[Federal Register Volume 86, Number 21 (Wednesday, February 3, 2021)]
[Proposed Rules]
[Pages 7979-7986]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-29277]


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 Proposed Rules
                                                 Federal Register
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 This section of the FEDERAL REGISTER contains notices to the public of 
 the proposed issuance of rules and regulations. The purpose of these 
 notices is to give interested persons an opportunity to participate in 
 the rule making prior to the adoption of the final rules.
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  Federal Register / Vol. 86, No. 21 / Wednesday, February 3, 2021 / 
Proposed Rules  

[[Page 7979]]



DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Part 7

[Docket No. OCC-2020-0045]
RIN 1557-AF07


National Bank and Federal Savings Association Premises

AGENCY: Office of the Comptroller of the Currency (OCC), Treasury.

ACTION: Notice of proposed rulemaking with request for public comment.

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SUMMARY: The OCC is inviting comment on a proposed rule that would 
modify the requirements for national bank and Federal savings 
association premises.

DATES: Comments must be received by March 22, 2021.

ADDRESSES: You may submit comments to the OCC by any of the methods set 
forth below. Commenters are encouraged to submit comments through the 
Federal eRulemaking Portal, if possible. Please use the title 
``National Bank and Federal Savings Association Premises'' to 
facilitate the organization and distribution of the comments. You may 
submit comments by any of the following methods:
     Federal eRulemaking Portal--``Regulations.gov'': Go to 
www.regulations.gov. Enter ``Docket ID OCC-2020-0045'' in the Search 
Box and click ``Search.'' Click on ``Comment Now'' to submit public 
comments.
     Click on the ``Help'' tab on the Regulations.gov home page 
to get information on using Regulations.gov, including instructions for 
submitting public comments.
     Mail: Chief Counsel's Office, Attention: Comment 
Processing, Office of the Comptroller of the Currency, 400 7th Street 
SW, Suite 3E-218, Washington, DC 20219.
     Hand Delivery/Courier: 400 7th Street SW, Suite 3E-218, 
Washington, DC 20219.
    Instructions: You must include ``OCC'' as the agency name and 
``Docket ID OCC-2020-0045'' in your comment.
    Instructions: You must include ``OCC'' as the agency name and 
``Docket ID OCC-2020-0045'' in your comment. In general, the OCC will 
enter all comments received into the docket and publish the comments on 
the Regulations.gov website without change, including any business or 
personal information provided such as name and address information, 
email addresses, or phone numbers. Comments, including attachments and 
other supporting materials, are part of the public record and subject 
to public disclosure. Do not include any information in your comment or 
supporting materials that you consider confidential or inappropriate 
for public disclosure.
    You may review comments and other related materials that pertain to 
this rulemaking action by the following methods:
     Viewing Comments Electronically: Go to 
www.regulations.gov. Enter ``Docket ID OCC-2020-0045'' in the Search 
box and click ``Search.'' Click on ``Open Docket Folder'' on the right 
side of the screen. Comments and supporting materials can be viewed and 
filtered by clicking on ``View all documents and comments in this 
docket'' and then using the filtering tools on the left side of the 
screen.
     Click on the ``Help'' tab on the Regulations.gov home page 
to get information on using Regulations.gov. The docket may be viewed 
after the close of the comment period in the same manner as during the 
comment period.

FOR FURTHER INFORMATION CONTACT: Matthew Tynan, Counsel; Sarah Turney, 
Counsel; Henry Barkhausen, Counsel; Chief Counsel's Office (202) 649-
5490; Office of the Comptroller of the Currency, 400 7th Street SW, 
Washington, DC 20219.

SUPPLEMENTARY INFORMATION:

I. Introduction

    The Office of the Comptroller of the Currency (OCC) is issuing a 
notice of proposed rulemaking to amend its regulations on national bank 
or Federal savings association ownership of real property. The OCC also 
proposes to consolidate 12 CFR 7.3001 on sharing national bank or 
Federal savings association space and employees with the rule covering 
ownership of property. The OCC proposes to continue to cover the 
national bank and Federal savings association charters under the same 
regulation, but, because different statutory regimes cover each 
charter, the OCC seeks comment on whether to apply different 
requirements to national banks and Federal savings associations.

II. Background

    The OCC periodically reviews its regulations to eliminate outdated 
or otherwise unnecessary regulatory provisions and, where possible, to 
clarify or revise requirements imposed on national banks and Federal 
savings associations. As part of the periodic review that resulted in 
recent amendments to 12 CFR part 7, which take effect on April 1, 2021, 
the OCC determined that it would propose revisions to the rules 
governing national bank and Federal savings association premises 
currently codified at 12 CFR 7.1000, which the recent amendments to 12 
CFR part 7 redesignated as to 12 CFR 7.1024.\1\ The OCC determined that 
the regulation may need significant revision and that such revisions 
may involve significant policy considerations. To consider the matter 
more fully and ensure the greatest benefit from public comment, the OCC 
chose to propose revisions to redesignated 12 CFR 7.1024 separately 
from the revisions to 12 CFR part 7 finalized in 2020.\2\ Because of 
the redesignation of 12 CFR 7.1000 as 12 CFR 7.1024, this proposed rule 
refers to 12 CFR 7.1024.\3\
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    \1\ 85 FR 40794 (July 7, 2020). 12 CFR 7.1024 was previously 
codified at 12 CFR 7.1000.
    \2\ 85 FR 83686 (December 22, 2020).
    \3\ Because the redesignation of 12 CFR 7.1000 as 12 CFR 7.1024 
takes effect on April 1, 2021, the regulatory text of this proposed 
rule must reflect this as an addition rather than an amendment. The 
final rule will reflect the change as an amendment.
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    National bank ownership of real estate is governed by 12 U.S.C. 29, 
an original component of the National Bank Act. Twelve U.S.C. 29 
generally prohibits national banks from purchasing, holding, or 
conveying real estate except for a list of four exclusive exceptions. 
The first such purpose covers the authority of a national bank to hold 
real property ``[s]uch as shall be necessary for its accommodation in 
the transaction of its business.'' \4\ As stated by the

[[Page 7980]]

Supreme Court, this statute was designed to promote the safety and 
soundness of national banks by discouraging real estate speculation, 
and was also designed to protect the national economy and consumers by 
preventing banks from holding masses of property for their own 
account.\5\ Consistent with the statutory framework, a national bank 
investing in property should be doing so ``in good faith, solely with a 
view of obtaining an eligible location'' and not for the purpose of 
speculating or investing in real estate as a landlord.\6\
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    \4\ The other three purposes all relate to the national bank 
authority to own property taken for debts previously contracted and 
other such means of securing debts. The proposed rule would not 
affect the ability of national banks to rely on these other purposes 
in 12 U.S.C. 29. The proposed rule would only interpret and 
implement the meaning of the first purpose (``Such as shall be 
necessary for its accommodation in the transaction of its 
business'').
    \5\ Union National Bank v. Matthews, 98 U.S. 621, 626 (1878) 
(``to keep the capital of the banks flowing in the daily channels of 
commerce; to deter them from embarking in hazardous real estate 
speculations; and to prevent the accumulation of large masses of 
such property in the banks' hands, to be held, as it were, in 
mortmain'').
    \6\ Brown v. Schleier, 118 F. 981, 984 (8th Cir. 1902), aff'd 
194 U.S. 18 (1904).
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    Federal savings association ownership of premises is governed by 
the Home Owners Loan Act (HOLA). Although the HOLA does not 
specifically address a Federal savings association's investment in 
banking premises and there is no prohibition in the HOLA similar to 12 
U.S.C. 29, historically, the Federal Home Loan Bank Board (FHLBB), the 
Office of Thrift Supervision (OTS), and the OCC have interpreted the 
HOLA to permit Federal savings associations to hold real estate only 
for their offices and related facilities with permission to rent or 
sell excess space in their offices and facilities and the OCC has 
issued regulations governing a Federal savings association's investment 
in banking premises pursuant to general supervisory and rulemaking 
authority under the HOLA.\7\ After Title III of the Dodd-Frank Wall 
Street Reform and Consumer Protection Act \8\ transferred to the OCC 
all functions of the former OTS and the Director of the OTS relating to 
Federal savings associations, the OCC began reviewing its rules 
governing national banks and Federal savings associations to determine 
which rules were appropriate to integrate into a single set of rules 
for both national banks and savings associations.\9\ After this review, 
the OCC did not find substantive differences between the then-banking 
premises rules and related OTS guidance governing national banks and 
Federal savings associations and determined that, as a supervisory 
matter, it was appropriate to apply the rule governing national banks 
to both national banks and Federal savings associations.\10\
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    \7\ 80 FR 28346, 28377 (May 18, 2015).
    \8\ Public Law 111-203, 124 Stat. 1376 (2010).
    \9\ See footnote 7.
    \10\ Id.
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    The OCC implemented 12 CFR 7.1024 to cover national bank and 
Federal savings association ownership of real estate for their own use. 
However, 12 CFR 7.1024 does not provide a full set of standards 
implementing the requirements of 12 U.S.C. 29 and the HOLA regarding 
national bank and Federal savings association premises. Rather, 12 CFR 
7.1024 is an interpretive rule that codifies specific OCC 
interpretations of 12 U.S.C. 29. Thus, although the rule contains a 
list of types of real estate that the OCC has found permissible for 
national bank and Federal savings association ownership, that list is 
not exhaustive. Moreover, significant standards relating to the 
permissibility of real estate ownership, such as the minimum percentage 
of bank occupancy required for a building to qualify as premises, are 
not addressed anywhere in OCC regulation.
    Instead, the OCC has long deferred to court cases and published OCC 
precedent to cover the field of requirements for national bank and 
Federal savings association ownership of premises. The OCC historically 
chose not to define specific limitations for standards, such as 
percentages of occupancy,\11\ instead relying on principles drawn from 
precedent to preserve a flexible approach to new national bank 
proposals while ensuring those principles continue to reflect the 
purposes behind 12 U.S.C. 29.\12\ The OTS similarly did not set 
percentages of occupancy within its premises regulation for Federal 
savings associations.\13\
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    \11\ OCC Interpretive Letter No. 1053 (Jan. 31, 2006) (``Neither 
the OCC nor the courts have established a single occupancy 
percentage test . . .'').
    \12\ Outstanding precedent includes OCC Interpretive Letter No. 
1072 (Sept. 15, 2006) (permitting a bank to lease out a portion of 
its existing premises to retail businesses in arrangements under 
which approximately 50 percent of the premises would be used by the 
bank for its banking business); OCC Interpretive Letter No. 1053 
(Jan. 31, 2006) (describing OCC analysis of permissibility of 
premises in OCC Interpretive Letter No. 1045 and 1044); OCC 
Interpretive Letter No. 1045 (Dec. 5, 2005) (permitting a national 
bank to establish a hotel on its premises, of which the bank 
intended to use more than 50 percent of the occupancy for out-of-
area bank employees, members of the bank's board of directors, and 
selected vendors, shareholders, customers, and other visitors on 
bank-related business); OCC Interpretive Letter No. 1044 (Dec. 5, 
2005) (permitting a national bank to establish a mixed-use office, 
hotel, and residences facility on its premises, in which the bank 
would use less than 50 percent of the premises for banking 
purposes); OCC Interpretive Letter No. 1043 (July 8, 1993) 
(permitting a national bank to lease to third parties a bank 
condominium when it is not being used for bank purposes); OCC 
Interpretive Letter No. 1042 (Jan. 21, 1993) (permitting a bank to 
retain a condominium used only for bank purposes); OCC Interpretive 
Letter No. 1034 (April 1, 2005) (permitting a national bank to 
construct new facilities on existing premises real estate, use less 
than 50 percent of the premises for bank purposes, and lease unused 
space as excess bank premises); Conditional Approval No. 298 (Dec. 
15, 1998) (permitting a bank to use less than 50 percent of office 
premises for its banking business); Interpretive Letter No. 758 
(April 5, 1996) (permitting a national bank to lease out a portion 
of its real estate held as premises for employee recreation purposes 
to a third party to remove a hill and mine granite deposits). As 
discussed below, this proposed rule would supersede existing 
precedent to the extent it is inconsistent with the proposed rule. 
However, the proposed rule would not necessarily supersede precedent 
that is consistent with the requirements of the proposed rule or 
precedent that addresses issues not covered by the proposed rule. 
The OCC requests comment on whether and how outstanding precedent 
should be affected by the proposed rule.
    \13\ Former 12 CFR 560.37. In 2011, the OCC republished OTS 
regulations set out in Chapter V of Title 12, including 12 CFR 
560.37, with OCC part numbers changing the ``5'' to a ``1''. 12 CFR 
560.37 became 12 CFR 160.37. 76 FR 48950 (August 9, 2011). 12 CFR 
160.37 was subsequently removed when Federal savings associations 
were integrated into the national bank rule. Prior OTS guidance 
provided that a building would be a Federal savings association's 
premises if the association used 25 percent or more of the building. 
OTS Handbook, Section 252, Fixed Assets, April 1999, p.31 
(rescinded).
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    Although this precedent-based approach provides flexibility, it 
comes with several limitations. First, since precedent is necessarily 
responsive to presented facts, reliance on precedent means there is no 
clear rule to give notice to banks or the public of what forms of real 
estate ownership are permissible for a bank. Published OCC precedent by 
its nature typically describes fact patterns found to be permissible. 
Therefore, reliance on precedent alone makes it difficult for the 
industry and the public to understand what set of facts would be 
impermissible. Given the time and effort often required to plan an 
investment in premises, delays and uncertainty caused by unclear legal 
standards can be problematic.
    Second, national bank premises precedent was largely formed at a 
time when the banking industry was different than the one in existence 
today. Many of the most important cases decided on premises occurred at 
a time when most banks operated entirely out of a single headquarters. 
The principles drawn from those cases remain relevant in the present 
day, but the reality of a modern large bank is very different than a 
bank that existed prior to interstate branching. Bank premises rules in 
the present day must apply to both

[[Page 7981]]

community banks, some operating out of a single building or few 
buildings, and large banks with tens of thousands of employees and 
operations in all fifty states.
    Finally, commercial real estate itself has changed greatly in the 
past several decades in ways that are difficult to square with premises 
precedent. The majority of OCC and OTS premises precedent concerns 
either branches or standalone office space, as those were the typical 
premises arrangements for banking operations in the 20th century. 
Recent years have seen the growth of mixed-use developments combining 
office space with retail space, residential space, and other uses not 
typically found in a traditional office building. Some industries have 
moved towards a comprehensive campus arrangement providing employees 
with amenities and working arrangements previously not present in an 
office environment. Finally, with the development of robust 
teleconferencing and the arrival of the COVID-19 pandemic, many 
companies are moving towards offsite, shared, or virtual work spaces. 
It is increasingly difficult for national banks and Federal savings 
associations to rely on precedent focusing on traditional office 
arrangements to determine whether and to what extent they may own 
mixed-use developments, install amenities to compete with those offered 
by other industries (including technology companies), or make use of 
alternative work arrangements.
    For these reasons, the OCC proposes these revisions to 12 CFR 
7.1024 to codify and clarify a transparent and consistent set of 
principles for national bank and Federal savings association premises. 
The OCC intends these regulations to meet the needs of modern national 
banks and Federal savings associations while ensuring consistent 
application of and adherence to the limitations of 12 U.S.C. 29 and the 
HOLA.
    Question One: Although current OCC regulations and the proposal 
cover both the national bank and Federal savings association charters 
in one section, there are differences in the statutory regimes covering 
each charter. Would it be preferable to apply different requirements to 
Federal savings association premises? Specifically, should the proposed 
rule apply only to national banks? If so, what requirements should 
apply to Federal savings associations? Should the OCC continue to apply 
the current requirements to Federal savings associations even if it 
adopts the proposed rule with respect to national banks? Should the OCC 
adopt a requirement for Federal savings associations that is similar to 
or identical to the requirement in effect before the integration of 
national bank and Federal savings association requirements? \14\ Also, 
should the proposed rule apply to federal branches and agencies of 
foreign banks regulated by the OCC? If so, should modified requirements 
be applied to such branches and agencies?
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    \14\ 61 FR 66561, 66579 (Dec. 18, 1996) (``A federal savings 
association may invest in real estate (improved or unimproved) to be 
used for office and related facilities of the association, or for 
such office and related facilities and for rental or sale, if such 
investment is made and maintained under a prudent program of 
property acquisition to meet the federal savings association's 
present needs or its reasonable future needs for office and related 
facilities. A federal savings association may not make an investment 
that would cause the outstanding book value of all such investments 
(including investments under Sec.  559.4(e)(2) of this chapter) to 
exceed its total capital.'').
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III. The Proposed Rule

    The OCC is proposing to revise Sec.  7.1024 to provide general 
standards the OCC will use in determining whether the acquisition and 
holding of real estate is necessary for the transaction of a national 
bank's or Federal savings association's business. Revisions include 
implementing an occupancy test and excess capacity standards that would 
allow national banks and Federal savings associations to ascertain 
better whether an acquisition or holding of real estate is permissible 
under 12 U.S.C. 29 or the HOLA. The OCC has determined that national 
banks and the public would benefit from clear standards related to the 
requirements and expectations for real estate to be considered 
necessary for the transaction of a national bank's or Federal savings 
association's business as required by 12 U.S.C. 29 or the HOLA. Current 
Sec.  7.1024 and various legal interpretations provided examples of 
permissible holdings, but the OCC has determined that, for the reasons 
articulated above, these examples do not provide general principles 
national banks could apply to new acquisitions. Without clear 
principles, there is the potential for inconsistent application of 12 
U.S.C. 29, the HOLA, and 12 CFR 7.1024. The proposed revisions are 
intended to provide for more consistent application of 12 U.S.C. 29, 
the HOLA, and 12 CFR 7.1024.

Definitions (Sec.  7.1024(a))

    Proposed Sec.  7.1024(a) provides certain definitions used in the 
proposed rule. Bank occupied office premises is defined in proposed 
Sec.  7.1024(a)(1) as bank occupied premises containing offices where 
professional or clerical duties are performed.
    Bank occupied premises is defined in proposed Sec.  7.1024(a)(2) as 
real estate acquired and held in good faith in which more than 50 
percent of each building or severable piece of land is used by bank 
persons, including facilities that may be operated by third parties to 
provide amenities and services to bank persons or otherwise facilitate 
bank business operations. This definition encompasses a variety of 
factual situations, including a bank's acquisition of a single premises 
building or a bank's development of a premises campus. As reflected in 
the above definition, in any factual situation the OCC would apply the 
50 percent occupancy standard to each building or severable piece of 
land. In order for a building or severable piece of land to be 
considered bank occupied premises, more than 50 percent of the space 
must be used by, or for, bank persons to facilitate bank business 
operations. Space that facilitates bank business operations would 
include facilities operated by third parties to provide amenities and 
services to bank persons that facilitate bank business operations; 
examples of such facilities include an office gym, cafeteria, daycare, 
or printing center. In calculating the occupancy percentage, the 
national bank or Federal savings association would look at each 
building or severable piece of land using the amount of space that is 
used by or for bank persons as the numerator and the overall space of 
the building or severable piece of land as the denominator. As an 
example, a national bank or Federal savings association that acquires 
and holds a building in good faith and in which the national bank or 
Federal savings association uses 4,000 square feet of the 6,000 square 
foot building for a bank branch, bank offices, gym for bank persons' 
use, and cafeteria for bank persons' use, the occupancy percentage 
would be approximately 67 percent and the national bank or Federal 
savings association could rent the remaining 2,000 square feet of the 
building, for example as ground floor retail space, in order to avoid 
economic loss or waste in the real estate consistent with Sec.  
7.1024(c).
    Question Two: The OCC requests comment on whether 50 percent is the 
appropriate percentage for bank occupied premises. Should the 
percentage be higher, such as 75 percent, or lower, such as 25 percent? 
The OCC requests comments on all possible percentage limitations and 
particularly the range of percentages between 25 and 75. Why should the

[[Page 7982]]

percentage be higher or lower than 50 percent?
    Question Three: The OCC requests comment on whether ground floor 
retail space rented to a third party should be treated differently 
under the occupancy percentage calculation. For example, should ground 
floor retail space that is intended primarily for bank persons use be 
included in the numerator of the calculation even if third parties 
incidentally use the space? Should ``primarily'' be defined as more 
than 50 percent of use by bank persons? Or, should ground floor retail 
space that is not intended primarily for bank persons be excluded 
entirely from the occupancy percentage calculation as an incident of 
sound facilities management so that it would be included in neither the 
numerator nor the denominator? Or should retail space that is intended, 
but not primarily intended, for bank persons be excluded from the 
numerator but included in the denominator? Should other adjustments be 
made to the calculation? Should unused or less-used spaces (such as 
stairwells, lobbies, and maintenance areas) be excluded from the 
numerator, denominator, or both?
    Question Four: How should land obtained by a national bank or 
Federal savings association as lessee be treated? The proposed rule 
would treat all land obtained by the bank through lease for use as 
premises as subject to the rule and its calculation requirements. 
Should certain types of leases (e.g., operating leases or capital 
leases) be treated differently or excluded from the calculation?
    Bank persons is defined in proposed Sec.  7.1024(a)(3) as a 
national bank's or Federal savings association's employees, 
contractors, consultants, vendors, and any other individuals who are 
engaged in the national bank's or Federal savings association's 
business.
    Impermissible premises is defined in proposed Sec.  7.1024(a)(4) as 
real estate that is not bank occupied premises or that otherwise does 
not conform with the requirements of this section. Impermissible 
premises is any property not expressly permitted under this section, 
including real estate in which the national bank or Federal savings 
association uses 50 percent or less of the building or severable piece 
of land for bank persons or the facilitation of bank business 
operations. Impermissible premises would also include real estate in 
which a national bank or Federal savings association occupies 50 
percent or more but does not comply with the excess space and capacity 
provisions of proposed Sec.  7.1024(c). Real estate held under the 
transition provision in proposed Sec.  7.1024(g) would not be 
considered impermissible premises.
    Shared space is defined in proposed Sec.  7.1024(a)(5) as bank 
occupied office premises that a national bank or Federal savings 
association shares with a third party to enhance the national bank's or 
Federal savings association's business operations. The OCC is proposing 
to remove the shared space provisions from 12 CFR 7.3001 and instead 
include them in proposed Sec.  7.1024(e) to eliminate confusion 
regarding the interaction of the shared space provisions with the 
permissibility provisions of 12 CFR 7.1024. These proposed provisions 
are substantively unchanged from the current rule.

Investments in Real Estate Necessary for the Transaction of Business 
(Sec.  7.1024(b))

    Proposed Sec.  7.1024(b) provides that a national bank or Federal 
savings association may acquire, hold, or convey real estate for use as 
bank occupied premises.\15\ Under the proposed rule, bank occupied 
premises would be considered real estate necessary for the transaction 
of a national bank's or Federal savings association's business, and 
thus a national bank or Federal savings association would be permitted 
to acquire, hold, and convey real estate that is included within the 
definition of bank occupied premises.
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    \15\ 12 U.S.C. 29 provides that national banks may only 
``purchase, hold, and convey real estate'' for four specific 
purposes. The OCC interprets the words ``purchase, hold, and 
convey'' to encompass all forms of real estate acquisition, 
ownership, and transfer. The proposed rule would use the words 
``acquire, hold, or convey'' to make clear that all forms of real 
estate acquisition and ownership would be covered by the proposed 
rule. Depending on the circumstances, the words ``acquire, hold, or 
convey'' may include real estate obtained by a national bank or 
Federal savings association via lease.
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Excess Space or Capacity (Sec.  7.1024(c))

    Proposed Sec.  7.1024(c) sets forth the principles of the excess 
capacity doctrine \16\ recognizing national banks' and Federal savings 
associations' need to optimize the value of bank property by 
authorizing national banks and Federal savings associations to sell or 
lease excess space or capacity in that property.\17\ Although national 
banks and Federal savings associations may sell or lease excess 
capacity or space in property, the property must have been legitimately 
acquired for banking purposes, meaning the national bank or Federal 
savings association must acquire or hold such property because of its 
suitability for use in banking operations or by bank persons and not as 
a means to invest the bank's funds in real property or to speculate in 
real estate.\18\
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    \16\ The excess capacity doctrine holds that a bank properly 
acquiring an asset to conduct its banking business is permitted, 
under its incidental powers, to make full economic use of the 
property if using the property solely for banking purposes would 
leave the property underutilized. See OCC Conditional Approval No. 
361 (Mar. 3, 2000). In 2002, the OCC distilled this doctrine in a 
regulation that allowed national banks to sell excess electronic 
capacity, including data processing services. 12 CFR 7.5004. This 
regulation relied on the previous history of allowing the sale of 
excess real property. 67 FR 34992, 34995 (May 17, 2002). The current 
proposal for the treatment of excess capacity in the real estate 
context is consistent with the distillation set forth in the 
electronic capacity rule.
    \17\ See 12 U.S.C. 24 (Seventh) and 29; Perth Amboy National 
Bank v. Brodsky, 207 F. Supp. 785, 788 (S.D.N.Y. 1962) (``It is 
clear beyond cavil that the statute [12 U.S.C. 29] permits a 
national bank to lease or construct a building, in good faith, for 
banking purposes, even though it intends to occupy only a part 
thereof and to rent out a large part of the building to others.'').
    \18\ Brown v. Schleier, 118 F. 981, 984 (8th Cir. 1902). (``. . 
. provided, always, that it acts in good faith, solely with a view 
of obtaining an eligible location, and not with a view of investing 
its funds in real property or embarking them in speculations in real 
estate.'').
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    Proposed Sec.  7.1024(c)(1) provides that a national bank or 
Federal savings association may, in order to optimize the use of bank 
occupied premises or avoid economic loss or waste, permit third parties 
to use excess space or capacity in real estate legitimately acquired or 
developed by the national bank or Federal savings association for its 
banking business. The proposal also provides that such excess space or 
capacity must have a nexus with the transaction of bank business or 
bank operations such that it is acquired or held to provide the 
national bank or Federal savings association with a business location 
rather than as an investment in real estate. A national bank or Federal 
savings association must be able to demonstrate a nexus between its 
ownership of the property and the transaction of its business or bank 
operations. One way to demonstrate such a nexus would be for the 
national bank or Federal savings association to show in its business 
plan how the property supports its business. Demonstrating that there 
is a nexus between the ownership of property and the transaction of its 
business allows the national bank or Federal savings association to 
demonstrate that such property was acquired or developed in good faith 
and not for a speculative purpose, consistent with statutory 
requirements. Although a national bank or Federal savings association 
may sell or lease excess space or capacity legitimately acquired or 
developed, a national bank or Federal savings association acquiring or 
developing

[[Page 7983]]

space in order to serve as a landlord to tenants using space unrelated 
to the transaction of its business or bank operations (for example, a 
grocery store or a branded hotel) would likely not meet this 
requirement as the national bank or Federal savings association would 
not merely be avoiding economic waste in acquiring or developing real 
estate for such purposes but likely actively investing in real estate 
for a speculative non-banking purpose. In the case of leasing space to 
tenants such as a grocery store or a branded hotel, the national bank 
or Federal savings association would likely derive significant revenue 
related to such activity and would need to demonstrate that the real 
estate was not acquired primarily for its lease income but rather 
because of its suitability for bank purposes or use by bank persons. A 
national bank or Federal savings association can only lease legitimate 
excess space or capacity, and if real estate is acquired or developed 
in a volume or manner that is not consistent with the bank's operations 
or business, for example as set forth in its business plan, such real 
estate was likely not legitimately acquired or developed, and thus 
would be impermissible.
    Excess space is space in bank occupied premises that is not being 
used by bank persons or for bank operations. Excess capacity in bank 
occupied premises can be either temporal or space-based. An example of 
temporal excess capacity is a bank auditorium that is used after bank 
business hours by members of the local community. An example of space-
based excess capacity is a call center in which the bank needs space 
for 100 employees during eight months of the year but only needs space 
for 80 employees during the remaining four months of the year. In both 
examples, the space can be used by non-bank persons as long as the 
space was legitimately acquired or developed by the bank for its 
operations or business as required by Sec.  7.1024(c)(1).
    Proposed Sec.  7.1024(c)(2) discusses situations in which 
legitimate excess space or capacity may be used by third parties. 
Section Sec.  7.1024(c)(2)(i) through (iv) have analogous provisions in 
the excess capacity provisions for electronic activities located in 12 
CFR 7.5004. Section 7.1024(c)(2)(i) provides that excess space or 
capacity can be used by third parties to the extent that the real 
estate acquired is consistent with the real estate available in the 
market. For example, if a national bank or Federal savings association 
is located in an area in which strip malls are the predominant type of 
commercial real estate, then a national bank or Federal savings 
association may be able to acquire a strip mall if the national bank or 
Federal savings association would occupy greater than 50 percent of the 
space and lease out the remaining space. However, as the national bank 
or Federal savings association must have good faith and a non-
speculative purpose in order for real estate to be legitimately 
acquired, a national bank or Federal savings association would need to 
analyze carefully whether this requirement would be met if many smaller 
strip malls than the one it acquired were available or if there were 
many free standing buildings more appropriately sized for bank purposes 
available in the market.
    Section 7.1024(c)(2)(ii) provides that a national bank or Federal 
savings association may acquire and retain additional space or 
capacity, beyond its present needs, if it is reasonably necessary for 
planned future expansion or to meet the bank's future expected banking 
needs as long as the bank uses the additional space or capacity in the 
real estate acquired for future bank expansion within five years. A 
national bank or Federal savings association may acquire real estate 
intended to be used for future banking purposes and may permit third 
parties to use this excess space or capacity, but the national bank or 
Federal savings association must use this real estate for banking 
purposes within five years of acquisition. The OCC understands that it 
is prudent for a national bank or Federal savings association to plan 
for future expansion and use, so a national bank or Federal savings 
association may legitimately acquire and develop real estate intended 
for future use as long as that real estate is used by the national bank 
or Federal savings association within five years of its acquisition or 
development. If the property does not become bank occupied premises 
within five years, it will become Other Real Estate Owned (OREO) and, 
subject to 12 U.S.C. 29 for national banks and 12 CFR 34.82 for 
national banks and Federal savings associations, must be disposed of 
within five years of becoming OREO, unless the bank requests an 
extension of up to an additional five years.
    Proposed Sec.  7.1024(c)(2)(iii) provides that a national bank or 
Federal savings association may lease excess capacity resulting from a 
fluctuation caused by the bank's need to use the full capacity of a 
space during peak periods but not in other off-peak periods. This 
situation is similar to the example discussed above related to a call 
center which the bank uses all 100 available seats during eight months 
of the year but only used 80 during the other four months. The bank may 
allow third parties to use the excess 20 seats in its call center 
provided the capacity was legitimately acquired for bank operations and 
does not impede the safe and sound operation of the bank.
    Proposed Sec.  7.1024(c)(2)(iv) provides that a national bank or 
Federal savings association may lease excess capacity or space that is 
no longer needed due to a decline in the level of banking operations. 
In this situation, a bank acquired real estate for use in its banking 
operations and, based on a decline in bank activity or operation, no 
longer needs all of the space. The nexus between national bank or 
Federal savings association ownership of a building and its banking 
operations becomes clearer the closer the bank's occupancy approaches 
one hundred percent. As with excess capacity in data processing, the 
OCC presumes a certain percentage of use of the property to be 
permissible. The bank may allow third parties to use the space provided 
the bank still otherwise occupies more than 50 percent of the real 
estate as required by Sec.  7.1024(a)(2).
    Question Five: Should the OCC permit a national bank or Federal 
savings association to lease out more than 50 percent of its premises 
on a temporary basis, provided that the national bank brings its 
percentage of occupancy back to at least 50 percent by a certain time 
period?
    Question Six: Should the OCC impose additional time-based 
limitations on a bank's ability to lease out excess space or capacity? 
For example, should a bank be permitted to lease out 50 percent of its 
space for a limited period (for example, five years) but be subject to 
a higher usage requirement (for example, 75 percent) on an ongoing 
basis?
    Question Seven: Should certain uses be permissible but subject to a 
time-based limit?
    Proposed Sec.  7.1024(c)(2)(v) provides that a national bank or 
Federal savings association may permit third parties to use bank 
occupied premises after bank business hours.\19\ For example, a bank 
may permit community members to use a bank auditorium or conference 
center after bank business hours. After hours

[[Page 7984]]

use by third parties will not affect the bank occupied premises 
calculation.
---------------------------------------------------------------------------

    \19\ National banks and Federal savings associations are often 
key anchors in a local community and can be called on to play an 
important role in life-cycle events, for example supplying the use 
of a conference room or the institution's board room for a funeral 
viewing or community celebration during business hours. Occasional 
use of facilities for such purpose is entirely consistent with the 
institution's role in the local community and is not inconsistent 
with section 29 or 1464 and this proposed rule.
---------------------------------------------------------------------------

    The OCC recognizes that often national banks and Federal savings 
associations are asked or required by outside parties, such as a local 
government, to make commitments to allow third party or public use in 
order to acquire or hold real estate. When such commitments are 
requested or required, the national bank or Federal savings association 
should inform the appropriate OCC supervisory office of such requests 
and share such commitments and other relevant information with the 
appropriate OCC supervisory office.

Impermissible Premises (Sec.  7.1024(d))

    Proposed Sec.  7.1024(d) provides that a national bank or Federal 
savings association may not acquire or hold impermissible premises. 
Proposed Sec.  7.1024(a)(4) defines impermissible premises as real 
estate that is not bank occupied premises or that otherwise does not 
conform with the requirements of this section. If the real estate 
acquisition or holding would not conform with the requirements of Sec.  
7.1024, then it would be impermissible.
    Question Eight: Should the OCC include specific examples in Sec.  
7.1024(d) of impermissible premises? If so, what examples should be 
included? Should large retail operations, such as grocery stores, be 
specifically impermissible? Should commercial lodging (rental 
apartments, branded hotels) be specifically impermissible?
    Question Nine: Courts have explained that, under 12 U.S.C. 29, 
national banks investing in property should be doing so ``in good 
faith, solely with a view of obtaining an eligible location'' and not 
for the purpose of speculating or investing in real estate as a 
landlord.\20\ Should the final rule retain the good faith requirement 
to ensure that national banks and Federal savings associations are only 
permitted to acquire additional real estate with the intention of using 
it as premises? Should the final rule make further clarification that 
national banks and Federal savings associations would not be permitted 
to obtain real estate with the intention of using part of the real 
estate for a non-premises purpose on an indefinite basis?
---------------------------------------------------------------------------

    \20\ Brown v. Schleier, 118 F. 981, 984 (8th Cir. 1902), aff'd 
194 U.S. 18 (1904).
---------------------------------------------------------------------------

Sharing National Bank or Federal Savings Association Space and 
Employees in Jointly Held Bank Occupied Premises (Sec.  7.1024(e))

    Proposed Sec.  7.1024(e) substantially imports current 12 CFR 
7.3001 concerning the sharing of national bank or Federal savings 
association space and employees in jointly held bank occupied office 
premises covering situations where a bank and another business jointly 
hold and share the same space as opposed to a bank leasing a separate 
space within a building to a third party. Proposed Sec.  7.1024(e) 
provides guidance on how to share offices and employees in a manner 
that protects customers and is consistent with safe and sound banking 
practices. The proposed rule would not alter or affect existing 
precedent applicable to 12 CFR 7.3001. Proposed Sec.  7.1024(e)(4), 
like current 12 CFR 7.3001(d), provides that in conducting sharing 
arrangements, national banks and Federal savings associations would be 
required to ensure that each arrangement complies with all applicable 
laws or regulations. Proposed Sec.  7.1024(e)(4), like current 12 CFR 
7.3001(d), lists three requirements, which are illustrative and not 
exhaustive.

Permissible Means of Holding Real Estate and Fixed Assets (Sec.  
7.1024(f))

    Proposed Sec.  7.1024(f) provides technical information related to 
permissible means of holding real estate and fixed assets. These 
provisions are substantially similar to the provisions in current 12 
CFR 7.1024(a)(3), (b), and (c).

Transition (Sec.  7.1024(g))

    Proposed Sec.  7.1024(g) provides that as of XX, 20XX, a national 
bank or Federal savings association that holds an investment in real 
estate, fixed assets, banking premises, or other real property that 
complies with the legal requirements in effect prior to XX, 20XX, but 
would violate any provision of proposed Sec.  7.1024, would be 
permitted to continue to hold the investment in accordance with the 
prior legal requirements. However, a national bank or Federal savings 
association holding such an investment cannot modify, expand, or 
improve the investment, except for routine maintenance, without the 
prior approval of the appropriate OCC supervisory office. Proposed 
Sec.  7.1024(g) grandfathers national banks or Federal savings 
associations that currently have permissible real estate investments 
that would no longer be permissible under the proposed revisions. The 
proposed rule would supersede outstanding OCC precedent (and former OTS 
precedent) in this area to the extent it is inconsistent with the 
proposed rule. While national banks and Federal savings associations 
would be able to continue to rely on this precedent, including 
interpretive letters, with respect to current real estate investments, 
national banks and Federal savings associations would not be able to 
rely on this precedent with respect to future real estate investments. 
The proposed rule would not affect outstanding precedent regarding 12 
CFR 7.1000 or 12 CFR 7.3001.
    Question Ten: The OCC requests comment on the appropriate 
parameters of a national bank or Federal savings association's ability 
to hold real estate subject to the transition rule in Sec.  7.1024(g). 
Specifically, should a renewal, modification, or termination of a lease 
constitute a ``modification'' subject to the transition rule? Should 
other activities besides ``routine maintenance'' be permitted under the 
transition rule?

IV. Administrative Law Matters

    Paperwork Reduction Act. In accordance with the requirements of the 
Paperwork Reduction Act of 1995 (PRA), 44 U.S.C. 3501 et seq., the OCC 
may not conduct or sponsor, and respondents are not required to respond 
to, an information collection unless it displays a currently valid 
Office of Management and Budget (OMB) control number. The OCC has 
reviewed the notice of proposed rulemaking and determined that it would 
not introduce any new or revise any existing collection of information 
pursuant to the PRA. Therefore, no submission will be made to OMB for 
review.
    Regulatory Flexibility Act. The Regulatory Flexibility Act (RFA), 5 
U.S.C. 601 et seq., requires an agency, in connection with a proposed 
rule, to prepare an Initial Regulatory Flexibility Analysis describing 
the impact of the proposed rule on small entities (defined by the Small 
Business Administration (SBA) for purposes of the RFA to include 
commercial banks and savings institutions with total assets of $600 
million or less and trust companies with total assets of $41.5 million 
of less) or to certify that the proposed rule would not have a 
significant economic impact on a substantial number of small entities. 
The OCC currently supervises approximately 745 small entities. The OCC 
expects that all of these small entities would be impacted by the 
proposed rule. Because the proposed rule applies to all OCC-supervised 
depository institutions, the proposed

[[Page 7985]]

rule would affect all small OCC-supervised entities, and thus a 
substantial number of them.
    Unfunded Mandates Reform Act. Consistent with the Unfunded Mandates 
Reform Act of 1995 (UMRA), 2 U.S.C. 1532, the OCC considers whether the 
proposed rule includes 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 adjusted for inflation 
(currently $157 million) in any one year. The OCC estimates the 
expenditures that may be associated with compliance costs for this 
proposed rule, if implemented, would be as much as $412,000. The 
estimate for expenditures is for modifying a bank's policies and 
procedures on premises. However, it should be noted that the proposed 
rule does not require banks to modify their policies and procedures. 
Therefore, the OCC concludes that implementation of the proposed rule 
would not result in an expenditure of $157 million or more annually by 
state, local, and tribal governments, or by the private sector.
    Riegle Community Development and Regulatory Improvement Act. 
Pursuant to section 302(a) of the Riegle Community Development and 
Regulatory Improvement Act of 1994 (RCDRIA), 12 U.S.C. 4802(a), in 
determining the effective date and administrative compliance 
requirements for new regulations that impose additional reporting, 
disclosure, or other requirements on insured depository institutions, 
the OCC must consider, consistent with principles of safety and 
soundness and the public interest, any administrative burdens that such 
regulations would place on depository institutions, including small 
depository institutions, and customers of depository institutions, as 
well as the benefits of such regulations. In addition, section 302(b) 
of RCDRIA, 12 U.S.C. 4802(b), requires new regulations and amendments 
to regulations that impose additional reporting, disclosures, or other 
new requirements on insured depository institutions generally to take 
effect on the first day of a calendar quarter that begins on or after 
the date on which the regulations are published in final form. Although 
the proposed rule does not impose additional reporting, disclosures, or 
other new requirements on insured depository institutions, the OCC 
invites comments that will inform its consideration of the 
administrative burdens and the benefits of its proposal, as well as the 
effective date of the final rule.

List of Subjects in 12 CFR Part 7

    Computer technology, Credit, Derivatives, Federal savings 
associations, Insurance, Investments, Metals, National banks, Reporting 
and recordkeeping requirements, Securities, Security bonds.

Authority and Issuance

    For the reasons stated in the preamble, the OCC proposes to amend 
12 CFR part 7 as follows.

PART 7--ACTIVITIES AND OPERATIONS

0
1. The authority citation for part 7 continues to read as follows:

    Authority: 12 U.S.C. 1 et seq., 25b, 29, 71, 71a, 92, 92a, 93, 
93a, 95(b)(1), 371, 371d, 481, 484, 1463, 1464, 1465, 1818, 1828(m) 
and 5412(b)(2)(B).

0
2. Amend Part 7 by adding Sec.  7.1024 to read as follows:


Sec.  7.1024  National bank or Federal savings association ownership of 
property.

    (a) Definitions.
    (1) Bank occupied office premises means bank occupied premises 
containing offices where professional or clerical duties are performed.
    (2) Bank occupied premises means real estate acquired and held in 
good faith and in which more than 50 percent of each building or 
severable piece of land is, or consistent with paragraph (c)(2)(ii) of 
this section--, will be used by bank persons for the transaction of a 
national bank's or Federal savings association's business, including 
facilities that may be operated by third parties to provide amenities 
and services to bank persons or otherwise facilitate national bank or 
Federal savings association business operations.
    (3) Bank persons mean a national bank or Federal savings 
association's employees, contractors, consultants, vendors, and any 
other individuals who are engaged in the national bank or Federal 
savings association's business.
    (4) Impermissible premises means real estate that is not bank 
occupied premises or that otherwise does not conform with the 
requirements of this section.
    (5) Shared space means bank occupied office premises that a 
national bank or Federal savings association shares with a third party 
to enhance the national bank's business operations.
    (b) Investment in real estate necessary for the transaction of 
business. A national bank or Federal savings association may acquire, 
hold, or convey real estate for use as bank occupied premises.
    (c) Excess space and capacity.
    (1) A national bank or Federal savings association may, in order to 
optimize the use of bank occupied premises or avoid economic loss or 
waste, permit third parties to use excess space or capacity in real 
estate legitimately acquired or developed by the national bank or 
Federal savings association for its banking business. Such excess space 
or capacity must have a nexus with the transaction of the bank's 
business or bank operations for the national bank or Federal savings 
association such that it is acquired or held to provide the bank with a 
business location rather than as an investment in real estate.
    (2) With respect to bank occupied premises, legitimate excess space 
or capacity that may be used by third parties can arise in a variety of 
situations, including the following:
    (i) Due to the characteristics of the real estate available in the 
market, the space or capacity to meet a national bank or Federal 
savings association's requirements exceeds its present needs;
    (ii) The acquisition and retention of additional space or capacity, 
beyond present needs, reasonably may be necessary for planned future 
expansion or to meet a national bank's or Federal savings association's 
expected future banking needs as long as the national bank or Federal 
savings association uses the additional capacity in the real estate 
acquired for future national bank or Federal savings association 
expansion or banking needs within five years;
    (iii) Requirements for capacity fluctuate because a national bank 
or Federal savings association may need to use the full capacity of a 
space during peak periods resulting in periods when its capacity is 
underutilized;
    (iv) After the initial acquisition of real estate thought to be 
fully needed for banking operations, a national bank or Federal savings 
association experiences a decline in the level of banking operations or 
an increase in efficiency resulting in underutilized space or capacity; 
and
    (v) A national bank or Federal savings association has capacity to 
allow third parties after-hours use of bank occupied premises.
    (d) Impermissible premises. A national bank or Federal savings 
association may not acquire, hold, or convey impermissible premises, 
except as otherwise permitted by 12 U.S.C. 29 or 1464, respectively, or 
other applicable law.
    (e) Sharing national bank space and employees in jointly held bank 
occupied office premises.
    (1) Shared space. A national bank or Federal savings association 
may share space in bank occupied office premises

[[Page 7986]]

jointly held with one or more other businesses.
    (2) Shared employees. When sharing space with other businesses as 
described in paragraph (e)(1) of this section, a national bank or 
Federal savings association may provide, under one or more written 
agreements between the national bank or Federal savings association, 
the other business, and their employees, that:
    (i) A national bank or Federal savings association employee may act 
as agent for the other business; or
    (ii) An employee of the other business may act as agent for the 
national bank or Federal savings association.
    (3) Supervisory conditions. When a national bank or Federal savings 
association engages in arrangements of the types listed in paragraphs 
(e)(1) and (2) of this section, the national bank or Federal savings 
association must ensure:
    (i) The other business is conspicuously, accurately, and separately 
identified;
    (ii) Shared employees clearly and fully disclose the nature of 
their agency relationship to customers of the national bank or Federal 
savings association and of the other businesses so that customers will 
know the identity of the national bank, Federal savings association, or 
other business that is providing the product or service;
    (iii) The arrangement does not constitute a joint venture or 
partnership with the other business under applicable state law;
    (iv) All aspects of the relationship between the national bank or 
Federal savings association and the other business are conducted at 
arm's length, unless a special arrangement is warranted because the 
other business is a subsidiary of the national bank or Federal savings 
association;
    (v) Security issues arising from the activities of the other 
business on the premises are addressed;
    (vi) The activities of the other business do not adversely affect 
the safety and soundness of the national bank or Federal savings 
association;
    (vii) The shared employees or the entity for which they perform 
services are duly licensed or meet qualification requirements of 
applicable statutes and regulations pertaining to agents or employees 
of such other business; and
    (viii) The assets and records of the parties are segregated.
    (4) Other legal requirements. When entering into arrangements of 
the types described in paragraphs (e)(1) and (2) of this section, and 
in conducting operations pursuant to those arrangements, a national 
bank or Federal savings association must ensure that each arrangement 
complies with all applicable laws and regulations. If the arrangement 
involves an affiliate or a shareholder, director, officer, or employee 
of the national bank or Federal savings association:
    (i) The national bank or Federal savings association must ensure 
compliance with all applicable statutory and regulatory provisions 
governing national bank or Federal savings association transactions 
with these persons or entities;
    (ii) The parties must comply with all applicable fiduciary duties; 
and
    (iii) The parties, if they are in competition with each other, must 
consider limitations, if any, imposed by applicable antitrust laws.
    (f) Permissible means of holding real estate and fixed assets.
    (1) Permissible means of holding. A national bank or Federal 
savings association may acquire and hold real estate under paragraph 
(b) of this section by any reasonable and prudent means, including 
ownership in fee, a leasehold estate, or in an interest in a 
cooperative. A national bank or Federal savings association may hold 
this real estate directly or through one or more subsidiaries. A 
national bank or Federal savings association may organize a bank 
occupied premises subsidiary as a corporation, partnership, limited 
liability company, or any other similar entity.
    (2) Fixed assets. A national bank or Federal savings association 
may own fixed assets necessary for the transaction of its business, 
such as fixtures, furniture, and data processing equipment.
    (3) Investment in banking premises.
    (i) Premises investment and approval. A national bank or Federal 
savings association must comply with the investment and approval 
requirements for investment in banking premises in 12 CFR 5.37(d).
    (ii) Option to purchase. An unexercised option to purchase banking 
premises or stock in a corporation holding banking premises is not an 
investment in banking premises. However, a national bank or Federal 
savings association seeking to exercise such an option must comply with 
the requirements in 12 CFR 5.37(d).
    (g) Transition. If, on XX, 20XX, a national bank or Federal savings 
association holds an investment in real estate, fixed assets, banking 
premises, or other real property that complies with the legal 
requirements in effect prior to XX, 20XX, but would violate any 
provision of this section, the national bank or Federal savings 
association may continue to hold such investment in accordance with the 
prior legal requirements. However, a national bank or Federal savings 
association that holds such an investment may not modify, expand, or 
improve this investment, except for routine maintenance, without the 
prior approval of the appropriate OCC supervisory office.


Sec.  7.3001  [Removed]

0
3. Remove Sec.  7.3001.

Brian P. Brooks,
Acting Comptroller of the Currency.

    Editorial Note: This document was received at the Office of the 
Federal Register on December 31, 2020.

[FR Doc. 2020-29277 Filed 2-2-21; 8:45 am]
BILLING CODE 4810-33-P