[Federal Register Volume 73, Number 80 (Thursday, April 24, 2008)]
[Rules and Regulations]
[Pages 22216-22252]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-8443]
[[Page 22215]]
-----------------------------------------------------------------------
Part II
Department of the Treasury
-----------------------------------------------------------------------
Office of the Comptroller of the Currency
-----------------------------------------------------------------------
12 CFR Parts 1, 2, 3 et al.
Regulatory Review Amendments; Final Rule
Federal Register / Vol. 73, No. 80 / Thursday, April 24, 2008 / Rules
and Regulations
[[Page 22216]]
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
12 CFR Parts 1, 2, 3, 4, 5, 7, 9, 10, 11, 12, 16, 19, 21, 22, 23,
24, 26, 27, 28, 31, 32, 34, 37, and 40
[Docket ID OCC-2008-0004]
RIN 1557-AC79
Regulatory Review Amendments
AGENCY: Office of the Comptroller of the Currency, Treasury.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: The Office of the Comptroller of the Currency (OCC) is
revising its rules in order to reduce unnecessary regulatory burden,
update certain rules, and make certain technical, clarifying, and
conforming changes to its regulations. These revisions result from the
OCC's most recent review of its regulations to ensure that they
effectively advance our mission to promote the safety and soundness of
the national banking system, ensure that national banks can compete
efficiently in the financial services marketplace, and foster fairness
and integrity in national banks' dealings with their customers, without
imposing regulatory burden unnecessary to the achievement of those
objectives. The revisions also further the purposes of the Economic
Growth and Regulatory Paperwork Reduction Act of 1996, which, among
other provisions, directs the OCC to identify and, if appropriate,
eliminate regulations that are outdated, unnecessary, or unduly
burdensome.
DATES: This rule is effective on July 1, 2008. National banks, and
foreign banks taking actions with respect to Federal branches and
agencies, may elect to comply voluntarily with any applicable provision
of the rule at any time prior to this effective date.
FOR FURTHER INFORMATION CONTACT: Stuart E. Feldstein, Assistant
Director, Legislative and Regulatory Activities, (202) 874-5090 or
Heidi M. Thomas, Special Counsel, Legislative and Regulatory
Activities, (202) 874-5090, Office of the Comptroller of the Currency,
250 E Street, SW., Washington, DC 20219. In addition, you may also
contact the following OCC staff for further information regarding
specific amendments: licensing/corporate applications-related
amendments: Colleen Coughlin, Senior Licensing Analyst, Licensing
Activities Division, (202) 874-4465, Jan Kalmus, NBE-Senior Licensing
Analyst, Licensing Activities Division, 202-874-4608, and Yoo Jin Na,
Licensing Analyst, Licensing Activities Division, 202-874-4604;
electronic banking-related amendments: Aida Plaza Carter, Director,
Bank Information Technology, (202) 874-4593, Office of the Comptroller
of the Currency, 250 E Street, SW., Washington, DC 20219.
SUPPLEMENTARY INFORMATION:
Introduction and Summary of Proposed Rule
On July 3, 2007, the OCC published a notice of proposed rulemaking
\1\ to amend a variety of our regulations to reduce or eliminate
unnecessary regulatory burden, incorporate prior OCC interpretive
opinions, harmonize our rules with those issued by other Federal
agencies, make technical and conforming amendments to improve clarity
and consistency, and conform our rules with the statutory changes made
by the Financial Services Regulatory Relief Act of 2006 (FSRRA) \2\ and
section 8 of the 2004 District of Columbia Omnibus Authorization Act
(DC Bank Act).\3\
---------------------------------------------------------------------------
\1\ 72 FR 36550.
\2\ Public Law 109-351, 120 Stat. 1966 (Oct. 13, 2006).
\3\ Public Law 108-386, 118 Stat. 2228 (2004). The DC Bank Act
took effect on October 30, 2004.
---------------------------------------------------------------------------
This rulemaking results from our most recent review of our
regulations to identify opportunities to streamline our rules or
regulatory processes. The rulemaking also furthers the purposes of
section 2222 of the Economic Growth and Regulatory Paperwork Reduction
Act of 1996 (EGRPRA),\4\ which directed the OCC and the other member
agencies of the Federal Financial Institutions Examination Council to
identify regulations that are outdated, unnecessary, or unduly
burdensome, and to eliminate them if appropriate.\5\
---------------------------------------------------------------------------
\4\ See EGRPRA, Public Law 104-208, Sec. 2222, 110 Stat. 3009-
394, 3009-314-315 (Sept. 30, 1996), codified at 12 U.S.C. 3311.
\5\ Pursuant to EGRPRA's regulatory review requirement, the OCC,
together with the Board of Governors of the Federal Reserve System
(Federal Reserve Board), the Federal Deposit Insurance Corporation
(FDIC), and the Office of Thrift Supervision (OTS), published six
notices seeking comment on ways to reduce unnecessary regulatory
burden and has conducted outreach meetings with bankers and consumer
groups. On November 1, 2007, the Federal Financial Institutions
Examination Council, which includes these agencies and the National
Credit Union Administration, published a Joint Report to Congress on
this regulatory review process, as required by EGRPRA. 72 FR 62036
(Nov. 1, 2007). For additional information about the agencies'
EGRPRA review, see http://www.EGRPRA.gov.
---------------------------------------------------------------------------
The OCC received 8 comment letters in response to this proposal.
Two of the commenters, a large bank and a bank trade association,
expressed support for all, or almost all, of the proposed changes.
Another commenter, also a bank trade association, commended the OCC for
proposing ``modest changes'' and expressed its hope that the OCC would
seek to make more significant regulatory improvements in the future.
One commenter, an individual, opposed any lessening of regulatory
supervision of national banks. Six of the 8 comment letters focused on
specific provisions of the proposal--those relating to part 1,
investment securities (Sec. 1.1), operating subsidiaries (Sec.
5.34(e)), financial guarantees (Sec. 7.1017), sales of nonconvertible
debt (Sec. 16.6), and adjustable rate mortgages (Sec. 34.22). These
comments, and the OCC's response to them, are discussed where relevant
in the section-by-section description of the final rule.
Commenters suggested changes to only a few of our proposed
amendments and the OCC is adopting the remaining amendments in final
form as proposed, with minor clarifying or technical changes to a few
provisions, as noted in the section-by-section description.
The most significant of the amendments made by this final rule
include the following:
Amendments to part 1, which pertains to investment
securities, to provide the OCC with additional flexibility in
administering part 1 as investment products evolve, codify existing
precedent, and clarify applicable standards.
Amendments to part 5, which governs national banks'
corporate activities, to:
[cir] Codify prior OCC interpretive opinions recognizing that
national bank operating subsidiaries may take the form of limited
partnerships;
[cir] Update the standards the OCC uses to determine when an entity
qualifies as an operating subsidiary;
[cir] Clarify when a national bank may file an after-the-fact
notice to establish or acquire an operating subsidiary and when the
bank must file an application; and
[cir] Expand the list of operating subsidiary activities eligible
for after-the-fact notice.
Amendments to part 5 to eliminate multiple, repetitive
applications when a national bank opens an intermittent branch to
provide branch banking services for one or more limited periods of time
each year at a specified site during a specified recurring event, such
as during a college registration period or a State fair.
Amendments to part 7, which pertains to national banks'
activities and operations, to provide national banks with greater
flexibility to facilitate customers' financial transactions by
[[Page 22217]]
issuing financial guarantees, provided the financial guarantees are
reasonably ascertainable in amount and consistent with applicable law.
Amendments to part 7, to codify OCC electronic banking
precedent and adapt the OCC's rules to certain current developments.
Amendments to part 16, the OCC's securities offering
disclosure rules, to eliminate unnecessary filing requirements and
clarify the exemptions to the OCC's registration requirements for
certain transactions.
Amendments to part 34, which pertains to real estate
lending and appraisals, to provide national banks with additional
flexibility in selecting indices from which adjustments to interest
rates in adjustable rate mortgages (ARMs) are derived. The final rule
also includes certain technical and conforming amendments to our rules,
including:
Changes to part 4 (the OCC's organizational rules) and
part 5 to reflect the OCC's most current organizational structure.
Changes to conform the OCC's regulations--at parts 5, 23
(leasing), 31 (extensions of credit to insiders and transactions with
affiliates), and 32 (lending limits)--to Regulation W issued by the
Federal Reserve Board,\6\ which governs transactions between Federal
Reserve member banks and their affiliates and implements sections 23A
and 23B of the Federal Reserve Act.\7\
---------------------------------------------------------------------------
\6\ 12 CFR part 223.
\7\ 12 U.S.C. 371c and 371c-1.
---------------------------------------------------------------------------
Amendments to part 9 (fiduciary activities of national
banks) and part 12 (Securities Exchange Act disclosure rules) to
reflect changes in certain regulations adopted by the Securities and
Exchange Commission (SEC).
Amendments to part 31 to remove an obsolete interpretation
relating to loans to third parties secured by both affiliate-issued
securities and nonaffiliate collateral.
Amendments to parts 1, 2, 3, 5, 10, 11, 16, 19, 21, 22,
26, 27, 28, and 40 to implement the DC Bank Act, which removed the OCC
as the appropriate Federal banking agency for financial institutions
established under the Code of Law for the District of Columbia (DC
banks) and substituted the FDIC or the Federal Reserve Board, as
appropriate to the bank's charter type.\8\
---------------------------------------------------------------------------
\8\ Under the DC Bank Act, the FDIC is the appropriate Federal
banking agency for an insured bank chartered under District of
Columbia law that is not a member of the Federal Reserve System, and
the Federal Reserve Board is the appropriate Federal banking agency
for a bank chartered under District of Columbia law that is a member
of the Federal Reserve System, whether or not insured. Thus, while
DC banks are no longer covered by these OCC regulations, they are
subject to comparable regulatory regimes administered by the FDIC or
the Federal Reserve Board.
---------------------------------------------------------------------------
Amendments to conform our regulations to the changes made
by the FSRRA, including:
[cir] Amendments to part 5 that simplify a national bank's
authority to pay a dividend and that remove the geographic limits with
respect to bank service companies.
[cir] Amendments to the OCC's Change in Bank Control Act (CBCA)
regulation, Sec. 5.50, that: (1) Require a CBCA notice to include
information on the future prospects of the national bank to be
acquired, (2) permit the OCC to consider the future prospects of the
bank as a basis to issue a notice of disapproval, and (3) permit the
OCC to impose conditions on its action not to disapprove a CBCA notice.
[cir] Amendments to part 7 that permit national banks to choose
whether to provide for cumulative voting in the election of their
directors.
[cir] Amendments to part 19 that reflect changes to the OCC's
enforcement authority with respect to institution-affiliated parties.
[cir] Amendments to part 24 (community development investments)
that implement section 305 of the FSRRA.
Description of Comments Received and Final Rule
Part 1--Investment Securities
Part 1 of our regulations (12 CFR part 1) prescribes the standards
under which a national bank may purchase, sell, deal in, underwrite,
and hold securities, consistent with the National Bank Act (12 U.S.C.
24 (Seventh)) and safe and sound banking practices. This final rule
clarifies the applicable standards by codifying existing precedent and
provides the OCC with additional flexibility to administer part 1 as
investment products evolve.
Authority, Purpose, and Scope (Sec. 1.1)
National banking law explicitly authorizes the OCC to determine the
types of investment securities a national bank may purchase.\9\ Part 1
currently provides a general definition of the term ``investment
security,'' describes several categories or types of permissible
investment securities, and prescribes such limitations as apply to a
national bank's investment in each type. To complement these specific
categories, we proposed a new provision to recognize that the OCC also
may determine, on a case-by-case basis, that a national bank may
acquire an investment security that is not specifically listed in the
regulation, provided the OCC determines that bank's investment is
consistent with the character of investment securities permitted under
section 24 (Seventh) and with safe and sound banking practices. We
received no substantive comments on this provision and, accordingly, it
is adopted essentially as proposed, with a minor revision clarifying
that investments found by the OCC to be permissible under Section
1.1(d) constitute eligible investments under 12 U.S.C. 24.
---------------------------------------------------------------------------
\9\ 12 U.S.C. 24 (Seventh).
---------------------------------------------------------------------------
In making a determination under amended Sec. 1.1, the OCC will
consider all relevant factors, including an evaluation of the risk
characteristics of the particular instrument compared to those of
investments that the OCC has previously authorized, as well as the
bank's ability effectively to manage such risks. In approving such an
investment, the OCC may impose such limits or conditions as are
appropriate under the circumstances.
In addition, this final rule removes the now-obsolete reference to
DC banks from the scope of part 1 (Sec. 1.1(c)), thus eliminating the
applicability of part 1 to DC banks.
One commenter requested that the OCC continuously update the
electronic version of our annual publication of permissible activities
for national banks, ``Significant Legal, Licensing, and Community
Development Precedents,'' \10\ to add precedents issued pursuant to
Sec. 1.1, as well as other activities, more frequently than once a
year. We note, however, that, in addition to this annual, cumulative
summary of significant precedents, we also publish the full text of
these precedents in Interpretations and Actions, consistent with the
OCC's policy of providing public notice of significant legal opinions
and other important precedents. Interpretations and Actions is
published monthly and is available both in printed form and on the
OCC's internet site at http://www.occ.treas.gov. We believe this method
of publicizing our precedent adequately serves the purpose of providing
prompt notice of our opinions and decisions to national banks and the
public and, accordingly, are making no changes at this time to our
schedule of updating our ``Significant Legal,
[[Page 22218]]
Licensing, and Community Development Precedents'' publication.
---------------------------------------------------------------------------
\10\ Our most recent Significant Legal, Licensing, and Community
Development Precedents document, dated June 2007, is available on
our Web site at http://www.occ.gov/sigpre.pdf.
---------------------------------------------------------------------------
Pooled Investments (Sec. 1.3(h))
Current Sec. 1.3(h) allows a national bank to purchase and sell
shares in an investment company provided that the portfolio of the
investment company is limited to investment securities authorized in
part 1. However, as explained in the preamble to the proposed rule,
markets increasingly are offering securitized, pooled investment
vehicles that hold bank-permissible assets not limited to investment
securities. For example, a bank may seek to purchase investment grade
shares in an investment company where the underlying assets are loans.
In that case, the bank's risk exposure may be comparable to its
exposure when it purchases shares of identically rated and marketable
pooled vehicles composed of part 1 investment securities.
The proposal amended Sec. 1.3(h) to codify OCC precedents that
permit a national bank to purchase shares in investment vehicles where
the underlying assets are not limited to investment securities
permissible under part 1, so long as the underlying assets otherwise
are bank permissible.\11\ Specifically, the proposal deleted the phrase
``under this part'' both times it appears in Sec. 1.3(h) and revised
the heading to read ``Pooled investments'' to clarify that banks have
the authority to invest in entities holding pooled assets, provided
that the underlying assets are those that a national bank may purchase
and sell for its own account. The proposal also provided that pooled
investments made pursuant to Sec. 1.3(h) must meet certain credit
quality and marketability standards generally applicable to investment
securities. We received no comments on this amendment and are adopting
it in final form with the addition of the following clarifying
language.
---------------------------------------------------------------------------
\11\ See, e.g., Interpretive Letter No. 911 (June 4, 2001)
(national bank may purchase interests in loan fund either pursuant
to lending authority or as securities on the basis of reliable
estimates of the issuer).
---------------------------------------------------------------------------
Specifically, the final version of Sec. 1.3(h) includes an
explicit reminder that pooled investments under this section must
comply with Sec. 1.5 and conform with applicable published OCC
precedent.\12\ Under, 12 CFR 1.5, when conducting investment activities
described in Sec. 1.3, a national bank must adhere to safe and sound
banking practices and the specific requirements of part 1. Thus, the
bank must consider, as appropriate, the interest rate, credit,
liquidity, price, foreign exchange, transaction, compliance, strategic,
and reputation risks presented by a proposed activity; the particular
activities undertaken by the bank must be appropriate for that bank;
and the bank must conclude that the obligor can satisfy its
obligations.
---------------------------------------------------------------------------
\12\ See, e.g. OCC Interpretive Letters No. 779 (April 3, 1997)
and 911 (June 4, 2001). See also OCC BC 181 (Rev), ``Purchases of
Loans In Whole or In Part--Participations'' (Aug. 2, 1984), and
''Interagency Policy Statement on Investment Securities,'' 63 FR
20191 (April 23, 1998).
---------------------------------------------------------------------------
Securities Held Based on Estimates of Obligor's Performance (Sec.
1.3(i))
Part 1 defines an investment security in terms of both asset
quality and marketability.\13\ Section 1.2(f) further defines a
``marketable'' security as one that is: (1) Registered under the
Securities Act of 1933 (Securities Act),\14\ (2) a municipal revenue
bond exempt from registration under the Securities Act, (3) offered or
sold pursuant to Securities and Exchange Commission (SEC) Rule 144A
\15\ and rated investment grade or the credit equivalent, or (4) ``can
be sold with reasonable promptness at a price that corresponds
reasonably to its fair value.'' \16\
---------------------------------------------------------------------------
\13\ 12 CFR 1.2(e).
\14\ 15 U.S.C. 77a, et. seq.
\15\ 17 CFR 230.144A.
\16\ 12 CFR 1.2(f).
---------------------------------------------------------------------------
Section 1.3(i), in contrast, articulates different asset quality
and marketability standards. That section permits a national bank to
treat a debt security as an investment security ``if the bank
concludes, on the basis of estimates that the bank reasonably believes
are reliable, that the obligor will be able to satisfy its obligations
under that security,'' and the bank believes that the security may be
sold with reasonable promptness at a price that corresponds reasonably
to its fair value.\17\ The standard of marketability in the ``reliable
estimates'' provision differs from, and is more limited than, the
marketability definition in Sec. 1.2(f) in that it does not contain
all of the elements of the definition in Sec. 1.2(f). We proposed to
harmonize these marketability standards by amending Sec. 1.3 to
reflect the same standard as in Sec. 1.2. We received no comments on
this proposal, and therefore adopt it as proposed.
---------------------------------------------------------------------------
\17\ See 12 CFR 1.3(i)(1).
---------------------------------------------------------------------------
Part 2--Sales of Credit Life Insurance
Part 2 sets forth the principles and standards that apply to a
national bank's provision of credit life insurance and the limitations
that apply to the receipt of income from those sales by certain
individuals and entities associated with the bank. This final rule
removes DC banks from the definition of ``bank'' set forth in Sec.
2.2(a) to conform to the DC Bank Act.
Part 3--Minimum Capital Ratios; Issuance of Directives
Part 3 establishes the minimum capital ratios that apply to
national banks, sets out in appendices the rules governing the
computation of those ratios, and provides procedures for the issuance
of individual minimum capital requirements and capital directives. The
current rule provides that local currency claims on, or unconditionally
guaranteed by, central governments that are not members of the
Organization for Economic Development (OECD) receive a zero percent
risk weight to the extent the bank has local currency liabilities in
that country. To align the rule more closely with foreign exchange
risk, we proposed to amend Appendix A to part 3 by removing the current
restriction on the location of the offsetting liability, thus providing
a zero percent risk weight to the extent the bank has liabilities in
that currency. We received no comments on this amendment and are
adopting the changes as proposed, with a conforming technical
amendment.
This final rule also removes DC banks from the definition of
``bank'' in Sec. 3.2(b). Pursuant to the DC Bank Act, DC banks now
will be subject to the regulatory capital requirements prescribed
either by the FDIC or the Federal Reserve Board, depending on whether
the DC bank is a member of the Federal Reserve System.
Part 4--Organization and Functions, Availability and Release of
Information, Contracting Outreach Program, Post-Employment Restrictions
for Senior Examiners
The proposed rule updated Sec. 4.4 to reflect that the Large Bank
Supervision Department supervises the largest national banks under the
OCC's current organizational structure. It also amended Sec. 4.5 by
updating OCC district office addresses and the geographical coverage of
those offices resulting from the OCC's district office realignments. We
received no comments on these changes and are adopting the changes as
proposed, with additional updates to the geographical coverage of OCC
district offices.
Part 5--Rules, Policies, and Procedures for Corporate Activities
Part 5 establishes rules, policies, and procedures for national
banks' corporate activities and corporate structure. It also contains
procedural requirements for
[[Page 22219]]
the filing of corporate applications, including the circumstances under
which applications or notices are required, and the required content of
the filing. A description of our amendments to part 5 is set forth
below, with substantive amendments presented first, followed by
technical or conforming amendments.
Fiduciary Powers (Sec. 5.26)
The OCC's current rule requires a national bank filing an
application for approval to offer fiduciary services to provide an
opinion of counsel that the proposed fiduciary activities do not
violate applicable Federal or State law. However, an opinion of counsel
is not required for expedited applications filed by ``eligible banks.''
\18\ Because our experience has been that an opinion of counsel often
is not necessary to enable the OCC to conclude that the proposed
fiduciary activities are permissible, we proposed to eliminate this
requirement for all applications to exercise fiduciary activities,
unless the OCC specifically requests an opinion. We received no
comments on this amendment and adopt it as proposed. We note that the
removal of this requirement does not relieve the bank of its
responsibility to ensure that its fiduciary activities comport with
applicable Federal and State law.
---------------------------------------------------------------------------
\18\ An ``eligible bank'' is a national bank that is well
capitalized, has a composite rating of 1 or 2 under the Uniform
Financial Institutions Rating System, has a CRA rating of
``Outstanding'' or ``Satisfactory,'' and is not subject to a cease
and desist order, consent order, formal written agreement, or prompt
corrective action directive. 12 CFR 5.3(g).
---------------------------------------------------------------------------
Establishment, Acquisition, and Relocation of a Branch--Intermittent
Branches (Sec. 5.30)
Section 5.30 describes the procedures and standards governing OCC
review and approval of a national bank's application to establish a new
branch or to relocate a branch. As the preamble to our proposed rule
noted, it is unclear under the current regulation whether a bank must
refile an application under Sec. 5.30 each year to operate branches on
a recurring basis at the same location or event (such as an annual
State fair or at a specific college campus during registration periods)
even where all of the facts relevant to the branch application remain
the same as those previously approved. As a result, some banks have
filed for approval of such branches each time the bank seeks to operate
the branch.
To reduce the regulatory burden associated with these multiple
filings, we proposed to eliminate subsequent applications for
recurring, temporary branches that serve the same site at regular
intervals. We received no comments on this amendment, and we adopt it
as proposed.
Specifically, the final rule adds to Sec. 5.30 the new term,
``intermittent branch,'' which is defined to mean a branch that
provides branch banking services, where legally permissible under the
national bank branching statute,\19\ for one or more limited periods of
time each year at a specified site during a specified recurring event.
Under this final rule, if the OCC grants a national bank approval to
operate an intermittent branch, no further application or notice to the
OCC is required. This amendment does not affect the legal requirements
prescribing the conditions under which a national bank may establish or
retain branches pursuant to the national bank branching statute at 12
U.S.C. 36.
---------------------------------------------------------------------------
\19\ 12 U.S.C. 36.
---------------------------------------------------------------------------
Operating Subsidiaries (Sec. 5.34)
Section 5.34 of the OCC's rules authorizes national banks to
establish or acquire operating subsidiaries as a means through which to
exercise their powers to conduct the business of banking. The final
rule makes several changes to Sec. 5.34 to update the standards for
determining whether a subsidiary is controlled by the parent bank in
light of changes in accounting standards, to clarify the type of entity
that may qualify as an operating subsidiary, and to modify the
standards under which transactions to establish or acquire operating
subsidiaries qualify for after-the-fact notice procedures rather than
the filing of an application. None of the proposed revisions alters the
fundamental characteristics of an operating subsidiary, that is, that
an operating subsidiary may conduct only bank-permissible activities
and conducts those activities pursuant to the same ``authorization,
terms and conditions'' as apply to the parent bank.\20\
---------------------------------------------------------------------------
\20\ 12 CFR 5.34(e).
---------------------------------------------------------------------------
Qualifying standards. Under current Sec. 5.34(e)(2), an entity
qualifies as an operating subsidiary only if the parent bank
``controls'' the subsidiary. The rule provides for two alternative
means of establishing control. First, a national bank controls an
operating subsidiary if the bank owns more than 50 percent of the
voting interest (or similar type of controlling interest) in the
subsidiary. Second, control may be established if the parent bank
``otherwise controls'' the operating subsidiary and no other party
controls more than 50 percent of the voting interest (or similar type
of controlling interest) in the subsidiary.
The proposal would have revised this standard to provide that a
national bank may invest in an operating subsidiary if it satisfies the
following requirements: (1) The bank has the ability to control the
management and operations of the subsidiary by owning more than 50
percent of the voting interest in the subsidiary, or otherwise; and (2)
the operating subsidiary is consolidated with the bank under Generally
Accepted Accounting Principles (GAAP). The OCC received two comments
that addressed this issue. One commenter asserted that the proposal was
too broad and that there are many structures that have legitimate
business purposes where the bank controls a majority of the voting and
operational rights but other passive or non-controlling investors have
economic rights. Another commenter noted that the requirement to
consolidate under GAAP would narrow the circumstances under which
national banks may establish operating subsidiaries.
The OCC continues to believe that these changes are appropriate to
clarify that the requirement that a national bank control its operating
subsidiary encompasses the bank's control of the business activities of
the subsidiary to appropriately reflect the status of the operating
subsidiary as a vehicle used by the bank to exercise its powers to
engage in the business of banking, the operations of which are
consolidated with those of the bank as an accounting matter. Therefore,
the OCC has adopted the rule essentially as proposed, with a few
revisions to resolve ambiguity in the proposed text.
As noted above, the first element of the proposed rule required the
bank to have the ability to control the management and operations of
the subsidiary by owning more than 50 percent of the voting interest in
the subsidiary, or otherwise. The proposal could have been read to mean
that a 50 percent voting interest in the subsidiary, without more,
would have satisfied that criterion. The final rule revises the
proposal to make clear that the standard has three elements: (i) The
parent bank has the ability to control the management and operations of
the subsidiary; (ii) the bank owns and controls more than 50 percent of
the voting (or similar type of controlling) interest of the operating
subsidiary, or the parent bank otherwise controls the operating
subsidiary and no other party controls more than 50 percent of the
voting (or similar type of controlling) interest of the operating
subsidiary; and (iii) the operating subsidiary is
[[Page 22220]]
consolidated with the bank under GAAP.\21\ These changes help to ensure
that in all circumstances a parent bank must have true operating
control over an entity for it to be an operating subsidiary.
---------------------------------------------------------------------------
\21\ The OCC will address on a case-by-case basis the
appropriate treatment of a national bank's investment in a
subsidiary in which the bank satisfies (i) and (ii), but not (iii)
because the subsidiary is not consolidated with the bank under GAAP.
---------------------------------------------------------------------------
Two commenters also suggested grandfathering operating subsidiaries
that were established prior to these changes. These commenters noted
that to do otherwise could disrupt existing arrangements and impose
administrative burdens on banks to restructure their subsidiaries to
comply with the new rule.
The final rule adds a grandfathering provision responsive to these
concerns. The provision makes clear that, unless otherwise notified by
the OCC with respect to a particular operating subsidiary, an operating
subsidiary a national bank lawfully acquired or established and
operated as an operating subsidiary before the publication date of this
rule will not be treated as in violation of Sec. 5.34 as revised,
provided that the bank and the operating subsidiary are, and continue
to be, in compliance with the standards and requirements applicable
when the bank established or acquired the operating subsidiary. This
grandfathering applies only to operating subsidiaries in existence and
conducting authorized activities on April 24, 2008.
Form of operating subsidiary. Current Sec. 5.34(e)(2) permits
national banks to conduct activities through operating subsidiaries
organized in a variety of forms, including as a corporation or limited
liability company. In recent years, national banks have sought to hold
limited partnerships as operating subsidiaries as States have amended
their limited liability company and limited partnership laws to provide
more structural flexibility. The OCC has recognized this and previously
permitted a limited partnership to qualify as an operating subsidiary
where the parent bank exercised ``all economic and management control
over the activities'' of the partnership.\22\ Therefore, the proposal
clarified that a bank may invest in an operating subsidiary organized
as a limited partnership, provided it satisfies the other requirements
of Sec. 5.34.
---------------------------------------------------------------------------
\22\ See Corporate Decision No. 2004-16 (Sept. 10, 2004).
---------------------------------------------------------------------------
We did not receive any comments on that provision and are adopting
the change as proposed.
After-the-fact notice procedures. Current Sec. 5.34(e)(5) provides
that a well capitalized and well managed national bank may establish or
acquire an operating subsidiary, or conduct a new activity in an
existing operating subsidiary, by providing the OCC written notice
within 10 days after doing so if the activity to be conducted in the
subsidiary is specified in the rule as eligible for notice processing.
The proposal would have permitted a bank to use the after-the-fact
notice procedures if the financial statements of the bank and
subsidiary were consolidated under GAAP, and the bank had the ability
to control the management and operations of the subsidiary by holding:
(i) More than 50% of the voting interests in the subsidiary; or (ii)
voting interests sufficient to select the number of directors needed to
control the subsidiary's board and to select and terminate senior
management.
The final rule slightly revises the criteria for after-the-fact
notices to permit the bank to use that procedure when the bank and
proposed subsidiary meet (1) all the requirements for a notice that do
not pertain to control, (2) the financial statements of the bank and
subsidiary are consolidated under GAAP, and (3) the bank has the
ability to control the management and operations of the subsidiary by
holding: (i) More than 50% of the voting interests in the subsidiary;
and (ii) voting interests sufficient to select the number of directors
needed to control the subsidiary's board and to select and terminate
senior management. These control arrangements are the most suitable for
the after-the-fact notice procedures because the OCC generally is
familiar with these structural arrangements and they do not ordinarily
present unusual control or safety and soundness concerns. Other
arrangements will be reviewed under the full application process.
The proposal also contained an additional standard for a national
bank seeking to hold a limited partnership as an operating subsidiary
through an after-the-fact notice. Under that additional standard, the
proposed limited partnership operating subsidiary would qualify for the
after-the-fact notice procedure only in the limited circumstance where
the bank controls, directly or indirectly, all of the ownership
interests in the limited partnership (and the other requirements of
Sec. 5.34 are satisfied). We explained that this approach would allow
the OCC to review more complex arrangements through the application
process.
We received two comments that addressed the after-the-fact notice
procedure for limited partnerships. These commenters expressed concern
that limiting after-the-fact notice in this manner would
inappropriately require an application process in situations that do
not present heightened complexity or risk. We agree with the commenters
that the after-the-fact notice process could be modestly expanded
without presenting new operational risks or policy considerations.
Accordingly, we have revised the standard for investments in limited
partnership operating subsidiaries to qualify for after-the-fact
notice.
Under the final rule, the after-the-fact notice eligibility
standards for limited partnerships are similar to those for corporate
entities, except that, in the case of a limited partnership, the bank
or its operating subsidiary must be the sole general partner of the
limited partnership and, under the partnership agreement, the limited
partners must have no authority to bind the partnership by virtue
solely of their status as limited partners. This will allow banks to
use the less burdensome after-the-fact notice procedures while still
ensuring that transactions that raise issues of potential liability for
general partners are subject to the higher scrutiny available under the
application process.
In addition, the final rule adds the following to the list of
activities eligible for after-the-fact notice:
Providing data processing, and data transmission services,
facilities (including equipment, technology, and personnel), data
bases, advice and access to such services, facilities, data bases and
advice, for the parent bank and for others, pursuant to 12 CFR 7.5006,
to the extent permitted by published OCC precedent. Currently, only
data processing activity provided to the bank itself or its affiliates
qualifies for after-the-fact notice treatment under Sec.
5.34(e)(5)(v)(H).
Providing bill presentment, billing, collection, and
claims-processing services.\23\
---------------------------------------------------------------------------
\23\ See OCC Interpretive Letter No. 712 (Feb. 29, 1996).
---------------------------------------------------------------------------
Providing safekeeping for personal information or valuable
confidential trade or business information, such as encryption keys, to
the extent permitted by published OCC precedent.\24\
---------------------------------------------------------------------------
\24\ See 12 CFR 7.5002(a)(4).
---------------------------------------------------------------------------
Payroll processing.\25\
---------------------------------------------------------------------------
\25\ See Conditional Approval No. 384 (April 25, 2000) and
Corporate Decision No. 2002-2 (Jan. 9, 2002).
---------------------------------------------------------------------------
[[Page 22221]]
Branch management services.\26\
---------------------------------------------------------------------------
\26\ See Conditional Approval No. 612 (Dec. 21, 2003).
---------------------------------------------------------------------------
Merchant processing except when the activity involves the
use of third parties to solicit or underwrite merchants.\27\
---------------------------------------------------------------------------
\27\ See Conditional Approvals Nos. 582 (March 12, 2003) and 583
(March 12, 2003).
---------------------------------------------------------------------------
Administrative tasks involved in benefits
administration.\28\
---------------------------------------------------------------------------
\28\ See Corporate Decision No. 98-13 (Feb. 9, 1998).
---------------------------------------------------------------------------
The OCC has previously found these activities to be permissible for
a national bank and generally to pose low safety and soundness risks.
We did not receive any comments on these additional activities eligible
for after-the-fact notice and are adopting the above changes as
proposed.
We have determined, however, not to add to this list those
activities approved for a non-controlling investment by a national bank
or its operating subsidiary pursuant to 12 CFR 5.36(e)(2) because the
circumstances of such non-controlling investment activities could be
such that they should be evaluated on a case-by-case basis when
proposed to be conducted by an operating subsidiary controlled by a
national bank.
Application procedures. Current Sec. 5.34(e)(5)(i) sets forth the
rules for when a national bank must file an operating subsidiary
application. The final rule modifies these provisions to make them
consistent with the changes to the qualifying subsidiary and after-the-
fact notice provisions of Sec. 5.34 discussed previously. In
particular, the final rule requires the bank to describe in full detail
structural arrangements where control is based on a factor other than
bank ownership of more than 50 percent of the voting interest of the
subsidiary and the ability to control the management and operations of
the subsidiary by holding voting interests sufficient to select the
number of directors needed to control the subsidiary's board and to
select and terminate senior management. The final rule also requires,
in the case of an application to establish a limited partnership as an
operating subsidiary, that a bank provide a statement explaining why it
is not eligible for the after-the-fact notice procedures. Finally, the
final rule makes conforming changes to Sec. 5.34(e)(5)(vi), which sets
forth the circumstances under which an application or notice is waived,
to reflect the changes discussed above.
Bank Service Companies (Sec. 5.35)
Section 602 of the FSRRA amended the Bank Service Company Act \29\
to repeal the geographic limits that prohibited a bank service company
from performing services for persons other than depository institutions
in any State except the State where its shareholders and members are
located. Section 602 retains the requirements that the services and the
location at which these services are provided must be otherwise
permissible for all depository institution shareholders or members and
that Federal Reserve Board approval be obtained before a bank service
company engages in activities that are only authorized under the Bank
Holding Company Act. Section 602 also permits savings associations to
invest in bank service companies under the same rules that apply to
banks.
---------------------------------------------------------------------------
\29\ 12 U.S.C. 1861 et seq.
---------------------------------------------------------------------------
The proposal amended 12 CFR 5.35 to reflect this change in the
statutory geographic restrictions on the operations of bank service
companies. It also changed ``insured bank'' to ``insured institution''
throughout the section, where relevant, to reflect the fact that
savings associations now may invest in bank service companies. We
received no comments on these amendments and adopt them as proposed.
Other Equity Investments (Sec. 5.36)
Section 5.36(e) provides an expedited process for OCC review of a
non-controlling investment by a national bank. Under this section, a
national bank may make, directly or through an operating subsidiary,
certain non-controlling investments in entities by filing an after-the-
fact written notice in which the bank certifies, among other things,
that it is well capitalized and well managed and will account for its
investment under the equity or cost method of accounting.\30\ This
section currently does not, however, provide a procedure for a national
bank to follow when it cannot provide the certifications needed for
after-the-fact notice. Our proposal revised the accounting requirements
needed for after-the-fact notice, added an application procedure where
a bank or the proposed non-controlling investment do not qualify for
the after-the-fact procedure, and made two changes to expedite non-
controlling investments involving assets acquired through foreclosure
or otherwise in good faith to compromise a doubtful claim or in the
ordinary course of collecting a debt previously contracted (DPC
assets). We received no comments on any of these amendments to Sec.
5.36 and adopt them as proposed, with some minor technical changes in
terminology for clarification purposes and a revision to a clarifying
amendment to Sec. 5.36(b).
---------------------------------------------------------------------------
\30\ Under the equity method, the carrying value of the bank's
investment is originally recorded at cost but subsequently adjusted
periodically to reflect the bank's proportionate share of the
entity's earnings and losses and decreased by the amount of any cash
dividends or similar distributions received from the entity.
---------------------------------------------------------------------------
Representations concerning accounting treatment. Current Sec.
5.36(e)(5) requires a national bank to certify in its notice that it
will account for its non-controlling investment under the equity or
cost method of accounting. The OCC had adopted this requirement because
an investment accounted for in this manner was not previously
considered under then current GAAP standards to be controlled by the
parent bank and, accordingly, the parent bank did not consolidate the
investment on its books. Thus, the unconsolidated entity could be
considered a non-controlling investment and not an operating
subsidiary. However, as we have noted, under FIN 46R this assumption is
no longer valid in all cases and an investment previously accounted for
using the equity or cost method today may in some instances result in
consolidation of the investment with the bank, depending on which party
holds the majority of risks or rewards.
As in the proposal, the final rule addresses this issue by removing
the requirement that a bank certify in its notice that it will account
for its non-controlling investment under the equity or cost method of
accounting. The final rule also accordingly removes the requirement in
current Sec. 5.36(e)(7) that a bank certify that its loss exposure
related to the non-controlling investment is limited as an accounting
matter. The final rule retains the requirement in paragraph (e)(7) that
the bank certify that as a legal matter its loss exposure is limited
and that it does not have open-ended liability for the obligations of
the enterprise.
Application procedure. Current Sec. 5.36(e) permits use of the
after-the-fact notice procedure only when the bank can make the
representations and certifications required by that section.\31\
[[Page 22222]]
The rule provides no procedure for a national bank to follow when it
cannot provide all of the required representations and certifications.
The final rule revises Sec. 5.36 to establish an application procedure
that a national bank may use to seek approval for non-controlling
investments that do not qualify for after-the-fact notice either
because the proposed activity does not qualify under the standards set
forth in the rule (as described in Sec. 5.36(e)(2)), or because the
bank is not well capitalized or well managed (as described in Sec.
5.36(e)(3)). The final rule does not require a national bank to file
either an application or notice under this section if the investment is
authorized by a separate provision of OCC regulations, such as 12 CFR
part 1 (investment securities) or part 24 (community development). In
these cases, a national bank would follow the procedures required by
these provisions.
---------------------------------------------------------------------------
\31\ Section 5.36(e) currently requires that a written after-
the-fact notice contain the following eight elements, set out in
numbered paragraphs, as follows: (1) A description of the proposed
investment; (2) identification of the regulatory provision or prior
precedent that has authorized an activity that is substantively the
same as the proposed activity; (3) certification that the bank is
well capitalized and well managed; (4) a statement of how the bank
can control the activities of the enterprise in which it is
investing or ensure its ability to withdraw its investment; (5) the
accounting certification described in the preamble text (which this
final rule removes); (6) a description of how the investment relates
to the bank's business; (7) certification that the bank's loss
exposure is limited as a legal and accounting matter (the final rule
removes this accounting certification); and (8) certification that
the enterprise in which the bank is investing agrees to be subject
to OCC examination and supervision, subject to limits provided
elsewhere in Federal law.
---------------------------------------------------------------------------
The final rule specifically requires the application to provide the
other representations and certifications required in paragraph (e) for
after-the-fact notices as well as the representation required by (e)(2)
(pertaining to the OCC's prior determination that the investment is
permissible) or the certification required by (e)(3) (pertaining to the
bank's capital level and rating for management), as appropriate. A bank
may not make a non-controlling investment in an entity if the bank
cannot provide the representations or certifications that the rule
requires, other than those in paragraphs (e)(2) or (e)(3). In addition,
if the bank is unable to make the representation described in paragraph
(e)(2), the bank's application must explain why the activity is a
permissible activity for a national bank and why the bank should be
permitted to hold a non-controlling investment in an enterprise engaged
in that activity.
This application requirement would fill the gap in the current rule
for investments where a national bank cannot meet all of the after-the-
fact notice requirements. The use of an application procedure provides
certainty to the applicant and also permits the OCC to ensure that all
non-controlling investments comport with applicable legal standards and
appropriate supervisory requirements.
The proposal made two conforming changes to the scope of Sec.
5.36(b) to conform to these changes. We have revised one of these
changes in the final rule. This change would have removed the last
sentence of Sec. 5.36(b), which currently provides that other
investments authorized under Sec. 5.36 may be reviewed on a case-by-
case basis. After further review, we have decided to maintain this
sentence with minor technical revisions, as the scope section covers
all equity investments not governed by other OCC regulations, not
solely non-controlling investments.
DPC assets. As in the proposal, the final rule makes two changes to
expedite non-controlling investments involving assets acquired through
foreclosure or otherwise in good faith to compromise a doubtful claim
or in the ordinary course of collecting a debt previously contracted
(DPC assets). Under the current rule, a national bank making a non-
controlling investment in an entity that holds or manages DPC assets
for the bank must meet all of the requirements in Sec. 5.36, including
the required certifications. However, under Sec. 5.34, a national bank
investing in an operating subsidiary engaged in the same activity need
only file a written notice within 10 days after acquiring or
establishing the subsidiary or commencing the activity. These
procedural differences can be disruptive in workouts involving a
jointly-held entity to resolve loans with multiple lenders where each
lender will hold minority interests in the joint venture. The final
rule harmonizes these provisions by providing that a national bank
making a non-controlling investment in an entity that holds or manages
DPC assets for the bank need only file a simplified written notice with
the appropriate district office \32\ no later than 10 days after making
the non-controlling investment. The notice must contain a complete
description of the bank's investment in the enterprise and the
activities conducted, a description of how the bank plans to divest the
non-controlling investment or the DPC assets within the statutory time
frames, and a representation and undertaking that the bank will conduct
the activities in accordance with OCC policies contained in guidance
issued by the OCC regarding the activities.
---------------------------------------------------------------------------
\32\ Part 5 defines ``appropriate district office'' as the
Licensing Department for all national bank subsidiaries of those
holding companies assigned to the Washington, DC, licensing unit;
the appropriate OCC district office for all national bank
subsidiaries of certain holding companies assigned to a district
office licensing unit; the OCC's district office where the national
bank's supervisory office is located for all other banks; or the
licensing unit in the Northeastern District Office for Federal
branches and agencies of foreign banks. 12 CFR 5.3.
---------------------------------------------------------------------------
The final rule also amends Sec. 5.36 to clarify that an
application or notice is not required when a national bank acquires DPC
assets. This change conforms this section with Sec. 5.34, which
provides that a subsidiary in which the bank has acquired, in good
faith, shares through foreclosure on collateral, by way of compromise
of a doubtful claim, or to avoid a loss in connection with a debt
previously contracted is not an operating subsidiary for purposes of
Sec. 5.34 and, therefore, no application or notice is required.
Changes in Permanent Capital (Sec. 5.46)
The final rule streamlines the application process for a national
bank seeking OCC approval of a change in its permanent capital. The OCC
did not receive any comments on this change and we are adopting it as
proposed.
The OCC's rules at Sec. 5.46(i)(1) and (2) currently require a
national bank to submit an application and obtain prior approval for a
change in permanent capital. Under the expedited review procedures in
Sec. 5.46(i)(2), the application of an eligible bank is deemed
approved within 30 days of receipt, unless the OCC notifies the
applicant otherwise. The final rule amends Sec. 5.46(i)(2) to change
the expedited review period from 30 days to 15 days.
The final rule also simplifies the certification process for a
national bank that increases its permanent capital. Section 5.46
currently requires a national bank that increases permanent capital to
submit a letter of notification to the OCC in order to receive a
certification of the increase as required by 12 U.S.C. 57.\33\ Under
the final rule, a national bank seeking to increase permanent capital
continues to be required to send a notice to the OCC, but the bank will
no longer receive a paper certification from the OCC. The OCC will deem
the transaction approved and certified by operation of law seven days
after our receipt of the bank's notice. The OCC intends to update the
notification and certification procedures for increases in permanent
capital in the Capital and Dividends Booklet of the Comptroller's
Licensing
[[Page 22223]]
Manual and on E-Corp (the OCC's electronic filing system) to reflect
this final rule.
---------------------------------------------------------------------------
\33\ Section 57 provides that increases to permanent capital are
not effective until the bank provides notice to the OCC and the OCC
certifies the amount of the increase and approves it. The precise
terms of the bank's notification and the OCC's approval vary
slightly depending on whether the increase to permanent capital
occurs through the declaration of a stock dividend or otherwise. See
12 U.S.C. 57.
---------------------------------------------------------------------------
Change in Bank Control (Sec. 5.50)
Section 5.50 sets forth the OCC's procedures for change in bank
control transactions. Under this rule, any person seeking to acquire
control of a national bank, i.e., acquire the power, directly or
indirectly, to direct the management or policies or to vote 25 percent
or more of any class of voting securities of a national bank, must
provide 60 days prior written notice of the proposed acquisition to the
OCC, with certain exceptions. Currently, the OCC has the burden of
proof in establishing that a group of persons are acting in concert and
will control, as a group, the bank after the acquisition of shares.
When a member of a family acquires stock in a national bank in which
other family members own or control substantial interests, the OCC
frequently will review potential control issues by requesting
additional documentation from, and making additional inquiries of, the
family members. These additional steps can delay the notice process and
increase the burden associated with the transaction for these
individuals.
We proposed to amend Sec. 5.50(f)(2) to establish a rebuttable
presumption that immediate family members are acting in concert when
acquiring shares of a bank. The proposal also amended Sec. 5.50(d) to
define immediate family as a person's spouse, father, mother,
stepfather, stepmother, brother, sister, stepbrother, stepsister,
children, stepchildren, grandparent, grandchildren, father-in-law,
mother-in-law, brother-in-law, sister-in-law, son-in-law, daughter-in-
law, and the spouse of any of the foregoing. We did not receive any
comments on these amendments and adopt them unchanged in the final
rule.
As noted in the preamble to the proposed rule, establishing a
clear, but rebuttable, presumption provides notice to prospective
investors of their filing obligations and reduces delays in processing
the notice associated with repeat requests for information. In
addition, this amendment conforms our regulations to the procedures
regarding control by family members in these transactions set forth in
OTS and Federal Reserve Board regulations. We intend to amend the
Comptroller's Licensing Manual to address the process by which an
applicant can rebut this presumption.\34\
---------------------------------------------------------------------------
\34\ See 12 CFR 574.4 (OTS) and 12 CFR 225.41(b)(3) and
225.41(d) (Federal Reserve Board).
---------------------------------------------------------------------------
The proposed rule also made two amendments to Sec. 5.50 to
implement provisions of the FSRRA. We received no comments on these
amendments and adopt them as proposed. First, section 705 of the FSRRA
amended the CBCA to allow the OCC and the other Federal banking
agencies to extend the time period for considering a CBCA notice so
that the agency may consider the acquiring party's business plans and
the future prospects of the institution and use that information in
determining whether to disapprove the notice. The final rule amends
Sec. 5.50(f) of our regulations to implement this amendment by
providing that the CBCA notice must include information on the future
prospects of the institution and that the OCC may consider the future
prospects of the institution as a basis to issue a notice of
disapproval.
Second, sections 702 and 716 of the FSRRA amended the Federal
Deposit Insurance Act (FDI Act) to provide that the OCC and the other
Federal banking agencies may enforce under 12 U.S.C. 1818 the terms of:
(1) Conditions imposed in writing by the agency on a depository
institution, including a national bank, or an institution-affiliated
party in connection with an application, notice, or other request, and
(2) written agreements between the agency and the institution or the
institution-affiliated party. The amendment also clarifies that a
condition imposed by a banking agency in connection with the
nondisapproval of a notice, e.g., a notice under the CBCA, can be
enforced under the FDI Act. Accordingly, the final rule amends Sec.
5.50(f) to provide that the OCC may impose conditions on its
nondisapproval of a CBCA notice to assure satisfaction of the relevant
statutory criteria for nondisapproval of the notice.
Technical and Conforming Amendments to Part 5
The proposed rule made the following conforming and technical
changes to part 5. None of the commenters addressed these changes and
we adopt them in the final rule as proposed.
Definition of national bank (Sec. 5.3(j)). This amendment removes
the reference to DC banks from the definition of ``national bank''
found in Sec. 5.3(j). As a result, DC banks are no longer subject to
the OCC's rules, policies, and procedures for corporate activities and
transactions, including the OCC's filing requirements.
Filing required (Sec. 5.4). The final rule replaces the terms
``Licensing Manager'' with ``Director for District Licensing'' and
replaces ``Bank Organization and Structure'' with the term ``Licensing
Department.'' This reflects the OCC's current organizational structure.
Decisions (Sec. 5.13). Section 5.13 sets forth the procedures for
OCC decisions on corporate filings. Paragraph (c) of Sec. 5.13
requires a filing with the OCC to contain all required information. The
OCC may require additional information if necessary to evaluate the
application, and may deem a filing abandoned if the information
required or requested is not furnished within the time period specified
by the OCC. The OCC also may return an application that it deems
materially deficient when filed. The final rule amends Sec. 5.13(c) to
define ``materially deficient'' to mean filings that lack sufficient
information for the OCC to make a determination under the applicable
statutory or regulatory criteria. Examples of material deficiencies
that could cause the OCC to return a filing include failure to provide
answers to all questions or failure to provide required financial
information.
Paragraph (f) of this section provides that an applicant may appeal
an OCC decision to the Deputy Comptroller for Licensing or to the OCC
Ombudsman. In some cases, however, the Deputy Comptroller for Licensing
is the deciding official for OCC licensing decisions or has personal
and substantial involvement in the decision-making process.
Accordingly, we are amending this paragraph to provide that an appeal
may be referred instead to the Chief Counsel when the Deputy
Comptroller for Licensing was the deciding official of the matter
appealed or was involved personally and substantially in the matter.
In addition, the final rule replaces the title ``Deputy Comptroller
for Bank Organization and Structure'' with the title ``Deputy
Comptroller for Licensing'' to reflect the OCC's current organizational
structure.
Organizing a bank (Sec. 5.20). Section 5.20 sets forth the
procedures and requirements governing OCC review and approval of an
application to establish a national bank. Paragraph (i)(5) of this
section requires a proposed national bank to be established as a legal
entity before the OCC grants final approval. As currently drafted, our
regulations may be read to imply that organizers must receive OCC
preliminary approval before they may raise capital, which is not
required by OCC policy or the terms of the National Bank Act.\35\
---------------------------------------------------------------------------
\35\ The Comptroller's Licensing Manual permits organizers of a
national bank to raise capital prior to preliminary OCC approval.
See Comptroller's Licensing Manual, Charters, pgs. 20-21, March
2007.
---------------------------------------------------------------------------
[[Page 22224]]
Accordingly, the final rule amends Sec. 5.20(i)(5) to make clear
that OCC preliminary approval is not required prior to a securities
offering by a proposed national bank, provided that the proposed
national bank qualifies as a body corporate under the National Bank Act
by filing articles of association and an organization certificate, has
filed a completed charter application, and the bank complies with the
OCC's securities offering regulations set forth in Part 16. These
requirements are explained in greater detail in the Comptroller's
Licensing Manual.
The final rule also amends paragraph (i)(3) of Sec. 5.20, which
requires the organizing group to designate a spokesperson to represent
the group in its contacts with the OCC, by replacing the term
``spokesperson'' with the term ``contact person'' each time that term
appears. This change aligns the wording of this section with the
terminology used on the Interagency Charter and Deposit Application and
in the ``Charters'' booklet of the Comptroller's Licensing Manual.
Business combinations (Sec. 5.33). Section 5.33 contains the
provisions governing business combinations involving national banks.
Section 5.33(e)(1) sets forth factors used by the OCC in evaluating
applications for ``business combinations,'' including factors required
pursuant to the Bank Merger Act (BMA) \36\ and the Community
Reinvestment Act of 1977 (CRA).\37\ As currently worded, this section
could be read incorrectly to imply that the BMA and CRA apply to all
business combinations even though these laws do not apply to certain
business combinations, such as the merger of two uninsured national
banks. The final rule revises the wording of Sec. 5.33(e)(1) to make
clear that the OCC considers the factors under the BMA and the CRA for
transactions that are subject to those laws. The factors as set out in
the current rule are substantively unchanged.
---------------------------------------------------------------------------
\36\ 12 U.S.C. 1828(c).
\37\ 12 U.S.C. 2901 et seq.
---------------------------------------------------------------------------
Section 5.33 also requires a national bank with one or more classes
of securities subject to the registration provisions of sections 12(b)
or 12(g) of the Securities Exchange Act of 1934 (the Exchange Act) \38\
to file preliminary proxy materials or information statements with both
the OCC's Director of Securities and Corporate Practices Division in
Washington, DC and the appropriate district office. The final rule
streamlines the OCC's filing process by eliminating the requirement in
Sec. 5.33(e)(8)(ii) that a registered national bank also file proxy
materials with the district office. This change is consistent with the
instructions in the OCC's Business Combinations Booklet of the
Comptroller's Licensing Manual.
---------------------------------------------------------------------------
\38\ 15 U.S.C. 78l(b) or 78l(g).
---------------------------------------------------------------------------
Section 5.33(g)(2)(ii) provides the rules for a national bank
consolidation and merger with a Federal savings association when the
resulting institution is a national bank. The final rule removes the
reference to merger transactions in paragraph (g)(2)(ii), which
provides for appraisal or reappraisal of dissenters' shares, because
there are no dissenters' rights for national bank shareholders in a
merger between a national bank and a Federal savings association when
the resulting institution is a national bank. In addition, the final
rule corrects a statutory citation in paragraph (g)(3)(i).
The final rule also makes clarifying changes to Sec. 5.33(h),
which sets forth the standards, requirements, and procedures that apply
to mergers between insured banks with different home States pursuant to
12 U.S.C. 1831u. Although this paragraph references the standards,
requirements, and procedures applicable to transactions that result in
a national bank, it currently does not do so for transactions that
result in a State bank. The final rule adds a reference in this
paragraph to 12 U.S.C. 214a, 214b, and 214c to cover these
transactions. It also amends Sec. 5.33(h) to include a reference to 12
U.S.C. 1831u to clarify that an interstate, single-branch acquisition
is treated as the acquisition of a bank only for purposes of
determining compliance with the Riegle-Neal Act.\39\ This change
eliminates any implication in this paragraph that the procedures of 12
U.S.C. 215 or 215a are intended to apply to branch acquisitions.
---------------------------------------------------------------------------
\39\ Public Law 103-328, 108 Stat. 2338 (Sept. 29, 1994).
---------------------------------------------------------------------------
Finally, we are amending Sec. 5.33 to specify that the definitions
set forth in Sec. 5.33(d) are only applicable to Sec. 5.33, and are
revising the headings of paragraphs (g), (g)(1) and (g)(3) to conform
to the heading format used in other paragraphs in the regulation.
Financial subsidiaries (Sec. 5.39). Section 5.39 sets forth
authorized activities, approval procedures, and conditions for a
national bank engaging in activities though a financial subsidiary. The
final rule makes a number of technical changes to Sec. 5.39 to conform
this section to the Federal Reserve Board's Regulation W, which governs
transactions between Federal Reserve member banks and their affiliates
and implements sections 23A and 23B of the Federal Reserve Act.\40\
---------------------------------------------------------------------------
\40\ 12 U.S.C. 371c and 371c-1.
---------------------------------------------------------------------------
In general, under sections 23A and 23B and Regulation W, a
financial subsidiary of a national bank is treated as an affiliate of
the bank. Regulation W, however, excepts from its definition of a
financial subsidiary a subsidiary that would be a financial subsidiary
only because it is engaged in insurance sales as agent or broker in a
manner not permitted to a national bank. Such a financial subsidiary is
not an affiliate for Regulation W purposes (unless it falls into
another category of affiliate). The final rule adds a cross-reference
to Regulation W in the definition of ``affiliate'' at Sec. 5.39(d)(1)
and amends Sec. 5.39(h)(5) to reflect this exception in Regulation W's
definition of financial subsidiary.
In addition, the final rule updates Sec. 5.39(h)(5), which
describes how sections 23A and 23B apply to financial subsidiaries, by
conforming these provisions to Regulation W. Specifically, in addition
to adding a cross-reference to Regulation W in Sec. 5.39(h)(5), we are
amending Sec. 5.39(h)(5)(iii) to state that a bank's purchase of, or
investment in, a security issued by a financial subsidiary of the bank
must be valued at the greater of: (a) The total amount of consideration
given (including liabilities assumed) by the bank, reduced to reflect
amortization of the security to the extent consistent with GAAP, or (b)
the carrying value of the security (adjusted so as not to reflect the
bank's pro rata portion of any earnings retained or losses incurred by
the financial subsidiary after the bank's acquisition of the security).
We also are adding a new reference to the requirement in Regulation
W that any extension of credit to a financial subsidiary of a bank by
an affiliate of the bank is treated as an extension of credit by the
bank to the financial subsidiary if the extension of credit is treated
as capital of the financial subsidiary under any Federal or State law,
regulation, or interpretation applicable to the subsidiary.
Change in bank control (Sec. 5.50). Twelve U.S.C. 1817(j) provides
the standards and procedures for a change in control of insured
depository institutions. As we have discussed, Sec. 5.50 of our rules
implements section 1817(j) in the case of a change in control of a
national bank.\41\ Section 5.50, however, does not include one of the
procedures required by section 1817(j) relating to changes in
management
[[Page 22225]]
officials following a change in control. This omission may be
misleading to banks that consult our rules to ascertain what change in
control procedures apply. Specifically, section 1817(j)(12) provides
that whenever a change in control occurs, the bank will promptly report
to the appropriate Federal banking agency any changes or replacements
of its chief executive officer or of any director occurring in the next
12-month period, including in this report a statement of the past and
current business and professional affiliations of the new chief
executive officer or director. The final rule adds a new paragraph to
Sec. 5.50(h) to incorporate this statutory requirement in order to
provide clearer notice for national banks of their reporting obligation
under section 1817(j)(12).
---------------------------------------------------------------------------
\41\ Section 5.50 covers uninsured national banks as well as
insured national banks.
---------------------------------------------------------------------------
Earnings limitations under 12 U.S.C. 60 (Sec. 5.64). Section 302
of the FSRRA amended 12 U.S.C. 60 to simplify dividend calculations and
provide a national bank more flexibility to pay dividends as deemed
appropriate by its board of directors. The final rule amends Sec. 5.46
(governing changes in permanent capital) and Sec. 5.64 (governing
dividend earnings limitations) to conform to the new language of
section 60. In addition, the OCC is codifying and clarifying the
interpretation of 12 U.S.C. 60 contained in Interpretive Letter No.
816, issued December 22, 1997.
Prior to its amendment by FSRRA, section 60 provided that a
national bank could only declare a dividend if its surplus fund was at
least equal to its common capital or, in accordance with a computation
prescribed by the statute, it transferred 10 percent of its net income
to surplus. Historically, stock was assigned a par value equivalent to
its estimated market value and the purpose of the transfer requirement
was to provide an additional cushion. This requirement is obsolete
under modern securities issuance practices because stock is issued with
a nominal par value and most of the proceeds received are credited to
the issuer's surplus account. Section 302 of the FSRRA eliminated this
requirement and makes other minor changes to clarify and simplify
dividend calculations.
The final rule makes conforming changes to Sec. 5.64 (earnings
limitation under 12 U.S.C. 60) and Sec. 5.46 (changes in permanent
capital) by eliminating references to the surplus fund requirement. The
final rule also reorganizes and renumbers Sec. 5.64 and adds new
paragraphs (a) and (c)(2). New paragraph (a) adds several defined terms
to make the description of the national bank dividend calculation
clearer. New paragraph (c)(2) codifies Interpretive Letter No. 816,
which discussed the treatment of dividends in excess of a single year's
current net income and concluded that a national bank may offset
certain excess dividends against retained net income from each of the
prior two years. The final rule also clarifies how to calculate
permissible dividends applying the carry-back interpretation described
in Interpretive Letter No. 816. The amendment is intended to eliminate
confusion by providing that excess dividends may be offset by retained
net income in the two years immediately preceding the year in which the
excess occurred.
Specifically, paragraph (c)(2)(i) describes how to calculate
permissible dividends for the current year if a bank has declared a
dividend in excess of net income in the first or second years
immediately preceding the current year. For example, when the excess
dividend occurs in current year minus one, the excess is offset by
retained net income first in current year minus three and then in
current year minus two. When the excess dividend occurs in current year
minus two, the excess is offset by retained net income first in current
year minus four and then in current year minus three. This paragraph
limits the availability of offsets to a maximum of four years prior to
the current year, consistent with the carry-back concept in
Interpretive Letter No. 816. The Interpretive Letter was not intended
to permit a bank to restate retroactively its dividend paying capacity
beyond the four-year period prior to the current year.
Paragraph (c)(2)(ii) clarifies that if a bank still has excess
dividends remaining even after permissible offsets have been applied in
accordance with paragraph (c)(2)(i), the bank must use the remaining
excess dividend amount in calculating its dividend paying capacity.
Paragraph (c)(2)(iii) also clarifies that the carry-back applies only
to retained net loss that results from dividends declared in excess of
a single year's net income, not any other type of current earnings
deficit. As part of the reorganization of Sec. 5.64, information on
how to request a waiver of the dividend limitation was moved to new
paragraph (c)(3) to make it easier to locate.
The final rule also makes a technical amendment to 12 CFR 5.46,
governing changes in permanent capital, to reflect that section 60 as
amended by the FSRRA no longer requires transfers to the surplus fund
as a condition of declaring a dividend.
Part 7--Bank Activities and Operations
National Bank as Guarantor or Surety (Sec. 7.1017)
Section 7.1017 of the OCC's rules currently provides that a
national bank may act as guarantor or surety when it has a substantial
interest in the performance of the transaction or when the transaction
is for the benefit of a customer and the bank obtains from that
customer a segregated deposit account sufficient to cover the amount of
the bank's potential liability. The proposed rule added a new
subsection authorizing national banks to guarantee financial
obligations of a customer, subsidiary, or affiliate under additional
circumstances, provided the amount of the bank's obligation is
reasonably ascertainable and otherwise consistent with applicable law.
As explained in the preamble to the proposed rule, a financial
guaranty or suretyship is essentially a promise to pay if the primary
obligor defaults on its obligation. A guarantor or surety that makes
good on its promise is entitled to reimbursement by the primary
obligor. National banks have authority to ``promise to pay'' or
``guarantee'' the obligations of their customers through bankers'
acceptances and letters of credit. In these transactions, the bank
substitutes its credit for that of its customer and participates in
exchanges of payments as a financial intermediary. These activities
involve the core banking powers of both lending and acting as financial
intermediary.\42\
---------------------------------------------------------------------------
\42\ See OCC Interpretive Letter No. 937 (June 27, 2002).
---------------------------------------------------------------------------
In approving various types of guarantees in the past, and in
approving a number of arrangements that are functionally similar to
guarantees, the OCC has emphasized that banks must be able to respond
to the evolving needs of their customers, provided always that such
guarantees be issued and managed in a safe and sound manner.\43\
Permitting national banks to exercise their broad authority to act as
guarantor or surety benefits customers by giving banks greater ability
to facilitate customers' financial transactions and by providing banks
with greater flexibility
[[Page 22226]]
to provide financial services in evolving markets.\44\
---------------------------------------------------------------------------
\43\ See, e.g., OCC Interpretive Letter No. 177 (Jan. 14, 1981)
(national bank guaranty/reimbursement of third-party payors in
connection with direct deposit pension fund program was permissible;
a contrary holding ``would directly inhibit the growth and
development of direct deposit programs.'') and OCC Interpretive
Letter No. 1010 (Sept. 7, 2004) (national bank may issue financial
warranties on the investment advice and asset allocation services
provided by the bank in the creation and operation of a mutual
fund).
\44\ See NationsBank of North Carolina, N.A. v. Variable Annuity
Life Insurance Co., 513 U.S. 251 (1995).
---------------------------------------------------------------------------
In the preamble to the proposed rule, we described the regulatory
change as authorizing a national bank to act as a guarantor or surety
provided the guaranty or surety is financial in nature, reasonably
ascertainable, and otherwise consistent with applicable law. One
commenter asked that we define or modify the terms ``financial in
nature,'' ``reasonably ascertainable in amount,'' and ``complies with
applicable law.'' Specifically, it recommended that we define
``financial in nature'' to reference only those activities determined
by the Federal Reserve Board and Treasury Department to be ``financial
in nature'' as required under 12 U.S.C. 1843(k)(2)(A), require that the
risk in such transactions be ``ascertainable as to amount'' rather than
``reasonably ascertainable in amount,'' and specifically list those
laws that apply to financial guarantees. For the following reasons, we
have not incorporated these suggestions in the regulatory text.
First, the regulatory text as proposed, and in this final rule,
provides that a national bank may ``guarantee financial obligations of
a customer, subsidiary, or affiliate'' provided that the other elements
of the standard are satisfied (emphasis added). The text does not use
the phrase ``financial in nature.'' That phrase appears only in the
preamble and was intended merely to distinguish the types of guarantees
referenced in the amendment which are of a financial character from
other non-financial guarantees, which are not made permissible by the
amendment. The phrase was not intended to connote the range of
activities made permissible for financial holding companies or
financial subsidiaries pursuant to the Gramm-Leach-Bliley Act,\45\ and
our preamble reference to the Gramm-Leach-Bliley Act was intended only
to demonstrate that guaranteeing a financial obligation is itself an
activity that Congress has recognized as permissible and appropriate
for a financial services firm. However, to eliminate any uncertainty
about the scope of the guaranty authority described in subsection (b),
we have added to the regulation language clarifying that only an
obligation that is financial in character is permissible.
---------------------------------------------------------------------------
\45\ Public Law 106-102, 113 Stat. 1338 (Nov. 12, 1999).
---------------------------------------------------------------------------
The final rule also retains the requirements, without change, that
the amount of the bank's obligation is ``reasonably ascertainable in
amount'' and ``otherwise consistent with applicable law.'' The
requirement that the guaranty or surety be ``reasonably ascertainable
in amount'' is intended to ensure that the issuing bank can determine
the extent of its exposure and engage in the activity in a safe and
sound manner. Moreover, the statement that the guaranty or surety must
be ``consistent with applicable law'' recognizes that other provisions
of law may be applicable to particular transactions. As mentioned in
the preamble to the proposal, these provisions of law include, among
others, limitations on the amount of loans and extensions of credit a
national bank may lend to a borrower (12 CFR part 32) and limitations
on transactions between a bank and its affiliates (sections 23A and 23B
of the Federal Reserve Act). It is not feasible to inventory all laws
that could apply to the financial guaranty transactions permitted under
the amendment as the commenter requested, and we believe the examples
suffice to make clear that other laws may restrict this type of
transaction. Finally, we reiterate the point made in the preamble to
the proposal that the limitations on transactions that would constitute
``insurance'' as principal pursuant to section 302 of the Gramm-Leach-
Bliley Act are unaffected by the amendment.\46\
---------------------------------------------------------------------------
\46\ Public Law 106-102, 113 Stat. 1338, 1407 (Nov. 12, 1999),
codified at 15 U.S.C. 6712.
---------------------------------------------------------------------------
The preamble to the proposal also indicated that the OCC would
consider whether to provide guidance on risks and risk management in
connection with the issuance of guarantees by national banks. One
commenter responded by requesting that we stipulate specific risk
management standards for any financial guaranty and surety powers we
approve, including, among other things, requirements that the financial
guaranty is prudently priced and appropriately capitalized and
reserved. Another commenter noted that guidance on risks and risk
management would be helpful to the extent that regulatory expectations
vary depending on the method by which a national bank acts as guarantor
or surety. However, this commenter recommended that we narrowly tailor
this guidance to focus on related regulatory expectations and not
dictate terms of agreements entered into by private parties.
We agree that adequate risk measurement and management processes
tailored to manage and control the risks of financial guaranty
activities are necessary to ensure that a bank is conducting its
financial guaranty activity in a safe and sound manner. These include
appropriate standards set by the board of directors, managerial and
staff expertise, policies and operating procedures, risk identification
and measurement, and ongoing evaluation of the specific guarantees
issued; management information systems; and an effective risk control
function that oversees and ensures the appropriateness of the risk
management process. Such risk measurement and risk management processes
should be of a scope and scale appropriate for the nature and
complexity of the bank's financial guaranty activities.
Another commenter suggested that we require national banks to
conduct financial guaranty business through separately capitalized
affiliates that are prohibited from accepting deposits. The OCC
declines to adopt this approach. As indicated above, acting as a
guarantor involves the core banking powers of both lending and acting
as financial intermediary and is therefore a permissible banking
activity that need not be conducted only in a separate legal entity.
OCC rules prescribe the appropriate regulatory capital treatment for
guarantor activities. Moreover, the circumstances under which the
revised provision authorizes guarantor activities--the financial
guaranty is reasonably ascertainable in amount and complies with
applicable law--are safeguards promoting the conduct of these
transactions in a safe and sound manner. Accordingly, it is not
necessary to require national banks to conduct this activity in a
separately capitalized affiliate.
Two commenters specifically addressed capital requirements for
guarantees permitted under this amendment. One commenter recommended
that, because of the ``financial equivalence'' of financial guarantees
and letters of credit, the capital requirements for a financial
guaranty issued by a national bank should be the same as the capital
requirements applicable to a letter of credit in a stated amount equal
to the maximum, as opposed to the expected or ``reasonably
anticipated,'' obligation of the bank under the financial guaranty.
Another commenter asked us to clarify that current capital standards
governing recourse and direct credit substitutes apply to financial
guarantees.
Under the current risk-based capital guidelines, the risk
associated with a bank's guarantees is generally based on the face
amount of the guaranty, where the face amount is usually measured as
[[Page 22227]]
the stated maximum contractual amount of that guaranty.\47\ However,
there are instances where the exposure measure might be less than the
face amount; for example, when the guaranty is conditional or
contingent upon the fulfillment of other criteria.
---------------------------------------------------------------------------
\47\ 12 CFR part 3, Appendix A.
---------------------------------------------------------------------------
As to recourse and direct credit substitutes, the OCC notes that
the capital regulation for securitization exposures applies to all
direct credit substitutes, which are defined to include guarantees and
financial standby letters of credit that provide credit support to
securitizations. Also, with respect to certain banks that will be
subject to the Internal Ratings Based and Advanced Measurement
Approaches (generally known as ``Basel II''), the capital treatment for
all guaranty exposures is governed by the advanced Internal Ratings
Based Approach.\48\
---------------------------------------------------------------------------
\48\ See, generally 12 CFR part 3, Appendix C, part IV (Risk-
Weighted Assets for General Credit Risk) and part V (Risk-Weighted
Assets for Securitization Exposures), 72 FR 69288 (December 7,
2007).
---------------------------------------------------------------------------
Accordingly, for the reasons set forth above, we adopt the proposed
financial guarantor provision, with the one clarifying change described
previously.
Cumulative Voting in Election of Directors
Prior to FSRRA, national banking law imposed mandatory cumulative
voting requirements on all national banks. Section 301 of the FSRRA
amended section 5144 of the Revised Statutes of the United States (12
U.S.C. 61) to provide that a national bank may state in its articles of
association whether to provide for cumulative voting in the election of
its directors. Section 301 is consistent with the Model Business
Corporation Act and most States' corporate codes, which provide that
cumulative voting is optional. Our proposal amended 12 CFR 7.2006 to
incorporate this change. We received no comments on this amendment and
adopt it as proposed.
Electronic Banking-Related Amendments
Twelve CFR part 7, Subpart E, contains OCC regulations relating to
various electronic activities. In 2002, the OCC undertook revisions to
part 7 to address the ways in which technological developments were
affecting the business of banking. The proposal included several
additions to this regulation. None of the comment letters addressed
these electronic banking-related amendments and we adopt them in the
final rule as proposed, with updates to the citations listed in the
footnote to Sec. 7.1016. These amendments are described below.
Incidental Electronic Activities. Currently, 12 CFR 7.5001(d) sets
forth the standards that the OCC uses to determine whether an
electronic activity is incidental to, though not part of, the business
of banking because the activity is convenient or useful to the conduct
of the business of banking. The OCC has already codified in its
regulations two incidental electronic activities: The sale of excess
electronic capacity and by-products (Sec. 7.5004) and incidental non-
financial data processing (Sec. 7.5006). We are amending Sec.
7.5001(d) to add other examples of electronic incidental activities
that we have since approved for national banks. These activities are:
Web site development where incidental to other electronic banking
services; \49\ Internet access and e-mail provided on a non-profit
basis as a promotional activity; \50\ advisory and consulting services
on electronic activities where the services are incidental to customer
use of electronic banking services; \51\ and the sale of equipment that
is convenient or useful to customers' use of related electronic banking
services, such as specialized terminals for scanning checks that will
be deposited electronically by wholesale customers of banks under the
Check Clearing for the 21st Century Act, Public Law 108-100 (12 U.S.C.
5001-5018).\52\ This list is illustrative and not exclusive, and the
OCC may determine in the future that activities not on this list are
permissible pursuant to this authority.
---------------------------------------------------------------------------
\49\ See OCC Corporate Decision No. 2002-13, July 31, 2002.
\50\ See OCC Conditional Approval No. 612, Nov. 21, 2003.
\51\ See OCC Corporate Decision No. 2002-11, June 28, 2002.
\52\ See OCC Interpretive Letter No. 1036, Aug. 10, 2005.
---------------------------------------------------------------------------
Electronic Letters of Credit. Section 7.1016 permits national banks
to issue letters of credit within the scope of applicable laws or rules
of practice recognized by law, and includes an illustrative footnote
that cites examples of these laws and practices. Section 7.5002 permits
a national bank to perform, provide or deliver through electronic means
and facilities any activity, function, product, or service that a bank
is otherwise authorized to perform, provide, or deliver, if the
electronic activity is subject to standards or conditions designed to
provide that the activity functions as intended, is conducted safely
and soundly, and accords with other applicable statutes, regulations,
or supervisory policies and guidance of the OCC. Section 7.5002
includes a list of permissible electronic activities that currently
does not include electronic letters of credit. Because the OCC has
determined that a national bank may issue an electronic letter of
credit in a safe and sound manner in accordance with applicable laws
and OCC guidance and policies, the OCC is amending Sec. 7.5002 by
adding the issuance of electronic letters of credit within the scope of
Sec. 7.1016 to the list of banking activities that a national bank can
conduct by electronic means and facilities.
The proposal also amended the footnote in Sec. 7.1016 to include a
reference to the International Chamber of Commerce (ICC) supplement to
UCP 500 for Electronic Presentation (eUCP) (the uniform customs and
practices for documentary credits for electronic presentations) as a
law that supports electronic letters of credit. We have updated this
citation in the final rule to reflect the new version of the ICC's
Uniform Customs and Practices for Documentary Credits, Publication No.
600, which became effective in July 2007. We also have made a
corresponding update to the citation to the ICC's Uniform Customs and
Practices for Documentary Credits already included in the current
footnote.
Software That Is Part of the Business of Banking. Currently, OCC
regulations list software acquired or developed by the bank for banking
purposes or to support its banking business as an example of an
electronic by-product that a national bank can sell to others as a
permissible ``incidental'' activity.\53\ This final rule expands Sec.
7.5006 to address, as ``part of the business of banking,'' the sale of
software that performs services or functions that a national bank can
perform directly, thereby codifying previous OCC interpretations.\54\
We note that software that is part of the business of banking can be
sold without regard to any other banking product or service, whereas
software that is incidental must be shown to be convenient or useful to
another activity that is authorized for national banks.\55\
---------------------------------------------------------------------------
\53\ 12 CFR 7.5004.
\54\ See, e.g., Corporate Decision 2003-6, March 17, 2003.
\55\ See 12 CFR 7.5001(c) and 7.5001(d).
---------------------------------------------------------------------------
Our proposal asked commenters to identify any other areas of
subpart E that should be revised to recognize the evolving role of
technology. We received no comments in response to this request and
have not made any additional amendments to subpart E in this final
rule.
[[Page 22228]]
Part 9--Fiduciary Activities of National Banks
In response to recent amendments made by the SEC to its rules and
forms under section 17A of the Exchange Act, the OCC proposed to amend
its transfer agent rule at Sec. 9.20 to clarify the procedures
applicable to national bank transfer agents. None of the comment
letters addressed these amendments, and the final rule includes these
amendments as proposed.
Specifically, under the SEC's amended rules, all transfer agents,
including national bank transfer agents, are required to file annual
reports electronically with the SEC through the SEC's Electronic Data
Gathering, Analysis, and Retrieval (``EDGAR'') system. In addition,
nonbank transfer agents now must file registration and withdrawal forms
electronically with the SEC through the EDGAR system. The SEC's amended
rules do not require national bank transfer agents to file registration
or withdrawal forms with the SEC electronically or otherwise.
Currently, Sec. 9.20(a) of the OCC's rules cross-references to the
SEC's rules with respect to registration. This cross-reference may make
it appear that national bank transfer agents also are subject to the
requirement to file registration and withdrawal forms through the SEC's
EDGAR system. To avoid confusion regarding electronic filing, the final
rule replaces the cross-reference in Sec. 9.20(a) to the SEC's
transfer agent registration and withdrawal rules with specific
procedures for filing applications for registration, amending
registrations, and withdrawals from registration with the OCC. This
amendment will not result in any substantive changes for national bank
transfer agents. National bank transfer agents will continue to file
applications for registration, amendments to registration, and
withdrawals from registration with the OCC as previously required.
In addition, to reflect the SEC's revision and renumbering of its
transfer agent rules, the final rule removes the specific citations in
Sec. 9.20(b) to the SEC's rules in favor of a more general reference.
This amendment makes no substantive changes to Sec. 9.20(b). This
change will, however, avoid the need for the OCC to revise our
regulation each time the SEC makes changes to its transfer agent rules.
Part 10--Municipal Securities Dealers
As in our proposal, the final rule amends Sec. 10.1(a) to
eliminate the application of part 10 to DC banks, consistent with the
DC Bank Act.
Part 11--Securities Exchange Act Disclosure Rules
Part 11 addresses the rules, regulations, and filing requirements
that apply to national banks with one or more classes of securities
subject to the registration provisions of sections 12(b) and (g) of the
Exchange Act (15 U.S.C. 78l(b) & (g)). As in the proposal, this final
rule amends Sec. 11.1(a) to remove DC banks from the scope of part 11,
consistent with the DC Bank Act.
Part 12--Recordkeeping and Confirmation Requirements for Securities
Transactions
Section 12.7(a)(4) requires bank officers and employees who make
investment recommendations or decisions for customers to report their
personal transactions in securities to the bank within ten business
days after the end of the calendar quarter. The OCC modeled this
reporting requirement on SEC Rule 17j-1 (17 CFR 270.17j-1), issued
pursuant to the Investment Company Act of 1940, which, at the time of
the most recent revision to this OCC requirement in 1996, required
``access persons'' to report their personal transactions in securities
within ten days after the end of the calendar quarter.\56\ However, in
July 2004 the SEC amended Rule 17j-1 to expand this ten-day deadline to
30 days.\57\
---------------------------------------------------------------------------
\56\ See 61 FR 63958 (Dec. 2, 1996). The OCC's reporting
requirement under 12 CFR 12.7(a)(4) is a separate requirement from
any applicable requirements under SEC Rule 17j-1. However, an
''access person'' required to file a report with a national bank
pursuant to SEC Rule 17j-1 need not file a separate report under the
OCC's reporting requirement if the required information is the same.
See 12 CFR 12.7(d). The SEC rule defines ''access person'' as
including directors, officers, and certain employees of the
investment adviser. 17 CFR 270.17j-1(a)(1).
\57\ See 69 FR 41696 (July 9, 2004).
---------------------------------------------------------------------------
To conform part 12 with the current SEC filing deadline in SEC Rule
17j-1, the proposed rule amended Sec. 12.7(a)(4) by replacing the 10-
business day filing deadline for reporting personal transactions in
securities with the deadline specified in SEC rule 17j-1. We received
no comments on this change and adopt it as proposed. This amendment
will enable bank employees that are subject to both SEC Rule 17j-1 and
the OCC's securities recordkeeping and confirmation regulation to file
by the same deadline, thereby eliminating employee confusion as well as
the regulatory burden associated with complying with two separate
filing deadlines.
Part 16--Securities Offering Disclosure Rules
Part 16 governs offers and sales of bank securities by issuers,
underwriters, and dealers. The proposed rule made a number of
amendments to Part 16. We received only one comment on these part 16
amendments, relating to Sec. 16.6 (sale of nonconvertible debt). As
explained below, we decline to revise our proposed amendment to Sec.
16.6, and adopt all of our amendments to part 16 as proposed.\58\
---------------------------------------------------------------------------
\58\ We note that the OCC has made an additional amendment to
Part 16 in a separate rulemaking. This amendment reduces unnecessary
regulatory burden by amending Sec. 16.15 to provide a general
waiver of certain requirements for organizing groups seeking to
establish a national bank charter. See 73 FR 12009 (March 6, 2008).
---------------------------------------------------------------------------
Definitions (Sec. 16.2)
As in the proposal, the final rule eliminates DC banks from the
definition of ``bank'' in Sec. 16.2(b), consistent with the DC Bank
Act.
Sales of Nonconvertible Debt (Sec. 16.6)
Section 16.6(a)(3) requires bank debt issued under Sec. 16.6 to be
in a minimum denomination of $250,000 and requires each note or
debenture to show on its face that it cannot be exchanged for notes or
debentures in smaller denominations. However, this legend requirement
cannot be satisfied--and would serve no purpose--if the bank is using a
paperless book entry form, which has become the more current form of
issuance used by banks and other securities issuers. Our proposal
amended Sec. 16.6(a)(3) to provide that this legend requirement only
applies to debt issued in certificate form. All other requirements of
Sec. 16.6, including the requirement of minimum denominations of
$250,000, would continue to apply to all bank sales of nonconvertible
debt, whether issued in certificate or book entry form.
We received one comment on this proposed amendment that recommended
that we also remove the requirements in Sec. 16.6 that the debt be
offered and sold only to accredited investors and sold in minimum
denominations of $250,000, as these requirements do not apply to State
member banks and State-licensed branches of non-U.S. banks. We decline
to make this change. These requirements--sales only to accredited
investors and only in a minimum denomination of $250,000--serve as
important investor/consumer protection tools and foster safe and sound
banking practices. Therefore, the final rule makes no changes from the
proposal in this regard.
[[Page 22229]]
Nonpublic Offerings (Sec. 16.7)
Part 16 provides that, absent an available exemption, no person may
offer and sell a security issued by a national bank without meeting the
registration and prospectus delivery requirements of part 16. Part 16
generally incorporates by reference the definitions, registration, and
prospectus delivery requirements of the Securities Act and SEC
implementing rules, including Regulation D under the Securities
Act.\59\ Section 16.7(a) of the OCC's nonpublic offering regulation
provides that the OCC will deem offers and sales of bank-issued
securities to be exempt from the registration and prospectus
requirements of part 16 if they meet certain requirements, including
filing with the OCC a notice on Form D that meets the requirements of
Regulation D.\60\
---------------------------------------------------------------------------
\59\ 17 CFR 230.501 et seq.
\60\ 17 CFR 230.503.
---------------------------------------------------------------------------
Form D requires the issuer to disclose basic information concerning
the identity of the issuer and the offering, including the exemption
being claimed and information regarding the offering price, number of
investors, expenses, and use of proceeds. However, the OCC does not use
the information in the Form D for any supervisory or other particular
purpose, and the OCC does not treat the requirement to file a Form D as
a condition to the availability of an exemption under part 16.
Furthermore, the SEC adopted Form D for reasons that do not directly
apply to the OCC.\61\ Accordingly, as proposed, we have eliminated the
requirement to file a Form D.
---------------------------------------------------------------------------
\61\ Specifically, Form D serves a useful purpose for the SEC as
a uniform State notification form for purposes of the States'
Uniform Limited Offering Exemption, which is inapplicable to
national banks. In addition, the SEC uses the information in the
forms to conduct economic and other analyses of the private
placement market in general. The OCC does not use the information in
the Form D for this purpose. See Sec. Act. Release No. 33-6339, 46
FR 41,791 (Aug. 18, 1981).
---------------------------------------------------------------------------
Securities Offered and Sold in Bank Holding Company Dissolution (New
Sec. 16.9)
The OCC's current securities offering disclosure rules, at part 16,
have resulted in some confusion as to whether offers and sales of bank-
issued securities in connection with the dissolution of the bank's
holding company are exempt from the Sec. 16.3 registration statement
and prospectus requirements. As in the proposal, the final rule
resolves this uncertainty by codifying specific requirements that apply
in order for the offer and sale of bank securities in a bank holding
company dissolution to be exempt from the Sec. 16.3 registration
statement and prospectus requirements.
Specifically, the final rule adds a new Sec. 16.9 that would
expressly exempt from the Sec. 16.3 registration statement and
prospectus requirements offers and sales of bank-issued securities in
connection with the dissolution of the holding company of the bank if
those transactions satisfy the following requirements: (1) The offer
and sale of bank-issued securities occurs solely as part of a
dissolution in which the security holders exchange their shares of
stock in a holding company that had no significant assets other than
securities of the bank, for bank stock; (2) the security holders
receive, after the dissolution, substantially the same proportional
share of interests in the bank as they held in the holding company; (3)
the rights and interests of the security holders in the bank are
substantially the same as those in the holding company prior to the
transaction; and (4) the bank has substantially the same assets and
liabilities as the holding company had on a consolidated basis prior to
the transaction.
As we noted in the preamble to the proposed rule, these
requirements parallel the conditions that must be satisfied in order
for securities issued in connection with an acquisition by a holding
company of a bank (pursuant to section 3(a) of the Bank Holding Company
Act of 1956) to be eligible for exemption from the registration
requirements of section 3(a)(12) of the Securities Act, and are equally
appropriate in the reverse context where bank-issued securities are
offered and sold in connection with the dissolution of the bank's
holding company.
From a shareholder protection standpoint, the rationale for not
requiring a registration statement for the formation of a shell holding
company--that the interests of the bank and company shareholders are
essentially the same--would apply equally to dissolution of a shell
holding company. The business rationale--reduction of costs of
dissolution of a holding company if a bank decides it does not need the
flexibility of a holding company structure--also is similar.
The final rule also makes conforming amendments to part 16 by
amending Sec. 16.5(a) to clarify that the exemption under section
3(a)(12) of the Securities Act is not available and adding a reference
to new Sec. 16.9 in the listing of exempt securities under Sec. 16.5.
Removal of Current and Periodic Report Filing (Sec. 16.20)
State banks and national banks are both subject to the Exchange
Act's periodic and current reporting requirements if they have one or
more classes of securities subject to the registration provisions of
section 12(g) of the Exchange Act.\62\ Pursuant to that statute, banks
having a class of equity securities held by 500 or more owners of
record are required to register that class of securities under Sec.
12(g) of the Exchange Act.\63\ Once registered, a bank becomes subject
to the periodic and current reporting requirements of the Exchange Act.
---------------------------------------------------------------------------
\62\ See Exchange Act Sec. 12(i), 15 U.S.C. 78l(i), 12 CFR part
335, and 12 CFR part 11.
\63\ Section 12(g) of the Exchange Act also requires a bank to
have more than $1 million of assets.
---------------------------------------------------------------------------
Section 16.20 of the OCC's regulations imposes periodic and current
reporting requirements for national banks that file registration
statements with the OCC for the public offering of their securities.
Pursuant to Sec. 16.20, a national bank must file periodic and current
reports after the registration statement becomes effective, even if the
bank is not otherwise required to register its securities under the
Exchange Act. This periodic and current reporting requirement was based
on that imposed by section 15(d) of the Exchange Act on other entities
filing Securities Act registration statements with the SEC.\64\ The OCC
adopted this periodic and current reporting requirement in
consideration of the interests of potential purchasers in a bank's
public offering to have access to updated information necessary for
their investment decisions, in the same manner as investors in other
companies.
---------------------------------------------------------------------------
\64\ 59 FR 54789 (Nov. 2, 1994).
---------------------------------------------------------------------------
The periodic and current reporting requirements of Sec. 16.20
apply to national banks until the securities to which the national
bank's registration statement relates are held of record by fewer than
300 persons. The FDIC and the Federal Reserve Board have not imposed a
comparable obligation on State banks. Instead, a State bank that
conducts public offerings of their securities are subject to Exchange
Act periodic and current reporting requirements only if the bank has
more than 500 shareholders.
As in the proposal, the final rule eliminates Sec. 16.20 in order
to reduce regulatory burden with respect to small national banks that
file registration statements with the OCC for the public offering of
their securities. Thus, only a national bank that has 500 or more
shareholders of record will be subject to
[[Page 22230]]
the Exchange Act periodic and current reporting requirements.\65\ We
also make a conforming change to Sec. 16.6 by deleting the reference
to Sec. 16.20 in that section.
---------------------------------------------------------------------------
\65\ See Exchange Act Sec. 12(i), 15 U.S.C. 78l(i) and 12 CFR
part 11.
---------------------------------------------------------------------------
As noted in the preamble to our proposal, this change will not
significantly diminish financial information about a bank that will be
available to investors, as updated financial information, including the
bank's most recent balance sheet and statement of income filed with the
OCC as part of the bank's most recent Consolidated Report of Condition
(Call Report), is publicly available to investors. This change also
will have no effect on the requirement under the OCC's Exchange Act
disclosure rule at 12 CFR part 11 that a national bank whose securities
are registered under section 12(b) or 12(g) of the Exchange Act must
file current and periodic reports that conform to section 13 of the
Exchange Act.
Part 19--Rules of Practice and Procedure
The FSRRA made several changes affecting the OCC's exercise of its
enforcement authority pursuant to section 8 of the FDI Act \66\ and our
proposed rule amended part 19 to reflect these changes. We also
proposed to update the titles of OCC officials referenced in Sec. Sec.
19.111 and 19.112 and to eliminate the applicability of part 19 to DC
banks by deleting a reference to DC banks in the definition of
``institution'' in Sec. 19.3(g) and in the scope section of subpart P,
Sec. 19.241, which relates to the removal, suspension, and debarment
of accountants from performing audit services. No commenter discussed
these amendments, and we adopt them as proposed, with two technical
amendments, as discussed below.
---------------------------------------------------------------------------
\66\ 12 U.S.C. 1818.
---------------------------------------------------------------------------
More specifically, section 303 of the FSRRA changed the procedures
for issuing orders of suspension, removal or prohibition against
institution-affiliated parties (IAPs) of national banks. Previously,
section 8(e)(4) of the FDI Act 12 U.S.C. 1818(e)(4) required that,
following proceedings before an administrative law judge, the
determination whether to issue such orders would be made by the Federal
Reserve Board. Section 303 of the FSRRA repealed that requirement, so
that the OCC now has the authority to issue such orders, as it does
with respect to other types of orders resulting from an OCC-initiated
enforcement action. Our final rule amends Sec. 19.100, pertaining to
OCC adjudications, to reflect this change in the law.
Section 8(g) of the FDI Act pertains to the suspension, removal, or
prohibition of an IAP when the IAP is the subject of an information,
indictment, or complaint involving certain crimes set forth in the
statute or when the IAP has been convicted of such a crime.\67\ Section
708 of the FSRRA revised the statutory grounds that warrant suspension,
removal or prohibition of an IAP from further participation in the
conduct of the affairs of a depository institution, including a
national bank, in such a case. Section 708 also clarified that, if
grounds exist, an appropriate Federal banking agency, including the
OCC, may suspend or prohibit the IAP from participating in the affairs
of any depository institution, and not only the institution with which
the party is, or was last, affiliated. The amendment further clarified
that this authority applies even if the IAP is no longer associated
with the depository institution at which the offense allegedly occurred
or if the depository institution with which the IAP was affiliated no
longer exists. The final rule amends Sec. Sec. 19.110, and 19.111, and
19.113 to conform to these amendments. We also have made a technical
correction to our amendment to Sec. 19.111, adding back in language
inadvertently removed from our current rule relating to the time period
allowed for an institution-affiliated party to request a hearing. In
addition, the final rule includes a technical amendment to both
Sec. Sec. 19.110 and 19.111 not included in the proposed rule.
Specifically, we are inserting the phrase ``pursuant to 12 U.S.C.
1818(g)'' in these two paragraphs to clarify that these provisions
provide procedures for suspensions and removals of institution-
affiliated parties charged with a felony.
---------------------------------------------------------------------------
\67\ Id. at 1818(g).
---------------------------------------------------------------------------
Part 21--Minimum Security Devices and Procedures, Reports of Suspicious
Activities, and Bank Secrecy Act Compliance Program
Part 21 consists of three subparts. Subpart A requires each bank to
adopt appropriate security procedures to discourage robberies,
burglaries, and larcenies and to assist in identifying and apprehending
persons who commit such acts. Subpart B ensures that national banks
file a Suspicious Activity Report when they detect a known or suspected
violation of Federal law or a suspicious transaction related to a money
laundering activity or a violation of the Bank Secrecy Act. Subpart C
requires that all national banks establish and maintain procedures
reasonably designed to assure and monitor their compliance with the
requirements of the Bank Secrecy Act and its implementing regulations.
As in the proposed rule, the final rule removes references to DC
banks in the scope section of part 21 to clarify that part 21 no longer
applies to DC banks, pursuant to the DC Bank Act.
Part 22--Loans in Areas Having Special Flood Hazards
Part 22 applies to loans secured by buildings or mobile homes
located or to be located in areas subject to special flood hazards. It
implements the requirements of the National Flood Insurance Act of 1968
and the Flood Disaster Protection Act of 1973. As in the proposed rule,
this final rule eliminates the applicability of part 22 to DC banks by
removing DC banks from the definition of ``bank'' in Sec. 22.2(b).
Part 23--Leasing
Part 23 contains the standards for personal property lease
financing transactions authorized for national banks. Section 23.6
applies the lending limits of 12 U.S.C. 84 or, if the lessee is an
affiliate of the bank, the restrictions on transactions with affiliates
prescribed by 12 U.S.C. 371c and 371c-1 to these lease transactions.
The proposal added to Sec. 23.6 cross-references to the Federal
Reserve Board's Regulation W, 12 CFR part 223, which implements 12
U.S.C. 371c and 371c-1. We proposed this change because Regulation W
contains new provisions that do not appear in 12 U.S.C. 371c and 371c-
1. In addition, Regulation W contains a definition of the term
``affiliate'' that is broader than the definition that appears in Sec.
371c and Sec. 371c-1. The proposal also added to Sec. 23.6 a cross-
reference to 12 CFR part 32, which implements 12 U.S.C. 84, for
consistency in reader reference. We adopt these amendments as proposed,
with minor corrections to the regulatory text.
Part 24--Community Development Investments
The FSRRA made a number of changes to section 24 (Eleventh), the
authorizing statute for 12 CFR part 24. Prior to its amendment by the
FSRRA, 12 U.S.C. 24 (Eleventh) authorized a national bank to ``make
investments designed primarily to promote the public welfare, including
the welfare of low- and moderate-income communities or families (such
as by providing housing, services, or jobs)'' (the public welfare
test). A national bank could
[[Page 22231]]
``make such investments directly or by purchasing interests in an
entity primarily engaged in making such investments.'' The FSRRA
narrowed the grant of authority in section 24 (Eleventh) by providing
that a national bank may ``make investments, directly or indirectly,
each of which promotes the public welfare by benefiting primarily low-
and moderate-income communities or families (such as by providing
housing, services, or jobs).'' The FSRRA also revised section 24
(Eleventh) to state explicitly that the authority to make public
welfare investments applies to investments made by a national bank
directly and by its subsidiaries.\68\ In addition, the FSRRA raised the
maximum aggregate outstanding investment limit under section 24
(Eleventh) from 10 to 15 percent of the bank's unimpaired capital and
surplus.
---------------------------------------------------------------------------
\68\ FSRRA, Sec. 305, 120 Stat. at 1970-71.
---------------------------------------------------------------------------
The proposal revised part 24 to conform to these changes. In
addition, the proposal made changes to the procedure that applies when
a national bank requests OCC approval to exceed the investment limit,
and made a number of conforming and technical changes to part 24. The
commenters did not address these amendments to part 24. We therefore
adopt them in the final rule as proposed, with the exception of Sec.
24.2(c) in which we correct a drafting error. These amendments are
described below.
Definition of ``Community and Economic Development Entity'' (CEDE)
(Sec. 24.2(c))
The final rule amends the definition of a CEDE in Sec. 24.2(c) to
implement the FSRRA change to the public welfare test. Paragraph (c)
now defines a CEDE as ``an entity that makes investments or conducts
activities that promote the public welfare by benefiting primarily low-
and moderate-income areas or individuals''. We also have made a
technical correction to the Federal Register formatting instructions,
which in the proposed rule had inadvertently removed the remaining part
of this definition that contained a non-exclusive list of examples of
the types of entities that may be CEDEs. The final rule replaces this
text.
Definition of ``Benefiting Primarily Low- and Moderate-Income Areas or
Individuals'' (Sec. 24.2(g))
As indicated above, 12 U.S.C. 24 (Eleventh) now authorizes a
national bank and its subsidiaries to make investments that promote the
public welfare by ``benefiting primarily'' low- and moderate-income
areas or individuals. The final rule defines ``benefiting primarily low
and moderate-income areas or individuals'' when used to describe an
investment to mean that: (1) A majority (more than 50 percent) of the
investment benefits low- and moderate-income areas or individuals; or
(2) the express, primary purpose of the investment (evidenced, for
example, by government eligibility requirements) is to benefit ``low-
and moderate-income areas or individuals.'' As we noted in the preamble
to the proposed rule, this definition is consistent with the way in
which the OCC and the other Federal banking agencies have construed the
concept of ``primary'' in the phrase ``primary purpose'' for community
development activities pursuant to the CRA rules.\69\
---------------------------------------------------------------------------
\69\ See Interagency Questions and Answers Regarding Community
Reinvestment, Q&A Sec. Sec. --.12(i) and 563e.12(h)-7, 66 FR 36620,
36627 (July 12, 2001) (explaining ``primary purpose'' for community
development activities in the context of the CRA rules).
---------------------------------------------------------------------------
Public Welfare Investments (Sec. Sec. 24.3, 24.1)
The final rule revises Sec. 24.3, which contains the authorization
to make investments pursuant to section 24 (Eleventh), to conform with
the changes made by the FSRRA. The final rule also adds a new Sec.
24.1(e) to clarify that investments made, or written commitments to
make investments entered into, before the enactment of the FSRRA
continue to be subject to the statutes and regulations in effect prior
to October 13, 2006.\70\
---------------------------------------------------------------------------
\70\ See 152 Cong. Rec. H7586 (daily ed. Sept. 29, 2006)
(colloquy between Chairman Oxley of the House Financial Services
Committee and Ranking Member Frank) (explaining that the revised
standard in section 24 (Eleventh) applies prospectively only and
does not affect investments made, or written commitments to make
investments that were entered into, prior to the enactment of the
new standard).
---------------------------------------------------------------------------
Investment Limits (Sec. 24.4)
The final rule revises Sec. 24.4(a) to implement the statutory
change to the aggregate investment limit in section 24 (Eleventh) from
10 to 15 percent of unimpaired capital and surplus.
After-the-Fact Notice and Prior Approval Procedures (Sec. 24.5)
The final rule modifies the procedure that applies when a national
bank requests OCC approval to exceed the investment limit. The current
rule permits a national bank's aggregate outstanding investments to
exceed 5 percent of its capital and surplus if the bank is well
capitalized and the OCC determines, by written approval of a bank's
proposed investment pursuant to the procedures set out at Sec.
24.5(b), that a higher amount will pose no significant risk to the
deposit insurance fund. Section 24.5(b) describes the application
process that is required for the OCC's prior approval of an investment
when a bank does not satisfy the requirements for using an after-the-
fact notice. Thus, the investment limits provision in current Sec.
24.4(a) requires a national bank to submit a request to exceed the 5
percent limit together with a specific investment proposal, and to use
the prior approval procedures for that investment proposal.
As indicated in the preamble to the proposed rule, this particular
prior approval procedure is not required by the statute and the OCC has
determined that the burden it imposes is not warranted in view of the
low level of risk generally presented by the types of investments
authorized pursuant to section 24 (Eleventh). Accordingly, the final
rule removes the requirement that a national bank submit a specific
investment proposal for prior approval under Sec. 24.5(b) when it also
seeks approval to exceed the 5 percent investment limit. In other
words, under this new, simpler procedure, the bank is not required to
tie its written request to exceed the 5 percent limit to a specific
investment proposal. If the OCC provides written approval of the
request, the bank may make investments above the 5 percent limit.
However, as is the case for investments below the 5 percent limit, for
each investment above the limit the bank would submit either an after-
the-fact notice under Sec. 24.5(a) if it satisfies the requirements
for after-the-fact notice, or an application under Sec. 25.4(b) if it
does not. These revisions facilitate national banks' ability to plan
their investment activity while enabling the OCC to monitor the bank's
use of the part 24 authority on a case-by-case basis. Thus, revised
Sec. 24.4(a) permits a national bank's aggregate outstanding
investments to exceed 5 percent of its capital and surplus, provided
that the bank is at least adequately capitalized and the OCC
determines, by written approval of a written request submitted by the
bank, that a higher amount of investment will pose no significant risk
to the deposit insurance fund.
Examples of Qualifying Public Welfare Investments (Sec. 24.6)
Current Sec. 24.6 contains examples of qualifying public welfare
investments. The final rule revises Sec. 24.6 as necessary to reflect
the revision of the statutory standard made by section 305 of the
FSRRA. The final rule also makes conforming amendments to Sec. 24.6 to
clarify that the examples of qualifying
[[Page 22232]]
public investments include investments that benefit primarily low- and
moderate-income areas or individuals and that: (1) Finance minority-
and women-owned small businesses or small farms; (2) provide technical
assistance for minority- and women-owned small businesses; or (3) are
made in minority- and women-owned depository institutions. As stated in
the preamble to the final rule, the OCC expects these qualifying
investments to be made in minority- and women-owned entities that
conform to the ownership and control, profit and loss taking, and
senior management representation requirements of the CRA's provision
governing operation of branch facilities by minorities and women.\71\
In addition, the final rule revises references to investments in
``targeted redevelopment areas,'' which, after FSRRA, would be
permissible only if they promote the public welfare by benefiting
primarily low- and moderate-income areas or individuals. Finally, the
final rule amends Sec. 24.6(d)(1) to include investments that provide
financial literacy as an additional example of a qualifying public
welfare investment.
---------------------------------------------------------------------------
\71\ See 12 U.S.C. 2907(b)(1)-(3).
---------------------------------------------------------------------------
Technical Amendments
The final rule revises several sections of part 24 to eliminate
language that is inconsistent or unnecessary in light of the revised
statutory standard for community development investments and to make
technical changes, including:
A revision to Sec. 24.2(f) that updates a cross-reference
to the definitions of ``low-income'' and ``moderate-income'' in Sec.
25.12.
Amendments to Sec. 24.5 that direct national banks to
submit after-the-fact notices and investment proposals needing prior
approval to the OCC's Community Affairs Department, instead of to the
Director, Community Development Division, and that permit banks to
submit these materials via e-mail, fax, or electronically through
National BankNet, in addition to the mail. We also are correcting the
format of a citation to 12 U.S.C. 24 (Eleventh) in paragraph (a)(1).
An amendment to Sec. 24.6(b)(2) that replaces the phrase
``low- or moderate-income'' with ``low- and moderate-income,'' which is
consistent with how that phrase appears throughout part 24.
A conforming technical amendment to Sec. 24.6(d)(3) that
would permit other public welfare investments, including investments of
a type determined by the OCC to be permissible under the revisions to
part 24. Grandfathered investments that are subject to statutes and
regulations in effect prior to October 13, 2006 would not be affected.
The proposal also revises Appendix 1 to part 24, the CD-1 National
Bank Community Development (Part 24) Investments Form, to reflect the
proposed changes to the regulation.
Part 26--Management Officials Interlocks
Part 26 implements the provisions of the Depository Institution
Management Interlocks Act (Interlocks Act) \72\ which generally
prohibits a management official from serving two nonaffiliated
depository organizations in situations where the management interlock
likely would have an anticompetitive effect.\73\ As in the proposal,
this final rule amends part 26 by deleting the reference to DC banks in
the scope section, Sec. 26.1(c), deleting the definition of ``District
bank'' in Sec. 26.2(i), and deleting the reference to DC banks in the
enforcement section, Sec. 26.8.
---------------------------------------------------------------------------
\72\ 12 U.S.C. 3201 et seq.
\73\ Section 610 of the FSRRA raised the asset-size amount from
$20 million to $50 million for small banks that are exempt under
certain provisions of the Interlocks Act. Because the OCC's current
substantive rules implementing the Interlocks Act were issued
together with the other Federal banking agencies, the OCC has
amended part 26 to reflect this FSRRA provision through a separate
rulemaking conducted jointly with those agencies. The OCC and the
other Federal banking agencies issued a final rule implementing this
change on July 16, 2007. See 72 FR 38753.
---------------------------------------------------------------------------
Part 27--Fair Housing Home Loan Data System
Part 27 applies to activities of national banks and their
subsidiaries that make home loans for the purpose of purchasing,
construction-permanent financing, or refinancing of residential real
property. As proposed, the final rule removes DC banks from the scope
of part 27 in Sec. 27.1(a) and the definition of ``bank'' in Sec.
27.2(c).
Part 28--International Banking Activities
The proposed rule made three changes to part 28, which sets forth
the OCC's rules on international banking activities of national banks.
We received no comments on these changes and adopt them as proposed.
The first amendment makes a technical change to the definition of
``limited Federal branch'' in 12 CFR 28.11(s). Currently, this
regulation defines a limited foreign branch as a Federal branch or
agency that, pursuant to an agreement between the parent foreign bank
and the FRB, may receive only those deposits permissible for an Edge
corporation to receive. However, this agreement is not required for a
foreign bank to operate a limited Federal branch in the United States.
Therefore, we are removing the unnecessary reference to this agreement
from this definition. We note that this change does not in any manner
affect the requirement in Sec. 28.11(s) that a limited Federal branch
licensed by the OCC may accept only those deposits that are permissible
for an Edge corporation.
Second, we are making a technical change to part 28 with respect to
the expedited time periods for processing applications by eligible
foreign banks to establish or relocate an interstate Federal branch or
agency. Current 12 CFR 28.12(e)(3) provides that an application by an
eligible foreign bank to establish and operate a de novo interstate
Federal branch or agency is conditionally approved as of the 30th day
after the OCC receives the application unless the OCC notifies the bank
otherwise. However, as noted in the preamble to the proposed rule, the
OCC is finding that the expedited process in the current regulation is
not allowing sufficient time for the 30-day comment period to expire
and for consideration of the comments received. As a result, the OCC is
routinely notifying the eligible banks that the time period is
extended. The final rule amends Sec. 28.12(e) to provide that all
expedited approvals to establish or relocate a Federal branch or agency
are approved as of the 15th day after the close of the applicable
public comment period, or the 45th day after the filing is received by
the OCC, whichever is later, unless the OCC notifies the bank
otherwise. These are the same time frames that would apply under 12 CFR
5.20(f)(5) if a national bank were engaging in a similar transaction.
Finally, we are eliminating the applicability to DC banks of
subpart C of part 28, which implements the International Lending
Supervision Act of 1988 (12 U.S.C. 3901 et seq.). Specifically, the
final rule eliminates the references to DC banks in the scope section,
Sec. 28.50(c), and in the definition of ``banking institution'', Sec.
28.51(a).
Part 31--Extensions of Credit to Insiders and Transactions With
Affiliates
Sections 23A and 23B of the Federal Reserve Act, as implemented by
the Federal Reserve Board's Regulation W, impose quantitative and
qualitative limitations on a bank's transactions with its
``affiliates.'' Appendix A to part 31 of the OCC's rules contains two
interpretations of section 23A pertaining to a national bank's
transactions with an affiliate. One of these interpretations provides
that a loan to an unaffiliated
[[Page 22233]]
third party that is collateralized by securities issued by an affiliate
is not a ``covered transaction'' (that is, a transaction to which the
requirements of section 23A apply) so long as: the borrower provides
additional collateral that meets or exceeds the collateral requirements
of Sec. 23A (i.e., up to 130% of the loan); and the loan proceeds are
not used to purchase the affiliate-issued securities or otherwise used
for the benefit of, or transferred to, any affiliate. The Federal
Reserve Board's Regulation W, which was issued subsequent to the OCC's
adoption of these interpretations, treats this transaction differently.
Accordingly, we proposed to remove our interpretation on that issue
from Appendix A to part 31.
In addition, we proposed minor changes to section 2 of Appendix A
to part 31 to reflect the applicability of 12 U.S.C. 371c, 371c-1, and
their implementing regulation, Regulation W, to deposits between
affiliated banks. Furthermore, we proposed an exception to this
provision in order to clarify that a national bank may make or receive
a deposit if a party other than the depositary can legally offer and
does post the collateral.
The proposal also removed the reference to 12 U.S.C. 1972(2)(G),
which was repealed by section 601 of the FSRRA, in the authority
section of part 31 as well as in Sec. 31.1.
Finally, the proposal made a technical amendment to Appendix B to
part 31. This appendix compares the requirements of part 31 and part
32. However, it currently contains an inaccurate description of part 32
relating to exclusions to the definition of ``loans or extensions of
credit.'' The proposal removed this inaccuracy.
None of the commenters addressed these amendments to part 31, and
we adopt them as proposed.
Part 32--Lending Limits
Part 32 sets forth the lending limits that are applicable to a
national bank. Section 32.1(c)(1) excludes from the scope of part 32's
coverage loans made by a national bank and its domestic operating
subsidiaries to a bank ``affiliate,'' as that term is defined in
section 23A(b)(1) of the Federal Reserve Act. After the OCC adopted
part 32 in its current form, the Gramm-Leach-Bliley Act authorized a
national bank (as well as an insured State member bank) to hold
financial subsidiaries and provided generally that financial
subsidiaries would be treated as ``affiliates'' for purposes of
sections 23A and 23B of the Federal Reserve Act. This treatment appears
in the statute at section 23A(e). Accordingly, the Federal Reserve
Board's Regulation W generally defines as ``affiliates'' financial
subsidiaries established pursuant to the authorization in the Gramm-
Leach-Bliley Act.
The proposal added to Sec. 32.1(c)(1) cross-references to section
23A(e) and to Sec. 223.2(a) of the Federal Reserve Board's Regulation
W. This change directly cites the specific statute that defines an
affiliate to include a financial subsidiary as well as the implementing
provision of Regulation W. We received no comments on this amendment
and adopt it as proposed.
This amendment to Sec. 32.1 makes clear that a bank's loan to its
financial subsidiary is not covered by the lending limit and that,
instead, Regulation W applies to such a loan.\74\ The amendment also
serves more generally to reflect the fact that Regulation W contains a
definition of the term ``affiliate'' that is broader than the
definition that appears in Sec. 371c.
---------------------------------------------------------------------------
\74\ However, subsidiaries that are financial subsidiaries
solely because they sell insurance as agent or broker in a manner
not permitted to the parent bank are not considered ``affiliates''
under Regulation W (see 12 CFR 223.3(p)(2)(i)) (unless the
subsidiary is an affiliate for reasons other than its status as a
financial subsidiary under the Gramm-Leach-Bliley Act). Loans to
such subsidiaries are not subject to the lending limit for the same
reason that the lending limit does not apply to loans to companies
that meet the general definition of ``affiliate'' in Sec.
371c(b)(1) but are excepted from Sec. 371c by another provision,
e.g., operating subsidiaries or companies engaged solely in holding
the premises of the bank (see section 371c(b)(2)). The OCC does not
apply the lending limit to loans to any financial subsidiary since
it is not necessary given that another statutory scheme--the
affiliate transaction restrictions--is generally applicable. This
reason applies even where a specific exemption--such as for the
entities described in 12 CFR 223.3(p)(2)(i)--causes the affiliate
transaction restrictions to be inapplicable.
---------------------------------------------------------------------------
Part 34--Real Estate Lending and Appraisals
Under current Sec. 34.22, if a national bank makes an adjustable
rate mortgage (ARM) loan, the loan documents must specify an index to
which a change in the interest rate will be linked. Section 34.22
describes the requirements that generally apply to such an index. The
proposal amended Sec. 34.22 to provide national banks with additional
flexibility with respect to the indices upon which ARM rates may be
based. Specifically, the amendment permitted national banks to use a
combination of indices to which changes in the interest rate will be
linked, in addition to a single index. The amendment also permitted a
national bank to use an index other than one already permissible under
the rule, if the bank files a notice with the OCC and the OCC does not
notify the bank within 30 days that the notice raises supervisory
concerns or significant issues of law or policy. If the OCC notifies
the bank about such issues or concerns, the bank may not proceed unless
it has obtained the OCC's written approval. The approval could include
any restrictions or conditions necessary to address the issues or
concerns the OCC has identified.
We received one comment on this amendment to Part 34, which
requested that we clarify that national banks may purchase, as well as
originate, loans that use indices other than those permissible under
the current rule. The commenter stated that this would permit the OCC
to exercise the same level of oversight and supervision with regard to
purchases as applies to originations and to ensure that the indices on
which purchased ARM loans are based are also consistent with the
principles of safety and soundness and fairness and transparency to the
borrower.
Part 34 currently addresses a national bank's purchase of loans
that do not conform with the requirements of the part. Generally, loans
purchased from unrelated parties are not subject to the ARM criteria
specified by part 34, but loans acquired from a subsidiary or an
affiliate are subject to those standards. Section 34.21(b) currently
provides that:
A national bank may purchase or participate in ARM loans that
were not made in accordance with this part, except that loans
purchased, in whole or in part, from an affiliate or subsidiary must
comply with this part. For purposes of this paragraph, the terms
affiliate and subsidiary have the same meaning as in 12 U.S.C. 371c.
Pursuant to Sec. 34.21(b), the index requirements (and the no-
objection procedure added by the draft final rule) apply to ARM loans
originated by operating subsidiaries. This is consistent with
provisions elsewhere in our rules that require operating subsidiaries
to conduct activities subject to the same standards as apply to the
parent bank.\75\ Consequently, an operating subsidiary should not have
nonconforming loans available for purchase by its parent bank unless
the bank or operating subsidiary had provided notice to the OCC
pursuant to our amendment to Sec. 34.22, and not received a
disapproval from the OCC to use an index other than that specified in
Sec. 34.22(a).
\75\ See 12 CFR 34.l, 5.34(e).
---------------------------------------------------------------------------
Section Sec. 34.21(b) also provides that loans that a national
bank purchases from an affiliate also must comply with the index
requirements. Alternatively, a bank contemplating the purchase of
nonconforming loans from an affiliate
[[Page 22234]]
could comply with the no-objection procedure by submitting a notice
prior to the purchase of the nonconforming loans. Therefore, further
amendment to part 34 is not necessary in order to apply the prior
notice and no-objection process of amended Sec. 34.22 to ARM loans
purchased from subsidiaries and affiliates.
Section 34.21(b) does not apply the index requirements of Sec.
34.22 to the purchase of loans from nonaffiliates. The final rule
retains this approach with the result that a national bank still may
purchase or participate in ARM loans originated by unaffiliated lenders
that do not conform with the index requirements of the rule. However,
we have added language to 12 CFR 34.21 emphasizing that purchases of
loans from any person or entity, whether or not the seller is a
subsidiary or affiliate of the bank, must be undertaken prudently and
are subject to standards contained in OCC rules and guidance regarding
the purchasing of loans. For example, standards are contained in ``OCC
Guidelines Establishing Standards for Residential Mortgage Lending
Practices'' set forth in Appendix C of 12 CFR part 30; \76\ OCC Banking
Circular No. 181; \77\ the ``Interagency Guidance on Nontraditional
Mortgage Product Risks''; \78\ and the ``Interagency Statement on
Subprime Mortgage Lending''.\79\
---------------------------------------------------------------------------
\76\ Specifically, these standards and practices contained in
these Guidelines include: (1) Criteria for entering into and
continuing relationships with intermediaries and originators,
including due diligence requirements; (2) underwriting and appraisal
requirements; (3) standards related to total loan compensation and
total compensation of intermediaries, including maximum rates,
points, and other charges, and the use of overages and yield-spread
premiums, structured to avoid providing an incentive to originate
loans with predatory or abusive characteristics; (4) requirements
for agreements with intermediaries and originators, including with
respect to risks identified in the due diligence process, compliance
with appropriate bank policies, procedures and practices and with
applicable law (including remedies for failure to comply),
protection of the bank against risk, and termination procedures; (5)
loan documentation procedures, management information systems,
quality control reviews, and other methods through which the bank
will verify compliance with agreements, bank policies, and
applicable laws, and otherwise retain appropriate oversight of
mortgage origination functions, including loan sourcing,
underwriting, and loan closings; and (6) criteria and procedures for
the bank to take appropriate corrective action, including
modification of loan terms and termination of the relationship with
the intermediary or originator in question. See 12 CFR part 34,
Appendix C, Sec. III(E).
\77\ Banking Circular No. 181 specifically provides that the
absence of satisfactory controls over risk may constitute an unsafe
or unsound banking practice and thus cause for the OCC to seek
appropriate corrective action through its administrative remedies.
Satisfactory controls over the purchase of loans and participations
in loans ordinarily include, but are not limited to: (1) Written
lending policies and procedures governing these transactions; (2) an
independent analysis of credit quality by the purchasing bank; (3)
agreement by the obligor to make full credit information available
to the selling bank; (4) agreement by the selling bank to provide
available information on the obligor to the purchaser; and (5)
written documentation of recourse arrangements outlining the rights
and obligations of each party. See OCC BC 181 (Rev), ``Purchases of
Loans In Whole or In Part-Participations'' (Aug. 2, 1984).
\78\ 71 FR 58609, 58618 (Oct. 4, 2006).
\79\ This statement sets forth expectations for sound lending
practices and clear communications with borrowers with respect to
subprime mortgage products and lending practices. See 72 FR 37569
(July 10, 2007).
---------------------------------------------------------------------------
Accordingly, we adopt the final rule as proposed, with the
clarifying amendment to Sec. 34.21, described above.
Part 37--Debt Cancellation Contracts and Debt Suspension Agreements
On September 19, 2002, the OCC published a final rule in the
Federal Register that added a new 12 CFR part 37, which establishes
standards governing DCCs and DSAs.\80\ In the last sentence of Sec.
37.7(a), the cross-reference to standards in Sec. 37.6 is incorrect.
The rule should say Sec. 37.6(d), not Sec. 37.6(b). The final rule
corrects that error.
---------------------------------------------------------------------------
\80\ 67 FR 58962.
---------------------------------------------------------------------------
Part 40--Privacy of Consumer Financial Information
Part 40 governs the treatment of nonpublic personal information
about consumers by financial institutions. Pursuant to the DC Bank Act,
the final rule amends the scope section, Sec. 40.1(b), to eliminate
the applicability of part 40 to DC banks.
Effective Date of Final Rule
As noted above, the effective date of this final rule is July 1,
2008. However, national banks, and foreign banks taking actions with
respect to Federal branches and agencies, may elect to comply
voluntarily with any applicable provision of the final rule at any time
prior to the effective date.\81\
---------------------------------------------------------------------------
\81\ See 5 U.S.C. 553(d)(1), which provides that a delayed
effective date is not required for a rule that reduces burden or
relieves restrictions, and 12 U.S.C. 4802(b)(2), which permits
voluntary compliance prior to the effective date of certain rules.
---------------------------------------------------------------------------
Regulatory Analysis
Regulatory Flexibility Act
Pursuant to Sec. 605(b) of the Regulatory Flexibility Act, 5
U.S.C. 605(b) (RFA), the regulatory flexibility analysis otherwise
required under Sec. 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.
We have estimated that the economic costs associated with the
changes made by this final rule will not be significant and that the
majority of banks affected by these costs will be those with assets
greater than $250 million. Therefore, pursuant to Sec. 605(b) of the
RFA, the OCC hereby certifies that this final rule will not have a
significant economic impact on a substantial number of small entities.
Accordingly, a regulatory flexibility analysis is not needed.
Executive Order 12866
The OCC has determined that this final rule is not a significant
regulatory action under Executive Order 12866. We have concluded that
the changes made by this rule will not have an annual effect on the
economy of $100 million or more. The OCC further concludes that this
rule does not meet any of the other standards for a significant
regulatory action set forth in Executive Order 12866.
Paperwork Reduction Act
In accordance with the requirements of the Paperwork Reduction Act
of 1995 (PRA), 44 U.S.C. 3501 et seq., the Agencies may not conduct or
sponsor, and the 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 final
rule were submitted to and preapproved by OMB at the proposed rule
stage under OMB control numbers 1557-0014 (Part 5 and Comptroller's
Licensing Manual), 1557-0120 (Part 16, Securities Offering Disclosure
Rules), 1557-0194 (Part 24, Community and Economic Development
Entities, Community Development Projects, and Other Public Welfare
Investments), and 1557-0190 (Part 34, Real Estate Lending and
Appraisals). Following publication of this final rule, OMB's
preapproval will become final.
Unfunded Mandates Reform Act of 1995
Section 202 of the Unfunded Mandates Reform Act of 1995, Public Law
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, Sec. 205 of the Unfunded
Mandates Act also
[[Page 22235]]
requires an agency to identify and consider a reasonable number of
regulatory alternatives before promulgating a rule. The OCC has
determined that this final 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, final rule is not subject
to Sec. 202 of the Unfunded Mandates Act.
List of Subjects
12 CFR Part 1
Banks, Banking, National banks, Reporting and recordkeeping
requirements, Securities.
12 CFR Part 2
Credit life insurance, National banks.
12 CFR Part 3
Administrative practice and procedure, National banks, Reporting
and recordkeeping requirements.
12 CFR Part 4
Administrative practice and procedure, Freedom of information,
Individuals with disabilities, Minority businesses, Organization and
functions (Government agencies), Reporting and recordkeeping
requirements, Women.
12 CFR Part 5
Administrative practice and procedure, National banks, Reporting
and recordkeeping requirements, Securities.
12 CFR Part 7
National banks.
12 CFR Part 9
Estates, Investments, National banks, Reporting and recordkeeping
requirements, Trusts and trustees.
12 CFR Part 10
National banks, Reporting and recordkeeping requirements,
Securities.
12 CFR Part 11
Confidential business information, National banks, Reporting and
recordkeeping requirements, Securities.
12 CFR Part 12
National banks, Reporting and recordkeeping requirements,
Securities.
12 CFR Part 16
National banks, Reporting and recordkeeping requirements,
Securities.
12 CFR Part 19
Administrative practice and procedure, Crime, Equal access to
justice, Investigations, National banks, Penalties, Securities.
12 CFR Part 21
Crime, Currency, National banks, Reporting and recordkeeping
requirements, Security measures.
12 CFR Part 22
Flood insurance, Mortgages, National banks, Reporting and
recordkeeping requirements.
12 CFR Part 23
National banks.
12 CFR Part 24
Community development, Credit investments, Low and moderate income
housing, National banks, Reporting and recordkeeping requirements,
Rural areas, Small businesses.
12 CFR Part 26
Antitrust, Holding companies, National banks.
12 CFR Part 27
Civil rights, Credit, Fair housing, Mortgages, National banks,
Reporting and recordkeeping requirements.
12 CFR Part 28
Foreign banking, National banks, Reporting and recordkeeping
requirements.
12 CFR Part 31
Credit, National banks, Reporting and recordkeeping requirements.
12 CFR Part 32
National banks, Reporting and recordkeeping requirements.
12 CFR Part 34
Mortgages, National banks, Reporting and recordkeeping
requirements.
12 CFR Part 37
Banks, Banking, Consumer protection, National banks, Reporting and
recordkeeping requirements.
12 CFR Part 40
Banks, Banking, Consumer protection, National banks, Privacy,
Reporting and recordkeeping requirements.
Authority and Issuance
0
For the reasons set forth in the preamble, chapter I of title 12 of the
Code of Federal Regulations is amended as follows:
PART 1--INVESTMENT SECURITIES
0
1. The authority citation for part 1 continues to read as follows:
Authority: 12 U.S.C. 1 et seq., 24 (Seventh), and 93a.
0
2. Amend Sec. 1.1 by:
0
a. Revising the section heading;
0
b. Revising the first sentence of paragraph (c); and
0
c. Adding a new paragraph (d).
The additions and revisions read as follows:
Sec. 1.1 Authority, purpose, scope, and reservation of authority.
* * * * *
(c) Scope. The standards set forth in this part apply to national
banks and Federal branches of foreign banks. * * *
(d) Reservation of authority. The OCC may determine, on a case-by-
case basis, that a national bank may acquire an investment security
other than an investment security of a type set forth in this part,
provided the OCC determines that the bank's investment is consistent
with 12 U.S.C. section 24 (Seventh) and with safe and sound banking
practices. The OCC will consider all relevant factors, including the
risk characteristics of the particular investment in comparison with
the risk characteristics of investments that the OCC has previously
authorized, and the bank's ability effectively to manage such risks.
The OCC may impose limits or conditions in connection with approval of
an investment security under this subsection. Investment securities
that the OCC determines are permissible in accordance with this
paragraph constitute eligible investments for purposes of 12 U.S.C. 24.
0
3. Amend Sec. 1.3 by:
0
a. In paragraph (h), removing the heading ``Investment company shares''
and in its place add the heading ``Pooled investments'';
0
b. In paragraph (h)(1)(i), removing the phrase ``under this part'';
0
c. In paragraph (h)(2), removing the phrase ``under this part'';
0
d. Adding a new paragraph (h)(3); and
0
e. In paragraph (i)(1), adding the phrase ``the security is marketable
and'' after the word ``if'' and removing the phrase ``, and the bank
believes that the security may be sold with reasonable promptness at a
price that corresponds reasonably to its fair value''.
The additions read as follows:
Sec. 1.3 Limitations on dealing in, underwriting, and purchase and
sale of securities.
* * * * *
(h) * * *
(3) Investments made under this paragraph (h) must comply with
Sec. 1.5 of this part, conform with applicable published OCC
precedent, and must be:
(i) Marketable and rated investment grade or the credit equivalent
of a security rated investment grade, or
[[Page 22236]]
(ii) Satisfy the requirements of Sec. 1.3(i).
* * * * *
PART 2--SALES OF CREDIT LIFE INSURANCE
0
4. The authority citation for part 2 continues to read as follows:
Authority: 12 U.S.C. 24 (Seventh), 93a, and 1818(n).
0
5. In Sec. 2.2 revise paragraph (a) to read as follows:
Sec. 2.2 Definitions.
(a) Bank means a national banking association.
* * * * *
PART 3--MINIMUM CAPITAL RATIOS; ISSUANCE OF DIRECTIVES
0
6. 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.
0
7. In Sec. 3.2, revise paragraph (b) to read as follows:
Sec. 3.2 Definitions.
* * * * *
(b) Bank means a national banking association.
* * * * *
0
8. In Appendix A to part 3, revise section 3(a)(1)(v) to read as
follows:
Appendix to Part 3--Risk-Based Capital Guidelines
* * * * *
Section 3. Risk Categories/Weights for On-Balance Sheet Assets and Off-
Balance Sheet Items
* * * * *
(a) * * *
(1) * * *
(v) That portion of local currency claims on, or unconditionally
guaranteed by, central governments of non-OECD countries, to the
extent the bank has liabilities in that currency. Any amount of such
claims that exceeds the amount of the bank's liabilities in that
currency is assigned to the 100% risk category of section 3(a)(4) of
this appendix.
* * * * *
PART 4--ORGANIZATION AND FUNCTIONS, AVAILABILITY AND RELEASE OF
INFORMATION, CONTRACTING OUTREACH PROGRAM, POST-EMPLOYMENT
RESTRICTIONS FOR SENIOR EXAMINERS
0
9. The authority citation for part 4 is revised to read as follows:
Authority: 12 U.S.C. 93a. Subpart A also issued under 5 U.S.C.
552. Subpart B also issued under 5 U.S.C. 552; E.O. 12600 (3 CFR
1987 Comp., p. 235). Subpart C also issued under 5 U.S.C. 301, 552;
12 U.S.C. 161, 481, 482, 484(a), 1442, 1817(a)(2) and (3), 1818(u)
and (v), 1820(d)(6), 1920(k), 1821(c), 1821(o), 1821(t), 1831m,
1831p-1, 1831o, 1867, 1951 et seq., 2601 et seq., 2801 et seq., 2901
et seq., 3101 et seq., 3401 et seq.; 15 U.S.C. 77uu(b), 78q(c)(3);
18 U.S.C. 641, 1905, 1906; 29 U.S.C. 1204; 31 U.S.C. 9701; 42 U.S.C.
3601; 44 U.S.C. 3506, 3510. Subpart D also issued under 12 U.S.C.
1833e.
0
10. In Sec. 4.4, revise the second sentence to read as follows:
Sec. 4.4 Washington office.
* * * The Washington office directs OCC policy, oversees OCC
operations, and is responsible for the direct supervision of certain
national banks, including the largest national banks (through the Large
Bank Supervision Department) and other national banks requiring special
supervision. * * *
0
11. In Sec. 4.5(a), revise the table to read as follows:
Sec. 4.5 District and field offices.
(a) * * *
------------------------------------------------------------------------
Geographical
District Office address composition
------------------------------------------------------------------------
Northeastern District....... Office of the Connecticut,
Comptroller of the Delaware, District
Currency, 340 of Columbia,
Madison Avenue, 5th northeast Kentucky,
Floor New York, NY Maine, Maryland,
10173-0002. Massachusetts, New
Hampshire, New
Jersey, New York,
North Carolina,
Pennsylvania,
Puerto Rico, Rhode
Island, South
Carolina, Vermont,
the Virgin Islands,
Virginia, and West
Virginia.
Central District............ Office of the Illinois, Indiana,
Comptroller of the northeast and
Currency, One southeast Iowa,
Financial Place, central Kentucky,
Suite 2700, 440 Michigan,
South LaSalle Minnesota, eastern
Street, Chicago, IL Missouri, North
60605. Dakota, Ohio, and
Wisconsin.
Southern District........... Office of the Alabama, Arkansas,
Comptroller of the Florida, Georgia,
Currency, 500 North southern Kentucky,
Akard Street, Suite Louisiana,
1600, Dallas, TX Mississippi,
75201. Oklahoma,
Tennessee, and
Texas.
Western District............ Office of the Alaska, Arizona,
Comptroller of the California,
Currency, 1225 17th Colorado, Hawaii,
Street, Suite 300, Idaho, central and
Denver, CO 80202. western Iowa,
Kansas, western
Missouri, Montana,
Nebraska, Nevada,
New Mexico, Oregon,
South Dakota, Utah,
Washington,
Wyoming, and Guam.
------------------------------------------------------------------------
* * * * *
PART 5--RULES, POLICIES, AND PROCEDURES FOR CORPORATE ACTIVITIES
0
12. The authority citation for part 5 continues to read as follows:
Authority: 12 U.S.C. 1 et seq.; 93a; 215a-2; 215a-3, 481, and
section 5136A of the Revised Statutes (12 U.S.C. 24a).
Sec. 5.3 [Amended]
0
13. In Sec. 5.3 remove paragraph (j) and redesignate paragraphs (k)
and (l) as paragraphs (j) and (k), respectively.
Sec. 5.4 [Amended]
0
14. Amend Sec. 5.4(d) by:
0
a. Removing ``Licensing Manager'' in the first sentence and adding in
its place ``Director for District Licensing''; and
0
b. Removing the phrase ``Bank Organization and Structure Department''
in the second sentence and adding in its place the phrase ``Licensing
Department''.
0
15. Amend Sec. 5.13 by:
0
a. In paragraph (c), adding two sentences at the end of the paragraph;
0
b. In paragraph (f):
0
i. Removing the phrase ``Deputy Comptroller for Bank Organization and
Structure'' in the first sentence and adding in its place the phrase
``Deputy Comptroller for Licensing''; and
0
ii. Adding a sentence after the first sentence.
The additions read as follows:
[[Page 22237]]
Sec. 5.13 Decisions.
* * * * *
(c) * * * The OCC may return an application without a decision if
it finds the filing to be materially deficient. A filing is materially
deficient if it lacks sufficient information for the OCC to make a
determination under the applicable statutory or regulatory criteria.
* * * * *
(f) * * * In the event the Deputy Comptroller for Licensing was the
deciding official of the matter appealed, or was involved personally
and substantially in the matter, the appeal may be referred instead to
the Chief Counsel. * * *
* * * * *
0
16. Amend Sec. 5.20 by:
0
a. In paragraph (i)(3), removing the term ``spokesperson'' wherever it
appears and in its place adding the term ``contact person''; and
0
b. In paragraph (i)(5) by:
0
i. Revising the heading; and
0
ii. Adding a sentence after the second sentence of paragraph (i)(5)(i);
and
0
iii. Redesignating paragraphs (i)(5)(ii) and (i)(5)(iii) as paragraphs
(i)(5)(iii) and (i)(5)(iv), respectively; and
0
iv. Redesignating the last sentence of paragraph (i)(5)(i) as new
paragraph (i)(5)(ii).
The addition and revision read as follows:
Sec. 5.20 Organizing a bank.
(i) * * *
(5) Activities. (i) * * * A proposed national bank may offer and
sell securities prior to OCC preliminary approval of the proposed
national bank's charter application, provided that the proposed
national bank has filed articles of association, an organization
certificate, and a completed charter application and the bank complies
with the OCC's securities offering regulations, 12 CFR part 16. * * *
0
17. Amend Sec. 5.26 as follows:
0
a. Remove paragraph (e)(2)(i)(B);
0
b. Redesignate paragraphs (e)(2)(i)(C), (e)(2)(i)(D), (e)(2)(i)(E), as
paragraphs (e)(2)(i)(B), (e)(2)(i)(C), (e)(2)(i)(D), respectively;
0
c. At the end of newly redesignated paragraph (e)(2)(i)(C), remove the
word ``and'';
0
d. At the end of newly redesignated paragraph (e)(2)(i)(D), remove the
period and add in its place the phrase ``; and'';
0
e. Add a new paragraph (e)(2)(i)(E) to read as follows;
0
f. Redesignate paragraph (e)(3)(i) as paragraph (e)(3); and
0
g. Removing paragraph (e)(3)(ii) in its entirety.
The addition reads as follows:
Sec. 5.26 Fiduciary powers.
* * * * *
(e) * * *
(2) * * *
(i) * * *
(E) If requested by the OCC, an opinion of counsel that the
proposed activities do not violate applicable Federal or State law,
including citations to applicable law.
* * * * *
0
18. Amend Sec. 5.30 as follows:
0
a. In paragraph (d)(1)(i), add ``intermittent facility,'' after
``temporary facility,''; and
0
b. Redesignate paragraphs (d)(3) though (d)(5) as paragraphs (d)(4)
through (d)(6), respectively; and add a new paragraph (d)(3);
0
c. Redesignate paragraphs (f)(4) and (f)(5) as paragraphs (f)(5) and
(f)(6), respectively, and add a new paragraph (f)(4) to read as
follows.
The additions read as follows:
Sec. 5.30 Establishment, acquisition, and relocation of a branch.
* * * * *
(d) * * *
(3) Intermittent branch means a branch that is operated for one or
more limited periods of time to provide branch banking services at a
specified recurring event, on the grounds or premises where the event
is held or at a fixed site adjacent to the grounds or premises where
the event is held, and exclusively during the occurrence of the event.
Examples of an intermittent branch include the operation of a branch on
the campus of, or at a fixed site adjacent to the campus of, a specific
college during school registration periods; or the operation of a
branch during a State fair on State fairgrounds or at a fixed site
adjacent to the fairgrounds.
* * * * *
(f) * * *
(4) Intermittent branches. Prior to operating an intermittent
branch, a national bank shall file a branch application and publish
notice in accordance with Sec. 5.8, both of which shall identify the
event at which the branch will be operated; designate a location for
operation of the branch which shall be on the grounds or premises at
which the event is held or on a fixed site adjacent to those grounds or
premises; and specify the approximate time period during which the
event will be held and during which the branch will operate, including
whether operation of the branch will be on an annual or otherwise
recurring basis. If the branch is approved, then the bank need not
obtain approval each time it seeks to operate the branch in accordance
with the original application and approval.
* * * * *
0
19. Amend Sec. 5.33 as follows:
0
a. Add introductory text at the beginning of paragraph (d);
0
b. Revise the introductory text in paragraph (e)(1);
0
c. Redesignate paragraphs (e)(1)(i), (e)(1)(i)(A), (e)(1)(i)(B),
(e)(1)(ii), (e)(1)(iii), (e)(1)(iv), and (e)(1)(v) as paragraphs
(e)(1)(i)(A) introductory text, (e)(1)(i)(A)(1), (e)(1)(i)(A)(2),
(e)(1)(i)(B), (e)(1)(i)(C), (e)(1)(ii) and (e)(1)(iii) respectively;
0
d. Add a new paragraph (e)(1)(i) introductory text;
0
e. Revise redesignated paragraph (e)(1)(ii);
0
f. Remove the phrase ``, and with the appropriate district office''
from the first sentence of paragraph (e)(8)(ii);
0
g. Revise the headings of paragraphs (g), (g)(1) and (g)(3);
0
h. Remove the phrase ``or merger'' in paragraph (g)(2)(ii);
0
i. Remove the phrase ``12 U.S.C. 214c'' in paragraph (g)(3)(i) and add
in its place ``12 U.S.C. 214b''; and
0
j. Revise paragraph (h).
The additions and revisions read as follows:
Sec. 5.33 Business combinations.
* * * * *
(d) Definitions--For purposes of this Sec. 5.33: * * *
(e) Policy. (1) Factors. (i) Bank Merger Act. When the OCC
evaluates an application for a business combination under the Bank
Merger Act, the OCC considers the following factors: * * *
(ii) Community Reinvestment Act. When the OCC evaluates an
application for a business combination under the Community Reinvestment
Act, the OCC considers the performance of the applicant and the other
depository institutions involved in the business combination in helping
to meet the credit needs of the relevant communities, including low-
and moderate-income neighborhoods, consistent with safe and sound
banking practices.
* * * * *
(g) Provisions governing consolidations and mergers with different
types of entities. (1) Consolidations and mergers under 12 U.S.C. 215
or 215a of a national bank with other national banks and State banks as
defined in 12 U.S.C. 215b(1) resulting in a national bank. * * *
* * * * *
(3) Consolidation or merger of a national bank resulting in a State
bank
[[Page 22238]]
as defined in 12 U.S.C. 214(a) under 12 U.S.C. 214a or a Federal
savings association under 12 U.S.C. 215c. * * *
* * * * *
(h) Interstate combinations under 12 U.S.C. 1831u. A business
combination between insured banks with different home States under the
authority of 12 U.S.C. 1831u must satisfy the standards and
requirements and comply with the procedures of 12 U.S.C. 1831u and
either 12 U.S.C. 215, 215a, and 215a-1, as applicable, if the resulting
bank is a national bank, or 12 U.S.C. 214a, 214b, and 214c if the
resulting bank is a State bank. For purposes of 12 U.S.C. 1831u, the
acquisition of a branch without the acquisition of all or substantially
all of the assets of a bank is treated as the acquisition of a bank
whose home State is the State in which the branch is located.
* * * * *
0
20. Amend Sec. 5.34 as follows:
0
a. Amend paragraph (e)(2) by:
0
i. Redesignating paragraphs (e)(2)(i) and (e)(2)(ii) as paragraphs
(e)(2)(ii)(A) and (e)(2)(ii)(B), respectively;
0
ii. Redesignating the first sentence of paragraph (e)(2) introductory
text as paragraph (e)(2)(i) and revising it; and
0
iii. Redesignating the second sentence of paragraph (e)(2) introductory
text as paragraph (e)(2)(ii) introductory text, republishing it for
reader reference;
0
b. Amend paragraph (e)(5) by:
0
i. Revising paragraph (e)(5)(i);
0
ii. Removing paragraph (e)(5)(iv);
0
iii. Redesignating paragraphs (e)(5)(ii) and (e)(5)(iii) as paragraphs
(e)(5)(iii) and (e)(5)(iv);
0
iv. Removing the word ``and'' at the end of paragraph (e)(5)(v)(X), and
the period at the end of paragraph (e)(5)(v)(Y) and replacing it with a
semicolon;
0
v. Revising paragraph (e)(5)(vi) introductory text;
0
vi. Removing the word ``and'' at the end of paragraph (e)(5)(vi)(B);
0
vii. Redesignating paragraph (e)(6) as paragraph (e)(7);
0
viii. Replacing the period with a semicolon and adding the word ``and''
at the end of (e)(5)(vi)(C); and
0
ix. Adding new paragraphs (e)(5)(ii), (e)(5)(v)(Z), (e)(5)(v)(AA),
(e)(5)(v)(BB), (e)(5)(v)(CC), (e)(5)(v)(DD), (e)(5)(v)(EE),
(e)(5)(v)(FF), (e)(5)(vi)(D), and (e)(6).
The additions and revisions read as follows:
Sec. 5.34 Operating subsidiaries.
* * * * *
(e) * * *
(2) Qualifying subsidiaries. (i) An operating subsidiary in which a
national bank may invest includes a corporation, limited liability
company, limited partnership, or similar entity if:
(A) The bank has the ability to control the management and
operations of the subsidiary;
(B) The parent bank owns and controls more than 50 percent of the
voting (or similar type of controlling) interest of the operating
subsidiary, or the parent bank otherwise controls the operating
subsidiary and no other party controls more than 50 percent of the
voting (or similar type of controlling) interest of the operating
subsidiary; and
(C) The operating subsidiary is consolidated with the bank under
Generally Accepted Accounting Principles (GAAP).
(ii) However, the following subsidiaries are not operating
subsidiaries subject to this section:
* * * * *
(5) Procedures--(i) Notice required. (A) Except for operating
subsidiaries subject to the application procedures set forth in
paragraph (e)(5)(ii) of this section or exempt from notice or
application procedures under paragraph (e)(5)(vi) of this section, a
national bank that is ``well capitalized'' and ``well managed'' may
establish or acquire an operating subsidiary, or perform a new activity
in an existing operating subsidiary, by providing the appropriate
district office written notice within 10 days after acquiring or
establishing the subsidiary, or commencing the new activity, if:
(1) The activity is listed in paragraph (e)(5)(v) of this section;
(2) The entity is a corporation, limited liability company, or
limited partnership; and
(3) The bank:
(i) Has the ability to control the management and operations of the
subsidiary by holding voting interests sufficient to select the number
of directors needed to control the subsidiary's board and to select and
terminate senior management (or, in the case of a limited partnership,
has the ability to control the management and operations of the
subsidiary by controlling the selection and termination of senior
management);
(ii) Holds more than 50 percent of the voting, or equivalent,
interests in the subsidiary, and, in the case of a limited partnership,
the bank or an operating subsidiary thereof is the sole general partner
of the limited partnership, provided that under the partnership
agreement, limited partners have no authority to bind the partnership
by virtue solely of their status as limited partners; and
(iii) Is required to consolidate its financial statements with
those of the subsidiary under Generally Accepted Accounting Principles.
(B) The written notice must include a complete description of the
bank's investment in the subsidiary and of the activity conducted and a
representation and undertaking that the activity will be conducted in
accordance with OCC policies contained in guidance issued by the OCC
regarding the activity. To the extent that the notice relates to the
initial affiliation of the bank with a company engaged in insurance
activities, the bank should describe the type of insurance activity in
which the company is engaged and has present plans to conduct. The bank
also must list for each State the lines of business for which the
company holds, or will hold, an insurance license, indicating the State
where the company holds a resident license or charter, as applicable.
Any bank receiving approval under this paragraph is deemed to have
agreed that the subsidiary will conduct the activity in a manner
consistent with published OCC guidance.
(ii) Application required. (A) Except where the operating
subsidiary is exempt from notice or application requirements under
paragraph (e)(5)(vi) of this section, or subject to the notice
procedures in paragraph (e)(5)(i), a national bank must first submit an
application to, and receive approval from, the OCC with respect to the
establishment or acquisition of an operating subsidiary, or the
performance of a new activity in an existing operating subsidiary.
(B) The application must explain, as appropriate, how the bank
``controls'' the enterprise, describing in full detail structural
arrangements where control is based on factors other than bank
ownership of more than 50 percent of the voting interest of the
subsidiary and the ability to control the management and operations of
the subsidiary by holding voting interests sufficient to select the
number of directors needed to control the subsidiary's board and to
select and terminate senior management. In the case of a limited
partnership that does not qualify for the notice procedures set forth
in paragraph (e)(5)(i), the bank should provide a statement explaining
why it is not eligible. The application also must include a complete
description of the bank's investment in the subsidiary, the proposed
activities of the subsidiary, the organizational structure and
management of the subsidiary, the relations between the bank and the
subsidiary, and other information necessary to adequately describe the
proposal. To the extent that the application relates to the initial
[[Page 22239]]
affiliation of the bank with a company engaged in insurance activities,
the bank should describe the type of insurance activity in which the
company is engaged and has present plans to conduct. The bank must also
list for each State the lines of business for which the company holds,
or will hold, an insurance license, indicating the State where the
company holds a resident license or charter, as applicable. The
application must state whether the operating subsidiary will conduct
any activity at a location other than the main office or a previously
approved branch of the bank. The OCC may require an applicant to submit
a legal analysis if the proposal is novel, unusually complex, or raises
substantial unresolved legal issues. In these cases, the OCC encourages
applicants to have a pre-filing meeting with the OCC. Any bank
receiving approval under this paragraph is deemed to have agreed that
the subsidiary will conduct the activity in a manner consistent with
published OCC guidance.
* * * * *
(v) * * *
(Z) Providing data processing, and data transmission services,
facilities (including equipment, technology, and personnel), databases,
advice and access to such services, facilities, databases and advice,
for the parent bank and for others, pursuant to 12 CFR 7.5006 to the
extent permitted by published OCC precedent;
(AA) Providing bill presentment, billing, collection, and claims-
processing services;
(BB) Providing safekeeping for personal information or valuable
confidential trade or business information, such as encryption keys, to
the extent permitted by published OCC precedent;
(CC) Providing payroll processing;
(DD) Providing branch management services;
(EE) Providing merchant processing services except when the
activity involves the use of third parties to solicit or underwrite
merchants; and
(FF) Performing administrative tasks involved in benefits
administration.
(vi) No application or notice required. A national bank may acquire
or establish an operating subsidiary, or engage in the performance of a
new activity in an existing operating subsidiary, without filing an
application or providing notice to the OCC, if the bank is well managed
and adequately capitalized or well capitalized and the: * * *
(D) The standards set forth in paragraphs (e)(5)(i)(A)(2) and (3)
of this section are satisfied.
(6) Grandfathered operating subsidiaries. Notwithstanding the
requirements for a qualifying operating subsidiary in Sec. 5.34(e)(2)
and unless otherwise notified by the OCC with respect to a particular
operating subsidiary, an entity that a national bank lawfully acquired
or established as an operating subsidiary before April 24, 2008 may
continue to operate as a national bank operating subsidiary under this
section, provided that the bank and the operating subsidiary were, and
continue to be, conducting authorized activities in compliance with the
standards and requirements applicable when the bank established or
acquired the operating subsidiary.
* * * * *
0
21. Amend Sec. 5.35 as follows:
0
a. In paragraph (d)(1) remove ``insured banks'' each time it appears
and add in its place ``insured depository institutions'';
0
b. In paragraph (d)(3) add ``, except when such term appears in
connection with the term `insured depository institution'' ' after
``means'';
0
c. Redesignate paragraphs (d)(4) and (d)(5) as paragraphs (d)(5) and
(d)(6), respectively;
0
d. Add new paragraph (d)(4);
0
e. In newly redesignated paragraph (d)(6):
0
i. Remove ``insured bank'' and add in its place ``insured depository
institution'';
0
ii. Remove ``insured banks'' and add in its place ``insured depository
institutions''; and
0
iii. Remove ``banks as its principal investor'' and add in its place
``insured depository institutions as its principal investor'';
0
f. Add the word ``and'' at the end of paragraph (g)(3);
0
g. Revise paragraph (g)(4);
0
h. Revise the heading of paragraph (i); and
0
i. Remove paragraphs (g)(5) and (i)(2) and the paragraph designation
for paragraph (i)(1).
The additions and revisions read as follows:
Sec. 5.35 Bank service companies.
* * * * *
(d) * * *
(4) Insured depository institution, for purposes of this section,
has the same meaning as in section 3 of the Federal Deposit Insurance
Act.
* * * * *
(g) * * *
(4) Information demonstrating that the bank service company will
perform only those services that each insured depository institution
shareholder or member is authorized to perform under applicable Federal
or State law and will perform such services only at locations in a
State in which each such shareholder or member is authorized to perform
such services unless performing services that are authorized by the
Federal Reserve Board under the authority of 12 U.S.C. 1865(b).
* * * * *
(i) Investment limitations. * * *
0
22. Amend Sec. 5.36 as follows:
0
a. Add ``application or'' before ``notice'' in paragraph (b);
0
b. Revise the last sentence of paragraph (b);
0
c. Revise paragraph (e) introductory text;
0
d. Remove paragraph (e)(5);
0
e. Redesignate paragraphs (e)(6) through (e)(8) as paragraphs (e)(5)
through (e)(7), respectively, and paragraphs (f) and (g) as paragraphs
(h) and (i), respectively;
0
f. Revise redesignated paragraph (e)(6); and
0
g. Add new paragraphs (f) and (g).
The additions and revisions read as follows:
Sec. 5.36 Other equity investments.
* * * * *
(b) * * * Other permissible equity investments may be reviewed on a
case-by-case basis by the OCC.
* * * * *
(e) Non-controlling investments; notice procedure. Unless the
procedures governing a national bank's non-controlling investment are
prescribed by OCC rules implementing a separate legal authorization of
the investment and except as provided in paragraphs (f) and (g) of this
section, a national bank may make a non-controlling investment,
directly or through its operating subsidiary, in an enterprise that
engages in the activities described in paragraph (e)(2) of this section
by filing a written notice. The bank must file this written notice with
the appropriate district office no later than 10 days after making the
investment. The written notice must: * * *
(6) Certify that the bank's loss exposure is limited as a legal
matter and that the bank does not have unlimited liability for the
obligations of the enterprise; and
* * * * *
(f) Non-controlling investment; application procedure. Unless the
procedures governing a national bank's non-controlling investment are
prescribed by OCC rules implementing a separate legal authorization of
the investment, a national bank must file an application and obtain
prior approval
[[Page 22240]]
before making or acquiring, either directly or through an operating
subsidiary, a non-controlling investment in an enterprise if the non-
controlling investment does not qualify for the notice procedure set
forth in paragraph (e) of this section because the bank is unable to
make the representation required by paragraph (e)(2) or the
certification required by paragraph (e)(3) of this section. The
application must include the information required in paragraphs (e)(1)
and (e)(4) through (e)(7) of this section and (e)(2) or (e)(3), as
appropriate. If the bank is unable to make the representation set forth
in paragraph (e)(2) of this section, the bank's application must
explain why the activity in which the enterprise engages is a
permissible activity for a national bank and why the applicant should
be permitted to hold a non-controlling investment in an enterprise
engaged in that activity. A bank may not make a non-controlling
investment if it is unable to make the representations and
certifications specified in paragraphs (e)(1) and (e)(4) through (e)(7)
of this section.
(g) Non-controlling investments in entities holding assets in
satisfaction of debts previously contracted. Certain non-controlling
investments may be eligible for expedited treatment where the bank's
investment is in an entity holding assets in satisfaction of debts
previously contracted or the bank acquires shares of a company in
satisfaction of debts previously contracted.
(1) Notice required. A national bank that is well capitalized and
well managed may acquire a non-controlling investment, directly or
through its operating subsidiary, in an enterprise that engages in the
activities of holding and managing assets acquired by the parent bank
through foreclosure or otherwise in good faith to compromise a doubtful
claim, or in the ordinary course of collecting a debt previously
contracted, by filing a written notice in accordance with this
paragraph (g)(i). The activities of the enterprise must be conducted
pursuant to the same terms and conditions as would be applicable if the
activity were conducted directly by a national bank. The bank must file
the written notice with the appropriate district office no later than
10 days after making the non-controlling investment. This notice must
include a complete description of the bank's investment in the
enterprise and the activities conducted, a description of how the bank
plans to divest the non-controlling investment or the underlying assets
within applicable statutory time frames, and a representation and
undertaking that the bank will conduct the activities in accordance
with OCC policies contained in guidance issued by the OCC regarding the
activities. Any national bank receiving approval under this paragraph
(g)(i) is deemed to have agreed that the enterprise will conduct the
activity in a manner consistent with published OCC guidance.
(2) No notice or application required. A national bank is not
required to file a notice or application under this Sec. 5.36 if it
acquires a non-controlling investment in shares of a company through
foreclosure or otherwise in good faith to compromise a doubtful claim,
or in the ordinary course of collecting a debt previously contracted.
* * * * *
0
23. Amend Sec. 5.39 as follows:
0
a. Amend paragraph (d)(1) by adding the phrase ``as implemented by
Regulation W, 12 CFR part 223,'' before ``as applicable'';
0
b. Amend paragraph (h) by:
0
i. Removing the word ``Sections'' at the beginning of paragraph (h)(5)
introductory text and adding in its place the phrase ``Except for a
subsidiary of a bank that is considered a financial subsidiary under
paragraph (a)(6) of this section solely because the subsidiary engages
in the sale of insurance as agent or broker in a manner that is not
permitted for national banks, sections'';
0
ii. Adding the phrase ``, as implemented by Regulation W, 12 CFR part
223,'' before the word ``apply'' in paragraph (h)(5) introductory text;
0
iii. Revising paragraph (h)(5)(iii);
0
iv. Removing the word ``and'' at the end of paragraph (h)(5)(iv);
0
v. Redesignating paragraph (h)(5)(v) as paragraph (h)(5)(vi) and adding
in redesignated paragraph (h)(5)(vi) the word ``other'' after the word
``Any''; and
0
vi. Adding a new paragraph (h)(5)(v).
The additions and revisions read as follows:
Sec. 5.39 Financial subsidiaries.
* * * * *
(h) * * *
(5) * * *
(iii) A bank's purchase of or investment in a security issued by a
financial subsidiary of the bank must be valued at the greater of:
(A) The total amount of consideration given (including liabilities
assumed) by the bank, reduced to reflect amortization of the security
to the extent consistent with GAAP, or
(B) The carrying value of the security (adjusted so as not to
reflect the bank's pro rata portion of any earnings retained or losses
incurred by the financial subsidiary after the bank's acquisition of
the security).
* * * * *
(v) Any extension of credit to a financial subsidiary of a bank by
an affiliate of the bank is treated as an extension of credit by the
bank to the financial subsidiary if the extension of credit is treated
as capital of the financial subsidiary under any Federal or State law,
regulation, or interpretation applicable to the subsidiary; and
* * * * *
0
24. Amend Sec. 5.46 as follows:
0
a. Remove the phrase ``letter of notification'' wherever it appears and
replace it with the word ``notice'';
0
b. Revise paragraph (e)(3)(iii);
0
c. Amend the first sentence of paragraph (i)(2) by removing the number
``30'' and replacing it with the number ``15''; and
0
d. Remove the phrase ``in order to obtain a certification from the
OCC'' in the first sentence in paragraph (i)(3).
The revision reads as follows:
Sec. 5.46 Changes in permanent capital.
* * * * *
(e) * * *
(3) * * *
(iii) The amount transferred from undivided profits; and
* * * * *
0
25. Amend Sec. 5.50 by:
0
a. Revising paragraph (a);
0
b. Redesignating paragraphs (d)(4) through (d)(6) as paragraphs (d)(5)
through (d)(7), respectively;
0
c. Adding a new paragraph (d)(4);
0
d. Redesignating paragraphs (f)(2)(ii) through (f)(2)(v) as paragraphs
(f)(2)(iii) through (f)(2)(vi), respectively;
0
e. Adding a new paragraph (f)(2)(ii);
0
f. Removing the phrase ``paragraph (f)(2)(ii)'' in newly redesignated
paragraph (f)(2)(vi) and adding in its place ``paragraphs (f)(2)(ii)
and (iii)'';
0
g. Adding the phrase ``information regarding the future prospects of
the institution,'' after ``detailed financial information,'' in
paragraph (f)(3)(i)(A);
0
h. Redesignating paragraphs (f)(4) and (f)(5) as paragraphs (f)(5) and
(f)(6), respectively;
0
i. Adding a new paragraph (f)(4);
0
j. Removing the phrase ``The financial condition of any acquiring
person'' and adding in its place ``Either the financial condition of
any acquiring person or the future prospects of the institution'' in
newly redesignated paragraph (f)(5)(iii);
0
k. Redesignating paragraph (h) as paragraph (i); and
0
l. Adding a new paragraph (h).
The additions and revisions read as follows:
[[Page 22241]]
Sec. 5.50 Change in bank control; reporting of stock loans.
(a) Authority. 12 U.S.C. 93a, 1817(j), and 12 U.S.C. 1831aa.
* * * * *
(d) * * *
(4) Immediate family includes a person's spouse, father, mother,
stepfather, stepmother, brother, sister, stepbrother, stepsister,
children, stepchildren, grandparent, grandchildren, father-in-law,
mother-in-law, brother-in-law, sister-in-law, son-in-law, daughter-in-
law, and the spouse of any of the forgoing.
* * * * *
(f) * * *
(2) * * *
(ii) The OCC presumes, unless rebutted, that a person is acting in
concert with his or her immediate family.
* * * * *
(4) Conditional actions. The OCC may impose conditions on its
action not to disapprove a notice to assure satisfaction of the
relevant statutory criteria for non-objection to a notice.
* * * * *
(h) Reporting requirement. After the consummation of the change in
control, the national bank shall notify the OCC in writing of any
changes or replacements of its chief executive officer or of any
director occurring during the 12-month period beginning on the date of
consummation. This notice must be filed within 10 days of such change
or replacement and must include a statement of the past and current
business and professional affiliations of the new chief executive
officers or directors.
* * * * *
0
26. Revise Sec. 5.64 to read as follows:
Sec. 5.64 Earnings limitation under 12 U.S.C. 60.
(a) Definitions. As used in this section, the term ``current year''
means the calendar year in which a national bank declared, or proposes
to declare, a dividend. The term ``current year minus one'' means the
year immediately preceding the current year. The term ``current year
minus two'' means the year that is two years prior to the current year.
The term ``current year minus three'' means the year that is three
years prior to the current year. The term ``current year minus four''
means the year that is four years prior to the current year.
(b) Dividends from undivided profits. Subject to 12 U.S.C. 56 and
this subpart, the directors of a national bank may declare and pay
dividends of so much of the undivided profits as they judge to be
expedient.
(c) Earnings limitations under 12 U.S.C. 60--(1) General rule. For
purposes of 12 U.S.C. 60, unless approved by the OCC in accordance with
paragraph (c)(3) of this section, a national bank may not declare a
dividend if the total amount of all dividends (common and preferred),
including the proposed dividend, declared by the national bank in any
current year exceeds the total of the national bank's net income for
the current year to date, combined with its retained net income of
current year minus one and current year minus two, less the sum of any
transfers required by the OCC and any transfers required to be made to
a fund for the retirement of any preferred stock.
(2) Excess dividends in prior periods. (i) If in current year minus
one or current year minus two the bank declared dividends in excess of
that year's net income, the excess shall not reduce retained net income
for the three-year period specified in paragraph (c)(1) of this
section, provided that the amount of excess dividends can be offset by
retained net income in current year minus three or current year minus
four. If the bank declared dividends in excess of net income in current
year minus one, the excess is offset by retained net income in current
year minus three and then by retained net income in current year minus
two. If the bank declared dividends in excess of net income in current
year minus two, the excess is first offset by retained net income in
current year minus four and then by retained net income in current year
minus three.
(ii) If the bank's retained net income in current year minus three
and current year minus four was insufficient to offset the full amount
of the excess dividends declared, as calculated in accordance with
paragraph (c)(2)(i) of this section, then the amount that is not offset
will reduce the retained net income available to pay dividends in the
current year.
(iii) The calculation in paragraph (c)(2) of this section shall
apply only to retained net loss that results from dividends declared in
excess of a single year's net income and does not apply to other types
of current earnings deficits.
(3) Prior approval required. A national bank may declare a dividend
in excess of the amount described in paragraph (c) of this section,
provided that the dividend is approved by the OCC. A national bank
shall submit a request for prior approval of a dividend under 12 U.S.C.
60 to the appropriate district office.
(d) Surplus surplus. Any amount in capital surplus in excess of
capital stock (referred to as ``surplus surplus'') may be transferred
to undivided profits and available as dividends, provided:
(1) The bank can demonstrate that the amount came from earnings in
prior periods, excluding the effect of any stock dividend; and
(2) The board of directors of the bank approves the transfer of the
amount from capital surplus to undivided profits.
PART 7--BANK ACTIVITIES AND OPERATIONS
0
27. The authority for part 7 continues to read as follows:
Authority: 12 U.S.C. 1 et seq., 71, 71a, 92, 92a, 93, 93a, 481,
484, and 1818.
Sec. 7.1016 [Amended]
0
28. Amend footnote 1 to part 7 by:
0
a. Removing ``Publication No. 500'' and inserting in its place
``Publication No. 600 or any applicable prior version''; and
0
b. Adding ``Supplements to UCP 500 & 600 for Electronic Presentation
(eUCP v. 1.0 & 1.1) (Supplements to the Uniform Customs and Practices
for Documentary Credits for Electronic Presentation) (available from
ICC Publishing, Inc., 212/206-1150; http://www.iccwbo.org)'' before
``the International Standby Practices (ISP98) (ICC Publication No.
590)''.
0
29. Amend Sec. 7.1017 by:
0
a. Redesignating the introductory text, paragraph (a), paragraph (b)
introductory text, paragraphs (b)(1) through (b)(3), and paragraphs
(b)(2)(i) through (b)(2)(iv) as paragraph (a) introductory text,
paragraph (a)(1), paragraph (a)(2) introductory text, paragraphs
(a)(2)(i) through (a)(2)(iii), and paragraphs (a)(2)(ii)(A) through
(a)(2)(ii)(D), respectively; and
0
b. Adding a new paragraph (b) to read as follows:
Sec. 7.1017 National bank as guarantor or surety on indemnity bond.
* * * * *
(b) In addition to paragraph (a) of this section, a national bank
may guarantee obligations of a customer, subsidiary or affiliate that
are financial in character, provided the amount of the bank's financial
obligation is reasonably ascertainable and otherwise consistent with
applicable law.
0
30. In Sec. 7.2006, revise the second sentence to read as follows:
Sec. 7.2006 Cumulative voting in election of directors.
* * * If permitted by the national bank's articles of association,
the
[[Page 22242]]
shareholder may cast all these votes for one candidate or distribute
the votes among as many candidates as the shareholder chooses. * * *
0
31. In Sec. 7.5001, add a new paragraph (d)(3) to read as follows:
Sec. 7.5001 Electronic activities that are part of, or incidental to,
the business of banking.
* * * * *
(d) * * *
(3) In addition to the electronic activities specifically permitted
in Sec. 7.5004 (sale of excess electronic capacity and by-products)
and Sec. 7.5006 (incidental non-financial data processing), the OCC
has determined that the following electronic activities are incidental
to the business of banking, pursuant to this section. This list of
activities is illustrative and not exclusive; the OCC may determine
that other activities are permissible pursuant to this authority.
(i) Web site development where incidental to other banking
services;
(ii) Internet access and e-mail provided on a non-profit basis as a
promotional activity;
(iii) Advisory and consulting services on electronic activities
where the services are incidental to customer use of electronic banking
services; and
(iv) Sale of equipment that is convenient or useful to customer's
use of related electronic banking services, such as specialized
terminals for scanning checks that will be deposited electronically by
wholesale customers of banks under the Check Clearing for the 21st
Century Act, Public Law 108-100 (12 U.S.C. 5001-5018) (the Check 21
Act).
0
32. Amend Sec. 7.5002 by:
0
a. Removing the word ``and'' at the end of paragraph (a)(3),
0
b. Removing the period at the end of paragraph (a)(4) and adding in its
place the ``; and''; and
0
c. Adding a new paragraph (a)(5) to read as follows:
Sec. 7.5002 Furnishing of products and services by electronic means
and facilities.
(a) * * *
(5) Issuing electronic letters of credit within the scope of 12 CFR
7.1016.
* * * * *
0
33. In Sec. 7.5006, add a new paragraph (c) as follows:
Sec. 7.5006 Data processing.
* * * * *
0
(c) Software for performance of authorized banking functions. A
national bank may produce, market, or sell software that performs
services or functions that the bank could perform directly, as part of
the business of banking.
PART 9--FIDUCIARY ACTIVITIES OF NATIONAL BANKS
0
34. 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.
0
35. Revise Sec. 9.20 to read as follows:
Sec. 9.20 Transfer agents.
(a)(1) Registration. An application for registration under Section
17A(c) of the Securities Exchange Act of 1934 of a transfer agent for
which the OCC is the appropriate regulatory agency, as defined in
section 3(a)(34)(B) of the Securities Exchange Act of 1934, shall be
filed with the OCC on FFIEC Form TA-1, in accordance with the
instructions contained therein. Registration shall become effective 30
days after the date an application on Form TA-1 is filed unless the OCC
accelerates, denies, or postpones such registration in accordance with
section 17A(c) of the Securities Exchange Act of 1934.
(2) Amendments to registration. Within 60 days following the date
on which any information reported on Form TA-1 becomes inaccurate,
misleading, or incomplete, the registrant shall file an amendment on
FFIEC Form TA-1 correcting the inaccurate, misleading, or incomplete
information. The filing of an amendment to an application for
registration as a transfer agent under this section, which registration
has not become effective, shall postpone the effective date of the
registration for 30 days following the date on which the amendment is
filed unless the OCC accelerates, denies, or postpones the registration
in accordance with Section 17A(c) of the Securities Exchange Act of
1934.
(3) Withdrawal from registration. Any registered national bank
transfer agent that ceases to engage in activities that require
registration under Section 17A(c) of the Securities Exchange Act of
1934 may file a written notice of withdrawal from registration with the
OCC. Deregistration shall be effective 60 days after filing.
(4) Reports. Every registration or amendment filed under this
section shall constitute a report or application within the meaning of
Sections 17, 17A(c), and 32(a) of the Securities Exchange Act of 1934.
(b) Operational and reporting requirements. The rules adopted by
the Securities and Exchange Commission pursuant to Section 17A of the
Securities Exchange Act of 1934 prescribing operational and reporting
requirements for transfer agents apply to the domestic activities of
registered national bank transfer agents.
PART 10--MUNICIPAL SECURITIES DEALERS
0
36. The authority citation for part 10 is revised to read as follows:
Authority: 12 U.S.C. 93a, 481, and 1818; 15 U.S.C. 78o-4(c)(5)
and 78q-78w.
0
37. In Sec. 10.1 revise paragraph (a) to read as follows:
Sec. 10.1 Scope.
* * * * *
(a) Any national bank and separately identifiable department or
division of a national bank (collectively, a national bank) that acts
as a municipal securities dealer, as that term is defined in section
3(a)(30) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(30));
and
* * * * *
PART 11--SECURITIES EXCHANGE ACT DISCLOSURE RULES
0
38. The authority citation for part 11 continues to read as follows:
Authority: 12 U.S.C. 93a, 15 U.S.C. 78l, 78m, 78n, 78p, 78w,
7241, 7242, 7243, 7244, 7261, 7262, 7264, and 7265.
0
39. In Sec. 11.1 revise paragraph (a) to read as follows:
Sec. 11.1 Authority and OMB control number.
(a) Authority. The Office of the Comptroller of the Currency (OCC)
is vested with the powers, functions, and duties otherwise vested in
the Securities and Exchange Commission (Commission) to administer and
enforce the provisions of sections 12, 13, 14(a), 14(c), 14(d), 14(f),
and 16 of the Securities Exchange Act of 1934, as amended (1934 Act)
(15 U.S.C. 78l, 78m, 78n(a), 78n(c), 78n(d), 78n(f), and 78p),
regarding national banks with one or more classes of securities subject
to the registration provisions of sections 12(b) and (g) of the 1934
Act (registered national banks). Further, the OCC has general
rulemaking authority under 12 U.S.C. 93a, to promulgate rules and
regulations concerning the activities of national banks.
* * * * *
PART 12--RECORDKEEPING AND CONFIRMATION REQUIREMENTS FOR SECURITIES
TRANSACTIONS
0
40. The authority citation for part 12 continues to read as follows:
Authority: 12 U.S.C. 24, 92a, and 93a.
[[Page 22243]]
Sec. 12.7 [Amended]
0
41. Amend Sec. 12.7(a)(4) by removing ``ten business days after the
end of the calendar quarter'' and adding ``the deadline specified in
SEC rule 17j-1 (17 CFR 270.17j-1) for quarterly transaction reports''
in its place.
PART 16--SECURITIES OFFERING DISCLOSURE RULES
0
42. The authority citation for part 16 continues to read as follows:
Authority: 12 U.S.C. 1 et seq. and 93a.
0
43. In Sec. 16.2 revise paragraph (b) to read as follows:
Sec. 16.2 Definitions.
* * * * *
(b) Bank means an existing national bank, a national bank in
organization, or a Federal branch or agency of a foreign bank.
* * * * *
0
44. Amend Sec. 16.5 as follows:
0
a. Revise paragraph (a);
0
b. Remove ``or'' from the end of paragraph (f);
0
c. Remove the period at the end of paragraph (g) and add ``; or'' in
its place; and
0
d. Add a new paragraph (h), to read as follows:
Sec. 16.5 Exemptions.
* * * * *
(a) If the securities are exempt from registration under section 3
of the Securities Act (15 U.S.C. 77c), but only by reason of an
exemption other than section 3(a)(2) (exemption for bank securities),
section 3(a)(11) (exemption for intrastate offerings), and section
3(a)(12) of the Securities Act (exemption for bank holding company
formation).
* * * * *
(h) In a transaction that satisfies the requirements of Sec. 16.9
of this part.
Sec. 16.6 [Amended]
0
45. Amend Sec. 16.6 by:
0
a. In paragraph (a) introductory text, removing the phrase ``Sec. Sec.
16.3, 16.15(a) and (b), and 16.20'' and adding in its place
``Sec. Sec. 16.3 and 16.15(a) and (b)'';
0
b. In paragraph (a)(3), adding ``, if issued in certificate form,''
after ``each note or debenture''.
Sec. 16.7 [Amended]
0
46. Amend Sec. 16.7 as follows:
0
a. Remove paragraph (a)(3);
0
b. In paragraph (a)(1), add the word ``and'' after the semicolon; and
0
c. In paragraph (a)(2), remove ``; and'' and replace it with a period.
0
47. Add a new Sec. 16.9 to read as follows:
Sec. 16.9 Securities offered and sold in holding company dissolution.
Offers and sales of bank issued securities in connection with the
dissolution of the holding company of the bank are exempt from the
registration and prospectus requirements of Sec. 16.3 pursuant to
Sec. 16.5(h), provided all of the following requirements are met:
(a) The offer and sale of bank-issued securities occurs solely as
part of a dissolution in which the security holders exchange their
shares of stock in a holding company that had no significant assets
other than securities of the bank, for bank stock;
(b) The security holders receive, after the dissolution,
substantially the same proportional share interests in the bank as they
held in the holding company;
(c) The rights and interests of the security holders in the bank
are substantially the same as those in the holding company prior to the
transaction; and
(d) The bank has substantially the same assets and liabilities as
the holding company had on a consolidated basis prior to the
transaction.
Sec. 16.20 [Removed]
0
48. Remove Sec. 16.20.
PART 19--RULES OF PRACTICE AND PROCEDURE
0
49. The authority citation for part 19 continues to read as follows:
Authority: 5 U.S.C. 504, 554-557; 12 U.S.C. 93(b), 93a, 164,
505, 1817, 1818, 1820, 1831m, 1831o, 1972, 3102, 3018(a), 3909 and
4717; 15 U.S.C. 78(h) and (i), 78o-4(c), 78o-5, 78q-1, 78s, 78u,
78u-2, 78u-3, and 78w; 28 U.S.C. 2461 note, 31 U.S.C. 330 and 5321;
and 42 U.S.C. 4012a.
0
50. In Sec. 19.3, revise paragraph (g) to read as follows:
Sec. 19.3 Definitions.
* * * * *
(g) Institution includes any national bank or Federal branch or
agency of a foreign bank.
* * * * *
Sec. 19.100 [Amended]
0
51. In Sec. 19.100, second sentence, remove the phrase ``(except that
in removal and prohibition cases instituted pursuant to 12 U.S.C. 1818,
the administrative law judge will file the record and the recommended
decision with the Board of Governors of the Federal Reserve System)''.
Sec. 19.110 [Amended]
0
52. In Sec. 19.110, remove the phrase ``bank affairs'' and add in its
place ``the affairs of any depository institution pursuant to 12 U.S.C.
1818(g)''.
0
53. Revise Sec. 19.111 to read as follows:
Sec. 19.111 Suspension, removal, or prohibition.
The Comptroller may serve a notice of suspension or order of
removal or prohibition pursuant to 12 U.S.C. 1818(g) on an institution-
affiliated party. A copy of such notice or order will be served on any
depository institution that the subject of the notice or order is
affiliated with at the time the notice or order is issued, whereupon
the institution-affiliated party involved must immediately cease
service to, or participation in the affairs of, that depository
institution and, if so determined by the OCC, any other depository
institution. The notice or order will indicate the basis for
suspension, removal or prohibition and will inform the institution-
affiliated party of the right to request in writing, to be received by
the OCC within 30 days from the date that the institution-affiliated
party was served with such notice or order, an opportunity to show at
an informal hearing that continued service to or participation in the
conduct of the affairs of any depository institution has not posed,
does not pose, or is not likely to pose a threat to the interests of
the depositors of, or has not threatened, does not threaten, or is not
likely to threaten to impair public confidence in, any relevant
depository institution. The written request must be sent by certified
mail to, or served personally with a signed receipt on, the District
Deputy Comptroller in the OCC district in which the bank in question is
located; if the bank is supervised by Large Bank Supervision, to the
Senior Deputy Comptroller for Large Bank Supervision for the Office of
the Comptroller of the Currency; if the bank is supervised by Mid-Size/
Community Bank Supervision, to the Senior Deputy Comptroller for Mid-
Size/Community Bank Supervision for the Office of the Comptroller of
the Currency; or if the institution-affiliated party is no longer
affiliated with a particular national bank, to the Deputy Comptroller
for Special Supervision, Washington, DC 20219. The request must state
specifically the relief desired and the grounds on which that relief is
based. For purposes of this section, the term depository institution
means any depository institution of which the petitioner is or was an
institution-affiliated party at the time at which the notice or order
was issued by the Comptroller.
[[Page 22244]]
Sec. 19.112 [Amended]
0
54. In Sec. 19.112, amend paragraphs (a), (b), and (c) by removing the
phrase ``the District Deputy Comptroller or Administrator, the Deputy
Comptroller for Multinational Banking, or the Deputy Comptroller or
Director for Special Supervision,'' wherever it appears and adding in
its place ``the District Deputy Comptroller, the Senior Deputy
Comptroller for Large Bank Supervision, the Senior Deputy Comptroller
for Mid-Size/Community Bank Supervision, or the Deputy Comptroller for
Special Supervision,''.
Sec. 19.113 [Amended]
0
55. In Sec. 19.113, amend paragraph (c) by removing the phrase ``the
bank'' and adding in its place ``any depository institution''.
0
56. Revise Sec. 19.241 to read as follows:
Sec. 19.241 Scope.
This subpart, which implements section 36(g)(4) of the Federal
Deposit Insurance Act (FDI Act) (12 U.S.C. 1831m(g)(4)), provides rules
and procedures for the removal, suspension, or debarment of independent
public accountants and their accounting firms from performing
independent audit and attestation services required by section 36 of
the FDI Act (12 U.S.C. 1831m) for insured national banks and Federal
branches and agencies of foreign banks.
PART 21--MINIMUM SECURITY DEVICES AND PROCEDURES, REPORTS OF
SUSPICIOUS ACTIVITIES, AND BANK SECRECY ACT COMPLIANCE PROGRAM
0
57. The authority citation for part 21 continues to read as follows:
Authority: 12 U.S.C. 93a, 1818, 1881-1884, and 3401-3422; 31
U.S.C. 5318.
0
58. In Sec. 21.1, revise the first sentence of paragraph (a) to read
as follows:
Sec. 21.1 Purpose and scope of subpart A of this part.
(a) This subpart is issued by the Comptroller of the Currency
pursuant to section 3 of the Bank Protection Act of 1968 (12 U.S.C.
1882) and is applicable to all national banking associations. * * *
* * * * *
PART 22--LOANS IN AREAS HAVING SPECIAL FLOOD HAZARDS
0
59. The authority citation for part 22 continues to read as follows:
Authority: 12 U.S.C. 93a, 42 U.S.C. 4012a, 4104a, 4104b, 4106,
and 4128.
0
60. In Sec. 22.2 revise paragraph (b) to read as follows:
Sec. 22.2 Definitions.
* * * * *
(b) Bank means a national bank.
* * * * *
PART 23--LEASING
0
61. The authority citation for part 23 continues to read as follows:
Authority: 12 U.S.C. 1 et. seq., 24 (Seventh), 24 (Tenth), and
93a.
Sec. 23.6 [Amended]
0
62. Amend Sec. 23.6 by:
0
a. Removing ``A'' at the beginning of the first sentence and adding
``All'' in its place;
0
b. Adding the phrase ``and Regulation W, 12 CFR part 223'' after ``12
U.S.C. 371c and 371c-1'' in the first sentence;
0
c. Adding the phrase ``as implemented by Regulation W, 12 CFR part
223,'' before ``as applicable'' in the third sentence;
0
d. Adding ``, as implemented by 12 CFR part 32,'' after ``12 U.S.C.
84'' in the first sentence; and
0
e. Adding ``as implemented by part 32,'' after ``12 U.S.C. 84,'' in the
fourth sentence.
PART 24--COMMUNITY AND ECONOMIC DEVELOPMENT ENTITIES, COMMUNITY
DEVELOPMENT PROJECTS, AND OTHER PUBLIC WELFARE INVESTMENTS
0
63. The authority citation for part 24 continues to read as follows:
Authority: 12 U.S.C. 24 (Eleventh), 93a, 481, and 1818.
0
64. Amend Sec. 24.1 by:
0
a. Removing in paragraph (a) the colon after the word ``Authority'' and
adding a period in its place;
0
b. Revising paragraphs (b) and (d); and
0
c. Adding paragraph (e).
The revisions and addition read as follows:
Sec. 24.1 Authority, purpose, and OMB control number.
* * * * *
(b) Purpose. This part implements 12 U.S.C. 24 (Eleventh). It is
the OCC's policy to encourage a national bank to make investments
described in Sec. 24.3, consistent with safety and soundness. This
part provides the standards and procedures that apply to these
investments.
* * * * *
(d) A national bank that makes loans or investments that are
authorized under both 12 U.S.C. 24 (Eleventh) and other provisions of
the Federal banking laws may do so under such other provisions without
regard to the provisions of 12 U.S.C. 24 (Eleventh) or this part.
(e) Investments made, or written commitments to make investments
made, prior to October 13, 2006, pursuant to 12 U.S.C. 24 (Eleventh)
and this part, continue to be subject to the statutes and regulations
in effect prior to the enactment of the Financial Services Regulatory
Relief Act of 2006 (Pub. L. 109-351).
0
65. Amend Sec. 24.2 by:
0
a. Revising the first sentence of paragraph (c);
0
b. Amending paragraph (f) by removing ``12 CFR 25.12(n)'' and adding
``12 CFR 25.12(m)'' in its place;
0
c. Redesignating paragraphs (g) through (i) as paragraphs (h) through
(j), respectively; and
0
d. Adding new paragraph (g).
The revision and addition read as follows:
Sec. 24.2 Definitions.
* * * * *
(c) Community and economic development entity (CEDE) means an
entity that makes investments or conducts activities that promote the
public welfare by benefiting primarily low- and moderate-income areas
or individuals. * * *
* * * * *
(g) Benefiting primarily low- and moderate-income areas or
individuals, when used to describe an investment, means:
(1) A majority (more than 50 percent) of the investment benefits
low- and moderate-income areas or individuals; or
(2) The express, primary purpose of the investment (evidenced, for
example, by government eligibility requirements) is to benefit low- and
moderate-income areas or individuals.
* * * * *
0
66. Revise Sec. 24.3 to read as follows:
Sec. 24.3 Public welfare investments.
A national bank or national bank subsidiary may make an investment
directly or indirectly under this part if the investment promotes the
public welfare by benefiting primarily low- and moderate-income areas
or individuals.
0
67. Amend Sec. 24.4 by:
0
a. Revising the first sentence in paragraph (a); and
0
b. Removing, in the second sentence of paragraph (a), ``10'' and adding
``15'' in its place.
The revision reads as follows:
[[Page 22245]]
Sec. 24.4 Investment limits.
(a) * * * A national bank's aggregate outstanding investments under
this part may not exceed 5 percent of its capital and surplus, unless
the bank is at least adequately capitalized and the OCC determines, by
written approval of a written request by the bank to exceed the 5
percent limit, that a higher amount of investments will not pose a
significant risk to the deposit insurance fund. * * *
* * * * *
0
68. Amend Sec. 24.5 by:
0
a. Amending paragraphs (a)(2) and (b)(1) by removing ``Director,
Community Development Division,'' and adding ``Community Affairs
Department,'' in its place;
0
b. Adding a second sentence at the end of paragraph (a)(2);
0
c. In paragraph (a)(5), removing ``Community Development Division''
where it appears in the first and second sentences and adding
``Community Affairs Department'' in its place; and
0
d. Adding a new sentence after the first sentence in paragraph (b)(1).
The additions read as follows:
Sec. 24.5 Public welfare investment after-the-fact notice and prior
approval procedures.
(a) * * *
(2) * * * The after-the-fact notification may also be e-mailed to
[email protected], faxed to (202) 874-4652, or provided
electronically via National BankNet at http://www.occ.treas.gov.
* * * * *
(b) * * * (1) * * * The investment proposal may also be e-mailed to
[email protected], faxed to (202) 874-4652, or submitted
electronically via National BankNet at http://www.occ.treas.gov. * * *
0
69. Amend Sec. 24.6 by:
0
a. Revising the introductory text;
0
b. Amending paragraph (b)(1) by removing the phrase ``or other targeted
redevelopment areas'';
0
c. Revising paragraphs (b)(2) and (d)(1);
0
d. Amending paragraph (b)(3) by removing the phrase ``or targeted
redevelopment area'';
0
e. Amending paragraph (b)(4) by removing the phrase ``or targeted
redevelopment areas'';
0
f. Amending paragraph (d)(2) by removing the word ``and'';
0
g. Amending paragraph (d)(3) by removing the word ``previously'', and
by removing the period and adding ``; and'' in its place; and
0
h. Adding paragraph (d)(4).
The revisions and addition read as follows:
Sec. 24.6 Examples of qualifying public welfare investments.
The following are examples of qualifying public welfare investments
to the extent they benefit primarily low- and moderate-income areas or
individuals as set forth in Sec. 24.3:
* * * * *
(b) * * *
(2) Investments that finance small businesses or small farms,
including minority- and women-owned small businesses or small farms
that, although not located in low- and moderate-income areas, create a
significant number of permanent jobs for low- and moderate-income
individuals;
* * * * *
(d) * * *
(1) Investments that provide credit counseling, financial literacy,
job training, community development research, and similar technical
assistance for non-profit community development organizations, low- and
moderate-income individuals or areas, or small businesses, including
minority- and women-owned small businesses, located in low- and
moderate-income areas or that produce or retain permanent jobs, the
majority of which are held by low- and moderate-income individuals;
* * * * *
(4) Investments in minority- and women-owned depository
institutions that serve primarily low- and moderate-income individuals
or low- and moderate-income areas.
0
70. Revise Appendix 1 to Part 24 to read as follows:
Appendix 1 to Part 24--CD-1--National Bank Community Development (Part
24) Investments
BILLING CODE 4810-33-P
[[Page 22246]]
[GRAPHIC] [TIFF OMITTED] TR24AP08.000
[[Page 22247]]
[GRAPHIC] [TIFF OMITTED] TR24AP08.001
[[Page 22248]]
[GRAPHIC] [TIFF OMITTED] TR24AP08.002
[[Page 22249]]
[GRAPHIC] [TIFF OMITTED] TR24AP08.003
[[Page 22250]]
[GRAPHIC] [TIFF OMITTED] TR24AP08.004
BILLING CODE 4810-33-C
[[Page 22251]]
PART 26--MANAGEMENT OFFICIAL INTERLOCKS
0
71. The authority citation for part 26 continues to read as follows:
Authority: 12 U.S.C. 93a and 3201-3208.
0
72. In Sec. 26.1 revise paragraph (c) to read as follows:
Sec. 26.1 Authority, purpose, and scope.
* * * * *
(c) Scope. This part applies to management officials of national
banks and their affiliates.
Sec. 26.2 [Amended]
0
73. In Sec. 26.2 remove paragraph (i) and redesignate paragraphs (j)
through (q) as (i) through (p), respectively.
0
74. Revise Sec. 26.8 to read as follows:
Sec. 26.8 Enforcement.
Except as provided in this section, the OCC administers and
enforces the Interlocks Act with respect to national banks and their
affiliates, and may refer any case of a prohibited interlocking
relationship involving these entities to the Attorney General of the
United States to enforce compliance with the Interlocks Act and this
part. If an affiliate of a national bank is subject to the primary
regulation of another Federal depository organization supervisory
agency, then the OCC does not administer and enforce the Interlocks Act
with respect to that affiliate.
PART 27--FAIR HOUSING HOME LOAN DATA SYSTEM
0
75. The authority citation for part 27 continues to read as follows:
Authority: 5 U.S.C. 301; 12 U.S.C. 1 et. seq., 93a, 161, 481,
and 1818; 15 U.S.C. 1691 et seq.; 42 U.S.C. 3601 et seq.; 12 CFR
part 202.
0
76. In Sec. 27.1 revise paragraph (a) to read as follows:
Sec. 27.1 Scope and OMB control number.
(a) Scope. This part applies to the activities of national banks
and their subsidiaries, which make home loans for the purpose of
purchasing, construction-permanent financing, or refinancing of
residential real property.
* * * * *
0
77. In Sec. 27.2 revise paragraph (c) to read as follows:
Sec. 27.2 Definitions.
* * * * *
(c) Bank means a national bank and any subsidiaries of a national
bank.
* * * * *
PART 28--INTERNATIONAL BANKING ACTIVITIES
0
78. 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.
Sec. 28.11 [Amended]
0
79. In Sec. 28.11, remove the phrase ``, pursuant to an agreement
between the parent foreign bank and the FRB,'' in paragraph (s).
0
80. In Sec. 28.12, remove the phrase ``30th day after the OCC receives
the filing,'' in paragraph (e)(3) and add in its place ``15th day after
the close of the applicable public comment period, or the 45th day
after the filing is received by the OCC, whichever is later,''.
0
81. In Sec. 28.50, revise paragraph (c) to read as follows:
Sec. 28.50 Authority, purpose, and scope.
* * * * *
(c) Scope. This subpart requires national banks to establish
reserves against the risks presented in certain international assets
and sets forth the accounting for various fees received by the banks
when making international loans.
0
82. In Sec. 28.51, revise paragraph (a) to read as follows:
Sec. 28.51 Definitions.
* * * * *
(a) Banking institution means a national bank.
* * * * *
PART 31--EXTENSIONS OF CREDIT TO INSIDERS AND TRANSACTIONS WITH
AFFILIATES
0
83. The authority citation for part 31 is revised to read as follows:
Authority: 12 U.S.C. 93a, 375a(4), 375b(3), and 1817(k).
Sec. 31.1 [Amended]
0
84. Amend Sec. 31.1 by removing ``1817(k), and 1972(2)(G),'' and
adding in its place ``and 1817(k),''.
0
85. Revise Appendix A to part 31 as follows:
Appendix A to Part 31--Interpretations: Deposits Between Affiliated
Banks
a. General rule. A deposit made by a bank in an affiliated bank
is treated as a loan or extension of credit to the affiliate bank
under 12 U.S.C. 371c, as this statute is implemented by the Federal
Reserve Board's Regulation W, 12 CFR part 223. Thus, unless an
exemption from Regulation W is available, these deposits must be
secured in accordance with 12 CFR 223.14. However, a national bank
may not pledge assets to secure private deposits unless otherwise
permitted by law (see, e.g., 12 U.S.C. 90 (permitting
collateralization of deposits of public funds); 12 U.S.C. 92a (trust
funds); and 25 U.S.C. 156 and 162a (Native American funds)). Thus,
unless one of the exceptions to 12 CFR part 223 noted in paragraph
b. of this interpretation applies, unless another exception applies
that enables a bank to meet the collateral requirements of Sec.
223.14, or unless a party other than the bank in which the deposit
is made can legally offer and does post the required collateral, a
national bank may not:
1. Make a deposit in an affiliated national bank;
2. Make a deposit in an affiliated State-chartered bank unless
the affiliated State-chartered bank can legally offer collateral for
the deposit in conformance with applicable State law and 12 CFR
223.14; or
3. Receive deposits from an affiliated bank.
b. Exceptions. The restrictions of 12 CFR part 223 (other than
12 CFR 223.13, which requires affiliate transactions to be
consistent with safe and sound banking practices) do not apply to
deposits:
1. Made in an affiliated depository institution or affiliated
foreign bank provided that the deposit represents an ongoing,
working balance maintained in the ordinary course of correspondent
business. See 12 CFR 223.42(a); or
2. Made in an affiliated, insured depository institution that
meets the requirements of the ``sister bank'' exemption under 12 CFR
223.41(a) or (b).
Appendix B to Part 31 [Amended]
0
86. Amend Appendix B to part 31 by removing the third sentence under
the heading ``Exclusions to Definition''.
PART 32--LENDING LIMITS
0
87. The authority citation for part 32 continues to read as follows:
Authority: 12 U.S.C. 1 et seq., 84, and 93a.
Sec. 32.1 [Amended]
0
88. In Sec. 32.1(c)(1), add the phrase ``and (e), as implemented by
section 223.2(a) of Regulation W'' after ``12 U.S.C. 371c(b)(1)''.
PART 34--REAL ESTATE LENDING AND APPRAISALS
0
89. 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.
0
90. In Sec. 34.21, revise paragraph (b) and add a new paragraph (c) as
follows:
Sec. 34.21 General rule.
* * * * *
(b) Purchase of loans not in compliance. Except as provided in
paragraph (c) of this section, a national bank may purchase or
participate in
[[Page 22252]]
ARM loans that were not made in accordance with this part, provided
such purchases are consistent with safe and sound banking practices as
described in published OCC guidance, including appropriate diligence
regarding the quality and characteristics of the loans, and other
applicable regulations.
(c) Purchase of loans from a subsidiary or affiliate. ARM loans
purchased, in whole or in part, from a subsidiary or affiliate must
comply with this part and with other applicable regulations, and be
consistent with safe and sound banking practices as described in
published OCC guidance, including appropriate diligence regarding the
quality and characteristics of the loans. For purposes of this
paragraph, the terms affiliate and subsidiary have the same meaning as
in 12 U.S.C. 371c.
0
91. Amend Sec. 34.22 by:
0
a. Designating the existing text as paragraph (a), and by adding the
following heading;
0
b. In newly designated paragraph (a), adding to the first sentence the
words ``or combination of indices'' after the words ``specify an
index''; and
0
c. Adding a new paragraph (b).
The addition and revision read as follows:
Sec. 34.22 Index.
(a) In general. * * *
(b) Exception. Thirty days after filing a notice with the OCC, a
national bank may use an index other than one described in paragraph
(a) of this section unless, within that 30-day period, the OCC has
notified the bank that the notice presents supervisory concerns or
raises significant issues of law or policy. If the OCC provides such
notice to the bank, the bank may not use that index unless it applies
for and receives the OCC's prior written approval.
PART 37--DEBT CANCELLATION CONTRACTS AND DEBT SUSPENSION AGREEMENTS
0
92. The authority citation for part 37 continues to read as follows:
Authority: 12 U.S.C. 1 et seq., 24 (Seventh), 93a, 1818.
Sec. 37.7 [Amended]
0
93. Amend the last sentence in Sec. 37.7(a) by removing the phrase
``Sec. 37.6(b)'' and adding the phrase ``Sec. 37.6(d)'' in its place.
PART 40--PRIVACY OF CONSUMER FINANCIAL INFORMATION
0
94. The authority citation for part 40 continues to read as follows:
Authority: 12 U.S.C. 93a; 15 U.S.C. 6801 et seq.
0
95. In Sec. 40.1 revise the last sentence of paragraph (b)(1) to read
as follows:
Sec. 40.1 Purpose and scope.
* * * * *
(b) Scope. (1) * * * These are national banks, Federal branches and
Federal agencies of foreign banks, and any subsidiaries of such
entities except a broker or dealer that is registered under the
Securities Exchange Act of 1934, a registered investment adviser (with
respect to the investment advisory activities of the adviser and
activities incidental to those investment advisory activities), an
investment company registered under the Investment Company Act of 1940,
an insurance company that is subject to supervision by a State
insurance regulator (with respect to insurance activities of the
company and activities incidental to those insurance activities), and
an entity that is subject to regulation by the Commodity Futures
Trading Commission.
* * * * *
Dated: February 28, 2008.
John C. Dugan,
Comptroller of the Currency.
[FR Doc. E8-8443 Filed 4-23-08; 8:45 am]
BILLING CODE 4810-33-P