00-17008. Other Equity Investments

AGENCY:

Office of the Comptroller of the Currency, Treasury.

ACTION:

Final rule.

SUMMARY:

The Office of the Comptroller of the Currency (OCC) is making a technical correction to its regulation on non-controlling equity investments to clarify that a national bank that wishes to use the notice procedure to make a non-controlling investment in an enterprise must certify that its loss exposure is limited, as a legal and accounting matter, and that it does not have open-ended liability for the obligations of the enterprise.

EFFECTIVE DATE:

July 6, 2000.

FOR FURTHER INFORMATION CONTACT:

Stuart Feldstein, Assistant Director, or Karl Betz, Attorney, Legislative and Regulatory Activities Division, [phone], Office of the Comptroller of the Currency, 250 E Street, SW, Washington, DC, 20219.

SUPPLEMENTARY INFORMATION:

Description of Change

On March 10, 2000 the OCC published a final rule titled “Financial Subsidiaries and Operating Subsidiaries.” 65 FR 12905. The final rule amended 12 CFR 5.36, “Other equity investments,” to provide a streamlined, after-the-fact notice procedure for national banks making non-controlling investments in enterprises engaging in specified activities. As part of the notice process, the applicant must certify that it has satisfied the standards and conditions that the OCC applies to investments of this type.^[1] These standards and conditions are established by OCC precedents approving non-controlling investments.^[2]

The final rule omitted from the notice procedure one standard contained in these precedents. In order to clarify that all of the standards and conditions contained in OCC precedent approving non-controlling investments apply to non-controlling investments that are eligible for the after-the-fact notice procedure, we are amending § 5.36(e) to conform the requirements of the notice procedure with those of the precedents on which it is based. Accordingly, this rule adds the requirement that a national bank certify that its loss exposure is limited, as a legal and accounting matter, and that the bank does not have open-ended unlimited liability for the obligations of the enterprise. The rule is published in final form and takes effect immediately upon publication in the Federal Register.

Administrative Procedure Act—Notice and Comment

Pursuant to section 553(b)(B) of the Administrative Procedure Act (APA), 5 U.S.C. 553(b)(B), the OCC finds good cause for dispensing with the requirements for notice and an opportunity for public comment that the APA would otherwise require. This technical correction conforms the rule with the governing standards that have been available in published OCC precedent for some time. By removing an apparent inconsistency with the precedents in this area, the rule avoids the confusion, and the potential for the filing of incomplete notices, that may otherwise occur when banks compare the requirements of the rule with those in the precedents.

Effective Date

The APA generally requires that a final rule take effect 30 days after publication in the Federal Register. 5 U.S.C. 553(d). Similarly, section 302 of the Riegle Community Development and Regulatory Improvement Act of 1994 (CDRI Act) generally requires that a final rule issued by a Federal banking agency take effect on the first day of the first calendar quarter that begins on or after the date on which the regulation is published in final form. 12 U.S.C. 4802(b)(1). Both requirements are subject to a good cause exception.

For the reasons previously explained, the OCC finds good cause for making this amendment to 12 CFR 5.36(e) effective immediately upon publication. Delaying the effective date of the amendment will delay national banks' ability to rely with certainty on the notice process for non-controlling investments and thus impede the rule's purpose of facilitating national banks' ability to make non-controlling investments that comport with the standards the OCC has adopted in its published precedents.

Regulatory Flexibility Act

The Regulatory Flexibility Act (RFA) (5 U.S.C. 601-612) does not apply to a rulemaking where a general notice of proposed rulemaking is not required. 5 U.S.C. 603 and 604. As noted previously, the OCC has determined that it is not necessary to publish a notice of proposed rulemaking for this final rule. Accordingly, the RFA's requirements relating to an initial and final regulatory flexibility analysis are not applicable. In any event, however, since this final rule merely adds one additional element to the notice that the rule permits a national bank to file, this final rule does not have a significant economic impact on a substantial number of small entities.

Executive Order 12866

The Comptroller of the Currency has determined that this final rule is not a significant regulatory action for purposes of Executive Order 12866.

Unfunded Mandates Reform Act of 1995

The Unfunded Mandates Reform Act of 1995, Public Law 104-4, 109 Stat. 48 (UMA), applies only when an agency is required to issue a general notice of proposed rulemaking or a final rule for which the agency published a general notice of proposed rulemaking (2 U.S.C. 1532). As noted previously, the OCC has determined, for good cause, that notice and comment is unnecessary. Accordingly, the UMA does not require a budgetary impact analysis.

Nevertheless, the OCC has determined that this final rule will not result in expenditures by State, local, and tribal governments, or by the private sector, of $100 million or more in any one year. Accordingly, the OCC has not prepared a budgetary impact statement or specifically addressed the regulatory activities considered.

List of Subjects in 12 CFR Part 5

• Administrative practice and procedure
• National banks
• Reporting and recordkeeping requirements
• Securities

Authority and Issuance

For the reasons set forth in the preamble, the OCC amends chapter I of title 12 of the Code of Federal Regulations as follows:

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

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

Authority: 12 U.S.C. 1 et seq., 93a; and section 5136A of the Revised Statutes, (12 U.S.C. 24a).

2. Section 5.36 is amended by:

A. Redesignating paragraph (e)(7) as (e)(8);

B. Removing “and” from the end of paragraph (e)(6); and

C. Adding a new paragraph (e)(7) to read as follows:

§ 5.36

Other equity investments.

* * * * *

(e) * * *

(7) Certify that the bank's loss exposure is limited, as a legal and accounting matter, and the bank does not have open-ended liability for the obligations of the enterprise; and

* * * * *

Dated: June 27, 2000

John D. Hawke, Jr.,

Comptroller of the Currency.

Footnotes

1.  See 65 FR at 12913 (provisions describing the certifications that the notice must contain).

2.  See, e.g., OCC Corporate Decision No. 97-54 (June 26, 1997); OCC Interpretive Letter No. 692, reprinted in [1995-1996 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 81,007 (Nov. 1, 1995); OCC Interpretive Letter No. 694, reprinted in [1995-1996 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 81,009 (Dec. 13, 1995); OCC Interpretive Letter No. 705, reprinted in [1995-1996 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 81,020 (October 25, 1995); OCC Interpretive Letter No. 711, reprinted in [1995-1996 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 81-026 (Feb. 23, 1996).