[Federal Register Volume 64, Number 213 (Thursday, November 4, 1999)]
[Rules and Regulations]
[Pages 60092-60100]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-28819]
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DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
12 CFR Parts 1, 5, and 7
[Docket No. 99-14]
RIN 1557-AB61
Investment Securities; Rules, Policies, and Procedures for
Corporate Activities; Bank Activities and Operations
AGENCY: Office of the Comptroller of the Currency, Treasury.
ACTION: Final rule.
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SUMMARY: The Office of the Comptroller of the Currency (OCC) is
updating and clarifying its rules regarding investment securities,
corporate activities, and bank activities and operations. Most of the
changes involve the OCC's interpretations regarding national bank
activities and operations. This final rule clarifies existing rules,
adds new provisions based on recent statutory changes, judicial
rulings, OCC decisions, and other developments, and makes technical
changes. This final rule reflects the OCC's continuing commitment to
assess the effectiveness of our rules and to make changes where
necessary.
EFFECTIVE DATE: December 6, 1999.
FOR FURTHER INFORMATION CONTACT: Jacqueline Lussier, Senior Attorney,
or Mark Tenhundfeld, Assistant Director, Legislative and Regulatory
Activities Division, (202) 874-5090, Office of the Comptroller of the
Currency, 250 E Street, SW., Washington, DC 20219.
SUPPLEMENTARY INFORMATION: The OCC published a notice of proposed
rulemaking in the Federal Register on June 14, 1999 (64 FR 31749)
inviting comments on proposed changes to several of the OCC's
regulations. The OCC received a total of 16 comments, including seven
from banks and banking industry representatives, three from states,
four from community groups, and one from two individuals. Eight of the
commenters favored all or some of the proposed changes, while eight
opposed one or more of the proposal's provisions.
The final rule implements most of the initiatives contained in the
proposal. However, the OCC has made a number of changes in response to
the comments received and to further clarify the rules. The following
discussion summarizes the proposed rule, the comments received, and
describes the action the OCC has taken in the final rule.
Part 7--Bank Activities and Operations
This final rule changes the name of part 7 from ``Interpretive
rulings'' to ``Bank activities and operations'' to better describe the
content of part 7.
Messenger Service (Sec. 7.1012)
The OCC proposed to amend Sec. 7.1012 to conform to caselaw that
streamlined the criteria for determining when a national bank is
operating a branch. Under the current rule, in order to avoid being
treated as a bank branch, a messenger service, including both a
messenger service affiliated with a bank and a service that is
independent of a bank, generally must both make its services available
to the public, including other depository institutions, and retain the
ultimate discretion to determine which customers and geographic areas
it will serve. 12 CFR 7.1012(c)(2)(ii)(A) and (B).
The recent cases indicate that this test should apply differently
depending on whether the service is affiliated with a bank.1
Pursuant to these cases, a nonaffiliated service need show only that it
has the discretion to determine, in its own business judgment, which
customers it will serve and where. In contrast, an affiliated service,
because it may be more likely to favor its affiliates as a result of
its common ownership or control, must show that it actually serves the
public generally, including nonaffiliated depository institutions.
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\1\ In the proposal, the OCC cited two cases supporting the
revision to Sec. 7.1012: Cades v. H&R Block, 43 F.3d 869 (4th Cir.
1994), cert. denied, 515 U.S. 1103 (1995); Christiansen v.
Beneficial Nat'l Bank, 972 F. Supp. 681 (S.D. Ga. 1997). See 64 FR
at 31749 n.1. These cases held that a tax preparation firm that
delivered tax refund anticipation loan (RAL) proceeds to mutual
customers of the firm and a national bank was not a branch within
the meaning of the branching laws. The standards articulated by both
courts in reaching this conclusion formed the basis for the
amendment to Sec. 7.1012 that the OCC proposed, and the OCC
continues to rely on those cases for that purpose. The principal
issue in the cases, however, was the permissibility of certain fees
charged by the national bank in connection with the RAL. The fee
issue, which both courts resolved in the bank's favor based upon 12
U.S.C. 85, is not relevant to the OCC's amendment to Sec. 7.1012.
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The OCC proposed to combine the criteria in
Secs. 7.1012(c)(2)(ii)(A) and (c)(2)(ii)(B) into one new paragraph and
apply the resulting criteria differently depending on whether or not
the messenger service is affiliated with the bank. The OCC also
proposed a stylistic amendment to Sec. 7.1012(c)(2)(i).
The OCC received three comment letters addressing these proposed
changes. Letters from two commenters supported adopting the changes.
The third letter, representing the views of three commenters, opposed
the changes on the ground that they would encourage national banks to
make small loans with short maturities and high rates of interest. The
commenters' discussion on this point relies on two premises; first,
that the messenger service rule set forth in Sec. 7.1012 authorizes
national banks to make loans at non-branch facilities; and, second,
that banks will therefore rely on the messenger service rule to make
certain types of loans, including so-called payday loans, that would
not be permissible if the branching laws applied. Both premises are
incorrect.
First, the messenger service rule does not, and could not lawfully,
authorize a national bank to conduct the core banking activities of
taking deposits, paying checks, or lending money in a non-branch
facility. By statute, a branch is defined, subject to certain specified
exceptions, as an office or place of business where deposits are
received, checks paid, or money lent. 12 U.S.C. 36(j). Section 7.1012
permits a national bank to use a messenger service--a courier, for
example--to pick-up and deliver items related to transactions between a
bank and its customer, but neither the existing rule, nor the amendment
proposed by the OCC, expands the authority of a national bank to
conduct core banking activities only at branches. Thus, a bank may find
it convenient to use a messenger service to deliver loan proceeds to
its customer, but its use of the service in that way
[[Page 60093]]
does not mean that the loan is made at the offices of the messenger
service or that the messenger service is a branch.
Second, the messenger service rule does not control the loan terms,
such as maturity or interest rate, that a national bank may offer. The
rate of interest a national bank may charge, for example, is governed
by 12 U.S.C. 85. The applicability of such laws is unaffected by the
OCC's proposed amendment to Sec. 7.1012, which has the distinctly
different purpose of conforming to recent judicial precedents the tests
used to distinguish affiliated non-branch messenger services from
unaffiliated non-branch messenger services in order to ensure that the
branching laws are not evaded.
For these reasons, the amendment to Sec. 7.1012 cannot be viewed as
affecting payday lending. Accordingly, the OCC believes the concerns of
the commenters opposing the amendment are misplaced. The amendment is
adopted as proposed.
Independent Undertakings To Pay Against Documents (Sec. 7.1016)
Section 7.1016 codifies interpretations concerning the issuance by
national banks of letters of credit and other independent undertakings.
The proposal suggested five technical amendments to update this
section.
Two commenters addressed these proposed changes. Both supported
adopting the changes. One commenter suggested several additional
technical amendments to clarify certain references contained in
footnote 1 to Sec. 7.1016 and to make the text of the regulation more
precise. For instance, the commenter noted that it is appropriate to
refer to the Convention on Independent Guarantees and Stand-by Letters
of Credit as a United Nations convention, rather than as a United
Nations Commission on International Trade Law convention.
The OCC agrees with the commenter's suggestions for clarifying the
rule and adopts them in the final rule. The OCC adopts Sec. 7.1016 as
proposed, but with the modifications suggested by the commenter.
National Bank as Guarantor or Surety on Indemnity Bond (Sec. 7.1017)
The OCC proposed adding a cross-reference in Sec. 7.1017 to
Sec. 28.4(c), which states that a national bank may guarantee the
liabilities of its foreign operations. This change was proposed in
order to remove whatever doubt that may have been created by the
relocation 2 of the foreign operations guarantee provision
from part 7 to part 28.
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\2\ 61 FR 4849 (Feb. 9, 1996) (amending part 7); 61 FR 19524
(May 2, 1996) (amending 12 CFR part 28).
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The OCC received one comment on this proposed change, from a
commenter favoring adoption of the change. The OCC adopts Sec. 7.1017
as proposed.
Ownership of Stock Necessary To Qualify as Director (Sec. 7.2005)
The OCC proposed revising Sec. 7.2005(b)(4) to codify guidance
provided in OCC interpretive letters 3 approving buyback or
repurchase agreements between shareholders and prospective directors.
This guidance, proposed to be added in new paragraphs (b)(4)(ii),
(iii), and (iv) of Sec. 7.2005, states that a buyback agreement may
give a director the option of transferring shares back to the
transferring shareholder if the director no longer needs those shares
to satisfy the ownership requirement. The transferring shareholder may
retain a right of first refusal to reacquire the shares if the director
seeks to transfer ownership to a third person. Further, a director may
assign the right to receive dividends or distributions on the shares
back to the original shareholder and execute an irrevocable proxy
authorizing the original shareholder to vote the shares. This change
was proposed to make it easier for banks, especially community banks,
to attract qualified persons to serve on bank boards of directors.
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\3\ See, e.g., Letter from Julie L. Williams, Chief Counsel
(Mar. 31, 1997) (unpublished); Letter from Jonathan Rushdoony,
Attorney (Mar. 27, 1986) (unpublished); Letter from Leslie G.
Linville, Senior Attorney (Jan. 9, 1986) (unpublished). You can
inspect and photocopy the unpublished OCC staff interpretive letters
cited in this preamble (in redacted form) at the OCC's Public
Disclosure Room, First Floor, 250 E Street, SW, Washington, DC
20219. You can make an appointment to inspect the letters by calling
(202) 874-5043.
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Three commenters addressed this proposed change. All supported its
adoption. One commenter requested the OCC to go further and examine
whether it is necessary to maintain the qualifying share requirement.
However, this requirement is imposed by statute (12 U.S.C. 72). The OCC
has recently recommended to Congress that the Comptroller be given the
authority to waive the qualifying share requirement, in whole or in
part, in the case of national banks that elect Subchapter S status in
order to facilitate this form of corporate organization for national
banks.4 In light of the comment received, the OCC will
evaluate whether it should recommend to Congress additional changes to
section 72.
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\4\ See Testimony of John D. Hawke, Jr., Comptroller of the
Currency, Before the Subcommittee on Financial Institutions and
Consumer Credit of the Committee on Banking and Financial Services,
U.S. House of Representatives, May 12, 1999. You can inspect and
photocopy the Comptroller's testimony at the OCC's Public Disclosure
Room, First Floor, 250 E Street, SW., Washington, DC 20219. You can
make an appointment to inspect the testimony by calling (202) 874-
5043. The testimony is also available on the OCC's web site at
http://www.occ.treas.gov/ftp/release/99-44a.pdf.
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The OCC adopts Sec. 7.2005(b)(4) as proposed.
Oath of Directors (Sec. 7.2008)
The OCC proposed adding new paragraph (c) to Sec. 7.2008 and
revising the last sentence of Sec. 7.2008(b) to inform national banks
that they are to file original executed oaths with the OCC and retain a
copy in the bank's records in accordance with the instructions set
forth in the Comptroller's Corporate Manual. This guidance is
consistent with 12 U.S.C. 73, which states that each director's
executed and subscribed oath must be transmitted to the Comptroller of
the Currency and filed and preserved in the Comptroller's office for a
period of 10 years.
One commenter addressed these proposed changes. This commenter
supported their adoption. The OCC adopts Sec. 7.2008(b) and (c) as
proposed.
Acquisition and Holding of Shares as Treasury Stock (Sec. 7.2020)
The OCC proposed amending Sec. 7.2020 to provide examples of
legitimate corporate purposes justifying the acquisition by a national
bank of its outstanding shares and holding them as treasury stock.
These examples include: (a) holding shares in connection with an
officer or employee stock option, bonus or repurchase plan; (b) holding
shares for sale to a potential director to meet ``qualifying share''
requirements; (c) purchasing a director's qualifying shares upon his or
her resignation or death if there is no ready market for the shares;
(d) reducing the number of shareholders in order to qualify the bank
for reorganization as a Subchapter S corporation; and (e) reducing the
number of shareholders to lower the bank's costs associated with
shareholder communications and meetings.
As noted in the preamble to the proposed rule, 5 while
the OCC expects that this guidance will benefit all national banks,
certain of the examples listed as legitimate purposes (namely,
purchasing shares upon a director's resignation or death if there is no
ready market for the shares and to aid in qualifying the bank for
treatment under the tax laws as a Subchapter S
[[Page 60094]]
corporation) are expected to provide a particular benefit to community
banks.
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\5\ 64 FR 31749, 31751 (June 14, 1999).
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The OCC received three comments on this proposed change, all of
which supported its adoption. One commenter suggested that the text of
the regulation be modified slightly to clarify that approval of the OCC
under 12 U.S.C. 59 is required before a bank may acquire and hold its
shares. The OCC agrees that this clarification is helpful and adopts it
in the final rule by modifying the first sentence of proposed
Sec. 7.2020(a).
The examples listed as legitimate corporate purposes are non-
exclusive, and the OCC included paragraph (c) in proposed Sec. 7.2020
stating that purposes other than those enumerated in paragraph (b) of
proposed Sec. 7.2020 may satisfy the legitimate corporate purpose test.
The OCC will continue its practice of evaluating other purposes for the
acquisition and retention of a bank's shares on a case-by-case basis.
In addition, the OCC notes that the word ``include'' in paragraph (b)
of proposed Sec. 7.2020 is not exhaustive and therefore believes that
paragraph (c) is redundant. In the final rule, the OCC removes
paragraph (c) from Sec. 7.2020 as proposed and renumbers paragraph (d)
of proposed Sec. 7.2020 as Sec. 7.2020(c). The OCC also makes a
technical change substituting the word ``and'' for ``or'' in paragraph
(b) of proposed Sec. 7.2020.
The OCC adopts Sec. 7.2020 as proposed, but with the modifications
discussed.
Reverse Stock Splits (New Sec. 7.2023)
The OCC proposed adding new Sec. 7.2023 codifying the OCC's
interpretation that a national bank may engage in a reverse stock
split, as long as the bank provides adequate protection for dissenting
shareholders' rights and the transaction serves a legitimate corporate
purpose.6 A ``reverse stock split'' is a restructuring of
ownership interests in which a national bank reduces the number of its
outstanding shares of stock by, for instance, replacing outstanding
shares with fewer shares of a new issuance and paying cash to the
minority shareholders for their fractional interests. This codification
clarifies the flexibility national banks have to restructure their
ownership interests, and benefits particularly community banks that
desire, for instance, to restructure in order to qualify as a
Subchapter S corporation.
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\6\ Interpretive Letter No. 786 (June 9, 1997), reprinted in
[1997 Transfer Binder] Fed. Banking L. Rep. (CCH) para. 81-213. This
conclusion is consistent with the recent court decision, NoDak
Bancorp. v. Clarke, 998 F.2d 1416 (8th Cir. 1993), in which the
court upheld the OCC's approval of a cash-out merger where the OCC
found that there was a valid corporate purpose for the transaction
and that minority shareholders were entitled to dissenters' rights.
An earlier decision reversed an OCC approval of a reverse stock
split. See Bloomington Nat'l Bank v. Telfer, 916 F.2d 1305 (7th Cir.
1990). However, that case is distinguishable on the grounds that the
court reached its decision after concluding that the transaction had
no legitimate business purpose and failed to provide for dissenters'
rights. The court expressly declined to answer whether 12 U.S.C. 83
(the statute at issue in the case) prohibits all reverse stock split
transactions, noting that its opinion was limited to the facts of
the case. Id. at 1308 n.4, 1309. See also Lewis v. Clark, 911 F.2d
1558 (11th Cir. 1990) (concluding that minority shareholders in a
merger could not be required to accept cash rather than stock in the
new bank).
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Three commenters addressed the proposed change. All supported
adoption in its entirety.
In the final rule, the OCC is making a technical change
substituting the word ``and'' for ``or'' in Sec. 7.2023(b) as proposed.
The OCC adopts Sec. 7.2023 as proposed, but with the modification
discussed.
The examples listed in Sec. 7.2023(b) as legitimate corporate
purposes are non-exclusive, and the OCC will continue its practice of
evaluating other purposes for reverse stock splits on a case-by-case
basis.
Visitorial Powers (Sec. 7.4000)
The OCC proposed to revise Sec. 7.4000, ``Books and records of
national banks,'' to clarify the extent of the OCC's visitorial powers
under 12 U.S.C. 484 and other federal statutes. As proposed,
Sec. 7.4000 codified the definition of visitorial powers and
illustrated what visitorial powers include by providing a non-exclusive
list of these powers. These powers include: (a) examination of a bank;
(b) inspection of a bank's books and records 7; (c)
regulation and supervision of activities authorized or permitted under
federal banking law; and (d) enforcing compliance with any applicable
federal or state laws concerning those activities. The proposal also
reorganized Sec. 7.4000 by grouping together, in proposed paragraph
(b), the exceptions noted in several different places in the current
rule that are explicitly provided by federal law to the OCC's exclusive
visitorial powers.
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\7\ The rule recognizes that bank-created records may be
obtained through normal judicial processes. However, ``non-public
OCC information,'' as defined in 12 CFR Sec. 4.32(b), held by a bank
may be obtained only by following the procedures set forth in 12 CFR
part 4, subpart C. This final rule revises the last sentence of
Sec. 7.4000(a) by adding a parenthetical statement that non-public
OCC information in the possession of a bank, such as the bank's
examination report and supervisory correspondence, may be obtained
by complying with the procedures set forth in 12 CFR part 4, subpart
C.
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Eight commenters addressed this proposed change. The commenters
were evenly split between those favoring adoption of the change and
those opposed. Of those favoring adoption of the proposed change, two
supported its adoption without any changes to the proposal, while two
others suggested edits to the proposed text to elaborate on the extent
of the visitorial powers listed in proposed Sec. 7.4000(a)(2) and the
general exceptions to those powers listed in proposed Sec. 7.4000(b).
Those opposing the proposed change maintained that 12 U.S.C. 484 does
not preclude a role for the states, particularly in the area of
consumer protection.8
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\8\ Three commenters supported this position by suggesting that
the proposed interpretation is inconsistent with the holding of the
federal district court in Bank One, Utah v. Guttau, No. 4-98-CV-
10247 (D. Iowa July 24, 1998), that a state ATM law is not preempted
by the National Bank Act. However, the Court of Appeals for the
Eighth Circuit subsequently reversed the district court's decision
and upheld the position of the bank and the OCC in that case. Bank
One, Utah v. Guttau, No. 98-3166, slip op. 8-9, 10 (8th Cir. Sept.
2, 1999) (pet. for rehearing en banc pending) (Eighth Circuit's
opinion hereinafter cited as Guttau).
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The OCC agrees that Congress did not intend to preclude any role
for the states by enacting 12 U.S.C. 484. As noted in the preamble to
the proposal,9 there are instances where federal statutory
authority provides for a state agency to inspect a national bank's
books and records (as is the case, for instance, with state escheat
laws). The OCC does not object to state insurance regulators inspecting
the records of national banks related to their insurance activities
that are regulated under applicable state law, and the pending Gramm-
Leach-Bliley Act would clarify that authority.10
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\9\ 64 FR 31749, 31751 n.9 (June 14, 1999).
\10\ See H.R. 10, 106th Cong., 1st Sess. Sec. 303 (functional
regulation of insurance); S. 900, 106th Cong., 1st Sess. Sec. 201
(same).
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However, Congress clearly intended for the role of states to be
defined by those instances authorized by federal law. See 12 U.S.C.
484(a). Except where so authorized, the exclusive visitorial authority
with respect to national banks has been vested in the OCC. Id. See also
12 U.S.C. 1813(q)(1); 1818(b) et seq.; Guthrie v. Harkness, 199 U.S.
148, 159 (1905); and National State Bank, Elizabeth, N.J. v. Long, 630
F.2d 981, 988-89 (3d Cir. 1980).
Congress recently reaffirmed the exclusive visitorial authority of
the OCC in the context of interstate branching. See the Riegle-Neal
Interstate Banking and Branching Efficiency Act of 1994 (Interstate
Act),11 which amended 12 U.S.C. 36, among other statutes, to
permit interstate branching. In the Interstate Act, Congress provided
that
[[Page 60095]]
certain types of state laws apply to interstate branches of national
banks. 12 U.S.C. 36(f)(1)(A). However, at the same time, Congress also
expressly granted to the OCC the exclusive enforcement authority over
interstate branches' compliance with those state laws. 12 U.S.C.
36(f)(1)(B).
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\11\ Pub. L. 103-328, 108 Stat. 2338, enacted Sept. 29, 1994.
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As discussed in the preamble to the proposed rule,12
courts have defined ``visitation'' expansively to include the
inspection, regulation, or control of the operations of a bank to
enforce the bank's observance of the law. See First National Bank of
Youngstown v. Hughes, 6 F. 737, 740 (6th Cir. 1881), appeal dismissed,
106 U.S. 523 (1883); Peoples Bank v. Williams, 449 F. Supp. 254 (W.D.
Va. 1978) (visitorial powers involve the exercise of the right of
inspection, superintendence, direction, or regulation over a bank's
affairs). This expansive definition is consistent with the intent of
creating a national banking system that is subject to cohesive, uniform
supervision by the primary regulator of national banks.
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\12\ 64 FR 31749, 31751 (June 14, 1999).
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One commenter contended that, because the federal Electronic Funds
Transfer Act (15 U.S.C. 1693-1693r) (EFTA) expressly states that it
does not preempt state electronic funds transfer (EFT) laws that
provide consumers greater protections than those provided by the
federal EFTA, the OCC may not preempt consumer protections afforded by
a state's EFT laws.13 The OCC agrees that the federal EFTA
does not preempt state EFT laws that afford greater consumer
protections than does the federal EFTA. However, as the OCC concluded
in a previous interpretation, a state EFT law that impairs or impedes a
national bank's ability to engage in an activity that is authorized
under another federal law could be preempted by that federal
law.14 The Eighth Circuit recently upheld this position in
Guttau. In addressing the State of Iowa's contention that the federal
EFTA permits the states to regulate the electronic transfer of funds,
the court stated:
\13\ This position also was advanced by two commenters in
response to the proposed amendments to Sec. 7.4003.
\14\ See Interpretive Letter No. 789 (June 27, 1997), reprinted
in [1997 Transfer Binder] Fed. Banking L. Rep. (CCH) para. 81-216.
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Despite the State's claims, this anti-preemption provision [in
the federal EFTA] is specifically limited to the provisions of the
federal EFTA, and nothing therein grants the states any additional
authority to regulate national banks. State regulation of national
banks is proper where ``doing so does not prevent or significantly
interfere with the national bank's exercise of its powers.'' Barnett
Bank [v. Nelson], 116 S. Ct. [1103, 1996] at 1109. Congress has made
clear in the [National Bank Act] its intent that ATMs are not to be
subject to state regulation, and thus the provisions of the Iowa
EFTA that would prevent or significantly interfere with [the
national bank's] placement and operation of its ATMs must be held to
be preempted.
Slip op. at 9.
Three commenters suggested that, because the question of whether
states may enforce compliance with their consumer protection laws by
national banks is the subject of pending litigation,15 it is
inappropriate for the OCC to promulgate a rule at this time related to
the OCC's visitorial powers.16 However, an agency is not
precluded from issuing a rule that affects a provision that is the
subject of ongoing litigation. See Smiley v. Citibank, 517 U.S. 735,
135 L. Ed. 2d 25, 116 S. Ct. 1730 (1996).
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\15\ See First Union Nat'l Bank v. Burke, 48 Fed. Supp. 2d 132
(D. Conn. 1999) (in which a federal district court upheld, in its
Ruling on Motion for Preliminary Injunction, the OCC's right to
exercise exclusive regulatory authority to enforce applicable state
law against national banks when it enjoined a state banking
authority's administrative enforcement proceeding against three
national banks) (further proceedings stayed pending state court
interpretation of state law); and First Nat'l Bank of McCook v.
Fulkerson, No. 98-D-1024 (D. Colo. filed April 28, 1998) (action for
declaratory judgment and injunction against state banking
authority's administrative enforcement action against combination
loan production office, deposit production office, and ATM on ground
that the combination constitutes a branch). The commenters also
cited the federal district court decision in the Guttau case.
However, as previously noted, the Court of Appeals for the Eighth
Circuit recently reversed the district court's holding, and found
that federal law preempts state law restrictions on national bank
ATMs. Guttau, slip op. at 8-9.
\16\ This point also was made in comments concerning proposed
Secs. 7.4003, 7.4004, and 7.4005.
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Based on the statutory authority and the caselaw discussed earlier,
the OCC concludes that proposed Sec. 7.4000 contains an accurate
statement of the OCC's exclusive visitorial authority.
One commenter who favored adoption of the rule suggested that the
OCC clarify that its exclusive visitorial powers extend to operating
subsidiaries of national banks. As stated in 12 CFR 5.34(d)(3), each
operating subsidiary is subject to examination and supervision by the
OCC. This does not mean, however, that the OCC's jurisdiction
necessarily is exclusive over a given subsidiary, and many subsidiaries
have ``functional'' regulators, such NASD Regulation, Inc., the
Securities and Exchange Commission, or a state insurance department.
Another commenter who favored adoption of the rule requested that
the OCC add to the text of the final rule the statement that the list
of visitorial powers in proposed Sec. 7.4000(a)(2) is non-exclusive.
This commenter pointed out that the preamble to the proposed rule
stated that this list was illustrative of what visitorial powers
include and was non-exclusive. The commenter urged the OCC to add this
clarification to the regulation to avoid any ambiguity that might
result from the statements in the proposal. The OCC notes that the word
``include'' is not exhaustive and therefore believes the recommended
clarification is not necessary.
The same commenter also suggested another technical change relating
to the rule's exceptions. The regulatory text in proposed
Sec. 7.4000(a) provided that state officials may not exercise
visitorial powers with respect to national banks ``except in limited
circumstances authorized by federal law.'' Similar language was used in
proposed Sec. 7.4000(b). The commenter suggested that the language in
paragraph (a) of Sec. 7.4000 refer the reader to paragraph (b), so that
the language in paragraph (a) would read ``except as provided in
paragraph (b) of this section.'' The commenter stated that this change
would clarify the regulation by demonstrating that the two paragraphs
are interrelated. The OCC agrees that this suggestion would add clarity
to the regulation and adopts this recommendation in the final rule.
Finally, the OCC is making a technical change substituting the word
``and'' for ``or'' in paragraphs (a) and (b) of proposed Sec. 7.4000.
The OCC adopts Sec. 7.4000 as proposed, but with the modification
suggested by the commenter, the change to the last sentence of
paragraph (a) of proposed Sec. 7.4000 concerning the procedure for
obtaining non-public OCC information in accordance with 12 CFR part 4,
subpart C, and the technical changes discussed.
Establishment and Operation of Remote Service Units (New Sec. 7.4003)
The OCC proposed to add a new Sec. 7.4003 codifying the OCC's
interpretations that, because automated teller machines (ATMs) and
other remote service units (RSUs) 17 are expressly excluded
from the definition of ``branch'' in 12 U.S.C. 36(j), an ATM or RSU
established by a national bank is not subject to any state-imposed
[[Page 60096]]
geographic or operational restrictions or licensing laws.18
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\17\ An RSU is an automated facility, operated by a customer of
a bank, that engages in one or more of the core banking functions of
receiving deposits, paying checks, or lending money. An RSU includes
ATMs, automated loan machines, and automated devices for receiving
deposits, and may be equipped with a telephone or televideo device
that allows contact with bank personnel.
\18\ See, e.g., Interpretive Letter No. 838 (April 15, 1998),
reprinted in [Current Transfer Binder] Fed. Banking L. Rep. (CCH)
para. 81-293; Interpretive Letter No. 821 (Feb. 17, 1998), reprinted
in [Current Transfer Binder] Fed. Banking L. Rep. (CCH) para. 81-
271; Interpretive Letter No. 789 (June 27, 1997), reprinted in [1997
Transfer Binder] Fed. Banking L. Rep. (CCH) para. 81-216;
Interpretive Letter No. 772 (Mar. 6, 1997), reprinted in [1996-97
Transfer Binder] Fed. Banking L. Rep. (CCH) para. 81-136. The OCC's
interpretation recently was upheld by the Court of Appeals for the
Eighth Circuit. Bank One, Utah v. Guttau, No 98-3166 (8th Cir. Sept.
2, 1999), rev'g No. 4-98-CV-10247 (D. Iowa July 24, 1998) (which had
held that Iowa's ATM law is not preempted by the National Bank Act).
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The OCC received seven comments on this proposed new rule.
Commenters who favored adoption of the rule suggested that it was
appropriate in light of the amendment to section 36(j). One commenter
stated that the interpretation would add clarity and guidance to
national banks in their deployment of ATMs and RSUs. None of the
commenters who favored adoption of the rule suggested changes to the
proposed language.
Three commenters opposed adoption of the rule. One maintained that,
because 12 U.S.C. 93a 19 states that the authority it
confers does not apply to 12 U.S.C. 36, the OCC is precluded from
adopting the rule as proposed. However, the language to which the
commenter referred is not a bar to the OCC's authority. Rather, it
simply makes clear that, whatever authority the OCC has pursuant to
other statutes to adopt regulations affecting national bank branching,
12 U.S.C. 93a does not expand that authority.20 Moreover,
even if 12 U.S.C. 93a were to preclude the OCC from issuing rules under
section 36, the fact that section 36(j) expressly excludes ATMs and
RSUs from the scope of section 36 leads to the conclusion that any
rulemaking clarifying the status of ATMs and RSUs as not constituting
branches is a rulemaking concerning a matter explicitly outside 12
U.S.C. 36.
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\19\ 12 U.S.C. 93a states: ``Except to the extent that
authority to issue such rules and regulations has been expressly and
exclusively granted to another regulatory agency, the Comptroller of
the Currency is authorized to prescribe rules and regulations to
carry out the responsibilities of the office, except that the
authority conferred by this section does not apply to section 36 of
[Title 12] or to securities activities of National Banks under the
Act commonly known as the ``Glass-Steagall Act'.''
\20\ The legislative history of the statute that added 12
U.S.C. 93a to the federal banking law supports this reading. See,
e.g., House Conf. Rep. No. 96-842, 96th Cong., 2d Sess. 83 (1980),
reprinted in 1980 U.S.C.C.A.N. 236, 313 (``[T]he rulemaking
provision carries no authority to permit otherwise impermissible
activities of national banks with specific reference to the
provisions of the McFadden Act [12 U.S.C. 36].'').
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Two commenters who opposed adoption of the rule concluded that the
proposal was defective because it did not list each state law that is
proposed to be preempted, as they maintain is required by section 114
of the Interstate Act (codified at 12 U.S.C. 43) (section
114).21 Section 114 was designed to supply a public comment
process in situations where preemption decisions would otherwise be
announced without notice of the issue and an opportunity for public
comment. Thus, section 114 does not apply to rulemakings, including
this rulemaking, conducted pursuant to the notice-and-comment
procedures prescribed by the Administrative Procedure Act (APA). 5
U.S.C. 553. Rules adopted pursuant to 5 U.S.C. 553 provide interested
parties with the notice and opportunity to comment that section 114 is
intended to ensure, making it unnecessary to subject them to
duplicative publication requirements under section 114.
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\21\ Section 114 requires the OCC, before issuing an opinion
letter or interpretive rule that concludes that federal law preempts
any state law regarding community reinvestment, consumer protection,
fair lending, or the establishment of intrastate branches, to
publish notice in the Federal Register of the preemption issue that
the OCC is considering (including a description of each state law at
issue), and give interested parties at least 30 days in which to
comment. Section 114 by its terms does not require a listing of each
state law that may be preempted.
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In light of the express exclusion of ATMs and RSUs from the
definition of ``branch'' in 12 U.S.C. 36(j) and the comments received
in response to proposed Sec. 7.4003, the OCC adopts Sec. 7.4003 as
proposed.
Deposit Production Offices (New Sec. 7.4004)
The OCC proposed to codify its interpretation,22 in new
Sec. 7.4004, that a national bank deposit production office (DPO) is
not a branch because it does not engage in any of the core banking
functions that would cause it to be a branch under 12 U.S.C. 36.
Paragraph (a) of proposed Sec. 7.4004 states that a DPO must not
receive deposits in order for it to be excluded from 12 U.S.C. 36(j)'s
definition of ``branch,'' and that all deposit and withdrawal
transactions by customers using a DPO must be performed by the
customer, either in person at the main office or a branch office of the
bank, or by mail, electronic transfer, or a similar method of transfer.
Paragraph (b) of proposed Sec. 7.4004 states that a national bank may
use the services of, and compensate, persons not employed by the bank
for its deposit production activities.
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\22\ Interpretive Letter No. 691 (Sept. 25, 1995), reprinted in
[1995-96 Transfer Binder] Fed. Banking L. Rep. (CCH) para. 81-006
(deposit production offices are not branches as long as deposits are
not accepted at the DPO but rather are mailed by the customer to the
bank after filling out preliminary forms at the DPO); Interpretive
Letter No. 638 (Jan. 6, 1994), reprinted in [1993-94 Transfer
Binder] Fed. Banking L. Rep. (CCH) para. 83,525 (a non-branch
facility may perform deposit origination functions such as providing
information on deposit products or handling application forms, as
long as the activity stops short of actually receiving deposits).
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Three commenters addressed this proposed new section. Of the two
commenters supporting adoption, one questioned the appropriateness of
permitting, as paragraph (b) of proposed Sec. 7.4004 does, a national
bank to use persons not employed by the bank in its DPOs. The OCC notes
that the provision in question merely permits a national bank the
flexibility to use agents in its DPOs; a bank remains free to use its
employees if it so chooses. This flexibility is the same as has been
available for national banks using loan production offices (LPOs),
which has not resulted in supervisory concerns.
The commenter opposed to proposed new Sec. 7.4004 stated that it,
along with proposed new Sec. 7.4005, circumvents the intent of Congress
as articulated in the Interstate Act to require national banks to
adhere to state laws governing the establishment and operation of
interstate branches. The OCC agrees that national banks' interstate
branches are to comply with those state laws.23 However,
since a DPO does not perform any of the activities listed in 12 U.S.C.
36(j) that would cause it to be a ``branch,'' the provisions of those
state laws do not apply.
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\23\ In the Interstate Act, Congress expressly authorized the
OCC to enforce the provisions of state law to which a branch of a
national bank is subject. 12 U.S.C. 36(f)(1)(B).
---------------------------------------------------------------------------
The OCC adopts Sec. 7.4004 as proposed.
Combination of LPO, DPO, and RSU (New Sec. 7.4005)
The OCC proposed to add a new Sec. 7.4005 to codify its
interpretation that a facility that combines the non-branch functions
of an LPO, DPO, and RSU is not a branch by virtue of that
combination.24
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\24\ The proposal cites Interpretive Letter No. 843 (Sept. 29,
1998), reprinted in [Current Transfer Binder] Fed. Banking L. Rep.
(CCH) para. 81-298 (IL 843). The proposal also cites the position
the OCC has taken as amicus curiae in litigation pending in the
federal district court of Colorado in a case with substantially
similar facts as those in IL 843. See OCC's Brief Amicus Curiae
filed in First Nat'l Bank of McCook v. Fulkerson, Civil Action No.
98-D-1024 (brief filed Jan. 4, 1999).
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Eight commenters addressed this proposed new section. Those
favoring its adoption agreed with the OCC that the combination of
facilities that individually are not branches would not create a
branch. Those opposed maintained that the combined functions would
create what is effectively a
[[Page 60097]]
branch, thereby enabling banks to circumvent branching laws. Two of
these commenters also suggested that, by permitting banks to set up a
combined LPO, DPO, and RSU in one facility without first applying to
the OCC for approval pursuant to 12 CFR 5.30, the OCC would undermine
the Community Reinvestment Act (12 U.S.C. 2901-2907) (CRA) by
legitimizing narrower assessment areas.25
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\25\ As a general matter, financial institutions subject to the
CRA are required to delineate one or more assessment areas within
which an institution's primary regulator evaluates that
institution's record of helping to meet the credit needs of its
community. For the requirements applicable to national banks'
delineation of assessment areas, see 12 CFR 25.41.
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After carefully considering all the comments, the OCC remains of
the view that the combination of facilities that separately are not
branches does not transform the whole into something greater than its
parts. ATMs and RSUs are expressly excluded from the definition of
``branch'' in 12 U.S.C. 36(j). Similarly, LPOs and DPOs do not engage
in activities that would cause them to be branches under section 36(j).
Combining these entities does not change this fact. As long as a
national bank operates the facilities within the limits identified in
the interpretations concerning LPOs (12 CFR 7.1004), RSUs (id. at
Sec. 7.4003), and DPOs (id. at Sec. 7.4004), the combined activities
still will not meet the definition of ``branch'' in section
36(j).26
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\26\ See, e.g., OCC Conditional Approval No. 313, Decision of
the OCC on the Application by Canadian Imperial Bank of Commerce to
Charter CIBC National Bank, Maitland, Fla., dated July 9, 1999. This
conditional approval was published in the OCC's ``Interpretations
and Actions'' for July, 1999.
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The OCC recognizes that national banks that are predominantly non-
branch based present unique supervisory and regulatory issues in
several areas, including the CRA. The OCC and other banking agencies
have addressed certain of these issues already. For instance, the
agencies require a bank with a deposit-taking ATM to delineate an
assessment area around the ATM to ensure that the bank is meeting the
needs of the community from which it is receiving deposits. See 12 CFR
25.41(b) and (c).27 Remaining issues affecting non-branch
based institutions will require further analysis by the OCC and other
banking agencies, but exceed the scope of this rulemaking.
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\27\ See also 64 FR 23618, 23647-48 (May 3, 1999) (in which the
OCC and other banking agencies published a question and answer in
which the agencies discuss how CRA ratings will be assigned in a
situation in which a bank uses non-branch delivery systems to obtain
deposits and deliver loans).
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The OCC adopts Sec. 7.4005 as proposed.
Part 1--Investment Securities
The OCC proposed amending 12 CFR 1.3(e)(1) to clarify a provision
that has led to some confusion. Current Sec. 1.3(e)(1) sets forth the
regulatory treatment of Type IV securities that are fully secured by
Type I securities. The OCC proposed to eliminate the statement in
Sec. 1.3(e)(1) that a national bank may deal in Type IV securities that
are fully secured by Type I securities, because that language has
created issues about the treatment of Type V securities and about the
relationship of the current provision with Sec. 1.3(g) regarding
securitization. As noted in the preamble to the proposed rule, the OCC,
consistent with previous judicial rulings and OCC
decisions,28 proposed to clarify that it will continue to
apply its long-standing regulatory treatment of asset-backed
instruments that are fully secured by Type I securities and treat those
instruments as Type I securities.
---------------------------------------------------------------------------
\28\ See Securities Indus. Ass'n v. Clarke, 885 F.2d 1034 (2d
Cir. 1989), cert. denied, 493 U.S. 1070 (1990) (national bank
authority to securitize assets); Interpretive Letter No. 514 (May 5,
1990), reprinted in [1990-91 Transfer Binder] Fed. Banking L. Rep.
(CCH) para. 83,218 (bonds collateralized by Gov't Nat'l Mortgage
Ass'n (GNMA), Fed. Nat'l Mortgage Ass'n (FNMA) and Fed. Home Loan
Mortgage Ass'n (FHLMC) pass-through certificates); Interpretive
Letter No. 362 (May 22, 1986), reprinted in [1985-87 Transfer
Binder] Fed. Banking L. Rep. (CCH) para. 85,532 (issuing,
underwriting and dealing in evidences of indebtedness collateralized
by GNMA, FNMA or FHLMC certificates); Interpretive Letter No. 378
(April 24, 1987), reprinted in [1988-89 Transfer Binder] Fed.
Banking L. Rep. (CCH) para. 85,602 (issuance and sale of
collateralized mortgage obligations--bonds representing interests in
pools of mortgages or mortgage-related obligations); Interpretive
Letter No. 257 (April 12, 1983), reprinted in [1983-84 Transfer
Binder] Fed. Banking L. Rep. (CCH) para. 85,421 (underwriting and
dealing in mortgage-backed pass-through certificates evidencing
undivided interests in Fed. Housing Admin. insured mortgage pools
purchased by the bank from GNMA); Investment Securities Letter No.
29 (Aug. 3, 1988), reprinted in [1988-89 Transfer Binder] Fed.
Banking L. Rep. (CCH) para. 85,899 (investment limits for asset-
backed securities consisting of General Motors Acceptance Corp.
receivables).
---------------------------------------------------------------------------
Two commenters addressed this proposed change. Both favored
adoption without suggesting any changes.
The OCC adopts proposed Sec. 1.3(e)(1) as proposed.
Part 5--Rules, Policies, and Procedures for Corporate Activities
The OCC proposed to conform references to the interagency Uniform
Financial Institutions Rating System--commonly referred to as the
CAMELS rating--to reflect the addition of a sixth component,
``sensitivity to market risk.'' 29 The OCC also proposed
technical amendments to several sections in part 5 to conform them to
provisions in the Comptroller's Corporate Manual that have been revised
since part 5 last was amended and to amend an incorrect reference that
currently appears in Sec. 5.35(g)(3).
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\29\ See 61 FR 67021 (Dec. 19, 1996).
---------------------------------------------------------------------------
One commenter addressed these proposed changes. This commenter
favored adoption of these changes to part 5.
The OCC adopts the proposed amendments without change.
Effective Date
Pursuant to the Administrative Procedure Act, 5 U.S.C. 553, this
final rule has a 30-day delayed effective date. The Community
Development and Regulatory Improvement Act of 1994 (CDRI Act)
separately requires that the OCC's regulations take effect on the first
day of the first calendar quarter following publication if the
regulations impose additional reporting, disclosures, or other new
requirements on national banks. See 12 U.S.C. 4802(b). The final rule
imposes no new requirements on national banks. Therefore, the CDRI Act
delayed effective date provision does not apply.
Regulatory Flexibility Act
It is hereby certified 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 required. This
final rule is clarifying in nature and will reduce somewhat the
regulatory burden on national banks.
Executive Order 12866
The OCC has determined that this final rule is not a significant
regulatory action under Executive Order 12866.
Unfunded Mandates Act of 1995
Section 202 of the Unfunded Mandates Act of 1995 (Unfunded Mandates
Act) requires that an agency prepare a budgetary impact statement
before promulgating a rule that includes a federal mandate that may
result in the annual expenditure of $100 million or more in any one
year by state, local, and tribal governments, in the aggregate, or by
the private sector. If a budgetary impact statement is required,
section 205 of the Unfunded Mandates Act requires an agency to identify
and consider a reasonable number of alternatives before promulgating a
rule.
The OCC has determined that the final rule does not include a
federal mandate that will result in expenditures by state, local, and
tribal governments, or by the private sector, of $100 million or more
in any one year. Accordingly,
[[Page 60098]]
the OCC has not prepared a budgetary impact statement or specifically
addressed the regulatory alternatives considered.
One commenter asserted that Sec. 7.4003 will result in an
expenditure by the private sector of $100 million or more because, in
this commenter's estimation, that provision will cause consumers to pay
higher fees for using RSUs. The OCC notes that the relevant test under
the statute is whether a regulation includes a federal mandate that may
result in the threshold expenditure. The provision cited by the
commenter as support for the conclusion that the rule will cause the
private sector to spend $100 million or more is not a mandate. Instead,
it simply codifies the conclusion that an RSU is not a branch, and is
not subject to state geographic or operational restrictions or
licensing laws. Accordingly, no further analysis of that provision
under the Unfunded Mandates Act is required.
List of Subjects
12 CFR Part 1
Banks, banking, National banks, Reporting and recordkeeping
requirements, Securities.
12 CFR Part 5
Administrative practice and procedure, National banks, Reporting
and recordkeeping requirements, Securities.
12 CFR Part 7
Credit, Insurance, Investments, National banks, Reporting and
recordkeeping requirements, Securities, Surety bonds.
Authority and Issuance
For the reasons set out in the preamble, chapter I of title 12 of
the Code of Federal Regulations is amended as set forth below:
PART 1--INVESTMENT SECURITIES
1. The authority citation for part 1 continues to read as follows:
Authority: 12 U.S.C. 1 et seq., 24 (Seventh), and 93a.
2. In Sec. 1.3, paragraph (e)(1) is revised to read as follows:
Sec. 1.3 Limitations on dealing in, underwriting, and purchase and
sale of securities.
* * * * *
(e) Type IV securities--(1) General. A national bank may purchase
and sell Type IV securities for its own account. Except as described in
paragraph (e)(2) of this section, the amount of the Type IV securities
that a bank may purchase and sell is not limited to a specified
percentage of the bank's capital and surplus.
* * * * *
PART 5--RULES, POLICIES, AND PROCEDURES FOR CORPORATE ACTIVITIES
3. The authority citation for part 5 continues to read as follows:
Authority: 12 U.S.C. 1 et seq., 93a.
4. In Sec. 5.3, paragraph (c) is revised and paragraph (g)(2) is
amended by revising the term ``(CAMEL)'' to read ``(CAMELS)'', to read
as follows:
Sec. 5.3 Definitions.
* * * * *
(c) Appropriate district office means:
(1) Bank Organization and Structure for all national bank
subsidiaries of certain holding companies assigned to the Washington,
D.C., licensing unit;
(2) The appropriate OCC district office for all national bank
subsidiaries of certain holding companies assigned to a district office
licensing unit;
(3) The OCC's district office where the national bank's supervisory
office is located for all other banks; or
(4) The OCC's International Banking and Finance Department for
federal branches and agencies of foreign banks.
* * * * *
Sec. 5.11 [Amended]
5. In Sec. 5.11, paragraph (i)(1) is amended by revising the phrase
``representative of the OCC'' to read ``presiding officer''.
6. In Sec. 5.33, paragraph (d)(2)(i) is revised to read as follows:
Sec. 5.33 Business combinations.
* * * * *
(d) * * *
(2) * * *
(i) A business combination between eligible banks, or between an
eligible bank and an eligible depository institution, that are
controlled by the same holding company or that will be controlled by
the same holding company prior to the combination; or
* * * * *
Sec. 5.35 [Amended]
7. In Sec. 5.35, paragraph (g)(3) is amended by revising the term
``paragraph (h)'' to read ``paragraph (i)''.
Sec. 5.37 [Amended]
8. In Sec. 5.37, paragraphs (d)(1)(i) and (d)(3) are amended by
revising the term ``district'' to read ``supervisory'', and paragraph
(d)(3) is amended further by revising the term ``(CAMEL)'' to read
``(CAMELS)''.
Sec. 5.51 [Amended]
9. In Sec. 5.51, paragraph (c)(6)(i) is amended by revising the
term ``(CAMEL)'' to read ``(CAMELS)''.
Sec. 5.64 [Amended]
10. In Sec. 5.64, paragraph (b) is amended by revising the term
``district'' to read ``supervisory''.
PART 7--BANK ACTIVITIES AND OPERATIONS
11. The authority citation for part 7 continues to read as follows:
Authority: 12 U.S.C. 1 et seq. and 93a.
12. The title of part 7 is revised to read as set forth above.
13. In Sec. 7.1012, paragraphs (c)(2)(i) and (c)(2)(ii) are revised
and paragraphs (c)(2)(iii), (c)(2)(iv), (c)(2)(v), and (c)(2)(vi) are
added to read as follows:
Sec. 7.1012 Messenger service.
* * * * *
(c) * * *
(2) * * *
(i) A party other than the national bank owns or rents the
messenger service and its facilities and employs the persons who
provide the service;
(ii)(A) The messenger service retains the discretion to determine
in its own business judgment which customers and geographic areas it
will serve; or
(B) If the messenger service and the bank are under common
ownership or control, the messenger service actually provides its
services to the general public, including other depository
institutions, and retains the discretion to determine in its own
business judgment which customers and geographic areas it will serve;
(iii) The messenger service maintains ultimate responsibility for
scheduling, movement, and routing;
(iv) The messenger service does not operate under the name of the
bank, and the bank and the messenger service do not advertise, or
otherwise represent, that the bank itself is providing the service,
although the bank may advertise that its customers may use one or more
third party messenger services to transact business with the bank;
(v) The messenger service assumes responsibility for the items
during transit and for maintaining adequate insurance covering thefts,
employee fidelity, and other in-transit losses; and
(vi) The messenger service acts as the agent for the customer when
the items are in transit. The bank deems items intended for deposit to
be deposited when credited to the customer's account at the bank's main
office, one of its branches, or another permissible
[[Page 60099]]
facility, such as a back office facility that is not a branch. The bank
deems items representing withdrawals to be paid when the items are
given to the messenger service.
* * * * *
14. In Sec. 7.1016, paragraphs (a) including the footnote,
(b)(1)(iii)(C), (b)(1)(iv), and (b)(2)(ii) are revised to read as
follows:
Sec. 7.1016 Independent undertakings to pay against documents.
(a) General authority. A national bank may issue and commit to
issue letters of credit and other independent undertakings within the
scope of the applicable laws or rules of practice recognized by
law.30 Under such letters of credit and other independent
undertakings, the bank's obligation to honor depends upon the
presentation of specified documents and not upon nondocumentary
conditions or resolution of questions of fact or law at issue between
the applicant and the beneficiary. A national bank may also confirm or
otherwise undertake to honor or purchase specified documents upon their
presentation under another person's independent undertaking within the
scope of such laws or rules.
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\30\ Examples of such laws or rules of practice include: The
applicable version of Article 5 of the Uniform Commercial Code (UCC)
(1962, as amended 1990) or revised Article 5 of the UCC (as amended
1995) (available from West Publishing Co., 1/800/328-4880); the
Uniform Customs and Practice for Documentary Credits (International
Chamber of Commerce (ICC) Publication No. 500) (available from ICC
Publishing, Inc., 212/206-1150; http://www.iccwbo.org); the
International Standby Practices (ISP98) (ICC Publication No. 590)
(available from the Institute of International Banking Law &
Practice, 301/869-9840; http://www.iiblp.org); the United Nations
Convention on Independent Guarantees and Stand-by Letters of Credit
(adopted by the U.N. General Assembly in 1995 and signed by the U.S.
in 1997) (available from the U.N. Commission on International Trade
Law, 212/963-5353); and the Uniform Rules for Bank-to-Bank
Reimbursements Under Documentary Credits (ICC Publication No. 525)
(available from ICC Publishing, Inc., 212/206-1150; http://
www.iccwbo.org); as any of the foregoing may be amended from time to
time.
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(b) * * *
(1) * * *
(iii) * * *
(C) Entitle the bank to cash collateral from the applicant on
demand (with a right to accelerate the applicant's obligations, as
appropriate); and
(iv) The bank either should be fully collateralized or have a post-
honor right of reimbursement from the applicant or from another issuer
of an independent undertaking. Alternatively, if the bank's undertaking
is to purchase documents of title, securities, or other valuable
documents, the bank should obtain a first priority right to realize on
the documents if the bank is not otherwise to be reimbursed.
(2) * * *
(ii) In the event that the undertaking provides for automatic
renewal, the terms for renewal should be consistent with the bank's
ability to make any necessary credit assessments prior to renewal;
* * * * *
15. In Sec. 7.1017, the introductory text is revised to read as
follows:
Sec. 7.1017 National bank as guarantor or surety on indemnity bond.
A national bank may lend its credit, bind itself as a surety to
indemnify another, or otherwise become a guarantor (including, pursuant
to 12 CFR 28.4, guaranteeing the deposits and other liabilities of its
Edge corporations and Agreement corporations and of its corporate
instrumentalities in foreign countries), if:
* * * * *
16. In Sec. 7.2005, paragraph (b)(4) is revised to read as follows:
Sec. 7.2005 Ownership of stock necessary to qualify as director.
* * * * *
(b) * * *
(4) Other arrangements--(i) Shares held through retirement plans
and similar arrangements. A director may hold his or her qualifying
interest through a profit-sharing plan, individual retirement account,
retirement plan, or similar arrangement, if the director retains
beneficial ownership and legal control over the shares.
(ii) Shares held subject to buyback agreements. A director may
acquire and hold his or her qualifying interest pursuant to a stock
repurchase or buyback agreement with a transferring shareholder under
which the director purchases the qualifying shares subject to an
agreement that the transferring shareholder will repurchase the shares
when, for any reason, the director ceases to serve in that capacity.
The agreement may give the transferring shareholder a right of first
refusal to repurchase the qualifying shares if the director seeks to
transfer ownership of the shares to a third person.
(iii) Assignment of right to dividends or distributions. A director
may assign the right to receive all dividends or distributions on his
or her qualifying shares to another, including a transferring
shareholder, if the director retains beneficial ownership and legal
control over the shares.
(iv) Execution of proxy. A director may execute a revocable or
irrevocable proxy authorizing another, including a transferring
shareholder, to vote his or her qualifying shares, provided the
director retains beneficial ownership and legal control over the
shares.
* * * * *
17. In Sec. 7.2008, the last sentence of paragraph (b) is revised
and a new paragraph (c) is added to read as follows:
Sec. 7.2008 Oath of directors.
* * * * *
(b) Execution of the oath. * * * Appropriate sample oaths are
located in the ``Comptroller's Corporate Manual.''
(c) Filing and recordkeeping. A national bank must file the
original executed oaths of directors with the OCC and retain a copy in
the bank's records in accordance with the Comptroller's Corporate
Manual filing and recordkeeping instructions for executed oaths of
directors.
18. Section 7.2020 is revised to read as follows:
Sec. 7.2020 Acquisition and holding of shares as treasury stock.
(a) Acquisition of outstanding shares. Pursuant to 12 U.S.C. 59,
including the requirements for prior approval by the bank's
shareholders and the OCC imposed by that statute, a national bank may
acquire its outstanding shares and hold them as treasury stock, if the
acquisition and retention of the shares is, and continues to be, for a
legitimate corporate purpose.
(b) Legitimate corporate purpose. Examples of legitimate corporate
purposes include the acquisition and holding of treasury stock to:
(1) Have shares available for use in connection with employee stock
option, bonus, purchase, or similar plans;
(2) Sell to a director for the purpose of acquiring qualifying
shares;
(3) Purchase a director's qualifying shares upon the cessation of
the director's service in that capacity if there is no ready market for
the shares;
(4) Reduce the number of shareholders in order to qualify as a
Subchapter S corporation; and
(5) Reduce costs associated with shareholder communications and
meetings.
(c) Prohibition. It is not a legitimate corporate purpose to
acquire or hold treasury stock on speculation about changes in its
value.
19. A new Sec. 7.2023 is added to subpart B to read as follows:
Sec. 7.2023 Reverse stock splits.
(a) Authority to engage in reverse stock splits. A national bank
may engage in a reverse stock split if the transaction serves a
legitimate corporate purpose and provides adequate dissenting
shareholders' rights.
[[Page 60100]]
(b) Legitimate corporate purpose. Examples of legitimate corporate
purposes include a reverse stock split to:
(1) Reduce the number of shareholders in order to qualify as a
Subchapter S corporation; and
(2) Reduce costs associated with shareholder communications and
meetings.
20. In Sec. 7.4000, the section heading and paragraphs (a) and (b)
are revised to read as follows:
Sec. 7.4000 Visitorial powers.
(a) General rule. (1) Only the OCC or an authorized representative
of the OCC may exercise visitorial powers with respect to national
banks, except as provided in paragraph (b) of this section. State
officials may not exercise visitorial powers with respect to national
banks, such as conducting examinations, inspecting or requiring the
production of books or records of national banks, or prosecuting
enforcement actions, except in limited circumstances authorized by
federal law. However, production of a bank's records (other than non-
public OCC information under 12 CFR part 4, subpart C) may be required
under normal judicial procedures.
(2) For purposes of this section, visitorial powers include:
(i) Examination of a bank;
(ii) Inspection of a bank's books and records;
(iii) Regulation and supervision of activities authorized or
permitted pursuant to federal banking law; and
(iv) Enforcing compliance with any applicable federal or state laws
concerning those activities.
(b) Exceptions to the general rule. Federal law expressly provides
special authority for state or other federal officials to:
(1) Inspect the list of shareholders, provided the official is
authorized to assess taxes under state authority (12 U.S.C. 62; this
section also authorizes inspection of the shareholder list by
shareholders and creditors of a national bank);
(2) Review, at reasonable times and upon reasonable notice to a
bank, the bank's records solely to ensure compliance with applicable
state unclaimed property or escheat laws upon reasonable cause to
believe that the bank has failed to comply with those laws (12 U.S.C.
484(b));
(3) Verify payroll records for unemployment compensation purposes
(26 U.S.C. 3305(c));
(4) Ascertain the correctness of federal tax returns (26 U.S.C.
7602); and
(5) Enforce the Fair Labor Standards Act (29 U.S.C. 211).
* * * * *
21. A new Sec. 7.4003 is added to read as follows:
Sec. 7.4003 Establishment and operation of a remote service unit by a
national bank.
A remote service unit (RSU) is an automated facility, operated by a
customer of a bank, that conducts banking functions, such as receiving
deposits, paying withdrawals, or lending money. A national bank may
establish and operate an RSU pursuant to 12 U.S.C. 24(Seventh). An RSU
includes an automated teller machine, automated loan machine, and
automated device for receiving deposits. An RSU may be equipped with a
telephone or televideo device that allows contact with bank personnel.
An RSU is not a ``branch'' within the meaning of 12 U.S.C. 36(j), and
is not subject to state geographic or operational restrictions or
licensing laws.
22. A new Sec. 7.4004 is added to read as follows:
Sec. 7.4004 Establishment and operation of a deposit production office
by a national bank.
(a) General rule. A national bank or its operating subsidiary may
engage in deposit production activities at a site other than the main
office or a branch of the bank. A deposit production office (DPO) may
solicit deposits, provide information about deposit products, and
assist persons in completing application forms and related documents to
open a deposit account. A DPO is not a branch within the meaning of 12
U.S.C. 36(j) and 12 CFR 5.30(d)(1) so long as it does not receive
deposits, pay withdrawals, or make loans. All deposit and withdrawal
transactions of a bank customer using a DPO must be performed by the
customer, either in person at the main office or a branch office of the
bank, or by mail, electronic transfer, or a similar method of transfer.
(b) Services of other persons. A national bank may use the services
of, and compensate, persons not employed by the bank in its deposit
production activities.
23. A new Sec. 7.4005 is added to read as follows:
Sec. 7.4005 Combination of loan production office, deposit production
office, and remote service unit.
A location at which a national bank operates a loan production
office (LPO), a deposit production office (DPO), and a remote service
unit (RSU) is not a ``branch'' within the meaning of 12 U.S.C. 36(j) by
virtue of that combination. Since an LPO, DPO, or RSU is not,
individually, a branch under 12 U.S.C. 36(j), any combination of these
facilities at one location does not create a branch.
Dated: October 25, 1999.
John D. Hawke, Jr.,
Comptroller of the Currency.
[FR Doc. 99-28819 Filed 11-3-99; 8:45 am]
BILLING CODE 4810-33-P
