[Federal Register Volume 69, Number 4 (Wednesday, January 7, 2004)]
[Proposed Rules]
[Pages 892-895]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-247]


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

DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Part 5

[Docket No. 04-02]
RIN 1557-AC11


Fundamental Change in Asset Composition of a Bank

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

ACTION: Notice of proposed rulemaking.

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

SUMMARY: The Office of the Comptroller of the Currency (OCC) is 
proposing to amend its regulations to require a national bank to obtain 
the approval of the OCC before two types of fundamental changes in the 
composition of the bank's assets: (1) Changing the composition of all, 
or substantially all, of its assets through sales or other dispositions 
or, (2) after having sold or disposed of all or substantially all of 
its assets, subsequently purchasing or otherwise acquiring assets. The 
proposal also provides that, in the second case, the OCC will apply, 
among other factors,

[[Page 893]]

the same factors as it applies to the establishment of a de novo bank. 
This new approval requirement will enable the OCC to better assess the 
bank's compliance with applicable law and safe and sound banking 
practices.

DATES: Comments must be received by March 8, 2004.

ADDRESSES: Please send your comments to: Office of the Comptroller of 
the Currency, Public Information Room, 250 E Street, SW., Mail Stop 1-
5, Washington, DC 20219, Attention: Docket No. 04-02. Due to delays in 
paper mail delivery in the Washington, DC area, commenters are 
encouraged to submit their comments by fax or e-mail. You may fax your 
comments to (202) 874-4448 or electronic mail them to 
[email protected]. Comments may be inspected and photocopied 
at the OCC's Public Information Room, 250 E Street, and SW., 
Washington, DC. You can make an appointment to inspect and photocopy 
comments by calling (202)-874-5043.

FOR FURTHER INFORMATION CONTACT: Heidi M. Thomas, Special Counsel, 
Legislative and Regulatory Activities, at (202) 874-5090; or Jan 
Kalmus, NBE/Licensing Expert, Licensing Policy and Systems, at (202) 
874-5060.

SUPPLEMENTARY INFORMATION:

I. Background

    A national bank that divests itself of assets through sale or other 
disposition to become a ``stripped'' or ``dormant'' bank charter, or, 
having ``stripped down,'' subsequently takes on new assets through 
purchases or acquisitions, raises significant supervisory concerns. 
These concerns include increased operations risk, increased 
concentration risk (especially where asset composition changes as a 
result of divestiture), and the ability of bank management to implement 
the new strategy successfully. In addition, the dormant bank being 
revived may propose to engage in activities that significantly deviate 
or are a change from the bank's original business plan or 
operations.\1\ Ill-conceived, poorly planned, or inadequately executed 
changes in a national bank's business can expose the bank to imprudent 
levels of risk, with the potential for adverse consequences for the 
bank's financial condition and, in the extreme situation, for its 
viability.\2\ Even entry into lines of business that are traditional 
for national banks may present elevated levels of risk to a particular 
bank if the bank expands too quickly from a dormant status, misjudges 
its markets, or fails to ensure that bank management and internal 
control systems keep pace with the change. Moreover, the acquisition of 
a dormant charter by a third party raises concerns about the need to 
thoroughly review the nature of the services and products that might be 
initiated by an acquiring entity.
---------------------------------------------------------------------------

    \1\ The OCC defines a significant deviation from a bank's 
business plan or operations to include a material deviation or 
material change in the bank's: (1) Projected growth, such as 
planning significant growth in a product or service; (2) strategy or 
philosophy, such as significantly reducing the emphasis of its 
targeted niche (for example, small business lending) in favor of 
significant expansion of another area (for example, funding large 
commercial real estate projects); (3) lines of business, such as 
initiating a new program for subprime lending; (4) funding sources, 
such as shifting from core deposits to brokered deposits; (5) scope 
of activities, such as establishing transactional Internet banking 
or entering new, untested markets; (6) stock benefit plans for de 
novo banks, including the introduction of plans that were not 
previously reviewed during the chartering process with no objection 
by the OCC; and (7) relationships with a parent company or 
affiliate, such as a shift to significant reliance on a parent or 
affiliate as a funding source or provider of back office support. 
See OCC's Significant Deviation Policy, as posted as a supplemental 
policy document to the Charters Booklet of the Comptroller's 
Licensing Manual, http://www.occ.treas.gov/corpbook/forms/SigDevPolicy8-03.pdf.
    \2\ In the past few years, for example, some national banks have 
materially changed the general character of their business by 
shifting to a concentration of subprime loans or relying on 
technology-based product and service delivery systems. In some 
cases, the safety and soundness of these banks was adversely 
affected because bank management did not fully understand or 
effectively control the risks associated with the changes.
---------------------------------------------------------------------------

    Our current regulations do not require the approval of the OCC 
before a bank ``strips down'' to a dormant bank charter, nor do they 
require our approval when a dormant bank increases its asset size to 
engage again in the business of banking. To better assess the bank's 
compliance with applicable law and safe and sound banking practices, we 
are proposing to amend our regulations to require prior OCC approval 
for two types of fundamental changes in the composition of a national 
bank's assets: (1) A change in composition of all or substantially all 
of a bank's assets resulting from a sale or other disposition of the 
bank's assets, or (2) an increase in the asset size of a national bank 
that had previously ``stripped down'' in a transaction described in 
item (1), regardless of existing or new ownership.
    In addition, because a ``stripped'' or dormant charter that 
subsequently increases in asset size fundamentally resembles a new 
entrant obtaining a new charter, transactions described in item (2) 
will be evaluated under the same standards that the OCC applies to a de 
novo national bank charter proposal.

II. Description of the Proposal

    Approval requirements. This proposal would add a new Sec.  5.53 to 
subpart D of 12 CFR part 5. Proposed Sec.  5.53(c) requires that a 
national bank obtain the OCC's prior written approval before changing 
the composition of all, or substantially all, of its assets through (1) 
sales or other disposition or, (2) after having sold or disposed of all 
or substantially all of its assets, through purchases or other 
acquisitions. A bank that has disposed of all or substantially all of 
its assets before the effective date of this regulation must comply 
with the prior approval requirement if it purchases or otherwise 
acquires or takes on new assets after the regulation takes effect. 
Proposed Sec.  5.53(d) specifies that this approval requirement does 
not apply to a change in composition of all, or substantially all, of a 
bank's assets that the bank undertakes in response to direction from 
the OCC (e.g., in an enforcement action pursuant to 12 U.S.C. 1818) or 
pursuant to a statute or regulation that requires OCC review or 
approval (e.g., a voluntary liquidation pursuant to 12 U.S.C. 181 and 
12 CFR 5.48).
    We note that the acquisition of deposits by a dormant bank raises 
the presumption that the bank intends to use the deposits to fund an 
increase in assets, which would trigger this proposal's application 
requirement. A dormant bank should not gather deposits to fund its 
asset acquisition without first seeking the approval of the OCC 
pursuant to this proposal.
    In reviewing applications filed under Sec.  5.53, we will consider 
the purpose of the transaction, its impact on the safety and soundness 
of the bank, and any effect on the bank's customers. Relevant to our 
consideration of an application to dispose of all or substantially all 
of the bank's assets will be the reasons for the proposed decrease in 
asset size and future plans for the bank charter (including any plans 
for liquidation), future asset growth, future plans to market or sell 
the charter, and future business plans, as applicable. Depending on the 
circumstances presented in the bank's application, our approval of the 
bank's disposition of all or substantially all of its assets will 
address how long the dormant charter may continue, and could include a 
requirement that the bank submit a plan of liquidation.
    In reviewing an application in connection with an increase in the 
assets of a stripped charter, we will consider the bank's future 
business plan and whether this plan involves activities that 
significantly deviate from

[[Page 894]]

the bank's original business plan or operations prior to its stripped 
status. We also will consider the applicant's staffing plans, plans for 
oversight of the activity within the bank, and accountability to the 
board of directors, along with the applicant's plans to acquire, 
develop, or modify internal control systems adequate to monitor the new 
activity.
    This proposal also provides that, where a national bank has sold or 
otherwise disposed of its assets in a transaction requiring approval 
pursuant this new Sec.  5.53, our review of any subsequent growth in 
assets pursuant to this proposal will include, among other things, the 
factors governing the organization of a de novo bank under 12 CFR 5.20. 
In evaluating an application to establish a de novo bank, we consider 
whether the proposed bank: (1) Has organizers who are familiar with 
national banking laws and regulations; (2) has competent management, 
including a board of directors, with ability and experience relevant to 
the types of services to be provided; (3) Has capital that is 
sufficient to support the projected volume and type of business; (4) 
Can reasonably be expected to achieve and maintain profitability; and 
(5) Will be operated in a safe and sound manner. In addition, Sec.  
5.20(f) provides that we also may consider additional factors listed in 
section 6 of the Federal Deposit Insurance Act, 12 U.S.C. 1816, 
including the risk to the Federal deposit insurance fund, and whether 
the proposed bank's corporate powers are consistent with the purposes 
of the Federal Deposit Insurance Act and the National Bank Act.
    Reference to ``business plan.'' This proposal makes a conforming 
change to Sec.  5.20 to provide that any use of the term ``operating 
plan'' or ``operating plans'' will be changed to ``business plan or 
operating plan'' or ``business plans or operating plans,'' as 
appropriate. Currently, Sec.  5.20 only uses the term ``operating 
plan'' when referring to the document that describes a national bank's 
management goals, earnings objectives, and lines of business. However, 
the banking industry, as well as the OCC and the other Federal 
financial institution agencies in policy statements, applications, and 
internal documents, more commonly use the term ``business plan.'' The 
OCC has made this change to avoid any confusion about whether a 
substantive difference between the two terms is intended. Thus, the OCC 
intends that both terms may be used interchangeably.

III. Comment Solicitation

    The OCC requests comment on all aspects of this proposal, including 
the specific issues that follow.

Community Bank Comment Request

    The OCC seeks comment 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 comment on the impact 
of the proposal on community banks' current resources and available 
personnel with the requisite expertise, and whether the goals of the 
proposal could be achieved, for community banks, through an alternative 
approach.

Solicitation of Comments on Use of Plain Language

    Section 722 of the Gramm-Leach-Bliley Act, Public Law 106-102, 
section 722, 113 Stat. 1338, 1471 (Nov. 12, 1999), 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?

IV. Regulatory Analysis

A. Regulatory Flexibility Act

    Pursuant to section 605(b) of the Regulatory Flexibility Act, the 
Comptroller of the Currency certifies that this proposal will not have 
a significant economic impact on a substantial number of small 
entities.

B. Unfunded Mandates Reform Act of 1995

    Section 202 of the Unfunded Mandates Reform Act of 1995, Public Law 
104-4 (Unfunded Mandates Act) requires that an agency prepare a 
budgetary impact statement before promulgating a rule that includes a 
Federal mandate that may result in 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 
this proposal will not result in expenditures by State, local, or 
tribal governments or by the private sector of $100 million or more. 
Accordingly, the OCC has not prepared a budgetary impact statement or 
specifically addressed the regulatory alternatives considered.

C. Executive Order 12866

    The Comptroller of the Currency has determined that this rule does 
not constitute a ``significant regulatory action'' for the purposes of 
Executive Order 12866.

D. Paperwork Reduction Act of 1995

    In accordance with the requirements of the Paperwork Reduction Act 
of 1995, 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 contained in this notice of 
proposed rulemaking have been submitted to OMB for review and approval 
under OMB Control Number 1557-0014.
    This proposal is expected to increase annual paperwork burden for 
respondents by adding certain application requirements. The information 
collection requirements are contained in Sec.  5.53. Section 5.53 
requires a national bank to submit an application to the OCC before 
changing the composition of all, or substantially all, of its assets 
through sales or other dispositions or, having sold or disposed of all 
or substantially all of its assets, through subsequent purchases or 
other acquisitions. The time per response to complete an application is 
estimated to be five hours and the number of respondents is estimated 
to be five national banks. The likely respondents are national banks.
    Estimated number of respondents: 5.
    Estimated number of responses: 5.
    Estimated total burden hours per response: 5 hours.
    Estimated total annual burden hours: 25 hours.
    The OCC invites comments on: (1) Whether the collection of 
information contained in the proposed rulemaking is

[[Page 895]]

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 should be sent to: John Ference, Clearance Officer, Office 
of the Comptroller of the Currency, Legislative and Regulatory 
Activities Division, Attention: 1557-0194, 250 E Street, SW., Mailstop 
8-4, Washington, DC 20219. Due to delays in paper mail in the 
Washington area, commenters are encouraged to submit their comments 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].

List of Subjects in 12 CFR Part 5

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

Authority and Issuance

    For reasons set forth in the preamble, the OCC proposes to amend 
part 5 of chapter I of title 12 of the Code of Federal Regulations as 
follows:

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

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

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

    2. In Sec.  5.20, revise all references to ``operating plan'' or 
``operating plans'' to read ``business plan or operating plan'' or 
``business plans or operating plans,'' as appropriate.
    3. In Subpart D--Other Changes in Activities and Operations, a new 
Sec.  5.53 is added to read as follows:


Sec.  5.53  Change in asset composition.

    (a) Authority. 12 U.S.C. 93a, 1818.
    (b) Scope. This section requires a national bank to obtain the 
approval of the OCC before changing the composition of all, or 
substantially all, of its assets through sales or other dispositions 
or, having sold or disposed of all or substantially all of its assets, 
through subsequent purchases or other acquisitions.
    (c) Approval requirement. (1) A national bank must file an 
application and obtain the prior written approval of the OCC before 
changing the composition of all, or substantially all, of its assets 
(i) through sales or other dispositions or, (ii) having sold or 
disposed of all or substantially all of its assets, through subsequent 
purchases or other acquisitions.
    (2) In determining whether to approve an application under 
paragraph (c)(1) of this section, the OCC will consider the purpose of 
the transaction, its impact on the safety and soundness of the bank, 
and any effect on the bank's customers, and may deny the application if 
the transaction would have a negative effect in any such respect. Where 
a national bank has sold or otherwise disposed of all or substantially 
all of its assets in a transaction requiring approval under paragraph 
(c)(1)(i) of this section, the OCC's review of any subsequent change in 
asset composition through purchase or other acquisition will include, 
in addition to the foregoing factors, the factors governing the 
organization of a bank under Sec.  5.20.
    (d) Exception. This section does not apply to a change in 
composition of all, or substantially all, of a bank's assets that the 
bank undertakes in response to direction from the OCC (e.g., in an 
enforcement action pursuant to 12 U.S.C. 1818) or pursuant to a statute 
or regulation that requires OCC review or approval (e.g., a voluntary 
liquidation pursuant to 12 U.S.C. 181 and 12 CFR 5.48).

    Dated: December 30, 2003.
John D. Hawke, Jr.,
Comptroller of the Currency.
[FR Doc. 04-247 Filed 1-6-04; 8:45 am]
BILLING CODE 4810-33-P