[Federal Register Volume 64, Number 91 (Wednesday, May 12, 1999)]
[Proposed Rules]
[Pages 25469-25472]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-12011]


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

DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Chap. I

[Docket No. 99-05]


Community Bank-Focused Regulation Review

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

ACTION: Advance notice of proposed rulemaking.

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

SUMMARY: The Office of the Comptroller of the Currency (OCC) is 
undertaking a review of its regulations with a view toward identifying 
rules that may impose disproportionate or unnecessary burden on 
community banks. This advance notice of proposed rulemaking (ANPR) 
identifies several parts of the OCC's regulations that are already 
under review, requests comment on changes that could be made to these 
regulations, and solicits suggestions for improvements in other areas 
that would be helpful to community banks. The intended effect of this 
action is to identify areas where the OCC could reduce unnecessary 
burden on community banks without impairing their safety and soundness.

DATES: Comments must be received by July 12, 1999.

ADDRESSES: Please direct your comments to: Docket No. 99-05, 
Communications Division, Third Floor, Office of the Comptroller of the 
Currency, 250 E Street, SW, Washington, DC, 20219. You can inspect and 
photocopy all comments received at that address. In addition, you may 
send comments by facsimile transmission to FAX number (202) 874-5274, 
or by electronic mail to [email protected].

FOR FURTHER INFORMATION CONTACT:
Stuart Feldstein, Assistant Director, or Heidi Thomas, Senior Attorney, 
Legislative and Regulatory Activities, at (202) 874-5090.

SUPPLEMENTARY INFORMATION:

Background

    The OCC supervises over 2,400 national banks that vary widely in 
size, business strategy, complexity, and

[[Page 25470]]

geographic diversity. The OCC has a strong commitment to ensure that 
our regulations encourage, rather than impede, national banks' 
efficiency and competitiveness, consistent with safety and soundness. 
Toward that end, we continually reevaluate our rules in order to 
identify and eliminate requirements that impose burdens on banks that 
are not necessary to maintain safety and soundness, promote fair access 
to financial services for consumers, or accomplish the OCC's other 
statutory responsibilities.
    In 1996, the OCC completed a three-year, comprehensive effort to 
review and revise all of its regulations. The results of this effort, 
which was called the Regulation Review Program (Program), were 
positive. Most of the bankers, trade group representatives, banking 
lawyers, and consumer representatives whom the OCC asked about the 
effects of the Program thought that, on balance, it had been a success. 
While some of the regulatory changes made pursuant to the Program were 
designed to benefit community banks, the Program did not have the 
community bank charter as a particular focus.
    The OCC recognizes that community banks operate with more limited 
resources than larger institutions and may present a different risk 
profile. For example, many community banks have more direct ``hands-
on'' oversight by senior management and smaller spans of operations and 
controls such that less complex risk-management or compliance systems 
may be appropriate. Differences between community banks and larger 
banks in operational structure and focus may result in inefficient or 
uneven application of regulatory requirements. Therefore, we believe 
that it is appropriate to take a fresh look at our regulations with the 
community bank perspective in mind.1
---------------------------------------------------------------------------

    \1\ The OCC already recognizes and incorporates into its 
supervisory approach the distinctions between large banks and 
community banks. The OCC has, for example, developed approaches to 
examination and supervision that are appropriate to each charter 
type. See, e.g., Comptroller's Handbook, Community Bank Supervision 
(August 1998), Large Bank Supervision (July 1998). See also id., 
Community Bank Fiduciary Activities Supervision (December 1998).
---------------------------------------------------------------------------

    Specifically, the OCC is considering further changes to our 
regulations that would take into account the impact the rules have on 
community banks' resources, as well as other factors that bear on 
community banks' operations. For example, community banks typically 
have smaller, less specialized staffs than larger banks, so the burden 
of complying with complex regulations is proportionately higher. The 
purpose of our community bank-focused regulation review is to eliminate 
or modify regulatory requirements that impose unnecessary burden. In 
addition, we are seeking to identify regulations as to which it may be 
appropriate to develop alternative, differential regulatory approaches 
that will achieve the OCC's goals while minimizing burden on community 
banks.
    This advance notice describes four areas of regulation that the OCC 
is already reviewing. In those areas, commenters are invited to make 
specific suggestions for change. Depending on the results of the OCC's 
own review and the suggestions made by commenters, we will then 
consider proposing specific revisions to our rules for comment. In 
addition, commenters on this advance notice are invited to suggest 
other regulations that could be modified in ways helpful to community 
banks.
    A few of the OCC's regulations distinguish among banks based on 
asset-size categories and apply different requirements to smaller 
banks. For example, 12 CFR part 25, the regulation implementing the 
Community Reinvestment Act (CRA), provides for alternative means of 
compliance for banks with less than $250 million in assets. The OCC 
does not have a standard, generally applicable definition of 
``community bank,'' however. We invite comment on whether to adopt such 
a definition for purposes of this regulation review. If so, should the 
definition be based primarily on asset size, and what should the asset 
threshold be? Should the OCC consider factors other than asset size, 
such as whether the bank is the sole provider of banking services in a 
community, regardless of asset size?

Areas Currently Under Review

Part 5--Corporate Activities and Transactions

    Community banks, like larger national banks, routinely seek OCC 
approval for different types of corporate transactions. Recent 
amendments to the OCC's operating subsidiary rule reduced burden by 
grouping procedures for OCC approval of operating subsidiary activities 
into different categories based upon the novelty of the activity and 
level of risk it presents. The required approval procedures vary 
depending upon the group in which the activity is placed. For example, 
qualifying national banks need only file a simple after-the-fact notice 
for certain, so-called ``plain vanilla'' activities (e.g., providing 
accounting, data processing, and other business services for the bank 
or its affiliates). A 30-day review under an expedited filing procedure 
may be available for more complex operating subsidiary activities. See 
12 CFR 5.34(e).
    We invite comment on whether and how we could improve the current 
rule to further reduce application burden for community banks seeking 
to engage in certain routine bank-permissible activities. Specifically:
    (1) Should the OCC expand the list of activities eligible for 
after-the-fact notice or expedited filing to include more activities 
that do not present significant safety and soundness concerns?
    (2) What types of activities should the OCC include in such an 
expanded list?
    Banks that have experience with the OCC's applications process are 
also invited to make suggestions about how that process could be 
streamlined or improved for community banks. For example, could the OCC 
modify the process to reduce the need for, and therefore the costs of, 
community bank reliance on outside expertise to help them comply with 
filing requirements?
    Branching is an area in which community banks are especially 
active. In 1998, national banks with assets of less than $250 million 
filed approximately 358 branching applications. National banks with 
assets of between $250 million and $1 billion filed 213 branching 
applications. OCC intrastate branch application procedures generally 
require a 30-day public comment period and a decision no later than 15 
days after the close of the public comment period or 45 days after the 
filing, whichever is later, for applications qualifying for expedited 
processing, and no later than 30 days after the close of the comment 
period for applications subject to standard processing. (The comment 
period for applications to engage in a short-distance branch relocation 
is 15 days.) OCC rules also require an applicant to publish notice of 
its filing in a newspaper of general circulation in the community in 
which the applicant proposes to engage in business.
    We are requesting comment on whether there are alternative time 
frames or methods of providing public notice that would reduce burden 
for community banks while preserving the ability of the public to 
provide meaningful comment pursuant to the CRA or otherwise. For 
example:
    (1) Would posting a conspicuous notice at the main office and all 
existing branches of the bank in lieu of newspaper publication reduce 
unnecessary burden but still provide adequately for public 
participation?

[[Page 25471]]

    (2) Are there other reasonable regulatory alternatives that would 
be less burdensome for community banks but that are consistent with 
statutory requirements and the OCC's supervisory goals?

Part 32--Lending limits

    Federal law (12 U.S.C. 84) limits the amount of loans and 
extensions of credit a national bank can make to any one borrower to 15 
percent of a national bank's unimpaired capital and surplus. A bank may 
lend an additional 10 percent if the credit is secured by readily 
marketable collateral. Section 84 also provides exceptions to these 
limits for various types of loans or extensions of credit, such as 
loans secured by certain obligations of the United States or fully 
guaranteed by the United States, loans secured by a segregated deposit 
account, and loans arising from the discount of certain types of 
commercial paper. The OCC is authorized to issue rules to carry out the 
purposes of Section 84 and to establish limits or requirements other 
than those specified in this section for particular classes or 
categories of loans or extensions of credit. The OCC's rule 
implementing section 84 is set forth at 12 CFR part 32.
    Community banks in a number of states have represented to the OCC 
that disparities in the lending limits applicable to national banks 
impair their ability to provide effective and competitively priced 
services in many cases. We are interested in obtaining further 
information about the extent to which these limits may constrain 
community banks from prudently extending credit, especially as compared 
with other financial services providers in the markets in which they 
compete. Commenters are invited to provide specific information about 
such disparities in particular states, and to address the following 
questions:
    (1) Does the national bank lending limit create competitive 
disadvantages for community banks?
    (2) Are community banks operating under national charters losing 
significant business to competitors, as a result of the constraints 
imposed by the national bank lending limits? If so, which types of 
lending are most heavily affected?
    (3) Are there factors in addition to the lending limits that could 
be contributing to this business loss?
    Because the lending limit promotes diversification of credit risk, 
which is fundamental to the safe and sound operation of banks, the OCC 
must undertake any revisions to the national bank lending limit rules 
with great care. Commenters who recommend changes to the OCC's lending 
limit rule therefore are asked to:
    (1) Identify specific categories of loans or borrowers that might 
be addressed;
    (2) Identify prudential conditions that the OCC might impose, to 
ensure that any change is implemented consistent with safety and 
soundness; and
    (3) Discuss whether any changes to the lending limits should 
include safeguards, such as collateralization or margin requirements, 
similar to those imposed by some states with lending limits that exceed 
those in 12 CFR part 32.
    Commenters are also invited to evaluate the effect of the lending 
limit rules on structures, such as loan participations, that are 
commonly used to diversify credit risk and to recommend any changes to 
these provisions that would facilitate community banks' use of these 
structures, consistent with safety and soundness.

Part 7--Corporate Governance

    The OCC recently revised some of its rules to enhance a national 
bank's flexibility to use the corporate governance procedures that are 
best suited to a particular bank's operations. For example, part 7 of 
our regulations now permits national banks to adopt the corporate 
governance provisions in the law of the state where the main office of 
the bank is located, the state where the holding company of the bank is 
incorporated, the Delaware General Corporation Law, or the Model 
Business Corporation Act, to the extent that these standards are not 
inconsistent with applicable federal banking statutes or regulations, 
or bank safety and soundness.
    Community bank operations and management may present unique 
concerns from a corporate governance perspective, and we invite comment 
on whether there are additional ways to enhance the flexibility of 
existing procedures. For example, are there specific state law 
provisions that we should consider including in the regulation as 
appropriate for adoption by community banks?

Part 3--Capital Adequacy

    The OCC, and the other federal banking agencies,2 
measure banks' capital adequacy according to a detailed set of uniform 
standards based on an international agreement, commonly referred to as 
the Basle Accord, which was concluded in 1988 by the Basle Committee on 
Banking Regulations and Supervisory Practices (the Basle 
Committee).3 The 1988 Accord applies to internationally 
active banks.4 The OCC's capital adequacy standards, 
however, apply to all national banks, and the other agencies' standards 
similarly apply to all of the institutions they supervise.
---------------------------------------------------------------------------

    \2\ The OCC's capital adequacy standards appear at 12 CFR part 
3. The Board of Governors of the Federal Reserve System (FRB), the 
Federal Deposit Insurance Corporation (FDIC), and the Office of 
Thrift Supervision (OTS) each have regulations containing similar 
standards.
    \3\ This Committee is now known as the Basle Committee on 
Banking Supervision. The Basle Committee was established in 1975 by 
the central bank Governors of the Group of Ten Countries. It 
consists of senior representatives of bank supervisory authorities 
and central banks from Belgium, Canada, France, Germany, Italy, 
Japan, Luxembourg, the Netherlands, Sweden, Switzerland, the United 
Kingdom, and the United States. It usually meets at the Bank for 
International Settlements in Basle, where its permanent Secretariat 
is located.
    \4\ The Basle Committee is currently considering revisions to 
the 1998 Accord. Any changes would be subject to a consultative 
process and are expected also to apply to internationally active 
banks.
---------------------------------------------------------------------------

    The OCC is interested in learning commenters' views about whether 
the differences in activities and levels and types of risks between 
large and community banks warrant a differential approach to 
supervising capital adequacy. Commenters addressing this issue are 
invited to:
    (1) Suggest a different, simpler overall approach to measuring 
capital adequacy for community banks; and
    (2) Identify specific aspects of the OCC's part 3 standards that 
could be revised or applied differently to community banks.
    The part 3 capital adequacy standards are linked directly to the 
prompt corrective action (PCA) provisions in 12 CFR part 6 of the OCC's 
rules. The capital categories used for PCA purposes (e.g., well 
capitalized, adequately capitalized, etc.) are defined by reference to 
the standards and definitions in part 3. The PCA framework, which 
derives from statute,5 is a crucial component of safety and 
soundness supervision. Like the capital adequacy standards, it has been 
implemented jointly by the OCC and the other federal banking agencies. 
Accordingly, commenters favoring a differential approach to capital 
adequacy supervision for community banks are encouraged to address how 
such an approach could be implemented consistent with the PCA 
requirements.
---------------------------------------------------------------------------

    \5\ See 12 U.S.C. 1831o (PCA statute); 12 CFR part 6 (OCC PCA 
regulation).
---------------------------------------------------------------------------

    We expect to use the information that commenters provide on this 
issue to inform our discussions with the other agencies about 
alternative approaches to

[[Page 25472]]

evaluating capital adequacy for small institutions. After receiving 
comments in response to this ANPR, the OCC will consult with the other 
agencies to determine if modifications to the capital regulations are 
appropriate.

Comment Solicitation

    The OCC invites comment generally on each of the areas identified 
in this advance notice, as well as specifically on the questions asked 
in each area. For each of these areas, we are interested in:
    (1) Whether existing rules are requiring inefficient allocation of 
the bank's existing resources or imposing undue burdens on in-house 
staff.
    (2) What community bank lines of business or community bank 
operations are affected by the rule and what specific requirements 
require the bank to obtain expertise from outside sources?
    (3) Could we change or modify specific provisions to reduce burdens 
on community banks without compromising safety and soundness standards?
    (4) Are there reasonable regulatory alternatives that would be less 
burdensome for community banks?
    In addition, commenters on this notice are invited to suggest other 
regulations that could be modified in ways helpful to community banks.

    Dated: May 4, 1999.
John D. Hawke, Jr.,
Comptroller of the Currency.
[FR Doc. 99-12011 Filed 5-11-99; 8:45 am]
BILLING CODE 4810-33-P