[Federal Register Volume 61, Number 28 (Friday, February 9, 1996)]
[Rules and Regulations]
[Pages 4849-4870]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-2903]



=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Parts 7 and 31

[Docket No. 96-03]
RIN 1557-AB38


Interpretive Rulings

AGENCY: Office of the Comptroller of the Currency, Treasury.

ACTION: Final rule.

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

SUMMARY: The Office of the Comptroller of the Currency (OCC) is 
revising its interpretive rulings. This final rule is another component 
of the OCC's Regulation Review Program to update and streamline OCC 
regulations, focus regulations on key safety and soundness concerns and 
agency objectives, and eliminate requirements that impose inefficient 
and costly regulatory burdens on national banks. The final rule 

[[Page 4850]]
clarifies, revises, and reorganizes existing interpretive rulings, 
eliminates rulings that are obsolete, adds interpretive rulings to 
address new issues, and relocates some interpretive rulings to another 
part of title 12.

EFFECTIVE DATE: April 1, 1996.

FOR FURTHER INFORMATION CONTACT: Stuart E. Feldstein, Senior Attorney, 
Legislative and Regulatory Activities, (202) 874-5090; Jacqueline 
Lussier, Senior Attorney, Legislative and Regulatory Activities, (202) 
874-5090; Daniel Cooke, Attorney, Legislative and Regulatory 
Activities, (202) 874-5090; or Saumya R. Bhavsar, Attorney, Legislative 
and Regulatory Activities, (202) 874-5090. Office of the Comptroller of 
Currency, 250 E Street SW., Washington, DC 20219.

SUPPLEMENTARY INFORMATION:

Background

    On March 3, 1995, the OCC published a notice of proposed rulemaking 
(60 FR 11924, March 3, 1995) (proposal) to revise 12 CFR part 7--the 
OCC's interpretive rulings. Part 7 serves as a repository of 
interpretive rulings applicable to national banks that generally are 
not related to the subject matter contained in other parts of chapter I 
of title 12.
    The proposal sought to implement the goals of the Regulation Review 
Program by updating and streamlining the regulation and eliminating 
requirements that imposed inefficient and costly regulatory burdens on 
national banks. The proposal also eliminated obsolete rulings, added 
interpretive rulings to address new issues, and transferred some 
interpretive rulings to 12 CFR part 31.

Comments Received and Changes Made

    The final rule implements most of the initiatives contained in the 
proposal. However, the OCC has made a number of changes in response to 
the comments received and to further reduce unnecessary regulatory 
burden.
    The OCC received 112 comment letters on the proposal. The vast 
majority of these commenters supported the proposed changes to part 7. 
The comment letters included 36 from banks and bank holding companies, 
24 from trade associations, 19 from governmental representatives, 16 
from law firms, eight from private businesses, four from community 
groups, three from congressmen, one from an unaffiliated individual, 
and one from a clearinghouse.
    Commenters strongly favored reducing unnecessary regulatory burden 
and updating and clarifying the interpretive rulings. Overall, most 
commenters commended the OCC's efforts, and some commenters offered 
variations on certain of the proposed changes.
    Many commenters recommended changes that focused on specific 
sections of the proposal. The OCC carefully considered each of the 
comment letters, and the section-by-section discussion later in this 
preamble identifies and discusses comments received and changes made to 
certain sections of the proposal.

Overview of the Final Rule

    The final rule adopts the proposal's structural format and 
reorganizes part 7 into four topic areas: Subpart A--Bank Powers, 
Subpart B--Corporate Practices, Subpart C--Bank Operations, and Subpart 
D--Preemption. Distribution and derivation tables summarizing sections 
of former part 7 changed by the final rule are included at the end of 
this preamble. The OCC anticipates adding rulings in the future to part 
7 or other parts in title 12 as necessary to address changing industry 
practices and developing issues.
    The OCC received comments on a number of sections for which it did 
not propose substantive changes. The OCC has reviewed the comments and 
is not making any changes to certain of these sections at this time. A 
list of these unchanged sections is included at the end of the section-
by-section summary.
    Finally, the final rule removes a number of sections, moves certain 
sections to another part of title 12, and retains certain sections 
pending the issuance of final rules for 12 CFR parts 1 and 5. A 
description of these sections is contained at the end of the preamble.

Section-by-Section Discussion

National Bank Ownership of Property (Section 7.1000)

    The proposal simplified and consolidated into a single section, 
Sec. 7.1000, several interpretive rulings relating to permissible 
ownership of real property by national banks. Proposed Sec. 7.1000: (1) 
described real estate that a bank may own pursuant to 12 U.S.C. 29 and 
permissible means of holding that real estate; (2) stated that a bank 
may own fixed assets; (3) identified certain limitations on investment 
in bank premises and on exercising options to purchase bank premises; 
(4) stated the circumstances under which a national bank may purchase a 
transferred employee's residence; (5) provided that a bank may engage 
in lease financing transactions of public facilities; and (6) provided 
that a bank may organize a bank premises subsidiary as a corporation, a 
partnership, or similar entity.
    Most of the comments generally supported the proposal. One 
commenter urged the OCC to state in Sec. 7.1000, as it had in the 
preamble to the proposal, that a bank may organize a bank premises 
subsidiary as a limited liability company. In response to this 
suggestion, the final ruling states that the term ``similar entity'' 
includes limited liability companies.
    The OCC also requested comment on whether to expand the proposal 
permitting a national bank to own real estate for leasing to 
municipalities or other public authorities to include other types of 
lease financing transactions. Several commenters urged the OCC to 
expand the proposal to permit ownership where the lessee is a non-
public sector entity. The OCC has decided, however, that it will not 
address this issue at this time.
    The final rule also simplifies and clarifies Sec. 7.1000's 
description of the types of real estate that may be held pursuant to 
the authority granted by 12 U.S.C. 29 (First). In addition, the final 
rule makes a minor organizational change by moving proposed 
Sec. 7.1000(c), which describes the permissible means of holding real 
estate necessary for the transaction of business, into proposed 
Sec. 7.1000(a), which discusses that real estate.
    The final rule also eliminates cross references to 12 CFR part 5, 
because the approval provisions referenced in the proposal have not yet 
been promulgated in part 5. The OCC will reinsert appropriate cross 
references when revisions to part 5 are promulgated.

National Bank Acting as Finder (Section 7.1002)

    The proposal clarified that a national bank may act as a finder of 
certain goods and services in addition to acting as a finder for 
insurance. The proposal also stated that acting as a finder does not 
include activities that would characterize the bank as a broker under 
applicable Federal law. Three commenters recommended that the OCC 
remove this limitation.
    Two commenters recommending removal of this limitation expressed 
concern that the statement is unnecessary and may create some 
uncertainty concerning a national bank's legal authority to engage in 
brokerage activities. The OCC does not intend for this provision to 
limit a national bank's authority to act as a broker where permitted 
under applicable Federal law. It merely clarifies that the authority to 
act as a 

[[Page 4851]]
finder is different from the authority to act as a broker and that a 
bank may not rely on the ``finder'' authority to engage in 
``brokerage'' activities that are otherwise not authorized by Federal 
law. The proposal also stated that, ``Unless otherwise prohibited,'' a 
national bank may advertise and accept a fee for acting as a finder. 
Two commenters suggested that the OCC delete the phrase ``Unless 
otherwise prohibited'' to permit a national bank to act as a finder 
without restriction. However, this language recognizes that some 
limitations may apply to national bank finders fees. For example, state 
laws may prohibit brokers from splitting commissions with nonbrokers. 
In addition, the Real Estate Settlement Procedures Act (RESPA) and its 
implementing regulations prohibit the acceptance of a fee for a 
referral to a settlement service if the referral involves a federally-
related mortgage loan. See 12 U.S.C. 2601 through 2617, and 24 CFR 
3500.14(b). Therefore, the final ruling retains this phrase.
    One commenter also suggested that the OCC reference RESPA in the 
final ruling to ensure that banks do not mistakenly believe that this 
ruling preempts RESPA. However, the OCC believes that adding this 
reference is unnecessary and, therefore, adopts Sec. 7.1002 as 
proposed.

Money Lent at Banking Offices or at Other Than Banking Offices (Section 
7.1003); Loans Originating at Other Than Banking Offices (Section 
7.1004); Credit Decisions at Other Than Banking Offices (Section 
7.1005)

    Proposed Secs. 7.1003, 7.1004, and 7.1005 addressed the 
circumstances under which the OCC would apply the branching limitations 
and procedures set forth in 12 U.S.C. 36 and 12 CFR 5.30 to lending 
activities by national banks.
    Proposed Sec. 7.1003 incorporated case law relating to where 
``money'' is ``lent'' for purposes of branching. Under the proposal, 
money is lent where the customer, in person, receives loan funds from 
the bank. Thus, if a customer receives funds from a bank employee or at 
bank premises, the bank would be subject to branching limitations and 
require OCC branch approval. However, if the customer receives funds 
from an independent third party, including a messenger service 
described in Sec. 7.1012, at a nonbank facility, the bank would not be 
subject to branching limitations and would not require OCC branch 
approval. Proposed Sec. 7.1003 also would codify OCC interpretations 
that branching requirements do not encompass certain accepted industry 
practices on loan disbursal such as when an attorney or escrow agent 
disburses funds at a real estate closing.
    Proposed Sec. 7.1004 retained the language in Sec. 7.7380, a 
judicially recognized safe harbor explaining the circumstances under 
which national banks may originate loans at nonbranch sites, known as 
loan production offices (LPOs), without those sites being considered 
branches.
    Proposed Sec. 7.1005 incorporated OCC interpretations explaining 
that offices at which loan approvals occur are not, solely by virtue of 
that activity, considered branches. This interpretation also recognized 
that a bank may approve loans originated at an LPO at locations other 
than the bank's main office or branches without causing the LPO to be 
considered a branch, even though this process does not fit squarely 
within the safe harbor set forth in Sec. 7.1004. Of course, this LPO or 
loan approval office would constitute a branch if it undertakes to lend 
money as defined in Sec. 7.1003 or otherwise is defined as a branch 
under the McFadden Act (12 U.S.C. 36(j)) and 12 CFR 5.30.
    Fifteen commenters addressed one or more aspects of these rulings. 
Most supported the proposals generally or had specific comments seeking 
clarification of certain aspects of the proposed language. Several 
asked the OCC to state that the Sec. 7.1003 language regarding where a 
loan is made pertains only to the lending of money for branching 
purposes and does not control where a loan is made for purposes of 
applying applicable state laws.
    In proposing these rulings, the OCC considered only the language 
and history of 12 U.S.C. 36(j) concerning what constitutes a ``branch'' 
for purposes of the McFadden Act. Thus, for clarification purposes, the 
final ruling uses the term ``money lent'' contained in the McFadden Act 
instead of the phrase ``loan is made'' and explicitly states that the 
definition of ``money lent'' applies only to that term as used in 12 
U.S.C. 36(j) and 12 CFR 5.30. The OCC does not intend to apply this 
definition to the determination of where a bank is ``located'' for 
purposes of applying usury limits set forth in 12 U.S.C. 85 or to 
control the applicability of various state laws pertaining to lending.
    Several commenters thought that the branching definition set forth 
in proposed Sec. 7.1003 was incomplete because it did not take into 
account whether the bank had established the lending facility or 
whether the public had access to the facility. However, the OCC has 
proposed to include a general definition of what constitutes a branch, 
including the ``public access'' and ``establishment'' tests, in its 
proposed revisions to 12 CFR part 5.1

     1 See 59 FR 61034 (proposed November 29, 1994). In this regard, 
the OCC also notes that what constitutes ``establishment'' of a 
branch would more appropriately be determined pursuant to an 
analysis of the McFadden Act, case law, and 12 CFR part 5. Thus, the 
OCC has changed references in proposed Sec. 7.1003 to a facility 
that is ``owned or rented'' by a bank to a facility that is 
``established'' by a bank.
---------------------------------------------------------------------------

    Several commenters asked the OCC to clarify where money would be 
considered to be lent for branching purposes. One commenter expressed 
concern that because many loans do not involve in-person disbursement, 
a bank could make a loan without branch involvement, thus creating a 
``gap'' that causes the test to fail. The OCC recognizes that 
technology and market developments may, in many instances, result in a 
bank making a loan without branch involvement. This has long been the 
case on the deposit side where a customer can make deposits and 
withdrawals by mail or through shared ATMs or other electronic means 
without branch involvement. As on the deposit side, this ``gap'' does 
not cause the test to fail--it just recognizes modern realities that 
banks can undertake traditional banking activities in ways that 
Congress did not contemplate in the McFadden Act as adopted in 1927. In 
the final ruling the OCC specifically includes in Sec. 7.1003(a) the 
phrase ``if any'' to indicate that the OCC does not believe that the 
making of a loan necessarily causes any particular location to be a 
``branch'' within the meaning of 12 U.S.C. 36.
    Several commenters also questioned the interplay of Sec. 7.1004 
with Secs. 7.1003 and 7.1005. The OCC has retained Sec. 7.1004, former 
Sec. 7.7380, because it is a judicially recognized safe harbor 
permitting national banks to undertake certain lending related 
activities without the constraints of the McFadden Act. The OCC notes, 
however, that this is a safe harbor; merely because a lending related 
activity falls outside the scope of Sec. 7.1004, as with Sec. 7.1005 
regarding the making of credit decisions, does not mean that the OCC 
views the bank as violating the McFadden Act.
    One commenter also stated that Sec. 7.1003(b) was not broad enough. 
The OCC emphasizes that any person or entity qualifying under the 
messenger service ruling (Sec. 7.1012), could deliver loan proceeds 
without implicating the branching rules and that Sec. 7.1012 is itself 
a safe harbor. 

[[Page 4852]]

    Thus, the OCC has adopted Secs. 7.1003, 7.1004, and 7.1005 
substantially as proposed. The final ruling clarifies that the 
definition of the phrase ``money lent'' applies solely to that phrase 
as used in the McFadden Act and 12 CFR 5.30. In addition, the OCC has 
changed the references in the proposal to the ``disbursal of funds by 
the bank to a customer'' to the ``receipt of loan proceeds directly 
from bank funds.'' This change clarifies that the key portion of a loan 
transaction for branching purposes is in-person receipt by the borrower 
from the bank or on bank premises of loan proceeds directly from bank 
funds--not disbursement by the bank through any mechanism, nor 
disbursement of funds that at the time of receipt by the borrower are 
not bank funds, nor disbursement of funds that do not at the time of 
disbursement constitute loan proceeds. In addition, in the final ruling 
the OCC changes references to a ``subsidiary corporation'' to 
``operating subsidiary.''

Loan Agreement Providing for a Share in Profits, Income or Earnings or 
for Stock Warrants (Section 7.1006)

    The proposal did not change this section, which permits a national 
bank to take as consideration for a loan a share in the profit, income, 
or earnings from a business enterprise of a borrower. One commenter 
suggested that the OCC state that a national bank may accept stock 
warrants as consideration for a loan.
    The OCC has previously approved the acceptance of stock warrants 
taken in addition to, or in lieu of, interest on a loan, provided that 
a national bank does not exercise the acquired stock warrants. See OCC 
Interpretive Letter No. 517 (August 16, 1990), reprinted in [1990-1991 
Transfer Binder] Fed. Banking L. Rep. (CCH) para. 83,228. The OCC has 
incorporated this interpretation into the final ruling.

Postal Service by National Bank (Section 7.1010)

    The proposal made no substantive changes to this section. One 
commenter noted that, by stating that the services performed by a 
postal substation may include meter stamping of letters and packages, 
and the sale of related insurance, the ruling could imply that a 
national bank may offer only the listed services. The OCC does not 
intend for this to be an exclusive list of services and has, by 
interpretive letters, found that a national bank may engage in other 
activities, including selling stamps, accepting letters and packages 
for mailing, and maintaining post office boxes. Because a national bank 
operating a postal substation must do so in accordance with the 
regulations of the United States Postal Service, the OCC has changed 
the ruling to reference those regulations.

National Bank Acting as Payroll Issuer (Section 7.1011)

    The proposal made no substantive changes to former Sec. 7.7485, 
which recognized that a national bank may disburse to employees of a 
bank customer payroll funds deposited with the bank by that customer. 
One commenter observed that the proposed ruling could be read narrowly 
to bar disbursement of payroll funds if made indirectly to the employee 
by crediting the employee's account with a financial institution other 
than the disbursing bank. The OCC has recognized that a national bank 
may forward funds to other banks in which a customer's employees 
maintain accounts. See Letter from F.H. Ellis, Chief National Bank 
Examiner (July 19, 1971) (unpublished).2 The OCC has modified the 
proposal and former ruling to reflect that precedent and to incorporate 
certain technical changes.

     2 All unpublished OCC staff interpretive letters are 
available (in redacted form) upon request from the Communications 
Division, 250 E Street, SW, Washington, DC 20219 (202) 874-4700.
---------------------------------------------------------------------------

Debt Cancellation Contracts (Section 7.1013)

    The former interpretive ruling permitted national banks to offer 
customers debt cancellation contracts (DCCs) that cancel debt upon the 
death of the borrower. The proposal added disability and unemployment 
as types of DCCs that are expressly permitted by the interpretive 
ruling.
    The OCC received several comments on this section. The majority of 
those commenters supported the proposal. Some urged the OCC to expand 
the final ruling to state that national banks may offer additional 
types of DCCs that the OCC did not include in the proposal. Some 
commenters, however, cautioned that DCCs present certain risks, and, 
therefore, did not support expansion of the former interpretive ruling.
    The final ruling expands the former ruling to provide that a 
national bank may offer DCCs for the death or disability of a borrower. 
The OCC recognizes that it also may be appropriate for a national bank 
to offer a DCC that is triggered by other events. However, risk 
considerations that may be particular to other types of DCCs, or to 
specific banks, require the OCC to consider these other types of DCCs 
on a case-by-case basis.
    In addition, national banks offering DCCs, whether for death or 
disability, or for other triggering events, must do so in a safe and 
sound manner. If a bank is unable to demonstrate an ability by itself 
to estimate and reserve adequately for the risks attendant to DCCs, the 
bank may obtain third party coverage or take other measures to cover 
the risks presented by the DCC.

Independent Undertakings To Pay Against Documents (Section 7.1016)

    The proposal updated former Sec. 7.7016 to reflect modern market 
standards and industry usage and replaced the term ``letters of 
credit'' with ``independent undertakings.'' The term ``independent 
undertakings'' is used by the United Nations Commission on 
International Trade Law (UNCITRAL) to cover a broader array of 
transactions in this area.
    The proposal extended the same safety and soundness principles in 
the former ruling to this broader class of independent undertakings. 
The proposal explained that non- documentary conditions on the bank's 
undertaking are not relevant to the bank's obligation to honor its 
commitment. Furthermore, the proposal provided a clearer statement of 
regulatory standards directed to the segment of the banking industry 
that engages in these activities. The proposal also provided a non-
exclusive list of sample laws and rules of practice under which a 
national bank may issue independent undertakings.
    The OCC received 13 comments with the majority supporting the 
proposal. Several commenters recommended that when referencing 
applicable laws or rules of practice, the ruling should use generic 
citation references or citations to their most recent versions. The OCC 
has updated the non-exclusive list of sample laws and rules of practice 
to refer to Revised Article 5 of the Uniform Commercial Code (UCC) 
(1995) (current model code) as well as Article 5 of the UCC (1990) 
(former model code), and to the 1993 version of the Uniform Customs and 
Practice for Documentary Credits (ICC Publication No. 500) (effective 
January 1, 1994) instead of the 1983 version. The sample listing is 
intended to provide non-exclusive examples of laws or rules of 
practice, as the cited examples may not necessarily apply in a 
particular case or may be revised in the future, or other applicable 
laws or rules of practice subsequently may come into effect. The OCC 
has added the phrase ``as any of the foregoing may be amended from time 
to tim'' to the end of the non-exclusive listing of sample laws and 
rules of 

[[Page 4853]]
practice to recognize that they may be revised from time to time.
    Four commenters recommended clarifying that ``evergreen'' clauses 
are permissible, despite the proposal's requirement in 
Sec. 7.1016(b)(1)(iii) that the undertaking be ``limited in duration.'' 
Long-standing OCC precedent permits national banks to use ``evergreen'' 
or ``automatic extension'' clauses in their letters of credit provided 
that the bank retains the right not to renew the letter of credit. 
Therefore, the final ruling adds clarifying language expressly 
permitting a national bank to issue an undertaking without an express 
expiration date, provided that the bank has the right to cancel the 
undertaking upon notice to the parties.
    Several commenters objected to the word ``must'' in proposed 
Sec. 7.1016(b), as ``must'' seemed to impose mandatory safety and 
soundness conditions on the issuance of independent undertakings. The 
final ruling changes references in Sec. 7.1016(b) from ``must'' to 
``should,'' consistent with former Sec. 7.7016, to provide banks with 
added flexibility in structuring and entering into financing 
arrangements. Nonetheless, the OCC strongly urges national banks to 
evaluate these safety and soundness factors when issuing independent 
undertakings.
    Some commenters asked whether the proposal's reference to a bank 
issuing an undertaking for its own account meant that the OCC permits 
national banks to issue two-party letters of credit. As intended in the 
proposal, the OCC's position is that a national bank may issue a two-
party letter of credit provided that it is permissible under applicable 
law and satisfies the requirements of Sec. 7.1016(b)(2)(iii), regarding 
a bank's undertaking for its own account. Since a two-party letter of 
credit is issued for the bank's own account, the two-party letter of 
credit satisfies the requirements of Sec. 7.1016(b)(1)(iv), regarding a 
bank's right of reimbursement.

National Bank as Guarantor or Surety on Indemnity Bond (Section 7.1017)

    The proposal removed a well-settled provision stating that foreign 
branches may exercise additional powers pursuant to 12 U.S.C. 604a. The 
proposal made no other substantive changes.
    The proposal generally provided that a national bank may act as 
guarantor or surety to indemnify another if the bank has a substantial 
interest in the performance of the transaction or a segregated deposit 
sufficient in amount to cover the bank's total potential liability. One 
commenter suggested that the OCC should expand the ruling to permit a 
national bank to guarantee or indemnify a party to a transaction if the 
guarantee or indemnification is secured by any of the types of 
collateral acceptable under section 23A of the Federal Reserve Act 
(FRA) (12 U.S.C. 371c) for a ``covered transaction.''
    The OCC finds that the types of collateral listed at section 
23A(c)(1) (A) and (B) of the FRA (12 U.S.C. 371c(c)(1) (A) and (B)), 
the 100 and 110 percent collateral categories, respectively, are 
acceptable for a national bank to use as security without undue risk 
when acting as a guarantor or surety to indemnify another. Therefore, 
the final ruling permits a national bank to lend its credit, bind 
itself as surety to indemnify another, or otherwise become a guarantor 
to a transaction if the bank has a security interest in either of these 
two categories of collateral.
    The 100 percent collateral category includes obligations of the 
United States or its agencies, obligations fully guaranteed by the 
United States or its agencies as to principal and interest, and notes, 
drafts, bills of exchange, and bankers' acceptances that are eligible 
for rediscount or purchase by a Federal Reserve Bank. The 110 percent 
collateral category includes obligations of a state or political 
subdivision of a state.
    To ensure that the bank is not exposed to a risk of loss, the bank 
must perfect its security interest in the collateral. For example, if 
the collateral is a printed security, the bank must have obtained 
physical control of the security, and, if the collateral is a book 
entry security, the bank must have properly recorded its security 
interest.
    Because the value of these types of collateral can fluctuate, the 
final ruling requires that the collateral have a market value, at the 
close of each business day, equal to the bank's total potential 
liability if the collateral is composed of obligations of the United 
States or its agencies, obligations fully guaranteed by the United 
States or its agencies as to principal and interest, or notes, drafts, 
bills of exchange, or bankers' acceptances that are eligible for 
rediscount or purchase by a Federal Reserve Bank. If the collateral is 
composed of obligations of a state or political subdivision of a state, 
it must have a market value, at the close of each business day, equal 
to 110 percent of the bank's total potential liability.

Furnishing of Products and Services by Electronic Means and Facilities 
(Section 7.1019)

    The proposal permitted a national bank to use data processing 
equipment to perform for itself and others ``all services expressly or 
incidentally authorized under the statutes applicable to national 
banks.'' The proposal also incorporated the OCC's interpretive position 
that a national bank using data processing equipment or technology to 
perform authorized services may market and sell ``any legitimate excess 
capacity'' in that equipment or technology. See, e.g., OCC Interpretive 
Letter No. 677 (June 28, 1995), reprinted in [1994-1995 Transfer 
Binder] Fed. Banking L. Rep. (CCH) para. 83,625.
    The OCC requested comment on whether the proposed language is 
necessary. The OCC also requested comment on whether the OCC should 
more specifically describe permissible sales of excess capacity and the 
services that a national bank may provide using data processing 
equipment or technology.
    All 12 of the commenters generally supported the proposal. A 
majority of the commenters stated that greater specificity in 
describing authorized services would not be useful because more 
detailed language would quickly become outdated by the rapid 
development of technology. In addition, a majority of the commenters 
urged the OCC to adopt a broader standard than the proposal used to 
define the scope of permissible sales of data processing equipment and 
technology. Three commenters urged the OCC to delete the term 
``legitimate'' from the phrase ``legitimate excess capacity.'' One 
commenter suggested that the OCC state that a bank may market and sell 
any excess capacity in data processing equipment or technology that the 
bank acquired or developed for banking purposes based on a good faith 
determination of its own current and future needs.
    The OCC considered a number of alternatives for changing the 
proposal to modernize the treatment of permissible data processing 
activities. The OCC recognizes that national banks are engaging, and 
will engage, in an increasing range of activities through electronic 
means and facilities beyond simply ``data processing.'' For this 
reason, the OCC has modified this ruling to refer to activities, 
functions, products, and services provided via electronic means and 
facilities, rather than ``data processing'' and changes the title of 
Sec. 7.1019 from ``Use of data processing equipment and furnishing of 
data processing services'' to ``Furnishing of products and services by 
electronic means and facilities.''
    The OCC also finds the commenter's suggestion of a ``good faith'' 
standard to be more appropriate than ``legitimate 

[[Page 4854]]
excess capacity'' to define the scope of a national bank's permissible 
sales of excess electronic capacities. The good faith requirement is an 
important safeguard against abusing this authority. Therefore, the OCC 
adopts the commenter's suggestion. Moreover, the final ruling, which 
expressly states that these sales are appropriate for a bank to 
optimize the use of the bank's resources, more closely parallels the 
standard the OCC applies when national banks utilize their excess 
physical space for non-bank uses. See, e.g., Letter from Peter 
Liebesman, Assistant Director, Legal Advisory Services Division (July 
24, 1987) (unpublished) and cases cited therein, Wingert v. First Nat'l 
Bank of Hagerstown, Md., 175 F. 739 (4th Cir. 1909), aff'd, 223 U.S. 
670 (1912); Brown v. Schleier, 118 F. 981 (8th Cir. 1902), aff'd, 194 
U.S. 18 (1904).

Purchase of Open Accounts (Section 7.1020)

    The proposal contemplated moving former Sec. 7.1105 to 12 CFR part 
32. However, the section relates to a national bank's ability to engage 
in factoring, and the OCC has concluded that it more appropriately 
belongs in part 7. Therefore, the final ruling adopts the language 
contained in the former ruling, except for the language that ``accounts 
need not in every case represent an evidence of debt.'' This language 
is removed because it is well settled under OCC precedents that 
factoring is an extension of credit for lending limit purposes.

Corporate Governance Procedures (Section 7.2000)

    The proposal provided that a national bank undertaking a corporate 
governance procedure must comply with applicable statutes and 
regulations, and safe and sound banking practices. The proposal also 
established a safe harbor for a national bank that undertakes a 
corporate governance procedure, if the bank complied with certain OCC-
designated sections of the Model Business Corporation Act (MBCA), where 
the Federal banking statutes and regulations are otherwise silent on 
the matter. The OCC invited comment on whether the MBCA is the 
appropriate form of guidance to provide national banks with additional 
flexibility in structuring their corporate practices or whether the 
Delaware General Corporation Law or other sources are preferable.
    The OCC received ten comments on the proposal. A number of 
commenters recommended that the final ruling permit a national bank to 
rely on the corporate governance procedures of the state where the bank 
is located or the state where the bank's holding company, if any, is 
incorporated. Two commenters recommended expanding the list of 
permissible MBCA sections so that a national bank could rely on any 
section of the MBCA to the extent it is not inconsistent with Federal 
banking statutes or regulations. One commenter suggested permitting the 
bank to rely on an opinion of counsel that the procedure is permissible 
for a national bank.
    Four commenters also discussed Delaware General Corporation Law as 
a source of guidance. Two of these commenters stated that Delaware law 
would be an acceptable source of guidance. One commenter supported 
permitting the use of Delaware law as an alternative to the MBCA. One 
commenter opposed the use of Delaware law unless other states' laws are 
similarly permitted as a source of guidance for national bank corporate 
governance procedures.
    After careful consideration of the comments received, the OCC has 
adopted a revised two-step approach that provides national banks with 
maximum flexibility to structure their corporate governance procedures 
while providing shareholders and others with adequate notice as to the 
body of corporate standards on which the bank will rely. Under the 
final ruling, a corporate governance procedure used by a national bank 
must comply with applicable Federal banking statutes and regulations, 
and safe and sound banking practices. In addition, to the extent not 
inconsistent with those Federal banking statutes and regulations, or 
safe and sound banking practices, a national bank may elect to follow 
the corporate governance procedures of the state in which the main 
office of the bank is located, the state where the bank's holding 
company is incorporated, the Delaware General Corporation Law, Del. 
Code Ann. tit. 8 (1991, as amended 1994, and as amended thereafter), or 
the MBCA (1984, as amended 1994, and as amended thereafter). This 
approach provides national banks with a wide range of choices to 
structure their corporate governance procedures consistent with the 
particular needs of the bank.
    The OCC is mindful, however, of providing shareholders and other 
interested parties with adequate notice of the bank's corporate 
governance procedures. Therefore, the final ruling requires the bank to 
designate in its bylaws the body of law that will govern its corporate 
procedures. The final ruling also retains a process for a bank to seek 
informal staff guidance regarding permissible corporate governance 
procedures.

Notice of Shareholders' Meetings (Section 7.2001)

    The proposal simplified the language in former Sec. 7.4000 and 
clarified that a national bank must mail notice of the time, place, and 
purpose of all shareholders' meetings at least ten days before the 
proposed meeting.
    Two commenters recommended revising this section to permit the sole 
shareholder of a national bank to waive notice of the shareholders' 
meeting. The OCC agrees that permitting the sole shareholder to waive 
shareholder notice will not detrimentally affect bank safety and 
soundness and will eliminate unnecessary regulatory burden. Thus, the 
final ruling adds a new sentence that the sole shareholder of a 
national bank may waive the notice requirements of this section.
    Two commenters also recommended modifying this section to state 
that shareholders generally may waive their right to written notice of 
shareholder meetings. As a general matter, the OCC does not accept 
written waivers of the general requirement for notice of regular annual 
meetings of national banks or meetings involving certain types of 
fundamental corporate changes. The corporate affairs of a bank may not 
as closely involve shareholders as directors, and thus regular annual 
meetings provide an important forum for expression of shareholder 
views. In addition, the absence of notice and full disclosure for 
meetings, particularly those involving fundamental corporate changes, 
could jeopardize the ability of shareholders to protect their rights.
    Another commenter recommended expanding the section to require a 
national bank to mail ``or otherwise deliver'' shareholders' notice. 
However, requiring a national bank to mail shareholders' notice of all 
shareholders' meetings at least ten days prior to the meeting by first 
class mail provides the OCC with confirmation of a bank's adherence to 
the ``ten day'' shareholder notice requirement. Therefore, the final 
ruling does not incorporate the phrase ``otherwise deliver.''

Honorary Directors or Advisory Boards (Section 7.2004)

    The proposal permitted a national bank to appoint honorary or 
advisory members of the board of directors to act in advisory 
capacities without voting power or power of final decision in matters 
concerning the bank's business. The proposal made no substantive 
changes to this section. One commenter suggested clarifying that one or 
more 

[[Page 4855]]
separate advisory boards are permitted. The final ruling changes the 
title and language of this section to clarify that more than one 
advisory board is permissible.

Ownership of Stock Necessary To Qualify as Director (Section 7.2005)

    The proposal removed repetitive information requirements relating 
to directors' qualifying shares under 12 U.S.C. 72. It also 
incorporated OCC precedent to provide that a director's ownership of 
preferred stock in a national bank may satisfy statutory requirements. 
The proposal also clarified that a director may borrow from the bank or 
its affiliates the funds to purchase the required minimum equity 
interest.
    The OCC received two comment letters on this section. The 
commenters each requested the OCC to state that a national bank 
director can hold qualifying shares in individual retirement accounts, 
retirement plans, 401(k) plans or other similar arrangements.
    Twelve U.S.C. 72 requires a national bank director to own the 
qualifying shares in ``his or her own right.'' The purpose of the 
qualifying shares requirement is to ensure that a director has a 
sufficient individual financial interest in the bank to induce him or 
her to be vigilant in protecting the bank's interests. Cupo v. 
Community National Bank & Trust Co. of New York, 324 F. Supp. 1390, 
1393 (E.D.N.Y. 1971). The OCC agrees that various retirement plans and 
similar arrangements may provide directors with the requisite financial 
interest to satisfy the qualifying shares requirement of 12 U.S.C. 72. 
Therefore, the final ruling provides that a director's qualifying 
interest also may be held through profit sharing plans, individual 
retirement accounts, retirement plans, and similar arrangements, 
provided the director retains beneficial ownership and legal control 
over the shares. For examples of arrangements the OCC has previously 
approved, see Letter from Peter Liebesman, Assistant Director, Legal 
Advisory Services Division (July 7, 1981) (unpublished); Letter from 
Larry J. Stein, Senior Attorney, Legal Advisory Services Division (May 
28, 1986) (unpublished); Letter from Christopher C. Manthey, Senior 
Attorney, Legal Advisory Services Division (September 5, 1989) 
(unpublished); and Letter from James A. Wright, Attorney, Securities 
and Corporate Practices Division (November 6, 1989) (unpublished).
    The OCC has also changed the ruling to reflect OCC precedent that 
eliminates some of the distinctions between the required amount of 
ownership a director must hold in national bank stock as opposed to 
holding company stock. See OCC Interpretive Letter No. 503 (April 4, 
1989), reprinted in [1990-1991 Transfer Binder] Fed. Banking L. Rep. 
(CCH) para. 83,201. Under the final ruling, a director may hold common 
or preferred stock of the bank or a company that controls the bank if 
that stock has not less than an aggregate par value of $1,000, an 
aggregate shareholders' equity of $1,000, or an aggregate fair market 
value of $1,000.

Filling Vacancies and Increasing Board of Directors Other Than by 
Shareholder Action (Section 7.2007)

    The proposal modified former Sec. 7.4305 to clarify that ``the 
majority of shareholders or a majority of directors'' may increase the 
number of directors and that this increase is limited to two directors 
(when the number of directors is 15 or fewer) or four (when the number 
of directors is 16 or more). The proposal also eliminated language that 
repeated the statute and clarified the procedures for filling vacancies 
on the board of directors.
    The OCC received three comments on the proposal. One commenter 
noted that the language could be read to preclude shareholders from 
increasing the board of directors by more than two (when the number of 
directors is 15 or fewer) or four (when the number of directors is 16 
or more). This is not the OCC's intent. Nothing in the final ruling is 
intended to limit whatever lawful authority shareholders, as distinct 
from the directors themselves, may have to increase the board of 
directors. Therefore, the final ruling has been changed to focus solely 
on increases made by action of the board of directors. Under the final 
ruling, if authorized by the bank's articles of association, a majority 
of the board of directors may increase the number of the bank's 
directors within the limits specified in 12 U.S.C. 71a. When the board 
of directors increases the number of directors, that increase is 
limited to two when the number of directors last elected by 
shareholders was 15 or fewer, and to four when the number of directors 
last elected by shareholders was 16 or more.
    The final ruling also clarifies that the shareholders, a majority 
of the board of directors remaining in office, or, if the directors 
remaining in office constitute fewer than a quorum, an affirmative vote 
of the directors remaining in office, may fill a vacancy on the board 
of directors.

Oath of Directors (Section 7.2008)

    The proposal removed the last paragraph of former Sec. 7.4415, 
which restated the statute and separated the section into 
``administration'' and ``execution'' of the oath. One commenter 
recommended clarifying that the oath must be maintained in writing for 
a specified period of time. The OCC removed the requirement in the 
former ruling that the director subscribe to the oath and immediately 
transmit it to the OCC to be filed and preserved for ten years because 
that requirement merely restates 12 U.S.C. 73. Therefore, the final 
ruling makes no changes and, as in the proposal, removes the last 
paragraph of the former ruling.

Directors' Responsibilities (Section 7.2010)

    The proposal modified current Sec. 7.4425 to state that while 
directors may delegate the day-to-day operations of the bank to 
management, the directors maintain responsibility for supervising 
management to ensure that the bank is operated in accordance with 
policies and procedures established by the board as well as with 
applicable law, regulations, and safe and sound banking practices.
    Two commenters supported the proposal. Two commenters asserted that 
the word ``ensure'' implies that directors are guarantors of the bank's 
legal and regulatory compliance. One commenter suggested substituting 
the word ``determine'' for ``ensure.'' Another commenter criticized the 
proposal as contrary to statutory and case law in stating that the 
board may delegate only the bank's day-to-day operations but not the 
oversight function and for not stating that directors are entitled to 
rely reasonably on management, officers and inside and outside 
professionals for nearly all board functions. This commenter 
recommended issuing a separate interpretive ruling or Banking Circular 
on duties of national bank directors, or removing the ruling from part 
7.
    The proposal sought to provide directors with a more informed 
statement of the OCC's expectations regarding the responsibilities of a 
national bank's board of directors. However, the OCC acknowledges the 
limitations inherent in crafting a regulation in this complex area that 
is not overly detailed yet provides directors with clear and useful 
guidance as to their responsibilities. Sources already available, such 
as the OCC's Director's Book and the ``Comptroller's Handbook for 
National Bank 

[[Page 4856]]
Examiners,'' 3 provide an informal and more extensive description 
of these responsibilities.

     3  These sources are available upon request from the OCC 
Communications Division, 250 E Street, SW, Washington, DC 20219 
(202) 874-4700.
---------------------------------------------------------------------------

    Thus, the final ruling has been changed to provide a general 
statement that the business and affairs of the bank shall be managed by 
or under the direction of the board of directors. However, in order to 
notify directors of their basic responsibilities and available sources 
of additional guidance, the final ruling also states that a director 
should refer to other OCC published guidance for additional information 
regarding the OCC's views on the responsibilities of national bank 
directors.

Compensation Plans (Section 7.2011)

    The proposal combined and condensed current Secs. 7.5000, 7.5010, 
and 7.5015, regarding bonus and profit sharing plans, pension plans, 
and employee stock option and stock purchase plans, respectively, into 
one section on compensation plans.
    One commenter suggested that the list of compensation plans should 
be illustrative rather than exclusive as there are alternative types of 
compensation programs that may be appropriate for national banks but do 
not fall within one of these three types. The OCC agrees with the 
commenter and clarifies the final ruling to allow national banks 
flexibility to adopt compensation plans other than those specified in 
this section. The OCC has also changed the ruling to refer to the 
compensation provisions contained in 12 CFR part 30, Standards for 
Safety and Soundness.

Indemnification of Institution-affiliated Parties (Section 7.2014)

    The proposal revised former Sec. 7.5217 to state that a national 
bank may indemnify certain individuals and advance legal fees and 
expenses, subject to certain limitations. Under the proposal, a 
national bank could not, however, indemnify an individual where an 
administrative proceeding resulted in a final order that assessed a 
civil money penalty or required restitution, or a final removal or 
prohibition order under 12 U.S.C. 1818 (e) or (g).
    The proposal also imposed certain procedural requirements for 
advancing expenses and legal fees in connection with administrative 
enforcement actions. Under the proposal, a national bank could advance 
expenses and legal fees if the disinterested members of the board of 
directors determined, in good faith, that there is a reasonable basis 
for the individual to prevail on the merits; that the individual has 
the financial capacity to reimburse the bank if he or she did not 
prevail; and that the payment of the expenses by the bank is not unsafe 
or unsound. The indemnified individual would have been required to 
repay advances to the bank, however, if the action or proceeding 
resulted in a final order assessing a civil money penalty or requiring 
restitution, or a final removal or prohibition order under 12 U.S.C. 
1818 (e) or (g). The proposal also required an individual to execute a 
formal and binding agreement to reimburse the bank for expenses and 
fees in the event he or she did not prevail. The OCC invited comment on 
whether these standards were workable or too restrictive, and whether 
other standards were more appropriate.
    On March 29, 1995, the Federal Deposit Insurance Corporation (FDIC) 
issued its second proposal relating to bank indemnification of 
institution-affiliated parties. The FDIC proposal would implement the 
so-called ``golden parachute'' and indemnification provisions of 
section 18(k) of the Federal Deposit Insurance Act (12 U.S.C. 1828(k)) 
and would apply to all depository institutions, including national 
banks. Several commenters responding to the OCC proposal recommended 
that the OCC adopt the FDIC proposal in its entirety or specific 
provisions of the FDIC proposal that were ``less restrictive'' than the 
OCC proposal. These commenters advocated a single indemnification 
standard applicable to national banks to avoid conflicting standards.
    The OCC agrees that a single set of rules governing permissible 
indemnification in connection with administrative proceedings or civil 
actions brought by Federal banking agencies should apply to national 
banks. One set of rules prevents confusion, reduces compliance and 
legal costs, and minimizes unnecessary regulatory burden. Because 12 
U.S.C. 1828(k) subjects national banks to the requirements of any FDIC 
regulation on indemnification, FDIC standards would supersede less 
restrictive separate OCC standards. Therefore, the OCC has changed the 
part 7 ruling on indemnification to clarify that a national bank may 
make or agree to make indemnification payments to an institution-
affiliated party with respect to an administrative proceeding or civil 
action initiated by any Federal banking agency, that are reasonable and 
consistent with the requirements of 12 U.S.C. 1828(k) and any 
implementing regulations thereunder.
    The FDIC proposal does not address indemnification in circumstances 
involving an administrative proceeding or civil action not initiated by 
a Federal banking agency. The former ruling, Sec. 7.5217, provided 
generally that indemnification articles that substantially reflect 
general standards of law of the state in which the bank is 
headquartered, the law of the state in which the bank's holding company 
is incorporated, or the relevant provisions of the MBCA, were presumed 
by the OCC to be within the corporate powers of a national bank. The 
OCC has changed the proposal to provide further flexibility and to 
maintain consistency with the revised corporate governance procedures 
in Sec. 7.2000. Under the final ruling, with respect to an 
administrative proceeding or civil action not initiated by a Federal 
banking agency, a national bank may indemnify an institution-affiliated 
party for damages and expenses, including the advancement of expenses 
and legal fees, in accordance with the law of the state in which the 
main office of the bank is located, the law of the state in which the 
bank's holding company is incorporated, or the relevant provisions of 
the MBCA or Delaware General Corporate Law. In all cases, 
indemnification payments should be consistent with the safety and 
soundness of the bank involved. The final ruling also requires the bank 
to designate in its bylaws the body of law it has selected to govern 
its indemnification procedures. The final ruling no longer requires 
banks to include the indemnification provisions in its articles of 
association.

Cashier (Section 7.2015)

    The proposal changed former Sec. 7.5245 to clarify that the 
cashier's duties may be delegated to the president, chief executive 
officer, or other officer. One commenter recommended that the OCC 
change references to the board of directors to a ``duly designated 
officer.'' The OCC agrees with this recommendation and, consistent with 
the OCC's continuing effort to reduce unnecessary regulatory burden, 
changes the final ruling to permit a duly designated officer to assign 
duties previously performed by the bank's cashier.

Facsimile Signatures on Bank Stock Certificates (Section 7.2017)

    The proposal revised former Sec. 7.6010 to clarify that facsimile 
signatures include electronic means of signature. One commenter 
recommended further relief from administrative burden by deleting all 
references to ``seals'' and ``corporate seals'' in the corporate 

[[Page 4857]]
governance section, including the reference proposed in Sec. 7.2017. 
Although the OCC recognizes the need to reduce administrative burden, 
12 U.S.C. 52 requires every national bank stock certificate to be 
sealed with the seal of the association. Therefore, the OCC adopts this 
section as proposed.

Acquisition and Holding of Shares as Treasury Stock (Section 7.2020)

    The proposal added a new section to address a national bank's 
acquisition and holding of shares as treasury stock. The proposal 
explained that pursuant to the authority and procedures of 12 U.S.C. 
59, a national bank may acquire its outstanding shares and hold them 
for a reasonable period as treasury stock, as long as the acquisition 
and retention of the shares is for a legitimate corporate purpose. 
Because 12 U.S.C. 59 requires OCC approval and a two-thirds vote of 
shareholders for a reduction in capital, there is less risk of improper 
use of treasury stock. The OCC notes, however, that it would not be 
permissible for a national bank to acquire and hold treasury stock for 
speculation or as a means of bypassing some requirement or obligation 
under the Federal banking laws. Accordingly, the final ruling adds 
language providing that it would not be permissible for a national bank 
to acquire or hold treasury stock for speculation.
    One commenter expressed concern that the term ``reasonable period'' 
is too ambiguous. The commenter contended that as long as the bank 
complies with 12 U.S.C. 59 regarding the repurchase of outstanding 
shares, there is no reason that a national bank may not hold treasury 
stock for as long as the bank sees fit. The OCC agrees with the 
commenter's suggestion. As long as the acquisition and retention of the 
shares fulfills a legitimate corporate need, the bank may continue to 
hold the shares. Therefore, the final ruling does not include the term 
``reasonable period'' but clarifies that the retention of the shares 
must continue, on an ongoing basis, to be for a legitimate corporate 
purpose.

Bank Hours and Closings (Section 7.3000)

    The proposal revised current Sec. 7.7434 to provide more 
comprehensive guidance regarding bank hours and closings. Proposed 
Sec. 7.3000(a) maintained the general requirement that a national 
bank's board of directors is responsible for establishing a schedule of 
business hours independently of other banks.
    Proposed Sec. 7.3000(b) informed national banks that the 
Comptroller of the Currency (Comptroller), a state or a legally 
authorized state official may declare a day to be a legal holiday for 
emergency reasons. Proposed Sec. 7.3000(b) also set forth examples to 
clarify circumstances under which a national bank may remain closed.
    Proposed Sec. 7.3000(c) also provided that a state or a legally 
authorized state official may declare a day a legal holiday for 
ceremonial reasons, and that a national bank may choose to remain open 
or closed on these holidays.
    Finally, proposed Sec. 7.3000(d) reminded national banks to look to 
applicable law to determine if they may incur liability for closing.
    Several commenters requested the OCC to broaden the authority to 
close a bank or its branch offices. For example, one commenter 
suggested including provisions allowing a bank office to close if a 
snow emergency is declared by local authorities. Another commenter 
suggested following provisions in New York law that permit bank 
officers to independently protect their institutions by closing offices 
under certain conditions, provided at least one office remains open.
    Twelve U.S.C. 95 clearly authorizes only the Comptroller, a state, 
or a state official to designate a day as a legal holiday for emergency 
reasons. Nonetheless, the OCC recognizes the practical concerns raised 
by the commenters. The ruling attempts to delineate certain emergency 
conditions under which the Comptroller will act to authorize the 
closing of bank offices. The OCC does not intend for 12 U.S.C. 95 or 
the ruling to preclude a bank from asserting defenses, such as 
impossibility of performance, if compelled to close due to 
circumstances beyond the bank's control.

Sharing Space and Employees (Section 7.3001)

    The proposal revised former Sec. 7.7516 to incorporate current OCC 
positions on sharing space and employees. Among other things, the 
proposal clarified that banks may lease excess space in bank premises 
or share space with businesses other than banks and other financial 
institutions. The proposal also clarified the OCC's position on a 
national bank sharing employees with businesses with which it shares 
space. Finally, the proposal summarized the supervisory conditions that 
a bank should address in these arrangements, and proposed 
Sec. 7.3001(d) identified legal issues a bank should consider when 
entering into these arrangements. The proposal requested commenters to 
address whether the listed items are appropriate and if the OCC should 
identify other considerations in lieu of, or in addition to, those 
described in the proposal.
    The OCC received 13 comments addressing this section. Several 
commenters requested the OCC to clarify whether there are any 
limitations on the type of business with which the bank may lease or 
share space. The proposal and the final ruling make clear that a bank 
may lease excess space in bank premises to one or more businesses. 
Similarly, a bank may share space jointly held with one or more other 
businesses. Each of these arrangements is subject to supervisory 
conditions and legal requirements. However, the ruling does not impose 
limitations on the type of activity that the other business engages in 
other than that it cannot adversely affect the safety and soundness of 
the bank.
    One commenter disagreed with the supervisory conditions in proposed 
Sec. 7.3001(c) (6) and (7) that require the national bank to ensure 
that (1) the activities of the other business do not affect the safety 
and soundness of the bank, and (2) the activities of shared employees 
are consistent with applicable laws and regulations that pertain to 
agents or employees of such other businesses. This commenter asserted 
that this would impose inconsistent and duplicative requirements on 
brokerage firms and, in the case of the latter requirement, impose new 
obligations on national banks to monitor compliance with securities 
laws and other regulations by broker-dealers and dual employees of 
broker-dealers.
    The OCC continues to believe that the importance of maintaining a 
safe and sound national bank system requires banks to ensure that the 
activities of businesses with which they share premises will not 
adversely affect bank safety and soundness. Therefore, the OCC retains 
the requirement contained in proposed Sec. 7.3001(c)(6). However, the 
OCC did not intend for national banks to monitor compliance on an 
ongoing basis with all applicable laws affecting broker-dealers or 
other entities with which the bank shares space or employees. 
Therefore, the OCC has changed proposed Sec. 7.3001(c)(7) to clarify 
that a national bank should take steps to ensure that shared employees, 
or the entity for which they perform services, are duly licensed or 
meet applicable qualification requirements for the activities in 
question.
    One commenter sought clarification as to whether these supervisory 
conditions are consistent with, or in addition to, the Interagency 
Statement on Retail Sales of Nondeposit Investment Products (February 
15, 1994) 

[[Page 4858]]
(Statement).4 A number of the supervisory conditions incorporate 
principal elements of the Statement. However, banks should consult any 
applicable component of the Statement as a source of guidance in 
structuring these arrangements.

    \4\ Available upon request from the OCC Communications Division, 
250 E Street, SW, Washington, DC 20219, (202) 874-4700.
---------------------------------------------------------------------------

Books and Records of National Banks (Section 7.4000)

    The proposal addressed the exclusive examination authority of the 
OCC. The ruling clarified that under 12 U.S.C. 484, state authority to 
review the books and records of a national bank is limited to those 
circumstances in which there is reasonable cause to believe that the 
bank has failed to comply with applicable state unclaimed property and 
escheat laws. The comments generally supported the proposal, with two 
commenters recommending that the OCC clarify the second sentence of 
Sec. 7.4000(b) by adding the ``filing of reports with state 
regulators'' to the list of prohibited state-imposed requirements. The 
OCC has determined that rather than adopting the specific suggested 
revision, the OCC will continue to consider this issue on a case-by-
case basis. Therefore, the OCC adopts the final ruling substantially as 
proposed with minor revisions to the first sentence of Sec. 7.4000(a).

Charging Interest at Rates Permitted Competing Institutions; Charging 
Interest to Corporate Borrowers (Section 7.4001)

    Under 12 U.S.C. 85, a national bank may charge interest at the 
highest rate allowed to competing lenders by the state where the bank 
is located without regard to the location of the borrower. Thus, the 
statute permits a national bank to ``export'' to customers in other 
states the rate of ``interest'' allowed by the state in which the bank 
is located. The proposal defined the term ``interest'' in 12 U.S.C. 85 
to reflect current case law. The proposed definition also reflected OCC 
interpretive opinions on the types of fees and charges that are 
included and not included in the meaning of the term. The proposal 
provided non-exclusive lists of specific fees that are ``interest'' 
(for example, numerical periodic rates, late fees, not sufficient funds 
(NSF) fees, overlimit fees, annual fees, cash advance fees, and 
membership fees) and that ordinarily are not ``interest'' (for example, 
appraisal fees, premiums and commissions on insurance guaranteeing 
repayment, finders' fees, fees for document preparation or 
notarization, or fees incurred to obtain credit reports).
    Whether a particular fee or charge is properly characterized as 
``interest'' subject to exportation has been the subject of litigation 
in a number of jurisdictions,5 and the OCC received many comments 
from parties on both sides of the issue. On one hand, certain consumer 
groups and attorneys representing class action suits opposed the 
proposal. These groups asserted that the proposed definition is 
contrary to the accepted meaning of the term ``interest,'' and is 
contrary to consumers' interests. On the other hand, many national 
banks supported the proposal because it incorporates clear guidance on 
the OCC's position on the issue of what constitutes ``interest'' under 
12 U.S.C. 85. The OCC believes that the Federal definition of 
``interest'' and the components of interest in the proposal are both 
consistent with law and beneficial to national banks and their 
customers with respect to interstate lending operations.

    \5\ See, e.g., Smiley v. Citibank (South Dakota), N.A., 900 P.2d 
690 (Cal. 1995), cert. granted, 64 U.S.L.W. 3500 (U.S. Jan. 19, 
1996) (No. 95-860) (holding that the term ``interest'' as used in 12 
U.S.C. 85 encompasses late payment fees if such fees are allowed by 
a national bank's home state); see also Greenwood Trust Co. v. 
Massachusetts, 971 F.2d 818 (1st Cir. 1992), cert. denied, 113 S. 
Ct. 974 (1993) (holding that the term ``interest'' as used in 
section 521 of the Depository Institutions Deregulation and Monetary 
Control Act of 1980 (12 U.S.C. 1831d(a)), a statute modeled on 12 
U.S.C. 85, includes late payment fees; in construing the term 
``interest'' in 12 U.S.C. 1831d(a), the court concluded that these 
parallel sections should be read in pari materia). Contra Sherman v. 
Citibank (South Dakota), N.A., No. A-102-94, 1005 WL 710414 (N.J. 
Nov. 28, 1995), pet. for cert. filed, 64 U.S.L.W. 3439 (U.S. Dec. 
21, 1995) (No. 95-991) (holding that the term ``interest'' as used 
in 12 U.S.C. 85 does not include late payment fees).
---------------------------------------------------------------------------

    The OCC also received comments from Arkansas trade associations and 
the Arkansas congressional delegation expressing concern that the 
proposed Federal definition of ``interest'' might be misinterpreted to 
require the inclusion of certain charges that are ``interest'' under 
the Federal definition, but not so under Arkansas law, when calculating 
the maximum effective yield permitted by Arkansas law. The commenters 
noted that, if the OCC adopts this interpretation, some loans now 
acceptable under Arkansas usury law could be found to be usurious. The 
OCC agrees that the language of the proposal is potentially confusing 
and might be interpreted mistakenly to affect the definition of 
``interest'' in the Arkansas usury law (which, for example, permits 
banks to charge late fees, but does not include those fees as 
``interest'' in calculating the maximum effective yield).
    The definition of interest in Sec. 7.4001 is intended to define 
``interest'' for purposes of determining if a particular charge is 
subject to 12 U.S.C. 85. Charges that fall within the Federal 
definition of ``interest'' are subject to 12 U.S.C. 85 and its ``most 
favored lender'' and exportation rules. The fact that a charge is not 
labeled ``interest'' under a particular state law does not necessarily 
mean that it is impermissible, however.
    Section 7.4001(b) clarifies that, under the ruling (and 12 U.S.C. 
85), one looks to state law to determine what lending charges are 
permitted for the most favored lender, and thus, also for national 
banks under 12 U.S.C. 85. However, the Federal definition of 
``interest'' generally does not affect state law definitions of 
``interest'' or the manner in which state law calculates the amount of 
interest being charged. For example, if late fees are not interest 
under state law where the national bank is located but state law allows 
late fees, then a national bank located in that state may charge late 
fees to its intrastate customers. The national bank could also charge 
the fees to its interstate customers because the fees are ``interest'' 
under the Federal definition and an allowable charge under state law 
where the national bank is located. However, the late fees would not be 
treated as interest for purposes of evaluating compliance with state 
usury limitations because state law excludes late fees when calculating 
the maximum interest that lending institutions may charge under those 
limitations.
    The final ruling addresses the concern raised by the Arkansas 
commenters regarding the effect of the Federal definition of interest 
on state law. The OCC has added to Sec. 7.4001 a new paragraph (c) that 
includes a clarifying sentence confirming that the Federal definition 
of the term interest does not change a state's definition of interest 
(nor how the state definition of interest is used) solely for purposes 
of state law. Paragraph (c) of Sec. 7.4001 also provides the example 
described in the immediately preceding paragraph of this preamble to 
illustrate this concept. The final ruling is substantially identical to 
the proposal, with the addition discussed above. In addition, the 
reference to ``Morris Plan banks'' that appeared in the last sentence 
of proposed Sec. 7.4001(b) has been removed as obsolete. Finally, 
paragraph (c), ``Usury,'' in the proposal has been redesignated as 
paragraph (d) in the final ruling.
    Most courts interpreting 12 U.S.C. 85 have concluded that various 
forms of non-percentage-based charges (including such items as late 
payment, 

[[Page 4859]]
overlimit, and annual fees) for the use of borrowed money fall within 
the scope of 12 U.S.C. 85. The final ruling is consistent with OCC 
interpretive letters in this area (see, e.g., OCC Interpretive Letter 
No. 670 (Feb. 17, 1995), reprinted in [1994-1995 Transfer Binder] Fed. 
Banking L. Rep. (CCH) para. 83,618, and the letters cited therein) and 
reflects the position the OCC has taken in amicus curiae briefs in 
litigation pending in many state and Federal courts (see, e.g., OCC 
brief filed in the Supreme Court of Pennsylvania in Bank One, Columbus, 
N.A. v. Mazaika, Nos. 1995-31 and 1995-33 (July 17, 1995) (urging 
reversal of Mazaika v. Bank One, Columbus, N.A., 653 A.2d 648 (Pa. 
Super. Ct. 1994) (en banc), appeal granted, 659 A.2d 557 (Pa. 1995)).
    Recently, the California Supreme Court upheld the ability of a 
national bank to charge certain fees as a component of ``interest'' and 
cited the OCC's recent interpretive opinions, as well as proposed 
Sec. 7.4001, as consistent with the court's reasoning. Smiley v. 
Citibank (South Dakota), N.A., 900 P.2d 690 (Cal. 1995), cert. granted, 
64 U.S.L.W. 3500 (U.S. Jan. 19, 1996) (No. 95-860) (holding that the 
term ``interest'' as used in 12 U.S.C. 85 encompasses late payment 
fees, if such fees are allowed by a national bank's home state). See 
also Copeland v. MBNA America Bank, N.A., 907 P.2d 87 (Colo. 1995) (en 
banc), pet. for cert. filed, 64 U.S.L.W. 3469 (U.S. Dec. 28, 1995) (No. 
95-1056); Richardson v. Citibank (South Dakota), N.A., No. 94SC670, 
1995 Colo. LEXIS 767 (Colo. Dec. 18, 1995) (en banc); Spellman v. 
Meridian Bank (Delaware), Nos. 94-3203-3204, 94-3215-3218, 1995 U.S. 
App. LEXIS 37149 (3d Cir. Dec. 29, 1995).
    However, the Supreme Court of New Jersey also issued a recent 
decision concluding that ``interest'' as used in 12 U.S.C. 85 does not 
include late payment fees. Sherman v. Citibank (South Dakota), N.A., 
No. A-102-94, 1005 WL 710414 (N.J. Nov. 28, 1995), pet. for cert. 
filed, 64 U.S.L.W. 3439 (U.S. Dec. 21, 1995) (No. 95-991). The decision 
of the New Jersey Supreme Court in Sherman conflicts with the decisions 
of the California Supreme Court in Smiley, the Colorado Supreme Court 
in Copeland and Richardson, and the U.S. Court of Appeals for the Third 
Circuit in Spellman, and the earlier decision of the First Circuit in 
Greenwood Trust. The U.S. Supreme Court recently granted certiorari in 
Smiley to resolve the conflict on an expedited basis.
    As noted in the proposal, the ruling is not intended to be a 
comprehensive treatment of the issue, and other fees or charges may 
also be found to be components of interest.

National Bank Charges (Section 7.4002)

    The proposal responded to concerns raised by Congress regarding the 
scope of Federal preemption reflected in the former version of this 
ruling. The conference report to the Riegle-Neal Interstate Banking and 
Branching Efficiency Act of 1994, H.R. Conf. Rep. No. 651, 103rd Cong., 
2d Sess. 54 (1994), urged the OCC to review former Sec. 7.8000 to 
determine if it should be withdrawn or revised. The conferees expressed 
the view that the OCC had applied preemption principles in an overly 
broad manner with respect to state laws that prohibit, limit, or 
restrict deposit account service charges imposed by a national bank. In 
addition, the conference report cited Perdue v. Crocker Nat'l Bank, 702 
P.2d 503 (Cal. 1985), cert. dismissed, 475 U.S. 1100 (1986), which held 
that Sec. 7.8000 is not a valid finding of Federal preemption, in part, 
because Congress had not established a comprehensive Federal statutory 
scheme governing the taking of deposits.
    The proposal revised the ruling to state that the OCC will consider 
on a case-by-case basis whether a national bank may establish a 
particular charge or fee that is in conflict with a state law, and 
that, in issuing an opinion on whether a particular state law is 
preempted, the OCC will employ the preemption principles derived from 
the Supremacy Clause of the United States Constitution and judicial 
precedent.
    The OCC received 26 comments on proposed Sec. 7.4002. Ten 
commenters expressed dissatisfaction with the OCC's proposal to 
evaluate state laws on a case-by-case basis. Seven of these commenters, 
mostly large banks, specifically urged the OCC to either retain 
Sec. 7.8000 or otherwise generally preempt state law limitations or 
prohibitions on fees and charges. These commenters stated that the 
conference report, alone, without clear legislative action, does not 
invalidate Sec. 7.8000's general preemption. After careful review of 
the comments, the OCC has determined to adopt Sec. 7.4002 substantially 
in the form proposed, with certain revisions discussed below.
    Ten commenters also expressed concern over the OCC's statement in 
the proposal that a national bank may charge customers ``reasonable'' 
charges and fees on dormant accounts, for credit reports or 
investigations (Sec. 7.4002(a)), and for deposit account service 
charges and loan-related fees generally (Sec. 7.4002(b)). These 
commenters asserted that inclusion of the term ``reasonable'' in 
connection with those areas adds uncertainty to their meaning and will 
provide a basis for litigation over whether charges and fees are 
``unreasonable'' and, therefore, impermissible under Sec. 7.4002.
    The OCC notes that previous interpretive rulings on service charges 
on dormant accounts and fees for credit reports or investigations 
contained a ``reasonable'' standard. Therefore, for those fees and 
charges, the final ruling continues this standard. However, the OCC 
also recognizes the commenters' concerns. The final ruling clarifies, 
in Sec. 7.4002(b), the intent of the proposal that banks have 
discretion in setting the amount of charges and fees, and that any 
charge or fee is ``reasonably'' established if the bank considered the 
factors enumerated in the final ruling.
    Some commenters also asserted that, if the references to ``loan-
related fees'' are included in the final ruling, the OCC should clarify 
that these fees do not include fees that are components of ``interest'' 
under Sec. 7.4001. The OCC agrees with this comment. Therefore, the 
final ruling omits the phrase ``loan-related fees'' wherever it appears 
and instead refers to ``non-interest charges and fees'' and includes 
deposit account service charges within non-interest charges and fees. 
For additional clarity, the final ruling adds a new paragraph (c), 
``Interest,'' that provides that charges and fees that are ``interest'' 
within the meaning of 12 U.S.C. 85 are governed by Sec. 7.4001 and not 
by Sec. 7.4002. Proposed Sec. 7.4002(c) and (d), ``State law'' and 
``National bank as fiduciary,'' respectively, have been redesignated as 
paragraphs (d) and (e), respectively, in the final ruling.
    The OCC also notes that the proposal's listing of the standards for 
consideration in setting charges and fees inadvertently omitted the 
factor appearing in former Sec. 7.8000(b)(2) on the deterrence of 
misuse by customers of banking services. The final ruling incorporates 
this factor.

State Licensing of National Banks

    The proposal invited public comment on whether the OCC should 
propose a specific ruling addressing the applicability of state 
licensing requirements to national banks. The proposal did not contain 
any specific language for an interpretive ruling but noted in the 
preamble the OCC's longstanding position that the authority of a 
national bank to exercise powers authorized for national banks under 
Federal law cannot be negated by state licensing requirements. The 
proposal also restated the principal elements of 

[[Page 4860]]
Federal preemption analysis as articulated by the courts.
    The OCC received 41 comments addressing this issue. Approximately 
half of the commenters opposed issuing a ruling that they assumed would 
attempt to preempt state licensing practices. These commenters cited 
the OCC's lack of authority to issue a ruling, current litigation and 
legislation on this matter, and arguments that states are better placed 
to protect consumer interests. Commenters supporting a ruling noted 
that it would promote competition by removing disparate treatment of 
national banks located in different states. Due to the variety of state 
laws that could be implicated and the complexity of the issues 
presented, the OCC has decided not to address this area generically at 
this time.

Other Sections Adopted in the Final Rule

    The proposal contained a number of rulings that were not 
substantively changed from the former rule. The OCC received some 
comments addressing various aspects of these rulings. The OCC has 
reviewed these comments and has decided not to make any changes to most 
of these sections.
    In addition, there are a number of rulings for which the OCC 
proposed changes but did not receive any substantive comments. These 
rulings also are adopted in the final rule as proposed or with 
nonsubstantive stylistic edits.
    The following is a list of these rulings:

    Section 7.1001--National bank acting as general insurance agent;
    Section 7.1007--Acceptances;
    Section 7.1008--Preparing income tax returns for customers or 
public;
    Section 7.1009--National bank holding collateral stock as 
nominee;
    Section 7.1012--Messenger service;
    Section 7.1014--Sale of money orders at nonbanking outlets;
    Section 7.1015--Receipt of stock from a small business 
investment company;
    Section 7.1018--Automatic payment plan account;
    Section 7.2002--Director or attorney as proxy;
    Section 7.2003--Annual meeting for election of directors;
    Section 7.2006--Cumulative voting in election of directors;
    Section 7.2009--Quorum of the board of directors; proxies not 
permissible;
    Section 7.2012--President as director; chief executive officer;
    Section 7.2013--Fidelity bonds covering officers and employees;
    Section 7.2016--Restricting transfer of stock and record dates;
    Section 7.2018--Lost stock certificates;
    Section 7.2019--Loans secured by a bank's own shares;
    Section 7.2021--Preemptive rights; and
    Section 7.2022--Voting trusts.

Sections Removed From Part 7

    The OCC also proposed to remove the following former rulings as 
generally unnecessary, outdated or repetitive: Secs. 7.3000, 7.4005, 
7.4015, 7.4100, 7.4200, 7.4205, 7.4400, 7.4410, 7.7000, 7.7015, 7.7400, 
7.7405, 7.7410, 7.7415, 7.7505, 7.7519, and 7.7590. The OCC received no 
comment on these sections, and the final rule removes them. The OCC has 
also removed Sec. 7.7355 (regarding debts of affiliates) as it is no 
longer necessary.
    The following sections are also removed from part 7 or transferred 
to 12 CFR part 31 for the reasons stated. This list and the list in the 
immediately preceding paragraph do not describe sections that were 
incorporated into other sections in part 7.
    Section 7.1100--Capital and surplus. This section is no longer 
needed.
    Section 7.4010--Quorum for shareholders' meeting. This section 
merely indicates that the statutes are silent with respect to the 
number of shareholders required for a quorum. Therefore, this section 
is superseded by the new Sec. 7.2000.
    Section 7.5210--Same person holding offices of president and 
cashier. There is no legal impediment to one person serving as both 
president and cashier. Further, Sec. 7.2015, discusses the assignment 
of the cashier's duties and clarifies that the duties of cashier may be 
delegated to the president, chief executive officer, or other officer.
    Section 7.5220--Contracts of employment. Any employment contract 
that is excessive or unreasonable is unsafe and unsound. Therefore, the 
current ``reasonable'' standard is necessarily in effect, so it is 
unnecessary to reiterate the standard in this interpretive ruling. 
Moreover, section 132 of the Federal Deposit Insurance Corporation 
Improvement Act of 1991 (FDICIA) (12 U.S.C. 1831p-1), (regarding safety 
and soundness standards), and regulations issued by the OCC and other 
agencies under section 132 deal with excessive or unreasonable 
contracts. See 12 U.S.C. 1831p-1 (c) and (d); 12 CFR part 30.
    Section 7.7012--Foreign operations. This section has been removed 
and is expected to be incorporated into pending revisions to part 28. 
The removal of this section is not intended to imply any change in a 
national bank's authority in this area.
    Section 7.7115--Insuring lives of bank officers. OCC Banking 
Circular 249 covers the relevant issues in more detail and is currently 
undergoing review and revision. Therefore, Sec. 7.7115 is removed as 
unnecessary.
    Sections 7.7360--Loans secured by stock or obligation of an 
affiliate, 7.7365--Federal funds transactions between affiliates, and 
7.7370--Deposits between affiliated banks. These sections have been 
transferred with some stylistic changes to 12 CFR 31.100, 31.101, and 
31.102.
    Sections 7.7378--Issuance of credit cards, 7.7379--Servicing of 
mortgage and other loans as agent. The ability of national banks to 
engage in these activities is well established and a specific 
interpretive ruling is not needed.
    Section 7.7530--Issuance of promissory notes. This section is 
removed because it merely restates 12 U.S.C. 24 (Seventh).
    Section 7.7540--Reports of condition: Waiver of affiliate reports. 
Section 308 of the Riegle Community Development and Regulatory 
Improvement Act of 1994, Pub. L. 103-325, 108 Stat. 2160 (Sept. 23, 
1994), eliminated the requirement that national banks and their 
affiliates periodically publish the reports of condition in a 
newspaper. See 12 U.S.C. 161.
    The removal or transfer of these sections does not imply any 
alteration of the underlying authority for national bank activity. The 
interpretive rulings the OCC proposes to remove or transfer are 
grounded in statutory authority that remains unchanged.

Other Sections

    Finally, the OCC had proposed to move a number of sections to other 
parts of title 12. These sections included Sec. 7.6040--Fractional 
shares, 7.7570--Separate investment security limitations, and 7.6120--
Dividends payable in property other than cash. These sections have been 
retained, with some minor stylistic changes, pending the issuance of 
final rules for 12 CFR parts 1 and 5.

Distribution Table

    The distribution table indicates where, if applicable, each section 
of the former part 7 will appear in the final part 7 or elsewhere.

------------------------------------------------------------------------
 Original provision    Revised provision              Comment           
------------------------------------------------------------------------
Sec.  7.1100.......  ....................  Removed.                     
Sec.  7.1105.......  Sec.  7.1020........  Modified.                    
Sec.  7.3000.......  Sec.  7.1000........  Unchanged.                   
Sec.  7.3005.......  Sec.  7.1000........  Significant change.          
Sec.  7.3010.......  Sec.  7.1000........  Significant change.          
Sec.  7.3100.......  Sec.  7.1000........  Significant change.          
Sec.  7.3300.......  Sec.  7.1000........  Significant change.          
Sec.  7.3500.......  Sec.  7.1019........  Significant change.          
Sec.  7.4000.......  Sec.  7.2001........  Significant change.          

[[Page 4861]]
                                                                        
Sec.  7.4005.......  ....................  Removed.                     
Sec.  7.4010.......  ....................  Removed.                     
Sec.  7.4015.......  ....................  Removed.                     
Sec.  7.4020.......  Sec.  7.2002........  Modified.                    
Sec.  7.4100.......  ....................  Removed.                     
Sec.  7.4105.......  Sec.  7.2003........  Significant change.          
Sec.  7.4110.......  Sec.  7.2004........  Modified.                    
Sec.  7.4200.......  ....................  Removed.                     
Sec.  7.4205.......  ....................  Removed.                     
Sec.  7.4210.......  Sec.  7.2005........  Significant change.          
Sec.  7.4300.......  Sec.  7.2006........  Significant change.          
Sec.  7.4305.......  Sec.  7.2007........  Significant change.          
Sec.  7.4400.......  ....................  Removed.                     
Sec.  7.4410.......  ....................  Removed.                     
Sec.  7.4415.......  Sec.  7.2008........  Modified.                    
Sec.  7.4420.......  Sec.  7.2009........  Unchanged.                   
Sec.  7.4425.......  Sec.  7.2010........  Significant change.          
Sec.  7.5000.......  Sec.  7.2011........  Significant change.          
Sec.  7.5010.......  Sec.  7.2011........  Significant change.          
Sec.  7.5015.......  Sec.  7.2011........  Significant change.          
Sec.  7.5200.......  Sec.  7.2012........  Modified.                    
Sec.  7.5210.......  ....................  Removed.                     
Sec.  7.5215.......  Sec.  7.2013........  Unchanged.                   
Sec.  7.5217.......  Sec.  7.2014........  Significant change.          
Sec.  7.5220.......  ....................  Removed.                     
Sec.  7.5230.......  Sec.  7.1000........  Significant change.          
Sec.  7.5245.......  Sec.  7.2015........  Significant change.          
Sec.  7.6005.......  Sec.  7.2016........  Modified.                    
Sec.  7.6010.......  Sec.  7.2017........  Significant change.          
Sec.  7.6015.......  Sec.  7.2018........  Unchanged.                   
Sec.  7.6025.......  Sec.  7.4000........  Significant change.          
Sec.  7.6030.......  Sec.  7.2019........  Modified.                    
Sec.  7.6040.......  Sec.  7.2023........  Modified.                    
Sec.  7.6050.......  Sec.  7.2021........  Modified.                    
Sec.  7.6060.......  Sec.  7.2022........  Significant change.          
Sec.  7.6120.......  Sec.  7.2024........  Modified.                    
Sec.  7.7000.......  ....................  Removed.                     
Sec.  7.7010.......  Sec.  7.1017........  Significant change.          
Sec.  7.7012.......  ....................  Removed.                     
Sec.  7.7015.......  ....................  Removed.                     
Sec.  7.7016.......  Sec.  7.1016........  Significant change.          
Sec.  7.7100.......  Sec.  7.1001........  Unchanged.                   
Sec.  7.7115.......  ....................  Removed.                     
Sec.  7.7200.......  Sec.  7.1002........  Significant change.          
Sec.  7.7310.......  Sec.  7.4001........  Significant change.          
Sec.  7.7312.......  Sec.  7.1006........  Significant change.          
Sec.  7.7315.......  Sec.  7.4002........  Significant change.          
Sec.  7.7355.......  ....................  Removed.                     
Sec.  7.7360.......  ....................  Moved (part 31).             
Sec.  7.7365.......  ....................  Moved (part 31).             
Sec.  7.7370.......  ....................  Moved (part 31).             
Sec.  7.7378.......  ....................  Removed.                     
Sec.  7.7379.......  ....................  Removed.                     
Sec.  7.7380.......  Sec.  7.1004........  Unchanged.                   
Sec.  7.7400.......  ....................  Removed.                     
Sec.  7.7405.......  ....................  Removed.                     
Sec.  7.7410.......  ....................  Removed.                     
Sec.  7.7415.......  ....................  Removed.                     
Sec.  7.7420.......  Sec.  7.1007........  Unchanged.                   
Sec.  7.7430.......  Sec.  7.1008........  Unchanged.                   
Sec.  7.7434.......  Sec.  7.3000........  Significant change.          
Sec.  7.7455.......  Sec.  7.1009........  Unchanged.                   
Sec.  7.7482.......  Sec.  7.1010........  Modified.                    
Sec.  7.7485.......  Sec.  7.1011........  Modified.                    
Sec.  7.7490.......  Sec.  7.1012........  Modified.                    
Sec.  7.7495.......  Sec.  7.1013........  Significant change.          
Sec.  7.7500.......  Sec.  7.1014........  Modified.                    
Sec.  7.7505.......  ....................  Removed.                     
Sec.  7.7515.......  Sec.  7.4002........  Significant change.          
Sec.  7.7516.......  Sec.  7.3001........  Significant change.          
Sec.  7.7519.......  ....................  Removed.                     
Sec.  7.7530.......  ....................  Removed.                     
Sec.  7.7535.......  Sec.  7.1015........  Unchanged.                   
Sec.  7.7540.......  ....................  Removed.                     
Sec.  7.7560.......  Sec.  7.1018........  Modified.                    
Sec.  7.7570.......  Sec.  7.1021........  Unchanged.                   
Sec.  7.7590.......  ....................  Removed.                     
Sec.  7.8000.......  Sec.  7.4002........  Significant change.          
------------------------------------------------------------------------



Derivation Table

    This derivation table illustrates which former sections of part 7 
the final sections are based upon.

------------------------------------------------------------------------
 Revised provision   Original provision               Comment           
------------------------------------------------------------------------
                    Sec.  7.1100........  Removed.                      
Sec.  7.1000......  Secs.  7.3000,        Significant change.           
                     7.3005, 7.3010,                                    
                     7.3100, 7.3300,                                    
                     7.5230.                                            
Sec.  7.1001......  Sec.  7.7100........  Unchanged.                    
Sec.  7.1002......  Sec.  7.7200........  Significant change.           
Sec.  7.1003......  ....................  Added.                        
Sec.  7.1004......  Sec.  7.7380........  Unchanged.                    
Sec.  7.1005......  ....................  Added.                        
Sec.  7.1006......  Sec.  7.7312........  Significant change.           
                    Sec.  7.7405........  Removed.                      
                    Sec.  7.7410........  Removed.                      
                    Sec.  7.7415........  Removed.                      
Sec.  7.1007......  Sec.  7.7420........  Unchanged.                    
Sec.  7.1008......  Sec.  7.7430........  Unchanged.                    
Sec.  7.1009......  Sec.  7.7455........  Unchanged.                    
Sec.  7.1010......  Sec.  7.7482........  Modified.                     
Sec.  7.1011......  Sec.  7.7485........  Modified.                     
Sec.  7.1012......  Sec.  7.7490........  Modified.                     
Sec.  7.1013......  Sec.  7.7495........  Significant change.           
Sec.  7.1014......  Sec.  7.7500........  Modified.                     
                    Sec.  7.7530........  Removed.                      
Sec.  7.1015......  Sec.  7.7535........  Unchanged.                    
Sec.  7.1016......  Sec.  7.7016........  Significant change.           
Sec.  7.1017......  Sec.  7.7010........  Significant change.           
Sec.  7.1018......  Sec.  7.7560........  Unchanged.                    
Sec.  7.1019......  Sec.  7.3500........  Significant change.           
Sec.  7.1020......  Sec.  7.1105........  Modified.                     
Sec.  7.1021......  Sec.  7.7570........  Unchanged.                    
Sec.  7.2000......  ....................  Added.                        
Sec.  7.2001......  Sec.  7.4000........  Significant change.           
                    Sec.  7.4005........  Removed.                      
                    Sec.  7.4010........  Removed.                      
                    Sec.  7.4015........  Removed.                      
Sec.  7.2002......  Sec.  7.4020........  Modified.                     
                    Sec.  7.4100........  Removed.                      
Sec.  7.2003......  Sec.  7.4105........  Significant change.           
Sec.  7.2004......  Sec.  7.4110........  Modified.                     
                    Sec.  7.4200........  Removed.                      
                    Sec.  7.4205........  Removed.                      
Sec.  7.2005......  Sec.  7.4210........  Significant change.           
Sec.  7.2006......  Sec.  7.4300........  Significant change.           
Sec.  7.2007......  Sec.  7.4305........  Significant change.           
                    Sec.  7.4400........  Removed.                      
                    Sec.  7.4410........  Removed.                      
Sec.  7.2008......  Sec.  7.4415........  Modified.                     
Sec.  7.2009......  Sec.  7.4420........  Unchanged.                    
Sec.  7.2010......  Sec.  7.4425........  Significant change.           
Sec.  7.2011......  Secs.  7.5000,        Significant change.           
                     7.5010, 7.5015.                                    
Sec.  7.2012......  Sec.  7.5200........  Modified.                     
                    Sec.  7.5210........  Removed.                      
Sec.  7.2013......  Sec.  7.5215........  Unchanged.                    
Sec.  7.2014......  Sec.  7.5217........  Significant change.           
                    Sec.  7.5220........  Removed.                      
Sec.  7.2015......  Sec.  7.5245........  Significant change.           
Sec.  7.2016......  Sec.  7.6005........  Modified.                     
Sec.  7.2017......  Sec.  7.6010........  Significant change.           
Sec.  7.2018......  Sec.  7.6015........  Unchanged.                    
Sec.  7.2019......  Sec.  7.6030........  Modified.                     
Sec.  7.2020......  ....................  Added.                        
Sec.  7.2021......  Sec.  7.6050........  Modified.                     
Sec.  7.2022......  Sec.  7.6060........  Significant change.           
Sec.  7.2023......  Sec.  7.6040........  Modified.                     
Sec.  7.2024......  Sec.  7.6120........  Unchanged.                    
                    Sec.  7.7000........  Removed.                      
                    Sec.  7.7012........  Removed.                      
                    Sec.  7.7015........  Removed.                      
                    Sec.  7.7115........  Removed.                      
                    Sec.  7.7355........  Removed.                      
                    Sec.  7.7360........  Moved (part 31).              
                    Sec.  7.7365........  Moved (part 31).              
                    Sec.  7.7370........  Moved (part 31).              
                    Sec.  7.7378........  Removed.                      
                    Sec.  7.7379........  Removed.                      
                    Sec.  7.7400........  Removed.                      
Sec.  7.3000......  Sec.  7.7434........  Significant change.           
                    Sec.  7.7505........  Removed.                      
Sec.  7.3001......  Sec.  7.7516........  Significant change.           
                    Sec.  7.7519........  Removed.                      
                    Sec.  7.7540........  Removed.                      
                    Sec.  7.7590........  Removed.                      
Sec.  7.4000......  Sec.  7.6025........  Significant change.           
Sec.  7.4001......  Sec.  7.7310........  Significant change.           
Sec.  7.4002......  Secs.  7.7315,        Significant change.           
                     7.7515, 7.8000.                                    
------------------------------------------------------------------------

Regulatory Flexibility Act

    It is hereby certified that this regulation will not have a 
significant economic impact on a substantial number of small entities. 
Accordingly, a regulatory flexibility analysis is not required. This 
regulation will reduce the regulatory burden on national banks, 
regardless of size, by simplifying and clarifying existing regulatory 
requirements.

Executive Order 12866

    The OCC has determined that the final rule is not a significant 
regulatory action under Executive Order 12866.

Unfunded Mandates Reform Act of 1995

    Section 202 of the Unfunded Mandates Reform Act of 1995, Pub. L. 
104-4, 109 Stat. 48 (March 22, 1995) (Unfunded Mandates Act), requires 
that an agency prepare a budgetary impact statement before promulgating 
a rule that includes a Federal mandate that may result in the 
expenditure by state, local, and tribal governments, in the aggregate, 
or by the private sector, of $100 million or more in any one year. If a 
budgetary impact statement is required, section 205 of the Unfunded 
Mandates Act also requires an agency to identify and consider a 
reasonable number of regulatory alternatives before 

[[Page 4862]]
promulgating a rule. Because the OCC has determined that the final rule 
will not result in expenditures by state, local, and tribal 
governments, or by the private sector, of more than $100 million in any 
one year, the OCC has not prepared a budgetary impact statement or 
specifically addressed the regulatory alternatives considered. 
Nevertheless, as discussed in the preamble, the final rule has the 
effect of reducing burden.

Paperwork Reduction Act of 1995

    The collection of information requirements contained in this final 
rule have received approval from the Office of Management and Budget in 
accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
3507(d)), under OMB control number (1557-0204). Comments on the 
collection of information should be sent to the Office of Management 
and Budget, Paperwork Reduction Project 1557-0204, Washington, DC 
20503, with copies to the Legislative and Regulatory Activities 
Division 1557-0204, Office of the Comptroller of the Currency, 250 E 
Street, SW., Washington, DC 20219. The OCC will submit the collection 
of information requirements contained in this final rule for renewal of 
OMB approval following publication of this final rule.
    The collection of information requirements in this rule are found 
in 12 CFR 7.1000(d)(1), 7.1014, 7.2000(b), 7.2004, and 7.2014(b). The 
collections of information are necessary for regulatory and examination 
purposes, for national banks to ensure their compliance with Federal 
law and regulations, and to evidence bank compliance with various 
regulatory requirements. National banks use the information to ensure 
their compliance with applicable Federal banking law and regulations. 
This information assists bank management in its safe and sound 
operation of the bank. The OCC uses the information in the scheduling 
and conduct of bank examinations and as an audit tool to verify bank 
compliance with law and regulations.
    Respondents are not required to respond to the foregoing collection 
of information unless it displays a currently valid OMB control number. 
The likely respondents are national banks.
    Estimated average annual burden hours per recordkeeper: 1.7.
    Estimated number of recordkeepers: 2,430.
    Estimated total annual recordkeeping burden: 4,156.
    Start-up costs to respondents: None.

List of Subjects

12 CFR Part 7

    Credit, Insurance, Investments, National banks, Reporting and 
recordkeeping requirements, Securities, Surety bonds.

12 CFR Part 31

    Credit, National banks, Reporting and recordkeeping requirements.

Authority and Issuance

    For the reasons set out in the preamble, chapter I of title 12 of 
the Code of Federal Regulations, is amended as follows:
    1. Part 7 is revised to read as follows:

PART 7--INTERPRETIVE RULINGS

Subpart A--Bank Powers

Sec.
7.1000  National bank ownership of property.
7.1001  National bank acting as general insurance agent.
7.1002  National bank acting as finder.
7.1003  Money lent at banking offices or at other than banking 
offices.
7.1004  Loans originating at other than banking offices.
7.1005  Credit decisions at other than banking offices.
7.1006  Loan agreement providing for a share in profits, income, or 
earnings or for stock warrants.
7.1007  Acceptances.
7.1008  Preparing income tax returns for customers or public.
7.1009  National bank holding collateral stock as nominee.
7.1010  Postal service by national bank.
7.1011  National bank acting as payroll issuer.
7.1012  Messenger service.
7.1013  Debt cancellation contracts.
7.1014  Sale of money orders at nonbanking outlets.
7.1015  Receipt of stock from a small business investment company.
7.1016  Independent undertakings to pay against documents.
7.1017  National bank as guarantor or surety on indemnity bond.
7.1018  Automatic payment plan account.
7.1019  Furnishing of products and services by electronic means and 
facilities.
7.1020  Purchase of open accounts.
7.1021  Separate investment security limitations.

Subpart B--Corporate Practices

7.2000  Corporate governance procedures.
7.2001  Notice of shareholders' meetings.
7.2002  Director or attorney as proxy.
7.2003  Annual meeting for election of directors.
7.2004  Honorary directors or advisory boards.
7.2005  Ownership of stock necessary to qualify as director.
7.2006  Cumulative voting in election of directors.
7.2007  Filling vacancies and increasing board of directors other 
than by shareholder action.
7.2008  Oath of directors.
7.2009  Quorum of the board of directors; proxies not permissible.
7.2010  Directors' responsibilities.
7.2011  Compensation plans.
7.2012  President as director; chief executive officer.
7.2013  Fidelity bonds covering officers and employees.
7.2014  Indemnification of institution-affiliated parties.
7.2015  Cashier.
7.2016  Restricting transfer of stock and record dates.
7.2017  Facsimile signatures on bank stock certificates.
7.2018  Lost stock certificates.
7.2019  Loans secured by a bank's own shares.
7.2020  Acquisition and holding of shares as treasury stock.
7.2021  Preemptive rights.
7.2022  Voting trusts.
7.7023  Fractional shares.
7.2024  Dividends payable in property other than cash.

Subpart C--Bank Operations

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

Subpart D--Preemption

7.4000  Books and records of national banks.
7.4001  Charging interest at rates permitted competing institutions; 
charging interest to corporate borrowers.
7.4002  National bank charges.

    Authority: 12 U.S.C. 1 et seq. and 93a.

Subpart A--Bank Powers


Sec. 7.1000  National bank ownership of property.

    (a) Investment in real estate necessary for the transaction of 
business--(1) General. Under 12 U.S.C. 29(First), a national bank may 
invest in real estate that is necessary for the transaction of its 
business.
    (2) Type of real estate. For purposes of 12 U.S.C. 29(First), this 
real estate includes:
    (i) Premises that are owned or occupied (or to be occupied, if 
under construction) by the bank, its branches, or its consolidated 
subsidiaries;
    (ii) Real estate acquired and intended, in good faith, for use in 
future expansion;
    (iii) Parking facilities that are used by customers or employees of 
the bank, its branches, and its consolidated subsidiaries;
    (iv) Residential property for the use of bank officers or employees 
who are:
    (A) Located in remote areas where suitable housing at a reasonable 
price is not readily available; or
    (B) Temporarily assigned to a foreign country, including foreign 
nationals 

[[Page 4863]]
temporarily assigned to the United States; and
    (v) Property for the use of bank officers, employees, or customers, 
or for the temporary lodging of such persons in areas where suitable 
commercial lodging is not readily available, provided that the purchase 
and operation of the property qualifies as a deductible business 
expense for Federal tax purposes.
    (3) Permissible means of holding. A national bank may acquire and 
hold real estate under this paragraph (a) by any reasonable and prudent 
means, including ownership in fee, a leasehold estate, or in an 
interest in a cooperative. The bank may hold this real estate directly 
or through one or more subsidiaries. The bank may organize a bank 
premises subsidiary as a corporation, partnership, or similar entity 
(e.g., a limited liability company).
    (b) Fixed assets. A national bank may own fixed assets necessary 
for the transaction of its business, such as fixtures, furniture, and 
data processing equipment.
    (c) Investment in bank premises--(1) Investment limitation; 
approval. 12 U.S.C. 371d governs when OCC approval is required for 
national bank investment in bank premises.
    (2) Option to purchase. An unexercised option to purchase bank 
premises or stock in a corporation holding bank premises is not an 
investment in bank premises. A national bank must receive OCC approval 
to exercise the option if the price of the option and the bank's other 
investments in bank premises exceed the amount of the bank's capital 
stock.
    (d) Other real property--(1) Lease financing of public facilities. 
A national bank may purchase or construct a municipal building, school 
building, or other similar public facility and, as holder of legal 
title, lease the facility to a municipality or other public authority 
having resources sufficient to make all rental payments as they become 
due. The lease agreement must provide that the lessee will become the 
owner of the building or facility upon the expiration of the lease.
    (2) Purchase of employee's residence. To facilitate the efficient 
use of bank personnel, a national bank may purchase the residence of an 
employee who has been transferred to another area in order to spare the 
employee a loss in the prevailing real estate market. The bank must 
arrange for early divestment of title to such property.


Sec. 7.1001  National bank acting as general insurance agent.

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


Sec. 7.1002  National bank acting as finder.

    (a) General. A national bank may act as a finder in bringing 
together a buyer and seller.
    (b) Qualification. Acting as a finder includes, without limitation, 
identifying potential parties, making inquiries as to interest, 
introducing or arranging meetings of interested parties, and otherwise 
bringing parties together for a transaction that the parties themselves 
negotiate and consummate. Acting as a finder does not include 
activities that would characterize the bank as a broker under 
applicable Federal law.
    (c) Advertisement and fee. Unless otherwise prohibited, a national 
bank may advertise the availability of, and accept a fee for, the 
services provided pursuant to this section.


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

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


Sec. 7.1004  Loans originating at other than banking offices.

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


Sec. 7.1005  Credit decisions at other than banking offices.

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


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

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


Sec. 7.1007  Acceptances.

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


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

    A national bank may not serve as an expert tax consultant. However, 
a national bank may assist its customers in preparing their tax 
returns, either gratuitously or for a reasonable fee. 

[[Page 4864]]



Sec. 7.1009  National bank holding collateral stock as nominee.

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


Sec. 7.1010  Postal service by national bank.

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


Sec. 7.1011  National bank acting as payroll issuer.

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


Sec. 7.1012  Messenger service.

    (a) Definition. For purposes of this section, a ``messenger 
service'' means any service, such as a courier service or armored car 
service, used by a national bank and its customers to pick up from, and 
deliver to, specific customers at locations such as their homes or 
offices, items relating to transactions between the bank and those 
customers.
    (b) Pick-up and delivery of items constituting nonbranching 
activities. Pursuant to 12 U.S.C. 24 (Seventh), a national bank may 
establish and operate a messenger service, or use, with its customers, 
a third party messenger service. The bank may use the messenger service 
to transport items relevant to the bank's transactions with its 
customers without regard to the branching limitations set forth in 12 
U.S.C. 36, provided the service does not engage in branching functions 
within the meaning of 12 U.S.C. 36(j). In establishing or using such a 
facility, the national bank may establish terms, conditions, and 
limitations consistent with this section and appropriate to assure 
compliance with safe and sound banking practices.
    (c) Pick-up and delivery of items constituting branching functions 
by a messenger service established by a third party. (1) Pursuant to 12 
U.S.C. 24 (Seventh), a national bank and its customers may use a 
messenger service to pick up from, and deliver to, customers items that 
relate to branching functions within the meaning of 12 U.S.C. 36(j) 
without regard to the branching limitations set forth in 12 U.S.C. 36, 
provided the messenger service is established and operated by a third 
party. In using such a facility, a national bank may establish terms, 
conditions, and limitations, consistent with this section and 
appropriate to assure compliance with safe and sound banking practices.
    (2) The OCC reviews whether a messenger service is established by a 
third party on a case-by-case basis, considering all of the 
circumstances. However, a messenger service is clearly established by a 
third party if:
    (i) A party other than the national bank owns the service and its 
facilities (or rents them from a party other than the bank) and employs 
the person engaged in the provision of the service; and
    (ii) The messenger service:
    (A) Makes its services available to the public, including other 
depository institutions;
    (B) Retains ultimate discretion to determine which customers and 
geographical areas it will serve;
    (C) Maintains ultimate responsibility for scheduling, movement, and 
routing;
    (D) Does not operate under the name of the bank, and the bank and 
the messenger service do not advertise, or otherwise represent, that 
the bank itself is providing the service, although the bank may 
advertise that its customers may use one or more third party messenger 
services to transact business with the bank;
    (E) Assumes responsibility for the items during transit and for 
maintaining adequate insurance covering thefts, employee fidelity, and 
other in-transit losses; and
    (F) Acts as the agent for the customer when the items are in 
transit. The bank does not deem items intended for deposit to be 
deposited until credited to the customer's account at an established 
bank office or other permissible nonbranch facility. The bank deems 
items representing withdrawals to be paid when the items are given to 
the messenger service.
    (3) A national bank may defray all or part of the costs incurred by 
a customer in transporting items through a messenger service. Payment 
of those costs may only cover expenses associated with each transaction 
involving the customer and the messenger service. The national bank may 
impose terms, conditions, and limitations that it deems appropriate 
with respect to the payment of such costs.
    (d) Pickup and delivery of items pertaining to branching activities 
where the messenger service is established by the national bank. A 
national bank may establish and operate a messenger service to 
transport items relevant to the bank's transactions with its customers 
if such transactions constitute one or more branching functions within 
the meaning of 12 U.S.C. 36(j), provided the bank receives approval to 
establish a branch pursuant to 12 CFR 5.30.


Sec. 7.1013  Debt cancellation contracts.

    A national bank may enter into a contract to provide for loss 
arising from cancellation of an outstanding loan upon the death or 
disability of a borrower. The imposition of an additional charge and 
the establishment of necessary reserves in order to enable the bank to 
enter into such debt cancellation contracts are a lawful exercise of 
the powers of a national bank.


Sec. 7.1014  Sale of money orders at nonbanking outlets.

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


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

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

[[Page 4865]]



Sec. 7.1016  Independent undertakings to pay against documents.

    (a) General authority. A national bank may issue and commit to 
issue letters of credit and other independent undertakings within the 
scope of the applicable laws or rules of practice recognized by 
law.1 Under such letters of credit and other independent 
undertakings, the bank's obligation to honor depends upon the 
presentation of specified documents and not upon nondocumentary 
conditions or resolution of questions of fact or law at issue between 
the account party and the beneficiary. A national bank may also confirm 
or otherwise undertake to honor or purchase specified documents upon 
their presentation under another person's independent undertaking 
within the scope of such laws or rules.

    \1\ Samples of such laws or rules of practice include, but are 
not limited to: the applicable version of Article 5 of the Uniform 
Commercial Code (UCC) (1962, as amended 1990) or revised Article 5 
of the UCC (as amended 1995) (available from West Publishing Co., 1/
800/340-9378); the Uniform Customs and Practice for Documentary 
Credits (International Chamber of Commerce (ICC) Publication No. 
500) (available from ICC Publishing, Inc., 212/206-1150); the United 
Nations Commission on International Trade Law (UNCITRAL) Convention 
on Independent Guarantees and Standby Letters of Credit (adopted by 
UNCITRAL 1995) (available from UNCITRAL, 212/963-5353); and the 
Uniform Rules for Bank-to-Bank Reimbursements Under Documentary 
Credits (ICC Publication No. 525) (available from ICC Publishing, 
Inc., 212/206-1150); as any of the foregoing may be amended from 
time to time.
---------------------------------------------------------------------------

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


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

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


Sec. 7.1018  Automatic payment plan account.

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


Sec. 7.1019  Furnishing of products and services by electronic means 
and facilities.

    A national bank may perform, provide, or deliver through electronic 
means and facilities any activity, function, product, or service that 
it is otherwise authorized to perform, provide, or deliver. A national 
bank may also, in order to optimize the use of the bank's resources, 
market and sell to third parties electronic capacities acquired or 
developed by the bank in good faith for banking purposes.


Sec. 7.1020  Purchase of open accounts.

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


Sec. 7.1021  Separate investment security limitations.

    The 10 percent investment limitation of 12 U.S.C. 24 (Seventh) may 
be 

[[Page 4866]]
applied separately to each security issue of a single issuer of such 
securities, 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 each issue is payable solely from, and 
secured by a first lien on, the revenues to be derived from rentals 
paid by such lessee under net noncancellable leases.

Subpart B--Corporate Practices


Sec. 7.2000  Corporate governance procedures.

    (a) General. A national bank proposing to engage in a corporate 
governance procedure shall comply with applicable Federal banking 
statutes and regulations, and safe and sound banking practices.
    (b) Other sources of guidance. To the extent not inconsistent with 
applicable Federal banking statutes or regulations, or bank safety and 
soundness, a national bank may elect to follow the corporate governance 
procedures of the law of the state in which the main office of the bank 
is located, the law of the state in which the holding company of the 
bank is incorporated, the Delaware General Corporation Law, Del. Code 
Ann. tit. 8 (1991, as amended 1994, and as amended thereafter), or the 
Model Business Corporation Act (1984, as amended 1994, and as amended 
thereafter). A national bank shall designate in its bylaws the body of 
law selected for its corporate governance procedures.
    (c) No-objection procedures. The OCC also considers requests for 
its staff's position on the ability of a national bank to engage in a 
particular corporate governance procedure in accordance with the no-
objection procedures set forth in Banking Circular 205 or any 
subsequently published agency procedures.2 Requests should 
demonstrate how the proposed practice is not inconsistent with 
applicable Federal statutes or regulations, and is consistent with safe 
and sound banking practices.

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


Sec. 7.2001  Notice of shareholders' meetings.

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


Sec. 7.2002  Director or attorney as proxy.

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


Sec. 7.2003  Annual meeting for election of directors.

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


Sec. 7.2004  Honorary directors or advisory boards.

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


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

    (a) General. A national bank director must own a qualifying equity 
interest in a national bank or a company that has control of a national 
bank. The director must own the qualifying equity interest in his or 
her own right and meet a certain minimum threshold ownership.
    (b) Qualifying equity interest--(1) Minimum required equity 
interest. For purposes of this section, a qualifying equity interest 
includes common or preferred stock of the bank or of a company that 
controls the bank that has not less than an aggregate par value of 
$1,000, an aggregate shareholders' equity of $1,000, or an aggregate 
fair market value of $1,000.
    (i) The value of the common or preferred stock held by a national 
bank director is valued as of the date purchased or the date on which 
the individual became a director, whichever value is greater.
    (ii) In the case of a company that owns more than one national 
bank, a director may use his or her equity interest in the controlling 
company to satisfy, in whole or in part, the equity interest 
requirement for any or all of the controlled national banks.
    (iii) Upon request, the OCC may consider whether other interests in 
a company controlling a national bank constitute an interest equivalent 
to $1,000 par value of national bank stock.
    (2) Joint ownership and tenancy in common. Shares held jointly or 
as a tenant in common are qualifying shares held by a director in his 
or her own right only to the extent of the aggregate value of the 
shares which the director would be entitled to receive on dissolution 
of the joint tenancy or tenancy in common.
    (3) Shares in a living trust. Shares deposited by a person in a 
living trust (inter vivos trust) as to which the person is a trustee 
and retains an absolute power of revocation are shares owned by the 
person in his or her own right.
    (4) Other arrangements. A director may also hold his or her 
qualifying interest through profit sharing plans, individual retirement 
accounts, retirement plans, and similar arrangements, provided the 
director retains beneficial ownership and legal control over the 
shares.
    (c) Non-qualifying ownership. The following are not shares held by 
a director in his or her own right:
    (1) Shares pledged by the holder to secure a loan. However, all or 
part of the funds used to purchase the required qualifying equity 
interest may be borrowed from any party, including the bank or its 
affiliates;
    (2) Shares purchased subject to an absolute option vested in the 
seller to repurchase the shares within a specified period; and
    (3) Shares deposited in a voting trust where the depositor 
surrenders:
    (i) Legal ownership (depositor ceases to be registered owner of the 
stock);
    (ii) Power to vote the stock or to direct how it shall be voted; or
    (iii) Power to transfer legal title to the stock.


Sec. 7.2006  Cumulative voting in election of directors.

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


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

    (a) Increasing board of directors. If authorized by the bank's 
articles of 

[[Page 4867]]
association, between shareholder meetings a majority of the board of 
directors may increase the number of the bank's directors within the 
limits specified in 12 U.S.C. 71a. The board of directors may increase 
the number of directors only by up to two directors, when the number of 
directors last elected by shareholders was 15 or fewer, and by up to 
four directors, when the number of directors last elected by 
shareholders was 16 or more.
    (b) Vacancies. If a vacancy occurs on the board of directors, 
including a vacancy resulting from an increase in the number of 
directors, the vacancy may be filled by the shareholders, a majority of 
the board of directors remaining in office, or, if the directors 
remaining in office constitute fewer than a quorum, by an affirmative 
vote of a majority of all the directors remaining in office.


Sec. 7.2008  Oath of directors.

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


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

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


Sec. 7.2010  Directors' responsibilities.

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


Sec. 7.2011  Compensation plans.

    Consistent with safe and sound banking practices and the 
compensation provisions of 12 CFR part 30, a national bank may adopt 
compensation plans, including, among others, the following:

    (a) Bonus and profit-sharing plans. A national bank may adopt a 
bonus or profit-sharing plan designed to ensure adequate remuneration 
of bank officers and employees.

    (b) Pension plans. A national bank may provide employee pension 
plans and make reasonable contributions to the cost of the pension 
plan.

    (c) Employee stock option and stock purchase plans. A national bank 
may provide employee stock option and stock purchase plans.


Sec. 7.2012  President as director; chief executive officer.

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


Sec. 7.2013  Fidelity bonds covering officers and employees.

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

    (3) Amount of deposit liabilities; and

    (4) Amount of cash and securities normally held by the bank.

Sec. 7.2014  Indemnification of institution-affiliated parties.

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


Sec. 7.2015  Cashier.

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


Sec. 7.2016  Restricting transfer of stock and record dates.

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


Sec. 7.2017  Facsimile signatures on bank stock certificates.

    The president and cashier, or other officers authorized by the 
bank's 

[[Page 4868]]
bylaws, shall sign each national bank stock certificate. The signatures 
may be manual or facsimile, including electronic means of signature. 
Each certificate must be sealed with the seal of the association.


Sec. 7.2018  Lost stock certificates.

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


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

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


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

    Pursuant to the authority and procedures of 12 U.S.C. 59, a 
national bank may acquire its outstanding shares and hold them as 
treasury stock, provided that the acquisition and retention of the 
shares is, and continues to be, for a legitimate corporate purpose. It 
would not be permissible for a national bank to acquire or hold 
treasury stock for speculation.


Sec. 7.2021  Preemptive rights.

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


Sec. 7.2022  Voting trusts.

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


Sec. 7.2023  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 in fractions;
    (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.


Sec. 7.2024  Dividends payable in property other than cash.

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

Subpart C--Bank Operations


Sec. 7.3000  Bank hours and closings.

    (a) Bank hours. A national bank's board of directors should review 
its banking hours, and, independently of any other bank, take 
appropriate action to establish a schedule of banking hours.
    (b) Emergency closings. Pursuant to 12 U.S.C. 95(b)(1), the 
Comptroller of the Currency (Comptroller), a state, or a legally 
authorized state official may declare a day a legal holiday if 
emergency conditions exist. That day is a legal holiday for national 
banks or their offices in the affected geographic area (i.e., 
throughout the country, in a state, or in part of a state). Emergency 
conditions include natural disasters and civil and municipal 
emergencies (e.g., severe flooding, or a power emergency declared by a 
local power company or government requesting that businesses in the 
affected area close). The Comptroller issues a proclamation authorizing 
the emergency closing in accordance with 12 U.S.C. 95 at the time of 
the emergency condition, or soon thereafter. When the Comptroller, a 
state, or a legally authorized state official declares a day to be a 
legal holiday due to emergency conditions, a national bank may choose 
to remain open or to close any of its banking offices in the affected 
geographic area.
    (c) Ceremonial closings. A state or a legally authorized state 
official may declare a day a legal holiday for ceremonial reasons. When 
a state or a legally authorized state official declares a day to be a 
legal holiday for ceremonial reasons, a national bank may choose to 
remain open or to close.
    (d) Liability. A national bank should assure that all liabilities 
or other obligations under the applicable law due to the bank's closing 
are satisfied.


Sec. 7.3001  Sharing space and employees.

    (a) Sharing space. A national bank may:
    (1) Lease excess space on bank premises to one or more other 
businesses (including other banks and financial institutions);
    (2) Share space jointly held with one or more other businesses; or
    (3) Offer its services in space owned or leased to other 
businesses.
    (b) Sharing employees. When sharing space with other businesses as 
described in paragraph (a) of this section, a national bank may 
provide, under one or more written agreements among the bank, the other 
businesses, and their employees, that:
    (1) A bank employee may act as agent for the other business; or
    (2) An employee of the other business may act as agent for the 
bank.
    (c) Supervisory conditions. When a national bank engages in 
arrangements of the types listed in paragraphs (a) and (b) of this 
section, the bank shall ensure that: 

[[Page 4869]]

    (1) The other business is conspicuously, accurately, and separately 
identified;
    (2) Shared employees clearly and fully disclose the nature of their 
agency relationship to customers of the bank and of the other 
businesses so that customers will know the identity of the bank or 
business that is providing the product or service;
    (3) The arrangement does not constitute a joint venture or 
partnership with the other business under applicable state law;
    (4) All aspects of the relationship between the bank and the other 
business are conducted at arm's length, unless a special arrangement is 
warranted because the other business is a subsidiary of the bank;
    (5) Security issues arising from the activities of the other 
business on the premises are addressed;
    (6) The activities of the other business do not adversely affect 
the safety and soundness of the bank;
    (7) The shared employees or the entity for which they perform 
services are duly licensed or meet qualification requirements of 
applicable statutes and regulations pertaining to agents or employees 
of such other business; and
    (8) The assets and records of the parties are segregated.
    (d) Other legal requirements. When entering into arrangements, of 
the types described in paragraphs (a) and (b) of this section, and in 
conducting operations pursuant to those arrangements the bank must 
ensure that each arrangement complies with 12 U.S.C. 29 and 36 and with 
any other applicable laws and regulations. If the arrangement involves 
an affiliate or a shareholder, director, officer or employee of the 
bank:
    (1) The bank must ensure compliance with all applicable statutory 
and regulatory provisions governing bank transactions with these 
persons or entities;
    (2) The parties must comply with all applicable fiduciary duties; 
and
    (3) The parties, if they are in competition with each other, must 
consider limitations, if any, imposed by applicable antitrust laws.

Subpart D--Preemption


Sec. 7.4000  Books and records of national banks.

    (a) Inspection. Except as otherwise expressly provided by Federal 
law, including 12 U.S.C. 62, relating to the right of shareholders, 
creditors, and certain tax officials to inspect the list of 
shareholders of a bank, only the Comptroller of the Currency or the 
Comptroller's authorized representatives are authorized to inspect 
books or records of a national bank. Production of records may, 
however, be required under normal judicial procedures.
    (b) Visitorial powers. Except as otherwise expressly provided by 
Federal law, the exercise of visitorial powers over national banks is 
vested solely in the OCC, 12 U.S.C. 484. State officials have no 
authority to conduct examinations or to inspect or require the 
production of books or records of national banks, except for the 
limited purpose of ensuring compliance with applicable state unclaimed 
property and escheat laws. State authority to review the books and 
records of a national bank is limited to those circumstances in which 
there is reasonable cause to believe that the bank has failed to comply 
with those laws. Federal law provides special procedures for verifying 
payroll records for unemployment compensation purposes, 26 U.S.C. 
3305(c), for enforcing the Fair Labor Standards Act, 29 U.S.C. 211, and 
for ascertaining the correctness of Federal tax returns, 26 U.S.C. 
7602.
    (c) Report of examination. The report of examination made by an OCC 
examiner is designated solely for use in the supervision of the bank. 
The bank's copy of the report is the property of the OCC and is loaned 
to the bank and any holding company thereof solely for its confidential 
use. The bank's directors, in keeping with their responsibilities both 
to depositors and to shareholders, should thoroughly review the report. 
The report may be made available to other persons only in accordance 
with the rules on disclosure in 12 CFR part 4.


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

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


Sec. 7.4002  National bank charges.

    (a) Customer charges and fees. A national bank may charge its 
customers non-interest charges and fees, including deposit account 
service charges. For example, a national bank may impose deposit 
account service charges that its board of directors determines to be 
reasonable on dormant accounts. A national bank may also charge a 
borrower reasonable fees for credit reports or investigations with 
respect to a borrower's credit. All charges and fees should be arrived 
at by each bank on a competitive basis and not on the basis of any 
agreement, arrangement, 

[[Page 4870]]
undertaking, understanding, or discussion with other banks or their 
officers.
    (b) Considerations. The establishment of non-interest charges and 
fees, and the amounts thereof, is a business decision to be made by 
each bank, in its discretion, according to sound banking judgment and 
safe and sound banking principles. A bank reasonably establishes non-
interest charges and fees if the bank considers the following factors, 
among others:
    (1) The cost incurred by the bank, plus a profit margin, in 
providing the service;
    (2) The deterrence of misuse by customers of banking services;
    (3) The enhancement of the competitive position of the bank in 
accordance with the bank's marketing strategy; and
    (4) The maintenance of the safety and soundness of the institution.
    (c) Interest. Charges and fees that are ``interest'' within the 
meaning of 12 U.S.C. 85 are governed by Sec. 7.4001 and not by this 
section.
    (d) State law. The OCC evaluates on a case-by-case basis whether a 
national bank may establish non-interest charges or fees pursuant to 
paragraphs (a) and (b) of this section notwithstanding a contrary state 
law that purports to limit or prohibit such charges or fees. In issuing 
an opinion on whether such state laws are preempted, the OCC applies 
preemption principles derived from the Supremacy Clause of the United 
States Constitution and applicable judicial precedent.
    (e) National bank as fiduciary. This section does not apply to 
charges imposed by a national bank in its capacity as a fiduciary, 
which are governed by 12 CFR part 9.

PART 31--EXTENSIONS OF CREDIT TO NATIONAL BANK INSIDERS

    2. The authority citation for part 31 is revised to read as 
follows:

    Authority: 12 U.S.C. 375a(4), 375b(3), 1817(k), and 
1972(2)(G)(ii).

    3. Part 31 is amended by adding, at the end of the part, the 
undesignated center heading ``Interpretations'' and new Secs. 31.100 to 
31.102 to read as follows:

Interpretations


Sec. 31.100  Loans secured by stock or obligations of an affiliate.

    A bank that makes a loan to an unaffiliated third party may take a 
security interest in securities of an affiliate as collateral for the 
loan without the loan being deemed a ``covered transaction'' under 
section 23A of the Federal Reserve Act (12 U.S.C. 371c) if:
    (a) The borrower provides additional collateral that meets or 
exceeds the collateral requirements specified in section 23A(c) (12 
U.S.C. 371c(c)); and
    (b) The loan proceeds are not used to purchase the bank affiliate's 
securities that serve as collateral.


Sec. 31.101  Federal funds transactions between affiliates.

    The limitations contained in 12 U.S.C. 371c apply to the sale of 
Federal funds by a national bank to an affiliate of the bank.


Sec. 31.102  Deposits between affiliated banks.

    (a) General rule. The OCC considers a deposit made by a bank in an 
affiliated bank to be a loan or extension of credit to the affiliate 
under 12 U.S.C. 371c. These deposits must be secured in accordance with 
12 U.S.C. 371c(c). However, a national bank may not pledge assets to 
secure private deposits unless otherwise permitted by law (see, e.g., 
12 U.S.C. 90 (permitting collateralization of deposits of public 
funds); 12 U.S.C. 92a (trust funds); and 25 U.S.C. 156 and 162a (Native 
American funds)). Thus, unless one of the exceptions to 12 U.S.C. 371c 
noted in paragraph (b) of this section applies or unless another 
exception applies that enables a bank to meet the collateral 
requirements of 12 U.S.C. 371c(c), a national bank may not:
    (1) Make a deposit in an affiliated national bank;
    (2) Make a deposit in an affiliated state-chartered bank unless the 
affiliated state-chartered bank can legally offer collateral for the 
deposit in conformance with applicable state law and 12 U.S.C. 371c; or
    (3) Receive deposits from an affiliated bank.
    (b) Exceptions. The restrictions of 12 U.S.C. 371c (other than 12 
U.S.C. 371c(a)(4), which requires affiliate transactions to be 
consistent with safe and sound banking practices) do not apply to 
deposits:
    (1) Made in the ordinary course of correspondent business; or
    (2) Made in an affiliate that qualifies as a ``sister bank'' under 
12 U.S.C. 371c(d)(1).

    Dated: February 5, 1996.
Eugene A. Ludwig,
Comptroller of the Currency.
[FR Doc. 96-2903 Filed 2-8-96; 8:45 am]
BILLING CODE 4810-33-P