[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eliminate regulations that are outdated, unnecessary, or unduly 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