96-2903. Interpretive Rulings  

  • [Federal Register Volume 61, Number 28 (Friday, February 9, 1996)]
    [Rules and Regulations]
    [Pages 4849-4870]
    From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
    [FR Doc No: 96-2903]
    
    
    
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    DEPARTMENT OF THE TREASURY
    
    Office of the Comptroller of the Currency
    
    12 CFR Parts 7 and 31
    
    [Docket No. 96-03]
    RIN 1557-AB38
    
    
    Interpretive Rulings
    
    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 
    revising its interpretive rulings. This final rule is another component 
    of the OCC's Regulation Review Program to update and streamline OCC 
    regulations, focus regulations on key safety and soundness concerns and 
    agency objectives, and eliminate requirements that impose inefficient 
    and costly regulatory burdens on national banks. The final rule 
    
    [[Page 4850]]
    clarifies, revises, and reorganizes existing interpretive rulings, 
    eliminates rulings that are obsolete, adds interpretive rulings to 
    address new issues, and relocates some interpretive rulings to another 
    part of title 12.
    
    EFFECTIVE DATE: April 1, 1996.
    
    FOR FURTHER INFORMATION CONTACT: Stuart E. Feldstein, Senior Attorney, 
    Legislative and Regulatory Activities, (202) 874-5090; Jacqueline 
    Lussier, Senior Attorney, Legislative and Regulatory Activities, (202) 
    874-5090; Daniel Cooke, Attorney, Legislative and Regulatory 
    Activities, (202) 874-5090; or Saumya R. Bhavsar, Attorney, Legislative 
    and Regulatory Activities, (202) 874-5090. Office of the Comptroller of 
    Currency, 250 E Street SW., Washington, DC 20219.
    
    SUPPLEMENTARY INFORMATION:
    
    Background
    
        On March 3, 1995, the OCC published a notice of proposed rulemaking 
    (60 FR 11924, March 3, 1995) (proposal) to revise 12 CFR part 7--the 
    OCC's interpretive rulings. Part 7 serves as a repository of 
    interpretive rulings applicable to national banks that generally are 
    not related to the subject matter contained in other parts of chapter I 
    of title 12.
        The proposal sought to implement the goals of the Regulation Review 
    Program by updating and streamlining the regulation and eliminating 
    requirements that imposed inefficient and costly regulatory burdens on 
    national banks. The proposal also eliminated obsolete rulings, added 
    interpretive rulings to address new issues, and transferred some 
    interpretive rulings to 12 CFR part 31.
    
    Comments Received and Changes Made
    
        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 reduce unnecessary regulatory 
    burden.
        The OCC received 112 comment letters on the proposal. The vast 
    majority of these commenters supported the proposed changes to part 7. 
    The comment letters included 36 from banks and bank holding companies, 
    24 from trade associations, 19 from governmental representatives, 16 
    from law firms, eight from private businesses, four from community 
    groups, three from congressmen, one from an unaffiliated individual, 
    and one from a clearinghouse.
        Commenters strongly favored reducing unnecessary regulatory burden 
    and updating and clarifying the interpretive rulings. Overall, most 
    commenters commended the OCC's efforts, and some commenters offered 
    variations on certain of the proposed changes.
        Many commenters recommended changes that focused on specific 
    sections of the proposal. The OCC carefully considered each of the 
    comment letters, and the section-by-section discussion later in this 
    preamble identifies and discusses comments received and changes made to 
    certain sections of the proposal.
    
    Overview of the Final Rule
    
        The final rule adopts the proposal's structural format and 
    reorganizes part 7 into four topic areas: Subpart A--Bank Powers, 
    Subpart B--Corporate Practices, Subpart C--Bank Operations, and Subpart 
    D--Preemption. Distribution and derivation tables summarizing sections 
    of former part 7 changed by the final rule are included at the end of 
    this preamble. The OCC anticipates adding rulings in the future to part 
    7 or other parts in title 12 as necessary to address changing industry 
    practices and developing issues.
        The OCC received comments on a number of sections for which it did 
    not propose substantive changes. The OCC has reviewed the comments and 
    is not making any changes to certain of these sections at this time. A 
    list of these unchanged sections is included at the end of the section-
    by-section summary.
        Finally, the final rule removes a number of sections, moves certain 
    sections to another part of title 12, and retains certain sections 
    pending the issuance of final rules for 12 CFR parts 1 and 5. A 
    description of these sections is contained at the end of the preamble.
    
    Section-by-Section Discussion
    
    National Bank Ownership of Property (Section 7.1000)
    
        The proposal simplified and consolidated into a single section, 
    Sec. 7.1000, several interpretive rulings relating to permissible 
    ownership of real property by national banks. Proposed Sec. 7.1000: (1) 
    described real estate that a bank may own pursuant to 12 U.S.C. 29 and 
    permissible means of holding that real estate; (2) stated that a bank 
    may own fixed assets; (3) identified certain limitations on investment 
    in bank premises and on exercising options to purchase bank premises; 
    (4) stated the circumstances under which a national bank may purchase a 
    transferred employee's residence; (5) provided that a bank may engage 
    in lease financing transactions of public facilities; and (6) provided 
    that a bank may organize a bank premises subsidiary as a corporation, a 
    partnership, or similar entity.
        Most of the comments generally supported the proposal. One 
    commenter urged the OCC to state in Sec. 7.1000, as it had in the 
    preamble to the proposal, that a bank may organize a bank premises 
    subsidiary as a limited liability company. In response to this 
    suggestion, the final ruling states that the term ``similar entity'' 
    includes limited liability companies.
        The OCC also requested comment on whether to expand the proposal 
    permitting a national bank to own real estate for leasing to 
    municipalities or other public authorities to include other types of 
    lease financing transactions. Several commenters urged the OCC to 
    expand the proposal to permit ownership where the lessee is a non-
    public sector entity. The OCC has decided, however, that it will not 
    address this issue at this time.
        The final rule also simplifies and clarifies Sec. 7.1000's 
    description of the types of real estate that may be held pursuant to 
    the authority granted by 12 U.S.C. 29 (First). In addition, the final 
    rule makes a minor organizational change by moving proposed 
    Sec. 7.1000(c), which describes the permissible means of holding real 
    estate necessary for the transaction of business, into proposed 
    Sec. 7.1000(a), which discusses that real estate.
        The final rule also eliminates cross references to 12 CFR part 5, 
    because the approval provisions referenced in the proposal have not yet 
    been promulgated in part 5. The OCC will reinsert appropriate cross 
    references when revisions to part 5 are promulgated.
    
    National Bank Acting as Finder (Section 7.1002)
    
        The proposal clarified that a national bank may act as a finder of 
    certain goods and services in addition to acting as a finder for 
    insurance. The proposal also stated that acting as a finder does not 
    include activities that would characterize the bank as a broker under 
    applicable Federal law. Three commenters recommended that the OCC 
    remove this limitation.
        Two commenters recommending removal of this limitation expressed 
    concern that the statement is unnecessary and may create some 
    uncertainty concerning a national bank's legal authority to engage in 
    brokerage activities. The OCC does not intend for this provision to 
    limit a national bank's authority to act as a broker where permitted 
    under applicable Federal law. It merely clarifies that the authority to 
    act as a 
    
    [[Page 4851]]
    finder is different from the authority to act as a broker and that a 
    bank may not rely on the ``finder'' authority to engage in 
    ``brokerage'' activities that are otherwise not authorized by Federal 
    law. The proposal also stated that, ``Unless otherwise prohibited,'' a 
    national bank may advertise and accept a fee for acting as a finder. 
    Two commenters suggested that the OCC delete the phrase ``Unless 
    otherwise prohibited'' to permit a national bank to act as a finder 
    without restriction. However, this language recognizes that some 
    limitations may apply to national bank finders fees. For example, state 
    laws may prohibit brokers from splitting commissions with nonbrokers. 
    In addition, the Real Estate Settlement Procedures Act (RESPA) and its 
    implementing regulations prohibit the acceptance of a fee for a 
    referral to a settlement service if the referral involves a federally-
    related mortgage loan. See 12 U.S.C. 2601 through 2617, and 24 CFR 
    3500.14(b). Therefore, the final ruling retains this phrase.
        One commenter also suggested that the OCC reference RESPA in the 
    final ruling to ensure that banks do not mistakenly believe that this 
    ruling preempts RESPA. However, the OCC believes that adding this 
    reference is unnecessary and, therefore, adopts Sec. 7.1002 as 
    proposed.
    
    Money Lent at Banking Offices or at Other Than Banking Offices (Section 
    7.1003); Loans Originating at Other Than Banking Offices (Section 
    7.1004); Credit Decisions at Other Than Banking Offices (Section 
    7.1005)
    
        Proposed Secs. 7.1003, 7.1004, and 7.1005 addressed the 
    circumstances under which the OCC would apply the branching limitations 
    and procedures set forth in 12 U.S.C. 36 and 12 CFR 5.30 to lending 
    activities by national banks.
        Proposed Sec. 7.1003 incorporated case law relating to where 
    ``money'' is ``lent'' for purposes of branching. Under the proposal, 
    money is lent where the customer, in person, receives loan funds from 
    the bank. Thus, if a customer receives funds from a bank employee or at 
    bank premises, the bank would be subject to branching limitations and 
    require OCC branch approval. However, if the customer receives funds 
    from an independent third party, including a messenger service 
    described in Sec. 7.1012, at a nonbank facility, the bank would not be 
    subject to branching limitations and would not require OCC branch 
    approval. Proposed Sec. 7.1003 also would codify OCC interpretations 
    that branching requirements do not encompass certain accepted industry 
    practices on loan disbursal such as when an attorney or escrow agent 
    disburses funds at a real estate closing.
        Proposed Sec. 7.1004 retained the language in Sec. 7.7380, a 
    judicially recognized safe harbor explaining the circumstances under 
    which national banks may originate loans at nonbranch sites, known as 
    loan production offices (LPOs), without those sites being considered 
    branches.
        Proposed Sec. 7.1005 incorporated OCC interpretations explaining 
    that offices at which loan approvals occur are not, solely by virtue of 
    that activity, considered branches. This interpretation also recognized 
    that a bank may approve loans originated at an LPO at locations other 
    than the bank's main office or branches without causing the LPO to be 
    considered a branch, even though this process does not fit squarely 
    within the safe harbor set forth in Sec. 7.1004. Of course, this LPO or 
    loan approval office would constitute a branch if it undertakes to lend 
    money as defined in Sec. 7.1003 or otherwise is defined as a branch 
    under the McFadden Act (12 U.S.C. 36(j)) and 12 CFR 5.30.
        Fifteen commenters addressed one or more aspects of these rulings. 
    Most supported the proposals generally or had specific comments seeking 
    clarification of certain aspects of the proposed language. Several 
    asked the OCC to state that the Sec. 7.1003 language regarding where a 
    loan is made pertains only to the lending of money for branching 
    purposes and does not control where a loan is made for purposes of 
    applying applicable state laws.
        In proposing these rulings, the OCC considered only the language 
    and history of 12 U.S.C. 36(j) concerning what constitutes a ``branch'' 
    for purposes of the McFadden Act. Thus, for clarification purposes, the 
    final ruling uses the term ``money lent'' contained in the McFadden Act 
    instead of the phrase ``loan is made'' and explicitly states that the 
    definition of ``money lent'' applies only to that term as used in 12 
    U.S.C. 36(j) and 12 CFR 5.30. The OCC does not intend to apply this 
    definition to the determination of where a bank is ``located'' for 
    purposes of applying usury limits set forth in 12 U.S.C. 85 or to 
    control the applicability of various state laws pertaining to lending.
        Several commenters thought that the branching definition set forth 
    in proposed Sec. 7.1003 was incomplete because it did not take into 
    account whether the bank had established the lending facility or 
    whether the public had access to the facility. However, the OCC has 
    proposed to include a general definition of what constitutes a branch, 
    including the ``public access'' and ``establishment'' tests, in its 
    proposed revisions to 12 CFR part 5.1
    
         1 See 59 FR 61034 (proposed November 29, 1994). In this regard, 
    the OCC also notes that what constitutes ``establishment'' of a 
    branch would more appropriately be determined pursuant to an 
    analysis of the McFadden Act, case law, and 12 CFR part 5. Thus, the 
    OCC has changed references in proposed Sec. 7.1003 to a facility 
    that is ``owned or rented'' by a bank to a facility that is 
    ``established'' by a bank.
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        Several commenters asked the OCC to clarify where money would be 
    considered to be lent for branching purposes. One commenter expressed 
    concern that because many loans do not involve in-person disbursement, 
    a bank could make a loan without branch involvement, thus creating a 
    ``gap'' that causes the test to fail. The OCC recognizes that 
    technology and market developments may, in many instances, result in a 
    bank making a loan without branch involvement. This has long been the 
    case on the deposit side where a customer can make deposits and 
    withdrawals by mail or through shared ATMs or other electronic means 
    without branch involvement. As on the deposit side, this ``gap'' does 
    not cause the test to fail--it just recognizes modern realities that 
    banks can undertake traditional banking activities in ways that 
    Congress did not contemplate in the McFadden Act as adopted in 1927. In 
    the final ruling the OCC specifically includes in Sec. 7.1003(a) the 
    phrase ``if any'' to indicate that the OCC does not believe that the 
    making of a loan necessarily causes any particular location to be a 
    ``branch'' within the meaning of 12 U.S.C. 36.
        Several commenters also questioned the interplay of Sec. 7.1004 
    with Secs. 7.1003 and 7.1005. The OCC has retained Sec. 7.1004, former 
    Sec. 7.7380, because it is a judicially recognized safe harbor 
    permitting national banks to undertake certain lending related 
    activities without the constraints of the McFadden Act. The OCC notes, 
    however, that this is a safe harbor; merely because a lending related 
    activity falls outside the scope of Sec. 7.1004, as with Sec. 7.1005 
    regarding the making of credit decisions, does not mean that the OCC 
    views the bank as violating the McFadden Act.
        One commenter also stated that Sec. 7.1003(b) was not broad enough. 
    The OCC emphasizes that any person or entity qualifying under the 
    messenger service ruling (Sec. 7.1012), could deliver loan proceeds 
    without implicating the branching rules and that Sec. 7.1012 is itself 
    a safe harbor. 
    
    [[Page 4852]]
    
        Thus, the OCC has adopted Secs. 7.1003, 7.1004, and 7.1005 
    substantially as proposed. The final ruling clarifies that the 
    definition of the phrase ``money lent'' applies solely to that phrase 
    as used in the McFadden Act and 12 CFR 5.30. In addition, the OCC has 
    changed the references in the proposal to the ``disbursal of funds by 
    the bank to a customer'' to the ``receipt of loan proceeds directly 
    from bank funds.'' This change clarifies that the key portion of a loan 
    transaction for branching purposes is in-person receipt by the borrower 
    from the bank or on bank premises of loan proceeds directly from bank 
    funds--not disbursement by the bank through any mechanism, nor 
    disbursement of funds that at the time of receipt by the borrower are 
    not bank funds, nor disbursement of funds that do not at the time of 
    disbursement constitute loan proceeds. In addition, in the final ruling 
    the OCC changes references to a ``subsidiary corporation'' to 
    ``operating subsidiary.''
    
    Loan Agreement Providing for a Share in Profits, Income or Earnings or 
    for Stock Warrants (Section 7.1006)
    
        The proposal did not change this section, which permits a national 
    bank to take as consideration for a loan a share in the profit, income, 
    or earnings from a business enterprise of a borrower. One commenter 
    suggested that the OCC state that a national bank may accept stock 
    warrants as consideration for a loan.
        The OCC has previously approved the acceptance of stock warrants 
    taken in addition to, or in lieu of, interest on a loan, provided that 
    a national bank does not exercise the acquired stock warrants. See OCC 
    Interpretive Letter No. 517 (August 16, 1990), reprinted in [1990-1991 
    Transfer Binder] Fed. Banking L. Rep. (CCH) para. 83,228. The OCC has 
    incorporated this interpretation into the final ruling.
    
    Postal Service by National Bank (Section 7.1010)
    
        The proposal made no substantive changes to this section. One 
    commenter noted that, by stating that the services performed by a 
    postal substation may include meter stamping of letters and packages, 
    and the sale of related insurance, the ruling could imply that a 
    national bank may offer only the listed services. The OCC does not 
    intend for this to be an exclusive list of services and has, by 
    interpretive letters, found that a national bank may engage in other 
    activities, including selling stamps, accepting letters and packages 
    for mailing, and maintaining post office boxes. Because a national bank 
    operating a postal substation must do so in accordance with the 
    regulations of the United States Postal Service, the OCC has changed 
    the ruling to reference those regulations.
    
    National Bank Acting as Payroll Issuer (Section 7.1011)
    
        The proposal made no substantive changes to former Sec. 7.7485, 
    which recognized that a national bank may disburse to employees of a 
    bank customer payroll funds deposited with the bank by that customer. 
    One commenter observed that the proposed ruling could be read narrowly 
    to bar disbursement of payroll funds if made indirectly to the employee 
    by crediting the employee's account with a financial institution other 
    than the disbursing bank. The OCC has recognized that a national bank 
    may forward funds to other banks in which a customer's employees 
    maintain accounts. See Letter from F.H. Ellis, Chief National Bank 
    Examiner (July 19, 1971) (unpublished).2 The OCC has modified the 
    proposal and former ruling to reflect that precedent and to incorporate 
    certain technical changes.
    
         2 All unpublished OCC staff interpretive letters are 
    available (in redacted form) upon request from the Communications 
    Division, 250 E Street, SW, Washington, DC 20219 (202) 874-4700.
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    Debt Cancellation Contracts (Section 7.1013)
    
        The former interpretive ruling permitted national banks to offer 
    customers debt cancellation contracts (DCCs) that cancel debt upon the 
    death of the borrower. The proposal added disability and unemployment 
    as types of DCCs that are expressly permitted by the interpretive 
    ruling.
        The OCC received several comments on this section. The majority of 
    those commenters supported the proposal. Some urged the OCC to expand 
    the final ruling to state that national banks may offer additional 
    types of DCCs that the OCC did not include in the proposal. Some 
    commenters, however, cautioned that DCCs present certain risks, and, 
    therefore, did not support expansion of the former interpretive ruling.
        The final ruling expands the former ruling to provide that a 
    national bank may offer DCCs for the death or disability of a borrower. 
    The OCC recognizes that it also may be appropriate for a national bank 
    to offer a DCC that is triggered by other events. However, risk 
    considerations that may be particular to other types of DCCs, or to 
    specific banks, require the OCC to consider these other types of DCCs 
    on a case-by-case basis.
        In addition, national banks offering DCCs, whether for death or 
    disability, or for other triggering events, must do so in a safe and 
    sound manner. If a bank is unable to demonstrate an ability by itself 
    to estimate and reserve adequately for the risks attendant to DCCs, the 
    bank may obtain third party coverage or take other measures to cover 
    the risks presented by the DCC.
    
    Independent Undertakings To Pay Against Documents (Section 7.1016)
    
        The proposal updated former Sec. 7.7016 to reflect modern market 
    standards and industry usage and replaced the term ``letters of 
    credit'' with ``independent undertakings.'' The term ``independent 
    undertakings'' is used by the United Nations Commission on 
    International Trade Law (UNCITRAL) to cover a broader array of 
    transactions in this area.
        The proposal extended the same safety and soundness principles in 
    the former ruling to this broader class of independent undertakings. 
    The proposal explained that non- documentary conditions on the bank's 
    undertaking are not relevant to the bank's obligation to honor its 
    commitment. Furthermore, the proposal provided a clearer statement of 
    regulatory standards directed to the segment of the banking industry 
    that engages in these activities. The proposal also provided a non-
    exclusive list of sample laws and rules of practice under which a 
    national bank may issue independent undertakings.
        The OCC received 13 comments with the majority supporting the 
    proposal. Several commenters recommended that when referencing 
    applicable laws or rules of practice, the ruling should use generic 
    citation references or citations to their most recent versions. The OCC 
    has updated the non-exclusive list of sample laws and rules of practice 
    to refer to Revised Article 5 of the Uniform Commercial Code (UCC) 
    (1995) (current model code) as well as Article 5 of the UCC (1990) 
    (former model code), and to the 1993 version of the Uniform Customs and 
    Practice for Documentary Credits (ICC Publication No. 500) (effective 
    January 1, 1994) instead of the 1983 version. The sample listing is 
    intended to provide non-exclusive examples of laws or rules of 
    practice, as the cited examples may not necessarily apply in a 
    particular case or may be revised in the future, or other applicable 
    laws or rules of practice subsequently may come into effect. The OCC 
    has added the phrase ``as any of the foregoing may be amended from time 
    to tim'' to the end of the non-exclusive listing of sample laws and 
    rules of 
    
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    practice to recognize that they may be revised from time to time.
        Four commenters recommended clarifying that ``evergreen'' clauses 
    are permissible, despite the proposal's requirement in 
    Sec. 7.1016(b)(1)(iii) that the undertaking be ``limited in duration.'' 
    Long-standing OCC precedent permits national banks to use ``evergreen'' 
    or ``automatic extension'' clauses in their letters of credit provided 
    that the bank retains the right not to renew the letter of credit. 
    Therefore, the final ruling adds clarifying language expressly 
    permitting a national bank to issue an undertaking without an express 
    expiration date, provided that the bank has the right to cancel the 
    undertaking upon notice to the parties.
        Several commenters objected to the word ``must'' in proposed 
    Sec. 7.1016(b), as ``must'' seemed to impose mandatory safety and 
    soundness conditions on the issuance of independent undertakings. The 
    final ruling changes references in Sec. 7.1016(b) from ``must'' to 
    ``should,'' consistent with former Sec. 7.7016, to provide banks with 
    added flexibility in structuring and entering into financing 
    arrangements. Nonetheless, the OCC strongly urges national banks to 
    evaluate these safety and soundness factors when issuing independent 
    undertakings.
        Some commenters asked whether the proposal's reference to a bank 
    issuing an undertaking for its own account meant that the OCC permits 
    national banks to issue two-party letters of credit. As intended in the 
    proposal, the OCC's position is that a national bank may issue a two-
    party letter of credit provided that it is permissible under applicable 
    law and satisfies the requirements of Sec. 7.1016(b)(2)(iii), regarding 
    a bank's undertaking for its own account. Since a two-party letter of 
    credit is issued for the bank's own account, the two-party letter of 
    credit satisfies the requirements of Sec. 7.1016(b)(1)(iv), regarding a 
    bank's right of reimbursement.
    
    National Bank as Guarantor or Surety on Indemnity Bond (Section 7.1017)
    
        The proposal removed a well-settled provision stating that foreign 
    branches may exercise additional powers pursuant to 12 U.S.C. 604a. The 
    proposal made no other substantive changes.
        The proposal generally provided that a national bank may act as 
    guarantor or surety to indemnify another if the bank has a substantial 
    interest in the performance of the transaction or a segregated deposit 
    sufficient in amount to cover the bank's total potential liability. One 
    commenter suggested that the OCC should expand the ruling to permit a 
    national bank to guarantee or indemnify a party to a transaction if the 
    guarantee or indemnification is secured by any of the types of 
    collateral acceptable under section 23A of the Federal Reserve Act 
    (FRA) (12 U.S.C. 371c) for a ``covered transaction.''
        The OCC finds that the types of collateral listed at section 
    23A(c)(1) (A) and (B) of the FRA (12 U.S.C. 371c(c)(1) (A) and (B)), 
    the 100 and 110 percent collateral categories, respectively, are 
    acceptable for a national bank to use as security without undue risk 
    when acting as a guarantor or surety to indemnify another. Therefore, 
    the final ruling permits a national bank to lend its credit, bind 
    itself as surety to indemnify another, or otherwise become a guarantor 
    to a transaction if the bank has a security interest in either of these 
    two categories of collateral.
        The 100 percent collateral category includes obligations of the 
    United States or its agencies, obligations fully guaranteed by the 
    United States or its agencies as to principal and interest, and notes, 
    drafts, bills of exchange, and bankers' acceptances that are eligible 
    for rediscount or purchase by a Federal Reserve Bank. The 110 percent 
    collateral category includes obligations of a state or political 
    subdivision of a state.
        To ensure that the bank is not exposed to a risk of loss, the bank 
    must perfect its security interest in the collateral. For example, if 
    the collateral is a printed security, the bank must have obtained 
    physical control of the security, and, if the collateral is a book 
    entry security, the bank must have properly recorded its security 
    interest.
        Because the value of these types of collateral can fluctuate, the 
    final ruling requires that the collateral have a market value, at the 
    close of each business day, equal to the bank's total potential 
    liability if the collateral is composed of obligations of the United 
    States or its agencies, obligations fully guaranteed by the United 
    States or its agencies as to principal and interest, or notes, drafts, 
    bills of exchange, or bankers' acceptances that are eligible for 
    rediscount or purchase by a Federal Reserve Bank. If the collateral is 
    composed of obligations of a state or political subdivision of a state, 
    it must have a market value, at the close of each business day, equal 
    to 110 percent of the bank's total potential liability.
    
    Furnishing of Products and Services by Electronic Means and Facilities 
    (Section 7.1019)
    
        The proposal permitted a national bank to use data processing 
    equipment to perform for itself and others ``all services expressly or 
    incidentally authorized under the statutes applicable to national 
    banks.'' The proposal also incorporated the OCC's interpretive position 
    that a national bank using data processing equipment or technology to 
    perform authorized services may market and sell ``any legitimate excess 
    capacity'' in that equipment or technology. See, e.g., OCC Interpretive 
    Letter No. 677 (June 28, 1995), reprinted in [1994-1995 Transfer 
    Binder] Fed. Banking L. Rep. (CCH) para. 83,625.
        The OCC requested comment on whether the proposed language is 
    necessary. The OCC also requested comment on whether the OCC should 
    more specifically describe permissible sales of excess capacity and the 
    services that a national bank may provide using data processing 
    equipment or technology.
        All 12 of the commenters generally supported the proposal. A 
    majority of the commenters stated that greater specificity in 
    describing authorized services would not be useful because more 
    detailed language would quickly become outdated by the rapid 
    development of technology. In addition, a majority of the commenters 
    urged the OCC to adopt a broader standard than the proposal used to 
    define the scope of permissible sales of data processing equipment and 
    technology. Three commenters urged the OCC to delete the term 
    ``legitimate'' from the phrase ``legitimate excess capacity.'' One 
    commenter suggested that the OCC state that a bank may market and sell 
    any excess capacity in data processing equipment or technology that the 
    bank acquired or developed for banking purposes based on a good faith 
    determination of its own current and future needs.
        The OCC considered a number of alternatives for changing the 
    proposal to modernize the treatment of permissible data processing 
    activities. The OCC recognizes that national banks are engaging, and 
    will engage, in an increasing range of activities through electronic 
    means and facilities beyond simply ``data processing.'' For this 
    reason, the OCC has modified this ruling to refer to activities, 
    functions, products, and services provided via electronic means and 
    facilities, rather than ``data processing'' and changes the title of 
    Sec. 7.1019 from ``Use of data processing equipment and furnishing of 
    data processing services'' to ``Furnishing of products and services by 
    electronic means and facilities.''
        The OCC also finds the commenter's suggestion of a ``good faith'' 
    standard to be more appropriate than ``legitimate 
    
    [[Page 4854]]
    excess capacity'' to define the scope of a national bank's permissible 
    sales of excess electronic capacities. The good faith requirement is an 
    important safeguard against abusing this authority. Therefore, the OCC 
    adopts the commenter's suggestion. Moreover, the final ruling, which 
    expressly states that these sales are appropriate for a bank to 
    optimize the use of the bank's resources, more closely parallels the 
    standard the OCC applies when national banks utilize their excess 
    physical space for non-bank uses. See, e.g., Letter from Peter 
    Liebesman, Assistant Director, Legal Advisory Services Division (July 
    24, 1987) (unpublished) and cases cited therein, Wingert v. First Nat'l 
    Bank of Hagerstown, Md., 175 F. 739 (4th Cir. 1909), aff'd, 223 U.S. 
    670 (1912); Brown v. Schleier, 118 F. 981 (8th Cir. 1902), aff'd, 194 
    U.S. 18 (1904).
    
    Purchase of Open Accounts (Section 7.1020)
    
        The proposal contemplated moving former Sec. 7.1105 to 12 CFR part 
    32. However, the section relates to a national bank's ability to engage 
    in factoring, and the OCC has concluded that it more appropriately 
    belongs in part 7. Therefore, the final ruling adopts the language 
    contained in the former ruling, except for the language that ``accounts 
    need not in every case represent an evidence of debt.'' This language 
    is removed because it is well settled under OCC precedents that 
    factoring is an extension of credit for lending limit purposes.
    
    Corporate Governance Procedures (Section 7.2000)
    
        The proposal provided that a national bank undertaking a corporate 
    governance procedure must comply with applicable statutes and 
    regulations, and safe and sound banking practices. The proposal also 
    established a safe harbor for a national bank that undertakes a 
    corporate governance procedure, if the bank complied with certain OCC-
    designated sections of the Model Business Corporation Act (MBCA), where 
    the Federal banking statutes and regulations are otherwise silent on 
    the matter. The OCC invited comment on whether the MBCA is the 
    appropriate form of guidance to provide national banks with additional 
    flexibility in structuring their corporate practices or whether the 
    Delaware General Corporation Law or other sources are preferable.
        The OCC received ten comments on the proposal. A number of 
    commenters recommended that the final ruling permit a national bank to 
    rely on the corporate governance procedures of the state where the bank 
    is located or the state where the bank's holding company, if any, is 
    incorporated. Two commenters recommended expanding the list of 
    permissible MBCA sections so that a national bank could rely on any 
    section of the MBCA to the extent it is not inconsistent with Federal 
    banking statutes or regulations. One commenter suggested permitting the 
    bank to rely on an opinion of counsel that the procedure is permissible 
    for a national bank.
        Four commenters also discussed Delaware General Corporation Law as 
    a source of guidance. Two of these commenters stated that Delaware law 
    would be an acceptable source of guidance. One commenter supported 
    permitting the use of Delaware law as an alternative to the MBCA. One 
    commenter opposed the use of Delaware law unless other states' laws are 
    similarly permitted as a source of guidance for national bank corporate 
    governance procedures.
        After careful consideration of the comments received, the OCC has 
    adopted a revised two-step approach that provides national banks with 
    maximum flexibility to structure their corporate governance procedures 
    while providing shareholders and others with adequate notice as to the 
    body of corporate standards on which the bank will rely. Under the 
    final ruling, a corporate governance procedure used by a national bank 
    must comply with applicable Federal banking statutes and regulations, 
    and safe and sound banking practices. In addition, to the extent not 
    inconsistent with those Federal banking statutes and regulations, or 
    safe and sound banking practices, a national bank may elect to follow 
    the corporate governance procedures of the state in which the main 
    office of the bank is located, the state where the bank's holding 
    company is incorporated, the Delaware General Corporation Law, Del. 
    Code Ann. tit. 8 (1991, as amended 1994, and as amended thereafter), or 
    the MBCA (1984, as amended 1994, and as amended thereafter). This 
    approach provides national banks with a wide range of choices to 
    structure their corporate governance procedures consistent with the 
    particular needs of the bank.
        The OCC is mindful, however, of providing shareholders and other 
    interested parties with adequate notice of the bank's corporate 
    governance procedures. Therefore, the final ruling requires the bank to 
    designate in its bylaws the body of law that will govern its corporate 
    procedures. The final ruling also retains a process for a bank to seek 
    informal staff guidance regarding permissible corporate governance 
    procedures.
    
    Notice of Shareholders' Meetings (Section 7.2001)
    
        The proposal simplified the language in former Sec. 7.4000 and 
    clarified that a national bank must mail notice of the time, place, and 
    purpose of all shareholders' meetings at least ten days before the 
    proposed meeting.
        Two commenters recommended revising this section to permit the sole 
    shareholder of a national bank to waive notice of the shareholders' 
    meeting. The OCC agrees that permitting the sole shareholder to waive 
    shareholder notice will not detrimentally affect bank safety and 
    soundness and will eliminate unnecessary regulatory burden. Thus, the 
    final ruling adds a new sentence that the sole shareholder of a 
    national bank may waive the notice requirements of this section.
        Two commenters also recommended modifying this section to state 
    that shareholders generally may waive their right to written notice of 
    shareholder meetings. As a general matter, the OCC does not accept 
    written waivers of the general requirement for notice of regular annual 
    meetings of national banks or meetings involving certain types of 
    fundamental corporate changes. The corporate affairs of a bank may not 
    as closely involve shareholders as directors, and thus regular annual 
    meetings provide an important forum for expression of shareholder 
    views. In addition, the absence of notice and full disclosure for 
    meetings, particularly those involving fundamental corporate changes, 
    could jeopardize the ability of shareholders to protect their rights.
        Another commenter recommended expanding the section to require a 
    national bank to mail ``or otherwise deliver'' shareholders' notice. 
    However, requiring a national bank to mail shareholders' notice of all 
    shareholders' meetings at least ten days prior to the meeting by first 
    class mail provides the OCC with confirmation of a bank's adherence to 
    the ``ten day'' shareholder notice requirement. Therefore, the final 
    ruling does not incorporate the phrase ``otherwise deliver.''
    
    Honorary Directors or Advisory Boards (Section 7.2004)
    
        The proposal permitted a national bank to appoint honorary or 
    advisory members of the board of directors to act in advisory 
    capacities without voting power or power of final decision in matters 
    concerning the bank's business. The proposal made no substantive 
    changes to this section. One commenter suggested clarifying that one or 
    more 
    
    [[Page 4855]]
    separate advisory boards are permitted. The final ruling changes the 
    title and language of this section to clarify that more than one 
    advisory board is permissible.
    
    Ownership of Stock Necessary To Qualify as Director (Section 7.2005)
    
        The proposal removed repetitive information requirements relating 
    to directors' qualifying shares under 12 U.S.C. 72. It also 
    incorporated OCC precedent to provide that a director's ownership of 
    preferred stock in a national bank may satisfy statutory requirements. 
    The proposal also clarified that a director may borrow from the bank or 
    its affiliates the funds to purchase the required minimum equity 
    interest.
        The OCC received two comment letters on this section. The 
    commenters each requested the OCC to state that a national bank 
    director can hold qualifying shares in individual retirement accounts, 
    retirement plans, 401(k) plans or other similar arrangements.
        Twelve U.S.C. 72 requires a national bank director to own the 
    qualifying shares in ``his or her own right.'' The purpose of the 
    qualifying shares requirement is to ensure that a director has a 
    sufficient individual financial interest in the bank to induce him or 
    her to be vigilant in protecting the bank's interests. Cupo v. 
    Community National Bank & Trust Co. of New York, 324 F. Supp. 1390, 
    1393 (E.D.N.Y. 1971). The OCC agrees that various retirement plans and 
    similar arrangements may provide directors with the requisite financial 
    interest to satisfy the qualifying shares requirement of 12 U.S.C. 72. 
    Therefore, the final ruling provides that a director's qualifying 
    interest also may be held through profit sharing plans, individual 
    retirement accounts, retirement plans, and similar arrangements, 
    provided the director retains beneficial ownership and legal control 
    over the shares. For examples of arrangements the OCC has previously 
    approved, see Letter from Peter Liebesman, Assistant Director, Legal 
    Advisory Services Division (July 7, 1981) (unpublished); Letter from 
    Larry J. Stein, Senior Attorney, Legal Advisory Services Division (May 
    28, 1986) (unpublished); Letter from Christopher C. Manthey, Senior 
    Attorney, Legal Advisory Services Division (September 5, 1989) 
    (unpublished); and Letter from James A. Wright, Attorney, Securities 
    and Corporate Practices Division (November 6, 1989) (unpublished).
        The OCC has also changed the ruling to reflect OCC precedent that 
    eliminates some of the distinctions between the required amount of 
    ownership a director must hold in national bank stock as opposed to 
    holding company stock. See OCC Interpretive Letter No. 503 (April 4, 
    1989), reprinted in [1990-1991 Transfer Binder] Fed. Banking L. Rep. 
    (CCH) para. 83,201. Under the final ruling, a director may hold common 
    or preferred stock of the bank or a company that controls the bank if 
    that stock has not less than an aggregate par value of $1,000, an 
    aggregate shareholders' equity of $1,000, or an aggregate fair market 
    value of $1,000.
    
    Filling Vacancies and Increasing Board of Directors Other Than by 
    Shareholder Action (Section 7.2007)
    
        The proposal modified former Sec. 7.4305 to clarify that ``the 
    majority of shareholders or a majority of directors'' may increase the 
    number of directors and that this increase is limited to two directors 
    (when the number of directors is 15 or fewer) or four (when the number 
    of directors is 16 or more). The proposal also eliminated language that 
    repeated the statute and clarified the procedures for filling vacancies 
    on the board of directors.
        The OCC received three comments on the proposal. One commenter 
    noted that the language could be read to preclude shareholders from 
    increasing the board of directors by more than two (when the number of 
    directors is 15 or fewer) or four (when the number of directors is 16 
    or more). This is not the OCC's intent. Nothing in the final ruling is 
    intended to limit whatever lawful authority shareholders, as distinct 
    from the directors themselves, may have to increase the board of 
    directors. Therefore, the final ruling has been changed to focus solely 
    on increases made by action of the board of directors. Under the final 
    ruling, if authorized by the bank's articles of association, a majority 
    of the board of directors may increase the number of the bank's 
    directors within the limits specified in 12 U.S.C. 71a. When the board 
    of directors increases the number of directors, that increase is 
    limited to two when the number of directors last elected by 
    shareholders was 15 or fewer, and to four when the number of directors 
    last elected by shareholders was 16 or more.
        The final ruling also clarifies that the shareholders, a majority 
    of the board of directors remaining in office, or, if the directors 
    remaining in office constitute fewer than a quorum, an affirmative vote 
    of the directors remaining in office, may fill a vacancy on the board 
    of directors.
    
    Oath of Directors (Section 7.2008)
    
        The proposal removed the last paragraph of former Sec. 7.4415, 
    which restated the statute and separated the section into 
    ``administration'' and ``execution'' of the oath. One commenter 
    recommended clarifying that the oath must be maintained in writing for 
    a specified period of time. The OCC removed the requirement in the 
    former ruling that the director subscribe to the oath and immediately 
    transmit it to the OCC to be filed and preserved for ten years because 
    that requirement merely restates 12 U.S.C. 73. Therefore, the final 
    ruling makes no changes and, as in the proposal, removes the last 
    paragraph of the former ruling.
    
    Directors' Responsibilities (Section 7.2010)
    
        The proposal modified current Sec. 7.4425 to state that while 
    directors may delegate the day-to-day operations of the bank to 
    management, the directors maintain responsibility for supervising 
    management to ensure that the bank is operated in accordance with 
    policies and procedures established by the board as well as with 
    applicable law, regulations, and safe and sound banking practices.
        Two commenters supported the proposal. Two commenters asserted that 
    the word ``ensure'' implies that directors are guarantors of the bank's 
    legal and regulatory compliance. One commenter suggested substituting 
    the word ``determine'' for ``ensure.'' Another commenter criticized the 
    proposal as contrary to statutory and case law in stating that the 
    board may delegate only the bank's day-to-day operations but not the 
    oversight function and for not stating that directors are entitled to 
    rely reasonably on management, officers and inside and outside 
    professionals for nearly all board functions. This commenter 
    recommended issuing a separate interpretive ruling or Banking Circular 
    on duties of national bank directors, or removing the ruling from part 
    7.
        The proposal sought to provide directors with a more informed 
    statement of the OCC's expectations regarding the responsibilities of a 
    national bank's board of directors. However, the OCC acknowledges the 
    limitations inherent in crafting a regulation in this complex area that 
    is not overly detailed yet provides directors with clear and useful 
    guidance as to their responsibilities. Sources already available, such 
    as the OCC's Director's Book and the ``Comptroller's Handbook for 
    National Bank 
    
    [[Page 4856]]
    Examiners,'' 3 provide an informal and more extensive description 
    of these responsibilities.
    
         3  These sources are available upon request from the OCC 
    Communications Division, 250 E Street, SW, Washington, DC 20219 
    (202) 874-4700.
    ---------------------------------------------------------------------------
    
        Thus, the final ruling has been changed to provide a general 
    statement that the business and affairs of the bank shall be managed by 
    or under the direction of the board of directors. However, in order to 
    notify directors of their basic responsibilities and available sources 
    of additional guidance, the final ruling also states that a director 
    should refer to other OCC published guidance for additional information 
    regarding the OCC's views on the responsibilities of national bank 
    directors.
    
    Compensation Plans (Section 7.2011)
    
        The proposal combined and condensed current Secs. 7.5000, 7.5010, 
    and 7.5015, regarding bonus and profit sharing plans, pension plans, 
    and employee stock option and stock purchase plans, respectively, into 
    one section on compensation plans.
        One commenter suggested that the list of compensation plans should 
    be illustrative rather than exclusive as there are alternative types of 
    compensation programs that may be appropriate for national banks but do 
    not fall within one of these three types. The OCC agrees with the 
    commenter and clarifies the final ruling to allow national banks 
    flexibility to adopt compensation plans other than those specified in 
    this section. The OCC has also changed the ruling to refer to the 
    compensation provisions contained in 12 CFR part 30, Standards for 
    Safety and Soundness.
    
    Indemnification of Institution-affiliated Parties (Section 7.2014)
    
        The proposal revised former Sec. 7.5217 to state that a national 
    bank may indemnify certain individuals and advance legal fees and 
    expenses, subject to certain limitations. Under the proposal, a 
    national bank could not, however, indemnify an individual where an 
    administrative proceeding resulted in a final order that assessed a 
    civil money penalty or required restitution, or a final removal or 
    prohibition order under 12 U.S.C. 1818 (e) or (g).
        The proposal also imposed certain procedural requirements for 
    advancing expenses and legal fees in connection with administrative 
    enforcement actions. Under the proposal, a national bank could advance 
    expenses and legal fees if the disinterested members of the board of 
    directors determined, in good faith, that there is a reasonable basis 
    for the individual to prevail on the merits; that the individual has 
    the financial capacity to reimburse the bank if he or she did not 
    prevail; and that the payment of the expenses by the bank is not unsafe 
    or unsound. The indemnified individual would have been required to 
    repay advances to the bank, however, if the action or proceeding 
    resulted in a final order assessing a civil money penalty or requiring 
    restitution, or a final removal or prohibition order under 12 U.S.C. 
    1818 (e) or (g). The proposal also required an individual to execute a 
    formal and binding agreement to reimburse the bank for expenses and 
    fees in the event he or she did not prevail. The OCC invited comment on 
    whether these standards were workable or too restrictive, and whether 
    other standards were more appropriate.
        On March 29, 1995, the Federal Deposit Insurance Corporation (FDIC) 
    issued its second proposal relating to bank indemnification of 
    institution-affiliated parties. The FDIC proposal would implement the 
    so-called ``golden parachute'' and indemnification provisions of 
    section 18(k) of the Federal Deposit Insurance Act (12 U.S.C. 1828(k)) 
    and would apply to all depository institutions, including national 
    banks. Several commenters responding to the OCC proposal recommended 
    that the OCC adopt the FDIC proposal in its entirety or specific 
    provisions of the FDIC proposal that were ``less restrictive'' than the 
    OCC proposal. These commenters advocated a single indemnification 
    standard applicable to national banks to avoid conflicting standards.
        The OCC agrees that a single set of rules governing permissible 
    indemnification in connection with administrative proceedings or civil 
    actions brought by Federal banking agencies should apply to national 
    banks. One set of rules prevents confusion, reduces compliance and 
    legal costs, and minimizes unnecessary regulatory burden. Because 12 
    U.S.C. 1828(k) subjects national banks to the requirements of any FDIC 
    regulation on indemnification, FDIC standards would supersede less 
    restrictive separate OCC standards. Therefore, the OCC has changed the 
    part 7 ruling on indemnification to clarify that a national bank may 
    make or agree to make indemnification payments to an institution-
    affiliated party with respect to an administrative proceeding or civil 
    action initiated by any Federal banking agency, that are reasonable and 
    consistent with the requirements of 12 U.S.C. 1828(k) and any 
    implementing regulations thereunder.
        The FDIC proposal does not address indemnification in circumstances 
    involving an administrative proceeding or civil action not initiated by 
    a Federal banking agency. The former ruling, Sec. 7.5217, provided 
    generally that indemnification articles that substantially reflect 
    general standards of law of the state in which the bank is 
    headquartered, the law of the state in which the bank's holding company 
    is incorporated, or the relevant provisions of the MBCA, were presumed 
    by the OCC to be within the corporate powers of a national bank. The 
    OCC has changed the proposal to provide further flexibility and to 
    maintain consistency with the revised corporate governance procedures 
    in Sec. 7.2000. Under the final ruling, with respect to an 
    administrative proceeding or civil action not initiated by a Federal 
    banking agency, a national bank may indemnify an institution-affiliated 
    party for damages and expenses, including the advancement of expenses 
    and legal fees, in accordance with the law of the state in which the 
    main office of the bank is located, the law of the state in which the 
    bank's holding company is incorporated, or the relevant provisions of 
    the MBCA or Delaware General Corporate Law. In all cases, 
    indemnification payments should be consistent with the safety and 
    soundness of the bank involved. The final ruling also requires the bank 
    to designate in its bylaws the body of law it has selected to govern 
    its indemnification procedures. The final ruling no longer requires 
    banks to include the indemnification provisions in its articles of 
    association.
    
    Cashier (Section 7.2015)
    
        The proposal changed former Sec. 7.5245 to clarify that the 
    cashier's duties may be delegated to the president, chief executive 
    officer, or other officer. One commenter recommended that the OCC 
    change references to the board of directors to a ``duly designated 
    officer.'' The OCC agrees with this recommendation and, consistent with 
    the OCC's continuing effort to reduce unnecessary regulatory burden, 
    changes the final ruling to permit a duly designated officer to assign 
    duties previously performed by the bank's cashier.
    
    Facsimile Signatures on Bank Stock Certificates (Section 7.2017)
    
        The proposal revised former Sec. 7.6010 to clarify that facsimile 
    signatures include electronic means of signature. One commenter 
    recommended further relief from administrative burden by deleting all 
    references to ``seals'' and ``corporate seals'' in the corporate 
    
    [[Page 4857]]
    governance section, including the reference proposed in Sec. 7.2017. 
    Although the OCC recognizes the need to reduce administrative burden, 
    12 U.S.C. 52 requires every national bank stock certificate to be 
    sealed with the seal of the association. Therefore, the OCC adopts this 
    section as proposed.
    
    Acquisition and Holding of Shares as Treasury Stock (Section 7.2020)
    
        The proposal added a new section to address a national bank's 
    acquisition and holding of shares as treasury stock. The proposal 
    explained that pursuant to the authority and procedures of 12 U.S.C. 
    59, a national bank may acquire its outstanding shares and hold them 
    for a reasonable period as treasury stock, as long as the acquisition 
    and retention of the shares is for a legitimate corporate purpose. 
    Because 12 U.S.C. 59 requires OCC approval and a two-thirds vote of 
    shareholders for a reduction in capital, there is less risk of improper 
    use of treasury stock. The OCC notes, however, that it would not be 
    permissible for a national bank to acquire and hold treasury stock for 
    speculation or as a means of bypassing some requirement or obligation 
    under the Federal banking laws. Accordingly, the final ruling adds 
    language providing that it would not be permissible for a national bank 
    to acquire or hold treasury stock for speculation.
        One commenter expressed concern that the term ``reasonable period'' 
    is too ambiguous. The commenter contended that as long as the bank 
    complies with 12 U.S.C. 59 regarding the repurchase of outstanding 
    shares, there is no reason that a national bank may not hold treasury 
    stock for as long as the bank sees fit. The OCC agrees with the 
    commenter's suggestion. As long as the acquisition and retention of the 
    shares fulfills a legitimate corporate need, the bank may continue to 
    hold the shares. Therefore, the final ruling does not include the term 
    ``reasonable period'' but clarifies that the retention of the shares 
    must continue, on an ongoing basis, to be for a legitimate corporate 
    purpose.
    
    Bank Hours and Closings (Section 7.3000)
    
        The proposal revised current Sec. 7.7434 to provide more 
    comprehensive guidance regarding bank hours and closings. Proposed 
    Sec. 7.3000(a) maintained the general requirement that a national 
    bank's board of directors is responsible for establishing a schedule of 
    business hours independently of other banks.
        Proposed Sec. 7.3000(b) informed national banks that the 
    Comptroller of the Currency (Comptroller), a state or a legally 
    authorized state official may declare a day to be a legal holiday for 
    emergency reasons. Proposed Sec. 7.3000(b) also set forth examples to 
    clarify circumstances under which a national bank may remain closed.
        Proposed Sec. 7.3000(c) also provided that a state or a legally 
    authorized state official may declare a day a legal holiday for 
    ceremonial reasons, and that a national bank may choose to remain open 
    or closed on these holidays.
        Finally, proposed Sec. 7.3000(d) reminded national banks to look to 
    applicable law to determine if they may incur liability for closing.
        Several commenters requested the OCC to broaden the authority to 
    close a bank or its branch offices. For example, one commenter 
    suggested including provisions allowing a bank office to close if a 
    snow emergency is declared by local authorities. Another commenter 
    suggested following provisions in New York law that permit bank 
    officers to independently protect their institutions by closing offices 
    under certain conditions, provided at least one office remains open.
        Twelve U.S.C. 95 clearly authorizes only the Comptroller, a state, 
    or a state official to designate a day as a legal holiday for emergency 
    reasons. Nonetheless, the OCC recognizes the practical concerns raised 
    by the commenters. The ruling attempts to delineate certain emergency 
    conditions under which the Comptroller will act to authorize the 
    closing of bank offices. The OCC does not intend for 12 U.S.C. 95 or 
    the ruling to preclude a bank from asserting defenses, such as 
    impossibility of performance, if compelled to close due to 
    circumstances beyond the bank's control.
    
    Sharing Space and Employees (Section 7.3001)
    
        The proposal revised former Sec. 7.7516 to incorporate current OCC 
    positions on sharing space and employees. Among other things, the 
    proposal clarified that banks may lease excess space in bank premises 
    or share space with businesses other than banks and other financial 
    institutions. The proposal also clarified the OCC's position on a 
    national bank sharing employees with businesses with which it shares 
    space. Finally, the proposal summarized the supervisory conditions that 
    a bank should address in these arrangements, and proposed 
    Sec. 7.3001(d) identified legal issues a bank should consider when 
    entering into these arrangements. The proposal requested commenters to 
    address whether the listed items are appropriate and if the OCC should 
    identify other considerations in lieu of, or in addition to, those 
    described in the proposal.
        The OCC received 13 comments addressing this section. Several 
    commenters requested the OCC to clarify whether there are any 
    limitations on the type of business with which the bank may lease or 
    share space. The proposal and the final ruling make clear that a bank 
    may lease excess space in bank premises to one or more businesses. 
    Similarly, a bank may share space jointly held with one or more other 
    businesses. Each of these arrangements is subject to supervisory 
    conditions and legal requirements. However, the ruling does not impose 
    limitations on the type of activity that the other business engages in 
    other than that it cannot adversely affect the safety and soundness of 
    the bank.
        One commenter disagreed with the supervisory conditions in proposed 
    Sec. 7.3001(c) (6) and (7) that require the national bank to ensure 
    that (1) the activities of the other business do not affect the safety 
    and soundness of the bank, and (2) the activities of shared employees 
    are consistent with applicable laws and regulations that pertain to 
    agents or employees of such other businesses. This commenter asserted 
    that this would impose inconsistent and duplicative requirements on 
    brokerage firms and, in the case of the latter requirement, impose new 
    obligations on national banks to monitor compliance with securities 
    laws and other regulations by broker-dealers and dual employees of 
    broker-dealers.
        The OCC continues to believe that the importance of maintaining a 
    safe and sound national bank system requires banks to ensure that the 
    activities of businesses with which they share premises will not 
    adversely affect bank safety and soundness. Therefore, the OCC retains 
    the requirement contained in proposed Sec. 7.3001(c)(6). However, the 
    OCC did not intend for national banks to monitor compliance on an 
    ongoing basis with all applicable laws affecting broker-dealers or 
    other entities with which the bank shares space or employees. 
    Therefore, the OCC has changed proposed Sec. 7.3001(c)(7) to clarify 
    that a national bank should take steps to ensure that shared employees, 
    or the entity for which they perform services, are duly licensed or 
    meet applicable qualification requirements for the activities in 
    question.
        One commenter sought clarification as to whether these supervisory 
    conditions are consistent with, or in addition to, the Interagency 
    Statement on Retail Sales of Nondeposit Investment Products (February 
    15, 1994) 
    
    [[Page 4858]]
    (Statement).4 A number of the supervisory conditions incorporate 
    principal elements of the Statement. However, banks should consult any 
    applicable component of the Statement as a source of guidance in 
    structuring these arrangements.
    
        \4\ Available upon request from the OCC Communications Division, 
    250 E Street, SW, Washington, DC 20219, (202) 874-4700.
    ---------------------------------------------------------------------------
    
    Books and Records of National Banks (Section 7.4000)
    
        The proposal addressed the exclusive examination authority of the 
    OCC. The ruling clarified that under 12 U.S.C. 484, state authority to 
    review the books and records of a national bank is limited to those 
    circumstances in which there is reasonable cause to believe that the 
    bank has failed to comply with applicable state unclaimed property and 
    escheat laws. The comments generally supported the proposal, with two 
    commenters recommending that the OCC clarify the second sentence of 
    Sec. 7.4000(b) by adding the ``filing of reports with state 
    regulators'' to the list of prohibited state-imposed requirements. The 
    OCC has determined that rather than adopting the specific suggested 
    revision, the OCC will continue to consider this issue on a case-by-
    case basis. Therefore, the OCC adopts the final ruling substantially as 
    proposed with minor revisions to the first sentence of Sec. 7.4000(a).
    
    Charging Interest at Rates Permitted Competing Institutions; Charging 
    Interest to Corporate Borrowers (Section 7.4001)
    
        Under 12 U.S.C. 85, a national bank may charge interest at the 
    highest rate allowed to competing lenders by the state where the bank 
    is located without regard to the location of the borrower. Thus, the 
    statute permits a national bank to ``export'' to customers in other 
    states the rate of ``interest'' allowed by the state in which the bank 
    is located. The proposal defined the term ``interest'' in 12 U.S.C. 85 
    to reflect current case law. The proposed definition also reflected OCC 
    interpretive opinions on the types of fees and charges that are 
    included and not included in the meaning of the term. The proposal 
    provided non-exclusive lists of specific fees that are ``interest'' 
    (for example, numerical periodic rates, late fees, not sufficient funds 
    (NSF) fees, overlimit fees, annual fees, cash advance fees, and 
    membership fees) and that ordinarily are not ``interest'' (for example, 
    appraisal fees, premiums and commissions on insurance guaranteeing 
    repayment, finders' fees, fees for document preparation or 
    notarization, or fees incurred to obtain credit reports).
        Whether a particular fee or charge is properly characterized as 
    ``interest'' subject to exportation has been the subject of litigation 
    in a number of jurisdictions,5 and the OCC received many comments 
    from parties on both sides of the issue. On one hand, certain consumer 
    groups and attorneys representing class action suits opposed the 
    proposal. These groups asserted that the proposed definition is 
    contrary to the accepted meaning of the term ``interest,'' and is 
    contrary to consumers' interests. On the other hand, many national 
    banks supported the proposal because it incorporates clear guidance on 
    the OCC's position on the issue of what constitutes ``interest'' under 
    12 U.S.C. 85. The OCC believes that the Federal definition of 
    ``interest'' and the components of interest in the proposal are both 
    consistent with law and beneficial to national banks and their 
    customers with respect to interstate lending operations.
    
        \5\ See, e.g., Smiley v. Citibank (South Dakota), N.A., 900 P.2d 
    690 (Cal. 1995), cert. granted, 64 U.S.L.W. 3500 (U.S. Jan. 19, 
    1996) (No. 95-860) (holding that the term ``interest'' as used in 12 
    U.S.C. 85 encompasses late payment fees if such fees are allowed by 
    a national bank's home state); see also Greenwood Trust Co. v. 
    Massachusetts, 971 F.2d 818 (1st Cir. 1992), cert. denied, 113 S. 
    Ct. 974 (1993) (holding that the term ``interest'' as used in 
    section 521 of the Depository Institutions Deregulation and Monetary 
    Control Act of 1980 (12 U.S.C. 1831d(a)), a statute modeled on 12 
    U.S.C. 85, includes late payment fees; in construing the term 
    ``interest'' in 12 U.S.C. 1831d(a), the court concluded that these 
    parallel sections should be read in pari materia). Contra Sherman v. 
    Citibank (South Dakota), N.A., No. A-102-94, 1005 WL 710414 (N.J. 
    Nov. 28, 1995), pet. for cert. filed, 64 U.S.L.W. 3439 (U.S. Dec. 
    21, 1995) (No. 95-991) (holding that the term ``interest'' as used 
    in 12 U.S.C. 85 does not include late payment fees).
    ---------------------------------------------------------------------------
    
        The OCC also received comments from Arkansas trade associations and 
    the Arkansas congressional delegation expressing concern that the 
    proposed Federal definition of ``interest'' might be misinterpreted to 
    require the inclusion of certain charges that are ``interest'' under 
    the Federal definition, but not so under Arkansas law, when calculating 
    the maximum effective yield permitted by Arkansas law. The commenters 
    noted that, if the OCC adopts this interpretation, some loans now 
    acceptable under Arkansas usury law could be found to be usurious. The 
    OCC agrees that the language of the proposal is potentially confusing 
    and might be interpreted mistakenly to affect the definition of 
    ``interest'' in the Arkansas usury law (which, for example, permits 
    banks to charge late fees, but does not include those fees as 
    ``interest'' in calculating the maximum effective yield).
        The definition of interest in Sec. 7.4001 is intended to define 
    ``interest'' for purposes of determining if a particular charge is 
    subject to 12 U.S.C. 85. Charges that fall within the Federal 
    definition of ``interest'' are subject to 12 U.S.C. 85 and its ``most 
    favored lender'' and exportation rules. The fact that a charge is not 
    labeled ``interest'' under a particular state law does not necessarily 
    mean that it is impermissible, however.
        Section 7.4001(b) clarifies that, under the ruling (and 12 U.S.C. 
    85), one looks to state law to determine what lending charges are 
    permitted for the most favored lender, and thus, also for national 
    banks under 12 U.S.C. 85. However, the Federal definition of 
    ``interest'' generally does not affect state law definitions of 
    ``interest'' or the manner in which state law calculates the amount of 
    interest being charged. For example, if late fees are not interest 
    under state law where the national bank is located but state law allows 
    late fees, then a national bank located in that state may charge late 
    fees to its intrastate customers. The national bank could also charge 
    the fees to its interstate customers because the fees are ``interest'' 
    under the Federal definition and an allowable charge under state law 
    where the national bank is located. However, the late fees would not be 
    treated as interest for purposes of evaluating compliance with state 
    usury limitations because state law excludes late fees when calculating 
    the maximum interest that lending institutions may charge under those 
    limitations.
        The final ruling addresses the concern raised by the Arkansas 
    commenters regarding the effect of the Federal definition of interest 
    on state law. The OCC has added to Sec. 7.4001 a new paragraph (c) that 
    includes a clarifying sentence confirming that the Federal definition 
    of the term interest does not change a state's definition of interest 
    (nor how the state definition of interest is used) solely for purposes 
    of state law. Paragraph (c) of Sec. 7.4001 also provides the example 
    described in the immediately preceding paragraph of this preamble to 
    illustrate this concept. The final ruling is substantially identical to 
    the proposal, with the addition discussed above. In addition, the 
    reference to ``Morris Plan banks'' that appeared in the last sentence 
    of proposed Sec. 7.4001(b) has been removed as obsolete. Finally, 
    paragraph (c), ``Usury,'' in the proposal has been redesignated as 
    paragraph (d) in the final ruling.
        Most courts interpreting 12 U.S.C. 85 have concluded that various 
    forms of non-percentage-based charges (including such items as late 
    payment, 
    
    [[Page 4859]]
    overlimit, and annual fees) for the use of borrowed money fall within 
    the scope of 12 U.S.C. 85. The final ruling is consistent with OCC 
    interpretive letters in this area (see, e.g., OCC Interpretive Letter 
    No. 670 (Feb. 17, 1995), reprinted in [1994-1995 Transfer Binder] Fed. 
    Banking L. Rep. (CCH) para. 83,618, and the letters cited therein) and 
    reflects the position the OCC has taken in amicus curiae briefs in 
    litigation pending in many state and Federal courts (see, e.g., OCC 
    brief filed in the Supreme Court of Pennsylvania in Bank One, Columbus, 
    N.A. v. Mazaika, Nos. 1995-31 and 1995-33 (July 17, 1995) (urging 
    reversal of Mazaika v. Bank One, Columbus, N.A., 653 A.2d 648 (Pa. 
    Super. Ct. 1994) (en banc), appeal granted, 659 A.2d 557 (Pa. 1995)).
        Recently, the California Supreme Court upheld the ability of a 
    national bank to charge certain fees as a component of ``interest'' and 
    cited the OCC's recent interpretive opinions, as well as proposed 
    Sec. 7.4001, as consistent with the court's reasoning. Smiley v. 
    Citibank (South Dakota), N.A., 900 P.2d 690 (Cal. 1995), cert. granted, 
    64 U.S.L.W. 3500 (U.S. Jan. 19, 1996) (No. 95-860) (holding that the 
    term ``interest'' as used in 12 U.S.C. 85 encompasses late payment 
    fees, if such fees are allowed by a national bank's home state). See 
    also Copeland v. MBNA America Bank, N.A., 907 P.2d 87 (Colo. 1995) (en 
    banc), pet. for cert. filed, 64 U.S.L.W. 3469 (U.S. Dec. 28, 1995) (No. 
    95-1056); Richardson v. Citibank (South Dakota), N.A., No. 94SC670, 
    1995 Colo. LEXIS 767 (Colo. Dec. 18, 1995) (en banc); Spellman v. 
    Meridian Bank (Delaware), Nos. 94-3203-3204, 94-3215-3218, 1995 U.S. 
    App. LEXIS 37149 (3d Cir. Dec. 29, 1995).
        However, the Supreme Court of New Jersey also issued a recent 
    decision concluding that ``interest'' as used in 12 U.S.C. 85 does not 
    include late payment fees. Sherman v. Citibank (South Dakota), N.A., 
    No. A-102-94, 1005 WL 710414 (N.J. Nov. 28, 1995), pet. for cert. 
    filed, 64 U.S.L.W. 3439 (U.S. Dec. 21, 1995) (No. 95-991). The decision 
    of the New Jersey Supreme Court in Sherman conflicts with the decisions 
    of the California Supreme Court in Smiley, the Colorado Supreme Court 
    in Copeland and Richardson, and the U.S. Court of Appeals for the Third 
    Circuit in Spellman, and the earlier decision of the First Circuit in 
    Greenwood Trust. The U.S. Supreme Court recently granted certiorari in 
    Smiley to resolve the conflict on an expedited basis.
        As noted in the proposal, the ruling is not intended to be a 
    comprehensive treatment of the issue, and other fees or charges may 
    also be found to be components of interest.
    
    National Bank Charges (Section 7.4002)
    
        The proposal responded to concerns raised by Congress regarding the 
    scope of Federal preemption reflected in the former version of this 
    ruling. The conference report to the Riegle-Neal Interstate Banking and 
    Branching Efficiency Act of 1994, H.R. Conf. Rep. No. 651, 103rd Cong., 
    2d Sess. 54 (1994), urged the OCC to review former Sec. 7.8000 to 
    determine if it should be withdrawn or revised. The conferees expressed 
    the view that the OCC had applied preemption principles in an overly 
    broad manner with respect to state laws that prohibit, limit, or 
    restrict deposit account service charges imposed by a national bank. In 
    addition, the conference report cited Perdue v. Crocker Nat'l Bank, 702 
    P.2d 503 (Cal. 1985), cert. dismissed, 475 U.S. 1100 (1986), which held 
    that Sec. 7.8000 is not a valid finding of Federal preemption, in part, 
    because Congress had not established a comprehensive Federal statutory 
    scheme governing the taking of deposits.
        The proposal revised the ruling to state that the OCC will consider 
    on a case-by-case basis whether a national bank may establish a 
    particular charge or fee that is in conflict with a state law, and 
    that, in issuing an opinion on whether a particular state law is 
    preempted, the OCC will employ the preemption principles derived from 
    the Supremacy Clause of the United States Constitution and judicial 
    precedent.
        The OCC received 26 comments on proposed Sec. 7.4002. Ten 
    commenters expressed dissatisfaction with the OCC's proposal to 
    evaluate state laws on a case-by-case basis. Seven of these commenters, 
    mostly large banks, specifically urged the OCC to either retain 
    Sec. 7.8000 or otherwise generally preempt state law limitations or 
    prohibitions on fees and charges. These commenters stated that the 
    conference report, alone, without clear legislative action, does not 
    invalidate Sec. 7.8000's general preemption. After careful review of 
    the comments, the OCC has determined to adopt Sec. 7.4002 substantially 
    in the form proposed, with certain revisions discussed below.
        Ten commenters also expressed concern over the OCC's statement in 
    the proposal that a national bank may charge customers ``reasonable'' 
    charges and fees on dormant accounts, for credit reports or 
    investigations (Sec. 7.4002(a)), and for deposit account service 
    charges and loan-related fees generally (Sec. 7.4002(b)). These 
    commenters asserted that inclusion of the term ``reasonable'' in 
    connection with those areas adds uncertainty to their meaning and will 
    provide a basis for litigation over whether charges and fees are 
    ``unreasonable'' and, therefore, impermissible under Sec. 7.4002.
        The OCC notes that previous interpretive rulings on service charges 
    on dormant accounts and fees for credit reports or investigations 
    contained a ``reasonable'' standard. Therefore, for those fees and 
    charges, the final ruling continues this standard. However, the OCC 
    also recognizes the commenters' concerns. The final ruling clarifies, 
    in Sec. 7.4002(b), the intent of the proposal that banks have 
    discretion in setting the amount of charges and fees, and that any 
    charge or fee is ``reasonably'' established if the bank considered the 
    factors enumerated in the final ruling.
        Some commenters also asserted that, if the references to ``loan-
    related fees'' are included in the final ruling, the OCC should clarify 
    that these fees do not include fees that are components of ``interest'' 
    under Sec. 7.4001. The OCC agrees with this comment. Therefore, the 
    final ruling omits the phrase ``loan-related fees'' wherever it appears 
    and instead refers to ``non-interest charges and fees'' and includes 
    deposit account service charges within non-interest charges and fees. 
    For additional clarity, the final ruling adds a new paragraph (c), 
    ``Interest,'' that provides that charges and fees that are ``interest'' 
    within the meaning of 12 U.S.C. 85 are governed by Sec. 7.4001 and not 
    by Sec. 7.4002. Proposed Sec. 7.4002(c) and (d), ``State law'' and 
    ``National bank as fiduciary,'' respectively, have been redesignated as 
    paragraphs (d) and (e), respectively, in the final ruling.
        The OCC also notes that the proposal's listing of the standards for 
    consideration in setting charges and fees inadvertently omitted the 
    factor appearing in former Sec. 7.8000(b)(2) on the deterrence of 
    misuse by customers of banking services. The final ruling incorporates 
    this factor.
    
    State Licensing of National Banks
    
        The proposal invited public comment on whether the OCC should 
    propose a specific ruling addressing the applicability of state 
    licensing requirements to national banks. The proposal did not contain 
    any specific language for an interpretive ruling but noted in the 
    preamble the OCC's longstanding position that the authority of a 
    national bank to exercise powers authorized for national banks under 
    Federal law cannot be negated by state licensing requirements. The 
    proposal also restated the principal elements of 
    
    [[Page 4860]]
    Federal preemption analysis as articulated by the courts.
        The OCC received 41 comments addressing this issue. Approximately 
    half of the commenters opposed issuing a ruling that they assumed would 
    attempt to preempt state licensing practices. These commenters cited 
    the OCC's lack of authority to issue a ruling, current litigation and 
    legislation on this matter, and arguments that states are better placed 
    to protect consumer interests. Commenters supporting a ruling noted 
    that it would promote competition by removing disparate treatment of 
    national banks located in different states. Due to the variety of state 
    laws that could be implicated and the complexity of the issues 
    presented, the OCC has decided not to address this area generically at 
    this time.
    
    Other Sections Adopted in the Final Rule
    
        The proposal contained a number of rulings that were not 
    substantively changed from the former rule. The OCC received some 
    comments addressing various aspects of these rulings. The OCC has 
    reviewed these comments and has decided not to make any changes to most 
    of these sections.
        In addition, there are a number of rulings for which the OCC 
    proposed changes but did not receive any substantive comments. These 
    rulings also are adopted in the final rule as proposed or with 
    nonsubstantive stylistic edits.
        The following is a list of these rulings:
    
        Section 7.1001--National bank acting as general insurance agent;
        Section 7.1007--Acceptances;
        Section 7.1008--Preparing income tax returns for customers or 
    public;
        Section 7.1009--National bank holding collateral stock as 
    nominee;
        Section 7.1012--Messenger service;
        Section 7.1014--Sale of money orders at nonbanking outlets;
        Section 7.1015--Receipt of stock from a small business 
    investment company;
        Section 7.1018--Automatic payment plan account;
        Section 7.2002--Director or attorney as proxy;
        Section 7.2003--Annual meeting for election of directors;
        Section 7.2006--Cumulative voting in election of directors;
        Section 7.2009--Quorum of the board of directors; proxies not 
    permissible;
        Section 7.2012--President as director; chief executive officer;
        Section 7.2013--Fidelity bonds covering officers and employees;
        Section 7.2016--Restricting transfer of stock and record dates;
        Section 7.2018--Lost stock certificates;
        Section 7.2019--Loans secured by a bank's own shares;
        Section 7.2021--Preemptive rights; and
        Section 7.2022--Voting trusts.
    
    Sections Removed From Part 7
    
        The OCC also proposed to remove the following former rulings as 
    generally unnecessary, outdated or repetitive: Secs. 7.3000, 7.4005, 
    7.4015, 7.4100, 7.4200, 7.4205, 7.4400, 7.4410, 7.7000, 7.7015, 7.7400, 
    7.7405, 7.7410, 7.7415, 7.7505, 7.7519, and 7.7590. The OCC received no 
    comment on these sections, and the final rule removes them. The OCC has 
    also removed Sec. 7.7355 (regarding debts of affiliates) as it is no 
    longer necessary.
        The following sections are also removed from part 7 or transferred 
    to 12 CFR part 31 for the reasons stated. This list and the list in the 
    immediately preceding paragraph do not describe sections that were 
    incorporated into other sections in part 7.
        Section 7.1100--Capital and surplus. This section is no longer 
    needed.
        Section 7.4010--Quorum for shareholders' meeting. This section 
    merely indicates that the statutes are silent with respect to the 
    number of shareholders required for a quorum. Therefore, this section 
    is superseded by the new Sec. 7.2000.
        Section 7.5210--Same person holding offices of president and 
    cashier. There is no legal impediment to one person serving as both 
    president and cashier. Further, Sec. 7.2015, discusses the assignment 
    of the cashier's duties and clarifies that the duties of cashier may be 
    delegated to the president, chief executive officer, or other officer.
        Section 7.5220--Contracts of employment. Any employment contract 
    that is excessive or unreasonable is unsafe and unsound. Therefore, the 
    current ``reasonable'' standard is necessarily in effect, so it is 
    unnecessary to reiterate the standard in this interpretive ruling. 
    Moreover, section 132 of the Federal Deposit Insurance Corporation 
    Improvement Act of 1991 (FDICIA) (12 U.S.C. 1831p-1), (regarding safety 
    and soundness standards), and regulations issued by the OCC and other 
    agencies under section 132 deal with excessive or unreasonable 
    contracts. See 12 U.S.C. 1831p-1 (c) and (d); 12 CFR part 30.
        Section 7.7012--Foreign operations. This section has been removed 
    and is expected to be incorporated into pending revisions to part 28. 
    The removal of this section is not intended to imply any change in a 
    national bank's authority in this area.
        Section 7.7115--Insuring lives of bank officers. OCC Banking 
    Circular 249 covers the relevant issues in more detail and is currently 
    undergoing review and revision. Therefore, Sec. 7.7115 is removed as 
    unnecessary.
        Sections 7.7360--Loans secured by stock or obligation of an 
    affiliate, 7.7365--Federal funds transactions between affiliates, and 
    7.7370--Deposits between affiliated banks. These sections have been 
    transferred with some stylistic changes to 12 CFR 31.100, 31.101, and 
    31.102.
        Sections 7.7378--Issuance of credit cards, 7.7379--Servicing of 
    mortgage and other loans as agent. The ability of national banks to 
    engage in these activities is well established and a specific 
    interpretive ruling is not needed.
        Section 7.7530--Issuance of promissory notes. This section is 
    removed because it merely restates 12 U.S.C. 24 (Seventh).
        Section 7.7540--Reports of condition: Waiver of affiliate reports. 
    Section 308 of the Riegle Community Development and Regulatory 
    Improvement Act of 1994, Pub. L. 103-325, 108 Stat. 2160 (Sept. 23, 
    1994), eliminated the requirement that national banks and their 
    affiliates periodically publish the reports of condition in a 
    newspaper. See 12 U.S.C. 161.
        The removal or transfer of these sections does not imply any 
    alteration of the underlying authority for national bank activity. The 
    interpretive rulings the OCC proposes to remove or transfer are 
    grounded in statutory authority that remains unchanged.
    
    Other Sections
    
        Finally, the OCC had proposed to move a number of sections to other 
    parts of title 12. These sections included Sec. 7.6040--Fractional 
    shares, 7.7570--Separate investment security limitations, and 7.6120--
    Dividends payable in property other than cash. These sections have been 
    retained, with some minor stylistic changes, pending the issuance of 
    final rules for 12 CFR parts 1 and 5.
    
    Distribution Table
    
        The distribution table indicates where, if applicable, each section 
    of the former part 7 will appear in the final part 7 or elsewhere.
    
    ------------------------------------------------------------------------
     Original provision    Revised provision              Comment           
    ------------------------------------------------------------------------
    Sec.  7.1100.......  ....................  Removed.                     
    Sec.  7.1105.......  Sec.  7.1020........  Modified.                    
    Sec.  7.3000.......  Sec.  7.1000........  Unchanged.                   
    Sec.  7.3005.......  Sec.  7.1000........  Significant change.          
    Sec.  7.3010.......  Sec.  7.1000........  Significant change.          
    Sec.  7.3100.......  Sec.  7.1000........  Significant change.          
    Sec.  7.3300.......  Sec.  7.1000........  Significant change.          
    Sec.  7.3500.......  Sec.  7.1019........  Significant change.          
    Sec.  7.4000.......  Sec.  7.2001........  Significant change.          
    
    [[Page 4861]]
                                                                            
    Sec.  7.4005.......  ....................  Removed.                     
    Sec.  7.4010.......  ....................  Removed.                     
    Sec.  7.4015.......  ....................  Removed.                     
    Sec.  7.4020.......  Sec.  7.2002........  Modified.                    
    Sec.  7.4100.......  ....................  Removed.                     
    Sec.  7.4105.......  Sec.  7.2003........  Significant change.          
    Sec.  7.4110.......  Sec.  7.2004........  Modified.                    
    Sec.  7.4200.......  ....................  Removed.                     
    Sec.  7.4205.......  ....................  Removed.                     
    Sec.  7.4210.......  Sec.  7.2005........  Significant change.          
    Sec.  7.4300.......  Sec.  7.2006........  Significant change.          
    Sec.  7.4305.......  Sec.  7.2007........  Significant change.          
    Sec.  7.4400.......  ....................  Removed.                     
    Sec.  7.4410.......  ....................  Removed.                     
    Sec.  7.4415.......  Sec.  7.2008........  Modified.                    
    Sec.  7.4420.......  Sec.  7.2009........  Unchanged.                   
    Sec.  7.4425.......  Sec.  7.2010........  Significant change.          
    Sec.  7.5000.......  Sec.  7.2011........  Significant change.          
    Sec.  7.5010.......  Sec.  7.2011........  Significant change.          
    Sec.  7.5015.......  Sec.  7.2011........  Significant change.          
    Sec.  7.5200.......  Sec.  7.2012........  Modified.                    
    Sec.  7.5210.......  ....................  Removed.                     
    Sec.  7.5215.......  Sec.  7.2013........  Unchanged.                   
    Sec.  7.5217.......  Sec.  7.2014........  Significant change.          
    Sec.  7.5220.......  ....................  Removed.                     
    Sec.  7.5230.......  Sec.  7.1000........  Significant change.          
    Sec.  7.5245.......  Sec.  7.2015........  Significant change.          
    Sec.  7.6005.......  Sec.  7.2016........  Modified.                    
    Sec.  7.6010.......  Sec.  7.2017........  Significant change.          
    Sec.  7.6015.......  Sec.  7.2018........  Unchanged.                   
    Sec.  7.6025.......  Sec.  7.4000........  Significant change.          
    Sec.  7.6030.......  Sec.  7.2019........  Modified.                    
    Sec.  7.6040.......  Sec.  7.2023........  Modified.                    
    Sec.  7.6050.......  Sec.  7.2021........  Modified.                    
    Sec.  7.6060.......  Sec.  7.2022........  Significant change.          
    Sec.  7.6120.......  Sec.  7.2024........  Modified.                    
    Sec.  7.7000.......  ....................  Removed.                     
    Sec.  7.7010.......  Sec.  7.1017........  Significant change.          
    Sec.  7.7012.......  ....................  Removed.                     
    Sec.  7.7015.......  ....................  Removed.                     
    Sec.  7.7016.......  Sec.  7.1016........  Significant change.          
    Sec.  7.7100.......  Sec.  7.1001........  Unchanged.                   
    Sec.  7.7115.......  ....................  Removed.                     
    Sec.  7.7200.......  Sec.  7.1002........  Significant change.          
    Sec.  7.7310.......  Sec.  7.4001........  Significant change.          
    Sec.  7.7312.......  Sec.  7.1006........  Significant change.          
    Sec.  7.7315.......  Sec.  7.4002........  Significant change.          
    Sec.  7.7355.......  ....................  Removed.                     
    Sec.  7.7360.......  ....................  Moved (part 31).             
    Sec.  7.7365.......  ....................  Moved (part 31).             
    Sec.  7.7370.......  ....................  Moved (part 31).             
    Sec.  7.7378.......  ....................  Removed.                     
    Sec.  7.7379.......  ....................  Removed.                     
    Sec.  7.7380.......  Sec.  7.1004........  Unchanged.                   
    Sec.  7.7400.......  ....................  Removed.                     
    Sec.  7.7405.......  ....................  Removed.                     
    Sec.  7.7410.......  ....................  Removed.                     
    Sec.  7.7415.......  ....................  Removed.                     
    Sec.  7.7420.......  Sec.  7.1007........  Unchanged.                   
    Sec.  7.7430.......  Sec.  7.1008........  Unchanged.                   
    Sec.  7.7434.......  Sec.  7.3000........  Significant change.          
    Sec.  7.7455.......  Sec.  7.1009........  Unchanged.                   
    Sec.  7.7482.......  Sec.  7.1010........  Modified.                    
    Sec.  7.7485.......  Sec.  7.1011........  Modified.                    
    Sec.  7.7490.......  Sec.  7.1012........  Modified.                    
    Sec.  7.7495.......  Sec.  7.1013........  Significant change.          
    Sec.  7.7500.......  Sec.  7.1014........  Modified.                    
    Sec.  7.7505.......  ....................  Removed.                     
    Sec.  7.7515.......  Sec.  7.4002........  Significant change.          
    Sec.  7.7516.......  Sec.  7.3001........  Significant change.          
    Sec.  7.7519.......  ....................  Removed.                     
    Sec.  7.7530.......  ....................  Removed.                     
    Sec.  7.7535.......  Sec.  7.1015........  Unchanged.                   
    Sec.  7.7540.......  ....................  Removed.                     
    Sec.  7.7560.......  Sec.  7.1018........  Modified.                    
    Sec.  7.7570.......  Sec.  7.1021........  Unchanged.                   
    Sec.  7.7590.......  ....................  Removed.                     
    Sec.  7.8000.......  Sec.  7.4002........  Significant change.          
    ------------------------------------------------------------------------
    
    
    
    Derivation Table
    
        This derivation table illustrates which former sections of part 7 
    the final sections are based upon.
    
    ------------------------------------------------------------------------
     Revised provision   Original provision               Comment           
    ------------------------------------------------------------------------
                        Sec.  7.1100........  Removed.                      
    Sec.  7.1000......  Secs.  7.3000,        Significant change.           
                         7.3005, 7.3010,                                    
                         7.3100, 7.3300,                                    
                         7.5230.                                            
    Sec.  7.1001......  Sec.  7.7100........  Unchanged.                    
    Sec.  7.1002......  Sec.  7.7200........  Significant change.           
    Sec.  7.1003......  ....................  Added.                        
    Sec.  7.1004......  Sec.  7.7380........  Unchanged.                    
    Sec.  7.1005......  ....................  Added.                        
    Sec.  7.1006......  Sec.  7.7312........  Significant change.           
                        Sec.  7.7405........  Removed.                      
                        Sec.  7.7410........  Removed.                      
                        Sec.  7.7415........  Removed.                      
    Sec.  7.1007......  Sec.  7.7420........  Unchanged.                    
    Sec.  7.1008......  Sec.  7.7430........  Unchanged.                    
    Sec.  7.1009......  Sec.  7.7455........  Unchanged.                    
    Sec.  7.1010......  Sec.  7.7482........  Modified.                     
    Sec.  7.1011......  Sec.  7.7485........  Modified.                     
    Sec.  7.1012......  Sec.  7.7490........  Modified.                     
    Sec.  7.1013......  Sec.  7.7495........  Significant change.           
    Sec.  7.1014......  Sec.  7.7500........  Modified.                     
                        Sec.  7.7530........  Removed.                      
    Sec.  7.1015......  Sec.  7.7535........  Unchanged.                    
    Sec.  7.1016......  Sec.  7.7016........  Significant change.           
    Sec.  7.1017......  Sec.  7.7010........  Significant change.           
    Sec.  7.1018......  Sec.  7.7560........  Unchanged.                    
    Sec.  7.1019......  Sec.  7.3500........  Significant change.           
    Sec.  7.1020......  Sec.  7.1105........  Modified.                     
    Sec.  7.1021......  Sec.  7.7570........  Unchanged.                    
    Sec.  7.2000......  ....................  Added.                        
    Sec.  7.2001......  Sec.  7.4000........  Significant change.           
                        Sec.  7.4005........  Removed.                      
                        Sec.  7.4010........  Removed.                      
                        Sec.  7.4015........  Removed.                      
    Sec.  7.2002......  Sec.  7.4020........  Modified.                     
                        Sec.  7.4100........  Removed.                      
    Sec.  7.2003......  Sec.  7.4105........  Significant change.           
    Sec.  7.2004......  Sec.  7.4110........  Modified.                     
                        Sec.  7.4200........  Removed.                      
                        Sec.  7.4205........  Removed.                      
    Sec.  7.2005......  Sec.  7.4210........  Significant change.           
    Sec.  7.2006......  Sec.  7.4300........  Significant change.           
    Sec.  7.2007......  Sec.  7.4305........  Significant change.           
                        Sec.  7.4400........  Removed.                      
                        Sec.  7.4410........  Removed.                      
    Sec.  7.2008......  Sec.  7.4415........  Modified.                     
    Sec.  7.2009......  Sec.  7.4420........  Unchanged.                    
    Sec.  7.2010......  Sec.  7.4425........  Significant change.           
    Sec.  7.2011......  Secs.  7.5000,        Significant change.           
                         7.5010, 7.5015.                                    
    Sec.  7.2012......  Sec.  7.5200........  Modified.                     
                        Sec.  7.5210........  Removed.                      
    Sec.  7.2013......  Sec.  7.5215........  Unchanged.                    
    Sec.  7.2014......  Sec.  7.5217........  Significant change.           
                        Sec.  7.5220........  Removed.                      
    Sec.  7.2015......  Sec.  7.5245........  Significant change.           
    Sec.  7.2016......  Sec.  7.6005........  Modified.                     
    Sec.  7.2017......  Sec.  7.6010........  Significant change.           
    Sec.  7.2018......  Sec.  7.6015........  Unchanged.                    
    Sec.  7.2019......  Sec.  7.6030........  Modified.                     
    Sec.  7.2020......  ....................  Added.                        
    Sec.  7.2021......  Sec.  7.6050........  Modified.                     
    Sec.  7.2022......  Sec.  7.6060........  Significant change.           
    Sec.  7.2023......  Sec.  7.6040........  Modified.                     
    Sec.  7.2024......  Sec.  7.6120........  Unchanged.                    
                        Sec.  7.7000........  Removed.                      
                        Sec.  7.7012........  Removed.                      
                        Sec.  7.7015........  Removed.                      
                        Sec.  7.7115........  Removed.                      
                        Sec.  7.7355........  Removed.                      
                        Sec.  7.7360........  Moved (part 31).              
                        Sec.  7.7365........  Moved (part 31).              
                        Sec.  7.7370........  Moved (part 31).              
                        Sec.  7.7378........  Removed.                      
                        Sec.  7.7379........  Removed.                      
                        Sec.  7.7400........  Removed.                      
    Sec.  7.3000......  Sec.  7.7434........  Significant change.           
                        Sec.  7.7505........  Removed.                      
    Sec.  7.3001......  Sec.  7.7516........  Significant change.           
                        Sec.  7.7519........  Removed.                      
                        Sec.  7.7540........  Removed.                      
                        Sec.  7.7590........  Removed.                      
    Sec.  7.4000......  Sec.  7.6025........  Significant change.           
    Sec.  7.4001......  Sec.  7.7310........  Significant change.           
    Sec.  7.4002......  Secs.  7.7315,        Significant change.           
                         7.7515, 7.8000.                                    
    ------------------------------------------------------------------------
    
    Regulatory Flexibility Act
    
        It is hereby certified that this regulation will not have a 
    significant economic impact on a substantial number of small entities. 
    Accordingly, a regulatory flexibility analysis is not required. This 
    regulation will reduce the regulatory burden on national banks, 
    regardless of size, by simplifying and clarifying existing regulatory 
    requirements.
    
    Executive Order 12866
    
        The OCC has determined that the final rule is not a significant 
    regulatory action under Executive Order 12866.
    
    Unfunded Mandates Reform Act of 1995
    
        Section 202 of the Unfunded Mandates Reform Act of 1995, Pub. L. 
    104-4, 109 Stat. 48 (March 22, 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 
    expenditure by state, local, and tribal governments, in the aggregate, 
    or by the private sector, of $100 million or more in any one year. If a 
    budgetary impact statement is required, section 205 of the Unfunded 
    Mandates Act also requires an agency to identify and consider a 
    reasonable number of regulatory alternatives before 
    
    [[Page 4862]]
    promulgating a rule. Because the OCC has determined that the final rule 
    will not result in expenditures by state, local, and tribal 
    governments, or by the private sector, of more than $100 million in any 
    one year, the OCC has not prepared a budgetary impact statement or 
    specifically addressed the regulatory alternatives considered. 
    Nevertheless, as discussed in the preamble, the final rule has the 
    effect of reducing burden.
    
    Paperwork Reduction Act of 1995
    
        The collection of information requirements contained in this final 
    rule have received approval from the Office of Management and Budget in 
    accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
    3507(d)), under OMB control number (1557-0204). Comments on the 
    collection of information should be sent to the Office of Management 
    and Budget, Paperwork Reduction Project 1557-0204, Washington, DC 
    20503, with copies to the Legislative and Regulatory Activities 
    Division 1557-0204, Office of the Comptroller of the Currency, 250 E 
    Street, SW., Washington, DC 20219. The OCC will submit the collection 
    of information requirements contained in this final rule for renewal of 
    OMB approval following publication of this final rule.
        The collection of information requirements in this rule are found 
    in 12 CFR 7.1000(d)(1), 7.1014, 7.2000(b), 7.2004, and 7.2014(b). The 
    collections of information are necessary for regulatory and examination 
    purposes, for national banks to ensure their compliance with Federal 
    law and regulations, and to evidence bank compliance with various 
    regulatory requirements. National banks use the information to ensure 
    their compliance with applicable Federal banking law and regulations. 
    This information assists bank management in its safe and sound 
    operation of the bank. The OCC uses the information in the scheduling 
    and conduct of bank examinations and as an audit tool to verify bank 
    compliance with law and regulations.
        Respondents are not required to respond to the foregoing collection 
    of information unless it displays a currently valid OMB control number. 
    The likely respondents are national banks.
        Estimated average annual burden hours per recordkeeper: 1.7.
        Estimated number of recordkeepers: 2,430.
        Estimated total annual recordkeeping burden: 4,156.
        Start-up costs to respondents: None.
    
    List of Subjects
    
    12 CFR Part 7
    
        Credit, Insurance, Investments, National banks, Reporting and 
    recordkeeping requirements, Securities, Surety bonds.
    
    12 CFR Part 31
    
        Credit, National banks, Reporting and recordkeeping requirements.
    
    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 follows:
        1. Part 7 is revised to read as follows:
    
    PART 7--INTERPRETIVE RULINGS
    
    Subpart A--Bank Powers
    
    Sec.
    7.1000  National bank ownership of property.
    7.1001  National bank acting as general insurance agent.
    7.1002  National bank acting as finder.
    7.1003  Money lent at banking offices or at other than banking 
    offices.
    7.1004  Loans originating at other than banking offices.
    7.1005  Credit decisions at other than banking offices.
    7.1006  Loan agreement providing for a share in profits, income, or 
    earnings or for stock warrants.
    7.1007  Acceptances.
    7.1008  Preparing income tax returns for customers or public.
    7.1009  National bank holding collateral stock as nominee.
    7.1010  Postal service by national bank.
    7.1011  National bank acting as payroll issuer.
    7.1012  Messenger service.
    7.1013  Debt cancellation contracts.
    7.1014  Sale of money orders at nonbanking outlets.
    7.1015  Receipt of stock from a small business investment company.
    7.1016  Independent undertakings to pay against documents.
    7.1017  National bank as guarantor or surety on indemnity bond.
    7.1018  Automatic payment plan account.
    7.1019  Furnishing of products and services by electronic means and 
    facilities.
    7.1020  Purchase of open accounts.
    7.1021  Separate investment security limitations.
    
    Subpart B--Corporate Practices
    
    7.2000  Corporate governance procedures.
    7.2001  Notice of shareholders' meetings.
    7.2002  Director or attorney as proxy.
    7.2003  Annual meeting for election of directors.
    7.2004  Honorary directors or advisory boards.
    7.2005  Ownership of stock necessary to qualify as director.
    7.2006  Cumulative voting in election of directors.
    7.2007  Filling vacancies and increasing board of directors other 
    than by shareholder action.
    7.2008  Oath of directors.
    7.2009  Quorum of the board of directors; proxies not permissible.
    7.2010  Directors' responsibilities.
    7.2011  Compensation plans.
    7.2012  President as director; chief executive officer.
    7.2013  Fidelity bonds covering officers and employees.
    7.2014  Indemnification of institution-affiliated parties.
    7.2015  Cashier.
    7.2016  Restricting transfer of stock and record dates.
    7.2017  Facsimile signatures on bank stock certificates.
    7.2018  Lost stock certificates.
    7.2019  Loans secured by a bank's own shares.
    7.2020  Acquisition and holding of shares as treasury stock.
    7.2021  Preemptive rights.
    7.2022  Voting trusts.
    7.7023  Fractional shares.
    7.2024  Dividends payable in property other than cash.
    
    Subpart C--Bank Operations
    
    7.3000  Bank hours and closings.
    7.3001  Sharing space and employees.
    
    Subpart D--Preemption
    
    7.4000  Books and records of national banks.
    7.4001  Charging interest at rates permitted competing institutions; 
    charging interest to corporate borrowers.
    7.4002  National bank charges.
    
        Authority: 12 U.S.C. 1 et seq. and 93a.
    
    Subpart A--Bank Powers
    
    
    Sec. 7.1000  National bank ownership of property.
    
        (a) Investment in real estate necessary for the transaction of 
    business--(1) General. Under 12 U.S.C. 29(First), a national bank may 
    invest in real estate that is necessary for the transaction of its 
    business.
        (2) Type of real estate. For purposes of 12 U.S.C. 29(First), this 
    real estate includes:
        (i) Premises that are owned or occupied (or to be occupied, if 
    under construction) by the bank, its branches, or its consolidated 
    subsidiaries;
        (ii) Real estate acquired and intended, in good faith, for use in 
    future expansion;
        (iii) Parking facilities that are used by customers or employees of 
    the bank, its branches, and its consolidated subsidiaries;
        (iv) Residential property for the use of bank officers or employees 
    who are:
        (A) Located in remote areas where suitable housing at a reasonable 
    price is not readily available; or
        (B) Temporarily assigned to a foreign country, including foreign 
    nationals 
    
    [[Page 4863]]
    temporarily assigned to the United States; and
        (v) Property for the use of bank officers, employees, or customers, 
    or for the temporary lodging of such persons in areas where suitable 
    commercial lodging is not readily available, provided that the purchase 
    and operation of the property qualifies as a deductible business 
    expense for Federal tax purposes.
        (3) Permissible means of holding. A national bank may acquire and 
    hold real estate under this paragraph (a) by any reasonable and prudent 
    means, including ownership in fee, a leasehold estate, or in an 
    interest in a cooperative. The bank may hold this real estate directly 
    or through one or more subsidiaries. The bank may organize a bank 
    premises subsidiary as a corporation, partnership, or similar entity 
    (e.g., a limited liability company).
        (b) Fixed assets. A national bank may own fixed assets necessary 
    for the transaction of its business, such as fixtures, furniture, and 
    data processing equipment.
        (c) Investment in bank premises--(1) Investment limitation; 
    approval. 12 U.S.C. 371d governs when OCC approval is required for 
    national bank investment in bank premises.
        (2) Option to purchase. An unexercised option to purchase bank 
    premises or stock in a corporation holding bank premises is not an 
    investment in bank premises. A national bank must receive OCC approval 
    to exercise the option if the price of the option and the bank's other 
    investments in bank premises exceed the amount of the bank's capital 
    stock.
        (d) Other real property--(1) Lease financing of public facilities. 
    A national bank may purchase or construct a municipal building, school 
    building, or other similar public facility and, as holder of legal 
    title, lease the facility to a municipality or other public authority 
    having resources sufficient to make all rental payments as they become 
    due. The lease agreement must provide that the lessee will become the 
    owner of the building or facility upon the expiration of the lease.
        (2) Purchase of employee's residence. To facilitate the efficient 
    use of bank personnel, a national bank may purchase the residence of an 
    employee who has been transferred to another area in order to spare the 
    employee a loss in the prevailing real estate market. The bank must 
    arrange for early divestment of title to such property.
    
    
    Sec. 7.1001  National bank acting as general insurance agent.
    
        Pursuant to 12 U.S.C. 92, a national bank may act as an agent for 
    any fire, life, or other insurance company in any place the population 
    of which does not exceed 5,000 inhabitants. This provision is 
    applicable to any office of a national bank when the office is located 
    in a community having a population of less than 5,000, even though the 
    principal office of such bank is located in a community whose 
    population exceeds 5,000.
    
    
    Sec. 7.1002  National bank acting as finder.
    
        (a) General. A national bank may act as a finder in bringing 
    together a buyer and seller.
        (b) Qualification. Acting as a finder includes, without limitation, 
    identifying potential parties, making inquiries as to interest, 
    introducing or arranging meetings of interested parties, and otherwise 
    bringing parties together for a transaction that the parties themselves 
    negotiate and consummate. Acting as a finder does not include 
    activities that would characterize the bank as a broker under 
    applicable Federal law.
        (c) Advertisement and fee. Unless otherwise prohibited, a national 
    bank may advertise the availability of, and accept a fee for, the 
    services provided pursuant to this section.
    
    
    Sec. 7.1003  Money lent at banking offices or at other than banking 
    offices.
    
        (a) General. For purposes of what constitutes a branch within the 
    meaning of 12 U.S.C. 36(j) and 12 CFR 5.30, ``money'' is deemed to be 
    ``lent'' only at the place, if any, where the borrower in-person 
    receives loan proceeds directly from bank funds:
        (1) From the lending bank or its operating subsidiary; or
        (2) At a facility that is established by the lending bank or its 
    operating subsidiary.
        (b) Receipt of bank funds representing loan proceeds. Loan proceeds 
    directly from bank funds may be received by a borrower in person at a 
    place that is not the bank's main office and is not licensed as a 
    branch without violating 12 U.S.C. 36, 12 U.S.C. 81 and 12 CFR 5.30, 
    provided that a third party is used to deliver the funds and the place 
    is not established by the lending bank or its operating subsidiary. A 
    third party includes a person who satisfies the requirements of 
    Sec. 7.1012(c)(2), or one who customarily delivers loan proceeds 
    directly from bank funds under accepted industry practice, such as an 
    attorney or escrow agent at a real estate closing.
    
    
    Sec. 7.1004  Loans originating at other than banking offices.
    
        (a) General. A national bank may use the services of, and 
    compensate persons not employed by, the bank for originating loans.
        (b) Approval. An employee or agent of a national bank or of its 
    operating subsidiary may originate a loan at a site other than the main 
    office or a branch office of the bank. This action does not violate 12 
    U.S.C. 36 and 12 U.S.C. 81 if the loan is approved and made at the main 
    office or a branch office of the bank or at an office of the operating 
    subsidiary located on the premises of, or contiguous to, the main 
    office or branch office of the bank.
    
    
    Sec. 7.1005  Credit decisions at other than banking offices.
    
        A national bank and its operating subsidiary may make a credit 
    decision regarding a loan application at a site other than the main 
    office or a branch office of the bank without violating 12 U.S.C. 36 
    and 12 U.S.C. 81, provided that ``money'' is not deemed to be ``lent' 
    at those other sites within the meaning of Sec. 7.1003.
    
    
    Sec. 7.1006  Loan agreement providing for a share in profits, income, 
    or earnings or for stock warrants.
    
        A national bank may take as consideration for a loan a share in the 
    profit, income, or earnings from a business enterprise of a borrower. A 
    national bank also may take as consideration for a loan a stock warrant 
    issued by a business enterprise of a borrower, provided that the bank 
    does not exercise the warrant. The share or stock warrant may be taken 
    in addition to, or in lieu of, interest. The borrower's obligation to 
    repay principal, however, may not be conditioned upon the value of the 
    profit, income, or earnings of the business enterprise or upon the 
    value of the warrant received.
    
    
    Sec. 7.1007  Acceptances.
    
        A national bank is not limited in the character of acceptances it 
    may make in financing credit transactions. Bankers' acceptances may be 
    used for such purpose, since the making of acceptances is an essential 
    part of banking authorized by 12 U.S.C. 24.
    
    
    Sec. 7.1008  Preparing income tax returns for customers or public.
    
        A national bank may not serve as an expert tax consultant. However, 
    a national bank may assist its customers in preparing their tax 
    returns, either gratuitously or for a reasonable fee. 
    
    [[Page 4864]]
    
    
    
    Sec. 7.1009  National bank holding collateral stock as nominee.
    
        A national bank that accepts stock as collateral for a loan may 
    have such stock transferred to the bank's name as nominee.
    
    
    Sec. 7.1010  Postal service by national bank.
    
        (a) General. A national bank may maintain and operate a postal 
    substation on banking premises and receive income from it. The services 
    performed by the substation are those permitted under applicable rules 
    of the United States Postal Service and may include meter stamping of 
    letters and packages, and the sale of related insurance. The bank may 
    advertise, develop, and extend the services of the substation for the 
    purpose of attracting customers to the bank.
        (b) Postal regulations. A national bank operating a postal 
    substation shall do so in accordance with the rules and regulations of 
    the United States Postal Service. The national bank shall keep the 
    books and records of the substation separate from those of other 
    banking operations. Under 39 U.S.C. 404 and any regulations issued 
    pursuant thereto, the United States Postal Service may inspect the 
    books and records of the substation.
    
    
    Sec. 7.1011  National bank acting as payroll issuer.
    
        A national bank may disburse to an employee of a customer payroll 
    funds deposited with the bank by that customer. The bank may disburse 
    those funds by direct payment to the employee, by crediting an account 
    in the employee's name at the disbursing bank, or by forwarding funds 
    to another institution in which an employee maintains an account.
    
    
    Sec. 7.1012  Messenger service.
    
        (a) Definition. For purposes of this section, a ``messenger 
    service'' means any service, such as a courier service or armored car 
    service, used by a national bank and its customers to pick up from, and 
    deliver to, specific customers at locations such as their homes or 
    offices, items relating to transactions between the bank and those 
    customers.
        (b) Pick-up and delivery of items constituting nonbranching 
    activities. Pursuant to 12 U.S.C. 24 (Seventh), a national bank may 
    establish and operate a messenger service, or use, with its customers, 
    a third party messenger service. The bank may use the messenger service 
    to transport items relevant to the bank's transactions with its 
    customers without regard to the branching limitations set forth in 12 
    U.S.C. 36, provided the service does not engage in branching functions 
    within the meaning of 12 U.S.C. 36(j). In establishing or using such a 
    facility, the national bank may establish terms, conditions, and 
    limitations consistent with this section and appropriate to assure 
    compliance with safe and sound banking practices.
        (c) Pick-up and delivery of items constituting branching functions 
    by a messenger service established by a third party. (1) Pursuant to 12 
    U.S.C. 24 (Seventh), a national bank and its customers may use a 
    messenger service to pick up from, and deliver to, customers items that 
    relate to branching functions within the meaning of 12 U.S.C. 36(j) 
    without regard to the branching limitations set forth in 12 U.S.C. 36, 
    provided the messenger service is established and operated by a third 
    party. In using such a facility, a national bank may establish terms, 
    conditions, and limitations, consistent with this section and 
    appropriate to assure compliance with safe and sound banking practices.
        (2) The OCC reviews whether a messenger service is established by a 
    third party on a case-by-case basis, considering all of the 
    circumstances. However, a messenger service is clearly established by a 
    third party if:
        (i) A party other than the national bank owns the service and its 
    facilities (or rents them from a party other than the bank) and employs 
    the person engaged in the provision of the service; and
        (ii) The messenger service:
        (A) Makes its services available to the public, including other 
    depository institutions;
        (B) Retains ultimate discretion to determine which customers and 
    geographical areas it will serve;
        (C) Maintains ultimate responsibility for scheduling, movement, and 
    routing;
        (D) 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;
        (E) Assumes responsibility for the items during transit and for 
    maintaining adequate insurance covering thefts, employee fidelity, and 
    other in-transit losses; and
        (F) Acts as the agent for the customer when the items are in 
    transit. The bank does not deem items intended for deposit to be 
    deposited until credited to the customer's account at an established 
    bank office or other permissible nonbranch facility. The bank deems 
    items representing withdrawals to be paid when the items are given to 
    the messenger service.
        (3) A national bank may defray all or part of the costs incurred by 
    a customer in transporting items through a messenger service. Payment 
    of those costs may only cover expenses associated with each transaction 
    involving the customer and the messenger service. The national bank may 
    impose terms, conditions, and limitations that it deems appropriate 
    with respect to the payment of such costs.
        (d) Pickup and delivery of items pertaining to branching activities 
    where the messenger service is established by the national bank. A 
    national bank may establish and operate a messenger service to 
    transport items relevant to the bank's transactions with its customers 
    if such transactions constitute one or more branching functions within 
    the meaning of 12 U.S.C. 36(j), provided the bank receives approval to 
    establish a branch pursuant to 12 CFR 5.30.
    
    
    Sec. 7.1013  Debt cancellation contracts.
    
        A national bank may enter into a contract to provide for loss 
    arising from cancellation of an outstanding loan upon the death or 
    disability of a borrower. The imposition of an additional charge and 
    the establishment of necessary reserves in order to enable the bank to 
    enter into such debt cancellation contracts are a lawful exercise of 
    the powers of a national bank.
    
    
    Sec. 7.1014  Sale of money orders at nonbanking outlets.
    
        A national bank may designate bonded agents to sell the bank's 
    money orders at nonbanking outlets. The responsibility of both the bank 
    and its agent should be defined in a written agreement setting forth 
    the duties of both parties and providing for remuneration of the agent. 
    The bank's agents need not report on sales and transmit funds from the 
    nonbanking outlets more frequently than at the end of the third 
    business day following receipt of the funds.
    
    
    Sec. 7.1015  Receipt of stock from a small business investment company.
    
        A national bank may purchase the stock of a small business 
    investment company (SBIC) (see 15 U.S.C. 682(b)), and may receive the 
    benefits of such stock ownership (e.g., stock dividends). The receipt 
    and retention of a dividend by a national bank from an SBIC in the form 
    of stock of a corporate borrower of the SBIC is not a purchase of stock 
    within the meaning of 12 U.S.C. 24 (Seventh). 
    
    [[Page 4865]]
    
    
    
    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.1 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 account party 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.
    
        \1\ Samples of such laws or rules of practice include, but are 
    not limited to: 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/
    800/340-9378); the Uniform Customs and Practice for Documentary 
    Credits (International Chamber of Commerce (ICC) Publication No. 
    500) (available from ICC Publishing, Inc., 212/206-1150); the United 
    Nations Commission on International Trade Law (UNCITRAL) Convention 
    on Independent Guarantees and Standby Letters of Credit (adopted by 
    UNCITRAL 1995) (available from UNCITRAL, 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); as any of the foregoing may be amended from 
    time to time.
    ---------------------------------------------------------------------------
    
        (b) Safety and soundness considerations--(1) Terms. As a matter of 
    safe and sound banking practice, banks that issue independent 
    undertakings should not be exposed to undue risk. At a minimum, banks 
    should consider the following:
        (i) The independent character of the undertaking should be apparent 
    from its terms (such as terms that subject it to laws or rules 
    providing for its independent character);
        (ii) The undertaking should be limited in amount;
        (iii) The undertaking should:
        (A) Be limited in duration; or
        (B) Permit the bank to terminate the undertaking either on a 
    periodic basis (consistent with the bank's ability to make any 
    necessary credit assessments) or at will upon either notice or payment 
    to the beneficiary; or
        (C) Entitle the bank to cash collateral from the account party on 
    demand (with a right to accelerate the customer's obligations, as 
    appropriate); and
        (iv) The bank either should be fully collateralized or have a post-
    honor right of reimbursement from its customer 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) Additional considerations in special circumstances. Certain 
    undertakings require particular protections against credit, 
    operational, and market risk:
        (i) In the event that the undertaking is to honor by delivery of an 
    item of value other than money, the bank should ensure that market 
    fluctuations that affect the value of the item will not cause the bank 
    to assume undue market risk;
        (ii) In the event that an undertaking provides for renewal, the 
    terms for renewal should be consistent with the bank's ability to make 
    any necessary credit assessments prior to renewal; and
        (iii) In the event that a bank issues an undertaking for its own 
    account, the underlying transaction for which it is issued must be 
    within the bank's authority and comply with any safety and soundness 
    requirements applicable to that transaction.
        (3) Operational expertise. The bank should possess operational 
    expertise that is commensurate with the sophistication of its 
    independent undertaking activities.
        (4) Documentation. The bank must accurately reflect the bank's 
    undertakings in its records, including any acceptance or deferred 
    payment or other absolute obligation arising out of its contingent 
    undertaking.
        (c) Coverage. An independent undertaking within the meaning of this 
    section is not subject to the provisions of Sec. 7.1017.
    
    
    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, if:
        (a) The bank has a substantial interest in the performance of the 
    transaction involved (for example, a bank, as fiduciary, has a 
    sufficient interest in the faithful performance by a cofiduciary of its 
    duties to act as surety on the bond of such cofiduciary); or
        (b) The transaction is for the benefit of a customer and the bank 
    obtains from the customer a segregated deposit that is sufficient in 
    amount to cover the bank's total potential liability. A segregated 
    deposit under this section includes collateral:
        (1) In which the bank has perfected its security interest (for 
    example, if the collateral is a printed security, the bank must have 
    obtained physical control of the security, and, if the collateral is a 
    book entry security, the bank must have properly recorded its security 
    interest); and
        (2) That has a market value, at the close of each business day, 
    equal to the bank's total potential liability and is composed of:
        (i) Cash;
        (ii) Obligations of the United States or its agencies;
        (iii) Obligations fully guaranteed by the United States or its 
    agencies as to principal and interest; or
        (iv) Notes, drafts, or bills of exchange or bankers' acceptances 
    that are eligible for rediscount or purchase by a Federal Reserve Bank; 
    or
        (3) That has a market value, at the close of each business day, 
    equal to 110 percent of the bank's total potential liability and is 
    composed of obligations of a State or political subdivision of a State.
    
    
    Sec. 7.1018  Automatic payment plan account.
    
        A national bank may, for the benefit and convenience of its savings 
    depositors, adopt an automatic payment plan under which a savings 
    account will earn dividends at the current rate paid on regular savings 
    accounts. The depositor, upon reaching a previously designated age, 
    receives his or her accumulated savings and earned interest in 
    installments of equal amounts over a specified period.
    
    
    Sec. 7.1019  Furnishing of products and services by electronic means 
    and facilities.
    
        A national bank may perform, provide, or deliver through electronic 
    means and facilities any activity, function, product, or service that 
    it is otherwise authorized to perform, provide, or deliver. A national 
    bank may also, in order to optimize the use of the bank's resources, 
    market and sell to third parties electronic capacities acquired or 
    developed by the bank in good faith for banking purposes.
    
    
    Sec. 7.1020  Purchase of open accounts.
    
        (a) General. The purchase of open accounts is a part of the 
    business of banking and within the power of a national bank.
        (b) Export transactions. A national bank may purchase open accounts 
    in connection with export transactions; the accounts should be 
    protected by insurance such as that provided by the Foreign Credit 
    Insurance Association and the Export-Import Bank.
    
    
    Sec. 7.1021  Separate investment security limitations.
    
        The 10 percent investment limitation of 12 U.S.C. 24 (Seventh) may 
    be 
    
    [[Page 4866]]
    applied separately to each security issue of a single issuer of such 
    securities, if the proceeds of each issue are to be used to acquire and 
    lease real estate and related facilities to economically and legally 
    separate industrial tenants and each issue is payable solely from, and 
    secured by a first lien on, the revenues to be derived from rentals 
    paid by such lessee under net noncancellable leases.
    
    Subpart B--Corporate Practices
    
    
    Sec. 7.2000  Corporate governance procedures.
    
        (a) General. A national bank proposing to engage in a corporate 
    governance procedure shall comply with applicable Federal banking 
    statutes and regulations, and safe and sound banking practices.
        (b) Other sources of guidance. To the extent not inconsistent with 
    applicable Federal banking statutes or regulations, or bank safety and 
    soundness, a national bank may elect to follow the corporate governance 
    procedures of the law of the state in which the main office of the bank 
    is located, the law of the state in which the holding company of the 
    bank is incorporated, the Delaware General Corporation Law, Del. Code 
    Ann. tit. 8 (1991, as amended 1994, and as amended thereafter), or the 
    Model Business Corporation Act (1984, as amended 1994, and as amended 
    thereafter). A national bank shall designate in its bylaws the body of 
    law selected for its corporate governance procedures.
        (c) No-objection procedures. The OCC also considers requests for 
    its staff's position on the ability of a national bank to engage in a 
    particular corporate governance procedure in accordance with the no-
    objection procedures set forth in Banking Circular 205 or any 
    subsequently published agency procedures.2 Requests should 
    demonstrate how the proposed practice is not inconsistent with 
    applicable Federal statutes or regulations, and is consistent with safe 
    and sound banking practices.
    
        \2\ Available upon request from the OCC Communications Division, 
    250 E Street, SW., Washington, DC 20219, (202) 874-4700.
    ---------------------------------------------------------------------------
    
    
    Sec. 7.2001  Notice of shareholders' meetings.
    
        A national bank must mail shareholders notice of the time, place, 
    and purpose of all shareholders' meetings at least 10 days prior to the 
    meeting by first class mail, unless the OCC determines that an 
    emergency circumstance exists. Where a national bank is a wholly-owned 
    subsidiary, the sole shareholder is permitted to waive notice of the 
    shareholder's meeting. The articles of association, bylaws, or law 
    applicable to a national bank may require a longer period of notice.
    
    
    Sec. 7.2002  Director or attorney as proxy.
    
        Any person or group of persons, except the bank's officers, clerks, 
    tellers, or bookkeepers, may be designated to act as proxy. The bank's 
    directors or attorneys may act as proxy if they are not also employed 
    as an officer, clerk, teller or bookkeeper of the bank.
    
    
    Sec. 7.2003  Annual meeting for election of directors.
    
        When the day fixed for the regular annual meeting of the 
    shareholders falls on a legal holiday in the state in which the bank is 
    located, the shareholders' meeting shall be held, and the directors 
    elected, on the next following banking day.
    
    
    Sec. 7.2004  Honorary directors or advisory boards.
    
        A national bank may appoint honorary or advisory members of a board 
    of directors to act in advisory capacities without voting power or 
    power of final decision in matters concerning the business of the bank. 
    Any listing of honorary or advisory directors must distinguish between 
    them and the bank's board of directors or indicate their advisory 
    status.
    
    
    Sec. 7.2005  Ownership of stock necessary to qualify as director.
    
        (a) General. A national bank director must own a qualifying equity 
    interest in a national bank or a company that has control of a national 
    bank. The director must own the qualifying equity interest in his or 
    her own right and meet a certain minimum threshold ownership.
        (b) Qualifying equity interest--(1) Minimum required equity 
    interest. For purposes of this section, a qualifying equity interest 
    includes common or preferred stock of the bank or of a company that 
    controls the bank that has not less than an aggregate par value of 
    $1,000, an aggregate shareholders' equity of $1,000, or an aggregate 
    fair market value of $1,000.
        (i) The value of the common or preferred stock held by a national 
    bank director is valued as of the date purchased or the date on which 
    the individual became a director, whichever value is greater.
        (ii) In the case of a company that owns more than one national 
    bank, a director may use his or her equity interest in the controlling 
    company to satisfy, in whole or in part, the equity interest 
    requirement for any or all of the controlled national banks.
        (iii) Upon request, the OCC may consider whether other interests in 
    a company controlling a national bank constitute an interest equivalent 
    to $1,000 par value of national bank stock.
        (2) Joint ownership and tenancy in common. Shares held jointly or 
    as a tenant in common are qualifying shares held by a director in his 
    or her own right only to the extent of the aggregate value of the 
    shares which the director would be entitled to receive on dissolution 
    of the joint tenancy or tenancy in common.
        (3) Shares in a living trust. Shares deposited by a person in a 
    living trust (inter vivos trust) as to which the person is a trustee 
    and retains an absolute power of revocation are shares owned by the 
    person in his or her own right.
        (4) Other arrangements. A director may also hold his or her 
    qualifying interest through profit sharing plans, individual retirement 
    accounts, retirement plans, and similar arrangements, provided the 
    director retains beneficial ownership and legal control over the 
    shares.
        (c) Non-qualifying ownership. The following are not shares held by 
    a director in his or her own right:
        (1) Shares pledged by the holder to secure a loan. However, all or 
    part of the funds used to purchase the required qualifying equity 
    interest may be borrowed from any party, including the bank or its 
    affiliates;
        (2) Shares purchased subject to an absolute option vested in the 
    seller to repurchase the shares within a specified period; and
        (3) Shares deposited in a voting trust where the depositor 
    surrenders:
        (i) Legal ownership (depositor ceases to be registered owner of the 
    stock);
        (ii) Power to vote the stock or to direct how it shall be voted; or
        (iii) Power to transfer legal title to the stock.
    
    
    Sec. 7.2006  Cumulative voting in election of directors.
    
        When electing directors, a shareholder shall have as many votes as 
    the number of directors to be elected multiplied by the number of the 
    shareholder's shares. The shareholder may cast all these votes for one 
    candidate, or distribute the votes among as many candidates as the 
    shareholder chooses. If, after the first ballot, subsequent ballots are 
    necessary to elect directors, a shareholder may not vote shares that he 
    or she has already fully cumulated and voted in favor of a successful 
    candidate.
    
    
    Sec. 7.2007  Filling vacancies and increasing board of directors other 
    than by shareholder action.
    
        (a) Increasing board of directors. If authorized by the bank's 
    articles of 
    
    [[Page 4867]]
    association, between shareholder meetings a majority of the board of 
    directors may increase the number of the bank's directors within the 
    limits specified in 12 U.S.C. 71a. The board of directors may increase 
    the number of directors only by up to two directors, when the number of 
    directors last elected by shareholders was 15 or fewer, and by up to 
    four directors, when the number of directors last elected by 
    shareholders was 16 or more.
        (b) Vacancies. If a vacancy occurs on the board of directors, 
    including a vacancy resulting from an increase in the number of 
    directors, the vacancy may be filled by the shareholders, a majority of 
    the board of directors remaining in office, or, if the directors 
    remaining in office constitute fewer than a quorum, by an affirmative 
    vote of a majority of all the directors remaining in office.
    
    
    Sec. 7.2008  Oath of directors.
    
        (a) Administration of the oath. A notary public, including one who 
    is a director but not an officer of the national bank, may administer 
    the oath of directors. Any person, other than an officer of the bank, 
    having an official seal and authorized by the state to administer 
    oaths, may also administer the oath.
        (b) Execution of the oath. Each director attending the organization 
    meeting shall execute either the joint or individual oath. A director 
    not attending the organization meeting (the first meeting after the 
    election of the directors) shall execute the individual oath. A 
    director shall take another oath upon re-election, notwithstanding 
    uninterrupted service. Appropriate sample oaths are located in the 
    ``Comptroller's Manual for Corporate Activities.''
    
    
    Sec. 7.2009  Quorum of the board of directors; proxies not permissible.
    
        A national bank shall provide in its articles of association or 
    bylaws that for the transaction of business, a quorum of the board of 
    directors is at least a majority of the entire board then in office. A 
    national bank director may not vote by proxy.
    
    
    Sec. 7.2010  Directors' responsibilities.
    
        The business and affairs of the bank shall be managed by or under 
    the direction of the board of directors. The board of directors should 
    refer to OCC published guidance for additional information regarding 
    responsibilities of directors.
    
    
    Sec. 7.2011  Compensation plans.
    
        Consistent with safe and sound banking practices and the 
    compensation provisions of 12 CFR part 30, a national bank may adopt 
    compensation plans, including, among others, the following:
    
        (a) Bonus and profit-sharing plans. A national bank may adopt a 
    bonus or profit-sharing plan designed to ensure adequate remuneration 
    of bank officers and employees.
    
        (b) Pension plans. A national bank may provide employee pension 
    plans and make reasonable contributions to the cost of the pension 
    plan.
    
        (c) Employee stock option and stock purchase plans. A national bank 
    may provide employee stock option and stock purchase plans.
    
    
    Sec. 7.2012  President as director; chief executive officer.
    
        Pursuant to 12 U.S.C. 76, the president of a national bank must be 
    a member of the board of directors, but a director other than the 
    president may be elected chairman of the board. A person other than the 
    president may serve as chief executive officer, and this person is not 
    required to be a director of the bank.
    
    
    Sec. 7.2013  Fidelity bonds covering officers and employees.
    
        (a) Adequate coverage. All officers and employees of a national 
    bank must have adequate fidelity coverage. The failure of directors to 
    require bonds with adequate sureties and in sufficient amount may make 
    the directors liable for any losses that the bank sustains because of 
    the absence of such bonds. Directors should not serve as sureties on 
    such bonds.
        (b) Factors. The board of directors should determine the amount of 
    such coverage, premised upon a consideration of factors, including:
        (1) Internal auditing safeguards employed;
        (2) Number of employees;
    
        (3) Amount of deposit liabilities; and
    
        (4) Amount of cash and securities normally held by the bank.
    
    Sec. 7.2014  Indemnification of institution-affiliated parties.
    
        (a) Administrative proceedings or civil actions initiated by 
    Federal banking agencies. A national bank may only make or agree to 
    make indemnification payments to an institution-affiliated party with 
    respect to an administrative proceeding or civil action initiated by 
    any Federal banking agency, that are reasonable and consistent with the 
    requirements of 12 U.S.C. 1828(k) and the implementing regulations 
    thereunder. The term ``institution-affiliated party'' has the same 
    meaning as set forth at 12 U.S.C. 1813(u).
        (b) Administrative proceeding or civil actions not initiated by a 
    Federal banking agency--(1) General. In cases involving an 
    administrative proceeding or civil action not initiated by a Federal 
    banking agency, a national bank may indemnify an institution-affiliated 
    party for damages and expenses, including the advancement of expenses 
    and legal fees, in accordance with the law of the state in which the 
    main office of the bank is located, the law of the state in which the 
    bank's holding company is incorporated, or the relevant provisions of 
    the Model Business Corporation Act (1984, as amended 1994, and as 
    amended thereafter), or Delaware General Corporation Law, Del. Code 
    Ann. tit. 8 (1991, as amended 1994, and as amended thereafter), 
    provided such payments are consistent with safe and sound banking 
    practices. A national bank shall designate in its bylaws the body of 
    law selected for making indemnification payments under this paragraph.
        (2) Insurance premiums. A national bank may provide for the payment 
    of reasonable premiums for insurance covering the expenses, legal fees, 
    and liability of institution-affiliated parties to the extent that the 
    expenses, fees, or liability could be indemnified under paragraph 
    (b)(1) of this section.
    
    
    Sec. 7.2015  Cashier.
    
        A national bank's bylaws, board of directors, or a duly designated 
    officer may assign some or all of the duties previously performed by 
    the bank's cashier to its president, chief executive officer, or any 
    other officer.
    
    
    Sec. 7.2016  Restricting transfer of stock and record dates.
    
        (a) Conditions for stock transfer. Under 12 U.S.C. 52, a national 
    bank may impose conditions upon the transfer of its stock reasonably 
    calculated to simplify the work of the bank with respect to stock 
    transfers, voting at shareholders' meetings, and related matters and to 
    protect it against fraudulent transfers.
        (b) Record dates. A national bank may close its stock records for a 
    reasonable period to ascertain shareholders for voting purposes. The 
    board of directors may fix a record date for determining the 
    shareholders entitled to notice of, and to vote at, any meeting of 
    shareholders. The record date should be in reasonable proximity to the 
    date that notice is given to the shareholders of the meeting.
    
    
    Sec. 7.2017  Facsimile signatures on bank stock certificates.
    
        The president and cashier, or other officers authorized by the 
    bank's 
    
    [[Page 4868]]
    bylaws, shall sign each national bank stock certificate. The signatures 
    may be manual or facsimile, including electronic means of signature. 
    Each certificate must be sealed with the seal of the association.
    
    
    Sec. 7.2018  Lost stock certificates.
    
        If a national bank does not provide for replacing lost, stolen, or 
    destroyed stock certificates in its articles of association or bylaws, 
    the bank may adopt procedures in accordance with Sec. 7.2000.
    
    
    Sec. 7.2019  Loans secured by a bank's own shares.
    
        (a) Permitted agreements, relating to bank shares. A national bank 
    may require a borrower holding shares of the bank to execute 
    agreements:
        (1) Not to pledge, give away, transfer, or otherwise assign such 
    shares;
        (2) To pledge such shares at the request of the bank when necessary 
    to prevent loss; and
        (3) To leave such shares in the bank's custody.
        (b) Use of capital notes and debentures. A national bank may not 
    make loans secured by a pledge of the bank's own capital notes and 
    debentures. Such notes and debentures must be subordinated to the 
    claims of depositors and other creditors of the issuing bank, and are, 
    therefore, capital instruments within the purview of 12 U.S.C. 83.
    
    
    Sec. 7.2020  Acquisition and holding of shares as treasury stock.
    
        Pursuant to the authority and procedures of 12 U.S.C. 59, a 
    national bank may acquire its outstanding shares and hold them as 
    treasury stock, provided that the acquisition and retention of the 
    shares is, and continues to be, for a legitimate corporate purpose. It 
    would not be permissible for a national bank to acquire or hold 
    treasury stock for speculation.
    
    
    Sec. 7.2021  Preemptive rights.
    
        A national bank in its articles of association must grant or deny 
    preemptive rights to the bank's shareholders. Any amendment to a 
    national bank's articles of association which modifies such preemptive 
    rights must be approved by a vote of the holders of two-thirds of the 
    bank's outstanding voting shares.
    
    
    Sec. 7.2022  Voting trusts.
    
        The shareholders of a national bank may establish a voting trust 
    under the applicable law of a state selected by the participants and 
    designated in the trust agreement, provided the implementation of the 
    trust is consistent with safe and sound banking practices.
    
    
    Sec. 7.2023  Fractional shares.
    
        To avoid complicated recordkeeping in connection with fractional 
    shares, a national bank issuing additional stock by stock dividend, 
    upon consolidation or merger, or otherwise, may adopt arrangements such 
    as the following to preclude the issuance of fractional shares. The 
    bank may:
        (a) Issue scripts or warrants for trading in fractions;
        (b) Make reasonable arrangements to provide those to whom 
    fractional shares would otherwise be issued an opportunity to realize 
    at a fair price upon the fraction not being issued through its sale, or 
    the purchase of the additional fraction required for a full share, if 
    there is an established and active market in the national bank's stock;
        (c) Remit the cash equivalent of the fraction not being issued to 
    those to whom fractional shares would otherwise be issued. The cash 
    equivalent is based on the market value of the stock, if there is an 
    established and active market in the national bank's stock. In the 
    absence of such a market, the cash equivalent is based on a reliable 
    and disinterested determination as to the fair market value of the 
    stock if such stock is available; or
        (d) Sell full shares representing all the fractions at public 
    auction, or to the highest bidder after having solicited and received 
    sealed bids from at least three licensed stock brokers. The national 
    bank shall distribute the proceeds of the sale pro rata to shareholders 
    who otherwise would be entitled to the fractional shares.
    
    
    Sec. 7.2024  Dividends payable in property other than cash.
    
        In addition to cash dividends, directors of a national bank may 
    declare dividends payable in property, with the approval of the OCC. 
    Even though the property distributed has been previously charged down 
    or written off entirely, the dividend is equivalent to a cash dividend 
    in an amount equal to the actual current value of the property. Before 
    the dividend is declared, the bank should show the excess of the actual 
    value over book value on the books of the national bank as a recovery, 
    and the dividend should then be declared in the amount of the full book 
    value (equivalent to the actual current value) of the property being 
    distributed.
    
    Subpart C--Bank Operations
    
    
    Sec. 7.3000  Bank hours and closings.
    
        (a) Bank hours. A national bank's board of directors should review 
    its banking hours, and, independently of any other bank, take 
    appropriate action to establish a schedule of banking hours.
        (b) Emergency closings. Pursuant to 12 U.S.C. 95(b)(1), the 
    Comptroller of the Currency (Comptroller), a state, or a legally 
    authorized state official may declare a day a legal holiday if 
    emergency conditions exist. That day is a legal holiday for national 
    banks or their offices in the affected geographic area (i.e., 
    throughout the country, in a state, or in part of a state). Emergency 
    conditions include natural disasters and civil and municipal 
    emergencies (e.g., severe flooding, or a power emergency declared by a 
    local power company or government requesting that businesses in the 
    affected area close). The Comptroller issues a proclamation authorizing 
    the emergency closing in accordance with 12 U.S.C. 95 at the time of 
    the emergency condition, or soon thereafter. When the Comptroller, a 
    state, or a legally authorized state official declares a day to be a 
    legal holiday due to emergency conditions, a national bank may choose 
    to remain open or to close any of its banking offices in the affected 
    geographic area.
        (c) Ceremonial closings. A state or a legally authorized state 
    official may declare a day a legal holiday for ceremonial reasons. When 
    a state or a legally authorized state official declares a day to be a 
    legal holiday for ceremonial reasons, a national bank may choose to 
    remain open or to close.
        (d) Liability. A national bank should assure that all liabilities 
    or other obligations under the applicable law due to the bank's closing 
    are satisfied.
    
    
    Sec. 7.3001  Sharing space and employees.
    
        (a) Sharing space. A national bank may:
        (1) Lease excess space on bank premises to one or more other 
    businesses (including other banks and financial institutions);
        (2) Share space jointly held with one or more other businesses; or
        (3) Offer its services in space owned or leased to other 
    businesses.
        (b) Sharing employees. When sharing space with other businesses as 
    described in paragraph (a) of this section, a national bank may 
    provide, under one or more written agreements among the bank, the other 
    businesses, and their employees, that:
        (1) A bank employee may act as agent for the other business; or
        (2) An employee of the other business may act as agent for the 
    bank.
        (c) Supervisory conditions. When a national bank engages in 
    arrangements of the types listed in paragraphs (a) and (b) of this 
    section, the bank shall ensure that: 
    
    [[Page 4869]]
    
        (1) The other business is conspicuously, accurately, and separately 
    identified;
        (2) Shared employees clearly and fully disclose the nature of their 
    agency relationship to customers of the bank and of the other 
    businesses so that customers will know the identity of the bank or 
    business that is providing the product or service;
        (3) The arrangement does not constitute a joint venture or 
    partnership with the other business under applicable state law;
        (4) All aspects of the relationship between the bank 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 bank;
        (5) Security issues arising from the activities of the other 
    business on the premises are addressed;
        (6) The activities of the other business do not adversely affect 
    the safety and soundness of the bank;
        (7) 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
        (8) The assets and records of the parties are segregated.
        (d) Other legal requirements. When entering into arrangements, of 
    the types described in paragraphs (a) and (b) of this section, and in 
    conducting operations pursuant to those arrangements the bank must 
    ensure that each arrangement complies with 12 U.S.C. 29 and 36 and with 
    any other applicable laws and regulations. If the arrangement involves 
    an affiliate or a shareholder, director, officer or employee of the 
    bank:
        (1) The bank must ensure compliance with all applicable statutory 
    and regulatory provisions governing bank transactions with these 
    persons or entities;
        (2) The parties must comply with all applicable fiduciary duties; 
    and
        (3) The parties, if they are in competition with each other, must 
    consider limitations, if any, imposed by applicable antitrust laws.
    
    Subpart D--Preemption
    
    
    Sec. 7.4000  Books and records of national banks.
    
        (a) Inspection. Except as otherwise expressly provided by Federal 
    law, including 12 U.S.C. 62, relating to the right of shareholders, 
    creditors, and certain tax officials to inspect the list of 
    shareholders of a bank, only the Comptroller of the Currency or the 
    Comptroller's authorized representatives are authorized to inspect 
    books or records of a national bank. Production of records may, 
    however, be required under normal judicial procedures.
        (b) Visitorial powers. Except as otherwise expressly provided by 
    Federal law, the exercise of visitorial powers over national banks is 
    vested solely in the OCC, 12 U.S.C. 484. State officials have no 
    authority to conduct examinations or to inspect or require the 
    production of books or records of national banks, except for the 
    limited purpose of ensuring compliance with applicable state unclaimed 
    property and escheat laws. State authority to review the books and 
    records of a national bank is limited to those circumstances in which 
    there is reasonable cause to believe that the bank has failed to comply 
    with those laws. Federal law provides special procedures for verifying 
    payroll records for unemployment compensation purposes, 26 U.S.C. 
    3305(c), for enforcing the Fair Labor Standards Act, 29 U.S.C. 211, and 
    for ascertaining the correctness of Federal tax returns, 26 U.S.C. 
    7602.
        (c) Report of examination. The report of examination made by an OCC 
    examiner is designated solely for use in the supervision of the bank. 
    The bank's copy of the report is the property of the OCC and is loaned 
    to the bank and any holding company thereof solely for its confidential 
    use. The bank's directors, in keeping with their responsibilities both 
    to depositors and to shareholders, should thoroughly review the report. 
    The report may be made available to other persons only in accordance 
    with the rules on disclosure in 12 CFR part 4.
    
    
    Sec. 7.4001  Charging interest at rates permitted competing 
    institutions; charging interest to corporate borrowers.
    
        (a) Definition. The term ``interest'' as used in 12 U.S.C. 85 
    includes any payment compensating a creditor or prospective creditor 
    for an extension of credit, making available of a line of credit, or 
    any default or breach by a borrower of a condition upon which credit 
    was extended. It includes, among other things, the following fees 
    connected with credit extension or availability: numerical periodic 
    rates, late fees, not sufficient funds (NSF) fees, overlimit fees, 
    annual fees, cash advance fees, and membership fees. It does not 
    ordinarily include appraisal fees, premiums and commissions 
    attributable to insurance guaranteeing repayment of any extension of 
    credit, finders' fees, fees for document preparation or notarization, 
    or fees incurred to obtain credit reports.
        (b) Authority. A national bank located in a state may charge 
    interest at the maximum rate permitted to any state-chartered or 
    licensed lending institution by the law of that state. If state law 
    permits different interest charges on specified classes of loans, a 
    national bank making such loans is subject only to the provisions of 
    state law relating to that class of loans that are material to the 
    determination of the permitted interest. For example, a national bank 
    may lawfully charge the highest rate permitted to be charged by a 
    state-licensed small loan company, without being so licensed, but 
    subject to state law limitations on the size of loans made by small 
    loan companies.
        (c) Effect on state definitions of interest. The Federal definition 
    of the term ``interest'' in paragraph (a) of this section does not 
    change how interest is defined by the individual states (nor how the 
    state definition of interest is used) solely for purposes of state law. 
    For example, if late fees are not ``interest'' under state law where a 
    national bank is located but state law permits its most favored lender 
    to charge late fees, then a national bank located in that state may 
    charge late fees to its intrastate customers. The national bank may 
    also charge late fees to its interstate customers because the fees are 
    interest under the Federal definition of interest and an allowable 
    charge under state law where the national bank is located. However, the 
    late fees would not be treated as interest for purposes of evaluating 
    compliance with state usury limitations because state law excludes late 
    fees when calculating the maximum interest that lending institutions 
    may charge under those limitations.
        (d) Usury. A national bank located in a state the law of which 
    denies the defense of usury to a corporate borrower may charge a 
    corporate borrower any rate of interest agreed upon by a corporate 
    borrower.
    
    
    Sec. 7.4002  National bank charges.
    
        (a) Customer charges and fees. A national bank may charge its 
    customers non-interest charges and fees, including deposit account 
    service charges. For example, a national bank may impose deposit 
    account service charges that its board of directors determines to be 
    reasonable on dormant accounts. A national bank may also charge a 
    borrower reasonable fees for credit reports or investigations with 
    respect to a borrower's credit. All charges and fees should be arrived 
    at by each bank on a competitive basis and not on the basis of any 
    agreement, arrangement, 
    
    [[Page 4870]]
    undertaking, understanding, or discussion with other banks or their 
    officers.
        (b) Considerations. The establishment of non-interest charges and 
    fees, and the amounts thereof, is a business decision to be made by 
    each bank, in its discretion, according to sound banking judgment and 
    safe and sound banking principles. A bank reasonably establishes non-
    interest charges and fees if the bank considers the following factors, 
    among others:
        (1) The cost incurred by the bank, plus a profit margin, in 
    providing the service;
        (2) The deterrence of misuse by customers of banking services;
        (3) The enhancement of the competitive position of the bank in 
    accordance with the bank's marketing strategy; and
        (4) The maintenance of the safety and soundness of the institution.
        (c) Interest. Charges and fees that are ``interest'' within the 
    meaning of 12 U.S.C. 85 are governed by Sec. 7.4001 and not by this 
    section.
        (d) State law. The OCC evaluates on a case-by-case basis whether a 
    national bank may establish non-interest charges or fees pursuant to 
    paragraphs (a) and (b) of this section notwithstanding a contrary state 
    law that purports to limit or prohibit such charges or fees. In issuing 
    an opinion on whether such state laws are preempted, the OCC applies 
    preemption principles derived from the Supremacy Clause of the United 
    States Constitution and applicable judicial precedent.
        (e) National bank as fiduciary. This section does not apply to 
    charges imposed by a national bank in its capacity as a fiduciary, 
    which are governed by 12 CFR part 9.
    
    PART 31--EXTENSIONS OF CREDIT TO NATIONAL BANK INSIDERS
    
        2. The authority citation for part 31 is revised to read as 
    follows:
    
        Authority: 12 U.S.C. 375a(4), 375b(3), 1817(k), and 
    1972(2)(G)(ii).
    
        3. Part 31 is amended by adding, at the end of the part, the 
    undesignated center heading ``Interpretations'' and new Secs. 31.100 to 
    31.102 to read as follows:
    
    Interpretations
    
    
    Sec. 31.100  Loans secured by stock or obligations of an affiliate.
    
        A bank that makes a loan to an unaffiliated third party may take a 
    security interest in securities of an affiliate as collateral for the 
    loan without the loan being deemed a ``covered transaction'' under 
    section 23A of the Federal Reserve Act (12 U.S.C. 371c) if:
        (a) The borrower provides additional collateral that meets or 
    exceeds the collateral requirements specified in section 23A(c) (12 
    U.S.C. 371c(c)); and
        (b) The loan proceeds are not used to purchase the bank affiliate's 
    securities that serve as collateral.
    
    
    Sec. 31.101  Federal funds transactions between affiliates.
    
        The limitations contained in 12 U.S.C. 371c apply to the sale of 
    Federal funds by a national bank to an affiliate of the bank.
    
    
    Sec. 31.102  Deposits between affiliated banks.
    
        (a) General rule. The OCC considers a deposit made by a bank in an 
    affiliated bank to be a loan or extension of credit to the affiliate 
    under 12 U.S.C. 371c. These deposits must be secured in accordance with 
    12 U.S.C. 371c(c). However, a national bank may not pledge assets to 
    secure private deposits unless otherwise permitted by law (see, e.g., 
    12 U.S.C. 90 (permitting collateralization of deposits of public 
    funds); 12 U.S.C. 92a (trust funds); and 25 U.S.C. 156 and 162a (Native 
    American funds)). Thus, unless one of the exceptions to 12 U.S.C. 371c 
    noted in paragraph (b) of this section applies or unless another 
    exception applies that enables a bank to meet the collateral 
    requirements of 12 U.S.C. 371c(c), a national bank may not:
        (1) Make a deposit in an affiliated national bank;
        (2) Make a deposit in an affiliated state-chartered bank unless the 
    affiliated state-chartered bank can legally offer collateral for the 
    deposit in conformance with applicable state law and 12 U.S.C. 371c; or
        (3) Receive deposits from an affiliated bank.
        (b) Exceptions. The restrictions of 12 U.S.C. 371c (other than 12 
    U.S.C. 371c(a)(4), which requires affiliate transactions to be 
    consistent with safe and sound banking practices) do not apply to 
    deposits:
        (1) Made in the ordinary course of correspondent business; or
        (2) Made in an affiliate that qualifies as a ``sister bank'' under 
    12 U.S.C. 371c(d)(1).
    
        Dated: February 5, 1996.
    Eugene A. Ludwig,
    Comptroller of the Currency.
    [FR Doc. 96-2903 Filed 2-8-96; 8:45 am]
    BILLING CODE 4810-33-P
    
    

Document Information

Effective Date:
4/1/1996
Published:
02/09/1996
Department:
Comptroller of the Currency
Entry Type:
Rule
Action:
Final rule.
Document Number:
96-2903
Dates:
April 1, 1996.
Pages:
4849-4870 (22 pages)
Docket Numbers:
Docket No. 96-03
RINs:
1557-AB38
PDF File:
96-2903.pdf
CFR: (146)
12 CFR 7.3000(a)
12 CFR 7.4000(b)
12 CFR 7.1012(c)(2)
12 CFR 7.3001(c)
12 CFR 7.3001(d)
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