[Federal Register Volume 68, Number 26 (Friday, February 7, 2003)]
[Proposed Rules]
[Pages 6363-6376]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-2641]


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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Parts 3, 5, 6, 7, 9, 28, and 34

[Docket No. 03-02]
RIN 1557-AB97


Rules, Policies, and Procedures for Corporate Activities; Bank 
Activities and Operations; Real Estate Lending and Appraisals

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

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Office of the Comptroller of the Currency (OCC) proposes 
to amend several of its regulations to update and clarify them in 
various respects. Proposed revisions to parts 5 and 7 would implement 
new authority provided to national banks by sections 1204, 1205, and 
1206 of the American Homeownership and Economic Opportunity Act of 2000 
(AHEOA). Section 1204 permits national banks to reorganize directly to 
be controlled by a holding company. Section 1205 increases the maximum 
term of service for national bank directors, permits the OCC to adopt 
regulations allowing for staggered terms for directors, and permits 
national banks to apply for permission to have more than 25 directors. 
Section 1206 permits national banks to merge with one or more of their 
nonbank affiliates, subject to OCC approval. In order to clarify issues 
that have arisen in connection with the scope of the OCC's visitorial 
powers, the proposal would revise part 7. The proposal contains other 
amendments to parts 5, 7, 9, and 34 as well as several technical 
corrections.

DATES: Comments must be received by April 8, 2003.

ADDRESSES: Please direct your comments to: Office of the Comptroller of 
the Currency, 250 E Street, SW., Public Information Room, Mailstop 1-5, 
Washington, DC 20219, Attention: Docket No. 03-02; fax number (202) 
874-4448; or Internet address: [email protected]. Due to 
delays in the delivery of paper mail in the Washington area, we 
encourage the submission of comments by fax or e-mail whenever 
possible. Comments may be inspected and photocopied at the OCC's Public 
Reference Room, 250 E Street, SW., Washington, DC. You can make an 
appointment to inspect comments by calling (202) 874-5043.

FOR FURTHER INFORMATION CONTACT: For questions concerning proposed 
5.20,

[[Page 6364]]

contact Richard Cleva, Senior Counsel, Bank Activities and Structure 
Division, (202) 874-5300; or Andra Shuster, Counsel, Legislative and 
Regulatory Activities Division, (202) 874-5090. For questions 
concerning proposed 12 CFR 5.32, contact Robert Norris, Senior 
Licensing Analyst, Licensing Policy and Systems Division, (202) 874-
5060; or Lee Walzer, Counsel, Legislative and Regulatory Activities 
Division, (202) 874-5090. For questions concerning proposed 12 CFR 
5.33, contact Crystal Maddox, Senior Licensing Analyst, Licensing 
Policy and Systems Division, (202) 874-5060; Richard Cleva, Senior 
Counsel, Bank Activities and Structure Division, (202) 874-5300; or 
Andra Shuster, Counsel, Legislative and Regulatory Activities Division, 
(202) 874-5090. For questions concerning proposed 12 CFR 7.2024, 
contact Lee Walzer, Counsel, Legislative and Regulatory Activities 
Division, (202) 874-5090. For questions concerning proposed 12 CFR 
7.4000, contact Mark Tenhundfeld, Assistant Director, or Andra Shuster, 
Counsel, Legislative and Regulatory Activities Division, (202) 874-
5090. For questions concerning proposed 12 CFR 34.3, contact Mark 
Tenhundfeld, Assistant Director, or Andra Shuster, Counsel, Legislative 
and Regulatory Activities Division, (202) 874-5090. For questions 
concerning 12 CFR 9.18, contact Beth Kirby, Special Counsel, Securities 
and Corporate Practices Division, (202) 874-5210.

SUPPLEMENTARY INFORMATION:

I. Introduction

    This notice of proposed rulemaking invites comment on changes to 
our regulations that fall into the following categories:
    [sbull] Changes to our rules that implement the AHEOA (discussed in 
Section II of the SUPPLEMENTARY INFORMATION);
    [sbull] Clarifications to our visitorial powers regulations 
(Section III);
    [sbull] Amendments to part 5 concerning limited-purpose banks, 
factors to be considered in business combinations, and operating 
subsidiary activities eligible for after-the-fact notice requirements; 
to part 7 concerning national banks' ability to provide tax advice; to 
part 9 concerning the valuation of collective investment funds; and to 
part 34 to update regulatory text to conform to a statutory change 
(Section IV); and
    [sbull] Various technical changes to correct citations or footnote 
numbering (Section V).

II. Amendments Implementing the AHEOA

A. Background

    The National Bank Consolidation and Merger Act (12 U.S.C. 215 et 
seq.) (Merger Act) permits consolidations and mergers involving 
national banks. Pursuant to 12 U.S.C. 215 and 215a, national banks or 
state banks \1\ may, with OCC approval, merge or consolidate with a 
national bank located in the same state, resulting in a national bank. 
National banks also may merge or consolidate with Federal thrifts under 
12 U.S.C. 215c, resulting in either a national bank or Federal thrift. 
Pursuant to 12 U.S.C. 215a-1, an insured national bank may merge or 
consolidate with an insured bank located in a different state.
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    \1\ The term ``state bank'' is defined to include state-
chartered banks, banking associations, trust companies, savings 
banks (other than mutual savings banks), and other banking 
institutions engaged in the business of receiving deposits. 12 
U.S.C. 215b. This section also contains other definitions.
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    Prior to the enactment of the AHEOA on December 27, 2000,\2\ the 
Merger Act did not address mergers or consolidations involving a 
national bank and its nonbank affiliates. However, section 1206 \3\ of 
the AHEOA amended the Merger Act to permit national banks to merge with 
one or more of their nonbank affiliates with the approval of the OCC 
(Section 1206 Merger).
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    \2\ Pub. L. 106-569, 114 Stat. 2944.
    \3\ Pub. L. 106-569, sec. 1206, 114 Stat. 2944, 3034 (codified 
at 12 U.S.C. 215a-3).
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    Other provisions of the AHEOA liberalize statutory reorganization 
and corporate governance requirements for national banks. Section 1204 
\4\ amends the Merger Act to expedite the procedures that a national 
bank may use when it reorganizes to become a subsidiary of a holding 
company. Section 1205 \5\ of the AHEOA liberalizes the requirements 
governing the number and length of service of national bank directors.
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    \4\ Pub. L. 106-569, sec. 1204, 114 Stat. 2944, 3033 (codified 
at 12 U.S.C. 215a-2).
    \5\ Pub. L. 106-569, sec. 1205, 114 Stat. 2944, 3033-3034 
(amending 12 U.S.C. 71 and 71a).
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    This rulemaking contains proposed amendments to parts 5 and 7 to 
implement these changes made by the AHEOA.

B. Description of the Proposal

1. Reorganization Into a Holding Company Subsidiary--Proposed Sec.  
5.32 (New)
    Pursuant to section 1204, a national bank, with the OCC's approval 
and the affirmative vote of shareholders holding at least two-thirds of 
the bank's outstanding capital stock, may reorganize to become a 
subsidiary of a bank holding company or a company that will become a 
bank holding company through the reorganization.
    The proposal implements this provision in proposed new Sec.  5.32. 
Paragraph (a) states the authority for engaging in section 1204 
transactions. Paragraph (b) repeats the scope of the statute and 
provides that Sec.  5.32 applies to a reorganization of a national bank 
into a subsidiary of a bank holding company or of a company that will 
become a bank holding company through the reorganization.
    Pursuant to proposed Sec.  5.32(c), a national bank must submit an 
application to, and obtain approval from, the OCC prior to 
participating in a reorganization under paragraph (b).
    In accordance with proposed Sec.  5.32(d)(1), the application will 
be deemed approved by the OCC as of the 30th day after the OCC receives 
it, unless the OCC otherwise notifies the applicant national bank. 
Approval of applications under Sec.  5.32 is subject to the condition 
that the bank give the OCC 60 days' prior notice of any material change 
in its business plan or any material change from the proposed changes 
described in the bank's plan of reorganization. Paragraph (d)(2) of 
proposed Sec.  5.32 implements the statutory requirements that apply to 
the content of the reorganization plan. The plan must: (1) Specify how 
the reorganization is to be carried out; (2) be approved by a majority 
of the national bank's board of directors; (3) specify the amount and 
type of consideration that the bank holding company will provide for 
the stock of the bank, the date on which the shareholders' rights to 
participate in the exchange are to be determined, and the procedure for 
carrying out the exchange; (4) be submitted to the shareholders of the 
reorganizing bank at a meeting called in accordance with the procedures 
outlined in section 3 of the Merger Act; \6\ and (5) where applicable, 
describe any changes to the bank's business plan resulting from the 
reorganization. Consistent with section 3 of the Merger Act, the 
proposal also requires that at least two-thirds of the bank's 
shareholders approve a reorganization. Paragraph (d)(3) of proposed 
Sec.  5.32

[[Page 6365]]

provides that the OCC will review the financial and managerial 
resources and future prospects of the national bank when considering a 
section 1204 reorganization.
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    \6\ Section 3 of the Merger Act, 12 U.S.C. 215a(a)(2), provides 
generally that a shareholders' meeting will be called by the bank's 
directors after publishing notice of the time, place, and object of 
the meeting for four consecutive weeks in a newspaper of general 
circulation where the bank is located and after sending notice to 
each shareholder of record by certified or registered mail at least 
10 days prior to the meeting.
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    Proposed Sec.  5.32(e) provides dissenters' rights protections for 
section 1204 reorganizations. As provided in the Merger Act, this 
subsection permits any shareholder who has voted against the 
reorganization at a meeting or given notice in writing at or prior to 
the meeting to receive the value of his or her shares by providing a 
written request to the bank within 30 days after the consummation of 
the reorganization.
    Section 5.32(f) of the proposal states that Sec.  5.32 does not 
affect the applicability of the Bank Holding Company Act of 1956 (BHCA) 
to a transaction covered under Sec.  5.32(b); applicants must indicate 
in their Sec.  5.32 applications the status of any BHCA application 
they are required to file with the Board of Governors of the Federal 
Reserve System.
    The OCC's approval of a Sec.  5.32 application will expire if a 
national bank has not completed the reorganization within one year of 
the date of such approval. This is stated in proposed paragraph (g) of 
Sec.  5.32.
    Finally, proposed paragraph (h)(1) states that applicants shall 
inform shareholders of all material aspects of a reorganization and 
comply with applicable requirements in the Federal securities laws and 
the OCC's securities regulations in 12 CFR part 11. Proposed paragraph 
(h)(2) states that applicants that are not subject to registration 
requirements under the Securities Exchange Act of 1934 shall submit 
proxy materials or information statements used in connection with a 
reorganization to the appropriate OCC district office no later than 
when such materials are sent to shareholders.
2. Section 1206 Mergers--Proposed Sec.  5.33 (Revised)
    Section 1206 of the AHEOA provides new authority for a national 
bank to merge with one or more of its nonbank affiliates, subject to 
the OCC's approval. Current Sec.  5.33 sets forth application and 
notice procedures for national banks entering into business 
combinations, such as mergers and consolidations with other national 
banks or state-chartered banks, as well as OCC review and approval 
standards for such transactions. The proposal amends Sec.  5.33 to 
include Section 1206 Mergers within its scope.
    The proposal adds new application and prior OCC approval 
requirements for Section 1206 Mergers at the end of redesignated Sec.  
5.33(c). These requirements are similar to those for mergers of a 
national bank or state bank into a national bank under 12 U.S.C. 215a.
    A number of new definitions are added to Sec.  5.33(d) in order to 
implement section 1206. Current Sec.  5.33(d) defines only the terms 
``business combination,'' ``business reorganization,'' ``home state,'' 
and ``interim bank.'' The proposal amends the definition of ``business 
combination'' to include Section 1206 Mergers, but leaves the 
definitions of the other three terms unchanged.
    Proposed Sec.  5.33(d)(1) adds a definition of ``bank'' and defines 
it as any national bank or state bank. This definition is added because 
the term is used in the definition for ``nonbank affiliate.''
    Proposed Sec.  5.33(d)(4) defines the term ``company'' to mean a 
corporation, limited liability company, partnership, business trust, 
association, or similar organization. This term is proposed to be added 
because it is used in the definition of ``nonbank affiliate'' and 
``control.''
    Proposed Sec.  5.33(d)(5) defines ``control,'' which is used in the 
definition of ``nonbank affiliate.'' Under the proposal, for business 
combinations under Sec. Sec.  5.33(g)(4) and (5), a company or 
shareholder will be deemed to control another company if (1) the 
company or shareholder, directly or indirectly, or acting through one 
or more other persons owns, controls, or has power to vote 25 per cent 
or more of any class of voting securities of the other company, or (2) 
the company or shareholder controls in any manner the election of a 
majority of the directors or trustees of the other company.
    Because section 1206 provides merger authority for entities 
previously not included within the scope of Sec.  5.33, the proposal 
adds the definition of ``nonbank affiliate'' to describe the entities 
that are covered by section 1206. Proposed Sec.  5.33(d)(8) defines 
``nonbank affiliate'' of a national bank as any company that controls, 
is controlled by, or is under common control with the national bank. 
However, banks and Federal savings associations are not included as 
``affiliates'' because mergers with such entities are governed by 
statutes other than section 1206. Nonbank subsidiaries are considered 
to be nonbank affiliates for purposes of Sec.  5.33.
    Section 5.33(e)(3)(ii) currently requires that, if as a result of a 
business combination, a national bank obtains control of a new 
subsidiary, the bank must provide the same information regarding the 
new subsidiary's activities that would be required if the applicant 
were establishing a new subsidiary under either 12 CFR 5.34 (which 
addresses operating subsidiaries) or 12 CFR 5.39 (which addresses 
financial subsidiaries). The current rule contains an exception if the 
subsidiary was a subsidiary of a national bank. The proposal modifies 
this provision to take into account the fact that the bank may now 
merge with a nonbank affiliate that has a subsidiary.
    Section 5.33(f) sets forth exceptions to the rules that generally 
govern the OCC's application procedures, such as requirements for the 
publication of notice or for hearings. Pursuant to Sec.  5.33(f)(1), a 
national bank applicant that is subject to specific statutory notice 
requirements for business combinations is not subject to Sec. Sec.  
5.8(a), (b), or (c), which require, and prescribe the timing and 
contents of, public notice. Instead, a national bank applicant must 
follow the notice requirements in the applicable statute.
    A national bank applicant in a Section 1206 Merger resulting in a 
national bank would be required to follow the notice requirements of 12 
U.S.C. 215a. A national bank applicant in a Section 1206 Merger 
resulting in a nonbank affiliate would be required to follow the notice 
requirements of 12 U.S.C. 214a. We propose to amend Sec.  5.33(f)(1) by 
adding references to the special procedures to be followed in Section 
1206 Mergers.
    In addition, we propose to state in Sec.  5.33(f)(1) that 
Sec. Sec.  5.10 (regarding public comments) and 5.11 (regarding 
requests for hearings) are not applicable as a general rule to Section 
1206 Mergers. However, we also reserve the discretion to determine that 
some or all of the provisions in Sec.  5.10 and Sec.  5.11 apply in a 
Section 1206 Merger if an application presents significant and novel 
policy, supervisory, or legal issues.
    Finally, we propose to make two technical changes to paragraph 
(f)(1). The reference to paragraph (g) for mergers or consolidations 
with a Federal savings association would be amended to refer more 
specifically to paragraph (g)(2) and the reference to a resulting state 
bank in the parenthetical following this reference would be corrected 
to refer to a national bank.
    The proposal also adds a new Sec.  5.33(g)(4) to address Section 
1206 Mergers of national banks with their nonbank affiliates when the 
resulting entity is a national bank. Section 5.33(g)(4)(i) states that 
a national bank may enter into this type of Section 1206 Merger when 
the law of the state or other jurisdiction under which the nonbank 
affiliate is organized allows the

[[Page 6366]]

nonbank affiliate to engage in such mergers. This section also requires 
a national bank to obtain the OCC's approval.\7\ Proposed Sec.  
5.33(g)(4)(ii) states that a national bank entering into such a merger 
must follow the procedures and requirements contained in 12 U.S.C. 215a 
(which addresses the merger of state banks into national banks), as if 
the nonbank entity were a state bank. The proposal applies the 
procedures and requirements in 12 U.S.C. 215a because section 215a 
addresses the same issues that arise in a Section 1206 Merger and its 
requirements are familiar to national banks. In addition, we believe 
that these procedures and requirements impose the least amount of 
burden on the participants consistent with our supervisory objectives 
in reviewing the proposed transactions. Proposed Sec.  5.33(g)(4)(iii) 
states that a nonbank affiliate entering into such a merger is to 
follow the procedures in the law of the state or other jurisdiction 
under which the nonbank entity is organized. Proposed Sec.  
5.33(g)(4)(iv) states that the rights of dissenting shareholders and 
appraisal of dissenters' shares of stock in the nonbank entity shall be 
determined in accordance with the laws of the state or other 
jurisdiction under which the nonbank entity is organized. Finally, 
Sec.  5.33(g)(4)(v) of the proposal states that the corporate existence 
of each institution participating in the merger shall be continued in 
the resulting national bank, and all the rights, franchises, property, 
appointments, liabilities, and other interests of the participating 
institutions shall be transferred to the resulting national bank as set 
forth in 12 U.S.C. 215a(a), (e), and (f), in the same manner and to the 
same extent as in a merger between a national bank and a state bank 
under 12 U.S.C. 215a, as if the nonbank affiliate were a state bank.
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    \7\ If the national bank involved is insured, the transaction 
may also be subject to approval by the FDIC under the Bank Merger 
Act, 12 U.S.C. 1828(c).
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    Further, the proposal adds a new Sec.  5.33(g)(5), which addresses 
Section 1206 Mergers of uninsured national banks with their nonbank 
affiliates when the resulting entity is a nonbank affiliate. The 
proposal limits this type of Section 1206 Merger to national banks that 
are not insured banks (as defined in 12 U.S.C. 1813(h)). Prior to the 
enactment of section 1206, there was no efficient way for a national 
bank to cease its deposit-taking business, surrender its charter, and 
combine its business with that of an affiliate because no statutory 
provisions addressed this type of transaction. The section 1206 
authority allows this transaction to take place in a merger and 
therefore allows the OCC to establish the procedures necessary when an 
uninsured national bank wishes to surrender its national charter but 
continue conducting lines of business that are authorized for the 
nonbank affiliate.
    Proposed Sec.  5.33(g)(5)(i) states that this type of Section 1206 
Merger may be entered into when the law of the state or other 
jurisdiction under which the nonbank affiliate is organized allows such 
mergers. It also provides that an uninsured national bank must obtain 
the OCC's approval for the transaction. Section 5.33(g)(5)(ii) states 
that a national bank entering into such a merger shall follow the 
procedures and requirements contained in 12 U.S.C. 214a (which 
addresses the merger of national banks into state banks), as if the 
nonbank entity were a state bank. Section 5.33(g)(5)(iii) states that a 
nonbank affiliate entering into such a merger shall follow the 
procedures and requirements in the law of the state or other 
jurisdiction under which the nonbank entity is organized. Section 
5.33(g)(5)(iv) of the proposal states that dissenting national bank 
shareholders may receive in cash the value of their national bank 
shares if they comply with the requirements of 12 U.S.C. 214a as if the 
nonbank affiliate were a state bank. In addition, the OCC may conduct 
an appraisal or reappraisal of dissenters' shares of stock in a 
national bank involved in a merger with a nonbank affiliate that 
results in a nonbank affiliate if all parties agree that the 
determination is final and binding on each party and agree on how the 
OCC's expenses relating to the appraisal will be divided among the 
parties and paid to the OCC. The rights of dissenting shareholders and 
appraisal of dissenters' shares of stock in the nonbank entity shall be 
determined in accordance with the laws of the state or other 
jurisdiction under which the nonbank entity is organized.
    In addition, Sec.  5.33(g)(5)(v) of the proposal states that the 
corporate existence of each entity participating in the merger shall be 
continued in the resulting nonbank affiliate, and all the rights, 
franchises, property, appointments, liabilities, and other interests of 
the participating national bank shall be transferred to the resulting 
nonbank affiliate as set forth in 12 U.S.C. 214b, in the same manner 
and to the same extent as in a merger between a national bank and a 
state bank under 12 U.S.C. 214a, as if the nonbank affiliate were a 
state bank.
    Finally, the proposal adds a new paragraph (j)(1)(iv) to Sec.  5.33 
that permits applications for certain transactions under Sec.  
5.33(g)(4) to receive streamlined treatment. In order to qualify for 
such treatment, the acquiring bank must be an eligible bank, the 
resulting national bank must be well capitalized immediately following 
consummation of the transaction, the applicants in a prefiling 
communication must request and obtain approval from the appropriate 
district office to use the streamlined application, and the total 
assets acquired in the transaction must not exceed 10 percent of the 
total assets of the acquiring national bank, as reported in the bank's 
Consolidated Report of Condition and Income filed for the quarter 
immediately preceding the filing of the application.
3. National Bank Directors--Proposed Sec.  7.2024 (New)
    Section 1205 of the AHEOA amends section 5145 of the Revised 
Statutes of the United States (12 U.S.C. 71) and the Banking Act of 
1933 (12 U.S.C. 71a) regarding national bank directors. Section 1205 
increases the maximum term a director may serve from one to not more 
than three years and permits a national bank to adopt bylaws that 
provide for staggering the terms of its directors in accordance with 
the OCC's regulations. In addition, this section permits the OCC to 
exempt a national bank from the otherwise applicable requirement that 
it have no more than 25 directors.
    The proposal adds a new Sec.  7.2024 conforming the OCC's rules to 
these provisions. Pursuant to proposed Sec.  7.2024(a), national banks 
may adopt bylaws that provide for staggering the terms of their 
directors. Proposed Sec.  7.2024(b) increases the permissible maximum 
term of national bank directors from one year to three years. Finally, 
subsection (c) provides that a national bank may increase the size of 
its board of directors above the statutory limit of 25 provided that 
the bank satisfies the notice requirements set out in that section.

III. Visitorial Powers

A. Background

1. 12 CFR 7.4000
    Current Sec.  7.4000(a) provides that only the OCC or an authorized 
representative of the OCC may exercise visitorial powers with respect 
to national banks, subject to exceptions provided in Federal law. 
Section 7.4000(a) goes on to define the regulatory, supervisory, and 
enforcement actions included within our visitorial powers, while Sec.  
7.4000(b) sets out several exceptions to

[[Page 6367]]

our exclusive authority that are created by Federal law.\8\
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    \8\ Paragraph (c) of 12 CFR 7.4000 clarifies that the OCC owns 
reports of examination and addresses a bank's obligations with 
respect to these reports. This paragraph is unaffected by this 
rulemaking.
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    These provisions interpret and implement 12 U.S.C. 484. Paragraph 
(a) of that section states----


    No national bank shall be subject to any visitorial powers 
except as authorized by Federal law, vested in the courts of justice 
or such as shall be, or have been exercised or directed by Congress 
or by either House thereof or by any committee of Congress or of 
either House duly authorized.

Paragraph (b) of the statute then permits lawfully authorized state 
auditors or examiners to review a national bank's records ``solely to 
ensure compliance with applicable State unclaimed property or escheat 
laws upon reasonable cause to believe that the bank has failed to 
comply with such laws.''
    In recent years, various questions have arisen with respect to the 
scope of the OCC's visitorial powers over national banks. In general, 
the questions fall into two broad categories: First, what activities 
conducted by a national bank are subject to the OCC's exclusive 
visitorial powers? At one end of the spectrum of activities, for 
example, are those, comprising the content of the business of banking 
and activities incidental thereto, expressly authorized or recognized 
as permissible for national banks by Federal statute or regulation, or 
by OCC issuance or interpretation. At the other end would be 
activities, not necessarily unique to a particular business, subject to 
public safety standards, such as fire codes and zoning requirements, 
that typically apply without reference to the content of an entity's 
business. Second, what is the meaning of certain exceptions to the 
OCC's exclusive visitorial powers that are provided in the statute, 
specifically the exception for visitorial powers ``vested in the courts 
of justice?''
    This rulemaking contains amendments to Sec.  7.4000 to clarify the 
application of section 484 to both areas. The first amendment adds a 
new paragraph (3) to Sec.  7.4000(a) that clarifies the extent of 
national bank activities subject to the OCC's exclusive visitorial 
authority. The second amendment revises Sec.  7.4000(b) to reflect the 
exceptions explicitly set out in section 484(a) for visitorial powers 
``vested in the courts of justice'' and for Congress, and clarifies the 
OCC's interpretation of the ``vested in the courts of justice'' 
exception.
    To present these proposed changes in context, we first discuss the 
background and purpose of section 484, and then summarize case law and 
OCC interpretations in which questions concerning visitorial powers are 
addressed. We conclude with a summary of the proposed amendments to 
Sec.  7.4000.
2. The National Charter and the Role of Visitorial Powers
    Congress enacted the National Currency Act (Currency Act) in 1863 
and the National Bank Act the year after for the purpose of 
establishing a new national banking system that would operate 
distinctly and separately from the existing system of state banks. The 
Currency Act and National Bank Act were enacted to create a uniform and 
secure national currency and a system of national banks designed to 
help stabilize and support the post-Civil War national economy.
    Both proponents and opponents of the new national banking system 
expected that it would supersede the existing system of state banks.\9\ 
Given this anticipated impact on state banks and the resulting 
diminution of control by the states over banking in general,\10\ 
proponents of the national banking system were concerned that states 
\11\ would attempt to undermine it. Remarks of Senator Sumner 
illustrate the sentiment of many legislators of the time: ``Clearly, 
the bank must not be subjected to any local government, State or 
municipal; it must be kept absolutely and exclusively under that 
Government from which it derives its functions.'' Cong. Globe, 38th 
Cong., 1st Sess., at 1893 (April 27, 1864).\12\
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    \9\ Representative Samuel Hooper, who reported the bill to the 
House, stated in support of the legislation that one of its purposes 
was ``to render the law [Currency Act] so perfect that the State 
banks may be induced to organize under it, in preference to 
continuing under their State charters.'' Cong. Globe, 38th Cong. 1st 
Sess. 1256 (March 23, 1864). While he did not believe that the 
legislation was necessarily harmful to the state bank system, he did 
``look upon the system of State banks as having outlived its 
usefulness * * *'' Id. Opponents of the legislation believed that it 
was intended to ``take from the States * * * all authority 
whatsoever over their own State banks, and to vest that authority * 
* * in Washington * * *'' Cong. Globe, 38th Cong., 1st Sess. 1267 
(March 24, 1864) (statement of Rep. Brooks). Rep. Brooks made that 
statement to support the idea that the legislation was intended to 
transfer control over banking from the states to the Federal 
government. Given that the legislation's objective was to replace 
state banks with national banks, its passage would, in Rep. Brooks' 
opinion, mean that there would be no state banks left over which the 
states would have authority. Thus, by observing that the legislation 
was intended to take authority over state banks from the states, 
Rep. Brooks was not suggesting that the Federal government would 
have authority over state banks; rather, he was explaining the bill 
in a context that assumed the demise of state banks. Rep. Pruyn 
opposed the bill stating that the legislation would ``be the 
greatest blow yet inflicted upon the States * * *'' Cong. Globe, 
38th Cong., 1st Sess. 1271 (March 24, 1864). See also John Wilson 
Million, The Debate on the National Bank Act of 1863, 2 Journal of 
Political Economy 251, 267 (1893-94) regarding the Currency Act. 
(``Nothing can be more obvious from the debates than that the 
national system was to supersede the system of state banks.'').
    \10\ See, e.g., Tiffany v. National Bank of the State of 
Missouri, 85 U.S. 409, 412-413 (1874) (``It cannot be doubted, in 
view of the purpose of Congress in providing for the organization of 
national banking associations, that it was intended to give them a 
firm footing in the different states where they might be located. It 
was expected they would come into competition with state banks, and 
it was intended to give them at least equal advantages in such 
competition. * * * National banks have been national favorites. They 
were established for the purpose, in part, of providing a currency 
for the whole country, and in part to create a market for the loans 
of the general government. It could not have been intended, 
therefore, to expose them to the hazard of unfriendly legislation by 
the states, or to ruinous competition with state banks.''). See also 
B. Hammond, Banks and Politics in America from the Revolution to the 
Civil War, 725-34 (1957); P. Studenski & H. Krooss, Financial 
History of the United States, 155 (1st ed. 1952).
    \11\ For ease of reference, we use the term ``state'' in this 
preamble in a way that includes other non-Federal governmental 
entities.
    \12\ See also Anderson v. H&R Block, 287 F.3d 1038, 1045 (11th 
Cir. 2002) (``congressional debates amply demonstrate Congress's 
desire to protect national banks from state legislation. * * *'').
---------------------------------------------------------------------------

    The allocation of any supervisory responsibility for the new 
national banking system to the states would have been inconsistent with 
this need to protect national banks from state interference. Congress, 
accordingly, established a Federal supervisory regime and created a 
Federal agency within the Department of Treasury--the OCC--to carry it 
out. Congress granted the OCC the broad authority ``to make a thorough 
examination of all the affairs of [a national] bank,'' \13\ and 
solidified this Federal supervisory authority by vesting the OCC with 
exclusive visitorial powers over national banks. These provisions 
assured, among other things, that the OCC would have comprehensive 
authority to examine all the affairs of a national bank and protected 
national banks from potential state hostility by establishing that the 
authority to examine and supervise national banks is vested only in the 
OCC, unless otherwise provided by Federal law.\14\
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    \13\ Act of June 3, 1864, c. 106, Sec.  54, 13 Stat. 116, 
codified at 12 U.S.C. 481.
    \14\ Writing shortly after the Currency Act and National Bank 
Act were enacted, then-Secretary of the Treasury, and formerly the 
first Comptroller of the Currency, Hugh McCulloch observed that 
``Congress has assumed entire control of the currency of the 
country, and, to a very considerable extent, of its banking 
interests, prohibiting the interference of State governments. * * 
*'' Cong. Globe, 39th Cong., 1st Sess., Misc. Doc. No. 100, at 2 
(April 23, 1866).

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[[Page 6368]]

    Courts have consistently recognized the unique status of the 
national banking system and the limits placed on states by the National 
Bank Act. The Supreme Court stated in one of the first cases to address 
the role of the national banking system that ``[t]he national banks 
organized under the [National Bank Act] are instruments designed to be 
used to aid the government in the administration of an important branch 
of the public service. They are means appropriate to that end.'' 
Farmers' and Mechanics' National Bank v. Dearing, 91 U.S. 29, 33 
(1875).
    Subsequent opinions of the Supreme Court have been equally clear 
about national banks' unique role and status. See Marquette National 
Bank v. First of Omaha Service Corp., 439 U.S. 299, 314-315 (1978) 
(``Close examination of the National Bank Act of 1864, its legislative 
history, and its historical context makes clear that, * * * Congress 
intended to facilitate * * * a `national banking system'.'' (citation 
omitted)); Franklin National Bank of Franklin Square v. New York, 347 
U.S. 373, 375 (1954) (``The United States has set up a system of 
national banks as Federal instrumentalities to perform various 
functions such as providing circulating medium and government credit, 
as well as financing commerce and acting as private depositories.''); 
Davis v. Elmira Savings Bank, 161 U.S. 275, 283 (1896) (``National 
banks are instrumentalities of the Federal government, created for a 
public purpose, and as such necessarily subject to the paramount 
authority of the United States.'').
    In Guthrie v. Harkness, 199 U.S. 148 (1905), the Supreme Court 
recognized how the National Bank Act furthered the objectives of 
Congress:

    Congress had in mind, in passing this section [i.e., section 
484] that in other sections of the law it had made full and complete 
provision for investigation by the Comptroller of the Currency and 
examiners appointed by him, and, authorizing the appointment of a 
receiver, to take possession of the business with a view to winding 
up the affairs of the bank. It was the intention that this statute 
should contain a full code of provisions upon the subject, and that 
no state law or enactment should undertake to exercise the right of 
visitation over a national corporation. Except in so far as such 
corporation was liable to control in the courts of justice, this act 
was to be the full measure of visitorial power.

Id. at 159.
    The Supreme Court also has recognized the clear intent on the part 
of Congress to limit the authority of states over national banks 
precisely so that the nationwide system of banking that was created in 
the Currency Act could develop and flourish. For instance, in Easton v. 
Iowa, 188 U.S. 220 (1903), the Court stated that Federal legislation 
affecting national banks--

has in view the erection of a system extending throughout the 
country, and independent, so far as powers conferred are concerned, 
of state legislation which, if permitted to be applicable, might 
impose limitations and restrictions as various and as numerous as 
the States. * * * It thus appears that Congress has provided a 
symmetrical and complete scheme for the banks to be organized under 
the provisions of the statute. * * * [W]e are unable to perceive 
that Congress intended to leave the field open for the States to 
attempt to promote the welfare and stability of national banks by 
direct legislation. If they had such power it would have to be 
exercised and limited by their own discretion, and confusion would 
necessarily result from control possessed and exercised by two 
independent authorities.

Id. at 229, 231-232 (emphasis added). The Court in Farmers' and 
Mechanics' Bank, after observing that national banks are means to aid 
the government, stated--

    Being such means, brought into existence for this purpose, and 
intended to be so employed, the States can exercise no control over 
them, nor in any wise affect their operation, except in so far as 
Congress may see proper to permit. Any thing beyond this is ``an 
abuse, because it is the usurpation of power which a single State 
cannot give.''

Farmers' and Mechanics' Bank, 91 U.S. at 34 (citation omitted).
    Consistent with the need for a uniform system of laws and uniform 
supervision that would foster the nationwide banking system, courts 
have interpreted the OCC's visitorial powers expansively. The Supreme 
Court in Guthrie noted that the term ``visitorial'' as used in section 
484 derives from English common law, which used the term ``visitation'' 
to refer to the act of a superintending officer who visits a 
corporation to examine its manner of conducting business and enforce 
observance of the laws and regulations (citing First National Bank of 
Youngstown v. Hughes, 6 F. 737, 740 (6th Cir. 1881), appeal dismissed, 
106 U.S. 523 (1883)). Guthrie, 199 U.S. at 158. ``Visitors'' of 
corporations ``have power to keep them within the legitimate sphere of 
their operations, and to correct all abuses of authority, and to 
nullify all irregular proceedings.'' Id. (citations omitted). The 
Guthrie Court also noted that visitorial powers include bringing 
``judicial proceedings'' against a corporation to enforce compliance 
with applicable law. Id.\15\ See also Peoples Bank v. Williams, 449 F. 
Supp. 254, 259 (W. D. Va. 1978) (visitorial powers involve the exercise 
of the right of inspection, superintendence, direction, or regulation 
over a bank's affairs). Thus, section 484 establishes the OCC as the 
exclusive regulator of the business of national banks, except where 
otherwise provided by Federal law.
---------------------------------------------------------------------------

    \15\ Enforcement through judicial proceedings was the most 
common--and perhaps exclusive--means of exercising the visitorial 
power to enforce compliance with applicable law at the time section 
484 was enacted into law. Administrative actions were not widely 
used until well into the 20th century. Thus, by vesting the OCC with 
exclusive visitorial power, section 484 vests the OCC with the 
exclusive authority to enforce, whether through judicial or 
administrative proceedings--except where otherwise provided by 
Federal law.
---------------------------------------------------------------------------

    The OCC's exclusive visitorial authority complements principles of 
Federal preemption, to accomplish the objectives of the National Bank 
Act. The Supremacy Clause of the United States Constitution \16\ 
provides that Federal law prevails over any conflicting state law. An 
extensive body of judicial precedent has developed over the nearly 140 
years of existence of the national banking system, explaining and 
defining the standards of Federal preemption of state laws as applied 
to national banks.\17\ Visitorial power is a closely

[[Page 6369]]

related authority, which Congress specifically addressed in section 484 
to enable national banks to avoid inconsistent and potentially hostile 
application of standards by state authorities. Together, Federal 
preemption and the OCC's exclusive visitorial authority are defining 
characteristics of the national bank charter, which have fostered the 
development of the nationwide system of Federally chartered banks 
envisioned by Congress which now operates as part of the flourishing 
dual banking system of national and state-chartered banks in the United 
States.
---------------------------------------------------------------------------

    \16\ U.S. Const. Art. VI, cl. 2 (``This Constitution, and the 
Laws of the United States which shall be made in Pursuance thereof; 
and all Treaties made, or which shall be made, under the Authority 
of the United States, shall be the supreme Law of the Land; and the 
Judges in every State shall be bound thereby, any Thing in the 
Constitution or Laws of any State to the Contrary 
notwithstanding.'').
    \17\ See, e.g., Barnett Bank of Marion County, N.A. v. Nelson, 
517 U.S. 25, 26, 32, 33 (1996) (``grants of both enumerated and 
incidental `powers' to national banks [are] grants of authority not 
normally limited by, but rather ordinarily pre-empting, contrary 
state law.'' States may not ``prevent or significantly interfere 
with the national bank's exercise of its powers.''); Franklin 
National Bank, 347 U.S. at 378-379 (1954) (federal law preempts 
state law when there is a conflict between the two; ``The compact 
between the states creating the Federal Government resolves them as 
a matter of supremacy. However wise or needful [the state's] policy, 
* * * it must give way to contrary federal policy.''); Anderson 
National Bank v. Luckett, 321 U.S. 233, 248, 252 (1944) (state law 
may not ``infringe the national banking laws or impose an undue 
burden on the performance of the banks' functions'' or 
``unlawful[ly] encroac[h] on the rights and privileges of national 
banks''); First National Bank v. Missouri, 263 U.S. 640, 656 (1924) 
(Federal law preempts state laws that ``interfere with the purposes 
of [national banks'] creation, tend to impair or destroy their 
efficiency as federal agencies or conflict with the paramount law of 
the United States.''); First National Bank of San Jose v. 
California, 262 U.S. 366, 368-369 (1923) (``[National banks] are 
instrumentalities of the federal government. * * * [A]ny attempt by 
a state to define their duties or control the conduct of their 
affairs is void whenever it conflicts with the laws of the United 
States or frustrates the purposes of the national legislation, or 
impairs the efficiency of the bank to discharge the duties for which 
it was created.''); McClellan v. Chipman, 164 U.S. 347, 358 (1896) 
(application to national banks of state statute forbidding certain 
real estate transfers by insolvent transferees would not ``destro[y] 
or hampe[r]'' national bank functions); First National Bank of 
Louisville v. Commonwealth of Kentucky, 76 U.S. (9 Wall.) 353, 362-
63 (1870) (national banks subject to state law that does not 
``interfere with, or impair [national banks'] efficiency in 
performing the functions by which they are designed to serve [the 
Federal] Government''); Bank of America et al. v. City and County of 
San Francisco et al., 309 F.3d 551, 561 (9th Cir. 2002) (``[s]tate 
attempts to control the conduct of national banks are void if they 
conflict with federal law, frustrate the purposes of the National 
Bank Act, or impair the efficiency of national banks to discharge 
their duties.'') (citation omitted); Association of Banks in 
Insurance, Inc. v. Duryee, 270 F.3d 397, 403-404 (6th Cir. 2001) 
(``The Supremacy Clause `invalidates state laws that ``interfere 
with, or are contrary to,'' federal law'. * * * A state law also is 
pre-empted if it interferes with the methods by which the federal 
statute was designed to reach th[at] goal.'') (citations omitted).
---------------------------------------------------------------------------

    Congress recently affirmed the OCC's exclusive visitorial powers 
with respect to national banks operating on an interstate basis in the 
Riegle-Neal Interstate Banking Act of 1994 (Riegle-Neal).\18\ Although 
Riegle-Neal makes interstate branches of national banks subject to 
specified types of laws of a ``host'' state in which the bank has an 
interstate branch to the same extent as a branch of a state bank of 
that state, except when Federal law preempts the application of such 
state laws to national banks, the statute then makes clear that even 
where the state law is applicable, authority to enforce the law is 
vested in the OCC. See 12 U.S.C. 36(f)(1)(B) (``The provisions of any 
State law to which a branch of a national bank is subject under this 
paragraph shall be enforced, with respect to such branch, by the 
Comptroller of the Currency.''). This approach is another, and very 
recent, recognition of the broad scope of the OCC's exclusive 
visitorial powers with respect to national banks.
---------------------------------------------------------------------------

    \18\ Pub. L. 103-328, 108 Stat. 2338 (Sept. 29, 1994).
---------------------------------------------------------------------------

B. Description of the Visitorial Powers Proposal

    This rulemaking proposes to amend Sec.  7.4000 in two ways. First, 
it adds a new paragraph (3) to Sec.  7.4000(a) that identifies the 
scope of the activities of national banks for which the OCC's 
visitorial powers are exclusive. Second, it amends Sec.  7.4000(b) to 
reflect the exceptions to our exclusive visitorial authority as set out 
in section 484. We have also added an exception in proposed new Sec.  
7.4000(b)(vi) recognizing the authority for functional regulators to 
exercise the authority provided under the Gramm-Leach-Bliley Act.\19\
---------------------------------------------------------------------------

    \19\ Pub. L. 106-102, Sec.  302, 113 Stat. 1338, 1407-08 (Nov. 
12 1999), codified at 15 U.S.C. 6712.
---------------------------------------------------------------------------

    Circumstances when OCC visitorial authority is exclusive. As we 
have discussed, the purpose of section 484 is to enable national banks 
to conduct the banking business they are authorized to conduct under 
Federal law, subject only to the ``visitation,'' i.e., inspection and 
supervision of their activities and the ability to compel compliance 
with standards for their operations, that is authorized under Federal 
law. Consistent with this purpose, the OCC's visitorial powers are 
exclusive (except where otherwise provided by Federal law) with respect 
to activities comprising or in furtherance of the content of national 
banks' business, that are expressly authorized or recognized as 
permissible for national banks under Federal law, including the OCC's 
regulations and interpretations. Examples include application of state 
standards (to the extent they are not preempted) to the content of the 
business conducted by a national bank, such as standards concerning the 
bank's transactions and relations with its customers, or directives or 
prescriptions regarding the components of, or income or expenses of, 
the bank's business. In these situations, section 484 directs that, 
unless Federal law supplies an exception, the OCC is exclusively 
authorized to determine what standards apply to a national bank's 
activities and whether a national bank's conduct complies with 
applicable standards, and to enforce adherence to those standards.
    Proposed new Sec.  7.4000(a)(3) would embody this clarification. It 
states, in paragraph (i), that, unless otherwise provided by Federal 
law, the OCC has exclusive visitorial authority with respect to 
activities expressly authorized or recognized as permissible for 
national banks under Federal law or regulation, or by OCC issuance or 
interpretation, including the content of those activities and the 
manner in which, and standards whereby, those activities are conducted. 
Proposed paragraph (ii) then provides that the question of whether the 
OCC possesses the exclusive authority to assess the applicability of a 
state law and determine and enforce compliance by national banks is 
determined solely by Federal law, including section 484 and Sec.  
7.4000.\20\ Pursuant to Sec.  7.4006, these standards also determine 
the scope of the OCC's exclusive visitorial authority with respect to 
national banks' operating subsidiaries.\21\
---------------------------------------------------------------------------

    \20\ To the extent questions arise as to whether an activity is 
within the scope of the OCC's exclusive visitorial powers as defined 
in the regulation, the OCC is prepared to issue interpretive 
opinions on a case-by-case basis.
    \21\ See 66 FR 34784, 34788 (July 2, 2001). In the preamble to 
our final rule containing Sec.  7.4006 we noted that the OCC's 
operating subsidiary regulation, 12 CFR 5.34(e)(3), states that ``an 
operating subsidiary conducts its activities subject to the same 
authorization, terms, and conditions that apply to the conduct of 
those activities by its parent [national] bank.'' Further, we noted 
that ``[o]perating subsidiaries often have been described as the 
equivalent of departments or divisions of their parent banks.''
---------------------------------------------------------------------------

    Exceptions to OCC exclusive visitorial authority. Section 484 also 
creates several exceptions to the exclusive visitorial authority it 
creates. Our current rule acknowledges, in Sec.  7.4000(a), that our 
exclusive authority is subject to various exceptions created by Federal 
law. Current Sec.  7.4000(b) lists several instances where Federal law 
creates such an exception. However, the current rule does not address 
two exceptions expressly set out in section 484(a): the exceptions 
``vested in the courts of justice'' and for Congress (and its 
committees). We propose to amend Sec.  7.4000(b) to include the 
exceptions for courts of justice and Congress, and, in so doing, 
clarify how the ``vested in the courts of justice'' exception 
operates.\22\
---------------------------------------------------------------------------

    \22\ We have not encountered questions concerning the 
application of the exception for Congress and its committees. 
Therefore, we propose only to include that exception in our rule 
without elaboration.
---------------------------------------------------------------------------

    The ``vested in the courts of justice'' exception to the OCC's 
exclusive visitorial powers is best understood by referring to the 
purpose of the statute, the plain language of the ``vested in the 
courts of justice'' exception, and the structure of section 484. These 
points are addressed in order, below.
    Courts must be able to compel a national bank to produce books and 
records in connection with private litigation involving the bank. 
However, one might argue that the issuance of a subpoena by a court 
would itself be a ``visitation,'' even if the underlying litigation was 
not. Such a reading would effectively immunize national banks from 
civil litigation, a result that Congress clearly did not intend.
    Accordingly, section 484 recognizes an exception to the OCC's 
exclusive visitorial authority for visitorial powers ``vested in the 
courts of justice.'' This exception is consistent with case law, 
settled well before section 484 was

[[Page 6370]]

enacted into law, concluding that courts are vested with certain 
inherent powers. See, e.g., United States v. Hudson and Goodwin, 11 
U.S. 32, 34 (1812) (``Certain implied powers must necessarily result to 
our Courts of justice from the nature of their institutions.''); State 
v. Morrill, 16 Ark. 384, 1855 WL 607 (Ark.) (1855) (finding that there 
are express and implied powers, including the power to punish action 
found in contempt of court, that are inherently vested in courts). In 
order to avoid a constitutionally impermissable usurpation of the 
judiciary's powers, Congress included the ``vested in the courts of 
justice'' exception in section 484 and thereby recognized the inherent 
authority of courts of justice to exercise those powers required to 
fulfill the courts' responsibilities.
    Congress clearly did not intend, however, to create new visitorial 
authority that could be exercised by state authorities when it 
recognized the authority of courts of justice. It would be completely 
contrary to the express purposes of section 484 to read the ``vested in 
the courts of justice'' exception as enabling state authorities to 
accomplish exactly what Congress deliberately and expressly intended 
states not to be able to do--namely, inspect and supervise the 
activities of national banks and compel their adherence to a variety of 
state-set standards.
    This purpose is effectuated by the plain language of the statute. 
The exception permits the exercise of ``visitorial powers'' that are 
``vested in the courts of justice,'' powers, in other words, that 
courts possess. Section 484 does not create new powers for state 
executive, legislative, or administrative authorities to supervise and 
regulate national banks. It grants no new authority and thus does not 
authorize states to bring suits or enforcement actions that they do not 
otherwise have the power to bring.
    To read the exception to permit state authorities to inspect, 
regulate, supervise, direct, or restrict the activities of national 
banks simply by filing a complaint in a court would be to create a 
visitorial power that states do not otherwise possess under Federal 
law. Section 484 by its express terms simply does not create such 
boundless visitorial powers for state authorities.\23\ Where section 
484 does recognize visitorial authority for states in section 484(b), 
by contrast, it is specific and narrow, and expressly stated as an 
exception to the general exclusivity of the OCC's visitorial powers 
recognized in section 484(a).
---------------------------------------------------------------------------

    \23\ We note that one Federal district court has reached a 
different conclusion, but we respectfully disagree with the parts of 
the opinion in First Union National Bank et al. v. Burke, 48 F. 
Supp. 2d 132, 145-146 (D. Ct. 1999), that suggest a different 
reading of the exception, since the opinion did not analyze the 
purpose, plain language, and structure of section 484. Moreover, we 
note that the Burke court agrees that a state may not directly 
enforce state law against national banks. See 48 F. Supp. 2d at 146.
---------------------------------------------------------------------------

    This construction of the ``vested in the courts of justice'' 
exception also is supported by the rule of statutory construction that 
holds that ``[s]tatutory language must be read in context and a phrase 
`gathers meaning from the words around it.' '' \24\ Jones v. United 
States, 527 U.S. 373, 389 (1999) (quoting Jarecki v. G.D. Searle & Co., 
367 U.S. 303, 307 (1961)); Tasini v. New York Times Company, Inc., 206 
F.3d 161, 166-167 (2nd Cir. 2000), cert. granted, 531 U.S. 978 (2000), 
aff'd, 533 U.S. 483 (2001) (noscitur a sociis applied to a statute 
similar in format to section 484). Immediately following the ``vested 
in the courts of justice'' exception is an exception that preserves 
visitorial authority for Congress or any committee thereof. This 
exception addresses the need of Congress and its committees to issue 
subpoenas compelling the production of bank records or witnesses in 
fulfillment of congressional oversight responsibilities. Similarly, the 
exception set out in paragraph (b) of section 484 (preserving a state's 
ability to examine a national bank's books and records as necessary to 
ensure compliance with state unclaimed property and escheat laws) is 
narrowly focused on a specific purpose. Thus, the statutory context of 
the ``vested in the courts of justice'' exception also leads to the 
conclusion that it is comparably focused on a particular function, not 
an exception that endorses an indirect route to accomplish precisely 
what Congress clearly sought to prevent--state regulation and 
inspection of the banking business of national banks.\25\
---------------------------------------------------------------------------

    \24\ This maxim is sometimes referred to as the noscitur a 
sociis doctrine.
    \25\ The noscitur a sociis doctrine as applied to the original 
National Bank Act also leads to the conclusion that only the OCC may 
enforce applicable laws. The visitorial powers language initially 
appeared in section 54 of the National Bank Act. The section that 
preceded it governed the forfeiture of a bank's charter upon a 
knowing violation of the National Bank Act, while the section that 
followed addressed penalties for embezzling. This location of 
section 484 in a series of enforcement-related provisions 
underscores the point that Congress intended for the OCC to have the 
exclusive authority to bring enforcement actions against national 
banks.
---------------------------------------------------------------------------

    Under this construction of section 484, states remain free to seek 
a declaratory judgment from a court as to whether a particular state 
law applies to the Federally-authorized business of a national bank or 
is preempted. However, if a court rules that a state law is not 
preempted, enforcement of a national bank's compliance with that law is 
within the OCC's exclusive purview. See National State Bank, Elizabeth, 
N.J. v. Long, 630 F.2d 981, 988 (3rd Cir. 1980) (``[W]e find ourselves 
unable to agree with the district court's determination that state 
officials have the power to issue cease and desist orders against 
national banks for violations of the [state's] antiredlining statute. 
Congress has delegated enforcement of statutes and regulations against 
national banks to the Comptroller of the Currency.'').\26\
---------------------------------------------------------------------------

    \26\ This applies to enforcement of criminal statutes as well. 
Easton v. Iowa, 188 U.S. 220 (1903).
---------------------------------------------------------------------------

    In addition, this position does not preclude private civil actions 
or actions brought by other governmental entities pursuant to a Federal 
grant of authority. See, e.g. Guthrie, supra, 199 U.S. 148 (an 
individual shareholder action against a bank for access to its books 
and records); Bank of America National Trust & Savings Ass'n v. 
Douglas, 105 F.2d 100 (D.C. Cir. 1939) (service of subpoenas on a 
national bank by the SEC in connection with an investigation under the 
Securities Exchange Act of 1934).
    Accordingly, in light of the purpose of the ``vested in the courts 
of justice'' exception, its plain language, and the narrow focus of 
other exceptions in section 484, we propose to amend Sec.  7.4000(b) to 
state that national banks shall be subject to such visitorial powers as 
are vested in the courts of justice to issue orders or writs compelling 
the production of information or witnesses. We propose further to 
clarify that this exception does not create or expand any authority of 
states or other governmental entities to inspect, regulate, or 
supervise national banks' activities, or to compel national banks' 
adherence to restrictions or mandates concerning the content of those 
activities or the manner in which, or standards whereby, those 
activities are conducted.

IV. Additional Changes to Parts 5, 7, 9, and 34

A. Part 5 Amendments

    Section 5.20 of our regulations contains the requirements that 
govern the organization of a national bank. The proposal amends Sec.  
5.20(e)(1) to provide that the newly organized bank may be a special 
purpose national bank that limits its activities to fiduciary 
activities or to any other activities within the business of banking. 
The purpose of this

[[Page 6371]]

proposed change is to clarify that a limited purpose national bank may 
exist with respect to activities other than fiduciary activities, 
provided the activities in question are within the business of banking.
    Section 5.33(e) of our regulations contains a listing of factors 
the OCC considers in evaluating applications for business combinations. 
These factors are based upon the factors set forth in the Bank Merger 
Act, 12 U.S.C. 1828(c), and the Community Reinvestment Act, 12 U.S.C. 
2903. As part of the USA PATRIOT Act,\27\ Congress amended the Bank 
Merger Act by adding an additional factor to be considered in 
evaluating merger transactions. This factor requires the responsible 
agencies to consider the effectiveness of any insured depository 
institution involved in a proposed merger in combating money laundering 
activities.\28\ The proposal conforms our regulations with the statute 
by adding the factor at Sec.  5.33(e)(1)(v).
---------------------------------------------------------------------------

    \27\ Pub. L. 107-56 (Oct. 26, 2001).
    \28\ The FDIC recently updated its Statement of Policy on Bank 
Merger Transactions to include this new factor at 67 FR 48178 (July 
23, 2002). This update only provides the new provision. The complete 
Policy Statement as it existed before this update may be found at 63 
FR 44761 (August 20, 1998).
---------------------------------------------------------------------------

    Current Sec.  5.34(e)(5)(iv) permits certain national banks to 
acquire or establish an operating subsidiary or perform a new activity 
in an existing operating subsidiary by providing after-the-fact notice 
to the OCC if the operating subsidiary conducts certain activities 
listed in Sec.  5.34(e)(5)(v). That list currently includes the 
underwriting of credit-related insurance consistent with section 302 of 
the Gramm-Leach-Bliley Act. However, in Corporate Decision 2001-10 
(April 23, 2001) and Corporate Decision 2000-16 (August 29, 2000), the 
OCC found that credit-related reinsurance products satisfy GLBA section 
302's statutory requirements and are ``authorized products.'' The 
proposal therefore amends 12 CFR 5.34(e)(5)(v)(L) to add reinsuring of 
credit-related insurance to the list of activities eligible for after-
the-fact notice requirements.

B. Part 7 Amendment

    As corporate transactions have become more sophisticated, an 
integral part of financial and transactional advice with respect to 
mergers and other corporate restructurings inevitably involves 
providing advice on the tax implications of those transactions. 
Recently amended Sec.  5.34(e)(5)(v)(J) and (K) permit national banks 
to provide tax planning services and to provide financial and 
transactional advice on structuring, arranging, and executing financial 
transactions, including mergers, acquisitions, and divestitures. 
Providing tax planning services encompasses tax consulting in order for 
a bank to be able to offer comprehensive services in this area. 
Accordingly, the proposal deletes as outdated the prohibition against 
serving as an expert tax consultant that currently appears at Sec.  
7.1008.\29\
---------------------------------------------------------------------------

    \29\ National banks engaged in providing the services permitted 
by 12 CFR 5.34(e)(5)(v)(J) and (K) must comply with applicable 
regulations of the Internal Revenue Service (IRS) governing the 
provision of such services. Information about the IRS regulations 
may be obtained at www.irs.treas.gov.
---------------------------------------------------------------------------

C. Part 9 Amendment

    Currently, 12 CFR 9.18(b)(4)(i) requires valuation of collective 
investment funds at least every three months. However, certain funds 
are only required to be valued once a year. Those funds must be (a)(2) 
funds that are primarily invested in real estate or other assets that 
are not readily marketable. A growing number of collective investment 
funds, including (a)(1) funds, however, are comprised of a mix of 
assets that are readily marketable and assets that are not readily 
marketable. Those funds do not qualify for the one-year valuation 
because they are not (a)(2) funds primarily invested in real estate or 
other assets that are not readily marketable. However, a one-year 
valuation may be appropriate for assets in those funds that are not 
readily marketable. Thus, we propose to amend the regulation to require 
quarterly valuation of readily marketable assets in all collective 
investment funds, including (a)(1) funds. Assets that are not readily 
marketable will be valued at least once a year regardless of whether 
the assets are in (a)(1) or (a)(2) funds or whether the funds' assets 
are primarily invested in real estate or other assets that are not 
readily marketable. For purposes of an admission or withdrawal date, 
this provision does not negate the need to provide a current value at 
the time of such admission or withdrawal.

D. Part 34 Amendment

    Section 34.3 restates the comprehensive authority vested in the OCC 
by 12 U.S.C. 371 to regulate real estate lending by national banks. 
Section 371 authorizes national banks to engage in real estate lending, 
making that authority subject only to 12 U.S.C. 1828(o) (real estate 
lending safety and soundness standards) and ``such restrictions and 
requirements as the Comptroller of the Currency may prescribe by 
regulation or order.'' The text of the regulation was not revised to 
reflect a statutory amendment to section 371 referring to 12 U.S.C. 
1828(o) and thus the proposal updates the regulation to reflect that 
change to the underlying statute. Other portions of the regulation 
remain unchanged, as are the implementing provisions of section 34.4, 
which set out by regulation certain types of state laws that are 
specifically preempted (section 34.4(a)), and provide that the OCC will 
apply recognized principles of Federal preemption in considering 
whether other types of state laws apply to real estate lending by 
national banks for purposes of issuing orders pursuant to section 371 
(section 34.4(b)).

V. Technical Amendments

    The proposal contains the following technical amendments:
    [sbull] 12 CFR part 3, appendix A, section 3(a)(2)(ix) currently 
cross-references a definition of ``General obligation of a State or 
political subdivision'' but contains the wrong regulatory citation for 
that definition. The definition in question has been moved from 12 CFR 
1.3(g) to 12 CFR 1.2(b). The proposed revision will correct the 
citation. Also in part 3 appendix A, section 4(a)(11)(ii) the 
references to sections (4)(a)(8)(i) and (ii) are corrected to refer to 
sections (4)(a)(9)(i) and (ii), respectively.
    [sbull] The citations to FDIC regulations in current 12 CFR 
6.4(c)(1)(i) and (ii) are incorrect. The proposal amends the citations 
to correct them.
    [sbull] Current 12 CFR 7.1016(a) contains a footnote reference and 
accompanying footnote text. The footnote reference number is 30, but 
should be 1. The proposal makes this change.
    [sbull] Current 12 CFR 9.20(b) contains a reference to SEC rules 17 
CFR 240.17Ad-1 through 240.17Ad-16. A new rule, 240.17Ad-17, has been 
added, so the proposal changes the reference to 240.17Ad-16 to reflect 
the addition.
    [sbull] Current 12 CFR 28.16(e), dealing with uninsured deposit 
notices, makes a reference to an FDIC regulation, 12 CFR 346.7, which 
was removed in 1998. The proposal would correct this citation to refer 
to the current rule for uninsured deposit notices which can now be 
found at 12 CFR 347.207.

Request for Comments

    The OCC invites comment on all aspects of the proposed regulation.

Solicitation of Comments on Use of Plain Language

    Section 722 of the Gramm-Leach-Bliley Act, Pub. L. 106-102, sec. 
722, 113 Stat. 1338, 1471 (Nov. 12, 1999),

[[Page 6372]]

requires the Federal banking agencies to use plain language in all 
proposed and final rules published after January 1, 2000. We invite 
your comments on how to make this proposal easier to understand. For 
example:
    [sbull] Have we organized the material to suit your needs? If not, 
how could this material be better organized?
    [sbull] Are the requirements in the proposed regulation clearly 
stated? If not, how could the regulation be more clearly stated?
    [sbull] Does the proposed regulation contain language or jargon 
that is not clear? If so, which language requires clarification?
    [sbull] Would a different format (grouping and order of sections, 
use of headings, paragraphing) make the regulation easier to 
understand? If so, what changes to the format would make the regulation 
easier to understand?
    [sbull] What else could we do to make the regulation easier to 
understand?

Community Bank Comment Request

    In addition, we invite your comments on the impact of this proposal 
on community banks. The OCC recognizes that community banks operate 
with more limited resources than larger institutions and may present a 
different risk profile. Thus, the OCC specifically requests comments on 
the impact of this proposal on community banks' current resources and 
available personnel with the requisite expertise, and whether the goals 
of the proposed regulation could be achieved, for community banks, 
through an alternative approach.

Regulatory Flexibility Act

    Pursuant to section 605(b) of the Regulatory Flexibility Act, 5 
U.S.C. 605(b) (RFA), the regulatory flexibility analysis otherwise 
required under section 604 of the RFA is not required if the agency 
certifies that the rule will not have a significant economic impact on 
a substantial number of small entities and publishes its certification 
and a short, explanatory statement in the Federal Register along with 
its rule.
    Pursuant to section 605(b) of the RFA, the OCC hereby certifies 
that this proposal will not have a significant economic impact on a 
substantial number of small entities. Accordingly, a regulatory 
flexibility analysis is not needed. The amendments to the OCC's 
regulations relating to the AHOEA are permissive provisions that will 
be used only by banks that wish to take advantage of the new 
transactions, procedures, or corporate governance options permitted by 
the statute as implemented by the regulations. Proposed 12 CFR 
5.33(g)(5) reduces burden by implementing a simpler way to accomplish a 
merger of a national bank into one of its nonbank affiliates. The 
amendments regarding the OCC's visitorial powers simply identify the 
scope of activities for which the agency's visitorial powers are 
exclusive and clarify how an exception to such powers applies. These 
amendments simply provide the OCC's analysis and do not impose any new 
requirements or burdens. As such, they will not result in any adverse 
economic impact.

Executive Order 12866

    The OCC has determined that this proposal 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 (2 U.S.C. 1532) (Unfunded Mandates Act), requires that an agency 
prepare a budgetary impact statement before promulgating any rule 
likely to result in 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 promulgating a 
rule. The OCC has determined that the proposed rule will not result in 
expenditures by State, local, and tribal governments, or by the private 
sector, of $100 million or more in any one year. Accordingly, this 
rulemaking is not subject to section 202 of the Unfunded Mandates Act.

Paperwork Reduction Act

    The OCC may not conduct or sponsor, and a respondent is not 
required to respond to, an information collection unless it displays a 
currently valid Office of Management and Budget (OMB) control number.
    The information collection requirements in this notice of proposed 
rulemaking are contained in Sec. Sec.  5.32, 5.33, and 7.2024.
    OMB has reviewed and approved the information collection 
requirements contained in this rule under OMB Control Number 1557-0014, 
in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 
et seq.).
    The Comptroller's Corporate Manual (Manual) explains the OCC's 
policies and procedures for the formation of a new national bank, entry 
into the national banking system by other institutions, and corporate 
expansion and structural changes by existing national banks. The Manual 
embodies all required procedures, forms, and regulations regarding OCC 
corporate decisions.
    The information collection requirements imposed by Sec. Sec.  5.32 
and 5.33 are contained in the Business Combinations booklet in the 
Manual and are part of the total requirement.
    The respondents are national banks.
    Estimated number of respondents: 270.
    Estimated number of responses: 270.
    Average hours per response: 20.6.
    Estimated total burden hours: 5,562.
    The information collection requirements imposed by Sec.  7.2024 are 
included in the Corporate Organization booklet in the Manual, along 
with several other corporate requirements.
    The respondents are national banks.
    Estimated number of respondents: 1,000.
    Estimated number of responses: 1,000.
    Average hours per response: .5 hour.
    Estimated total burden hours: 500 hours.
    The burden estimates represent total burden for national banks' 
compliance with the information collection requirements associated with 
corporate organization matters and business combination activities.
    The OCC has a continuing interest in the public's opinion regarding 
collections of information. The OCC invites comments on:
    (1) Whether the collection of information contained in the proposed 
rulemaking is necessary for the proper performance of the OCC's 
functions, including whether the information has practical utility;
    (2) The accuracy of the OCC's estimate of the burden of the 
information collection, including the validity of the methodology and 
assumptions used;
    (3) Ways to enhance the quality, utility, and clarity of the 
information to be collected;
    (4) Ways to minimize the burden of the information collection on 
respondents, including the use of automated collection techniques or 
other forms of information technology; and
    (5) Estimates of capital or start-up costs and costs of operation, 
maintenance, and purchase of services to provide information.
    Comments may be sent to:
    Jessie Dunaway, Clearance Officer, Office of the Comptroller of the 
Currency, 250 E Street, SW, Mailstop 8-4, Washington, DC 20219. 
Comments

[[Page 6373]]

may also be sent by fax to 202-874-4889 or by e-mail to 
[email protected].
    Joseph F. Lackey, Jr., Desk Officer, Office of Information and 
Regulatory Affairs, Attention: 1557-0014, Office of Management and 
Budget, Room 10235, Washington, DC 20503. Comments may also be sent by 
e-mail to [email protected].

Executive Order 13132

    Executive Order 13132 requires Federal agencies, including the OCC, 
to certify their compliance with that Order when they transmit to the 
Office of Management and Budget any draft final regulation that has 
Federalism implications. Under the Order, a regulation has Federalism 
implications if it has ``substantial direct effects on the States, on 
the relationship between the national government and the States, or on 
the distribution of power and responsibilities among the various levels 
of government.'' In the case of a regulation that has Federalism 
implications and that preempts state law, the Order imposes certain 
consultation requirements with state and local officials; requires 
publication in the preamble of a Federalism summary impact statement; 
and requires the OCC to make available to the Director of the Office of 
Management and Budget any written communications submitted by state and 
local officials. By the terms of the Order, these requirements apply to 
the extent that they are practicable and permitted by law and, to that 
extent, must be satisfied before the OCC promulgates a final 
regulation.
    This proposal may have Federalism implications, as that term is 
used in the Order. Therefore, before promulgating a final regulation 
based on this proposal, the OCC will, to the extent practicable and 
permitted by law, seek consultation with state and local officials, 
include a Federalism summary impact statement in the preamble to the 
final rule, and make available to the Director of OMB any written 
communications we receive from state or local officials.

List of Subjects

12 CFR Part 3

    Administrative practice and procedure, Capital, National banks, 
Reporting and recordkeeping requirements, Risk.

12 CFR Part 5

    Administrative practice and procedure, National banks, Reporting 
and recordkeeping requirements, Securities.

12 CFR Part 6

    National banks.

12 CFR Part 7

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

12 CFR Part 9

    Estates, Investments, National banks, Reporting and recordkeeping 
requirements, Trusts and trustees.

12 CFR Part 28

    Foreign banking, National banks, Reporting and recordkeeping 
requirements.

12 CFR Part 34

    Mortgages, National banks, Reporting and recordkeeping 
requirements.

Authority and Issuance

    For the reasons set forth in the preamble, parts 3, 5, 6, 7, 9, 28, 
and 34 of chapter I of title 12 of the Code of Federal Regulations are 
proposed to be amended as follows:

PART 3--MINIMUM CAPITAL RATIOS; ISSUANCE OF DIRECTIVES

    1. The authority citation for part 3 continues to read as follows:

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

Appendix A to Part 3--[Amended]

    2. In appendix A to part 3:

    A. In section 3, amend paragraph (a)(2)(ix) by removing ``12 CFR 
1.3(g)'' and adding in its place ``12 CFR 1.2(b)''; and
    B. In section 4, amend paragraph (a)(11)(ii) by removing, 
``section(4)(a)(8)(i) and (ii)'' and adding in its place ``section 
(4)(a)(9)(i) and (ii)''.
* * * * *

PART 5--RULES, POLICIES, AND PROCEDURES FOR CORPORATE ACTIVITIES

    3. The authority citation for part 5 is revised to read as follows:

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

Subpart B--Initial Activities

    4. In Sec.  5.20, a new second sentence is added to paragraph 
(e)(1) to read as follows:


Sec.  5.20  Organizing a Bank.

* * * * *
    (e) Statutory requirements--(1) General. * * * The bank may be a 
special purpose bank that limits its activities to fiduciary activities 
or to any other activities within the business of banking. * * *
* * * * *

Subpart C--Expansion of Activities

    5. A new Sec.  5.32 is added to read as follows:


Sec.  5.32  Expedited procedures for certain reorganizations.

    (a) Authority. 12 U.S.C. 93a and 215a-2.
    (b) Scope. This section prescribes the procedures for OCC review 
and approval of a national bank's reorganization to become a subsidiary 
of a bank holding company or a company that will, upon consummation of 
such reorganization, become a bank holding company.
    (c) Licensing requirements. A national bank shall submit an 
application to, and obtain approval from, the OCC prior to 
participating in a reorganization described in paragraph (b) of this 
section.
    (d) Procedures--(1) General. An application filed in accordance 
with this section shall be deemed approved on the 30th day after the 
OCC receives the application, unless the OCC notifies the bank 
otherwise. Approval is subject to the condition that the bank provide 
the OCC with 60 days' prior notice of any material change in the bank's 
business plan or any material change from the proposed changes to the 
bank's business plan described in the bank's plan of reorganization.
    (2) Reorganization plan. The application must include a 
reorganization plan that:
    (i) Specifies the manner in which the reorganization shall be 
carried out;
    (ii) Is approved by a majority of the entire board of directors of 
the national bank;
    (iii) Specifies:
    (A) The amount and type of consideration that the bank holding 
company will provide to the shareholders of the reorganizing bank for 
their shares of stock of the bank;
    (B) The date as of which the rights of each shareholder to 
participate in that exchange will be determined; and
    (C) The manner in which the exchange will be carried out;
    (iv) Is submitted to the shareholders of the reorganizing bank at a 
meeting to be held at the call of the directors in accordance with the 
procedures prescribed in connection with a merger of a national bank 
under section 3 of the National Bank Consolidation and Merger Act, 12 
U.S.C. 215a(a)(2); and

[[Page 6374]]

    (v) Describes any changes to the bank's business plan resulting 
from the reorganization.
    (3) Financial and managerial resources and future prospects. In 
reviewing an application under this section, the OCC will consider the 
impact of the proposed affiliation on the financial and managerial 
resources and future prospects of the national bank.
    (e) Rights of dissenting shareholders. Any shareholder of a bank 
who has voted against an approved reorganization at the meeting 
referred to in paragraph (d)(2)(iv) of this section, or who has given 
notice of dissent in writing to the presiding officer at or prior to 
that meeting, is entitled to receive the value of his or her shares by 
providing a written request to the bank within 30 days after the 
consummation of the reorganization, as provided by section 3 of the 
National Bank Consolidation and Merger Act, 12 U.S.C. 215a(b) and (c), 
for the merger of a national bank.
    (f) Approval under the Bank Holding Company Act. This section does 
not affect the applicability of the Bank Holding Company Act of 1956. 
Applicants shall indicate in their application the status of any 
application required to be filed with the Board of Governors of the 
Federal Reserve System.
    (g) Expiration of approval. Approval expires if a national bank has 
not completed the reorganization within one year of the date of 
approval.
    (h) Adequacy of disclosure. (1) An applicant shall inform 
shareholders of all material aspects of a reorganization and comply 
with applicable requirements of the Federal securities laws and the 
OCC's securities regulations at 12 CFR part 11.
    (2) Any applicant not subject to the registration provisions of the 
Securities Exchange Act of 1934 shall submit the proxy materials or 
information statements it uses in connection with the reorganization to 
the appropriate district office no later than when the materials are 
sent to the shareholders.
    6. In Sec.  5.33:
    A. Paragraph (a) is revised;
    B. Paragraph (b) is redesignated as paragraph (c), paragraph (c) is 
redesignated as paragraph (b), newly redesignated paragraph (b) is 
revised and a sentence is added at the end of newly redesignated 
paragraph (c);
    C. Paragraphs (d)(1), (d)(2), (d)(3), and (d)(4) are redesignated 
as paragraphs (d)(2), (d)(3), (d)(6), and (d)(7), respectively; newly 
designated paragraph (d)(2) is revised; and new paragraphs (d)(1), 
(d)(4), (d)(5), and (d)(8) are added;
    D. New paragraph (e)(1)(v) is added;
    E. Paragraph (e)(3)(ii) is revised;
    F. The second sentence of paragraph (f)(1) is revised and two new 
sentences are added at the end;
    G. New paragraphs (g)(4) and (g)(5) are added;
    H. At the end of paragraph (j)(1)(ii), remove the term ``or'';
    I. At the end of paragraph (j)(1)(iii), remove ``.'' and add ``; 
or''; and
    J. New paragraph (j)(1)(iv) is added to read as follows:


Sec.  5.33  Business combinations.

    (a) Authority. 12 U.S.C. 24(Seventh), 93a, 181, 214a, 214b, 215, 
215a, 215a-1, 215a-3, 215c, 1815(d)(3), 1828(c), 1831u, and 2903.
    (b) Scope. This section sets forth the provisions governing 
business combinations and the standards for:
    (1) OCC review and approval of an application for a business 
combination between a national bank and another depository institution 
resulting in a national bank or between a national bank and one of its 
nonbank affiliates; and
    (2) Requirements of notices and other procedures for national banks 
involved in other combinations with depository institutions.
    (c) Licensing requirements. * * * A national bank shall submit an 
application and obtain prior OCC approval for any merger between the 
national bank and one or more of its nonbank affiliates.
    (d) Definitions--(1) Bank means any national bank or any state 
bank.
    (2) Business combination means any merger or consolidation between 
a national bank and one or more depository institutions in which the 
resulting institution is a national bank, the acquisition by a national 
bank of all, or substantially all, of the assets of another depository 
institution, the assumption by a national bank of deposit liabilities 
of another depository institution, or a merger between a national bank 
and one or more of its nonbank affiliates.
* * * * *
    (4) Company means a corporation, limited liability company, 
partnership, business trust, association, or similar organization.
    (5) For business combinations under Sec. Sec.  5.33(g)(4) and (5), 
a company or shareholder is deemed to control another company if:
    (i) Such company or shareholder, directly or indirectly, or acting 
through one or more other persons owns, controls, or has power to vote 
25 per cent or more of any class of voting securities of the other 
company, or
    (ii) such company or shareholder controls in any manner the 
election of a majority of the directors or trustees of the other 
company. No company shall be deemed to own or control another company 
by virtue of its ownership or control of shares in a fiduciary 
capacity.
* * * * *
    (8) Nonbank affiliate of a national bank means any company (other 
than a bank or Federal savings association) that controls, is 
controlled by, or is under common control with the national bank.
    (e) * * *
    (1) * * *
    (v) The OCC considers the effectiveness of any insured depository 
institution involved in the business combination in combating money 
laundering activities, including in overseas branches.
* * * * *
    (3) * * *
    (ii) An applicant proposing to acquire, through a business 
combination, a subsidiary of any entity other than a national bank must 
provide the same information and analysis of the subsidiary's 
activities that would be required if the applicant were establishing 
the subsidiary pursuant to 12 CFR Sec. Sec.  5.34 or 5.39.
* * * * *
    (f) Exceptions to rules of general applicability. (1) National bank 
applicant. * * * A national bank applicant shall follow, as applicable, 
the public notice requirements contained in 12 U.S.C. 1828(c)(3) 
(business combinations), 12 U.S.C. 215(a) (consolidation under a 
national bank charter), 12 U.S.C. 215a(a)(2) (merger under a national 
bank charter), paragraph (g)(2) of this section (merger or 
consolidation with a Federal savings association resulting in a 
national bank), paragraph (g)(4) of this section (merger with a nonbank 
affiliate under a national bank charter), and paragraph (g)(5) (merger 
with nonbank affiliate not under national bank charter). Sections 5.10 
and 5.11 ordinarily do not apply to mergers of a national bank with its 
nonbank affiliate. However, if the OCC concludes that an application 
presents significant and novel policy, supervisory, or legal issues, 
the OCC may determine that some or all provisions in Sec. Sec.  5.10 
and 5.11 apply.
* * * * *
    (g) * * *
    (4) Mergers of a national bank with its nonbank affiliates under 12 
U.S.C. 215a-3 resulting in a national bank--(i) With the approval of 
the OCC, a national bank may merge with one or more of its nonbank 
affiliates, with the national bank as the resulting

[[Page 6375]]

institution, in accordance with the provisions of this paragraph, 
provided that the law of the state or other jurisdiction under which 
the nonbank affiliate is organized allows the nonbank affiliate to 
engage in such mergers.
    (ii) A national bank entering into the merger shall follow the 
procedures of 12 U.S.C. 215a, as if the nonbank affiliate were a state 
bank, except as otherwise provided herein.
    (iii) A nonbank affiliate entering into the merger shall follow the 
procedures for such mergers set out in the law of the state or other 
jurisdiction under which the nonbank affiliate is organized.
    (iv) The rights of dissenting shareholders and appraisal of 
dissenters' shares of stock in the nonbank affiliate entering into the 
merger shall be determined in the manner prescribed by the law of the 
state or other jurisdiction under which the nonbank affiliate is 
organized.
    (v) The corporate existence of each institution participating in 
the merger shall be continued in the resulting national bank, and all 
the rights, franchises, property, appointments, liabilities, and other 
interests of the participating institutions shall be transferred to the 
resulting national bank, as set forth in 12 U.S.C. 215a(a), (e), and 
(f) in the same manner and to the same extent as in a merger between a 
national bank and a state bank under 12 U.S.C. 215a(a), as if the 
nonbank affiliate were a state bank.
    (5) Mergers of an uninsured national bank with its nonbank 
affiliates under 12 U.S.C. 215a-3 resulting in a nonbank affiliate--(i) 
With the approval of the OCC, a national bank that is not an insured 
bank as defined in 12 U.S.C. 1813(h) may merge with one or more of its 
nonbank affiliates, with the nonbank affiliate as the resulting entity, 
in accordance with the provisions of this paragraph, provided that the 
law of the state or other jurisdiction under which the nonbank 
affiliate is organized allows the nonbank affiliate to engage in such 
mergers.
    (ii) A national bank entering into the merger shall follow the 
procedures of 12 U.S.C. 214a, as if the nonbank affiliate were a state 
bank, except as otherwise provided in this section.
    (iii) A nonbank affiliate entering into the merger shall follow the 
procedures for such mergers set out in the law of the state or other 
jurisdiction under which the nonbank affiliate is organized.
    (iv)(A) National bank shareholders who dissent from an approved 
plan to merge may receive in cash the value of their national bank 
shares if they comply with the requirements of 12 U.S.C. 214a as if the 
nonbank affiliate were a state bank. The OCC may conduct an appraisal 
or reappraisal of dissenters' shares of stock in a national bank 
involved in the merger if all parties agree that the determination is 
final and binding on each party and agree on how the total expenses of 
the OCC in making the appraisal will be divided among the parties and 
paid to the OCC.
    (B) The rights of dissenting shareholders and appraisal of 
dissenters' shares of stock in the nonbank affiliate involved in the 
merger shall be determined in the manner prescribed by the law of the 
state or other jurisdiction under which the nonbank affiliate is 
organized.
    (v) The corporate existence of each entity participating in the 
merger shall be continued in the resulting nonbank affiliate, and all 
the rights, franchises, property, appointments, liabilities, and other 
interests of the participating national bank shall be transferred to 
the resulting nonbank affiliate as set forth in 12 U.S.C. 214b, in the 
same manner and to the same extent as in a merger between a national 
bank and a state bank under 12 U.S.C. 214a, as if the nonbank affiliate 
were a state bank.
* * * * *
    (j) * * *
    (1) * * *
    (iv) In the case of a transaction under paragraph (g)(4) of this 
section, the acquiring bank is an eligible bank, the resulting national 
bank will be well capitalized immediately following consummation of the 
transaction, the applicants in a prefiling communication request and 
obtain approval from the appropriate district office to use the 
streamlined application, and the total assets acquired do not exceed 10 
percent of the total assets of the acquiring national bank, as reported 
in the bank's Consolidated Report of Condition and Income filed for the 
quarter immediately preceding the filing of the application.
* * * * *
    7. In 5.34, paragraph (e)(5)(v)(L) is revised to read as follows:


Sec.  5.34  Operating subsidiaries.

* * * * *
    (e) * * *
    (5) * * *
    (v) * * *
    (L) Underwriting and reinsuring credit related insurance to the 
extent permitted under section 302 of the GLBA (15 U.S.C. 6712).
* * * * *

PART 6--PROMPT CORRECTIVE ACTION

    8. The authority citation for part 6 continues to read as follows:

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

Subpart A--Capital Categories

    9. In Sec.  6.4, paragraphs (c)(1)(i) and (ii) are revised to read 
as follows:


Sec.  6.4  Capital measures and capital category definitions.

* * * * *
    (c) * * *
    (1) * * *
    (i) Maintains the pledge of assets required under 12 CFR 347.210; 
and
    (ii) Maintains the eligible assets prescribed under 12 CFR 347.211 
at 108 percent or more of the preceding quarter's average book value of 
the insured branch's third-party liabilities; and
* * * * *

PART 7--BANK ACTIVITIES AND OPERATIONS

    10. The authority citation for part 7 is revised to read as 
follows:

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

Subpart A--Bank Powers

    11. Section 7.1008 is revised to read as follows:


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

    A national bank may assist its customers in preparing their tax 
returns, either gratuitously or for a fee.
    12. In Sec.  7.1016(a), footnote 30 is redesignated as footnote 1.

Subpart B--Corporate Practices

    13. A new Sec.  7.2024 is added to read as follows:


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

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

[[Page 6376]]

the proposed size would exceed 25 directors. The bank's notice shall 
specify the reason(s) for the increase in the size of the board of 
directors beyond the statutory limit.

Subpart D--Preemption

    14. In Sec.  7.4000:
    A. Paragraphs (a)(3)(i) and (a)(3)(ii) are added; and
    B. Paragraph (b) is revised to read as follows:


Sec.  7.4000  Visitorial powers.

    (a) * * *
    (3)(i) Unless otherwise provided by Federal law, the OCC has 
exclusive visitorial authority with respect to activities expressly 
authorized or recognized as permissible for national banks under 
Federal law or regulation, or by OCC issuance or interpretation, 
including the content of those activities and the manner in which, and 
standards whereby, those activities are conducted.
    (ii) The question of whether the OCC possesses the exclusive 
visitorial authority to assess the applicability of a state law to a 
national bank, and determine and enforce compliance with that law, 
shall be determined exclusively by Federal law, including 12 U.S.C. 484 
and this Sec.  7.4000.
    (b) Exceptions to the general rule. Under 12 U.S.C. 484, the OCC's 
exclusive visitorial powers are subject to the following exceptions:
    (1) Exceptions authorized by Federal law. National banks are 
subject to such visitorial powers as are provided by Federal law. 
Examples of laws vesting visitorial power in other governmental 
entities include laws authorizing state or other Federal officials to:
    (i) Inspect the list of shareholders, provided that the official is 
authorized to assess taxes under state authority (12 U.S.C. 62; this 
section also authorizes inspection of the shareholder list by 
shareholders and creditors of a national bank);
    (ii) Review at reasonable times and upon reasonable notice to a 
bank, the bank's records solely to ensure compliance with applicable 
state unclaimed property or escheat laws upon reasonable cause to 
believe that the bank has failed to comply with those laws (12 U.S.C. 
484(b));
    (iii) Verify payroll records for unemployment compensation purposes 
(26 U.S.C. 3505(c));
    (iv) Ascertain the correctness of Federal tax returns (26 U.S.C. 
7602);
    (v) Enforce the Fair Labor Standards Act (29 U.S.C. 211); and
    (vi) Functionally regulate certain activities, as provided under 
the Gramm-Leach-Bliley Act, Pub. L. 106-102, 113 Stat. 1338 (Nov. 12, 
1999).
    (2) Exception for courts of justice. National banks are subject to 
such visitorial powers as are vested in the courts of justice to issue 
orders or writs compelling the production of information or witnesses. 
This exception does not authorize state or other governmental entities 
to inspect, regulate, or supervise the activities of national banks, or 
to compel production of information or adherence to restrictions or 
requirements concerning the content of those activities or the manner 
in which, or standards whereby, those activities are conducted.
    (3) Exception for Congress. National banks are subject to such 
visitorial powers as shall be, or have been, exercised or directed by 
Congress or by either House thereof or by any committee of Congress or 
of either House duly authorized.
* * * * *

PART 9--FIDUCIARY ACTIVITIES OF NATIONAL BANKS

    15. The authority citation for part 9 continues to read as follows:

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

    16. In Sec.  9.18, paragraph (b)(4)(i) is revised to read as 
follows:


Sec.  9.18  Collective investment funds.

* * * * *
    (b) * * *
    (4) Valuation--(i) Frequency of valuation. A bank administering a 
collective investment fund shall determine the value of the fund's 
readily marketable assets at least once every three months. A bank 
shall determine the value of the fund's assets that are not readily 
marketable at least once a year.
* * * * *
    17. In Sec.  9.20, amend paragraph (b), by removing the term 
``240.17Ad-16'' and adding in its place the term ``240.17Ad-17.''

PART 28--INTERNATIONAL BANKING ACTIVITIES

    18. The authority citation for part 28 continues to read as 
follows:

    Authority: 12 U.S.C. 1 et seq., 24(Seventh), 93a, 161, 602, 
1818, 3101 et seq., and 3901 et seq.

Subpart B--Federal Branches and Agencies of Foreign Banks

    19. In Sec.  28.16, amend paragraph (e), by removing the term ``12 
CFR 346.7'' and adding in its place the term ``12 CFR 347.207.''

PART 34--REAL ESTATE LENDING AND APPRAISALS

Subpart A--General

    20. The authority citation for part 34 continues to read as 
follows:

    Authority: 12 U.S.C. 1 et seq., 29, 93a, 371, 1701j-3, 1828(o), 
and 3331 et seq.

    21. Section 34.3 is revised to read as follows:


Sec.  34.3  General rule.

    (a) A national bank may make, arrange, purchase, or sell loans or 
extensions of credit, or interests therein, that are secured by liens 
on, or interests in, real estate (``real estate loans''), subject to 12 
U.S.C. 1828(o) and such restrictions and requirements as the 
Comptroller of the Currency may prescribe by regulation or order.

    Dated: January 27, 2003.
John D. Hawke, Jr.,
Comptroller of the Currency.
[FR Doc. 03-2641 Filed 2-6-03; 8:45 am]
BILLING CODE 4810-33-P