) A record containing or relating to geological and geophysical
information and data, including maps, concerning wells.
(c) Discretionary disclosure of exempt records. Even if a record is
exempt under paragraph (b) of this section, the OCC may elect, on a
case-by-case basis, not to apply the exemption to the requested record.
The OCC's election not 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. If the OCC determines that full disclosure of a
requested record is not possible, the OCC considers whether partial
disclosure of information is possible and takes reasonable steps
necessary to segregate and release nonexempt information. 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; 81 FR 94244, Dec. 23, 2016]
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 in an electronic format.
(a) Available information. Subject to the exemptions listed in Sec.
4.12(b), the OCC makes the following information available for public
inspection in an electronic format:
(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.
---------------------------------------------------------------------------
[[Page 235]]
(8) Any public Community Reinvestment Act performance evaluation;
(9) Any public securities-related filing required under parts 11,
16, 194 or 197 of this chapter;
(10) Any public comment letter regarding a proposed rule;
(11) Any records, regardless of form or format, that have been
released to any person under 5 U.S.C. 552(a)(3) provided that:
(i) The OCC determines that, because of the nature of their subject
matter, the records are or are likely to become the subject of
subsequent requests for substantially the same records; or
(ii) The records have been requested three or more times;
(12) Reference materials or a guide for requesting records or
information from the OCC, including an index of all major OCC
information systems, a description of major information and record
locator systems maintained by the OCC, and a handbook for obtaining
various types and categories of public information from the OCC pursuant
to FOIA and chapter 35 of title 44;
(13) The public file (as defined in 12 CFR 5.9) with respect to a
pending application described in part 5 of this chapter; and
(14) Any OTS information similar to that listed in paragraphs (a)(1)
through (a)(13) 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 information available for public inspection in an
electronic format.
(c) Addresses. The information described in paragraphs (a)(1)
through (14) of this section is available from the Chief FOIA Officer,
Communications Division, Office of the Comptroller of the Currency, 400
7th Street SW., Washington, DC 20219. The information described in
paragraph (a)(13) of this section in the case of both national 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 national banks and Federal savings associations
supervised by the Large Bank Supervision Department, from the Large Bank
Licensing Expert, Licensing Division, Office of the Comptroller of the
Currency, 400 7th Street SW., Washington, DC 20219.
[60 FR 57322, Nov. 15, 1995, as amended at 76 FR 43561, July 21, 2011;
79 FR 15641, Mar. 21, 2014; 81 FR 94244, Dec. 23, 2016]
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 must submit the request or
appeal:
(i) Through the OCC's FOIA Web portal at https://foia-pal.occ.gov/
palMain.aspx;
(ii) Through the consolidated online request portal maintained by
the Office of Management and Budget pursuant to 5 U.S.C. 552(m)(1); or
(iii) Under this section to the Chief FOIA Officer, Communications
Division, Office of the Comptroller of the Currency, 400 7th 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
FDIC, Legal Division, FOIA/PA Group, 550-17th Street NW., Washington, DC
20429, or fax to (703) 562-2797:
(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
[[Page 236]]
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
and notifies the requester, in accordance with the time limits set forth
in paragraph (f) of this section, of the determination and the reasons
therefore and of the right to seek assistance from the OCC's FOIA Public
Liaison.
(3) If request is granted. If the OCC grants a request for records,
in whole or in part, the OCC promptly discloses the records in one of
two ways, depending on the requester's stated preference:
(i) The OCC may deliver a copy of the records to the requester. If
the OCC delivers a copy of the records to the requester, the OCC
duplicates the records at reasonable and proper times that do not
interfere with their use by the OCC or preclude other persons from
making inspections; or
(ii) The OCC may allow the requester to inspect the records at
reasonable and proper times that do not interfere with their use by the
OCC or preclude other persons from making inspections. If the OCC allows
the requester to inspect the records, the OCC may place a reasonable
limit on the number of records that a person may inspect during a day.
(4) If request is denied. If the OCC denies a request for records,
in whole or in part, the OCC will notify the requester in writing. 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, advises the requester of the right to seek dispute
resolution services from the OCC's FOIA Public Liaison or the Office of
Government Information Services, and advises the requester of the right
to appeal to the Comptroller of the Currency 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 90 days after 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 in writing. 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:
[[Page 237]]
(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, 400 7th
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 Saturdays, 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 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.
(4) Requests that require more than a 10-day extension to process.
If the OCC determines unusual circumstances apply to a request for
records, and the OCC determines it cannot respond to the request within
the 10-day extension set forth in paragraph (f)(3)(i) of this section,
the OCC will:
(i) Notify the requester that the request cannot be processed within
the time limit set forth in paragraph (f)(3)(i) of this section;
(ii) Provide the requester with an opportunity to limit the scope of
the request so that it may be processed within that 10-day period or to
arrange with the OCC an alternative time frame for processing the
request or a modified request;
(iii) Make available the FOIA Public Liaison, who shall assist in
the resolution of any disputes between the requester and the OCC; and
(iv) Notify the requester of the right of the requester to seek
dispute resolution services from the Office of Government Information
Services.
(g) Date of receipt of request or appeal. The date of receipt of a
request for
[[Page 238]]
records or an appeal is the date that Disclosure Services,
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).
(h) Dispute resolution services. Requesters with concerns about the
handling of their FOIA requests may contact the FOIA Public Liaison or
the Office of Government Information Services for dispute resolution
services.
(1) To apply for dispute resolution assistance from the FOIA Public
Liaison, requesters should submit a written request to the FOIA Public
Liaison, Communications Division, Office of the Comptroller of the
Currency, 400 7th Street SW., Washington, DC 20219.
(2) For dispute resolution services through the Office of Government
Services, requesters should contact the Office of Government Services as
set forth at 36 CFR 1250.32.
[60 FR 57322, Nov. 15, 1995, as amended at 75 FR 17850, Apr. 8, 2010; 76
FR 43562, July 21, 2011; 79 FR 15641, Mar. 21, 2014; 81 FR 94245, Dec.
23, 2016]
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;
(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
[[Page 239]]
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;
(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.
[[Page 240]]
(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 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.
[[Page 241]]
(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 5 U.S.C. 552(a)(6) and 12 CFR 4.15(f),
except as follows:
(i) Unusual circumstances--(A) General. If the OCC has determined
that unusual circumstances (as defined in 5 U.S.C. 552(a)(6)(B) and
Sec. 4.15(f)(3)(i)) apply and the OCC provides timely written notice to
the requester in accordance with 5 U.S.C. 552(a)(6)(B), the OCC may
assess search or duplication fees, as applicable, for an additional 10
days. If the OCC fails to comply with the extended time limit, the OCC
will not assess any search or duplication fees, as applicable.
(B) Voluminous Requests. Notwithstanding paragraph (b)(6)(i)(A) of
this section, if the OCC has determined that unusual circumstances (as
defined in 5 U.S.C. 552(a)(6)(B) and Sec. 4.15(f)(3)(i)) apply and more
than 5,000 pages are necessary to respond to the request, the OCC may
assess search or duplication fees, as appropriate, if the OCC provides a
timely written notice to the requester in accordance with 5 U.S.C.
552(a)(6)(B) and discusses with the requester via written mail,
electronic mail, or telephone (or makes not less than three good-faith
attempts to do so) how the requester could effectively limit the scope
of the request in accordance with 5 U.S.C. 552(a)(6)(B)(ii).
(ii) In exceptional circumstances. If a court has determined that
exceptional circumstances (as defined in 5 U.S.C. 552(a)(6)(C)) apply to
the processing of a request, the OCC may assess search or duplication
fees, as applicable, for the length of time provided by the court order.
(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 Financial Management, Accounts Receivable, Office of the
Comptroller of the Currency, 400 7th Street SW., Washington, DC 20219.
(2) Fee likely to exceed $25. If the OCC estimates that a fee is
likely to exceed $25, the OCC notifies the requester of the estimated
fee, unless the requester has indicated in advance a willingness to pay
a fee as high as the estimated fee. If so notified by the OCC, the
requester may confer with OCC employees to revise the request to reflect
a lower fee.
(3) Fee likely to exceed $250. If the OCC estimates that a fee is
likely to exceed $250, the OCC notifies the requester of the estimated
fee. In this circumstance, the OCC may require, as a condition to
processing the request, that the requester:
(i) Provide satisfactory assurance of full payment, if the requester
has a history of prompt payment; or
(ii) Pay the estimated fee in full, if the requester does not have a
history of prompt payment.
(4) Failure to pay a fee. If the requester fails to pay a fee within
30 days of the date of the billing, the OCC may require, as a condition
to processing any further request, that the requester pay any unpaid
fee, plus interest (as provided in paragraph (c)(5) of this section),
and any estimated fee in full for that further request.
[[Page 242]]
(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 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; 79
FR 15641, Mar. 21, 2014; 81 FR 94245, Dec. 23, 2016]
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
Division via the OCC's Freedom of Information Request Portal, https://
foia-pal.occ.gov/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 Division. 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://foia-pal.occ.gov/palMain.aspx. Requesters without Internet
access may continue to contact the Chief FOIA Officer, Communications
Division, Office of the Comptroller of the Currency, at (202) 649-6700
to check the status of their FOIA request(s).
[76 FR 43562, July 21, 2011, as amended at 79 FR 15641, Mar. 21, 2014;
80 FR 28414, May 18, 2015; 81 FR 94246, Dec. 23, 2016]
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
[[Page 243]]
party include proceedings in which a Federal agency is a party in
opposition to the private requester.
(2) This subpart does not apply to:
(i) A request for a record or testimony in a proceeding in which the
OCC is a party; or
(ii) A request for a record that is required to be disclosed under
the Freedom of Information Act (FOIA) (5 U.S.C. 552), as described in
Sec. 4.12.
(3) A request for a record or testimony made by the Board of
Governors of the Federal Reserve System, the Federal Deposit Insurance
Corporation, a government agency of the United States or a foreign
government, a state agency with authority to investigate violations of
criminal law, or a state bank 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
[[Page 244]]
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.
(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, 400 7th
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:
[[Page 245]]
(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; 79
FR 15641, Mar. 21, 2014]
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
[[Page 246]]
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 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 former OCC employee or agent 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 former OCC employee or
agent 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 former OCC employee or agent 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 former OCC employee or
agent 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
[[Page 247]]
OCC information under paragraph (b)(2) of this section, may disclose
information covered by this subpart in any manner, except:
(A) After the requester has sought the information from the OCC
pursuant to the procedures set forth in this subpart; and
(B) As ordered by a Federal court in a judicial proceeding in which
the OCC has had the opportunity to appear and oppose discovery.
(ii) Any person who discloses or uses non-public OCC information
except as expressly permitted by the Comptroller of the Currency or as
ordered by a Federal court, under paragraph (b)(1)(i) of this section,
may be subject to the penalties provided in 18 U.S.C. 641.
(2) Exception for national banks 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
[[Page 248]]
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 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
[[Page 249]]
witness any witness fees or mileage due in accordance with 28 U.S.C.
1821.
[60 FR 57322, Nov. 15, 1995. Redesignated at 63 FR 62929, Nov. 10, 1998]
Sec. Appendix A to Subpart C of Part 4--Model Stipulation for Protective
Order and Model Protective Order
I. Model Stipulation
CASE CAPTION
Model Stipulation for Protective Order
Whereas, counsel for ______ have applied to the Comptroller of the
Currency (hereinafter ``Comptroller'') pursuant to 12 CFR part 4,
Subpart C, for permission to have made available, in connection with the
captioned action, certain records; and
Whereas, such records are deemed by the Comptroller to be
confidential and privileged, pursuant to 12 U.S.C. 481, 1463(a)(1),
1464(a)(1) and 1464(d)(1)(B)(i); 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, 1463(a)(1),
1464(a)(1) and 1464(d)(1)(B)(i); 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,
[[Page 250]]
the name of any person or entity contained on any page of the records
who is not a party to this action, or whose name is not otherwise
relevant or material to the action, shall be blocked out prior to the
admission of such page into evidence. Any disagreement regarding what
portion of any page that should be blocked out in this manner shall be
resolved by the Court in camera, and the Court shall decide its
admissibility into evidence.
7. At the conclusion of this action, all parties shall certify to
the Comptroller that the records covered by this Order have been
destroyed. Furthermore, counsel for ______, pursuant to 12 CFR 4.39(c),
shall retrieve any records covered by this Order that may have been
filed with the Court.
So Ordered:
________________________________________________________________________
Judge
Date
[60 FR 57322, Nov. 15, 1995, as amended at 64 FR 29217, June 1, 1999]
Subpart D_Minority- , Women- , and Individuals With Disabilities-Owned
Business Contracting Outreach Program; Contracting for Goods and
Services
Sec. 4.61 Purpose.
Pursuant to the Financial Institutions Reform, Recovery, and
Enforcement Act of 1989, Sec. 1216(c), Pub. L. 101-73, 103 Stat. 183,
529 (12 U.S.C. 1833e(c)) and consistent with the Rehabilitation Act of
1973, as amended (29 U.S.C. 701 et seq.), this subpart establishes the
OCC Minority- , Women- , and Individuals with Disabilities-Owned
Business Contracting Outreach Program (Outreach Program). The Outreach
Program is intended to ensure that firms owned and operated by
minorities, women, and individuals with disabilities have the
opportunity to participate, to the maximum extent possible, in all
contracting activities of the OCC.
Sec. 4.62 Definitions.
(a) Minority- and/or women-owned (small and large) businesses and
entities owned by minorities and women (MWOB) means firms at least 51
percent unconditionally-owned by one or more members of a minority group
or by one or more women who are citizens of the United States. In the
case of publicly-owned companies, at least 51 percent of each class of
voting stock must be unconditionally-owned by one or more members of a
minority group or by one or more women who are citizens of the United
States. In the case of a partnership, at least 51 percent of the
partnership interest must be unconditionally-owned by one or more
members of a minority group or by one or more women who are citizens of
the United States. Additionally, for the foregoing cases, the management
and daily business operations must be controlled by one or more such
individuals.
(b) Minority means any African American, Native American (i.e.,
American Indian, Eskimo, Aleut and Native Hawaiian), Hispanic American,
Asian-Pacific American, or Subcontinent-Asian American.
(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
[[Page 251]]
the currently contagious disease or infection, is unable to perform the
duties of the job as defined by the IDOB.
(e) Unconditional ownership means ownership that is not subject to
conditions or similar arrangements which cause the benefits of the
Outreach Program to accrue to persons other than the participating MWOB
or IDOB.
Sec. 4.63 Policy.
The OCC's policy is to ensure that MWOBs and IDOBs have the
opportunity to participate, to the maximum extent possible, in contracts
awarded by the OCC. The OCC awards contracts consistent with the
principles of full and open competition and best value acquisition, and
with the concept of contracting for agency needs at the lowest
practicable cost. The OCC ensures that MWOBs and IDOBs have the
opportunity to participate fully in all contracting activities that the
OCC enters into for goods and services, whether generated by the
headquarters office in Washington, DC, or any other office of the OCC.
Contracting opportunities may include small purchase awards, contracts
above the small purchase threshold, and delivery orders issued against
other governmental agency contracts.
Sec. 4.64 Promotion.
(a) Scope. The OCC, under the direction of the Deputy Comptroller
for Resource Management, engages in promotion and outreach activities
designed to identify MWOBs and IDOBs capable of providing goods and
services needed by the OCC, to facilitate interaction between the OCC
and the MWOBs and IDOBs community, and to indicate the OCC's commitment
to doing business with that community. The Outreach Program is designed
to facilitate OCC's participation in business promotion events sponsored
by other government agencies and attended by minorities, women and
individuals with disabilities. Once the OCC has identified a prospective
participant, it will assist the minority- or women-owned business or
individual with disabilities-owned business in understanding the OCC's
needs and contracting process.
(b) Outreach activities. OCC's Outreach Program includes the
following:
(1) Obtaining various lists and directories of MWOBs and IDOBs
maintained by government agencies;
(2) Contacting appropriate firms for participation in the OCC's
Outreach Program;
(3) Participating in business promotion events comprised of or
attended by MWOBs and IDOBs to explain OCC contracting opportunities and
to obtain names of potential MWOBs and IDOBs;
(4) Ensuring that the OCC contracting staff understands and actively
promotes this Outreach Program; and
(5) Registering MWOBs and IDOBs in the Department of the Treasury's
database to facilitate their participation in the competitive
procurement process for OCC contracts. This database is 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
[[Page 252]]
(2) Self-certifying IDOB ownership status by filing with the OCC a
completed and signed certification as prescribed in the Federal
Acquisition Regulation, 48 CFR 53.301-129, and adding an additional
certifying statement to read as follows:
I certify that I am an individual with disabilities as defined in 12
CFR 4.62(d), and that my firm, (Name of Firm) qualifies as an individual
with disabilities-owned business as defined in 12 CFR 4.62(c).
Sec. 4.66 Oversight and monitoring.
The Deputy Comptroller for Resource Management shall appoint an
Outreach Program Manager, who shall appoint an Outreach Program
Specialist. The Outreach Program Manager is primarily responsible for
program advocacy, oversight and monitoring.
Subpart E_One-Year Restrictions on Post-Employment Activities of Senior
Examiners
Source: 70 FR 69637, Nov. 17, 2005, unless otherwise noted.
Sec. 4.72 Scope and purpose.
This subpart describes those OCC examiners who are subject to the
post-employment restrictions set forth in section 10(k) of the Federal
Deposit Insurance Act (FDI Act) (12 U.S.C. 1820(k)) and implements those
restrictions for officers and employees of the OCC.
Sec. 4.73 Definitions.
For purposes of this subpart:
Bank holding company means any company that controls a bank (as
provided in section 2 of the Bank Holding Company Act of 1956 (12 U.S.C.
1841 et seq.)).
Consultant. For purposes of this subpart, a consultant for a
national bank, 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, savings and loan 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;
(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
[[Page 253]]
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]
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.
[76 FR 43564, July 21, 2011]
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.
[76 FR 43564, July 21, 2011]
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.
(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]
[[Page 254]]
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 Filing 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 national bank or Federal savings association.
5.21 Federal mutual savings association charter and bylaws.
5.22 Federal stock savings association charter and bylaws.
5.23 Conversion to become a Federal savings association.
5.24 Conversion to become a national bank.
5.25 Conversion from a national bank or Federal savings association to a
state bank or state savings association.
5.26 Fiduciary powers of national banks and Federal savings
associations.
Subpart C_Expansion of Activities
5.30 Establishment, acquisition, and relocation of a branch of a
national bank.
5.31 Establishment, acquisition, and relocation of a branch and
establishment of an agency office of a Federal savings
association.
5.32 Expedited procedures for certain reorganizations of a national
bank.
5.33 Business combinations involving a national bank or Federal savings
association.
5.34 Operating subsidiaries of a national bank.
5.35 Bank service company investments by a national bank or Federal
savings association investment.
5.36 Other equity investments by a national bank.
5.37 Investment in national bank or Federal savings association
premises.
5.38 Operating subsidiaries of a Federal savings association.
5.39 Financial subsidiaries of a national bank.
Subpart D_Other Changes in Activities and Operations
5.40 Change in location of a main office of a national bank or home
office of a Federal savings association.
5.42 Corporate title of a national bank or Federal savings association.
5.45 Increases in permanent capital of a Federal stock savings
association.
5.46 Changes in permanent capital of a national bank.
5.47 Subordinated debt issued by a national bank.
5.48 Voluntary liquidation of a national bank or Federal savings
association.
5.50 Change in control of a national bank or Federal savings
association; reporting of stock loans.
5.51 Changes in directors and senior executive officers of a national
bank or Federal savings association.
5.52 Change of address of a national bank or Federal savings
association.
5.53 Substantial asset change by a national bank or Federal savings
association.
5.55 Capital distributions by Federal savings associations.
5.56 Inclusion of subordinated debt securities and mandatorily
redeemable preferred stock as Federal savings association
supplementary (tier 2) capital.
5.58 Pass-through investments by a Federal savings association.
5.59 Service corporations of Federal savings associations.
Subpart E_Payment of Dividends by National Banks
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., 24a, 93a, 215a-2, 215a-3, 481,
1462a, 1463, 1464, 2901 et seq., 3907, and 5412(b)(2)(B).
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
[[Page 255]]
Comptroller of the Currency (OCC) for corporate activities and
transactions involving national banks and Federal savings associations.
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.
[80 FR 28414, May 18, 2015]
Subpart A_Rules of General Applicability
Source: 80 FR 28414, May 18, 2015, unless otherwise noted.
Sec. 5.2 Rules of general applicability.
(a) In 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) Comptroller's Licensing Manual. The ``Comptroller's Licensing
Manual'' provides additional filing guidance, including policies and
procedures. This Manual and sample forms are available on the OCC's
Internet Web page at www.occ.gov.
(d) Electronic filing. The OCC encourages electronic filing for all
filings. The Comptroller's Licensing Manual describes the OCC's
electronic filing procedures.
Sec. 5.3 Definitions.
As used in this part:
(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 OCC licensing office means the OCC office that is
responsible for processing applications or notices to engage in various
corporate activities or transactions, as described at www.occ.gov.
(d) Appropriate OCC supervisory office means the OCC office that is
responsible for the supervision of a national bank or Federal savings
association, as described in subpart A of 12 CFR part 4.
(e) Capital and surplus means:
(1) For qualifying community banking organizations that have elected
to use the community bank leverage ratio framework, as set forth under
the OCC's Capital Adequacy Standards at part 3 of this chapter:
(i) A qualifying community banking organization's tier 1 capital, as
used under Sec. 3.12 of this chapter; plus
(ii) A qualifying community banking organization's allowance for
loan and lease losses or adjusted allowances for credit losses, as
applicable, as reported in the national bank's or Federal savings
association's Consolidated Report of Condition and Income (Call Report);
or
(2) For all other national banks and Federal savings associations:
(i) A national bank's or Federal savings association's tier 1 and
tier 2 capital calculated under the OCC's risk-based capital standards
set forth in part 3 of this chapter, as applicable, as reported in the
Call Report; plus
(ii) The balance of the national bank's or Federal savings
association's allowance for loan and lease losses or adjusted allowances
for credit losses, as applicable, not included in the institution's tier
2 capital, for purposes of the calculation of risk-based capital
described in paragraph (e)(2)(i) of this section, as reported in the
Call Report.
(f) Depository institution means any bank or savings association.
(g) Eligible bank or eligible savings association means a national
bank or Federal savings association that:
(1) Is well capitalized as defined in 12 CFR 6.4;
(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,'' if applicable;
(4) Has a consumer compliance rating of 1 or 2 under the Uniform
Interagency
[[Page 256]]
Consumer Compliance Rating System; and
(5) 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 or savings
association may be treated as an ``eligible bank or eligible savings
association'' for purposes of this part.
(h) Eligible depository institution means:
(1) With respect to a national bank, a state bank or a Federal or
state savings association that meets the criteria for an ``eligible bank
or eligible savings association'' under Sec. 5.3(g) and is FDIC-
insured; and
(2) With respect to a Federal savings association, a state or
national bank or a state savings association that meets the criteria for
an ``eligible bank or eligible savings association'' 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, in general, means a submission notifying the OCC that a
national bank or Federal savings association intends to engage in or has
commenced certain corporate activities or transactions. The specific
meaning of notice depends on the context of the rule in which it is used
and may require the filer to obtain prior OCC approval before engaging
in the activity or transaction, may provide the OCC with authority to
disapprove the notice, or may be informational requiring no official OCC
action.
(k) Principal city means an area designated as a ``principal city''
by the Office of Management and Budget.
(l) Short-distance relocation means moving the premises of a branch
or main office of a national bank or a branch or home office of a
Federal savings association within a:
(1) One thousand foot-radius of the site if the branch, main office,
or home office is located within a principal city of an MSA;
(2) One-mile radius of the site if the branch, main office, or home
office is not located within a principal city, but is located within an
MSA; or
(3) Two-mile radius of the site if the branch, main office, or home
office is not located within an MSA.
[80 FR 28414, May 18, 2015, as amended at 84 FR 4240, Feb. 14, 2019; 84
FR 61793, Nov. 13, 2019; 84 FR 69297, Dec. 18, 2019]
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. Forms and instructions for filing are
available on the OCC's Internet Web page at www.occ.gov.
(c) Other agency's applications or filings. At the request of the
applicant, the OCC may accept an application 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 also may 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 appropriate OCC licensing office or
appropriate OCC supervisory office, unless the OCC advises an applicant
otherwise. Relevant addresses are listed on the OCC's Internet Web page
at www.occ.gov.
(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.
(f) Prefiling meeting. When submitting an application to the OCC, an
applicant is encouraged to contact the appropriate OCC licensing office
to determine the need for a prefiling meeting. The OCC decides whether
to require a prefiling meeting on a case-by-case basis. Submission of a
draft business plan or other relevant information before any prefiling
meeting may expedite the filing review process. Information on model
business plans can be
[[Page 257]]
found in the Comptroller's Licensing Manual.
Sec. 5.5 Filing fees.
(a) Procedure. An applicant shall submit the appropriate filing fee,
if any, in connection with its filing. Filing fees may be paid by check,
money order, cashier's check, or wire transfer. Additional information
on filing fees, including where to file, can be found in the
Comptroller's Licensing Manual. The OCC generally does not refund the
filing fees.
(b) Fee schedule. The OCC publishes a fee schedule in the ``Notice
of Comptroller of the Currency Fees,'' as described in 12 CFR 8.8.
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. As described in 12 CFR 8.6, the OCC may assess fees for
investigations or examinations conducted under paragraph (a) of this
section. The OCC publishes a fee schedule in the ``Notice of Comptroller
of the Currency Fees,'' as described in 12 CFR 8.8.
Sec. 5.8 Public notice.
(a) In 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. This notice
shall be published in the English language but 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
an additional notice(s) simultaneously be published in the community in
the appropriate language(s).
(b) Contents of the public notice. The public notice shall state
that a filing is being made, the date of the filing, the name and
address of the applicant, the subject matter of the filing (including
the name of the institution that is the subject of the filing), that the
public may submit comments to the appropriate OCC licensing office, the
address of the appropriate OCC licensing office where comments should be
sent, the closing date of the public comment period (if known at the
time of publication of the notice), that the public portion of the
filing is available on request, that the public may find information
about the filing (including the closing date of the comment period) in
the OCC's Weekly Bulletin available at www.occ.gov, and any other
information that the OCC requires.
(c) Confirmation of public notice. Promptly following publication,
the applicant shall mail or otherwise deliver to the appropriate OCC
licensing office 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.
(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 a public notice requirement of both the OCC
and 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.
(g) New public notice. At the OCC's discretion, an applicant may be
required to publish a new public notice if:
(1) The applicant submits either a revised filing or new or
additional information related to a filing;
(2) A major issue of law or change in circumstance arises after a
filing; or
[[Page 258]]
(3) The OCC determines that a new public notice is appropriate.
[80 FR 28414, May 18, 2015, as amended at 82 FR 8103, Jan. 23, 2017]
Sec. 5.9 Public availability.
(a) In general. The OCC provides a copy of the public file to any
person who requests it. A requestor should submit a written request for
the public file concerning a pending filing to the appropriate OCC
licensing office. A requestor should submit a written request for the
public file concerning a decided or closed filing to the OCC's Freedom
of Information Act Officer, Communications Division, at the address
listed on www.occ.gov. The OCC may impose a fee in accordance with 12
CFR 4.17 and at the rate the OCC publishes 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 confidential. If a submitter requests confidential treatment
for information that the OCC does not consider to be confidential, the
OCC may include that information in the public file after providing
notice to the submitter. Moreover, at its own initiative, the OCC may
determine that certain information should be treated as confidential and
withhold that information from the public file. A person requesting
information withheld from the public file should submit the request to
the OCC's Freedom of Information Act 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 OCC licensing
office.
(b) Comment period--(1) In general. Unless otherwise stated, the
comment period is 30 days after publication of the public notice
required by Sec. 5.8(a). If a new public notice is required under Sec.
5.8(g), the OCC may require a new comment period of up to 30 days after
publication of the new public notice.
(2) Extension. The OCC may extend a 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 OCC 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.
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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 decision-making 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. The OCC may limit the issues
considered at a hearing to those it determines are relevant or material.
(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 OCC licensing office of his
or her intent to participate in the hearing within 10 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 OCC licensing
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) Hearing transcripts. The OCC arranges for a hearing transcript.
The person requesting the hearing may be required to bear the cost of
one copy of the transcript for his or her use.
(g) Conduct of the hearing--(1) Presentations. Subject to the
rulings of the presiding officer, the applicant and participants may
make opening statements and present witnesses, material, and data.
(2) Information submitted. A person presenting documentary material
shall furnish one copy to the OCC and one copy to the applicant and each
participant.
(3) Laws not applicable to hearings. The Administrative Procedure
Act (5 U.S.C. 551 et seq.), the Federal Rules of Evidence (28 U.S.C.
appendix), the Federal Rules of Civil Procedure (28 U.S.C. Rule 1 et
seq.), and the OCC's Rules of Practice and Procedure (12 CFR part 19) do
not apply to hearings under this section.
(h) Closing the hearing record. At the applicant's or participant's
request, the OCC may keep the hearing record open for up to 14 days
following the OCC's receipt of the transcript. The OCC resumes
processing the filing after the record closes.
(i) Other meetings--(1) Public meetings. The OCC may arrange for a
public meeting in connection with an application, either upon receipt
during the comment period of a written request for such a meeting or
upon the OCC's own initiative, if the OCC finds that written submissions
are insufficient to address facts or issues raised in the application or
otherwise determines that a meeting will benefit the decision-making
process. 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 clarify and narrow the issues
and to facilitate the resolution of the issues.
(3) Issues at meetings. The OCC may limit the issues considered at a
meeting to those it determines are relevant or material.
(4) Meeting format. The OCC may conduct a meeting in the format that
it determines is appropriate, including a telephone conference, a face-
to-face meeting, or a more formal meeting.
Sec. 5.12 Computation of time.
In computing the period of days, the OCC does not include the day of
the act or event (e.g., the date an application is received by the OCC)
from which the period begins to run. 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.
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Sec. 5.13 Decisions.
(a) In general. The OCC may approve, conditionally approve, or deny
a filing after appropriate review and consideration of the record. In
reviewing a filing, the OCC may consider the activities, resources, or
condition of an affiliate of the applicant that may reasonably reflect
on or affect the applicant. It also 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.
(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 and eligible
savings associations expedited review within a specified time after
filing or commencement of the public comment period.
(i) The OCC may extend the expedited review period or remove a
filing from expedited review procedures if it 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 or eligible savings
association under expedited review pursuant to this paragraph.
(ii) 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 paragraph (a)(2)(i) 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.
(iii) If a bank or savings association 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 or savings association that the
filings are not eligible for expedited review under the standards in
paragraph (a)(2)(i) 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.
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(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 in
writing with the Deputy Comptroller for Licensing or with the Ombudsman
at the address listed on www.occ.gov. In the event that 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 or the
Ombudsman.
(g) Extension of time. When the OCC approves or conditionally
approves a filing, the OCC generally gives the applicant a specified
period of time to commence that new or expanded activity. The OCC does
not generally grant an extension of the time specified to commence a new
or expanded corporate activity approved under this part, unless the OCC
determines that the delay is beyond the applicant's control.
(h) Nullifying a decision--(1) Material misrepresentation or
omission. An applicant shall certify that any filing or supporting
material submitted to the OCC contains no material misrepresentations or
omissions. The OCC may review and verify any information filed in
connection with a notice or an application. If the OCC discovers a
material misrepresentation or omission after the OCC has rendered a
decision on the filing, the OCC may nullify its decision. Any person
responsible for any material misrepresentation or omission in a filing
or supporting materials may be subject to enforcement action and other
penalties, including criminal penalties provided in 18 U.S.C. 1001.
(2) Other nullifications. The OCC may nullify any decision on a
filing that is:
(i) Contrary to law, regulation, or OCC policy thereunder; or
(ii) Granted due to clerical or administrative error, or a material
mistake of law or fact.
Subpart B_Initial Activities
Sec. 5.20 Organizing a national bank or Federal savings association.
(a) Authority. 12 U.S.C. 21, 22, 24(Seventh), 26, 27, 92a, 93a,
1814(b), 1816, 1462a, 1463, 1464, 2903, and 5412(b)(2)(B).
(b) Licensing requirements. Any person desiring to establish a
national bank or a Federal savings association shall submit an
application and obtain prior OCC approval. An existing national bank or
Federal savings association desiring to change the purpose of its
charter 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 or a Federal stock or mutual savings association,
including a national bank or a Federal savings association with a
special purpose. Information regarding an application to establish an
interim national bank or an interim Federal savings association solely
to facilitate a business combination is set forth in Sec. 5.33. This
section also describes the requirements for an existing national bank or
Federal savings association to change the purpose of its charter and
refers such institutions to Sec. 5.53 for the procedures to follow.
(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
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companies, and to providing correspondent banking services at the
request of other depository institutions or their holding companies.
(2) Control means with respect to an application to establish a
national bank, control as used in section 2 of the Bank Holding Company
Act, 12 U.S.C. 1841(a)(2), and with respect to an application to
establish a Federal savings association, control as used in section 10
of the Home Owners' Loan Act, 12 U.S.C. 1467a(a)(2).
(3) Final approval means the OCC action issuing a charter and
authorizing a national bank or Federal savings association to open for
business.
(4) Holding company means any company that controls or proposes to
control a national bank or a Federal savings association 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), or a savings and loan holding
company under section 10 of the Home Owners' Loan Act, 12 U.S.C. 1467a.
(5) Lead depository institution means the largest depository
institution controlled by a bank holding company or savings and loan
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) Institution means either a national bank or Federal savings
association.
(7) 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 or Federal savings association
charter.
(8) Preliminary approval means a decision by the OCC permitting an
organizing group to go forward with the organization of the proposed
national bank or Federal savings association. A preliminary approval
generally is subject to certain conditions that an applicant must
satisfy before the OCC will grant final approval.
(e) Requirements--(1) In general. (i) 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 national bank must
include the word ``national.''
(ii) The OCC charters a Federal savings association under the
authority of section 5 of the Home Owners' Loan Act, 12 U.S.C. 1464,
which in an application to establish a Federal savings association
requires the OCC to consider:
(A) Whether the applicants are persons of good character and
responsibility;
(B) Whether a necessity exists for the association in the community
to be served;
(C) Whether there is a reasonable probability of the association's
usefulness and success; and
(D) Whether the association can be established without undue injury
to properly conducted existing local savings associations and home
financing institutions.
(iii) In determining whether to approve an application to establish
a national bank or Federal savings association, the OCC verifies that
the proposed national bank or Federal savings association has complied
with the following requirements. A national bank or a Federal savings
association shall:
(A) File either articles of association (for a national bank), or a
charter and by-laws (for a Federal savings association) with the OCC;
(B) In the case of an application to establish a national bank, file
an organization certificate containing specified information with the
OCC;
(C) Ensure that all capital stock is paid in, or in the case of a
Federal mutual savings association, ensure that at least a minimum
amount of capital is paid in; and
(D) Have at least five elected directors.
(2) Community Reinvestment Act. (i) Twelve CFR part 25 requires the
OCC
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to take into account a proposed insured national bank's description of
how it will meet its CRA objectives.
(ii) Twelve CFR part 195 requires the OCC to take into account a
proposed insured Federal savings association description of how it will
meet its CRA objectives.
(3) Federal Deposit Insurance. Preliminary approval for an
application to establish a Federal savings association will be
conditioned on the savings association applying for and receiving
approval for deposit insurance from the Federal Deposit Insurance
Corporation (FDIC). Final approval for an application to establish a
Federal savings association will not be issued until receipt by the OCC
of written confirmation by the FDIC that the accounts of the Federal
savings association will be insured by the FDIC.
(f) Policy--(1) In general. In determining whether to approve an
application to establish a national bank or Federal savings association,
the OCC is guided by the following principles:
(i) Maintaining a safe and sound banking system;
(ii) Encouraging a national bank or Federal savings association to
provide fair access to financial services by helping to meet the credit
needs of its entire community;
(iii) Ensuring compliance with laws and regulations; and
(iv) Promoting fair treatment of customers including efficiency and
better service.
(2) Policy considerations. (i) In evaluating an application to
establish a national bank or Federal savings association, the OCC
considers whether the proposed institution:
(A) Has organizers who are familiar with national banking laws and
regulations or Federal savings association laws and regulations,
respectively;
(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;
(E) Will be operated in a safe and sound manner; and
(F) Does not have a title that misrepresents the nature of the
institution or the services it offers.
(ii) In evaluating an application to establish a Federal savings
association, the OCC considers whether the proposed Federal savings
association will be operated as a qualified thrift lender under section
10(m) of the Home Owners' Loan Act, 12 U.S.C. 1467a(m).
(iii) 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
institution's corporate powers are consistent with the purposes of the
Federal Deposit Insurance Act, the National Bank Act, and the Home
Owners' Loan Act, as applicable.
(3) OCC evaluation. The OCC evaluates a proposed institution'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) In 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
institution's affairs in a safe and sound manner. The institution'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
national bank or Federal savings association in the economic and
competitive conditions of the market to be served. Each organizer should
be knowledgeable about the 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.
[[Page 264]]
(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 national bank or Federal savings association
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
institution commences business, or longer as appropriate.
(3) Financial resources. (i) Each organizer must have a history of
responsibility, personal honesty, and integrity. Personal wealth is not
a prerequisite to become an organizer or director of a national bank or
Federal savings association. However, directors' stock purchases, or, in
the case of a Federal mutual savings association, capital contributions,
individually and in the aggregate, should reflect a financial commitment
to the success of the institution that is reasonable in relation to
their individual and collective financial strength. A director should
not have to depend on institution dividends, fees, or other compensation
to satisfy financial obligations.
(ii) Because directors are often the primary source of additional
capital for an institution not affiliated with a holding company, it is
desirable that the proposed directors of the national bank or Federal
savings association, as a group, be able to supply or have a realistic
plan to enable the institution to obtain capital when needed.
(iii) Any financial or other business arrangement, direct or
indirect, between the organizing group or other insiders and the
proposed national bank or Federal savings association must be on
nonpreferential terms.
(4) Organizational expenses. (i) Organizers are expected to
contribute time and expertise to the organization of the national bank
or Federal savings association. Organizers should not bill excessive
charges to the institution for professional and consulting services or
unduly rely upon these fees as a source of income.
(ii) A proposed national bank or Federal savings association 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 institution'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) In general. (i) Organizers
of a proposed national bank or Federal savings association 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. In the case of a proposed Federal savings
association the plan must also specifically address meeting qualified
thrift lender requirements. 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
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on the organizing group's ability to operate a successful institution.
(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 institution commences business.
(4) Capital. A proposed bank or Federal savings association must
have sufficient initial capital, net of any organizational expenses that
will be charged to the institution's capital after it begins operations,
to support the institution's projected volume and type of business.
(5) Community service. (i) The business plan or operating plan must
indicate the organizing group's knowledge of and plans for serving the
community. The organizing group shall evaluate the banking needs of the
community, including its consumer, business, nonprofit, and government
sectors. The business plan or operating plan must demonstrate how the
proposed national bank or Federal savings association responds to those
needs consistent with the safe and sound operation of the institution.
The provisions of this paragraph may not apply to an application to
organize an institution 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 national bank or Federal savings association, 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, applicable depository institution
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 powers. The business plan or operating plan must
indicate if the proposed institution intends to exercise fiduciary
powers. 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 or
Federal savings association before the organizers file an application.
Organizers should be familiar with the OCC's chartering policy and
procedural requirements in the Comptroller's Licensing 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 national bank or Federal savings association, 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.
[[Page 266]]
(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 or Federal savings association 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 Federal savings association becomes a legal entity
after it has filed its proposed charter and bylaws with the OCC. 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 paragraph (i)(5)(iii) of this
section. A proposed Federal stock savings association may offer and sell
securities prior to OCC preliminary approval of the proposed Federal
stock savings association's charter application, provided that the
proposed Federal stock savings association has filed a proposed charter,
bylaws, and a completed charter application and the Federal stock
savings association complies with paragraph (i)(5)(iii) of this section.
(ii)(A) After the OCC grants preliminary approval, the organizing
group shall elect a board of directors, take steps necessary to organize
the proposed national bank or Federal savings association and prepare it
for commencing business.
(B) A proposed national bank may not conduct the business of banking
until the OCC grants final approval and issues a charter. A proposed
Federal savings association may not commence business until the OCC
grants final approval and issues a charter, which shall be in the form
provided in this part.
(iii) For all capital obtained through a public offering a proposed
national bank or Federal savings association shall use an offering
circular that complies with the OCC's securities offering regulations,
12 CFR part 16 or part 197, as applicable. All securities of a
particular class in the initial offering shall be sold at the same
price.
(iv) A national bank or Federal savings association in organization
shall raise its capital before it commences business. Preliminary
approval expires if the proposed national bank or Federal savings
association does not raise the required capital within 12 months from
the date the OCC grants preliminary approval. Preliminary approval
expires if the proposed national bank or Federal savings association
does not commence business within 18 months from the date of preliminary
approval, unless the OCC grants an extension. If preliminary approval
expires, all cash collected on subscriptions shall be returned.
(j) Expedited review. An application to establish a full-service
national bank or Federal savings association that is sponsored by a bank
holding company or savings and loan holding company whose lead
depository institution is an eligible bank or eligible savings
association 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
[[Page 267]]
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 or Federal savings association may
invest up to 10 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 institutions--(1) In general. An applicant for a
national bank or Federal savings association 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 or Federal savings association
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. A national bank that seeks to
invest in a bank or savings association with a community development
focus must comply with applicable requirements of 12 CFR part 24. A
Federal savings association that seeks to invest in a bank or savings
association with a community development focus must comply with Sec.
160.36 or any other applicable requirements.
(2) Changes in charter purpose. An existing national bank or Federal
savings association whose activities are limited to a special purpose
that desires to change to another special purpose, to add another
special purpose, or to no longer be limited to a special purpose charter
shall submit an application and obtain prior OCC approval under Sec.
5.53. An existing national bank or Federal savings association whose
activities are not limited that desires to limit its activities and
become a special purpose institution shall submit an application and
obtain prior OCC approval under Sec. 5.53.
[80 FR 28418, May 18, 2015, as amended at 82 FR 8103, Jan. 23, 2017]
Sec. 5.21 Federal mutual savings association charter and bylaws.
(a) Authority. 12 U.S.C. 1462a, 1463, 1464, and 2901 et seq.
(b) Licensing requirements. A Federal mutual savings association
must file an application, notice, or other filing as prescribed by this
section when adopting or amending its charter or bylaws.
(c) Scope. This section describes the procedures and requirements
governing charters and bylaws for Federal mutual savings associations.
(d) Exceptions to rules of general applicability. Notwithstanding
any other provision of this part, Sec. Sec. 5.8 through 5.11 shall not
apply to this section.
(e) Charter form. Except as provided in paragraphs (f) and (g) of
this section, a Federal mutual savings association shall have a charter
in the following form. 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,
[[Page 268]]
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 1,000
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 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:_________________________________________________________
(f) Charter amendments. 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 (f)(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.
(g) Approval. Any charter amendment filed pursuant to paragraph
(f)(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 (f)(2)(i) of this section. In addition,
notwithstanding anything in paragraph (f) of this section to the
contrary, the following charter amendments, including the adoption of
the Federal mutual charter as set forth in paragraph (e) of this
section, shall be
[[Page 269]]
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 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. 5.42 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. 5.40.
(4) Maximum number of votes. A Federal mutual savings association
may amend its charter by substituting any number of votes per member
between 1 and 1000 in section 6.
(h) 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 paragraph (e) of this section, together with such
supporting documents as may be needed to demonstrate that the amendments
were properly adopted.
(i) Availability of chartering documents. A Federal mutual 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.
(j) Bylaws for Federal mutual savings associations--(1) In general.
A Federal mutual savings association shall operate under bylaws that
contain provisions that comply with all requirements specified by the
OCC in this paragraph and that are not otherwise inconsistent with the
provisions of this paragraph, the association's charter, and all other
applicable laws, rules, and regulations provided that, a bylaw provision
inconsistent with the provisions of this paragraph 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 270]]
(2) Requirements. The following requirements are applicable to
Federal mutual savings associations:
(i) Annual meetings of members. (A) 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 at any 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.
(B) 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.
(ii) 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 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 paragraph, ``voting
capital'' means FDIC-insured deposits as of the voting record date.
(iii) 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. 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.
(iv) Fixing of record date. 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.
(v) 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.
(vi) 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. 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.
(vii) Communications between members. Provisions relating to
communications between members shall be consistent with Sec. 144.8 of
this chapter. 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:
(A) A list of depositors in or borrowers from such association;
(B) Their addresses;
(C) Individual deposit or loan balances or records; or
(D) Any data from which such information could be reasonably
constructed.
(viii) Number of directors, membership. The bylaws shall set forth a
specific number of directors, not a range. The
[[Page 271]]
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 paragraph no later than
six years after the conversion to a Federal savings association.
(ix) 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 board also may permit telephonic
or electronic 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.
(x) Officers, employees and agents. (A) 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.
(B) 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.
Termination for cause, for purposes of this Sec. Sec. 5.21 and 5.22,
shall include termination because of the person'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 an employment contract.
(xi) Vacancies, resignation or removal of directors. 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.
Directors may be removed only for cause, as defined in Sec.
5.21(j)(2)(x)(B), by a vote of the holders of a majority of the shares
then entitled to vote at an election of directors.
(xii) Powers of the board. The board of directors shall have the
power to exercise any and all of the powers of the association not
expressly reserved by the charter to the members.
(xiii) 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
[[Page 272]]
least 15 days prior to the date of the annual meeting.
(xiv) New business. The bylaws shall provide procedures for the
introduction of new business at the annual meeting.
(xv) 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.
(A) Amendments shall be effective:
(1) 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
(2) After receipt of any applicable regulatory approval.
(B) 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.
(xvi) Miscellaneous. The bylaws may also address any other subjects
necessary or appropriate for effective operation of the association.
(3) Form of filing--(i) Application requirement. (A) Any bylaw
amendment shall be submitted to the appropriate OCC licensing office for
OCC approval if it 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; involve a
significant issue of law or policy, including indemnification, conflicts
of interest, and limitations on director or officer liability; or be
inconsistent with the requirements of this paragraph or with applicable
laws, rules, regulations, or the association's charter.
(B) For purposes of paragraph (j)(3) of this section, 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.
(ii) Filing requirement. If the proposed bylaw amendment does not
involve a provision that would be covered by paragraph (j)(3)(i)(A) of
this section, then the association shall submit the 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.
(iii) Corporate governance procedures. A Federal mutual association
may elect to follow the corporate governance procedures of the laws of
the state where the home 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
(j)(3)(i)(A) 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 (j)(3)(i)(A) of this section.
(4) Effectiveness. Any bylaw amendment filed pursuant to paragraph
(j)(3)(ii) 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 (j)(3)(i) of this section.
(5) 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.
[80 FR 28421, May 18, 2015, as amended at 82 FR 8103, Jan. 23, 2017]
Sec. 5.22 Federal stock savings association charter and bylaws.
(a) Authority. 12 U.S.C. 1462a, 1463, 1464, and 2901 et seq.
(b) Licensing requirements. A Federal stock savings association must
file an application, notice, or other filing as
[[Page 273]]
prescribed by this section when adopting or amending its charter or
bylaws.
(c) Scope. This section describes the procedures and requirements
governing charters and bylaws for Federal stock savings associations.
(d) Exceptions to rules of general applicability. Notwithstanding
any other provision of this part, Sec. Sec. 5.8 through 5.11 shall not
apply to this section.
(e) Charter form. The charter of a Federal stock association shall
be in the following form, except as provided in this section. 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 this section.
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 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.
[[Page 274]]
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:_________________________________________________________
(f) Charter amendments. In order to adopt a charter amendment, a
Federal stock 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,
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 (f)(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.
(g) Approval. Any charter amendment filed pursuant to paragraph
(f)(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 (f)(2)(i) of
this section. In addition, the following charter amendments, including
the adoption of the Federal stock charter as set forth in paragraph (e)
of this section, 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. 5.42 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. 5.40.
(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
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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 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
[[Page 276]]
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 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 Stock Exchange if the shares were then listed on
the New York 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) 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 less than 25 percent of a class of stock by a tax-qualified
employee stock benefit plan as defined in Sec. 192.25 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 percent 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
[[Page 277]]
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.
(h) Anti-takeover provisions. The OCC may grant approval to a
charter amendment not listed in paragraph (g) 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.
(i) 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 (c) of this part, together with such supporting documents
as needed to demonstrate that the amendments were properly adopted.
(j) Bylaws for Federal stock savings associations--(1) In general.
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. A bylaw provision inconsistent with paragraph (k),
(l), (m) or (n) of this section may be adopted only with the approval of
the OCC.
(2) Form of filing--(i) Application requirement. (A) Any bylaw
amendment shall be submitted to the OCC for approval if it would:
(1) 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
(2) Be inconsistent with paragraphs (k) through (n) of this section,
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.
(B) 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.
(ii) Filing requirement. If the proposed bylaw amendment does not
involve a provision that would be covered by paragraph (j)(2)(i) or
(iii) of this section and is permissible under all applicable laws,
rules, or regulations, then the association shall submit the amendment
[[Page 278]]
to the OCC at least 30 days prior to the date the bylaw amendment is to
be adopted by the association.
(iii) Corporate governance procedures. A Federal stock association
may elect to follow the corporate governance procedures of: The laws of
the state where the home 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 (j)(2)(i) 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 (j)(2)(i) of
this section.
(3) Effectiveness. Any bylaw amendment filed pursuant to paragraph
(j)(2)(ii) 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
(j)(2)(i) of this section.
(4) Effect of subsequent charter or bylaw change. Notwithstanding
any subsequent change to its charter or bylaws, the authority of a
Federal savings association to engage in any transaction shall be
determined only by the association's charter or bylaws then in effect.
(k) Shareholders of Federal stock savings associations--(1)
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 any
convenient place the board of directors may designate.
(2) Notice of shareholder meetings. Written notice stating the
place, day, 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 (i)(3) 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.
(3) 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
[[Page 279]]
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.
(4) Voting lists. (i) 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.
(ii) In lieu of making the shareholders list available for
inspection by any shareholders as provided in paragraph (j)(4)(i) 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.
(5) 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.
(6) Shareholder voting--(i) 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. 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.
(ii) 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.
(7) 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.
(8) 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
[[Page 280]]
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.
(l) Board of directors--(1) General powers and duties. The business
and affairs of the association shall be under the direction of its board
of directors. Directors need not be stockholders unless the bylaws so
require.
(2) 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.
(3) Regular meetings. The board of directors shall determine the
place, frequency, time and procedure for notice of regular meetings.
(4) 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.
(5) 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 term of office
continuing only until the next election of directors by the
shareholders.
(6) Removal or resignation of directors. (i) At a meeting of
shareholders called expressly for that purpose, any director may be
removed only for cause, as termination for cause is defined in Sec.
5.21(j)(2)(x)(B), 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.
(ii) 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.
(iii) 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.
(7) 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. 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.
(8) 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
[[Page 281]]
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 electronic participation at a meeting.
(9) 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.
(10) 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.
(11) 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.
(m) Officers--(1) 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.
(2) 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, as termination
for cause is defined in Sec. 5.21(j)(2)(x)(B), shall be without
prejudice to the contractual rights, if any, of the person so removed.
Employment contracts shall conform with 12 CFR 163.39.
(3) 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.
(n) Certificates for shares and their transfer--(1) 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 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.
(2) 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
[[Page 282]]
stock stand on the books of the association shall be deemed by the
association to be the owner for all purposes.
[80 FR 28425, May 18, 2015, as amended at 82 FR 8103, Jan. 23, 2017]
Sec. 5.23 Conversion to become a Federal savings association.
(a) Authority. 12 U.S.C. 35, 1462a, 1463, 1464, 1467a, 2903, and
5412(b)(2)(B).
(b) Scope. (1) This section describes procedures and standards
governing OCC review and approval of an application by a mutual
depository institution to convert to a Federal mutual savings
association or an application by a stock depository institution to
convert to a Federal stock savings association.
(2) As used in this section, 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.
(c) Licensing requirements. A depository institution that is mutual
in form (``mutual depository institution'') shall submit an application
and obtain prior OCC approval to convert to a Federal mutual savings
association. A stock depository institution shall submit an application
and obtain prior OCC approval to convert to a Federal stock savings
association. At the time of conversion, the applicant must have deposits
insured by the Federal Deposit Insurance Corporation (FDIC). An
institution that is not already insured by the FDIC must apply to the
FDIC, and obtain FDIC approval, for deposit insurance before converting.
(d) Conversion of a mutual depository institution or a stock
depository institution to a Federal savings association--(1) Policy.
Consistent with the OCC's chartering policy, it is OCC policy to allow
conversion to a Federal savings association charter by another financial
institution that can operate safely and soundly as a Federal savings
association in compliance with applicable laws, regulations, and
policies. This includes consideration of the factors set out in section
5(e) of the Home Owners' Loan Act, 12 U.S.C. 1464(e). The converting
financial institution must obtain all necessary regulatory and
shareholder or member approvals. The OCC may deny an application by any
mutual depository institution or stock depository institution to convert
to a Federal mutual savings association charter or Federal stock
association charter, respectively, 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 regulators.
(2) Procedures--(i) Prefiling communications. The applicant should
consult with the appropriate OCC licensing 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
OCC licensing office where the application will be filed, but may be
held at another location at the request of the applicant.
(ii) Application. A mutual depository institution or a stock
depository institution shall submit its application to convert to a
Federal mutual savings association or Federal stock depository
association, respectively, to the appropriate OCC licensing office and
shall send a copy of the application to its current appropriate Federal
banking agency. The application must:
(A) Be signed by the president or other duly authorized officer;
(B) Identify each branch that the resulting financial institution
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 state-
chartered institutions, the conversion is not in contravention of
applicable state law, or in the case of Federally-chartered
institutions, the conversion is not in contravention of applicable
Federal law;
[[Page 283]]
(F) State whether the institution wishes to exercise fiduciary
powers after the conversion;
(G) Identify all subsidiaries, service corporation investments, bank
service company investments, and other equity investments that will be
retained following the conversion, and provide the information and
analysis of the subsidiaries' activities and the service corporation
investments and other equity investments that would be required if the
converting mutual institution or stock institution were a Federal mutual
savings association or Federal stock savings association, respectively,
establishing each subsidiary or making each service corporation or other
equity investment pursuant to Sec. 5.35, Sec. 5.36, Sec. 5.38, or
Sec. 5.59, or other applicable law and regulation;
(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 and
activities;
(I) Include a business plan if the converting institution has been
operating for less than three years, plans to make significant changes
to its business after the conversion, or at the request of the OCC;
(J) Include a list of all outstanding conditions or other
requirements imposed by the institution's current appropriate Federal
banking agency and, if applicable, current state bank supervisor or
state attorney-general in any cease and desist order, written agreement,
other formal enforcement order, memorandum of understanding, approval of
any application, notice or request, commitment letter, board resolution,
or in any other manner, including the converting institution's analysis
whether any such actions prohibit conversion under 12 U.S.C. 35, and the
converting institution's plans regarding adhering to such conditions and
requirements after conversion; and
(K) If the converting institution does not meet the qualified thrift
lender test of 12 U.S.C. 1467a(m), include a plan to achieve compliance
within a reasonable period of time and a request for an exception from
the OCC.
(iii) The OCC may permit a Federal savings association to retain
nonconforming assets of a converting institution for the time period
prescribed by the OCC following a conversion, subject to conditions and
an OCC determination of the carrying value of the retained assets
consistent with the requirements of section 5(c) of the HOLA relating to
loans and investments. The OCC may permit a Federal savings association
to continue nonconforming activities of a converting institution for the
time period prescribed by the OCC following a conversion, subject to
conditions.
(iv) Approval for an institution to convert to a Federal savings
association expires if the conversion has not occurred within six months
of the OCC's approval of the application, unless the OCC grants an
extension of time.
(v) When the OCC determines that the applicant has satisfied all
statutory and regulatory requirements and any other conditions, the OCC
issues a charter. The charter provides that the institution is
authorized to begin conducting business as a Federal mutual savings
association or a Federal stock savings association 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 or 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 national bank to
convert to a Federal savings association charter is deemed approved by
the OCC as of the 60th 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 mutual depository institution to a Federal
mutual savings association--supplemental rules. In addition to the rules
and procedures set forth in paragraph (d) of this section, an applicant
converting from a mutual depository institution to a Federal mutual
savings association shall comply with the following: After a Federal
charter is issued to a converting institution, the association's members
shall
[[Page 284]]
after due notice, or upon a valid adjournment of a previous legal
meeting, hold a meeting to elect directors and take care of all other
actions necessary to fully effectuate 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.
(f) Conversion of a national bank to a Federal stock savings
association--supplemental rules--(1) Additional procedures. A national
bank may convert to a Federal stock savings association. In addition to
the rules and procedures set forth in paragraph (d) of this section, a
national bank that desires to convert to a Federal stock savings
association shall follow the requirements and procedures set forth in 12
U.S.C. 214a as if it were converting to a state bank and include in its
application information demonstrating compliance with the applicable
requirements of 12 U.S.C. 214a.
(2) Termination and change of status. The appropriate OCC licensing
office provides instructions to the converting national bank for
terminating its status as a national bank and beginning its status as a
Federal savings association.
(g) Continuation of business and entity. The existence of the
converting institution shall continue in the resulting Federal savings
association. The resulting Federal savings association shall be
considered the same business and entity as the converting institution,
although as to rights, powers, and duties, the resulting Federal savings
association is a Federal savings association. 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
converting institution become assets and property of the resulting
Federal savings association when the conversion occurs. Similarly, any
and all of the obligations and debts of and claims against the
converting institution become obligations and debts of and claims
against the Federal savings association when the conversion occurs.
[80 FR 28430, May 18, 2015]
Sec. 5.24 Conversion to become a national bank.
(a) Authority. 12 U.S.C. 35, 93a, 214a, 214b, 214c, and 2903.
(b) Licensing requirements. A state bank, a stock state savings
association, or a Federal stock savings association shall submit an
application and obtain prior OCC approval to convert to a national bank
charter. A Federal mutual savings association that plans to convert to a
national bank must first convert to a Federal stock savings association
under 12 CFR part 192.
(c) Scope. (1) This section describes procedures and standards
governing OCC review and approval of an application by a state bank, a
stock state savings association, or a Federal stock savings association
to convert to a national bank charter.
(2) As used in this section, state bank includes a state bank as
defined in 12 U.S.C. 214(a).
(d) 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. A
converting financial institution also must obtain all necessary
regulatory and shareholder approvals. The OCC may deny an application by
any state bank, stock state savings association, and any Federal stock
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 regulators.
(e) Procedures--(1) Prefiling communications. The applicant should
consult with the appropriate OCC licensing 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 at the
OCC licensing office where the application will be filed, but may be
held at another location at the request of the applicant.
(2) Application. A state bank, a stock state savings association, or
a Federal stock savings association shall submit its application to
convert to a national bank to the appropriate OCC licensing
[[Page 285]]
office and send a copy to its current appropriate Federal banking
agency. The application must:
(i) Be signed by the president or other duly authorized officer;
(ii) Identify each branch that the resulting bank expects to operate
after conversion;
(iii) Include the institution's most recent audited financial
statements (if any);
(iv) 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);
(v) 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 stock savings association, the
conversion is not in contravention of applicable Federal law;
(vi) State whether the institution wishes to exercise fiduciary
powers after the conversion;
(vii) Identify all subsidiaries, bank service company investments,
and other equity investments that will be retained following the
conversion, and provide the information and analysis of the
subsidiaries' activities, the bank service company investments, and the
other equity investments that would be required if the converting bank
or savings association were a national bank establishing each subsidiary
or making each bank service company investment or other equity
investment pursuant to Sec. 5.34, Sec. 5.35, Sec. 5.36, Sec. 5.39,
12 CFR part 1, or other applicable law and regulation;
(viii) 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 and
activities;
(ix) Include a business plan if the converting institution has been
operating for fewer than three years, plans to make significant changes
to its business after the conversion, or at the request of the OCC; and
(x) List all outstanding conditions or other requirements imposed by
the institution's current appropriate Federal banking agency and, if
applicable, current state bank supervisor or state attorney-general in
any cease and desist order, written agreement, other formal enforcement
order, memorandum of understanding, approval of any application, notice
or request, commitment letter, board resolution, or in any other manner,
including the converting institution's analysis whether the conversion
is prohibited under 12 U.S.C. 35, and state the institution's plans
regarding adhering to such conditions or requirements after conversion.
(3) The OCC may permit a national bank to retain nonconforming
assets of a state bank or stock state savings association, subject to
conditions and an OCC determination of the carrying value of the
retained assets, pursuant to 12 U.S.C. 35. The OCC may permit a national
bank to continue nonconforming activities of a state bank or stock state
savings association, or to retain the nonconforming assets or
nonconforming activities of a Federal stock savings association, for a
reasonable period of time following a conversion, subject to conditions
imposed by the OCC.
(4) Approval for an institution to convert to a national bank
expires if the conversion has not occurred within six months of the
OCC's approval of the application, unless the OCC grants an extension of
time.
(5) 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.
(f) Conversion of a Federal stock savings association to a national
bank--supplemental rules--(1) Additional information. A Federal stock
savings association may convert to a national bank. In addition to the
rules and procedures set forth in paragraph (e) of this section, a
Federal stock savings association that desires to convert to a national
bank shall include in its application information demonstrating
compliance with applicable laws regarding the permissibility,
requirements, and procedures for conversions, including
[[Page 286]]
any applicable stockholder or account holder approval requirements.
(2) Termination and change of status. The appropriate OCC licensing
office provides instructions to the converting Federal stock savings
association for terminating its status as a Federal stock savings
association and beginning its status as a national bank.
(g) 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 or novel policy,
supervisory, or legal issues, the OCC may determine that any or all of
Sec. Sec. 5.8, 5.10, and 5.11 apply.
(h) Expedited review. An application by an eligible savings
association to convert to a national bank charter is deemed approved by
the OCC as of the 60th 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).
(i) Continuation of business and corporate entity. The corporate
existence of the converting institution shall continue in the resulting
national bank. The resulting national bank shall be considered the same
business and corporate entity as the converting institution, although as
to rights, powers, and duties, the resulting national bank is a national
bank. 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 converting institution become assets and
property of the resulting national bank when the conversion occurs.
Similarly, any and all of the obligations and debts of and claims
against the converting institution become obligations and debts of and
claims against the national bank when the conversion occurs.
[80 FR 28432, May 18, 2015]
Sec. 5.25 Conversion from a national bank or Federal savings
association to a state bank or state savings association.
(a) Authority. 12 U.S.C. 93a, 214a, 214b, 214c, 214d, 1462a, 1463,
1464, and 5412(b)(2)(B).
(b) Licensing requirement. 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 a state savings association. A Federal savings
association shall give notice to the OCC before converting to a state
savings association or a state bank. A Federal mutual savings
association that plans to convert to a stock state bank must first
convert to a Federal stock savings association under 12 CFR part 192.
(c) Scope. This section describes the procedures for a national bank
seeking to convert to a state bank or a state savings association or for
a Federal savings association seeking to convert to a state savings
association or a state bank.
(d) Procedures--(1) National banks. A national bank may convert to a
state bank (including a state bank as defined in 214(a)) or a state
savings association in accordance with 12 U.S.C. 214a and 214c, without
prior OCC approval, subject to compliance with 12 U.S.C. 214d.
Termination of a 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 OCC's receipt of the bank's national bank charter in connection with
the consummation of the conversion.
(2) Federal savings associations. A Federal savings association may
convert to a state savings association or to a state bank, without prior
OCC approval, subject to compliance with 12 U.S.C. 1464(i)(6).
Termination of a Federal savings association's status as a Federal
savings association occurs upon receipt of the Federal savings
association's charter in connection with the consummation of the
conversion.
(3) Notice of intent. (i) A national bank that desires to convert to
a state bank (including a state bank as defined in 214(a)) or state
savings association, or a Federal savings association that desires to
convert to a state savings association or a state bank, shall submit a
notice of intent to convert to the appropriate OCC licensing office. The
national bank or Federal savings association shall file this notice with
the OCC at the time it files a conversion application with the
appropriate state authority or the prospective appropriate Federal
banking agency. The national bank or Federal savings association
[[Page 287]]
also shall transmit a copy of the conversion application to the
prospective appropriate Federal banking agency if it has not already
done so.
(ii) The notice shall include:
(A) A copy of the conversion application; and
(B) An analysis demonstrating that the conversion is in compliance
with laws of the applicable jurisdictions regarding the permissibility,
requirements, and procedures for conversions, including any applicable
stockholder or account holder approval requirements.
(4) Consultation. The OCC may consult with the appropriate state
authorities or the prospective appropriate Federal banking agency
regarding the proposed conversion.
(5) Termination of status. After receipt of the notice, the
appropriate OCC licensing office provides instructions to the national
bank or Federal savings association for terminating its status as a
national bank or Federal savings association.
(e) Exceptions to rules of general applicability. Sections 5.5
through 5.8 and 5.10 through 5.13 do not apply to this section.
[80 FR 28433, May 18, 2015]
Sec. 5.26 Fiduciary powers of national banks and Federal savings
associations.
(a) Authority. 12 U.S.C. 92a and 1462a, 1463, 1464(n), and
5412(b)(2)(B).
(b) Licensing requirements. A national bank or Federal savings
association 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 national 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
national bank may exercise fiduciary powers in the same manner and to
the same extent as the national bank to which approval was originally
granted;
(2) Where two or more Federal savings associations consolidate or
merge, and any of the Federal savings associations has, prior to the
consolidation or merger, received approval from the OCC or the Office of
Thrift Supervision to exercise fiduciary powers and that approval is in
force at the time of the consolidation or merger, the resulting Federal
savings association may exercise fiduciary powers in the same manner and
to the same extent as the Federal savings association to which approval
was originally granted;
(3) 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, state savings association, or Federal savings association
and the national bank will exercise fiduciary powers in the same manner
and to the same extent to which approval was originally granted; and
(4) Where a Federal savings association with prior approval from the
OCC or the Office of Thrift Supervision to exercise fiduciary powers is
the resulting savings association in a merger or consolidation with a
state bank, state savings association, or national bank and the Federal
savings association will exercise fiduciary powers in the same manner
and to the same extent to which approval was originally granted.
(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 or Federal savings association to
exercise fiduciary powers. Fiduciary activities of national banks are
subject to the provisions of 12 CFR part 9. Fiduciary activities of
Federal savings associations are subject to the provisions of 12 CFR
part 150.
(d) Policy. The exercise of fiduciary powers is primarily a
management decision of the national bank or Federal savings association.
The OCC generally permits a national bank or Federal savings association
to exercise fiduciary powers if the bank or savings association is
operating in a satisfactory manner, the proposed activities comply with
applicable statutes and regulations, and the bank or savings association
retains qualified fiduciary management.
[[Page 288]]
(e) Procedure--(1) In general. The following institutions must
obtain approval from the OCC in order to exercise fiduciary powers:
(i) A national bank or Federal savings association without fiduciary
powers:
(ii) A national bank without fiduciary powers that desires to
exercise fiduciary powers as the resulting bank after merging with a
state bank, state savings association, or Federal savings association
with fiduciary powers or a Federal savings association without fiduciary
powers that desires to exercise fiduciary powers as the resulting
savings association after merging with a state bank, state savings
association or national bank with fiduciary powers;
(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 or a Federal savings
association that results from a conversion of a state or national bank
or a state savings association that was exercising fiduciary powers
prior to the conversion; and
(iv) A national bank or Federal savings association that has
received approval from the OCC to exercise limited fiduciary powers that
desires to exercise full fiduciary powers.
(2) Application. (i) Except as provided in paragraph (e)(2)(ii) of
this section, a national bank or Federal savings association 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 or
Federal savings association 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 national bank or
Federal savings association will conduct fiduciary activities;
(E) If requested by the OCC, an opinion of counsel that the proposed
activities do not violate applicable Federal or state law, including
citations to applicable law; and
(F) Any other information necessary to enable the OCC to
sufficiently assess the factors described in paragraph (e)(2)(iii) of
this section.
(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),
(e)(1)(iii), or (e)(1)(iv) 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.
(iii) When reviewing any application filed under this section, the
OCC considers factors such as the following:
(A) The financial condition of the national bank or Federal savings
association;
(B) The adequacy of the national bank's or Federal savings
association's capital and surplus and whether it is sufficient under the
circumstances and not less than the capital and surplus required by
state law or state banks, trust companies, and other corporations
exercising comparable fiduciary powers;
(C) The character and ability of proposed trust management,
including qualifications, experience, and competency. The OCC must
approve any trust management change the bank or savings association
makes prior to commencing trust activities;
(D) The adequacy of the proposed business plan, if applicable;
(E) The needs of the community to be served; and
(F) Any other factors or circumstances that the OCC considers
proper.
(3) Expedited review. An application by an eligible national bank or
eligible Federal savings association 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 or savings
[[Page 289]]
association 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 for national banks and 12
U.S.C. 1464(n) for Federal savings associations to conduct the fiduciary
powers requested in the application.
(5) Notice required. A national bank or Federal savings association
that has ceased to conduct previously approved fiduciary powers for 18
consecutive months must provide the OCC with a notice describing the
nature and manner of the activities proposed to be conducted and
containing the information required by paragraph (e)(2)(i) of this
section 60 days prior to commencing any fiduciary activity.
(6) Notice of fiduciary activities in additional states. (i) No
further application under this section is required when a national bank
or Federal savings association 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.
(ii) Unless the national bank or Federal savings association
provides notice through other means (such as a merger application), the
national bank or Federal savings association shall provide written
notice to the OCC no later than 10 days after it begins to engage in any
of the activities specified in Sec. 9.7(d) of this chapter in a state
in addition to the state described in the application for fiduciary
powers that the OCC has approved. 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 the national bank or Federal
savings association previously conducted.
(iii) No notice is required if the national bank or Federal savings
association is conducting only activities ancillary to its fiduciary
business through a trust representative office or otherwise.
(7) 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 or 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.
(8) Expiration of approval. Approval expires if a national bank or
Federal savings association does not commence fiduciary activities
within 18 months from the date of approval, unless the OCC grants an
extension of time.
[80 FR 28433, May 18, 2015]
Subpart C_Expansion of Activities
Sec. 5.30 Establishment, acquisition, and relocation of a branch
of a national bank.
(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--(1) In general. This section describes the procedures and
standards governing OCC review and approval of an application by a
national bank to establish a new branch or to relocate a branch.
(2) Branch established through a conversion or business combination.
The standards of this section governing review and approval of
applications by the OCC and, as applicable, 12 U.S.C. 36(b), but not the
application procedures set forth in this section, apply to branches
acquired or retained in a conversion approved under 12 CFR 5.24 or a
business combination approved under Sec. 5.33. A branch acquired or
retained in a conversion or business combination is subject to the
application procedures set forth in Sec. Sec. 5.24 or 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.
(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).
[[Page 290]]
(ii) A facility otherwise described in this paragraph (d)(1) is not
a branch if:
(A) The bank establishing the facility does not permit members of
the public to have physical access to the facility for purposes of
making deposits, paying checks, or borrowing money (e.g., an office
established by the bank that receives deposits only through the mail);
or
(B) It is located at the site of, or is an extension of, an approved
main office or branch office of the national bank. The OCC determines
whether a facility is an extension of an existing main office or branch
office on a case-by-case basis. For this purpose, the OCC will consider
a drive-in or pedestrian facility located within 500 feet of a public
entrance to an existing main office or branch office to be an extension
of the existing main office or branch office, provided the functions
performed at the drive-in or pedestrian facility are limited to
functions that are ordinarily performed at a teller window.
(iii) A branch does not include an automated teller machine (ATM), a
remote service unit (such as an automated loan machine or personal
computer used in providing financial services), a loan production
office, a deposit production office, a trust office, an administrative
office, a data processing office, or any other office that does not
engage in any of the activities in paragraph (d)(1) of this section.
(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 by a
national bank 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 of a national bank, 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 of a national bank 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 safe and sound banking system;
(2) Encouraging a national bank to provide fair access to financial
services by helping to meet the credit needs of its entire community;
(3) Ensuring compliance with laws and regulations; and
(4) Promoting fair treatment of customers including efficiency and
better service.
(f) Procedures--(1) In general. Except as provided in paragraph
(f)(2) of this section, each national bank proposing to establish a
branch shall submit to the appropriate OCC licensing 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
[[Page 291]]
branch jointly with one or more national banks or other 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.
(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 (or in the case of
a short-distance relocation the 30th 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 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 unless
the OCC grants an extension.
(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.
[80 FR 28435, May 18, 2015]
Sec. 5.31 Establishment, acquisition, and relocation of a branch
and establishment of an agency office of a Federal savings association.
(a) Authority. 12 U.S.C. 1462a, 1463, 1464. 2901-2907 and
5412(b)(2)(B).
(b) Licensing requirements. A Federal savings association shall
submit an application and obtain prior OCC approval in order to
establish or relocate a branch or to establish an agency office or
conduct additional activities at an agency office, if required under
this section.
(c) Scope--(1) In general. This section describes the procedures and
standards
[[Page 292]]
governing OCC review and approval of an application by a Federal savings
association to establish a new branch or to relocate a branch and the
circumstances in which a Federal savings association may establish or
relocate a branch without application to the OCC. It also describes the
authority of a Federal savings association to establish an agency
office.
(2) Branch established through a conversion or business combination.
The standards of this section governing review and approval of
applications by the OCC, but not the application procedures set forth in
this section, apply to branches acquired or retained in a conversion
approved under 12 CFR 5.23 or a business combination approved under 12
CFR 5.33. A branch acquired or retained in a conversion or business
combination is subject to the application procedures set forth in Sec.
5.23 or Sec. 5.33.
(3) Branching by savings associations in the District of Columbia.
This section also implements section 5(m) of the HOLA, 12 U.S.C.
1464(m), addressing branching by savings associations in the District of
Columbia.
(d) Definitions. (1) A branch office of a Federal savings
association for purposes of this section is a branch office as defined
in 12 CFR 145.92(a).
(2) Home state means the state in which the Federal savings
association's home office is located.
(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 safe and sound banking system;
(2) Encouraging a Federal savings association to provide fair access
to financial services by helping to meet the credit needs of its entire
community;
(3) Ensuring compliance with laws and regulations; and
(4) Promoting fair treatment of customers including efficiency and
better service.
(f) Procedures--(1) Application requirements. (i) Except as provided
in paragraph (f)(2) of this section, each Federal savings association
proposing to establish or relocate a branch shall submit to the
appropriate OCC licensing office a separate application for each
proposed branch.
(ii) Authorization. The OCC authorizes operation of the branch when
all requirements and conditions for opening are satisfied.
(iii) Expedited review. If an application to establish or relocate a
branch is required of an eligible Federal savings association, the
application 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 savings association 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.
(2) Exceptions. Except as provided in paragraph (j) of this section,
a Federal savings association is not required to submit an application
and receive OCC approval under the following circumstances:
(i) Drive-in or pedestrian offices. A Federal savings association
may establish a drive-in or pedestrian office that is located within 500
feet of a public entrance to its existing home or branch office,
provided the functions performed at the office are limited to functions
that are ordinarily performed at a teller window.
(ii) Short-distance relocation. A Federal savings association may
change the permanent location of an existing branch office to a site
that is within the market area and short-distance location area, as
defined in Sec. 5.3(l).
(iii) Highly rated Federal savings associations. A Federal savings
association that is an eligible savings association as defined in Sec.
5.3(g) may change the permanent location of, or establish a new, branch
office if it meets all of the following requirements:
(A) It published a public notice under Sec. 5.8 of its intent to
change the location of the branch office or establish a new branch
office. The public notice must be published at least 35 days before the
proposed action establishment or relocation. If the notice is published
more than 12 months before the proposed action, the publication is
invalid.
[[Page 293]]
(B) If the Federal savings association intends to change the
location of an existing branch office, it must post a notice of its
intent in a prominent location in the existing office to be relocated.
This notice must be posted for 30 days from the date of publication of
the initial public notice described in paragraph (f)(2)(iii)(A) of this
section.
(C)(1) No person files a comment opposing the proposed action within
30 days after the date of the publication of the public notice; or
(2) 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 for an application for a branch or that OCC
action in response to the comment is not required.
(3) Notice of branch opening. If a Federal savings association is
not required to file an application to establish or relocate a branch
pursuant to paragraph (f)(2)(iii) of this section, the Federal savings
association shall file a notice with the OCC with the date the branch
was established or relocated and the address of the branch within 10
days after the opening of the branch.
(g) Exceptions to rules of general applicability. (1) 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 savings
association cannot provide services or must curtail banking services.
(2) The OCC may waive or reduce the public notice and comment
period, as appropriate, for an application by a Federal savings
association 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.
(h) Expiration of approval. Approval expires if a branch has not
commenced business within 18 months after the date of approval unless
the OCC grants an extension.
(i) Branch closings. A Federal savings association shall comply with
the applicable requirements of 12 U.S.C. 1831r-1 with respect to
procedures for branch closings.
(j) Section 5(m) of the HOLA. (1) Under section 5(m)(1) of the HOLA
(12 U.S.C. 1464(m)(1)), no savings association may establish or move any
branch in the District of Columbia or move its principal office in the
District of Columbia without the OCC's prior written approval.
(2) Any Federal savings association that must obtain approval of the
OCC under 12 U.S.C. 1464(m)(1) shall follow the application procedures
of this section. Any state savings association that must obtain approval
of the OCC under 12 U.S.C. 1464(m)(1) shall follow the application
procedures of this section as if it were a Federal savings association.
(k) Agency offices--(1) In general. A Federal savings association
may establish or maintain an agency office to engage in one or more of
the following activities:
(i) Servicing, originating, or approving loans and contracts;
(ii) Managing or selling real estate owned by the Federal savings
association; and
(iii) Conducting fiduciary activities or activities ancillary to the
association's fiduciary business in compliance with Sec. 5.26(e).
(2) Additional services--(i) In general. A Federal savings
association may request, and the OCC may approve, any service not listed
in paragraph (k)(1) of this section, except for payment on savings
accounts.
(ii) Application required. A Federal savings association desiring to
engage in such additional services shall submit an application to the
appropriate OCC licensing office.
(iii) Exceptions to rules of general applicability. Sections 5.8,
5.10, and 5.11 do not apply to filings under this paragraph (k)(2).
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 provisions in Sec. Sec. 5.8, 5.10, and 5.11 apply.
(3) Records. A Federal savings association must maintain records of
all business it transacts at an agency office. It must maintain these
records at
[[Page 294]]
the agency office, and must transmit copies to a home or branch office.
[80 FR 28436, May 18, 2015]
Sec. 5.32 Expedited procedures for certain reorganizations of a
national bank.
(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;
(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.
(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 or 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.
(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,
[[Page 295]]
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 OCC licensing office no later than when the materials
are sent to the shareholders.
[68 FR 70129, Dec. 17, 2003, as amended at 80 FR 28437, May 18, 2015]
Sec. 5.33 Business combinations involving a national bank or Federal
savings association.
(a) Authority. 12 U.S.C. 24(Seventh), 93a, 181, 214a, 214b, 215,
215a, 215a-1, 215a-3, 215b, 215c, 1462a, 1463, 1464, 1467a, 1828(c),
1831u, 2903, and 5412(b)(2)(B).
(b) Scope. This section sets forth the provisions governing business
combinations and the standards for:
(1) OCC review and approval of an application by a national bank or
a Federal savings association for a business combination resulting in a
national bank or Federal savings association; and
(2) Requirements of notices and other procedures for national banks
and Federal savings associations involved in other combinations in which
a national bank or Federal savings association is not the resulting
institution.
(c) Licensing requirements. As prescribed by this section, a
national bank or Federal savings association shall submit an application
and obtain prior OCC approval for a business combination when the
resulting institution is a national bank or Federal savings association.
As prescribed by this section, a national bank or Federal savings
association shall give notice to the OCC prior to engaging in an other
combination where the resulting institution will not be a national bank
or Federal savings association.\1\ 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.
---------------------------------------------------------------------------
\1\ Other combination transactions do not require an application
under this section. However, some may require an application under 12
CFR 5.53.
---------------------------------------------------------------------------
(d) Definitions. For purposes of this section:
(1) Bank means any national bank or any state bank.
(2) Business combination means:
(i) Any merger or consolidation between a national bank or a Federal
savings association and one or more depository institutions or state
trust companies, in which the resulting institution is a national bank
or Federal savings association;
(ii) In the case of a Federal savings association, any merger or
consolidation with a credit union in which the resulting institution is
a Federal savings association;
(iii) In the case of a national bank, any merger between a national
bank and one or more of its nonbank affiliates;
(iv) The acquisition by a national bank or a Federal savings
association of all, or substantially all, of the assets of another
depository institution; or
(v) The assumption by a national bank or a Federal savings
association of any deposit liabilities of another insured depository
institution or any deposit accounts or other liabilities of a credit
union or any other institution that will become deposits at the national
bank or Federal savings association.
(3) Business reorganization means either:
(i) A business combination between eligible banks and eligible
savings associations, or between an eligible bank or an eligible savings
association 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 or an eligible
savings association and an interim national bank or interim Federal
savings association chartered in a transaction in which a person or
group of persons exchanges its shares of the eligible bank or eligible
savings association 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 or
eligible savings association (except for
[[Page 296]]
changes in interests resulting from the exercise of dissenters' rights),
and the reorganization involves no other transactions involving the bank
or savings association.
(4) Company means a corporation, limited liability company,
partnership, business trust, association, or similar organization.
(5) For business combinations under paragraphs (g)(4) and (5) of
this section, 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) Credit union means a financial institution subject to
examination by the National Credit Union Administration Board.
(7) Home state means, with respect to a national bank, the state in
which the main office of the national bank is located and, with respect
to a state bank, the state by which the bank is chartered.
(8) Interim national bank or interim Federal savings association
means a national bank or Federal savings association that does not
operate independently but exists solely as a vehicle to accomplish a
business combination.
(9) 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.
(10) Other combination means:
(i) Any merger or consolidation between a national bank or a Federal
savings association and one or more depository institutions or state
trust companies, in which the resulting institution is not a national
bank or Federal savings association;
(ii) In the case of a Federal stock savings association, any merger
or consolidation with a credit union in which the resulting institution
is a credit union;
(iii) The transfer by a national bank or a Federal savings
association of any deposit liabilities to another insured depository
institution, a credit union or any other institution; or
(iv) The acquisition by a national bank or a Federal savings
association of all, or substantially all, of the assets, or the
assumption of all or substantially all of the liabilities, of any
company other than a depository institution.
(11) Savings association and state savings association have the
meaning set forth in section 3(b)(1) of the Federal Deposit Insurance
Act, 12 U.S.C. 1813(b)(1).
(12) State trust company means a trust company organized under state
law that is not engaged in the business of receiving deposits, other
than trust funds.
(e) Policy--(1) Factors--(i) In general. When the OCC evaluates any
application for a business combination, the OCC considers the following
factors:
(A) The capital level of any resulting national bank or Federal
savings association
(B) The conformity of the transaction to applicable law, regulation,
and supervisory policies;
(C) The purpose of the transaction;
(D) The impact of the transaction on safety and soundness of the
national bank or Federal savings association; and
(E) The effect of the transaction on the national bank's or Federal
savings association's shareholders (or members in the case of a mutual
savings association), depositors, other creditors, and customers.
(ii) Bank Merger Act. When the OCC evaluates an application for a
business combination under the Bank Merger Act, the OCC also 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
Comptroller's Licensing Manual for
[[Page 297]]
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 or Federal savings
association 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 also considers additional relevant
factors, including the resulting national bank's or Federal savings
association's ability and plans to provide expanded or less costly
services to the community.
(D) 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.
(E) Financial stability. The OCC considers the risk to the stability
of the United States banking and financial system.
(F) Deposit concentration limit. The OCC will not approve a
transaction that would violate the deposit concentration limit in 12
U.S.C. 1828(c)(13) for certain interstate merger transactions.
(iii) Community Reinvestment Act. When the OCC evaluates an
application for a business combination under the Community Reinvestment
Act, the OCC also 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.
(2) Acquisition and retention of branches. An applicant shall
disclose the location of any branch it will acquire and retain in a
business combination, including approved but unopened branches. The OCC
considers the acquisition and retention of a branch under the standards
set out in Sec. 5.30 or Sec. 5.31, as applicable, but it does not
require a separate application.
(3) Subsidiaries. (i) An applicant must identify any subsidiary,
financial subsidiary investment, bank service company investment,
service corporation investment, or other equity investment to be
acquired in a business combination and state the activities of each
subsidiary or other company in which the applicant would be acquiring an
investment. The OCC does not require a separate application or notice
under Sec. Sec. 5.34, 5.35, 5.36, 5.38, 5.39, 5.58, and 5.59.
(ii) An national bank applicant proposing to acquire, through a
business combination, a subsidiary, financial subsidiary investment,
bank service company investment, service corporation investment, or
other equity investment of any entity other than a national bank must
provide the same information and analysis of the subsidiary's
activities, or of the investment, that would be required if the
applicant were establishing the subsidiary, or making such investment,
pursuant to Sec. 5.34, Sec. 5.35, Sec. 5.36, or Sec. 5.39.
[[Page 298]]
(iii) A Federal savings association applicant proposing to acquire,
through a business combination, a subsidiary, bank service company
investment, service corporation investment, or other equity investment
of any entity other than a Federal savings association must provide the
same information and analysis of the subsidiary's activities, or of the
investment, that would be required if the applicant were establishing
the subsidiary, or making such investment, pursuant to Sec. 5.35, Sec.
5.38, Sec. 5.58, or Sec. 5.59.
(4) Interim national bank or interim Federal savings association--
(i) Application. An applicant for a business combination that plans to
use an interim national bank or interim Federal savings association to
accomplish the transaction shall file an application to organize an
interim national bank or interim Federal savings association as part of
the application for the related business combination.
(ii) Conditional approval. The OCC grants conditional preliminary
approval to form an interim national bank or interim Federal savings
association when it acknowledges receipt of the application for the
related business combination.
(iii) Corporate status. An interim national bank or interim Federal
savings association becomes a legal entity and may enter into legally
valid agreements when it has filed, and the OCC has accepted, the
interim national bank's duly executed articles of association and
organization certificate or the Federal savings association's charter
and bylaws. OCC acceptance occurs:
(A) On the date the OCC advises the interim national bank that its
articles of association and organization certificate are acceptable or
advises the interim Federal savings association that its charter and
bylaws are acceptable; or
(B) On the date the interim national bank files articles of
association and an organization certificate that conform to the form for
those documents provided by the OCC in the Comptroller's Licensing
Manual or the date the interim Federal savings association files a
charter and bylaws that conform to the requirements set out in this part
5.
(iv) Other corporate procedures. An applicant should consult the
Comptroller's Licensing Manual to determine what other information is
necessary to complete the chartering of the interim national bank as a
national bank or the interim Federal savings association as a Federal
savings association.
(5) Nonconforming assets. (i) 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 or Federal
savings association to divest or conform nonconforming assets, or
discontinue nonconforming activities, within a reasonable time following
the business combination.
(ii) Any resulting Federal savings association shall conform to the
requirements of sections 5(c) and 10(m) of the Home Owners' Loan Act (12
U.S.C. 1464(c) and 1467a(m)) within the time period prescribed by the
OCC.
(6) Fiduciary powers. (i) An applicant shall state whether the
resulting national bank or Federal savings association intends to
exercise fiduciary powers pursuant to Sec. 5.26(b).
(ii) If an applicant intends to exercise fiduciary powers after the
combination and requires OCC approval for such powers, the applicant
must include the information required under Sec. 5.26(e)(2).
(7) Expiration of approval. Approval of a business combination, and
conditional approval to form an interim national bank or interim Federal
savings association, if applicable, expires if the business combination
is not consummated within six months after the date of OCC approval,
unless the OCC grants an extension of time.
(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 299]]
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 or Federal savings association 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. 78 l (b) or 78 l (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 OCC licensing
office no later than when the materials are sent to the shareholders.
(f) Exceptions to rules of general applicability--(1) National bank
or Federal savings association applicant--(i) In general. Sections 5.8,
5.10, and 5.11 do not apply 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
provisions in Sec. Sec. 5.8, 5.10 and 5.11 apply.
(ii) Statutory notice. If an application is subject to the Bank
Merger Act or to another statute that requires notice to the public, a
national bank or Federal savings association applicant shall follow the
public notice requirements contained in 12 U.S.C. 1828(c)(3) or the
other statute and sections 5.8(b) through 5.8(e), 5.10, and 5.11.
(2) Interim national bank or interim Federal savings association.
Sections 5.8, 5.10, and 5.11 do not apply to an application to organize
an interim national bank or interim Federal savings association.
However, if the OCC concludes that an application presents significant
or 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 national bank or interim
Federal savings association 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 state savings association, state trust company,
or credit union as resulting institution. Sections 5.7 through 5.13 do
not apply to transactions covered by paragraphs (g)(6) or (g)(7) 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. (i) 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.
(ii) Any national bank that will not be the resulting bank in a
consolidation or merger under 12 U.S.C. 215 or 215a shall provide a
notice to the OCC under paragraph (k) of this section.
(2) Consolidations and mergers of a national bank 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 national bank.
(B)(1) A Federal savings association entering into the consolidation
or merger shall comply with the requirements of paragraph (n) of this
section and follow the procedures set out in paragraph (o) of this
section and shall provide a notice to the OCC under paragraph (k) of
this section.
(2) For purposes of this paragraph (g)(2), a combination in which a
national bank acquires all or substantially all of the assets, or
assumes all or substantially all of the liabilities, of a Federal
savings association shall be treated as a consolidation for the Federal
savings association.
(ii)(A) National bank shareholders who dissent from a plan to
consolidate may receive in cash the value of their national bank shares
if they comply
[[Page 300]]
with the requirements of 12 U.S.C. 215 as if the Federal savings
association were a national bank.
(B) Federal savings association shareholders who dissent from a plan
to merge or consolidate may receive in cash the value of their Federal
savings association shares if they comply with the requirements of 12
U.S.C. 215 or 215a as if the Federal savings association were a national
bank.
(C) The OCC will conduct an appraisal or reappraisal of the value of
the national bank or Federal savings association held by dissenting
shareholders in accordance with the provisions of 12 U.S.C. 215 or 215a,
as applicable, except that the costs and expenses of any appraisal or
reappraisal may be apportioned and assessed by the Comptroller as he or
she may deem equitable against all or some of the parties. In making
this determination the Comptroller shall consider whether any party has
acted arbitrarily or not in good faith in respect to the rights provided
by this paragraph.
(iii) The consolidation or merger agreement must address the effect
upon, and the terms of the assumption of, any liquidation account of any
participating institution by the resulting institution.
(3) Consolidation or merger of a Federal savings association with
another Federal savings association, a national bank, a state bank, a
state savings bank, a state savings association, a state trust company,
or a credit union resulting in a Federal savings association. (i) With
the approval of the OCC, a Federal savings association may consolidate
or merge with another Federal savings association, a national bank, a
state bank, a state savings association, a state trust company, or a
credit union with the Federal savings association as the resulting
institution by complying with the following procedures:
(A)(1) The applicant Federal savings association shall comply with
the requirements of paragraph (n) of this section and follow the
procedures set out in paragraph (o) of this section.
(2) For purposes of this paragraph (g)(3), a combination in which a
Federal savings association acquires all or substantially all of the
assets, or assumes all or substantially all of the liabilities, of
another other participating institution shall be treated as a
consolidation for the acquiring Federal savings association and as a
consolidation by a Federal savings association whose assets are
acquired, if any.
(B)(1) 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 the
Comptroller of the Currency'' respectively. The national bank also shall
provide a notice to the OCC under paragraph (k) of this section.
(2) 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 will conduct an appraisal
or reappraisal of the value of the national bank shares held by
dissenting shareholders in accordance with the provisions of 12 U.S.C.
214a, except that the costs and expenses of any appraisal or reappraisal
may be apportioned and assessed by the Comptroller as he or she may deem
equitable against all or some of the parties. In making this
determination the Comptroller shall consider whether any party has acted
arbitrarily or not in good faith in respect to the rights provided by
this paragraphs.
(C)(1) A Federal savings association entering into a merger or
consolidation with another Federal savings association when the
resulting institution will be the other Federal savings association
shall comply with the requirements of paragraph (n) of this section and
the procedures of paragraph (o) of this section and shall provide a
notice to the OCC under paragraph (k) of this section.
[[Page 301]]
(2) Federal savings association shareholders who dissent from a plan
to merge or consolidate may receive in cash the value of their Federal
savings association shares if they comply with the requirements of 12
U.S.C. 214a as if the other Federal savings association were a state
bank. The OCC will conduct an appraisal or reappraisal of the value of
the Federal savings association shares held by dissenting shareholders
in accordance with the provisions of 12 U.S.C. 214a, except that the
costs and expenses of any appraisal or reappraisal may be apportioned
and assessed by the Comptroller as he or she may deem equitable against
all or some of the parties. In making this determination the Comptroller
shall consider whether any party has acted arbitrarily or not in good
faith in respect to the rights provided by this paragraph.
(3) The plan of merger or consolidation must provide the manner of
disposing of the shares of the resulting Federal savings association not
taken by the dissenting shareholders of the Federal savings association.
(D)(1) A state bank, state savings association, state trust company,
or credit union entering into a consolidation or merger with a Federal
savings association when the resulting institution will be a Federal
savings association shall follow the procedures for such consolidations
or mergers set out in the law of the state or other jurisdiction under
which the state bank, state savings association, state trust company, or
credit union is organized.
(2) The rights of dissenting shareholders and appraisal of
dissenters' shares of stock in the state bank, state savings
association, or state trust company, entering into the consolidation or
merger shall be determined in the manner prescribed by the law of the
state or other jurisdiction under which the state bank, state savings
association, or state trust company is organized.
(ii) The consolidation or merger agreement must address the effect
upon, and the terms of the assumption of, any liquidation account of any
participating institution by the resulting institution.
(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. If the
national bank is an insured bank, the transaction is also subject to
approval by the FDIC under the Bank Merger Act, 12 U.S.C. 1828(c).
(ii) A national bank entering into the merger shall follow the
procedures of 12 U.S.C. 215a as if the nonbank affiliate were a state
bank, except as otherwise provided herein.
(iii) A nonbank affiliate entering into the merger shall follow the
procedures for such mergers set out in the law of the state or other
jurisdiction under which the nonbank affiliate is organized.
(iv) The rights of dissenting shareholders and appraisal of
dissenters' shares of stock in the nonbank affiliate entering into the
merger shall be determined in the manner prescribed by the law of the
state or other jurisdiction 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
[[Page 302]]
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.
(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.
(6) Consolidation or merger under 12 U.S.C. 214a of a national bank
with a state bank resulting in a state bank as defined in 12 U.S.C.
214(a)--(i) Policy. Prior OCC approval is not required for the merger or
consolidation of a national bank with a state bank as defined in 12
U.S.C. 214(a) Termination of a national bank's existence and status as a
national banking association is automatic, and its charter cancelled,
upon completion of the statutory and regulatory requirements for
engaging in the consolidation or merger and consummation of the
consolidation or merger.
(ii) Procedures. A national bank desiring to merge or consolidate
with a state bank as defined in 12 U.S.C. 214(a) when the resulting
institution will be a state bank shall comply with the requirements and
follow the procedures of 12 U.S.C. 214a and 214c and shall provide
notice to the OCC under paragraph (k) of this section.
(iii) Dissenters' rights and appraisal procedures. 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. The OCC conducts an appraisal or
reappraisal of the value of the national bank shares held by dissenting
shareholders as provided for in 12 U.S.C. 214a.
(iv) Liquidation account. The consolidation or merger agreement must
address the effect upon, and the terms of the assumption of, any
liquidation account of any participating institution by the resulting
institution.
(7) Consolidation or merger of a Federal savings association with a
state bank, state savings bank, state savings association, state trust
company, or credit union resulting in a state bank, state savings bank,
state savings association, state trust company, or credit union--(i)
Policy. Prior OCC approval is not required for the merger or
consolidation of a Federal savings association with a state bank, state
savings bank, state savings association, state trust company, or credit
union when the resulting institution will be a state institution or
credit union. Termination of a national bank's or Federal savings
association's existence and status as a national banking association or
Federal savings association is automatic, and its charter cancelled,
upon completion of the statutory and regulatory requirements for
engaging in the consolidation or
[[Page 303]]
merger and consummation of the consolidation or merger.
(ii) Procedures. (A) A Federal savings association desiring to merge
or consolidate with a state bank, state savings bank, state savings
association, state trust company, or credit union when the resulting
institution will be a state institution or credit union shall comply
with the requirements of paragraph (n) of this section and the
procedures of paragraph (o) of this section and shall provide notice to
the OCC under paragraph (k) of this section.
(B) For purposes of this paragraph (g)(7), a combination in which a
state bank, state savings bank, state savings association, state trust
company, or credit union acquires all or substantially all of the
assets, or assumes all or substantially all of the liabilities, of a
Federal savings association shall be treated as a consolidation by the
Federal savings association.
(iii) Dissenters' rights and appraisal procedures. (A) Federal
savings association shareholders who dissent from a plan to merge or
consolidate may receive in cash the value of their Federal savings
association shares if they comply with the requirements of 12 U.S.C.
214a as if the Federal savings association were a national bank. The OCC
conducts an appraisal or reappraisal of the value of the Federal savings
association 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.
(B) The plan of merger or consolidation must provide the manner of
disposing of the shares of the resulting state institution not taken by
the dissenting shareholders of the Federal savings association.
(iv) Liquidation account. The consolidation or merger agreement must
address the effect upon, and the terms of the assumption of, any
liquidation account of any participating institution by the resulting
institution.
(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)(3) 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 15th day after the
close of the comment period, 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 or
eligible Federal savings association, and all other parties to the
transaction are eligible banks, eligible Federal savings associations,
or eligible depository institutions, the resulting national bank or
resulting Federal savings association 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 or Federal savings association, 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 or Federal savings association is an
eligible bank or eligible Federal savings association, the target bank
or savings association
[[Page 304]]
is not an eligible bank, eligible Federal savings association, or an
eligible depository institution, the resulting national bank or
resulting Federal savings association will be well capitalized
immediately following consummation of the transaction, and the
applicants in a prefiling communication request and obtain approval from
the appropriate OCC licensing office to use the streamlined application;
(iii) The acquiring bank or Federal savings association is an
eligible bank or eligible Federal savings association, the target bank
or savings association is not an eligible bank, eligible Federal savings
association, or an eligible depository institution, the resulting bank
or resulting Federal savings association 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 or acquiring Federal savings association, 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 OCC licensing 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) Notwithstanding paragraph (j)(1) of this section, an applicant
does not qualify for a streamlined business combination application if
the transaction is part of a conversion under part 192 of this chapter.
(3) When a business combination qualifies for a streamlined
application, the applicant should consult the Comptroller's Licensing
Manual to determine the abbreviated application information required by
the OCC. The OCC encourages prefiling communications between the
applicants and the appropriate OCC licensing office before filing under
paragraph (j) of this section.
(k) Exit notice to OCC--(1) Notice required. As provided in
paragraphs (g)(1)(ii), (g)(2)(i)(B), (g)(3)(i)(B)(1), (g)(3)(i)(C)(1),
(g)(6)(ii), and (g)(7)(ii) of this section, a national bank or Federal
savings association engaging in a consolidation or merger in which it is
not the applicant and the resulting institution must file a notice
rather than an application to the appropriate OCC licensing office
advising of its intention.
(2) Timing of notice. The national bank or Federal savings
association shall submit the 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), or if there is no such filing then no
later than 30 days prior to the effective date of the merger or
consolidation.
(3) Content of notice. The notice shall include the following:
(i)(A) A short description of the material features of the
transaction, the identity of the acquiring institution, the identity of
the state or Federal regulator to whom the application was made, and the
date of the application; or
(B) 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;
(ii) The planned consummation date for the transaction;
(iii) Information to demonstrate compliance by the national bank or
Federal savings association with applicable requirements to engage in
the transactions (e.g., board approval or shareholder or accountholder
requirements); and
(iv) If the national bank or Federal savings association submitting
the notice maintains a liquidation account established pursuant to part
192 of this chapter, the notice must state that the resulting
institution will assume such liquidation account.
(4) Termination of status. The national bank or Federal savings
association shall advise the OCC when the transaction is about to be
consummated.
[[Page 305]]
Termination of a national bank's or Federal savings association's
existence and status as a national banking association or Federal
savings association is automatic, and its charter cancelled, upon
completion of the statutory and regulatory requirements and consummation
of the consolidation or merger. When the national bank or Federal
savings association files the notice under paragraph (k)(2) of this
section, the OCC provides instructions to the national bank or Federal
savings association for terminating its status as a national bank or
Federal savings, including surrendering its charter to the OCC
immediately after consummation of the transaction.
(5) Expiration. If the action contemplated by the notice is not
completed within six months after the OCC's receipt of the notice, a new
notice must be submitted to the OCC, unless the OCC grants an extension
of time.
(l) Mergers and consolidations; transfer of assets and liabilities
to the resulting institution. (1) In any consolidation or merger in
which the resulting institution is a national bank or Federal savings
association, on the effective date of the merger or consolidation, all
assets and property (real, personal and mixed, tangible and intangible,
choses in action, rights, and credits) then owned by each participating
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 national bank or Federal
savings association. The resulting national bank or Federal savings
association shall be deemed to be a continuation of the entity of each
participating institution, the rights and obligations of which shall
succeed to such rights and obligations and the duties and liabilities
connected therewith.
(2) The authority in paragraph (l)(1) of this section is in addition
to any authority granted by applicable statutes for specific
transactions and is subject to the National Bank Act, the Home Owners'
Loan Act, and other applicable statutes.
(m) Certification of combination; effective date. (1) When a
national bank or Federal savings association is the applicant and will
be the resulting entity in a consolidation or merger, after receiving
approval from the OCC, it shall complete any remaining steps needed to
complete the transaction, provide the OCC with a certification that all
other required regulatory or shareholder approvals have been obtained,
and inform the OCC of the planned consummation date.
(2) When the transaction is consummated, the applicant shall notify
the OCC of the consummation date. The OCC will issue a letter certifying
that the combination was effective on the date specified in the
applicant's notice.
(n) Authority for and certain limits on business combinations and
other transactions by Federal savings associations. (1) Federal savings
associations may enter into business combinations only in accordance
with this section, the Bank Merger Act, and sections 5(d)(3)(A) and
10(s) of the Home Owners' Loan Act.
(2) A Federal savings association may consolidate or merge with
another depository institution, a state trust company or a credit union,
or may engage in another business combination listed in paragraphs
(d)(2)(iv) and (v) of this section, or may engage in an other
combination listed in paragraph (d)(10), provided that:
(i) The combination is in compliance with, and receives all
approvals required under, any applicable statutes and regulations;
(ii) Any resulting Federal savings association meets the
requirements for insurance of accounts; and
(iii) If any combining savings association is a mutual savings
association, the resulting institution shall be a mutually held
depository institution that is insured by the FDIC, unless:
(A) The transaction is approved under part 192 governing mutual to
stock conversions; or
(B) The transaction involves a mutual holding company reorganization
under 12 U.S.C. 1467a(o) or a similar transaction under state law.
(3) Where the resulting institution is a Federal mutual savings
association, the OCC may approve a temporary increase in the number of
directors of the
[[Page 306]]
resulting institution provided that the association submits a plan for
bringing the board of directors into compliance with the requirements of
Sec. 5.21(e) within a reasonable period of time.
(4)(i) The Federal savings associations described in paragraph
(n)(4)(ii) of this section 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.
(ii) The following savings associations must provide the notices:
(A) A Federal mutual 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
(B) Any Federal mutual savings association transferring account
liabilities to a stock form depository institution.
(o) Procedural requirements for Federal savings association approval
of combinations--(1) Board approval. Before a Federal savings
association files a notice or application for any consolidation or
merger, the combination and combination agreement must be approved by
majority vote of the entire board of each constituent Federal savings
association in the case of Federal stock savings associations or a two-
thirds vote of the entire board of each constituent Federal savings
association in the case of Federal mutual savings associations;
(2) Change of name or home office. If the name the resulting Federal
savings association or the location of the home office of the resulting
Federal savings association will be changed as a result of the business
combination, the resulting Federal savings association shall amend its
charter accordingly;
(3) Shareholder vote--(i) General rule. Except as otherwise provided
in this paragraph (o)(3), an affirmative vote of two-thirds of the
outstanding voting stock of any constituent Federal stock savings
association shall be required for approval of a consolidation or merger.
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.
(ii) General exception. Stockholders of the resulting Federal stock
savings association need not authorize a consolidation or merger if:
(A) It does not involve an interim Federal savings association or an
interim state savings association;
(B) The association's charter is not changed;
(C) Each share of stock outstanding immediately prior to the
effective date of the consolidation or merger is to be an identical
outstanding share or a treasury share of the resulting Federal stock
savings association after such effective date; and
(D) Either:
(1) No shares of voting stock of the resulting Federal stock savings
association and no securities convertible into such stock are to be
issued or delivered under the plan of combination, or
(2) The authorized unissued shares or the treasury shares of voting
stock of the resulting Federal stock savings 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 percent of the total shares of voting stock of
such association outstanding immediately prior to the effective date of
the consolidation or merger.
(iii) Exceptions for certain combinations involving an interim
association. Stockholders of a Federal stock savings association need
not authorize by a two-thirds affirmative vote consolidations or mergers
involving an interim Federal savings association or interim state
savings association when the resulting Federal stock savings association
is acquired pursuant to the regulations of the Board of Governors of the
Federal Reserve System at 12 CFR 238.15(e) (relating to the creation of
a savings and loan holding company by a savings association). In those
cases, an affirmative vote of 50 percent of the
[[Page 307]]
shares of the outstanding voting stock of the Federal stock savings
association plus one affirmative vote shall be required. If any class of
shares is entitled to vote as a class pursuant to Sec. 5.22(g), 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.
(4) Mutual member vote. Notwithstanding any other provision of this
section, the OCC may require that a consolidation, merger or other
business combination be submitted to the voting members of any mutual
savings association participating in the proposed transaction at duly
called meetings and that the transaction, to be effective, must be
approved by such voting members.
[80 FR 28437, May 18, 2015, as amended at 82 FR 8103, Jan. 23, 2017]
Sec. 5.34 Operating subsidiaries of a national bank.
(a) Authority. 12 U.S.C. 24 (Seventh), 24a, 25b, 93a, 3101 et seq.
(b) Licensing requirements. A national bank must file an application
or notice 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. The OCC may, at any time, limit
a national bank's investment in an operating subsidiary or may limit or
refuse to permit any activities in an operating subsidiary for
supervisory, legal, or safety and soundness reasons.
(d) Definitions. For purposes of this section:
(1) Authorized product means a product that would be defined as
insurance under section 302(c) of the Gramm-Leach-Bliley Act (Pub. L.
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
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. (i) A
national bank may conduct in an operating subsidiary activities that are
permissible
[[Page 308]]
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:
(A) Providing authorized products as principal; and
(B) 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.
(ii) In addition to OCC authorization, before it begins business an
operating subsidiary also must comply with other laws applicable to it
and its proposed business, including applicable licensing or
registration requirements, if any, such as registration requirements
under securities laws.
(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, and no other person or entity exercises
effective operating control over the subsidiary or has the ability to
influence the subsidiary's operations to an extent equal to or greater
than that of the bank;
(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 a percentage of the voting (or
similar type of controlling) interest of the operating subsidiary
greater than the bank's interest; 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., a financial subsidiary
under section 5136A of the Revised Statutes (12 U.S.C. 24a), or a
community development corporation subsidiary under 12 U.S.C. 24
(Eleventh) and part 24; 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.
(iii) Notwithstanding the requirements of paragraph (e)(2)(i) of
this section,
(A) A national bank must have reasonable policies and procedures to
preserve the limited liability of the bank and its operating
subsidiaries; and
(B) OCC regulations shall not be construed as requiring a national
bank and its operating subsidiaries to operate as a single entity.
(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, unless otherwise specifically
provided by statute, regulation, or published OCC policy, including
sections 1044 and 1045 of the Dodd-Frank Wall Street Reform and Consumer
Protection Act (12 U.S.C. 25b) with respect to the application of state
law. If 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).
[[Page 309]]
(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, 59, 60, 84,
and 371d.
(ii) Federal branches or agencies. Transactions conducted by all of
a foreign bank's Federal branches and agencies and state branches and
agencies, and their operating subsidiaries, shall be combined for the
purpose of applying any limitation or restriction as provided in 12 CFR
28.14.
(5) Procedures--(i) Application required. (A) Except for an
operating subsidiary that qualifies for the notice procedures in
paragraph (e)(5)(ii) of this section or is exempt from application or
notice requirements under paragraph (e)(5)(vi) of this section, a
national bank must first submit an application to, and receive prior
approval from, the OCC to establish or acquire an operating subsidiary
or to perform 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 or limited
liability company that does not qualify for the notice procedures set
forth in paragraph (e)(5)(ii) of this section, the bank must 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 must 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 prefiling 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.
(ii) Notice process only for certain qualifying filings. (A) Except
for an operating subsidiary that is exempt from application or notice
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 OCC
licensing office written notice prior to, or 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 or
a limited liability company, has the ability to control the management
and operations of the
[[Page 310]]
subsidiary by controlling the selection and termination of senior
management), and no other person or entity exercises effective operating
control over the subsidiary or has the ability to influence the
subsidiary's operations to an extent equal to or greater than the
bank's;
(ii) Holds more than 50 percent of the voting, or equivalent,
interests in the subsidiary, and, in the case of a limited partnership
or limited liability company, the bank or an operating subsidiary
thereof is the sole general partner of the limited partnership or the
sole managing member of the limited liability company, provided that
under the partnership agreement or limited liability company agreement,
limited partners or other limited liability company members have no
authority to bind the partnership or limited liability company by virtue
solely of their status as limited partners or members; and
(iii) Is required to consolidate its financial statements with those
of the subsidiary under generally accepted accounting principles (GAAP).
(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 must 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 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 or 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 under Federal banking laws 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 in paragraph (e)(5)(ii) of this section,
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 or its
operating subsidiaries, including investment assets and property
acquired by the bank through foreclosure or otherwise in good faith to
compromise a doubtful claim, or in the ordinary course of collecting a
debt previously contracted;
(B) Providing services to or for the bank or its affiliates,
including accounting, auditing, appraising, advertising and public
relations, and financial advice and consulting;
(C) Making loans or other extensions of credit, and selling money
orders, savings bonds, and travelers checks;
(D) Purchasing, selling, servicing, or warehousing loans or other
extensions of credit, or interests therein;
(E) Providing courier services between financial institutions;
(F) Providing management consulting, operational advice, and
services for other financial institutions;
(G) Providing check guaranty, verification and payment services;
(H) Providing data processing, data warehousing and data
transmission products, services, and related activities and facilities,
including associated equipment and technology, for the bank or its
affiliates;
[[Page 311]]
(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 for national banks; \2\
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\2\ 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.gov).
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(S) Offering correspondent services to the extent permitted by
published OCC precedent for national banks;
(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 for national banks, 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 for national banks, subject to the terms and
conditions contained in that precedent;
(Z) Providing data processing, and data transmission services,
facilities (including equipment, technology, and 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 for national banks;
(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 for national banks;
(CC) Providing payroll processing;
[[Page 312]]
(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 perform 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 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; and
(D) The standards set forth in paragraphs (e)(5)(ii)(A)(2) and (3)
of this section are satisfied.
(vii) Fiduciary powers. (A) If an operating subsidiary proposes to
accept fiduciary appointments for which fiduciary powers are required,
such as acting as trustee or executor, then the national bank must have
fiduciary powers under 12 U.S.C. 92a and the subsidiary also must have
its own fiduciary powers under the law applicable to the subsidiary.
(B) Unless the subsidiary is a registered investment adviser, 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 and 12 CFR part 9.
(viii) Expiration of approval. Approval expires if the national bank
has not established or acquired the operating subsidiary, or commenced
the new activity in an existing operating subsidiary within 12 months
after the date of the approval, unless the OCC shortens or extends the
time period.
(6) Grandfathered operating subsidiaries. Notwithstanding the
requirements for a qualifying operating subsidiary in paragraph (e)(2)
of this section 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)(7)(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)(7) 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
[[Page 313]]
code), email address (if any), and telephone number of the operating
subsidiary;
(C) The principal place of business of the operating subsidiary, if
different from the address provided pursuant to paragraph (e)(7)(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 Internet Web page at 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 Annual Report on
Operating Subsidiaries on or before January 31st each year. 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 at www.helpwithmybank.gov.
[80 FR 28444, May 18, 2015]
Sec. 5.35 Bank service company investments by a national bank or
Federal savings association investment.
(a) Authority. 12 U.S.C. 93a, 1462a, 1463, 1464, 1861-1867,
5412(b)(2)(B).
(b) Licensing requirements. Except where otherwise provided, a
national bank or Federal savings association 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 by a national bank or
Federal savings association to invest in the equity of a bank service
company. The OCC may, at any time, limit a national bank's or Federal
savings association's investment in a bank service company or may limit
or refuse to permit any activities in any bank service company for which
a national bank or Federal savings association is the principal investor
for supervisory, legal, or safety and soundness reasons.
(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 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 (as defined in section 3 of the
Federal Deposit Insurance Act), a savings association (as defined in
section 3 of the Federal Deposit Insurance Act), a financial institution
subject to examination by the appropriate Federal banking agency or the
National Credit Union Administration Board, or a financial institution
the accounts or deposits of which are insured or guaranteed under state
law and are 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
[[Page 314]]
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 institutions have equal
amounts invested and no other insured depository institution has a
larger amount invested, the bank service company shall designate one of
those insured depository institutions as its principal investor.
(e) Standards and requirements. A national bank or Federal savings
association 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 or Federal savings association and other insured depository
institution shareholders or members of the bank service company.
(f) Procedures--(1) OCC notice and approval required. Except as
provided in paragraphs (f)(3) and (f)(4) of this section, a national
bank or Federal savings association that intends to invest in the equity
of 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 notice must include the information required by
paragraph (g) of this section. 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.
(2) Expedited review for certain activities. (i) A notice to invest
in the equity of a bank service company, or to perform new activities in
an existing bank service company, that meets the requirements of this
paragraph is deemed approved by the OCC as of the 30th day after the
notice is received by the OCC, unless the OCC notifies the filer prior
to that date that the filing is not eligible for expedited review or the
expedited review process is extended. Any bank or savings association
making an investment pursuant to 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.
(ii) A notice is eligible for expedited review if all of the
following requirements are met:
(A) The national bank or Federal savings association is ``well
capitalized'' and ``well managed'' as defined in Sec. 5.34(d) or Sec.
5.38(d), as applicable; and
(B) The bank service company engages only in activities that are
permissible for the bank service company under 12 U.S.C. 1864 and that
are listed in Sec. 5.34(e)(5)(v) or Sec. 5.38(e)(5)(v), as applicable.
(3) Investments requiring no approval or notice. A national bank or
Federal savings association does not need to submit a notice or obtain
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 only 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 functions.
(4) Federal Reserve approval. A national bank or Federal savings
association 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 company. However, if the OCC concludes that an application
presents significant or novel policy, supervisory, or legal issues, the
OCC may determine that any or all provisions of Sec. Sec. 5.8, 5.10,
and 5.11 apply.
[[Page 315]]
(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 and a representation and undertaking that the
activities will be conducted in accordance with OCC guidance. To the
extent the notice relates to the initial affiliation of the national
bank or Federal savings association with a company engaged in insurance
activities, the national bank or Federal savings association should
describe the type of insurance activity that the company is engaged in
and has present plans to conduct. The national bank or Federal savings
association 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;
(3) A complete description of the national bank's or Federal savings
association's investment in the bank service company and information
demonstrating that the national bank or Federal savings association 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 or Federal savings association 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 or Federal savings
association. 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 national bank or Federal savings
association may not invest more than 10 percent of its capital and
surplus in a bank service company. In addition, the national bank's or
Federal savings association's total investments in all bank service
companies may not exceed five percent of the national bank's or Federal
savings association's total assets.
[80 FR 28448, May 18, 2015]
Sec. 5.36 Other equity investments by a national bank.
(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.
(3) Well managed has the meaning set forth in Sec. 5.34(d)(3).
(d) Procedure. (1) A national bank must provide the appropriate OCC
licensing 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 (d)(1) of this section
must include a description, and the amount, of the bank's investment.
[[Page 316]]
(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 OCC licensing 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. 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.
[[Page 317]]
(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)(1). 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 OCC licensing office no later than
10 days after making the 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)(1) 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; 79 FR 11310, Feb. 28, 2014; 80 FR 28449, May 18, 2015]
Sec. 5.37 Investment in national bank or Federal savings
association premises.
(a) Authority. 12 U.S.C. 29, 93a, 317d, 1464(c)(2), 1464(c)(4)(B),
1828(m), and 5412(b)(2)(B).
(b) Scope. This section addresses a national bank's or Federal
savings association's investment in banking premises and other premises-
related investments, loans, or indebtedness. This section also sets
forth the quantitative investment limitations and procedures governing
the OCC's review and approval of an application by a national bank or
Federal savings association to invest in these premises.
(c) Definitions. The following definitions apply for purposes of
this section.
(1) Banking premises includes:
(i) Premises that are owned and occupied (or to be occupied, if
under construction) by a national bank or Federal savings association,
its respective branches, or its consolidated subsidiaries;
(ii) Capitalized leases and leasehold improvements, vaults, and
fixed machinery and equipment;
(iii) Remodeling costs to existing premises;
(iv) Real estate acquired and intended, in good faith, for use in
future expansion; or
(v) Parking facilities that are used by customers or employees of
the national bank or Federal savings association.
[[Page 318]]
(2) Capital stock means, for national banks and Federal stock
savings associations, the amount of common stock outstanding and
unimpaired plus the amount of perpetual preferred stock outstanding and
unimpaired. With respect to Federal mutual savings associations,
``capital stock'' should be read to mean the amount of the association's
retained earnings.
(3) Capital and surplus means:
(i) For qualifying community banking organizations that have elected
to use the community bank leverage ratio framework, as set forth under
the OCC's Capital Adequacy Standards at part 3 of this chapter:
(A) A qualifying community banking organization's tier 1 capital, as
used under Sec. 3.12 of this chapter; plus
(B) A qualifying community banking organization's allowance for loan
and lease losses or adjusted allowances for credit losses, as
applicable, as reported in the Consolidated Reports of Condition and
Income (Call Report); or
(ii) For all other national banks and Federal savings associations:
(A) A national bank's or Federal savings association's tier 1 and
tier 2 capital calculated under part 3 of this chapter, as applicable,
as reported in the Call Report; plus
(B) The balance of a national bank's or Federal savings
association's allowance for loan and lease losses or adjusted allowances
for credit losses, as applicable, not included in the bank's or savings
association's tier 2 capital, for purposes of the calculation of risk-
based capital described in paragraph (c)(3)(ii)(A) of this section, as
reported in the Call Report.
(d) Procedure--(1) Premises application--(i) When required. A
national bank or Federal savings association shall submit an application
to the appropriate OCC supervisory office to invest in banking premises,
or in the stock, bonds, debentures, or other such obligations of any
corporation holding the premises of the national bank or Federal savings
association, 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 national bank or Federal savings association, as
defined in 12 U.S.C. 221a or 12 U.S.C. 1462, respectively, will exceed
the amount of the capital stock of the national bank or Federal savings
association, or, in the case of a Federal mutual savings association the
amount of retained earnings.
(ii) Contents of premises application. The application must include:
(A) A description of the national bank's or Federal savings
association's present investment in banking premises;
(B) The investment in banking premises that the national bank or
Federal savings association intends to make, and the business reason for
making the investment; and
(C) The amount by which the national bank's or Federal savings
association's aggregate investment will exceed the amount of the
national bank's or Federal stock savings association's capital stock,
or, in the case of a Federal mutual savings association, the amount of
retained earnings.
(2) Approval of premises application. An application from a national
bank or Federal savings association to invest in banking premises or in
certain banking 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 national bank or Federal savings association prior to that
date that the filing presents a significant supervisory or compliance
concern, or raises a significant legal or policy issue. An approval for
a specified amount under this section remains valid up to that amount
until the OCC notifies the national bank or Federal savings association
otherwise.
(3) Premises notice process--(i) General rule. Notwithstanding
paragraph (d)(1)(i) of this section, a national bank or Federal savings
association that is rated 1 or 2 under the Uniform Financial
Institutions Rating System (CAMELS) may make an aggregate investment in
banking premises up to 150 percent of the national bank's or Federal
savings association's capital and surplus without the OCC's prior
approval, provided that the national bank or Federal savings association
is well
[[Page 319]]
capitalized as defined in 12 CFR part 6 and will continue to be well
capitalized after the investment or loan is made. However, the national
bank or Federal savings association shall notify the appropriate OCC
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 national bank's or Federal savings association's
investment or loan.
(ii) Exception. If a Federal savings association that would
otherwise be eligible for the premises notice process described in
paragraph (d)(3)(i) of this section proposes to establish or acquire a
subsidiary to make an investment in banking premises, or if investing in
banking premises would be a new activity for such a subsidiary, the
Federal savings association would not be eligible for the premises
notice process and would be required to comply with the provisions of
Sec. 5.59 in the case of a service corporation, or Sec. 5.38 in the
case of an operating subsidiary.
(4) Service corporation. A Federal savings association that invests
in banking premises through a service corporation is not subject to the
premises application and premises notice requirements of paragraph (d)
of this section; however, it must include this investment when
calculating the quantitative limitations in paragraph (d) of this
section, and must comply with 12 CFR 5.59.
(5) 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 or 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.
[80 FR 28449, May 18, 2015, as amended at 84 FR 4240, Feb. 14, 2019; 84
FR 61794, Nov. 13, 2019; 84 FR 69297, Dec. 18, 2019]
Sec. 5.38 Operating subsidiaries of a Federal savings association.
(a) Authority. 12 U.S.C. 1462a, 1463, 1464, 1465, 1828,
5412(b)(2)(B).
(b) Licensing requirements. When required by section 18(m) of the
Federal Deposit Insurance Act, a Federal savings association must file
an 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 procedures for Federal savings associations engaging in
activities through an operating subsidiary. The OCC may, at any time,
limit a Federal savings association's investment in an operating
subsidiary or may limit or refuse to permit any activities in an
operating subsidiary for supervisory, legal, or safety and soundness
reasons.
(d) Definitions. For purposes of this section:
(1) Well capitalized means the capital level described in 12 CFR
6.4.
(2) Well managed means, unless otherwise determined in writing by
the OCC:
(i) The Federal savings association has received a composite rating
of 1 or 2 under the Uniform Financial Institutions Rating System in
connection with its most recent examination; or
(ii) In the case of any Federal savings association 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. (i) A
Federal savings association may conduct in an operating subsidiary
activities that are permissible for a Federal savings association to
engage in directly.
(ii) In addition to OCC authorization, before it begins business an
operating subsidiary also must comply with other laws applicable to it
and its proposed business, including applicable licensing or
registration requirements, if any, such as registration requirements
under securities laws.
(2) Qualifying subsidiaries. (i) An operating subsidiary in which a
Federal savings association may invest includes a corporation, limited
liability company, limited partnership, or similar entity if:
(A) The savings association has the ability to control the
management and operations of the subsidiary, and no other person or
entity exercises effective operating control over the subsidiary or has
the ability to influence the subsidiary's operations to an extent equal
to or greater than that of the savings association;
[[Page 320]]
(B) The parent savings association owns and controls more than 50
percent of the voting (or similar type of controlling) interest of the
operating subsidiary, or the parent savings association otherwise
controls the operating subsidiary and no other party controls a
percentage of the voting (or similar type of controlling) interest of
the operating subsidiary greater than the savings association's
interest; and
(C) The operating subsidiary is consolidated with the savings
association under generally accepted accounting principles (GAAP).
(ii) Subject to the requirements in this section, a Federal savings
association may hold another insured depository institution as an
operating subsidiary.
(iii) However, the following subsidiaries are not operating
subsidiaries subject to this section:
(A) A subsidiary in which the savings association's investment is
made pursuant to specific authorization in a statute or OCC regulation
(e.g., a service corporation under 12 U.S.C. 1464(c)(4) or a bank
service company under 12 U.S.C. 1861 et seq.); and
(B) A subsidiary in which the savings association 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.
(iv) Notwithstanding the requirements of paragraph (e)(2)(i) of this
section:
(A) A Federal savings association must have reasonable policies and
procedures to preserve the limited liability of the savings association
and its operating subsidiaries; and
(B) OCC regulations shall not be construed as requiring a Federal
savings association and its operating subsidiaries to operate as a
single entity.
(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 Federal savings association, unless otherwise
specifically provided by statute, regulation, or published OCC policy,
including sections 1045 and 1046 of the Dodd-Frank Wall Street Reform
and Consumer Protection Act (12 U.S.C. 25b and 1465) with respect to the
application of state law. If 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 savings association, the OCC will direct the
savings association or operating subsidiary to take appropriate remedial
action, which may include requiring the savings association 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) Except as provided in paragraph
(e)(4)(ii) of this section, pertinent book figures of the parent Federal
savings association 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. 1464(c) and 1464(u).
(ii) Consolidation for purposes of calculating portfolio assets and
qualified thrift investments is subject to 12 U.S.C. 1467a(m)(5).
(5) Procedures--(i) Application required. (A) A Federal savings
association must first submit an application to, and receive prior
approval from, the OCC to establish or acquire an operating subsidiary,
or to perform a new activity in an existing operating subsidiary.
(B) The application must explain, as appropriate, how the savings
association ``controls'' the enterprise, describing in full detail
structural arrangements where control is based on factors other than
savings association 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 or limited
[[Page 321]]
liability company that does not qualify for the expedited review
procedure set forth in paragraph (e)(5)(ii) of this section, the savings
association must provide a statement explaining why it is not eligible.
The application also must include a complete description of the savings
association's investment in the subsidiary, the proposed activities of
the subsidiary, the organizational structure and management of the
subsidiary, the relations between the savings association 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 savings association with a company engaged in
insurance activities, the savings association must describe the type of
insurance activity in which the company is engaged and has present plans
to conduct. The savings association 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 home office or a previously approved branch of the
savings association. 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 prefiling meeting with the OCC. Any savings
association 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.
(ii) Expedited review. (A) An application to establish or acquire an
operating subsidiary, or to perform a new activity in an existing
operating subsidiary, that meets the requirements of this paragraph 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, or the
expedited review process is extended under Sec. 5.13(a)(2). Any savings
association 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.
(B) An application is eligible for expedited review if all of the
following requirements are met:
(1) The savings association is ``well capitalized'' and ``well
managed'';
(2) The activity is listed in paragraph (e)(5)(v) this section;
(3) The entity is a corporation, limited liability company, or
limited partnership; and
(4) The savings association:
(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 or
a limited liability company, has the ability to control the management
and operations of the subsidiary by controlling the selection and
termination of senior management), and no other person or entity has the
ability to control the management or operations of the subsidiary;
(ii) Holds more than 50 percent of the voting, or equivalent,
interests in the subsidiary, and, in the case of a limited partnership
or limited liability company, the savings association or an operating
subsidiary thereof is the sole general partner of the limited
partnership or the sole managing member of the limited liability
company, provided that under the partnership agreement or limited
liability company agreement, limited partners or other limited liability
company members have no authority to bind the partnership or limited
liability company by virtue solely of their status as limited partners
or members; and
(iii) Is required to consolidate its financial statements with those
of the subsidiary under generally accepted accounting principles (GAAP).
An applicant proposing to qualify for expedited review must include in
the application all necessary information showing the application meets
the requirements.
(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
[[Page 322]]
presents significant or 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 Federal savings
association's application to determine whether the proposed activities
are legally permissible under Federal savings association law 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 Federal savings association. As part of this process, the
OCC may request additional information and analysis from the applicant.
(v) Activities eligible for expedited review. The following
activities qualify for the expedited review procedures in paragraph
(e)(5)(ii) of this section, provided the activity is conducted pursuant
to the same terms and conditions as would be applicable if the activity
were conducted directly by a Federal savings association:
(A) Holding and managing assets acquired by the parent savings
association or its operating subsidiaries, including investment assets
and property acquired by the savings association 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 savings association 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 and travelers checks;
(D) Purchasing, selling, servicing, or warehousing loans or other
extensions of credit, or interests therein;
(E) Providing management consulting, operational advice, and
services for other financial institutions;
(F) Providing check payment services;
(G) 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;
(H) 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;
(I) Underwriting and reinsuring credit life and disability
insurance;
(J) Leasing of personal property;
(K) Providing securities brokerage;
(L) Underwriting and dealing, including making a market, in savings
association permissible securities and purchasing and selling as
principal, asset backed obligations;
(M) Acting as an insurance agent or broker for credit life,
disability, and unemployment insurance; single property interest
insurance; and title insurance;
(N) Offering correspondent services to the extent permitted by
published OCC precedent for Federal savings associations;
(O) Acting as agent or broker in the sale of fixed annuities;
(P) Offering debt cancellation or debt suspension agreements;
(Q) Providing escrow services;
(R) Acting as a transfer agent; and
(S) Providing or selling postage stamps.
(vi) Redesignation. A Federal savings association that proposes to
redesignate a service corporation as an operating subsidiary must submit
a notification to the OCC at least 30 days prior to the redesignation
date. The notification must include a description of how the
redesignated service corporation meets all of the requirements of this
section to be an operating subsidiary, a resolution of the savings
association's board of directors approving the redesignation, and the
proposed effective date of the redesignation. The savings association
may effect the redesignation on the proposed date unless the OCC
notifies the savings association otherwise prior to that date. The OCC
may require an application if the redesignation presents policy,
supervisory, or legal issues.
[[Page 323]]
(vii) Fiduciary powers. (A) If an operating subsidiary proposes to
accept fiduciary appointments for which fiduciary powers are required,
such as acting as trustee or executor, then the Federal savings
association must have fiduciary powers under 12 U.S.C. 1464(n) and the
subsidiary also must have its own fiduciary powers under the law
applicable to the subsidiary.
(B) Unless the subsidiary is a registered investment adviser, if an
operating subsidiary proposes to exercise investment discretion on
behalf of customers or provide investment advice for a fee, the Federal
savings association must have prior OCC approval to exercise fiduciary
powers pursuant to Sec. 5.26 (or a predecessor provision) and 12 CFR
part 150.
(viii) Expiration of approval. Approval expires if the Federal
savings association has not established or acquired the operating
subsidiary, or commenced the new activity in an existing operating
subsidiary within 12 months after the date of the approval, unless the
OCC shortens or extends the time period.
(6) Grandfathered operating subsidiaries. Notwithstanding the
requirements for a qualifying operating subsidiary in paragraph (e)(2)
of this section and unless otherwise notified by the OCC with respect to
a particular operating subsidiary, an entity that a Federal savings
association lawfully acquired or established as an operating subsidiary
before May 18, 2015, may continue to operate as a Federal savings
association operating subsidiary under this section, provided that the
savings association and the operating subsidiary were, and continue to
be, conducting authorized activities in compliance with the standards
and requirements applicable when the savings association established or
acquired the operating subsidiary.
(7) Issuances of securities by operating subsidiaries. An operating
subsidiary shall not state or imply that the securities it issues are
covered by Federal deposit insurance. An operating subsidiary shall not
issue any security the payment, maturity, or redemption of which may be
accelerated upon the condition that the controlling Federal savings
association is insolvent or has been placed into receivership. For as
long as any securities are outstanding, the controlling Federal savings
association must maintain all records generated through each securities
issuance in the ordinary course of business, including but not limited
to a copy of the prospectus, offering circular, or similar document
concerning such issuance, and make such records available for
examination by the OCC.
[80 FR 28450, May 18, 2015]
Sec. 5.39 Financial subsidiaries of a national bank.
(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).
[[Page 324]]
(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).
(10) Tangible equity has the meaning set forth in 12 CFR 6.2.
(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
[[Page 325]]
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 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 not fewer than one issue of
outstanding debt that meets such standards of creditworthiness or other
criteria as the Secretary of the Treasury and the Federal Reserve Board
may jointly establish pursuant to Section 5136A of title LXII of the
Revised Statutes (12 U.S.C. 24a).
(4) Paragraph (g)(3) of this section 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 the national bank
may not consolidate the assets and liabilities of a financial subsidiary
with those of the bank and must deduct the aggregate amount of its
outstanding equity investment, including retained earnings, in its
financial subsidiaries from regulatory capital as provided by Sec.
3.22(a)(7) of this chapter;
(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
[[Page 326]]
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).
(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 OCC licensing 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 OCC licensing 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
[[Page 327]]
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 OCC licensing
office at least five business days prior to acquiring control of, or
holding an interest in, a financial subsidiary, or commencing a new
activity authorized pursuant to section 5136A(a)(2)(A)(i) of the Revised
Statutes in an existing subsidiary. The written notice must be labeled
``Financial Subsidiary Certification and Notice'' and must:
(i) List the bank's depository institution affiliates and certify
that the bank and each depository institution affiliate of the bank is
well capitalized and well managed;
(ii) Describe the activity or activities to be conducted in the
financial subsidiary. To the extent the notice relates to the initial
affiliation of the bank with a company engaged in insurance activities,
the bank should describe the type of insurance activity that the company
is engaged in and has present plans to conduct. The bank must also list
for each state the lines of business for which the company 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
[[Page 328]]
upon determining that the national bank, or, as applicable, its
affiliated depository institution, does not continue to meet the
requirements in paragraph (g)(1) or (2) of this section or the
safeguards in paragraph (h)(1), (2), (3), or (4) of this section. The
bank shall be deemed to have received such notice three business days
after mailing of the letter by the OCC;
(ii) Not later than 45 days after receipt of the notice under
paragraph (j)(1)(i) of this section, or any additional time as the OCC
may permit, the national bank shall execute an agreement with the OCC to
comply with the requirements in paragraphs (g)(1) and (2) and (h)(1),
(2), (3), and (4) of this section;
(iii) The OCC may impose limitations on the conduct or activities of
the national bank or any subsidiary of the national bank as the OCC
determines appropriate under the circumstances and consistent with the
purposes of section 5136A of the Revised Statutes; and
(iv) The OCC may require a national bank to divest control of a
financial subsidiary if the national bank does not correct the
conditions giving rise to the notice within 180 days after receipt of
the notice provided under paragraph (j)(1)(i) of this section.
(2) Eligible debt 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;
77 FR 35258, June 13, 2012; 78 FR 62275, Oct. 11, 2013; 79 FR 11310,
Feb. 28, 2014; 80 FR 28452, May 18, 2015]
Subpart D_Other Changes in Activities and Operations
Sec. 5.40 Change in location of a main office of a national bank
or home office of a Federal savings association.
(a) Authority. 12 U.S.C. 30, 93a, 1462a, 1463, 1464, 1828, 2901-2907
and 5412(b)(2)(B).
(b) 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 or by a Federal savings association to
change the location of its home office.\3\ A national bank or Federal
savings association shall follow the procedures described in paragraph
(c) of this section to relocate its main office or home office, as
applicable.
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\3\ A national bank's main office is the place identified in the
bank's original organization certificate under 12 U.S.C. 22 or the
subsequent location to which the main office has been changed under this
Sec. 5.40, 12 U.S.C. 30(b), or other applicable law, as reflected in
the national bank's amended articles of association. A Federal savings
association's home office is the office identified as such in the
savings association's original charter or the subsequent location to
which the home office has been changed under this Sec. 5.40, or other
applicable law, as reflected in the savings association's amended
charter. These terms are functionally the same but are used in our
regulations in order to be consistent with the relevant statutes that
govern national banks and Federal savings associations, respectively.
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(c) Licensing requirements and procedures--(1) Main office or home
office relocation to an authorized branch location within city, town, or
village limits. A national bank or Federal savings association may
change the location of its main office or home office, as applicable, to
an authorized branch location (approved or existing branch site) within
the limits of the same city, town, or village. The national bank or
Federal
[[Page 329]]
savings association shall give prior notice to the appropriate OCC
licensing office before the relocation. The notice must include the new
address of the main office or home office, as applicable, and the
effective date of the relocation.
(2) To any other location--(i) National banks. A national bank shall
submit an application to the appropriate OCC licensing office and obtain
prior OCC approval to relocate its main office to any other location in
the city, town, or village in which the main office of the bank is
located other than an authorized branch location or to any other
location within 30 miles of the limits of such city, town, or village.
If relocating the main office outside the limits of its city, town, or
village, a national bank shall also obtain the approval of shareholders
owning two-thirds of the voting stock of the bank and shall amend its
articles of association.
(ii) Federal savings associations. A Federal savings association
shall submit an application to the appropriate OCC licensing office and
obtain prior OCC approval to relocate its home office to any location
other than an authorized branch location within the city, town, or
village in which the home office of the savings association is located.
If relocating the home office outside the limits of its city, town, or
village, a Federal savings association shall obtain any shareholder
approval required under its charter for such relocation and shall amend
its charter.
(3) Establishment of a branch at site of former main office or home
office. A national bank or Federal savings association desiring to
establish a branch at its former main office or home office location, as
applicable, shall follow the provisions of Sec. 5.30 or Sec. 5.31,
respectively.
(4) Expedited review. A main office or home office relocation
application submitted by an eligible national bank or eligible Federal
savings association under paragraph (c)(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
(or in the case of a short-distance relocation the 30th day after the
filing is received by the OCC), whichever is later, unless the OCC
notifies the bank or savings association 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 or home office
relocation to an authorized branch location within the limits of the
city, town, or village as described in paragraph (c)(1) of this section.
However, if the OCC concludes that the notice under paragraph (c)(1) of
this section presents a significant or 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
(c)(2) of this section to engage in a short-distance relocation of a
main office or home office is 15 days.
(d) Expiration of approval. Approval expires if the national bank or
Federal savings association has not opened its main office or home
office, as applicable, at the relocated site within 18 months of the
date of approval, unless the OCC grants an extension.
[80 FR 28452, May 18, 2015]
Sec. 5.42 Corporate title of a national bank or Federal savings
association.
(a) Authority. 12 U.S.C. 21a, 30, 93a, 1462a, 1463, 1464, 1467a,
2901 et. seq. and, 5412(b)(2)(B).
(b) Scope. This section describes the method by which a national
bank or Federal savings association may change its corporate title.
(c) Standards. (1) A national bank or Federal savings association
may change its corporate title provided that the new title complies with
applicable 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.
(2) For a national bank, the new title must include the word
``national.''
(d) Procedures--(1) Notice process. A national bank or Federal
savings association shall promptly notify the appropriate OCC licensing
office if it changes its corporate title. The notice
[[Page 330]]
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) Amendment to charter. A Federal savings association shall change
its title by amending its charter in accordance with 12 CFR 5.21 or
5.22, as applicable.
(4) 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 or Federal
savings association's change of corporate title. However, if the OCC
concludes that the application presents a significant or 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.
[80 FR 28453, May 18, 2015]
Sec. 5.45 Increases in permanent capital of a Federal stock
savings association.
(a) Authority. 12 U.S.C. 1462a, 1463, 1464, 1467a, 1831o and
5412(b)(2)(B).
(b) Licensing requirements. Generally a Federal savings association
is not required to apply for an increase in capital unless the method of
increase itself requires a filing (such as issuance of a new class of
stock). However, in certain circumstances, a Federal stock savings
association is required to submit an application and obtain OCC
approval.
(c) Scope. This section describes procedures and standards relating
to a transaction resulting in an increase in a Federal stock savings
association's permanent capital.
(d) Exceptions to rules of general applicability. Sections 5.8,
5.10, and 5.11 do not apply to increases in a Federal stock savings
association'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 Federal savings association will attain specified capital levels
or ratios 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 Federal stock savings association other than for capital stock;
(iii) The amount transferred from retained net income; and
(iv) The amount transferred from retained net income reflecting
stock dividends.
(4) Permanent capital means the sum of capital stock and capital
surplus.
(5) Retained net income means the net income of a specified period
less the amount of all dividends and other capital distributions
declared in that period.
(f) Policy. In determining whether to approve a proposed increase in
a Federal stock savings association'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 savings association's capital
plan.
(g) Procedures--(1) When prior approval is required. A Federal stock
savings association must submit an application to the appropriate OCC
licensing office and obtain prior OCC approval to increase its permanent
capital if the savings association is:
(i) Required to receive OCC approval pursuant to letter, order,
directive, written agreement or otherwise;
(ii) Selling common or preferred stock for consideration other than
cash; or
(iii) Receiving a material noncash contribution to capital surplus.
(2) Content of application. The application must:
(i) Describe the type and amount of the proposed change in permanent
capital and explain the reason for the change;
[[Page 331]]
(ii) In the case of a material noncash contribution to capital,
provide a description of the method of valuing the contribution; and
(iii) State if the savings association 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.
(3) Expedited review. An eligible savings association's application
is deemed approved by the OCC 15 days after the date the OCC receives
the application, unless the OCC notifies the savings association prior
to that date that the application is not eligible for expedited review,
or the expedited review process is extended, under Sec. 5.13(a)(2).
(4) Notice of increase. (i) If prior approval is required pursuant
to this paragraph (g), after a savings association completes an increase
in capital it shall submit a notice to the appropriate OCC licensing
office. The notice must contain:
(A) The amount, including the par value of the stock, and effective
date of the increase;
(B) A certification that the funds have been paid in, if applicable;
and
(C) A statement that the savings association has complied with all
laws, regulations and conditions imposed by the OCC.
(5) Expiration of approval. Approval expires if a Federal savings
association has not completed its change in permanent capital within one
year of the date of approval.
(h) Offers and sales of stock. A savings association shall comply
with the Securities Offering Disclosure Rules in 12 CFR part 197 for
offers and sales of common and preferred stock.
(i) Shareholder approval. A savings association shall obtain the
necessary shareholder approval required by statute for any change in its
permanent capital.
[80 FR 28453, May 18, 2015, as amended at 82 FR 8104, Jan. 23, 2017]
Sec. 5.46 Changes in permanent capital of a national bank.
(a) Authority. 12 U.S.C. 21a, 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 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) Approval--(i) Prior approval
not required. If a national bank is not required to
[[Page 332]]
file an application and obtain prior approval under paragraph (g)(1)(ii)
of this section, the bank need not submit an application. It must submit
the notice of capital increase under paragraph (i)(3) of this section.
The increase in capital is deemed approved by the OCC as of the date the
increase was made, once the bank has filed the notice of capital
increase and the OCC certifies the increase, as provided in paragraph
(i)(3).
(ii) Prior approval required. A national bank must submit an
application under paragraph (i)(1) of this section and obtain prior OCC
approval to increase its permanent capital if 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.
The bank also must submit the notice of capital increase 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 OCC licensing 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 OCC licensing 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, or the expedited review process is
extended, under Sec. 5.13(a)(2). An eligible 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 of increase. (i) After a bank completes an increase in
capital it shall submit a notice to the appropriate OCC licensing
office. The notice must be acknowledged before a notary public by the
bank's president, vice president, or cashier and contain:
(A) A description of the transaction, unless already provided
pursuant to paragraph (i)(1) of this section;
(B) The amount, including the par value of the stock, and effective
date of the increase;
(C) A certification that the funds have been paid in, if applicable;
(D) A certified copy of the amendment to the articles of
association, if required; and
(E) A statement that the bank has complied with all laws,
regulations and conditions imposed by the OCC.
(ii) After it receives the notice of capital increase, the OCC
issues a certification specifying the amount of the increase and the
effective date (i.e., the
[[Page 333]]
date on which the increase occurred). In the case of a capital increase
for which prior approval was not required pursuant to paragraph
(g)(1)(i), the increase is deemed certified by the OCC seven days after
receipt of the notice if the OCC has not issued a certification prior to
that date.
(4) Notice of decrease. A national bank that decreases its capital
in accordance with paragraphs (i)(1) or (i)(2) of this section shall
notify the appropriate OCC licensing 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.
(6) Exception for accounting adjustments. (i) Changes to the
permanent capital accounts that result solely from application of U.S.
generally accepted accounting principles are not subject to the prior
approval or notice requirements in paragraph (i)(1), (3), or (4) of this
section, as applicable.
(ii) Within 30 days after the end of the quarter in which the
adjustment occurred, a bank must notify the OCC if the accounting
adjustment resulted in an increase or decrease to permanent capital in
an amount greater than 5% of the bank's total permanent capital prior to
the adjustments; or, if the bank is subject to a letter, order,
directive, written agreement, or otherwise related to changes in
permanent capital. The notification must include the amount and
description of the adjustment, including the applicable provision of
U.S. GAAP.
(j) Offers and sales of stock. A national bank shall comply with the
Securities Offering Disclosure Rules in 12 CFR part 16 for offers and
sales of common and preferred stock.
(k) Shareholder approval. A national bank shall obtain the necessary
shareholder approval required by statute for any change in its permanent
capital.
[80 FR 28454, May 18, 2015, as amended at 82 FR 8104, Jan. 23, 2017]
Sec. 5.47 Subordinated debt issued by a national bank.
(a) Authority. 12 U.S.C. 93a, 1831o, and 3907.
(b) Scope. This section sets forth the requirements applicable to
all subordinated debt notes issued by national banks and the procedures
for OCC review and approval of a national bank's application to issue or
prepay subordinated debt and a notice to include subordinated debt in
tier 2 capital.
(c) Definitions. The following definitions apply to this section:
Capital plan means a plan describing the means and schedule by which
a national bank will attain specified capital levels or ratios,
including a capital restoration plan filed with the OCC under 12 U.S.C.
1831o and 12 CFR 6.5.
Original maturity means the stated maturity of the subordinated debt
note. If the subordinated debt note does not have a stated maturity,
then original maturity means the earliest possible date the subordinated
debt note may be redeemed, repurchased, prepaid, terminated, or
otherwise retired by the national bank pursuant to the terms of the
subordinated debt note.
Payment on subordinated debt means principal and interest, and
premium, if any.
Tier 2 capital has the same meaning as set forth in 12 CFR 3.20(d).
(d) Requirements for issuance of subordinated debt. A national bank
issuing subordinated debt must satisfy the requirements of this
paragraph (d).
(1) Minimum terms. The terms of any subordinated debt note issued by
a national bank must:
(i) Have a minimum original maturity of at least five years;
(ii) Not be a deposit and not insured by the Federal Deposit
Insurance Corporation (FDIC);
(iii) Be subordinated to the claims of depositors;
(iv) Be unsecured, which would include prohibiting the establishment
of any legally enforceable fund earmarked for payment of the
subordinated debt note through:
(A) A sinking fund; or
(B) A compensating balance or any other funds or assets subject to a
legal right of offset, as defined by applicable state law;
(v) Be ineligible as collateral for a loan by the issuing national
bank;
(vi) Provide that once any scheduled payments of principal begin,
all scheduled payments shall be made at least
[[Page 334]]
annually and the amount repaid in each year shall be no less than in the
prior year; and
(vii) Provide that, where applicable, no payment (including payment
pursuant to an acceleration clause, redemption prior to maturity,
repurchase, or exercising a call option) shall be made without prior OCC
approval.
(2) Corporate authority. A subordinated debt note must not include
any provision or covenant that unduly restricts or otherwise acts to
unduly limit the authority of a national bank or interferes with the
OCC's supervision of the national bank. Specifically, this would include
a provision or covenant that:
(i) Maintains a certain minimum amount in its capital accounts or
other metric, such as minimum capital assets, liquidity, or loan ratios;
(ii) Unreasonably restricts a national bank's ability to raise
additional capital through the issuance of additional subordinated debt
or other regulatory capital instruments;
(iii) Provides for default and acceleration of the subordinated debt
as the result of a change in control, if such change in control results
from the OCC's exercise of its statutory authority to require a national
bank to sell stock in that national bank, enter into a merger or
consolidation, or be acquired by a bank holding company;
(iv) Requires the prior approval of a purchaser or holder of the
subordinated debt note in the case of a voluntary merger by a national
bank where the resulting institution:
(A) Assumes the due and punctual performance of all conditions of
the subordinated debt note and agreement; and
(B) Is not in default of the various covenants of the subordinated
debt; and
(v) Provides for default and acceleration of the subordinated debt
as the result of a default by a subsidiary (including a limited
liability company) of the national bank, unless:
(A) There is a separate agreement between the subsidiary and the
purchaser of the national bank's subordinated debt note; and
(B) Such agreement has been reviewed and approved by the OCC.
(3) Disclosure requirements. (i) A national bank must disclose
clearly on the face of any subordinated debt note the following language
in all capital letters:
(A) THIS OBLIGATION IS NOT A DEPOSIT AND IS NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION; and
(B) THIS OBLIGATION IS SUBORDINATED TO CLAIMS OF DEPOSITORS AND
GENERAL CREDITORS, IS UNSECURED, AND IS INELIGIBLE AS COLLATERAL FOR A
LOAN BY [INSERT NAME OF ISSUING NATIONAL BANK].
(ii) A national bank must disclose clearly and accurately in the
subordinated debt note:
(A) The order and level of subordination, and in addition to being
subordinated to the claims of depositors, provide that, at a minimum,
the subordinated debt note is subordinate and junior in its right of
payment to the obligations of all creditors, including both secured and
unsecured or general creditors, except those specifically designated as
ranking on a parity with, or subordinated to, the subordinated debt
note;
(B) A general description of the OCC's regulatory authority with
respect to a national bank in danger of insolvency that includes:
(1) With respect to insolvency, that the FDIC, acting as receiver,
has authority to transfer a national bank's obligation under the
subordinated debt note and to supersede or void any default,
acceleration, or subordination that may have occurred;
(2) If a national bank that is ``undercapitalized'' as defined by
applicable law fails to satisfactorily implement a required capital
restoration plan, the national bank may be subject to all the additional
restrictions and requirements applicable to a ``significantly
undercapitalized'' institution, as defined by applicable law, including
being required to sell shares in the national bank, being acquired by a
depository institution holding company, or being merged or consolidated
with another depository institution, and this authority supersedes and
voids any defaults that may have occurred; and
[[Page 335]]
(3) If a national bank is ``critically undercapitalized,'' as
defined by applicable law, the national bank is prohibited from making
principal or interest payments on the subordinated debt note without
prior regulatory approval; and
(C) A description of the OCC's authority under 12 CFR 3.11 to limit
distributions, including interest payments on any tier 2 capital
instrument if the national bank has full discretion to permanently or
temporarily suspend such payments without triggering an event of
default.
(iii) A national bank must comply with the Securities Offering
Disclosure Rules in 12 CFR part 16.
(e) Additional requirements to qualify as tier 2 capital. In order
to qualify as tier 2 capital, a national bank's subordinated debt must
meet the requirements in 12 CFR 3.20(d), including, for an advanced
approaches national bank, the disclosure requirement in 12 CFR
3.20(d)(1)(xi).
(f) Process and procedures--(1) Issuance of subordinated debt--(i)
Approval--(A) Eligible bank. An eligible bank is required to receive
prior approval from the OCC to issue any subordinated debt, in
accordance with paragraph (g)(1)(i) of this section, if:
(1) The national bank will not continue to be an eligible bank after
the transaction;
(2) The OCC has previously notified the national bank that prior
approval is required; or
(3) Prior approval is required by law.
(B) National bank not an eligible bank. A national bank that is not
an eligible bank must receive prior OCC approval to issue any
subordinated debt, in accordance with paragraph (g)(1)(i) of this
section.
(ii) Notice to include subordinated debt in tier 2 capital. All
national banks must notify the OCC, in accordance with paragraph (h) of
this section, within ten days after issuing subordinated debt that is to
be counted as tier 2 capital. Where a national bank's application to
issue subordinated debt has been deemed to be approved, in accordance
with paragraph (g)(2)(i) of this section, the national bank must notify
the OCC, pursuant to paragraph (h) of this section, after issuance of
the subordinated debt. A national bank may not include subordinated debt
as tier 2 capital unless the national bank has filed the notice with the
OCC and received notification from the OCC that the subordinated debt
issued by the national bank qualifies as tier 2 capital.
(2) Prepayment of subordinated debt--(i) Subordinated debt not
included in tier 2 capital--(A) Eligible bank. An eligible bank is
required to receive prior approval from the OCC to prepay any
subordinated debt that is not included in tier 2 capital (including
acceleration, repurchase, redemption prior to maturity, and exercising a
call option), in accordance with paragraph (g)(1)(ii) of this section,
only if:
(1) The national bank will not be an eligible bank after the
transaction;
(2) The OCC has previously notified the national bank that prior
approval is required;
(3) Prior approval is required by law; or
(4) The amount of the proposed prepayment is equal to or greater
than one percent of the national bank's total capital, as defined in 12
CFR 3.2.
(B) National bank not an eligible bank. A national bank that is not
an eligible bank must receive prior OCC approval to prepay any
subordinated debt that is not included in tier 2 capital (including
acceleration, repurchase, redemption prior to maturity, and exercising a
call option), in accordance with paragraph (g)(1)(ii) of this section.
(ii) Subordinated debt included in tier 2 capital--(A) General.
Notwithstanding paragraph (f)(2)(i)(B) of this section, all national
banks must receive prior OCC approval to prepay subordinated debt
included in tier 2 capital, in accordance with paragraph (g)(1)(ii)(A)
of this section.
(B) Call option. Notwithstanding this paragraph (f)(2)(ii)(A) of
this section, a national bank must receive prior OCC approval to prepay
subordinated debt included in tier 2 capital, in accordance with
paragraph (g)(2)(ii)(B) of this section, when the prepayment is a result
of exercising a call option.
(g) Prior approval procedure--(1) Application--(i) Issuance of
subordinated debt. A national bank required to obtain
[[Page 336]]
OCC approval before issuing subordinated debt shall submit an
application to the appropriate OCC licensing office. The application
must include:
(A) A description of the terms and amount of the proposed issuance;
(B) A statement of whether the national 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;
(C) A copy of the proposed subordinated note format and note
agreement; and
(D) A statement that the subordinated debt issue complies with all
applicable laws and regulations.
(ii) Prepayment of subordinated debt--(A) General. A national bank
required to obtain OCC approval before prepaying subordinated debt,
pursuant to paragraph (f)(2) of this section, shall submit an
application to the appropriate OCC licensing office. The application
must include:
(1) A description of the terms and amount of the proposed
prepayment;
(2) A statement of whether the national 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; and
(3) A copy of the subordinated debt instrument the national bank is
proposing to prepay.
(B) Call option. (1) Before prepaying subordinated debt if the
prepayment is in the form of a call option, a national bank is required
to obtain OCC approval, pursuant to paragraph (g)(2)(ii) of this
section, by submitting an application to the appropriate OCC licensing
office.
(2) In addition to the information required in this paragraph
(g)(1)(ii)(A) of this section, the application must include:
(i) A statement explaining why the national bank believes that
following the proposed prepayment the national bank would continue to
hold an amount of capital commensurate with its risk; or
(ii) A description of the replacement capital instrument that meets
the criteria for tier 1 or tier 2 capital under 12 CFR 3.20, including
the amount of such instrument, and the time frame for issuance.
(iii) Additional information. The OCC reserves the right to request
additional relevant information, as appropriate.
(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 national bank prior to that date that the filing
presents a significant supervisory, or compliance concern, or raises a
significant legal or policy issue.
(ii) Call option. Notwithstanding this paragraph (g)(2)(i) of this
section, if the application for prior approval is for prepayment in the
form of a call option, the national bank must receive affirmative
approval from the OCC to exercise the call option. If the OCC requires
the national bank to replace the subordinated debt, the national bank
must receive affirmative approval that the replacement capital
instrument meets the criteria for tier 1 or tier 2 capital under 12 CFR
3.20 and must issue the replacement instrument prior to exercising the
call option, or immediately thereafter.\4\
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\4\ A national bank may replace tier 2 capital instruments
concurrent with the redemption of existing tier 2 capital instruments.
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(iii) Tier 2 capital. Following notification to the OCC pursuant to
paragraph (f)(1)(ii) of this section that the national bank has issued
the subordinated debt, the OCC will notify the national bank whether the
subordinated debt qualifies as tier 2 capital.
(iv) Expiration of approval. Approval expires if a national bank
does not complete the sale of the subordinated debt within one year of
approval.
(h) Notice procedure for inclusion in tier 2 capital. (1) All
national banks shall notify the appropriate OCC licensing office in
writing within ten days after issuing subordinated debt that it intends
to include as tier 2 capital. A national bank may not include such
subordinated debt in tier 2 capital unless the national bank has
received notification from the OCC that the subordinated debt qualifies
as tier 2 capital.
(2) The notice must include:
(i) The terms of the issuance;
[[Page 337]]
(ii) The amount and date of receipt of funds;
(iii) A copy of the final subordinated note format and note
agreement; and
(iv) A statement that the issuance complies with all applicable laws
and regulations.
(i) Exceptions to rules of general applicability. Sections 5.8,
5.10, and 5.11 do not apply to transactions governed by this section.
[79 FR 75421, Dec. 18, 2014, as amended at 80 FR 28455, May 18, 2015]
Sec. 5.48 Voluntary liquidation of a national bank or Federal
savings association.
(a) Authority. 12 U.S.C. 93a, 181, 182, 1463, 1464, and
5412(b)(1)(B).
(b) Licensing requirements. A national bank or a Federal savings
association considering going into voluntary liquidation shall provide
preliminary notice to the OCC. The bank or savings association shall
also file a notice with the OCC once a liquidation plan is definite. The
bank or savings association may not begin liquidation unless the OCC has
notified it that the OCC does not object to the liquidation plan.
(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 or 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--(1) In general. In reviewing a proposed liquidation
plan, the OCC will consider:
(i) The purpose of the liquidation;
(ii) Its impact on the safety and soundness of the national bank or
Federal savings association; and
(iii) Its impact on the bank's or savings association's depositors,
other creditors, and customers.
(2) National banks. For national banks, the OCC also will review
liquidation plans for compliance with 12 U.S.C. 181 and 182.
(3) Federal mutual savings associations. For Federal mutual savings
associations, the OCC also will assess the advisability of, and
alternatives to, liquidation and the effect of liquidation on all
concerned.
(e) Procedure--(1) Preliminary notice of voluntary liquidation. A
national bank or Federal savings association that is considering going
into voluntary liquidation shall provide preliminary notice to the
appropriate OCC licensing office.
(2) Submission of liquidation plan and nonobjection. (i) After a
national bank or Federal savings association provides preliminary notice
under paragraph (e)(1) of this section, if the bank or savings
association plans to proceed with liquidation, it shall submit a
voluntary liquidation plan to the OCC. A liquidation plan may be
effected in whole or part through purchase and assumption transactions.
(ii) The national bank or Federal savings association must receive
the OCC's non-objection to the liquidation plan before beginning the
liquidation.
(3) Notice upon commencing liquidation--(i) In general. When the
board of directors and the shareholders of a solvent national bank or
Federal savings association, or in the case of a Federal mutual savings
association, the board of directors and the members, have voted to
voluntarily liquidate, the bank or savings association shall:
(A) File a notice with the appropriate OCC licensing office; and
(B) provide notice to depositors, other known creditors, and known
claimants of the bank or savings association.
(ii) National banks. A vote to liquidate a national bank must comply
with 12 U.S.C. 181. In addition, a national bank shall publish notice in
accordance with 12 U.S.C. 182.
(iii) Federal savings associations. A Federal savings association
shall publish public notice if so directed by the OCC.
(4) Report of condition. The national bank's or Federal savings
association's liquidating agent or committee shall submit a report to
the appropriate OCC licensing office at the start of liquidation showing
the bank's or savings association's balance sheet as of the start of
liquidation. The liquidating national bank or Federal savings
association shall submit reports of the condition of its commercial,
trust, and other departments to the appropriate OCC licensing office by
filing the quarterly
[[Page 338]]
Consolidated Reports of Condition and Income (Call Reports).
(5) Report of progress. The national bank's or Federal savings
association's liquidating agent or committee shall submit a ``Report of
Progress of Liquidation'' annually to the appropriate OCC licensing
office until the liquidation is complete.
(6) Final report. The national bank's or Federal savings
association's liquidating agent or committee shall submit a final report
at the conclusion of liquidation showing that all creditors have been
satisfied, remaining assets have been distributed to shareholders,
resolutions to dissolve the bank or savings association have been
adopted, and the bank or savings association has been dissolved. The
national bank or Federal savings association also shall return its
charter certificate to the OCC.
(f) Expedited liquidations in connection with acquisitions--(1) In
general. When an acquiring depository institution in a business
combination purchases all the assets, and assumes all the liabilities,
including all contingent liabilities, of a target national bank or
Federal savings association, the target national bank or Federal savings
association may be dissolved immediately after the combination. However,
if any liabilities will remain in the target national bank or Federal
savings association, then the standard liquidation procedures apply.
This paragraph (f) does not apply to dissolutions of Federal mutual
savings associations, which are subject to the standard liquidation
procedures.
(2) Procedure. After its board of directors and shareholders have
voted to liquidate and the national bank or Federal savings association
has notified the appropriate OCC licensing office of its plans, the bank
or savings association 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 all contingent liabilities, of the national bank or Federal
savings association in liquidation; and
(ii) The acquiring depository institution and the national bank or
Federal savings association in liquidation have published notice that
the bank or savings association will dissolve after the purchase and
assumption to the acquiror. This notice shall be included in the notice
and publication for the purchase and assumption required under the Bank
Merger Act, 12 U.S.C. 1828(c).
[80 FR 28455, May 18, 2015, as amended at 82 FR 8104, Jan. 23, 2017]
Sec. 5.50 Change in control of a national bank or Federal savings
association; reporting of stock loans.
(a) Authority. 12 U.S.C. 93a, 1817(j), and 1831aa.
(b) Licensing requirements. Any person seeking to acquire control of
a national bank or Federal savings association 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) In general. This section describes the procedures and
standards governing OCC review of notices for a change in control of a
national bank or Federal savings association and reports of stock loans.
(2) Exempt transactions. The following transactions are not subject
to the requirements of this section:
(i) The acquisition of additional shares of a national bank or
Federal savings association 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 Federal savings
association; or
(B) Under paragraph (f)(2)(ii) of this section, would be presumed to
have controlled that bank or Federal savings association 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 Federal savings
association; or, in other cases, where the OCC determines that the
person has controlled the bank or savings association continuously since
March 9, 1979;
(ii) Unless the OCC otherwise provides in writing, the acquisition
of additional shares of a national bank or
[[Page 339]]
Federal savings association by a person who has lawfully acquired and
maintained continuous control of the bank or Federal savings association
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(c) of Federal Deposit
Insurance Act, 12 U.S.C. 1828(c), or section 10 of the Home Owners' Loan
Act (HOLA), 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 (i) 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 or Federal savings association through testate
or intestate succession;
(ii) The acquisition of control as a result of acquisition of voting
shares of a national bank or Federal savings association as a bona fide
gift;
(iii) The acquisition of voting shares of a national bank or Federal
savings association resulting from a redemption of voting securities;
(iv) The acquisition of control of a national bank or Federal
savings association 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 or Federal savings association in
satisfaction of a debt previously contracted in good faith.
(A) ``Good faith'' means that a person must either make, renew, or
acquire a loan secured by voting securities of a national bank or
Federal savings association in advance of any knowledge of a default or
of the substantial likelihood that a default is forthcoming. A person
who purchases a previously defaulted loan, or a loan for which there is
a substantial likelihood of default, secured by voting securities of a
national bank or Federal savings association 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 or
Federal savings association 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 or a
Federal savings association'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) Acquire when used in connection with the acquisition of stock of
a national bank or Federal 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, pledge, exchange,
succession, or other disposition of voting stock, including:
(i) 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
(ii) 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.
(2) Acting in concert means:
(i) Knowing participation in a joint activity or parallel action
towards a common goal of acquiring control
[[Page 340]]
whether or not pursuant to an express agreement; or
(ii) A combination or pooling of voting or other interests in the
securities of an issuer for a common purpose pursuant to any contract,
understanding, relationship, agreement, or other arrangement, whether
written or otherwise.
(3) Company means any corporation, partnership, trust, association,
joint venture, pool, syndicate, unincorporated organization, joint-stock
company or similar organization.
(4) Control means the power, directly or indirectly, to direct the
management or policies of a national bank or Federal savings association
or to vote 25 percent or more of any class of voting securities of a
national bank or Federal savings association.
(5) 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.
(6) Federal savings association means a Federal savings association
or a Federal savings bank chartered under section 5 of the HOLA.
(7) 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.
(8) Insured depository institution means an insured depository
institution as defined in 12 U.S.C. 1813(c)(2).
(9) 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 national bank, savings
association, or a company, whether or not incorporated.
(10) Notice means a filing by a person in accordance with paragraph
(f) of this section.
(11) 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.
(12) Similar organization for purposes of paragraph (d)(3) 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:
(i) The transferability and voting of any stock or other indicia of
participation in another entity, or
(ii) Achievement of a common or shared objective, such as to
collectively manage or control another entity.
(13) Stock means common or preferred stock, general or limited
partnership shares or interests, or similar interests.
(14) Voting securities means:
(i) Shares of stock, 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 Federal savings association, or to vote on or to direct
the conduct of the operations or other significant policies of the
issuing national bank or Federal savings association. 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
[[Page 341]]
national bank, or the payment of dividends by the issuing national bank
or Federal savings association 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 or Federal savings association; 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 or Federal savings association.
(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) In general. The OCC seeks to enhance and maintain
public confidence in the banking system by preventing a change in
control of a national bank or Federal savings association that could
have serious adverse effects on a national bank's or Federal savings
association's financial stability or management resources, the interests
of the bank's or Federal savings association's customers, the 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, other than indirectly through the acquisition of shares of
a bank holding company, they are subject to the notice requirements of
this section.
(ii) Certain transactions, including foreclosures by depository
institutions and other institutional lenders, fiduciary acquisitions by
depository institutions, and increases of majority holdings by bank
holding companies, are described in sections 2(a)(5)(D) and 3(a) (A) and
(B) of the Bank Holding Company Act, 12 U.S.C. 1841(a)(5)(D) and 12
U.S.C. 1842(a) (A) and (B), but do not require the Federal Reserve
Board's prior approval. For purposes of this section, they are
considered subject to section 3 of the Bank Holding Company Act, 12
U.S.C. 1842, and do not require either a prior or subsequent notice to
the OCC under this section.
(3) Assessing financial condition. In assessing the financial
condition of the acquiring person, the OCC weighs any debt servicing
requirements in light of the acquiring person's overall financial
strength; the institution's earnings performance, asset condition,
capital adequacy, and future prospects; and the likelihood of the
acquiring party making unreasonable demands on the resources of the
institution.
(f) Procedures--(1) Exceptions to rules of general applicability.
Sections 5.8(a), 5.9, 5.10, 5.11, and 5.13(a) through (f) do not apply
to filings under this section. When complying with Sec. 5.8(b) no
address is required for a notice filed by one or more individuals 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 or
Federal savings association, 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 following persons shall be presumed to be acting in concert
for purposes of this section:
(A) A company and any controlling shareholder, partner, trustee or
management official of such company if both the company and the person
own stock in the national bank or Federal savings association;
(B) A person and the members of the person's immediate family;
(C) Companies under common control;
(D) Persons that have made, or propose to make, a joint filing under
section 13 or 14 of the Securities Exchange Act of 1934, and the rules
thereunder promulgated by the Securities and Exchange Commission;
(E) 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
[[Page 342]]
as defined in Sec. 192.25 of this chapter 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; and
(F) Persons that are parties to any agreement, contract,
understanding, relationship, or other arrangement, whether written or
otherwise, regarding the acquisition, voting or transfer of control of
voting securities of a national bank or Federal savings association,
other than through a revocable proxy in connection with a proxy
solicitation for the purposes of conducting business at a regular or
special meeting of the institution, if the proxy terminates within a
reasonable period after the meeting.
(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, 10 percent or more of a
class of voting securities of a national bank or Federal savings
association is an acquisition by a person of the power to direct the
bank's or savings association'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) The OCC will consider a rebuttal of the presumption of control
where the person or company intends to have no more than one
representative on the board of directors of the national bank or Federal
savings association.
(v) The presumption of control may not be rebutted if the total
equity investment by the person or company in the national bank or
Federal savings association, including 15 percent or more of any class
of voting securities, equals or exceeds one third of the total equity of
the national bank or Federal savings association.
(vi) Other transactions resulting in a person's control of less than
25 percent of a class of voting securities of a national bank or Federal
savings association are not deemed by the OCC to result in control for
purposes of this section.
(vii) If two or more persons, not acting in concert, each propose to
acquire simultaneously equal percentages of 10 percent or more of a
class of a national bank's or Federal savings association'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 or Federal savings
association 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.
(viii) An acquiring person may seek to rebut a presumption
established in paragraph (f)(2)(ii) or (iii) of this section by
presenting relevant information in writing to the appropriate OCC
licensing office. The OCC shall respond in writing to any person that
seeks to rebut the presumption of control or the presumption of
concerted action. 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 the information required under 12 U.S.C.
1817(j)(6)(A), and the information prescribed in the Interagency
Biographical and Financial Report. This form is available on the OCC's
Internet Web page, www.occ.gov. 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
[[Page 343]]
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 OCC licensing office sends a letter of acknowledgment to the
applicant indicating the technically complete date.
(B) As set forth in paragraph (g) of this section, the applicant
shall publish an announcement within 10 days of filing the notice with
the OCC. The publication of the announcement triggers a 20-day public
comment period. The OCC may waive or shorten the public comment period
if an emergency exists. The OCC also may shorten the comment period for
other good cause. The OCC may act on a proposed change in control prior
to the expiration of the public comment period if the OCC makes a
written determination that an emergency exists.
(C) An applicant shall notify the OCC immediately of any material
changes in a notice submitted to the OCC, including changes in financial
or other 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 for up to an
additional 30 days. The period or the OCC's review of a notice may be
further extended not 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
acquirer because of any delay caused by, or the inadequate cooperation
of, such acquirer; 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.
(iv) 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. (See 12 U.S.C.
1817(j)(5).)
(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 Federal savings association or
prejudice the interests of the depositors of the bank or Federal savings
association;
(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 Federal
savings association, or in the interest of the public, to permit that
person to control the bank or Federal savings association;
(v) An acquiring person neglects, fails, or refuses to furnish the
OCC all the information it requires; or
[[Page 344]]
(vi) The OCC determines that the proposed transaction would result
in an adverse effect on the Deposit Insurance Fund.
(6) Disapproval notification. If the OCC disapproves a notice, it
will notify the proposed acquiring person in writing 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 or Federal savings association is
located within 10 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 or Federal
savings association 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 or Federal savings
association to be acquired, including situations where the OCC must act
immediately in order to prevent the probable failure of a national bank
or Federal savings association, 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 or Federal savings association 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 OCC supervisory office of the national bank or Federal
savings association 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 or Federal
savings association.
(ii) The foreign bank, or any affiliate thereof, shall also file a
copy of the report with its appropriate OCC supervisory office if that
office is different from the national bank's or Federal savings
association's appropriate OCC supervisory 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 or Federal savings association
held by the foreign bank, or any affiliate thereof, as principal must be
included in the calculation of the number of shares in which the foreign
bank or any affiliate thereof has a security interest for purposes of
paragraph (h)(1)(i) of this section.
(2) Definitions. For purposes of this paragraph (i):
(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.
[[Page 345]]
(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 or Federal savings
association, including an acquisition of shares of the same national
bank or Federal savings association 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 (i)(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 OCC licensing office in connection
with a notice filed under this section or any other application filed
with the appropriate OCC licensing office as a substitute for a notice
under this section, such as for a national bank or Federal savings
association 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 or Federal savings association, before the bank's or
Federal savings association'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 or Federal savings association.
(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
OCC supervisory office.
[80 FR 28456, May 18, 2015, as amended at 82 FR 8104, Jan. 23, 2017]
Sec. 5.51 Changes in directors and senior executive officers of a
national bank or Federal savings association.
(a) Authority. 12 U.S.C. 1831i and 12 U.S.C. 5412(b)(2)(B).
(b) Scope. This section describes the circumstances when a national
bank or a Federal savings association 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 an individual who serves on the
board of directors of a national bank or a Federal savings association,
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 or any committee of the board of
directors and provides solely general policy advice to the board of
directors or any committee.
(2) Federal savings association means a Federal savings association
or Federal savings bank chartered under 12 U.S.C. 1464.
(3) National bank includes a Federal branch for purposes of this
section only.
(4) Senior executive officer means the president, chief executive
officer, chief operating officer, chief financial officer, chief lending
officer, chief investment officer, and any other individual the OCC
identifies in writing to the national bank or Federal savings
association who exercises significant influence
[[Page 346]]
over, or participates in, major policy making decisions of the national
bank or Federal savings association without regard to title, salary, or
compensation. The term also includes employees of entities retained by a
national bank or Federal savings association 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.
(5) 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 notice was not
technically complete.
(6) Technically complete notice date means the date on which the OCC
has received a technically complete notice.
(7) Troubled condition means a national bank or Federal savings
association 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, based on information
pertaining to such national bank or Federal savings association, it has
been designated in ``troubled condition'' for purposes of this section.
(d) Prior notice. A national bank or Federal savings association
shall provide written notice to the OCC at least 90 calendar days before
adding or replacing any member of its board of directors, employing any
individual as a senior executive officer of the national bank or Federal
savings association, or changing the responsibilities of any senior
executive officer so that the individual would assume a different senior
executive officer position, if:
(1) The national bank or Federal savings association is not in
compliance with minimum capital requirements, as prescribed in 12 CFR
part 3 or is otherwise in troubled condition; or
(2) The OCC determines, in writing, in connection with the review by
the agency of the plan required under section 38 of the Federal Deposit
Insurance Act (12 U.S.C. 1831o), or otherwise, that such prior notice is
appropriate.
(e) Procedures--(1) Filing notice. A national bank or Federal
savings association shall file a notice with its appropriate supervisory
office. When a national bank or Federal savings association 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. (i) The notice must include:
(A) 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, the biographical and certification portions
of the Interagency Biographical and Financial Report (``IBFR''), and
unless otherwise determined by the OCC in writing, the financial portion
of the IBFR. These forms are available from the OCC;
(B) Legible fingerprints of the individual, except that fingerprints
are not required for any individual who, within the three years
immediately preceding the initial submission date of the notice
currently under review, has been the subject of a notice filed with the
OCC or the OTS pursuant to 12 U.S.C. 1831i, or this section, and has
previously submitted fingerprints; and
(C) Such other information required by the OCC.
(ii) Modification of content requirements. The OCC may require or
accept other information in place of the content requirements in
paragraph (e)(2)(i) of this section.
(3) Requests for additional information. (i) Following receipt of a
technically complete notice, the OCC may request additional information.
Such request must be in writing, must explain why the information is
needed, and must specify a time period during which the information must
be provided.
(ii) If the national bank or Federal savings association cannot
provide the
[[Page 347]]
information requested by the OCC within the time specified in paragraph
(e)(3)(i) of this section, the national bank or Federal savings
association may request in writing that the OCC suspend processing of
the notice. The OCC will advise the national bank or Federal savings
association in writing whether the suspension request is granted and, if
granted, the length of the suspension.
(iii) If the national bank or Federal savings association fails to
provide the requested information within the time specified in
paragraphs (e)(3)(i) or (ii) of this section, the OCC may deem the
filing abandoned under Sec. 5.13(c) or may review the notice based on
the information 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 Federal
savings association or the public to permit the individual to be
employed by, or associated with, the national bank or Federal savings
association. The OCC must send a written notice of disapproval to both
the national bank or Federal savings association and the individual
stating the basis for disapproval.
(5) Notice of intent not to disapprove. An individual proposed as a
member of the board of directors or as a senior executive officer may
begin service before the expiration of the review period if the OCC
notifies the individual and the national bank or Federal savings
association in writing that the OCC does not disapprove the proposed
director or senior executive officer and all other applicable legal
requirements are satisfied.
(6) Waiver of prior notice--(i) Waiver request. (A) A national bank
or Federal savings association may send a letter to the appropriate
supervisory office requesting a waiver of the prior notice requirement.
(B) The OCC may grant the waiver if it issues a written finding
that:
(1) Delay could adversely affect the safety and soundness of the
national bank or Federal savings association;
(2) Delay would not be in the public interest; or
(3) Other extraordinary circumstances justify waiver of prior
notice.
(C) The OCC will determine the length of the waiver on a case-by-
case basis. All waivers that the OCC grants under this paragraph (e)(6)
are subject to the condition that the national bank or Federal savings
association shall file a technically complete notice under this section
within the time period specified by the OCC.
(D) Subject to paragraph (e)(6)(i)(C) of this section, the proposed
individual may assume the position on an interim basis until the
earliest of the following events:
(1) The individual and the national bank or the Federal savings
association receive a notice of intent not to disapprove, at which time
the individual may assume the position on a permanent basis, provided
all other applicable legal requirements are satisfied;
(2) The individual and the national bank or the Federal savings
association receive a notice of disapproval within 90 calendar days
after the submission of a technically complete notice. In this event the
individual shall immediately resign from the position upon receipt of
the notice of disapproval and may assume the position on a permanent
basis only if the notice of disapproval is reversed on appeal and all
other applicable legal requirements are satisfied; or
(3) The OCC does not act within 90 calendar days after the
submission of a technically complete notice. In this event, the
individual may assume the position on a permanent basis 91 calendar days
after the submission of a technically complete notice.
(E) If the technically complete notice is not filed within the time
period specified in the waiver, the proposed individual shall
immediately resign his or her position. Thereafter, the individual may
assume the position only after a technically complete notice has been
filed, all other applicable requirements are satisfied, and:
(1) The national bank or the Federal savings association receives a
notice of intent not to disapprove;
[[Page 348]]
(2) The review period expires; or
(3) A notice of disapproval has been overturned on appeal as set
forth in paragraph (f) of this section.
(F) Notwithstanding the grant of a waiver, the OCC has authority to
issue a notice of disapproval within 30 days of the expiration of such
waiver.
(ii) Automatic waiver. An individual who has been elected to the
board of directors of a national bank or Federal savings association may
serve as a director on an interim basis before a notice has been filed
under this section, provided the individual was not nominated by
management, and the national bank or Federal savings association submits
a notice under this section not later than seven days after the
individual has been notified of the election. The individual may serve
on an interim basis until the occurrence of the earliest of the events
described in paragraphs (e)(6)(i)(D)(1), (2), or (3) of this section.
(7) Commencement of service. An individual proposed as a member of
the board of directors or as a senior executive officer who satisfies
all other applicable legal requirements may assume the office on a
permanent basis:
(i) Prior to the expiration of the review period, only if the OCC
notifies the national bank or Federal savings association in writing
that the OCC does not disapprove the proposed director or senior
executive officer pursuant to paragraph (e)(5) of this section; or
(ii) Following the expiration of the review period, unless:
(A) The OCC issues a written notice of disapproval during the review
period; or
(B) The national bank or Federal savings association 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, except that Sec.
5.13(c) shall apply to the extent provided for in paragraphs (e)(3)(iii)
and (e)(7) of this section.
(f) Appeal. (1) If the national bank or Federal savings association,
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 Federal savings association 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.
(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 national bank or Federal
savings association for which he or she was proposed.
[80 FR 28460, May 18, 2015]
Sec. 5.52 Change of address of a national bank or Federal savings
association.
(a) Authority. 12 U.S.C. 93a, 161, 481, 1462a, 1463, 1464 and
5412(b)(2)(B).
(b) Scope. This section describes the obligation of a national bank
or a Federal savings association to notify the OCC of any change in its
address.
[[Page 349]]
(c) Notice process. (1) Any national bank with a change in the
address of its main office or in its post office box or a Federal
savings association with a change in the address of its home office or
post office box shall send a written notice to the appropriate OCC
licensing office.
(2) No notice is required if the change in address results from a
transaction approved under this part or if notice has been provided
pursuant to Sec. 5.40(b) with respect to the relocation of a main
office or home office to a branch location in the same city, town or
village.
(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 or
Federal savings association's address.
[80 FR 28462, May 18, 2015]
Sec. 5.53 Substantial asset change by a national bank or Federal
savings association.
(a) Authority. 12 U.S.C. 93a, 1818, 1462a, 1463, 1464, 1467a, and
5412(b)(2)(B).
(b) Scope. This section requires a national bank or a Federal
savings association to obtain the approval of the OCC for a substantial
asset change.
(c) Definition--(1) In general. Except as provide in paragraph
(c)(2) of this section, substantial asset change means:
(i) The sale or other disposition of all, or substantially all, of
the national bank's or Federal savings association's assets in a
transaction or a series of transactions;
(ii) After having sold or disposed of all, or substantially all, of
its assets, subsequent purchases or other acquisitions or other
expansions of the national bank's or Federal savings association's
operations;
(iii) Any other purchases, acquisitions or other expansions of
operations that are part of a plan to increase the size of the national
bank or Federal savings association by more than 25 percent in a one
year period;
(iv) Any other material increase or decrease in the size of the
national bank or Federal savings association or a material alteration in
the composition of the types of assets or liabilities of the national
bank or Federal savings association (including the entry or exit of
business lines), on a case-by-case basis, as determined by the OCC; or
(v) Any change in the purpose of the charter of the national bank or
Federal savings association as described in Sec. 5.20(l)(2).
(2) Exceptions. The term ``substantial asset change'' does not
include, and this section does not apply, to a change in composition of
all, or substantially all, of a bank's or savings association's assets:
(i) That the bank or savings association undertakes in response to
direction from the OCC (e.g., in an enforcement action pursuant to 12
U.S.C. 1818);
(ii) That is part of a voluntary liquidation under 12 CFR 5.48, if
the bank or savings association in liquidation has obtained the OCC's
non-objection to its plan of liquidation under 12 CFR 5.48 and has
stipulated in its notice of liquidation to the OCC that its liquidation
will be completed, the bank or savings association dissolved and its
charter returned to the OCC within one year of the date it filed the
notice of liquidation, unless the OCC extends the time period;
(iii) That occurs as a result of a bank's or savings association's
ordinary and ongoing business of originating and securitizing loans; or
(iv) That are subject to OCC approval under another application to
the OCC.
(d) Procedures--(1) Consultation. A national bank or Federal savings
association considering a transaction or series of transactions that may
constitute a material change under paragraph (c)(1)(iv) of this section
must consult with the appropriate OCC supervisory office for a
determination whether the OCC will require an application under this
section. In determining whether to require an application, the OCC
considers the size and nature of the transaction and the condition of
the institutions involved.
(2) Approval requirement. A national bank or Federal savings
association must file an application and obtain the prior written
approval of the OCC before engaging in a substantial asset change.
(3) Factors--(i) In general. (A) In determining whether to approve
an application under paragraph (d)(1) of this
[[Page 350]]
section, the OCC considers the following factors:
(1) The capital level of any resulting national bank or Federal
savings association;
(2) The conformity of the transaction to applicable law, regulation,
and supervisory policies;
(3) The purpose of the transaction;
(4) The impact of the transaction on safety and soundness of the
national bank or Federal savings association; and
(5) The effect of the transaction on the national bank or Federal
savings association's shareholders, depositors, other creditors, and
customers.
(B) The OCC may deny the application if the transaction would have a
negative effect in any of these respects.
(ii) Additional factors. The OCC's review of any substantial asset
change that involves the purchase or other acquisition or other
expansions of the bank's or savings association's operations or that
involves a change in the purpose of the bank's or association's charter,
as described in Sec. 5.20(l)(2), will include, in addition to the
foregoing factors, the factors governing the organization of a bank or
savings association under Sec. 5.20.
(e) 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.
[80 FR 28462, May 18, 2015, as amended at 82 FR 8104, Jan. 23, 2017]
Sec. 5.55 Capital distributions by Federal savings associations.
(a) Authority. 12 U.S.C. 1462a, 1463, 1464, 1467a, 1831o, and
5412(b)(2)(B).
(b) Licensing requirements. A Federal savings association must file
an application or notice before making a capital distribution, as
provided in this section.
(c) Scope. This section applies to all capital distributions by a
Federal savings association and sets forth the procedures and standards
relating to a capital distribution.
(d) Definitions. The following definitions apply to this section:
(1) Affiliate means an affiliate, as defined under regulations of
the Board of Governors of the Federal Reserve System regarding
transactions with affiliates, 12 CFR part 223 (Regulation W).
(2) Capital means total capital, as computed under 12 CFR part 3.
(3) Capital distribution means:
(i) A distribution of cash or other property to owners of a Federal
savings association made on account of their ownership, but excludes:
(A) Any dividend consisting only of the shares of the savings
association or rights to purchase the shares; or
(B) If the savings association is a Federal mutual savings
association, any payment that the savings association is 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;
(ii) A Federal savings association's payment to repurchase, redeem,
retire or otherwise acquire any of its shares or other ownership
interests; any payment to repurchase, redeem, retire, or otherwise
acquire debt instruments included in its total capital under 12 CFR part
3; and any extension of credit to finance an affiliate's acquisition of
the savings association's shares or interests;
(iii) Any direct or indirect payment of cash or other property to
owners or affiliates made in connection with a corporate restructuring.
This includes the Federal savings association's 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;
(iv) Any other distribution charged against a Federal savings
association's capital accounts if the savings association would not be
well capitalized, as set forth in 12 CFR 6.4, following the
distribution; and
(v) Any transaction that the OCC determines, by order or regulation,
to be in substance a distribution of capital.
(4) Net income means a Federal savings association's net income
computed in accordance with generally accepted accounting principles
(GAAP).
[[Page 351]]
(5) Retained net income means a Federal savings association's net
income for a specified period less total capital distributions declared
in that period.
(6) 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.
(e) Filing requirements--(1) Application required. A Federal savings
association must file an application with the OCC if:
(i) The savings association is not an eligible savings association;
(ii) The total amount of all of the savings association's capital
distributions (including the proposed capital distribution) for the
applicable calendar year exceeds its net income for that year to date
plus retained net income for the preceding two years;
(iii) The savings association would not be at least adequately
capitalized, as set forth in 12 CFR 6.4, following the distribution; or
(iv) The savings association's proposed capital distribution would
violate a prohibition contained in any applicable statute, regulation,
or agreement between the savings association and the OCC or the OTS, or
violate a condition imposed on the savings association in an application
or notice approved by the OCC or the OTS.
(2) Notice required. Unless it is required to file an application
under paragraph (e)(1) of this section, a Federal savings association
that is an eligible savings association must file a notice with the OCC
if:
(i) The savings association would not remain well capitalized, as
set forth under 12 CFR 6.4, or would otherwise not remain an eligible
savings association following the distribution;
(ii) The savings association's proposed capital distribution would
reduce the amount of or retire any part of its common or preferred stock
or retire any part of debt instruments such as notes or debentures
included in capital under 12 CFR part 3 (other than regular payments
required under a debt instrument approved under Sec. 5.56);
(iii) The savings association's proposed capital distribution is
payable in property other than cash;
(iv) The savings association is a direct or indirect subsidiary of a
mutual savings and loan holding company; or
(v) The savings association is a direct or indirect subsidiary of a
company that is not a savings and loan holding company.
(3) No prior notice required. A Federal savings association does not
need to file a notice or an application with the OCC before making a
capital distribution if the Federal savings association is not required
to file an application under paragraph (e)(1) or a notice under
paragraph (e)(2) of this section.
(4) Informational copy of notice required. If the Federal savings
association is a subsidiary of a savings and loan holding company that
is filing a notice with the Board of Governors of the Federal Reserve
System (Board) for a dividend solely under 12 U.S.C. 1467a(f) and not
also under 12 U.S.C. 1467a(o)(11), and neither an application under
paragraph (e)(1) nor a notice under paragraph (e)(2) of this section is
required, then the savings association must provide an informational
copy to the OCC of the notice filed with the Board, at the same time the
notice is filed with the Board.
(f) Filing format--(1) Contents. The notice or application must:
(i) Be in narrative form;
(ii) Include all relevant information concerning the proposed
capital distribution, including the amount, timing, and type of
distribution; and
(iii) Demonstrate compliance with paragraph (h) of this section.
(2) Schedules. The notice or application may include a schedule
proposing capital distributions over a specified period, not to exceed
12 months.
(3) Combined filings. A Federal savings association may combine the
notice or application required under paragraph (e) of this section 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 submitting a combined
[[Page 352]]
filing, the Federal savings association must state that the related
notice or application is intended to serve as a notice or application
under this section.
(g) Filing procedures--(1) Application. When a Federal savings
association is required to file an application under paragraph (e)(1) of
this section, it must file the application at least 30 days before the
proposed declaration of dividend or approval of the proposed capital
distribution by its board of directors. The Federal savings association
shall not effect the proposed declaration of dividend or approval of the
proposed capital distribution unless it has received prior written
approval of the OCC.
(2) Prior notice with expedited review. A Federal savings
association that is an eligible savings association and that is required
to file a notice under paragraph (e)(2) must file the notice at least 30
days before the proposed declaration of dividend or approval of the
proposed capital distribution by its board of directors. The notice is
deemed approved by the OCC upon the expiration of 30 days after the
filing date of the notice unless, before the expiration of that time
period, the OCC notifies the Federal savings association that:
(i) Additional information is required to supplement the notice;
(ii) The notice is not eligible for expedited review, or the
expedited reviewed process is extended, under 5.13(a)(2); or
(iii) The notice is disapproved.
(h) OCC review of capital distributions. The OCC reviews
applications and notices submitted pursuant to paragraphs (g)(1) and
(g)(2) of this section. The OCC may disapprove the notice or deny the
application in whole or in part, if it makes any of the following
determinations:
(1) The Federal savings association will be undercapitalized,
significantly undercapitalized, or critically undercapitalized as set
forth in 12 CFR 6.4, as applicable, following the capital distribution.
If so, the OCC will determine if the capital distribution is permitted
under 12 U.S.C. 1831o(d)(1)(B).
(2) The proposed capital distribution raises safety or soundness
concerns.
(3) The proposed capital distribution violates a prohibition
contained in any statute, regulation, agreement between the Federal
savings association and the OCC or the OTS, or a condition imposed on
the Federal savings association in an application or notice approved by
the OCC or the OTS. If so, the OCC will determine whether it may permit
the capital distribution notwithstanding the prohibition or condition.
(i) Exceptions to rules of general applicability. Sections 5.8,
5.10, and 5.11 do not apply to capital distributions made by Federal
savings associations.
[80 FR 28463, May 18, 2015]
Sec. 5.56 Inclusion of subordinated debt securities and mandatorily
redeemable preferred stock as Federal savings association supplementary
(tier 2) capital.
(a) Scope and definitions. (1) A Federal savings association must
comply with this section in order to include subordinated debt
securities or mandatorily redeemable preferred stock (``covered
securities'') in tier 2 capital under 12 CFR 3.20(d) and to prepay
covered securities included in tier 2 capital. A savings association
that does not include covered securities in tier 2 capital is not
required to comply with this section. Covered securities not included in
tier 2 capital are subject to the requirements of Sec. 163.80 of this
chapter.
(2) For purposes of this section, mandatorily redeemable preferred
stock means mandatorily redeemable preferred stock that was issued
before July 23, 1985 or issued pursuant to regulations and memoranda of
the Federal Home Loan Bank Board and approved in writing by the Federal
Savings and Loan Insurance Corporation for inclusion as regulatory
capital before or after issuance.
(b) Application and notice procedures--(1) Application or notice to
include covered securities in tier 2 capital--(i) Application. Unless a
Federal savings association is an eligible savings association filing a
notice under paragraph (b)(1)(ii) of this section, it must file an
application seeking the OCC's approval of the inclusion of covered
securities in tier 2 capital. The savings association may file its
application before or after
[[Page 353]]
it issues covered securities, but may not include covered securities in
tier 2 capital until the OCC approves the application.
(ii) Notice with expedited review. An eligible savings association
must file a notice seeking the OCC's approval of the inclusion of
covered securities in tier 2 capital. The savings association may file
its notice before or after it issues covered securities, but may not
include covered securities in tier 2 capital until the OCC approves the
notice. The OCC is deemed to have approved the notice upon the
expiration of 30 days after the filing date of the notice unless, before
the expiration of that time period, the OCC notifies the Federal savings
association that
(A) Additional information is required to supplement the notice;
(B) The notice is not eligible for expedited review, or the
expedited reviewed process is extended, under Sec. 5.13(a)(2); or
(C) The OCC denies the notice.
(iii) Securities offering rules. A savings association also must
comply with the securities offering rules at 12 CFR part 197 by filing
an offering circular for a proposed issuance of covered securities,
unless the offering qualifies for an exemption under that part.
(2) Application required to prepay covered securities included in
tier 2 capital--(i) In general. A Federal savings association must file
an application to, and receive prior approval from, the OCC before
prepaying covered securities included in tier 2 capital. For purposes of
this requirement, prepayment includes acceleration of a covered
security, repurchase of a covered security, redemption of a covered
security prior to maturity, and exercising a call option in connection
with a covered security.
(ii) Prepayment in the form of a call option. (A) If the prepayment
will be in the form of a call option, the application must include:
(1) A statement explaining why the Federal savings association
believes that following the proposed prepayment the savings association
would continue to hold an amount of capital commensurate with its risk;
or
(2) A description of the replacement capital instrument that meets
the criteria for tier 1 or tier 2 capital under 12 CFR 3.20, including
the amount of such instrument, and the time frame for issuance.
(B) Notwithstanding paragraph (b)(1)(ii) of this section, if the OCC
conditions approval of prepayment in the form of a call option on a
requirement that a Federal savings association must replace the covered
security with a covered security of an equivalent amount that satisfies
the requirements for a tier 1 or tier 2 instrument, the savings
association must file an application to issue the replacement covered
security and must receive prior OCC approval.
(c) General requirements. A covered security issued under this
section must satisfy the requirements for tier 2 capital in 12 CFR
3.20(d).
(d) Securities requirements for inclusion in tier 2 capital. To be
included in tier 2 capital, covered securities must satisfy the
requirements in 12 CFR 3.20(d). In addition, such 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 that 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), 12 CFR 3.11, and any other relevant restrictions;
(F) For subordinated debt securities, state or refer to a document
stating
[[Page 354]]
the terms under which the savings association may prepay the obligation;
and
(G) Where applicable, state or refer to a document stating that the
savings association must obtain OCC's prior approval before the
acceleration of payment of principal or interest on subordinated debt
securities, redemption of subordinated debt securities prior to
maturity, repurchase of subordinated debt securities, or exercising a
call option in connection with a subordinated debt security.
(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) Indenture. (i) Except as provided in paragraph (d)(2)(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
paragraph (d)(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 (d)(2)(i) of this section in place before any debt
securities for 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.
(e) Review by the OCC. (1) 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 12 CFR 6.4 and meets the regulatory capital requirements at 12 CFR
3.10;
(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; and
(vi) The OCC has no objection to the issuance based on the savings
association's overall policies, condition, and operations.
(2) The OCC's approval 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.
(f) 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 under this section before it
may include the amended securities in tier 2 capital.
(g) Sale of covered securities. The Federal savings association must
complete the sale of covered securities within one year after the OCC's
approval 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.
(h) Issuance of a replacement regulatory capital instrument in
connection with exercising a call option. Pursuant to
[[Page 355]]
12 CFR 3.20(d)(1)(v)(C), the OCC may require a Federal savings
association seeking prior approval to exercise a call option in
connection with a covered security included in tier 2 capital to issue a
replacement covered security of an equivalent amount that qualifies as
tier 1 or tier 2 capital under 12 CFR 3.20. If the OCC imposes such a
requirement, the savings association must complete the sale of such
covered prior to, or immediately after, the prepayment.\5\
---------------------------------------------------------------------------
\5\ A Federal savings association may replace tier 2 capital
instruments concurrent with the redemption of existing tier 2 capital
instruments.
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(i) 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 tier 2 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 tier 2 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.
[80 FR 28464, May 18, 2015]
Sec. 5.58 Pass-through investments by a Federal savings association.
(a) Authority. 12 U.S.C. 1462a, 1463, 1464, 1828, 5412(b)(2)(B).
(b) Scope. Federal savings associations are permitted to make
various types of equity investments pursuant to 12 U.S.C. 1464 and other
statutes, including pass-through investments authorized under 12 CFR
160.32(a). These investments are in addition to those subject to
Sec. Sec. 5.35, 5.37, 5.38, and 5.59. This section describes the
procedure governing the filing of the application or notice that the OCC
requires in connection with certain of these investments. The OCC may
review other permissible equity investments on a case-by-case basis.
(c) Licensing requirements. A Federal savings association must file
a notice or application as prescribed in this section to make a pass-
through investment authorized under 12 CFR 160.32(a).
(d) Definitions. For purposes of this section:
(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.
(3) Well managed has the meaning set forth in Sec. 5.38(d)(2) for
Federal savings associations.
(e) Pass-through investments; notice procedure. A Federal savings
association may make a pass-through 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 Federal savings association must file this written notice
with the appropriate OCC licensing 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 Federal savings
association is investing. To the extent the notice relates to the
initial affiliation of the Federal savings association with a company
engaged in insurance activities, the savings association should describe
the type of insurance activity that the company is engaged in and has
present plans to conduct. The Federal savings association 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:
(i) Which paragraphs of Sec. 5.38(e)(5)(v) describe the activity;
or
(ii) State that, and describe how, the activity is substantively the
same as
[[Page 356]]
that contained in published OCC precedent for Federal savings
associations, including published former OTS precedent, approving a
pass-through investment by a Federal savings association 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 Federal savings association is well managed and
well capitalized at the time of the investment;
(4) Describe how the Federal savings association has the ability to
prevent the enterprise from engaging in an activity that is not set
forth in Sec. 5.38(e)(5)(v) or not contained in published OCC precedent
for Federal savings associations, including published former OTS
precedent, approving a pass-through investment by a Federal savings
association or its operating subsidiary, or how the savings association
otherwise has the ability to withdraw its investment;
(5) Describe how the investment is convenient and useful to the
Federal savings association in carrying out its business and not a mere
passive investment unrelated to the savings association's banking
business;
(6) Certify that the Federal savings association's loss exposure is
limited as a legal matter and that the savings association does not have
unlimited liability for the obligations of the enterprise; and
(7) Certify that the enterprise in which the Federal savings
association 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) Pass-through investments; application procedure--(1) Investments
not qualifying for notice procedure. A Federal savings association must
file an application and obtain prior approval before making or
acquiring, either directly or through an operating subsidiary, a pass-
through investment in an enterprise if the pass-through investment does
not qualify for the notice procedure set forth in paragraph (e) of this
section because the savings association 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 paragraphs (e)(2) or (e)(3) of this section,
as appropriate. If the Federal savings association is unable to make the
representation set forth in paragraph (e)(2) of this section, the
savings association's application must explain why the activity in which
the enterprise engages is a permissible activity for a Federal savings
association and why the applicant should be permitted to hold a pass-
through investment in an enterprise engaged in that activity. A Federal
savings association may not make a pass-through 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.
(2) Investments requiring a filing under 12 U.S.C. 1828(m).
Notwithstanding any other provision in this section, if an enterprise in
which a Federal savings association proposes to invest would be a
subsidiary of the Federal savings association for purposes of 12 U.S.C.
1828(m) and the enterprise would not be an operating subsidiary or a
service corporation, the Federal savings association must file an
application with the OCC under this paragraph (f)(2) at least 30 days
prior to making the investment and obtain prior approval from the OCC
before making the investment. The application must include the
information required in paragraphs (e)(1) and (e)(4) through (e)(7) of
this section and paragraphs (e)(2) or (e)(3) of this section, if
applicable. If the Federal savings association is unable to make the
representation set forth in paragraph (e)(2) of this section, the
savings association's application must explain why the activity in which
the enterprise engages is a permissible activity for a Federal savings
association and why the applicant should be permitted to hold a pass-
through investment in an enterprise engaged in that activity. A Federal
savings association may not make a pass-through
[[Page 357]]
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) Pass-through investments in entities holding assets in
satisfaction of debts previously contracted. Certain pass-through
investments may be eligible for expedited treatment where the Federal
savings association's investment is in an entity holding assets in
satisfaction of debts previously contracted or the savings association
acquires shares of a company in satisfaction of debts previously
contracted.
(1) Notice required. A Federal savings association that is well
capitalized and well managed may acquire a pass-through investment,
directly or through its operating subsidiary, in an enterprise that
engages in the activities of holding and managing assets acquired by the
parent savings association 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)(1)(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
Federal savings association. The Federal savings association must file
the written notice with the appropriate OCC licensing office no later
than 10 days after making the pass-through investment. This notice must
include a complete description of the Federal savings association's
investment in the enterprise and the activities conducted, a description
of how the savings association plans to divest the pass-through
investment or the underlying assets within applicable statutory time
frames, and a representation and undertaking that the savings
association will conduct the activities in accordance with OCC policies
contained in guidance issued by the OCC regarding the activities. Any
Federal savings association receiving approval under this paragraph
(g)(1)(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 Federal savings association
is not required to file a notice or application under this Sec. 5.58 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) Additional exception to filing requirement. A Federal savings
association may make a pass-through investment without filing a notice
or application to the OCC if all of the following conditions are met:
(1) The investment is in an investment company the portfolio of
which consists exclusively of assets that the Federal savings
association may hold directly;
(2) The Federal savings association is not investing more than 10
percent of its total capital (or, in the case of a Federal savings
association that is a qualifying community banking organization that has
elected to use the community bank leverage ratio framework, 10 percent
of its tier 1 capital, as used under Sec. 3.12 of this chapter) in one
company;
(3) The book value of the Federal savings association's aggregate
non-controlling investments does not exceed 25 percent of its total
capital (or, in the case of a Federal savings association that is a
qualifying community banking organization that has elected to use the
community bank leverage ratio framework, 25 percent of its tier 1
capital, as used under Sec. 3.12 of this chapter) after making the
investment;
(4) The investment would not give Federal savings association direct
or indirect control of the company; and
(5) The Federal savings association's liability is limited to the
amount of its investment.
(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 pass-through
investments.
[80 FR 28466, May 18, 2015, as amended at 84 FR 61794, Nov. 13, 2019; 84
FR 69297, Dec. 18, 2019]
Sec. 5.59 Service corporations of Federal savings associations.
(a) Authority. 12 U.S.C. 1462a, 1463, 1464, 1828, 5412(b)(2)(B).
[[Page 358]]
(b) Licensing requirements. When required by section 18(m) of the
Federal Deposit Insurance Act, a Federal savings association must file
an application as prescribed in this section to:
(1) Acquire or establish a service corporation; or
(2) Commence a new activity in an existing service corporation
subsidiary.
(c) Scope. This section sets forth the OCC's requirements regarding
service corporations of Federal savings associations, and sets forth
procedures governing OCC review and approval of filings by Federal
savings associations to establish or acquire service corporations and
filings by Federal savings associations to conduct new activities in
existing service corporation subsidiaries, pursuant to the authority
provided in section 5(c)(4)(B) of the Home Owners' Loan Act, 12 U.S.C.
1464(c)(4)(B).
(d) Definitions--(1) Control has the meaning set forth at 12 U.S.C.
1841 and the Federal Reserve Board's regulations thereunder, at 12 CFR
part 225.
(2) GAAP-consolidated subsidiary means a service corporation 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).
(3) Ownership interest means any equity interest in a business
organization, including stock, limited or general partnership interests,
or shares in a limited liability company.
(4) Service corporation means any entity that satisfies all of the
requirements for service corporations in 12 U.S.C. 1464(c)(4)(B) and
this part, and that is designated by the investing Federal savings
association as a service corporation pursuant to this section. A service
corporation may be a first-tier service corporation of a Federal savings
association or may be a lower-tier service corporation.
(5) Service corporation subsidiary means a service corporation of a
Federal savings association that is controlled by that savings
association.
(e) Standards and requirements--(1) Ownership. Only Federal or
state-chartered savings associations with home offices in the state
where the relevant Federal savings association has its home office may
have an ownership interest in a first-tier service corporation. A
Federal savings association need not have any minimum percentage
ownership interest or have control of a service corporation in order to
designate an entity as a service corporation.
(2) Geographic restrictions. A first-tier service corporation must
be organized under the laws of the state where the relevant Federal
savings association's home office is located.
(3) Authorized activities. A service corporation may engage in any
of the designated permissible service corporation activities listed in
paragraph (f) of this section, subject to any applicable filing
requirement under paragraph (h) of this section. In addition, a Federal
savings association may request OCC approval for a service corporation
to engage in any other activity reasonably related to the activities of
financial institutions.
(4) Investment limitations. A Federal savings association's
investment in service corporations is subject to the limitations set
forth in paragraph (g) of this section. The assets of a Federal savings
association's service corporations are not subject to the investment
limitations applicable to the savings association under section 5(c) of
the HOLA.
(5) Form of organization. A service corporation may be organized as
a corporation, or may be organized in any other organizational form that
provides the same protections as the corporate form of organization,
including limited liability.
(6) Qualified thrift lender test. In accordance with 12 U.S.C.
1467a(m)(5), a Federal savings association may determine whether to
consolidate the assets of a particular service corporation for purposes
of calculating qualified thrift investments. If a service corporation's
assets are not consolidated with the assets of the Federal savings
association for that purpose, the savings association's investment in
the service corporation will be considered in calculating the savings
association's qualified thrift investments.
[[Page 359]]
(7) Supervisory, legal or safety or soundness considerations. (i)
Each service corporation must be well managed and operate safely and
soundly. In addition, each service corporation must pursue financial
policies that are safe and consistent with the purposes of savings
associations. Each service corporation must maintain sufficient
liquidity to ensure its safe and sound operation.
(ii) The OCC may, at any time, limit a Federal savings association's
investment in a service corporation, or limit or refuse to permit any
activity of a service corporation, for supervisory, legal, or safety or
soundness reasons.
(8) Separate corporate identity. Federal savings associations and
service corporations thereof must be operated in a manner that
demonstrates to the public that each maintains a separate corporate
existence. Each must operate so that:
(i) Their respective business transactions, accounts, and records
are not intermingled;
(ii) Each observes the formalities of their separate corporate
procedures;
(iii) Each is held out to the public as a separate enterprise; and
(iv) Unless the parent Federal savings association has guaranteed a
loan to the service corporation, all borrowings by the service
corporation indicate that the savings association is not liable.
(9) Issuances of securities by service corporations. A service
corporation shall not state or imply that the securities it issues are
covered by Federal deposit insurance. A service corporation subsidiary
shall not issue any security the payment, maturity, or redemption of
which may be accelerated upon the condition that the controlling Federal
savings association is insolvent or has been placed into receivership.
For as long as any securities are outstanding, the controlling Federal
savings association must maintain all records generated through each
securities issuance in the ordinary course of business, including but
not limited to a copy of the prospectus, offering circular, or similar
document concerning such issuance, and make such records available for
examination by the OCC.
(10) Certain pre-existing non-controlling investments. A Federal
savings association that made a non-controlling investment in a service
corporation before May 18, 2015, but did not submit a filing under 12
U.S.C. 1828(m) with respect to such service corporation investment, is
not required to file a service corporation application with respect to
such investment pursuant to paragraph (b), provided that the Federal
savings association does not acquire additional stock or similar
interests in the service corporation, and the service corporation does
not engage in any activities in which it was not engaged as of May 18,
2015.
(f) Authorized service corporation activities. Subject to the prior
filing requirements set forth in paragraph (h) of this section and the
provisions of paragraph (e)(3) of this section, a service corporation
may engage in the following activities:
(1) Any activity that all Federal savings associations may conduct
directly.
(2) Business and professional services. Service corporations may
engage in the following activities only when such activities are limited
to financial documents or financial clients or are generally finance-
related:
(i) Accounting or internal audit;
(ii) Advertising, market research and other marketing;
(iii) Clerical;
(iv) Consulting;
(v) Courier;
(vi) Data processing;
(vii) Data storage facilities operation and related services;
(viii) Office supplies, furniture, and equipment purchasing and
distribution;
(ix) Personnel benefit program development or administration;
(x) Printing and selling forms that require Magnetic Ink Character
Recognition (MICR) encoding;
(xi) Relocation of personnel;
(xii) Research studies and surveys;
(xiii) Software development and systems integration; and
(xiv) Remote service unit operation, leasing, ownership or
establishment.
(3) Credit-related activities. (i) Abstracting;
(ii) Acquiring and leasing personal property;
(iii) Appraising;
[[Page 360]]
(iv) Collection agency;
(v) Credit analysis;
(vi) Check or credit card guaranty and verification;
(vii) Escrow agent or trustee (under deeds of trust, including
executing and delivery of conveyances, reconveyances and transfers of
title); and
(viii) Loan inspection.
(4) Consumer services. (i) Financial advice or consulting;
(ii) Foreign currency exchange;
(iii) Home ownership counseling;
(iv) Income tax return preparation;
(v) Postal services;
(vi) Stored value instrument sales;
(vii) Welfare benefit distribution;
(viii) Check printing and related services; and
(ix) Remote service unit operation, leasing, ownership, or
establishment.
(5) Real estate related services. (i) 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;
(ii) Acquiring improved real estate or manufactured homes to be held
for rental or resale, for remodeling, renovating or demolishing and
rebuilding for resale or rental, or to be used for offices and related
facilities of a stockholder of the service corporation;
(iii) Maintaining and managing real estate; and
(iv) Real estate brokerage for property owned by a savings
association that owns capital stock of the service corporation, or a
lower-tier service corporation in which the service corporation invests.
(6) Securities activities, liquidity management, and coins. (i)
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;
(ii) Liquidity management;
(iii) Issuing notes, bonds, debentures, or other obligations or
securities; and
(iv) Purchase or sale of coins issued by the U.S. Treasury.
(7) Investments. (i) Tax-exempt bonds used to finance residential
real property for family units;
(ii) Tax-exempt obligations of public housing agencies used to
finance housing projects with rental assistance subsidies;
(iii) Small business investment companies and new markets venture
capital companies licensed by the U.S. Small Business Administration;
(iv) Rural business investment companies licensed by the U.S.
Department of Agriculture; and
(v) Investing in savings accounts of an investing thrift.
(8) Community development investments. Community and economic
development or public welfare investments that are permissible under
part 24 of this chapter.
(9) Charitable activities. Establishing or acquiring 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.
(10) Activities conducted as agent. Activities conducted on behalf
of a customer on other than an ``as principal'' basis.
(11) Incidental activities. Activities reasonably incident to those
listed in paragraphs (f)(1) through (f)(10) of this section if the
service corporation engages in those activities.
(g) Limitations on investments in service corporations--(1) In
general. Under the authority of section 5(c)(4)(B) of the HOLA, a
Federal savings association may invest up to 3 percent of its assets in
the capital stock, obligations, and other securities of service
corporations. Any investment that would cause a Federal savings
association's investment in service corporations, in the aggregate, to
exceed 2 percent of assets, or made while the savings association's
investments in service corporations exceeds 2 percent of assets, must
serve primarily community,
[[Page 361]]
inner city, or community and economic development or public welfare
purposes consistent with Sec. 24.6 of this chapter. A Federal savings
association must designate the investments serving those purposes.
(2) Loans. In addition to the amounts that a Federal savings
association may invest under paragraph (g)(1) of this section, and to
the extent that a Federal savings association has authority under other
provisions of section 5(c) of the HOLA and parts 5 and 160 of this
chapter, and available capacity within any applicable investment limits,
a Federal savings association may make loans to any service corporation
subject to the following conditions:
(i) Loans to service corporations other than a GAAP-consolidated
subsidiary are subject to the lending limits in part 32 of this chapter.
(ii) The OCC may limit the amount of loans to any service
corporation where safety and soundness considerations warrant such
action.
(3) Definition. For purposes of this paragraph, 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.
(4) GAAP-consolidated subsidiaries. Both debt and equity investments
in service corporations that are GAAP-consolidated subsidiaries are
considered investments in subsidiaries for purposes of 12 CFR part 3.
(h) Filing requirements--(1) Application. (i) When required by
section 18(m) of the Federal Deposit Insurance Act, a Federal savings
association must file an application at least 30 days before:
(A) Acquiring or establishing a service corporation; or
(B) Commencing a new activity in an existing service corporation
subsidiary.
(ii) The application must include a complete description of the
savings association's investment in the service corporation, the
proposed activities of the service corporation, the organizational
structure and management of the service corporation, the relations
between the savings association and the service corporation, and other
information necessary to adequately describe the proposal. If the
service corporation proposes to engage in insurance activities, the
savings association must describe the type of insurance activity in
which the service corporation proposes to engage. The savings
association 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 service corporation holds a resident license or
charter, as applicable. 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 prefiling meeting with the OCC. Any savings
association receiving approval under this paragraph is deemed to have
agreed that the service corporation will conduct the activity in a
manner consistent with published OCC guidance.
(2) Expedited review. (i) An application to establish or acquire a
service corporation, or to perform a new activity in an existing service
corporation subsidiary, that meets the requirements of this paragraph 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
5.13(a)(2). Any savings association receiving approval under this
paragraph is deemed to have agreed that the service corporation will
conduct the activity in a manner consistent with published OCC guidance.
(ii) An application is eligible for expedited review if the
following requirements are met:
(A) The savings association is ``well capitalized'' and ``well
managed''; and
(B) The service corporation engages only in one or more of the
preapproved activities listed in Sec. 5.59(f).
(3) OCC review and approval. The OCC reviews a Federal savings
association's application to determine whether the proposal is legally
permissible and to ensure that the proposal is consistent with the
requirements of this section, safe and sound banking practices and OCC
policy and does not endanger the
[[Page 362]]
safety or soundness of the parent Federal savings association. As part
of this process, the OCC may request additional information and analysis
from the applicant.
(4) Redesignation. A Federal savings association that proposes to
redesignate an operating subsidiary as a service corporation must submit
a notification to the OCC at least 30 days prior to the redesignation
date. The notification must include a description of how the
redesignated entity will meet all of the requirements of this section, a
resolution of the savings association's board of directors approving the
redesignation, and the proposed effective date of the redesignation. The
savings association may effect the redesignation on the proposed date
unless the OCC notifies the savings association otherwise prior to that
date. The OCC may require an application if the redesignation presents
policy, supervisory, or legal issues.
(5) Exception 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 or 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.
(i) Exercise of salvage powers through service corporations. (1) In
accordance with this section, a Federal savings association may exercise
its salvage power to make a contribution or a loan (including a
guarantee of a loan made by any other person) to a service corporation
(``salvage investment'') that exceeds the maximum amount otherwise
permitted under law or regulation. A Federal savings association must
notify the appropriate supervisory office at least 30 days before making
such a salvage investment. The notification must demonstrate:
(i) The salvage investment protects the savings association's
interest in the service corporation;
(ii) The salvage investment is consistent with safety and soundness;
and
(iii) The savings association considered alternatives to the salvage
investment and determined that such alternatives would not adequately
satisfy paragraphs (i)(1)(i) and (ii) of this section.
(2) If the OCC notifies the Federal savings association within 30
days of the filing of the notification that the notification presents
supervisory concerns, or raises significant issues of law or policy, the
Federal savings association must apply for and receive the OCC's prior
written approval before making the salvage investment.
(3) If a service corporation is a GAAP-consolidated subsidiary, the
salvage investment will be considered an investment in a subsidiary for
purposes of 12 CFR part 3.
(j) Failure to comply with the requirements applicable to service
corporations. If a service corporation fails to meet any of the
requirements of this section, the Federal savings association must
notify the appropriate OCC licensing office. Unless the Federal savings
association is otherwise advised by the OCC, if the service corporation
cannot comply with the requirements of this section within 90 days of
failing to meet such requirements, or otherwise resolve such failure to
comply with this section, the Federal savings association must promptly
dispose of its investment in the service corporation.
[80 FR 28467, May 18, 2015]
Subpart E_Payment of Dividends by National Banks
Sec. 5.60 Authority, scope, and exceptions to rules of general
applicability.
(a) Authority. 12 U.S.C. 56, 60, and 93a.
(b) Scope. Except as otherwise provided, the restrictions in this
subpart apply to the declaration and payment of all dividends by a
national bank, including dividends paid in property. However, the
provisions contained in Sec. 5.64 do not apply to dividends paid in
stock of the bank.
(c) Exceptions to the rules of general applicability. Sections 5.8,
5.10, and 5.11 do not apply to this subpart.
Sec. 5.61 Definitions.
For the purposes of subpart E, the following definitions apply:
(a) Capital stock, capital surplus, and permanent capital have the
same meaning as set forth in Sec. 5.46.
(b) Retained net income means the net income of a specified period
less the
[[Page 363]]
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.
(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 OCC supervisory office.
[[Page 364]]
(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, as amended at 80 FR 28470, May 18, 2015]
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. A
national bank shall submit a request for prior approval of a noncash
dividend to the appropriate OCC licensing office. 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.
[61 FR 60363, Nov. 27, 1996, as amended at 82 FR 8104, Jan. 23, 2017]
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 365]]
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, other supervisory authority, disclosure
of capital categories, and transition procedures.
6.2 Definitions.
6.3 Notice of capital category.
6.4 Capital measures and capital categories.
6.5 Capital restoration plan.
6.6 Mandatory and discretionary supervisory actions.
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, 5412(b)(2)(B).
Source: 78 FR 62275, Oct. 11, 2013, unless otherwise noted.
Subpart A_Capital Categories
Sec. 6.1 Authority, purpose, scope, other supervisory authority,
disclosure of capital categories, and transition procedures.
(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 and insured Federal savings
associations, 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, insured Federal
branches, and insured Federal savings associations. 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, insured Federal branch, or insured
Federal savings association and to the affiliates of an insured national
bank, insured Federal branch, or insured Federal savings association.
[[Page 366]]
(d) Other supervisory authority. Neither section 38 nor this part in
any way limits the authority of the OCC under any other provision of law
to take supervisory actions to address unsafe or unsound practices,
deficient capital levels, violations of law, unsafe or unsound
conditions, or other practices. Action under section 38 of the FDI Act
and this part may be taken independently of, in conjunction with, or in
addition to any other enforcement action available to the OCC, including
issuance of cease and desist orders, capital directives, approval or
denial of applications or notices, assessment of civil money penalties,
or any other actions authorized by law.
(e) Disclosure of capital categories. The assignment of an insured
national bank, insured Federal branch, or insured Federal savings
association 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 national
bank or 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 national bank
or Federal savings association to a particular capital category.
(f) Transition procedures. (1) [Reserved]
(2) Timing. On January 1, 2015 and thereafter, the calculation of
the definitions of common equity tier 1 capital, the common equity tier
1 risk-based capital ratio, the leverage ratio, the supplementary
leverage ratio, tangible equity, tier 1 capital, the tier 1 risk-based
capital ratio, total assets, total leverage exposure, the total risk-
based capital ratio, and total risk-weighted assets under this subpart
is subject to the timing provisions at 12 CFR Sec. 3.1(f) and the
transitions at 12 CFR part 3, subpart G.
[78 FR 62275, Oct. 11, 2013, as amended at 84 FR 56374, Oct. 22, 2019]
Sec. 6.2 Definitions.
For purposes of this subpart, except as modified in this section or
unless the context otherwise requires, the terms used have the same
meanings as set forth in section 38 and section 3 of the FDI Act.
Advanced approaches national bank or advanced approaches Federal
savings association means a national bank or Federal savings association
that is subject to subpart E of part 3 of this chapter.
Common equity tier 1 capital means common equity tier 1 capital, as
defined in accordance with the OCC's definition in subpart A of part 3
of this chapter.
Common equity tier 1 risk-based capital ratio means the ratio of
common equity tier 1 capital to total risk-weighted assets, as
calculated in accordance with subpart B of part 3 of this chapter, as
applicable.
Control. (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.
Controlling person means any person having control of an insured
depository institution and any company controlled by that person.
Federal savings association means an insured Federal savings
association or an insured Federal savings bank chartered under section 5
of the Home Owners' Loan Act of 1933.
[[Page 367]]
Leverage ratio means the ratio of tier 1 capital to average total
consolidated assets, as calculated in accordance with subpart B of part
3 of this chapter.
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 national bank or 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 national bank or Federal savings association.
National bank means all insured national banks and all insured
Federal branches, except where otherwise provided in this subpart.
Supplementary leverage ratio means the ratio of tier 1 capital to
total leverage exposure, as calculated in accordance with subpart B of
part 3 of this chapter.
Tangible equity means the amount of tier 1 capital, as calculated in
accordance with subpart B of part 3 of this chapter, plus the amount of
outstanding perpetual preferred stock (including related surplus) not
included in tier 1 capital.
Tier 1 capital means the amount of tier 1 capital as defined in
subpart B of part 3 of this chapter.
Tier 1 risk-based capital ratio means the ratio of tier 1 capital to
risk-weighted assets, as calculated in accordance with subpart B of part
3 of this chapter.
Total assets means quarterly average total assets as reported in a
national bank's or Federal savings association's Consolidated Reports of
Condition and Income (Call Report), minus any deductions as provided in
Sec. 3.22(a), (c), and (d) of this chapter. The OCC reserves the right
to require a national bank or Federal savings association to compute and
maintain its capital ratios on the basis of actual, rather than average,
total assets when computing tangible equity.
Total leverage exposure means the total leverage exposure, as
calculated in accordance with subpart B of part 3 of this chapter.
Total risk-based capital ratio means the ratio of total capital to
total risk-weighted assets, as calculated in accordance with subpart B
of part 3 of this chapter.
Total risk-weighted assets means standardized total risk-weighted
assets, and for an advanced approaches national bank or advanced
approaches Federal savings association also includes advanced approaches
total risk-weighted assets, as defined in subpart B of part 3 of this
chapter.
[78 FR 62275, Oct. 11, 2013, as amended at 84 FR 56374, Oct. 22, 2019]
Sec. 6.3 Notice of capital category.
(a) Effective date of determination of capital category. A national
bank or 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 national bank or Federal 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 national bank or 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 Reports of Condition and Income (Call Report) is
required to be filed with the OCC;
(2) A final report of examination is delivered to the national bank
or Federal savings association; or
(3) Written notice is provided by the OCC to the national bank or
Federal savings association of its capital category for purposes of
section 38 of the FDI Act and this part or that the national bank's or
Federal savings association's capital category has changed pursuant to
paragraph (c) of this section, or Sec. 6.4(e) and with respect to
national banks, subpart M of part 19 of this chapter, and with respect
to Federal savings associations Sec. 165.8 of this chapter.
(c) Adjustments to reported capital levels and capital category--(1)
Notice of adjustment by national bank or Federal savings association. A
national bank or Federal savings association shall provide the OCC with
written notice that an adjustment to the national bank's
[[Page 368]]
or Federal 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 national bank or Federal savings
association to be placed in a lower capital category from the category
assigned to the national bank or Federal savings association for
purposes of section 38 and this part on the basis of the national bank's
or Federal savings association'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 national bank or Federal
savings association and shall notify the national bank or Federal
savings association of the OCC's determination.
Sec. 6.4 Capital measures and capital categories.
(a) Capital measures--(1) Capital measures applicable before January
1, 2015. On or before December 31, 2014, for purposes of section 38 and
this part, the relevant capital measures for all national banks and
Federal savings associations are:
(i) Total Risk-Based Capital Measure: the total risk-based capital
ratio;
(ii) Tier 1 Risk-Based Capital Measure: the tier 1 risk-based
capital ratio; and
(iii) Leverage Measure: the leverage ratio.
(2) Capital measures applicable on and after January 1, 2015. On
January 1, 2015 and thereafter, for purposes of section 38 and this
part, the relevant capital measures are:
(i) Total Risk-Based Capital Measure: the total risk-based capital
ratio;
(ii) Tier 1 Risk-Based Capital Measure: the tier 1 risk-based
capital ratio;
(iii) Common Equity Tier 1 Capital Measure: the common equity tier 1
risk-based capital ratio; and
(iv) The Leverage Measure:
(A) The leverage ratio; and
(B) With respect to an advanced approaches national bank or advanced
approaches Federal savings association, on January 1, 2018, and
thereafter, the supplementary leverage ratio.
(b) Capital categories. For purposes of section 38 of the FDI Act
and this part, a national bank or Federal savings association shall be
deemed to be:
(1)(i) Well capitalized if:
(A) Total Risk-Based Capital Measure: The national bank or Federal
savings association has a total risk-based capital ratio of 10.0 percent
or greater;
(B) Tier 1 Risk-Based Capital Measure: The national bank or Federal
savings association has a tier 1 risk-based capital ratio of 8.0 percent
or greater;
(C) Common Equity Tier 1 Capital Measure: The national bank or
Federal savings association has a common equity tier 1 risk-based
capital ratio of 6.5 percent or greater;
(D) Leverage Measure:
(1) The national bank or Federal savings association has a leverage
ratio of 5.0 percent or greater; and
(2) With respect to a national bank or Federal savings association
that is a subsidiary of a U.S. top-tier bank holding company that has
more than $700 billion in total assets as reported on the company's most
recent Consolidated Financial Statement for Bank Holding Companies (Form
FR Y-9C) or more than $10 trillion in assets under custody as reported
on the company's most recent Banking Organization Systemic Risk Report
(Form FR Y-15), on January 1, 2018, and thereafter, the national bank or
Federal savings association has a supplementary leverage ratio of 6.0
percent or greater; and
(E) The national bank or Federal savings association 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), 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.
(ii) Qualifying community banking organization: A qualifying
community banking organization, as defined under Sec. 3.12 of this
chapter, that has elected to use the community bank leverage ratio
framework under Sec. 3.12 of this chapter, shall be considered to have
met the capital ratio requirements for
[[Page 369]]
the well capitalized capital category in paragraph (b)(1)(i) (A) through
(D) of this section.
(2) Adequately capitalized if:
(i) Total Risk-Based Capital Measure: the national bank or Federal
savings association has a total risk-based capital ratio of 8.0 percent
or greater;
(ii) Tier 1 Risk-Based Capital Measure: the national bank or Federal
savings association has a tier 1 risk-based capital ratio of 6.0 percent
or greater;
(iii) Common Equity Tier 1 Capital Measure: the national bank or
Federal savings association has a common equity tier 1 risk-based
capital ratio of 4.5 percent or greater;
(iv) Leverage Measure:
(A) The national bank or Federal savings association has a leverage
ratio of 4.0 percent or greater; and
(B) With respect to an advanced approaches national bank or advanced
approaches Federal savings association, on January 1, 2018 and
thereafter, the national bank or Federal savings association has an
supplementary leverage ratio of 3.0 percent or greater; and
(v) The national bank or Federal savings association does not meet
the definition of a ``well capitalized'' national bank or Federal
savings association.
(3) Undercapitalized if:
(i) Total Risk-Based Capital Measure: the national bank or Federal
savings association has a total risk-based capital ratio of less than
8.0 percent;
(ii) Tier 1 Risk-Based Capital Measure: the national bank or Federal
savings association has a tier 1 risk-based capital ratio of less than
6.0 percent;
(iii) Common Equity Tier 1 Capital Measure: the national bank or
Federal savings association has a common equity tier 1 risk-based
capital ratio of less than 4.5 percent; or
(iv) Leverage Measure:
(A) The national bank or Federal savings association has a leverage
ratio of less than 4.0 percent; or
(B) With respect to an advanced approaches national bank or advanced
approaches Federal savings association, on January 1, 2018, and
thereafter, the national bank or Federal savings association has a
supplementary leverage ratio of less than 3.0 percent.
(4) Significantly undercapitalized if:
(i) Total Risk-Based Capital Measure: the national bank or Federal
savings association has a total risk-based capital ratio of less than
6.0 percent;
(ii) Tier 1 Risk-Based Capital Measure: the national bank or Federal
savings association has a tier 1 risk-based capital ratio of less than
4.0 percent;
(iii) Common Equity Tier 1 Capital Measure: the national bank or
Federal savings association has a common equity tier 1 risk-based
capital ratio of less than 3.0 percent; or
(iv) Leverage Ratio: the national bank or Federal savings
association has a leverage ratio of less than 3.0 percent.
(5) Critically undercapitalized if the national bank or Federal
savings association 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 347.209;
and
(ii) Maintains the eligible assets prescribed under 12 CFR 347.210
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. 28.15 of this chapter, or to comply with asset maintenance
requirements pursuant to Sec. 28.20 of this chapter; or
(B) The FDIC to pledge additional assets pursuant to 12 CFR 347.209
or to maintain a higher ratio of eligible assets pursuant to 12 CFR
347.210.
(2) Adequately capitalized if the insured Federal branch:
(i) Maintains the pledge of assets prescribed under 12 CFR 347.209;
(ii) Maintains the eligible assets prescribed under 12 CFR 347.210
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.
[[Page 370]]
(3) Undercapitalized if the insured Federal branch:
(i) Fails to maintain the pledge of assets required under 12 CFR
347.209; or
(ii) Fails to maintain the eligible assets prescribed under 12 CFR
347.210 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 347.210 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 347.210 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 national bank or
Federal savings association as adequately capitalized and may require an
adequately capitalized or an undercapitalized national bank or Federal
savings association to comply with certain mandatory or discretionary
supervisory actions as if the national bank or Federal savings
association were in the next lower capital category (except that the OCC
may not reclassify a significantly undercapitalized national bank or
Federal 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 subpart M of part 19 of
this chapter with respect to national banks and Sec. 165.8 of this
chapter with respect to Federal savings associations, that the national
bank or Federal savings association 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 with respect to national banks and Sec. 165.8 of this chapter
with respect to Federal savings associations, that in the most recent
examination of the national bank or Federal savings association, the
national bank or Federal savings association received, and has not
corrected a less-than-satisfactory rating for any of the categories of
asset quality, management, earnings, or liquidity.
[78 FR 62275, Oct. 11, 2013, as amended at 79 FR 24539, May 1, 2014; 84
FR 61794, Nov. 13, 2019]