[Federal Register Volume 61, Number 230 (Wednesday, November 27, 1996)]
[Rules and Regulations]
[Pages 60342-60387]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-30058]
[[Page 60341]]
_______________________________________________________________________
Part III
Department of the Treasury
_______________________________________________________________________
Office of the Comptroller of the Currency
_______________________________________________________________________
12 CFR Part 3 et al.
Rules, Policies, and Procedures for Corporate Activities; Final Rule
Federal Register / Vol. 61, No. 230 / Wednesday, November 27, 1996 /
Rules and Regultions
[[Page 60342]]
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
12 CFR Parts 3, 5, 7, 16 and 28
[Docket No. 96-24]
RIN 1557-AB27
Rules, Policies, and Procedures for Corporate Activities
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 rules governing corporate applications and notices. 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 reduce
unnecessary regulatory costs and other burdens.
The final rule revises and reorganizes the OCC's regulation for
national bank corporate activities and transactions. It also modernizes
and clarifies the rules, reduces unnecessary regulatory burden and,
consistent with statutory requirements, imposes regulatory requirements
only where needed to address safety and soundness concerns or to
accomplish other statutory responsibilities of the OCC.
EFFECTIVE DATE: December 31, 1996.
FOR FURTHER INFORMATION CONTACT: Stuart E. Feldstein, Assistant
Director, Legislative and Regulatory Activities, (202) 874-5090; Karen
McSweeney, Attorney, Legislative and Regulatory Activities, (202) 874-
5090; Jerome Edelstein, Senior Counsel, Bank Activities and Structure,
(202) 874-5300; or Cheryl A. Martin, Senior Licensing Policy and
Systems Analyst, Licensing Policy and Systems Division, (202) 874-5060.
Office of the Comptroller of the Currency, 250 E Street, SW,
Washington, DC 20219.
SUPPLEMENTARY INFORMATION:
The Proposal
On November 29, 1994, the OCC published a notice of proposed
rulemaking (59 FR 61034, Nov. 29, 1994) (proposal) to revise 12 CFR
part 5--the OCC's rule governing the policies and procedures for
national bank corporate transactions and activities.
The proposal sought to implement the goals of the OCC's Regulation
Review Program by eliminating unnecessary regulatory burden and
streamlining procedures for corporate applications and transactions
while protecting the safety and soundness of the national banking
system. The proposal also restructured various sections of part 5 to
create a more readable and understandable regulation, and it updated
other sections by incorporating interpretive rulings and significant
OCC interpretive positions where necessary.
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 the final
rule in response to the comments received and to further reduce
unnecessary regulatory burden.
The OCC received 71 comment letters on the proposal. The vast
majority of these comments supported the OCC's proposed changes to part
5. The comment letters received by the OCC included 34 from banks, bank
holding companies, and related entities, 16 from trade associations
(including bank, securities, real estate, insurance, newspaper, and
travel agency), four from community groups, four from private
businesses, five from members of Congress, two from Federal regulators,
two from unaffiliated individuals, three from law firms, and one from a
clearinghouse.
Commenters strongly favored reducing unnecessary regulatory burden,
updating and clarifying the rules, and streamlining the application
process. Overall, most commenters commended the OCC's efforts, and some
commenters offered variations on certain of the proposed changes.
Overview of the Final Rule
The OCC reviewed part 5 to update and streamline corporate filing
procedures for national banks and to reduce unnecessary regulatory
burden consistent with safe and sound banking practices and other
regulatory responsibilities of the OCC.
The final rule contains a fundamental restructuring of the OCC's
approach to the corporate application process by creating a new
expedited review process for many types of applications submitted by
healthy banks whose applications should entail low levels of risk. This
new process enables the OCC to calibrate the extent of regulatory
review an application receives to focus more resources on applications
that are novel, are complex, or present potentially greater risk to the
applicant bank.
Section-by-Section Discussion
Most commenters focused on specific provisions of the proposal with
many recommending further changes. The OCC carefully considered each of
the comment letters and has made a number of changes to the proposal in
response to those comments and recommendations. The following section-
by-section discussion identifies and discusses comments and changes to
the proposal. A table summarizing the sections of the former part 5
changed by the final rule is included at the end of this preamble.
Scope (Sec. 5.1)
The proposal clarified the purpose of part 5 and transferred
information concerning the role of the OCC's Multinational Banking
Department to Sec. 5.3, Definitions, and Sec. 5.4, Filing required. The
OCC received no comments on this section.
The OCC adopts the changes contained in the proposal and clarifies
the corporate filing procedures for Federal branches and agencies. The
final rule also adds a new subpart F, which outlines the filing
procedures for Federal branches and agencies and directs readers to 12
CFR part 28 for further information.
Rules of General Applicability (Sec. 5.2)
The proposal consolidated the rules of general applicability for
part 5 into a single section. The proposal also relocated the
definitions to Sec. 5.3, Definitions, and the information regarding
denials to Sec. 5.13, Decisions. Proposed Sec. 5.2(b) described the
limited circumstances under which the OCC may adopt materially
different procedures for a filing or class of filings.
Two commenters expressed concern that proposed Sec. 5.2(b) would
allow the OCC too much latitude to adopt procedures other than those
set forth in part 5. One commenter suggested limiting the circumstances
under which the OCC may adopt materially different procedures. The OCC
has historically limited its discretion under this provision to special
circumstances, thus enabling the OCC to respond promptly to emergencies
such as Hurricane Andrew. This continues to be the OCC's intent, and
the final rule includes this language to reflect this approach.
Definitions (Sec. 5.3)
The proposal consolidated in Sec. 5.3 definitions previously
located throughout part 5. The proposal also added new definitions to
clarify the part generally and updated existing definitions to make
them more accurate and precise.
The proposal added a definition of ``short-distance relocation,''
used in connection with both branch and main office relocations.
``Short-distance
[[Page 60343]]
relocation'' was defined as moving the premises of a branch or main
office within a one thousand-foot radius of the current site if it is
located within a central city of a Metropolitan Statistical Area (MSA)
designated by the Department of Commerce; a one mile radius of the site
if it is located within an MSA designated by the Department of
Commerce, but not within a central city; or a two-mile radius of the
site if it is not located within an MSA.
In response to a request by two commenters, the final rule contains
a definition of the term ``central city'' used to define a short-
distance relocation. This definition recognizes that the Office of
Management and Budget has succeeded the Commerce Department as the
agency that identifies central cities for certain purposes. Under the
final rule, a central city is a city or cities identified as a central
city by the Director of the Office of Management and Budget. This
provides a simple, unambiguous test for determining when relocation
applications are subject to a ten-day public comment period instead of
a 30-day comment period.
Another commenter stated that having two designations for sites
located within an MSA was confusing. This commenter suggested removing
the first prong of the definition (i.e., within a one thousand foot-
radius of a site located within a central city of an MSA). The OCC
believes that the distances in the proposed definition are appropriate
for different types of metropolitan areas. Therefore, the final rule
does not change this aspect of the proposal.
Two other commenters urged the OCC to include more flexible
language in the definition of ``short-distance relocation.'' However,
using any test other than a bright-line test could create further
uncertainties. Therefore, the OCC adopts this definition as proposed.
The final rule also modifies the proposed definition of
``appropriate district office'' by identifying the OCC's International
Banking and Finance Department as the ``appropriate district office''
for Federal branches and agencies.
The proposal also contained a definition of ``eligible bank,'' a
concept central to the new system of expedited review for certain
applications filed with the OCC. The proposal defined the term
``eligible bank'' as a national bank that is well capitalized as
defined in 12 CFR part 6, has a composite rating of 1 or 2 under the
Uniform Financial Institutions Rating System (CAMEL), has a CRA rating
of ``Satisfactory'' or better, and is not subject to certain formal OCC
enforcement actions.
The OCC received 15 comment letters on the definition of eligible
bank. Eleven commenters supported the definition. Four commenters
opposed the definition and the concept of expedited processing.
A number of commenters expressed concern that by making banks with
``Satisfactory'' or ``Outstanding'' CRA ratings eligible for expedited
processing, the OCC was establishing a ``safe harbor'' against public
challenge to an applicant bank's CRA performance. This is neither the
purpose nor the effect of the eligible bank concept. In fact, Sec. 5.13
of the final rule explicitly enables the OCC to remove a filing from
expedited review procedures if the OCC concludes, among other things,
that an adverse comment presents a significant CRA concern that, in the
OCC's view, has not previously been satisfactorily resolved. Thus, as
discussed in greater detail later, Sec. 5.13 ensures that the OCC will
fully and carefully consider all significant adverse CRA comments,
including those involving eligible banks.
Several commenters also expressed concern that CAMEL ratings would
become publicly available as a result of this new process. Some
commenters suggested eliminating the CAMEL rating from the list of
criteria necessary to qualify as an eligible bank, thus placing more
emphasis on the capital adequacy of the bank filing the application.
Other commenters suggested adopting altogether different criteria such
as the Federal Deposit Insurance Corporation's (FDIC's) assessment risk
classifications.
The OCC carefully considered these concerns and concluded that the
suggested alternatives do not adequately address the criteria that are
critical in permitting a bank to use expedited review. For example,
limiting the definition to criteria focused primarily on capital
adequacy eliminates important supervisory considerations regarding
management of the bank. Moreover, while the FDIC's assessment risk
classification system has attractive features, it appears better suited
for the FDIC's insurance purposes than for determining which banks
would qualify for expedited application processing. Therefore, the OCC
adopts the definition of eligible bank as proposed.
The final rule also adds a definition of ``eligible depository
institution,'' a term used in Sec. 5.24, Conversions, and Sec. 5.33,
Business combinations. An eligible depository institution is a state
bank or a Federal or state savings association that meets the
``eligible bank'' criteria under Sec. 5.3(g) and is FDIC-insured,
except that the bank's primary Federal regulator makes the
determinations regarding certain of the eligible bank criteria.
The OCC also adopts the other definitions as proposed with some
minor changes.
Filing Required (Sec. 5.4)
The proposal clarified the application and notice filing
requirements and permitted an applicant to file with the OCC forms that
the applicant had submitted to another Federal agency, if the forms
covered the proposed action and contained substantially the same
information that the OCC would require.
Each commenter addressing this section supported the proposal.
Therefore, the OCC adopts this section as proposed, with minor
modifications and one new burden-reducing feature.
The final rule contains a new provision that allows an applicant to
incorporate by reference information that the applicant submitted to
the OCC or another Federal agency with a previous application or other
filing. Material incorporated by reference must be current and
responsive to the information requested by the OCC, and the applicant
must attach a copy of the relevant material to its application. This
provision allows an applicant to avoid compiling lengthy background or
supporting documentation each time it submits an application to the OCC
and also ensures that the information is current, accurate, and
accessible to the OCC.
Fees (Sec. 5.5)
The proposal removed unnecessary information from former Sec. 5.5,
such as procedures for determining the fee schedule, and referred to 12
CFR 8.8 regarding the ``Notice of Comptroller of the Currency fees.''
Two commenters suggested that the OCC create a differential fee
structure for eligible banks. The OCC intends to implement this
suggestion in the near future. Therefore, the OCC adopts this section
as proposed with minor clarifying changes.
Investigations (Sec. 5.7)
The proposal clarified and condensed the relevant information and
incorporated the fee provision pertaining to investigations. Two
commenters suggested that the OCC limit the circumstances under which
it may request additional information in connection with a filing.
However, the proposal provides needed flexibility to evaluate factual
and legal issues that arise during the course of a filing. Thus, the
final rule retains the general authority for the OCC to seek additional
information in connection with a filing
[[Page 60344]]
and to deem a filing abandoned if the requested information is not
furnished within the specified time period. However, this provision is
moved to Sec. 5.13.
Public Notice (Sec. 5.8)
The proposal required an applicant to publish a public notice of
its filing in a newspaper widely available in each geographic area in
which the applicant proposed to engage in business.
Several commenters urged the OCC not to make this change, but
rather to retain the language in the former regulation. Under former
Sec. 5.8(a), a bank must publish public notice in a newspaper of
general circulation in the community in which the applicant proposes to
engage in business. These commenters stated that the former standard
provided more effective notice to the public.
The OCC agrees with the commenters that the former standard better
advises the public of filings submitted to the OCC and does not unduly
burden applicants. Thus, the final rule retains the language from the
former regulation.
The proposal also provided under Sec. 5.8(f) that the OCC may
require or give public notice and request comment on any filing and in
any manner the OCC determines appropriate for the particular filing. In
addition, in circumstances where the public notice requirements of
Sec. 5.8 do not apply to a particular filing, the OCC may determine to
give public notice if the filing presents a significant and novel
policy, supervisory, or legal issue. The proposal also authorized the
OCC to require public notice in addition to any notice otherwise
required under this part.
The proposal also added several provisions to reduce unnecessary
regulatory burden. For example, the proposal allowed an applicant to
publish a single notice in certain circumstances for two or more
filings and permitted the OCC to accept a notice published by an
applicant for another Federal agency in lieu of the public notice
requirements of part 5.
The OCC adopts these proposed changes with some minor
modifications. First, in connection with publishing a single notice for
multiple transactions, the final rule amends proposed Sec. 5.8(d) to
require the applicant to explain in the notice how the transactions
that are the subject of the notice are related.
Second, in Sec. 5.8(e), the final rule clarifies that the OCC may
accept a single joint notice containing the information required by the
OCC and the other Federal agency, provided that the notice states that
comments must be submitted to both the OCC and the other Federal
agency.
Public Availability (Sec. 5.9)
The proposal condensed this section to reflect the current OCC
practice of granting requests for information on particular filings.
Two commenters suggested that the OCC include standards for
confidential treatment of information concerning applications. The
final rule clarifies that the OCC follows the Freedom of Information
Act (FOIA), 5 U.S.C. 552, in determining whether to treat information
as confidential.
The OCC final rule also adds language to clarify that requests for
the public file on pending applications should be directed to the
appropriate district office, and requests for the public file on
applications or notices that have been closed or decided should be
directed to the Disclosure Officer, Communications Division. The
revisions also clarify what constitutes the public file and that an
applicant or interested person submitting information may request
confidential treatment for specific information.
Comments (Sec. 5.10)
The proposal reorganized this section, removed unnecessary and
repetitive information, and clarified the remaining provisions. The
proposal also established the time period for interested persons to
submit comments.
The proposal included a provision that allowed the OCC to extend
the comment period if the applicant failed to file all required
supporting data in time to permit review by interested persons, if any
person requesting an extension of time provided ``adequate
justification,'' or if the OCC determined that other extenuating
circumstances existed. The proposal also removed a provision that
automatically granted a 14-day extension of the comment period for
individuals whose request for a hearing had been denied.
Several commenters recommended that the OCC clarify the term
``adequate justification.'' In response to these comments, the final
rule removes the phrase ``adequate justification'' and provides that a
person requesting an extension of the comment period must
satisfactorily demonstrate to the OCC that he or she needs additional
time to develop factual information that the OCC determines is
necessary to consider the application.
One commenter also objected to the proposed elimination of the 14-
day automatic extension of the comment period for interested persons
upon the OCC's denial of a hearing request. The commenter suggested
that the OCC permit a person to submit additional information at any
time once a person has filed timely comments. Other commenters
supported the elimination of the 14-day automatic extension of the
comment period and suggested placing additional restrictions on the
comment period.
The OCC believes that the proposal strikes an appropriate balance
between providing an opportunity for interested persons to comment on
an application and the need for an applicant to have some reliable time
frame for the application process. In particular, the OCC notes that as
a general matter it considers late-filed comments on a filing if doing
so would not inappropriately delay action on a filing. The OCC adopts
this provision as proposed.
The final rule also removes the hearing-related provisions from
proposed Sec. 5.10, Comments and requests for hearings, and places them
in Sec. 5.11, Hearings and other meetings.
Hearings and Other Meetings (Sec. 5.11)
The proposal reorganized and streamlined this section. Under the
proposal, any person could submit a written request for a hearing. The
proposal noted that the OCC generally grants a hearing request only
upon a determination that written submissions would be insufficient or
that a hearing would benefit the decisionmaking process or be in the
public interest.
Some commenters recommended that the OCC adopt more stringent
requirements for determining when to grant a hearing. Other commenters
suggested that the OCC make the standards for granting a hearing more
lenient. The OCC believes that this provision represents an equitable
and balanced approach because it provides an adequate basis for an
individual to request a hearing, but provides more clarity with respect
to the circumstances under which the OCC will grant the request. The
OCC adopts this provision substantially as proposed.
The proposal also provided that the person requesting a hearing
would no longer bear the cost of the hearing room or the OCC's
transcripts. The person requesting the hearing would continue to assume
the cost of one copy of the transcript for his or her use.
Some commenters suggested that the OCC continue to require the
person requesting the hearing to bear the cost of the hearing room and
transcription of the proceedings. These commenters believed that by not
imposing these costs the number of requests might increase. This could
increase the burden
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and costs associated with filing an application. However, the ability
to cover these costs is not a factor in determining whether to grant a
request for a hearing. The OCC has consistently considered requests to
waive these costs on a case-by-case basis. Thus, the final rule does
not change the proposal in this regard.
The final rule also adds new provisions for the OCC to arrange
meetings between interested parties to an application in settings less
formal than a hearing. Under the final rule, the OCC may arrange for a
public meeting in connection with an application, either upon receipt
of a written request for such a meeting which is made during the
comment period or upon the OCC's own initiative. The OCC also may
arrange a private meeting with an applicant or other interested parties
to an application, or with an applicant and other interested parties to
an application, in order to clarify and narrow the range of differences
on an application.
The final rule also makes a structural change to this section and
Sec. 5.10, Comments, by adopting proposed Sec. 5.10(c)-(e) as part of
Sec. 5.11 to consolidate all the information on hearings into one
section.
Computation of Time (Sec. 5.12)
The proposal made no substantive changes to this section, and the
OCC received no comments on this section. Therefore, the OCC adopts
this section as proposed.
Decisions (Sec. 5.13)
The proposal reorganized and clarified the various types of OCC
decisions on filings. It also explained that the OCC grants eligible
banks expedited processing for certain filings and clarified the
circumstances under which the OCC may determine not to grant expedited
processing for a filing by an eligible bank. Under the proposal, the
OCC would have decided not to process an application under the
expedited procedures if it had concluded that the filing or an adverse
public comment received prior to the OCC's decision presented a
significant supervisory, CRA (if applicable), or compliance concern, or
raised a significant legal or policy issue.
The great majority of commenters strongly supported the proposed
revisions to this section, with a number of commenters suggesting
additional changes. In response to the comments, the OCC changed the
final rule to clarify both when the expedited review process might be
extended and the circumstances under which an application will be
removed from the expedited review process. As set forth below, these
changes are designed to balance the concerns of those interested in
removing undue delays from the application process with the need fairly
to assess legitimate CRA concerns.
Under the final rule, the OCC will remove a filing from the
expedited review category if the OCC concludes that the filing, or an
adverse comment regarding the filing, presents a significant
supervisory, CRA (if applicable), or compliance concern, or raises a
significant legal or policy issue requiring additional OCC review. With
respect to adverse comments that present CRA concerns, the final rule
clarifies that a significant CRA concern exists if the OCC concludes
that: (1) a bank's CRA rating is less than satisfactory, institution-
wide, or, where applicable, in a state or multistate MSA; or (2) a
bank's CRA performance is less than satisfactory in an MSA or in the
non-MSA portion of a state in which it seeks to expand through approval
of an application for a deposit facility as defined in 12 U.S.C.
Sec. 2902(3).
The final rule also adds a new provision to recognize that in
certain circumstances it may be necessary to extend the review process
in order to evaluate further whether to remove an application from
expedited review processing. Under the final rule, the OCC may extend
the review process up to an additional ten days in circumstances where
a comment contains specific assertions concerning a bank's CRA
performance. Under the final rule, the OCC may extend the review period
if these specific assertions, if true, would indicate a reasonable
possibility that: (1) a bank's CRA rating would be less than
satisfactory, institution-wide, or, where applicable, in a state or
multistate MSA; or (2) a bank's CRA performance would be less than
satisfactory in an MSA or in the non-MSA portion of a state in which it
seeks to expand through approval of an application for a deposit
facility as defined in 12 U.S.C. Sec. 2902(3). This provision allows
the OCC additional time to assess specific CRA assertions by a
commenter and determine whether additional review, which would warrant
removal of the application from the expedited review category, is
needed.
The OCC notes, however, that it may not be necessary to trigger the
extra ten-day review period in all cases. For example, the OCC may
already have sufficient current information to permit it to assess the
particular assertions contained in the comment. In these cases, the
OCC's information would provide the basis for concluding whether or not
to remove an application from expedited review processing without
extending the period an additional ten days.
In other circumstances, the OCC is prepared, within the additional
time allowed, promptly to conduct a targeted investigation of CRA
performance. These inquiries could be conducted, for example, whenever
additional detailed information is needed to evaluate CRA comments
involving particular branches or assessment areas. In these situations,
the information obtained from the inquiry would allow the OCC to
determine whether the comment raises a ``significant'' unresolved CRA
concern necessitating further review and removal from expedited review
processing. The OCC will provide the applicant with a written
explanation if it decides not to process an application from an
eligible bank under expedited review pursuant to Sec. 5.13(a).
The OCC also notes that it may deny or condition approval of an
application, including under the expedited review procedures, even if
the bank has an overall satisfactory CRA rating in order to ensure
satisfactory performance in a particular state or multistate MSA, or,
where applicable, in an MSA or the non-MSA portion of states.
The proposal also set forth certain circumstances where adverse CRA
comments would not remove an application from expedited review
processing. Under the proposal, adverse comments that did not raise
significant supervisory, CRA (where applicable), or compliance
concerns, or significant legal or policy issues, or that were
frivolous, filed primarily to delay action on the filing, or that
raised negative CRA issues that already had been resolved between the
commenter and the applicant would not prevent an eligible bank's filing
from receiving expedited processing. Several commenters suggested that
the OCC clarify the phrase ``resolved by the commenter and the
applicant.''
The OCC understands the difficulties in having all parties agree
that an issue has been ``resolved.'' Therefore, rather than have the
commenter and the applicant decide that an issue has been resolved, the
final rule clarifies the circumstances under which the OCC will
determine an issue to have been satisfactorily resolved. Under the
final rule, the OCC considers a CRA concern to have been satisfactorily
resolved if the OCC previously reviewed (e.g., in an examination or in
connection with an application) a CRA concern presenting substantially
the same issue in substantially the same area during
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substantially the same time, and the OCC determines that the concern
would not warrant denial or imposition of a condition on approval of
the application. The final rule also removes reference to comments
``filed for competitive reasons'' from these processing criteria
because the OCC has concluded that such standard would likely be
impractical to apply.
The proposal also set forth the circumstances under which the OCC
would reconsider a denial of a filing and consolidated the paragraph
regarding OCC reconsideration of applications.
One commenter suggested that the OCC include a reference to the
OCC's Ombudsman in the regulation. The final rule notes that an
applicant may file an appeal with the Ombudsman or the Deputy
Comptroller for Bank Organization and Structure.
The proposal also added a provision explaining that the OCC does
not generally grant a national bank an extension of time to commence a
corporate activity once approved by the OCC. Some commenters indicated
that the OCC should provide more flexibility for certain transactions
that are beyond the applicant's control. The OCC recognizes this
concern and has modified the rule accordingly. Under the final rule,
the OCC generally will not grant an extension of time to commence a new
or expanded corporate activity, unless the OCC determines that the
delay is beyond the applicant's control.
The proposal also provided that the OCC could nullify any decision
if there was a material misrepresentation or omission in the underlying
filing, or if the decision was contrary to law, regulation, or OCC
policy, or was granted due to a clerical or administrative error or a
material mistake of law or fact. Two commenters suggested that the OCC
should revise the proposal regarding its authority to nullify a
decision. However, the OCC believes that this approach will not prove
burdensome to applicants and will preserve the integrity of the
application process. Therefore, the OCC adopts the language contained
in the proposal.
Finally, the OCC has changed this section to clarify that a filing
must contain all information required by the relevant regulation and
that a filing may be deemed abandoned if required information is not
furnished as required or within a specified time period.
Organizing a Bank (Sec. 5.20)
The proposal clarified, streamlined, and reorganized this section
to focus on those issues central to charter applications. It also
incorporated and consolidated provisions regarding special purpose
national banks, such as national banks limited to fiduciary activities.
The OCC received few comments addressing this section. One
commenter recommended an expedited review process for ``well-
capitalized'' bank holding companies establishing de novo banks.
Another commenter urged the OCC to consider the financial and
managerial resources of a sponsoring bank holding company rather than
those of the organizers.
The OCC agrees with the commenters that an application to organize
a new bank that is sponsored by a bank holding company whose lead
depository institution meets certain requirements does not present the
same level of safety and soundness and other supervisory concerns as
other applications to organize a bank. Thus, the final rule provides
that the OCC will preliminarily approve a charter application sponsored
by a bank holding company whose lead depository institution is an
eligible bank or eligible depository institution, as of the 15th day
after the close of the comment period or 45 days after a filing is
received by the OCC, whichever is later, unless the OCC notifies the
applicant that it is not eligible for expedited review, or the
expedited review process is extended, under Sec. 5.13, or the OCC
determines that the proposed bank will offer banking services that are
materially different from those offered by the lead depository
institution. The final rule defines the term ``lead depository
institution'' in Sec. 5.20(d)(5) as the largest depository institution
controlled by the bank holding company based on a comparison of the
average total assets controlled by each depository institution as
reported in its Consolidated Report of Condition and Income for the
immediately preceding four calendar quarters. The final rule also
clarifies that the OCC considers the financial and managerial resources
of the sponsor, rather than the organizing group, if the organizing
group is sponsored by an existing holding company, individuals
currently affiliated with other depository institutions, or individuals
who, in the OCC's view, are otherwise collectively experienced in
banking and have demonstrated the ability to work together effectively.
The proposal also maintained the OCC's ability, as a condition of
charter approval, to object to and preclude the hiring of any officer,
or appointment or election of any director, for two years following the
commencement of the bank's business. This provision is retained in the
final rule.
The final rule also provides that a national bank that seeks to
invest in a bank with a community development focus must comply with
the applicable requirements of 12 CFR part 24.
Conversion (Sec. 5.24)
The proposal reorganized and streamlined the OCC's rules governing
charter conversions involving national banks. Among other things, the
proposal clarified the types of entities that may convert to a national
bank and established procedures for conversions from a national bank to
another form of charter. The proposal also added specific language
throughout this section to clarify the precise requirements and law
applicable to an institution converting to a national bank charter.
The proposal also provided more explicit procedures for a financial
institution converting to a national bank charter. The proposal
required institutions converting to a national bank charter to identify
all subsidiaries the institution seeks to retain following the
conversion and to provide the information and analysis of the
subsidiary's activities that would be required under Sec. 5.34. In
addition, as did the proposal, the final rule requires institutions
converting to a national bank charter to identify nonconforming assets
(including nonconforming subsidiaries) and nonconforming activities
that the institution holds or engages in. The OCC considers requests to
retain nonconforming assets of a state bank pursuant to its authority
under 12 U.S.C. 35.
The OCC adopts the language in the proposal with a few clarifying
changes and one additional change intended to reduce regulatory burden.
The final rule establishes an expedited review procedure for healthy
state banks or Federal or state savings associations (eligible
depository institutions as defined in Sec. 5.3(h)) that wish to convert
to a national bank charter. Under this provision, an application by an
eligible depository institution to convert to a national bank is deemed
approved as of the 30th day after a filing is received by the OCC,
unless the bank is notified that it is not eligible for expedited
review under the standards contained in Sec. 5.13(a)(2).
Fiduciary Powers (Sec. 5.26)
The proposal reorganized the OCC's application procedures for
fiduciary powers and clarified the circumstances under which the OCC
requires a national bank to obtain approval to
[[Page 60347]]
exercise fiduciary powers. The proposal also provided that a separate
application to exercise fiduciary powers was not required when: (1) two
or more national banks merge or consolidate and one of the banks has
previously received approval to exercise fiduciary powers that is in
effect at the time of the merger, or (2) a national bank with fiduciary
powers is the resulting bank in a merger or consolidation with a state
bank without fiduciary powers. An applicant applying for a charter for
a national bank limited to fiduciary activities should file its
application under Sec. 5.20.
Two commenters supported the revisions to Sec. 5.26. The OCC adopts
the changes contained in the proposal with two substantive additions
intended to further reduce paperwork burdens for a national bank filing
an application under this section. Under the final rule, if approval to
exercise fiduciary powers is desired in connection with any other
transaction subject to an application under this part, an applicant may
include its request for approval to exercise fiduciary powers as part
of its other application. The OCC does not require a separate
application to exercise fiduciary powers in these circumstances.
The final rule also streamlines the application procedure for a
national bank meeting the eligible bank criteria contained in
Sec. 5.3(g). Under the final rule, an eligible bank need not submit an
opinion of counsel to the OCC. However, in certain circumstances, the
OCC may request this information prior to the bank commencing the
activity.
Finally, the final rule clarifies that when a national bank with
prior OCC approval to exercise fiduciary powers commences fiduciary
activities in a new state, the bank need not file an additional
application under this section, and is only required to file a written
notice with the OCC within ten days after commencing the activities.
Establishment, Acquisition, and Relocation of a Branch (Sec. 5.30)
The proposal comprehensively revised the OCC's branching regulation
to update the definition of the types of facilities that constitute a
``branch'' and to streamline procedures for acquiring and moving
branches.
The OCC received numerous comments on this section. The OCC
carefully considered all the comments, and the final rule reflects
changes made in response to those comments and also incorporates recent
statutory changes.
A. Definition of ``Branch''
Proposed Sec. 5.30(d)(1)(ii)(A) excluded from the definition of a
branch a facility to which ``the bank does not permit members of the
public to have physical access * * * (e.g., an office established by
the bank that receives deposits only through the mail).'' This aspect
of the proposal reflected the position taken by the OCC in several
interpretive letters.
Several commenters specifically supported this provision but sought
further clarification. One commenter was concerned that prohibiting
access to ``members of the public'' would prohibit access even to those
members of the public, such as delivery people, that are at the site
for reasons other than to conduct banking transactions.
The final rule excludes from the definition of ``branch'' a
facility that would otherwise qualify as a branch because it is
established by a national bank and engages in one or more branching
functions (receipt of deposits, payment of withdrawals, or making
loans) but which prohibits access to members of the public for purposes
of conducting one or more branching functions. The OCC expects that
facilities that come within this exception will not be designed to
undertake in-person branching transactions with customers nor would
they invite members of the public to visit such sites to conduct
branching transactions.
Proposed Sec. 5.30(d)(1)(ii)(B) clarified that the term ``branch''
does not include a facility that is ``generally available to customers
of other banks to receive substantially similar services pertaining to
their accounts at other banks on the basis of substantially similar
terms and conditions.'' As recognized by a number of commenters, the
primary impact of this provision would have been to exclude from the
definition of branch ATMs that are linked to networks and, thus,
provide services to bank customers and non-customers alike. However, as
a result of recent statutory changes contained in Section 2205 of the
Economic Growth and Regulatory Paperwork Reduction Act of 1996, Public
Law 104-208, Sept. 30, 1996 (110 Stat. 3009), ATMs and remote service
units are no longer considered branches and, thus, are not subject to
the limitations on national bank branching imposed by the McFadden Act
and codified at 12 U.S.C. 36. Consequently, the OCC has deleted this
provision from the final rule and has also revised the final rule to
state specifically that ATMS and remote service units are not branches.
The OCC also recognizes, however, that other situations may still arise
where a particular facility should not be considered to be a bank
branch because it, in fact, provides services generally on a
nondiscriminatory basis with respect to accounts that its customers
hold as well as accounts held by noncustomers in other banks and
depository institutions. The OCC believes these issues are best
considered on a case-by-case basis based on the particular
circumstances involved.
B. Messenger Service
Proposed Sec. 5.30(f)(2)(iii) sets forth procedural rules specific
to the establishment of messenger services. One commenter asked the OCC
to define the term ``messenger service.'' The OCC believes that
defining the term ``messenger service'' will clarify the applicability
of these provisions and thus adds a definition that cross-references
the definition of ``messenger service'' in 12 CFR 7.1012. In addition,
the provisions permitting multiple messenger service applications to be
combined has been retained in the final rule.
C. Public Notice for a Mobile Branch
Proposed Sec. 5.30(h)(1) stated the publication requirements for a
mobile branch application. One commenter requested clarification on the
publication requirements. An applicant must publish public notice for a
mobile branch or messenger service application in a newspaper that
meets the requirements of Sec. 5.8 for each area in which the mobile
facility will provide branching services. An applicant need only
publish public notice in one newspaper that meets those requirements in
each area that it intends to serve. In addition, the final rule adds a
definition of ``mobile branch'' which includes a branch, other than a
messenger service facility, that does not have a single, fixed site,
such as a van that travels to various public locations to enable
customers to conduct their banking business. Each mobile unit requires
a branching license. This is because a mobile facility is available at
public sites to customers generally, unlike a messenger service
facility that only serves specific customers at places such as their
homes or businesses.
D. Reduced Comment Period
Proposed Sec. 5.30(h)(2) provided a ten-day comment period for an
application to establish an ATM branch and to engage in a short-
distance branch relocation. While many commenters explicitly supported
these reduced comment periods, several commenters thought that the OCC
should apply the ten-day comment period more broadly.
In applying a reduced comment period for ATM branches and short-
distance relocations, the OCC attempted to identify those types of
applications
[[Page 60348]]
that are less likely to raise legal and policy concerns which generally
lead to public comment. Short-distance relocations, which are unlikely
in most states to raise legal concerns and where the relocated branch
will serve the same area as the former branch, are less likely to raise
concerns giving rise to public comment. Consequently, the final rule
does not expand the availability of the reduced comment period.
However, because the statutory change excluded ATMs from the term
``branch'' as that term is used in the McFadden Act, the final
regulation applies the reduced comment period only to short distance
relocations and increases the comment period to 15 days. Similarly,
because of the statutory change with respect to ATMs and remote service
units, the proposed rule permitting a national bank to seek approval
for multiple ATMs and unstaffed branches in one application is no
longer necessary.
E. Temporary Branches
The proposal requested comment on whether to apply streamlined
procedures to temporary branches. All commenters who addressed this
issue supported some form of streamlined processing for temporary
branches. Therefore, the final rule contains a statement that the OCC
will consider a request to waive or reduce the public notice and
comment period with respect to an application to restore banking
services to a community affected by a disaster or temporarily replace
banking facilities where, because of an emergency, the bank temporarily
cannot provide or must curtail banking services. Also, the procedures
set forth in OCC Advisory Letters 94-3, 94-4, and 94-6 regarding
branches at colleges and universities continue to be valid.
The final rule also provides that the OCC may waive or reduce the
public notice and comment period, with respect to an application to
establish a temporary branch, if: (1) the applicant bank has a CRA
rating of ``Satisfactory'' or better; and (2) the temporary branch, if
established by a state bank to operate in the manner proposed, would be
permissible under state law without state approval. For these purposes,
the final rule defines a temporary branch as a branch that is located
at a fixed site and from the time of its opening is scheduled to close,
and will permanently close, as of a certain date no longer than one
year after it is first opened. Of course, if a proposal for a temporary
branch does not meet these requirements, the bank can still apply to
establish the branch under the standard branch application procedures.
Business Combinations (Sec. 5.33)
The proposal substantially reorganized, condensed, and simplified
this section. The proposal used the term ``business combination,''
rather than ``merger,'' to avoid confusion on specific transactions and
incorporated pertinent information regarding interim banks from former
Secs. 5.20 and 5.21. The proposal also provided for expedited review of
certain corporate reorganizations (e.g., a holding company could
combine certain subsidiary banks under an expedited review process).
The proposal adopted the procedures of 12 U.S.C. 214a, 214c, 215,
and 215a for combinations between national banks and Federal savings
associations, with appropriate modifications to conform the style of
Sec. 5.33(g) with the rest of Sec. 5.33 and part 5. In addition,
similar to the treatment of conversions, references in 12 U.S.C. 214c
to the ``law of the State in which such national banking association is
located'' and ``any State authority'' mean ``the laws and regulations
governing Federal savings associations'' and ``Office of Thrift
Supervision,'' respectively.
The proposal also revised this section to reflect certain
provisions of the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994, Public Law 103-328, Sept. 29, 1994, 108 Stat.
2338 (Riegle-Neal Act), regarding interstate business combinations.
The overwhelming number of comments received supported the proposed
changes to Sec. 5.33. Therefore, the OCC adopts this section
substantially as proposed with an additional burden-reducing feature.
This new provision in the final rule permits certain healthy banks to
use a streamlined application form under expedited review procedures to
effect certain types of business combinations. The OCC believes that
this approach will significantly reduce paperwork burden for these
banks while maintaining the focus of the OCC's review on those areas
that pose significant risks to national banks.
Under the final rule, an applicant may file an abbreviated
application form as instructed in the Manual and qualify for expedited
processing of its application if: (1) at least one party to the
transaction is an eligible bank and all other parties to the
transaction are eligible banks or eligible depository institutions, the
resulting national bank will be well capitalized immediately following
the consummation of the transaction, and the total assets of the target
depository institution are not more than 50 percent of the total assets
of the acquiring bank, as reported in each institution's Consolidated
Report of Condition and Income filed for the quarter immediately
preceding the filing of the application; (2) the acquiring national
bank is an eligible bank, the target bank is not an eligible bank or an
eligible depository institution, the resulting national bank will be
well capitalized immediately following consummation of the transaction,
and either (a) the appropriate district office has approved the use of
the streamlined form; or (b) the total assets acquired do not exceed 10
percent of the total assets of the acquiring national bank, as reported
in each institution's Consolidated Report of Condition and Income filed
for the quarter immediately preceding the filing of the application. A
streamlined application form will, of course, continue to require
information necessary for the OCC to make a determination under the
standards of the Bank Merger Act and this regulation, which include the
convenience and needs of the community to be served and relevant CRA
considerations.
Under the final rule, these applications, together with
applications that qualify as ``business reorganizations,'' will be
deemed approved by the OCC as of the 45th day after the filing is
received by the OCC or the 15th day after the close of the comment
period, whichever is later, unless the OCC notifies the bank that the
filing is not eligible for expedited review, or the expedited review
process is extended, under the standards in Sec. 5.13.
In addition, with respect to business reorganizations, the final
rule incorporates the eligible depository institution concept into the
expedited review process for these transactions. Thus, a business
combination between an eligible bank and eligible depository
institution controlled by the same holding company would receive
expedited processing.
Operating Subsidiaries (Sec. 5.34)
The proposal contained comprehensive revisions to Sec. 5.34,
Operating subsidiaries, and solicited public comment on a number of
issues. The overwhelming majority of commenters supported the changes
contained in the proposal. A number of commenters opposed specific
provisions, two commenters asserted that the OCC lacked authority to
issue the regulation under 12 U.S.C. 93a, and several other commenters
urged specific changes. A discussion of the comments and the changes
made in the final rule is set forth below.
[[Page 60349]]
A. Procedures
The proposal restructured the OCC approval requirements for an
application by a national bank to establish or acquire an operating
subsidiary, or to commence a new activity in an existing operating
subsidiary. Essentially, operating subsidiary proposals would fall into
one of three categories: (1) after-the-fact notice for certain types of
activities; (2) expedited processing for certain other types of
activities, when proposed to be conducted by financially strong and
well-managed banks; and (3) standard processing in other cases. These
revised procedures would expedite application processing for less
complex activities and thus reduce unnecessary regulatory burden and
enable the OCC to focus attention on novel or complex filings.
First, the after-the-fact notice procedures required a national
bank to file a notice with the OCC within ten days after acquiring or
establishing the subsidiary or commencing the new activity. The
national bank was required to be ``adequately capitalized'' or ``well
capitalized'' and not deemed to have been in ``troubled condition'' for
purposes of Sec. 5.51. In addition, the subsidiary could only engage in
certain preapproved activities that were listed as eligible for after-
the-fact notice.
The second category of procedures provided for expedited review of
applications requiring prior OCC approval. To qualify for expedited
review, a national bank was required to be an eligible bank, and the
activity proposed had to be on the list of activities permissible for
expedited processing. These applications were deemed approved 30 days
after filing, unless the OCC notified the applicant prior to that date
that the application was not eligible for expedited review under
Sec. 5.13(a)(2).
The third category of procedures generally covered all other
operating subsidiary situations.
The OCC received 20 comments addressing these procedures. The
majority of commenters supported the proposed changes.
Four commenters recommended moving certain activities from the
expedited review to the notice category. These recommendations
generally concerned activities related to foreign exchange, coin and
bullion, leasing of personal property, securities brokerage, lending
activities and providing investment advice. Two commenters also
suggested adding property appraisal services to the notice list.
In the final rule, the OCC retains the activities in the categories
set forth in the proposal with a few changes. The proposal included in
the notice category providing financial and transactional advice to
customers and assisting customers in structuring, arranging, and
executing various financial transactions, provided the bank and its
affiliates did not participate as principal. These transactions
included mergers and acquisitions, swaps and derivatives, foreign
exchange and related transactions, and arranging commercial real estate
equity financing. The final rule removes the prohibition on
participating as principal with respect to swaps and derivatives and
foreign exchange and related transactions, since these are activities
frequently undertaken directly by banks as part of their banking
business. These notice category provisions relating to swaps and
derivatives, and foreign exchange transactions, were then combined with
the provision in the expedited category relating to dealing, trading,
and investing in foreign exchange, coin and bullion and retained in the
expedited processing category.
The final rule also moves the following activities from the
expedited processing category to the notice category: (1) Activities
that relate to making, purchasing, selling, servicing and warehousing
loans, or interests therein; and (2) activities related to leasing of
personal property. However, these activities are not eligible for the
notice category where the notice involves the direct or indirect
acquisition by the bank of any low-quality asset from an affiliate in
connection with any transaction subject to Sec. 5.34. The terms ``low-
quality asset'' and ``affiliate'' have the same meaning as provided in
section 23A of the Federal Reserve Act, 12 U.S.C. 371c.
In response to comments, the final rule adds to the expedited
processing category real estate appraisal services conducted for the
subsidiary, the bank, or other financial institutions. The final rule
also adds to the notice category establishing and operating a
subsidiary to own, hold, or manage all or part of the parent bank's
investment securities portfolio.
Finally, the final rule updates activities relating to data
processing to recognize that national banks are engaging in an
increasing range of activities through electronic means. Under the
final rule, the notice category relating to data processing activities
is revised to cover activities involving data processing and
warehousing products, services and related activities, including
equipment and technology, performed for the operating subsidiary, its
parent bank, and their affiliates. The final rule also includes in the
expedited processing category data processing and warehousing products,
services and related activities, including data processing equipment
and technology permissible under 12 U.S.C. 24(Seventh) and 12 CFR
7.1019. The activities in the expedited processing category may be
performed externally for parties other than the subsidiary itself, its
parent bank, and their affiliates.
The notice category contains less complex, commonly accepted
banking-related activities that the OCC has previously approved for
operating subsidiaries on a case-by-case basis. The activities in the
expedited review category are also activities that the OCC has
previously approved but that are more complex, may require more
specialized expertise, and, at this time, warrant prior OCC review. The
OCC intends to revisit the activities contained in these categories on
a regular basis and make changes as experience dictates.
The final rule also provides that notices and expedited approvals
submitted to the OCC must contain a representation and undertaking that
the activity will be conducted in accordance with OCC policy contained
in published OCC guidance. This provision ensures that banks seeking
expedited review and after-the-fact notice procedures conform their
activities to parameters defined by the OCC. A bank may also apply
through the standard processing procedures to engage in any activity
that may not conform with OCC published guidance.
B. Ownership of the Operating Subsidiary
Former Sec. 5.34 required a national bank to own at least 80
percent of the voting stock of a corporation to qualify as an operating
subsidiary. The proposal would have amended this provision to require
the parent bank to own more than 50 percent of the voting stock.
The majority of commenters supported the proposed change, noting
that this provision would increase a national bank's flexibility to
structure its internal organization.
A number of commenters also urged the OCC to permit a national bank
to own 50 percent or less of a subsidiary under Sec. 5.34 where the
bank has effective working control over the subsidiary through other
means. The OCC has carefully considered these comments and agrees that
the bank's control of the operating subsidiary should be the
determinative factor, whether that control is through a majority of the
voting interest or though other means. Accordingly, the final rule
[[Page 60350]]
permits a national bank to own more than 50 percent of the voting (or
similar type of controlling) interest of an operating subsidiary, or 50
percent or less of the voting (or similar) interest of the subsidiary
if the bank otherwise controls the subsidiary and no other party
controls more than 50 percent of the voting (or similar type of
controlling) interest of the subsidiary.
However, to recognize that effective working control arrangements
will come in a variety of forms, the final rule requires a national
bank to file an application for OCC approval under the standard
application procedures where the national bank proposes to own 50
percent or less of the voting (or similar) interest of the subsidiary.
Thus, regardless of the type of activity that the subsidiary proposes
to engage in, a national bank would not qualify for the notice or
expedited review if it proposes to acquire 50 percent or less of the
voting (or similar) interest of an operating subsidiary. This will
permit the OCC to conduct a case-by-case review to ensure that the
national bank has effective control over the subsidiary and that the
bank is not exposed to undue risks. In determining whether there is
control, one factor the OCC will consider is whether generally accepted
accounting principles or Consolidated Reports of Condition and Income
instructions would require consolidation of the bank and its
subsidiaries.
The proposal also solicited comment on whether Sec. 5.34 should
include interests in entities other than corporations, such as limited
liability companies (LLCs). The OCC received 11 comments addressing
this issue, all of which supported including LLCs under the operating
subsidiary rule. Some commenters also suggested broadening the rule to
include other similar entities.
LLCs and other similar entities, e.g., business trusts, have
recently emerged in many states as an alternative to the corporate form
of ownership. These entities are hybrid business organizations with
characteristics of corporations (limited liability) and partnerships
(tax treatment). As such, the entities have certain key attributes of
corporations and joint ventures that the OCC has long permitted banks
to participate in--bank control of the entity and limitation or
insulation of the bank's liability for the entity's activities.
Authorizing investments in these and other similar types of entities as
operating subsidiaries increases the flexibility of national banks to
structure their operations. Moreover, to date, the OCC's experience
with LLCs has not revealed any additional risks unique to these
entities. Thus, the final rule provides that an operating subsidiary
that a national bank may invest in includes a corporation, limited
liability company, or similar entity, if the parent bank owns more than
50 percent of the entity's voting (or similar type of controlling)
interest, or otherwise controls the subsidiary and no other party
controls more than 50 percent of the voting (or similar type of
controlling) interest in the subsidiary. However, as is the case with
national bank investments in operating subsidiaries that are
corporations, only the standard application procedures apply to
investments of 50 percent or less of the voting (or similar) interest
where the parent bank otherwise controls the LLC or similar entity.
The final rule retains the language in the former rule relating to
consolidation of book figures of a parent bank and operating subsidiary
with some modifications. Under the final rule, pertinent book figures
of the parent bank and its operating subsidiary must be combined in
order to apply certain statutory limitations to the parent bank and its
subsidiary on a combined basis, such as dividend limitations and
lending limits. See e.g., 12 U.S.C. 56, 60, 84 and 371d. However, in
determining compliance with statutory limits based on regulatory
capital, the bank will be required to make any reductions in regulatory
capital required by 5.34(f), discussed later.
C. Fiduciary Powers
The proposal also requested comment on whether Sec. 5.34 should
require a national bank to obtain approval to exercise fiduciary powers
as a precondition to providing investment advice, either in the bank or
through a subsidiary.
The OCC received seven comments on this issue and all opposed the
requirement. A number of commenters viewed the requirement as overly
broad. Moreover, commenters noted that requiring a national bank to
obtain prior OCC approval could result in different treatment for
national banks and state-chartered banks.
The OCC has carefully considered these comments, and the final rule
provides that if an operating subsidiary proposes to exercise
investment discretion on behalf of customers or to provide investment
advice for a fee, the bank must obtain OCC approval to exercise
fiduciary powers, and the subsidiary will be subject to the
requirements of 12 CFR part 9, except in two circumstances. First, the
bank is not required to obtain approval to exercise fiduciary powers if
the subsidiary is registered under the Investment Advisers Act of 1940,
15 U.S.C. 80b-1 et seq. Second, approval is not required if the
subsidiary is registered, or has filed a notice, under the applicable
provisions of sections 15, 15B or 15C of the Securities Exchange Act of
1934, 15 U.S.C. 78o, 78o-4, or 78o-5, as a broker, dealer, municipal
securities dealer, government securities broker or government
securities dealer; and the subsidiary's performance of investment
advisory services as described in 15 U.S.C. 80b-2(a)(11) is solely
incidental to the conduct of its business as broker or dealer and there
is no special compensation to the subsidiary for those advisory
services. This approach ensures effective regulation of the entity
exercising the investment discretion in accordance with industry
standards and avoids duplicative layers of regulatory oversight.
D. New Procedure for Certain Activities
The proposal revised former Sec. 5.34(d)(2)(i) to provide that
``unless otherwise provided by statute or regulation, or determined by
the OCC in writing, all provisions of Federal banking laws and
regulations applicable to the operations of the parent bank apply to
the operations of the bank's operating subsidiaries.'' (Emphasis
added). The proposed revised standard would have allowed the OCC to
determine, on a case-by-case basis, whether a bank could conduct
through a subsidiary an activity within the business of banking or
incidental thereto, but for one reason or another prohibited to a
national bank directly to conduct or conduct in that manner, as in the
case where (1) a specific prohibition applies to a parent bank but not
to the bank's subsidiary, or (2) the legal authority to conduct the
activity is otherwise restricted to the subsidiary.
The OCC received 46 comments on this provision. Approximately 75
percent of the commenters supported the provision in some fashion, most
very strongly. Among other things, commenters noted that the proposal
would: (1) provide banks with corporate flexibility and a meaningful
alternative to structure their operations; (2) improve efficiencies;
and (3) foster competition in the development and delivery of banking
products and services to benefit consumers and businesses.
Several commenters opposed the proposal, however. These commenters
included several trade associations that generally questioned bank
entry into certain lines of business. A number of these commenters also
urged the OCC not to take action on the proposal until
[[Page 60351]]
Congress acted on the scope of permissible bank affiliate powers.
Commenters also raised concerns with the OCC's authority to adopt
the proposal and with safety and soundness issues associated with the
proposal. Among other things, commenters asserted that: (1) the OCC
lacks the authority to adopt the provision under 12 U.S.C. 24(Seventh)
because the proposal would be inconsistent with the statutory language
and legislative history of 12 U.S.C. 24(Seventh); (2) the proposal is
inconsistent with past OCC precedent; (3) the provision may be
inconsistent with sections 16 and 21 of the Banking Act of 1933 (Act of
June 16, 1933, Ch. 89, section 16 and section 21, 48 Stat. 162, 184,
and 189) (the 1933 Act or the Glass-Steagall Act); (4) the proposal may
be inconsistent with the Bank Holding Company Act because that Act
should be viewed as the exclusive method by which bank affiliates may
engage in bank-ineligible activities; (5) the OCC lacks the authority
to adopt the proposed changes under 12 U.S.C. 93a because that
authority does not apply to securities activities of national banks
under the Glass-Steagall Act 1; and (6) the proposal would expose
national banks to unacceptable safety and soundness risks.
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\1\ The Securities and Exchange Commission expressed no
objection to the OCC's proposal regarding expanded activities for
operating subsidiaries subject to the understanding that: (1) the
OCC intended that securities activities conducted in operating
subsidiaries are subject to regulation under the Federal securities
laws, and (2) the OCC's proposal was not intended as a steppingstone
to permit activities previously not permitted for a bank to conduct
itself to be shifted from an operating subsidiary to the bank. If,
in fact, securities activities are approved for an operating
subsidiary, these understandings will be correct.
---------------------------------------------------------------------------
The OCC has carefully considered all of these concerns, and, for
the reasons discussed below, has determined to adopt various changes to
this portion of the proposal to address issues raised by the
commenters. In sum, under the procedures prescribed by Sec. 5.34 of the
final rule, a national bank may establish or acquire an operating
subsidiary to conduct, or may conduct in an existing operating
subsidiary, activities that are part of or incidental to the business
of banking, as determined by the Comptroller of the Currency, pursuant
to 12 U.S.C. 24(Seventh), and other activities permitted for national
banks or their subsidiaries under other statutory authority. In certain
circumstances, as described in Sec. 5.34(f), this may include
permitting a national bank to acquire or establish an operating
subsidiary to conduct, or to conduct in an existing operating
subsidiary, an activity that is permissible for the subsidiary under
the foregoing standards but different from that permissible for the
parent national bank. In these circumstances the activity will be
subject to a number of safeguards, discussed below, and the OCC will
publish a notice in the Federal Register and request comment prior to
taking action on the application if the proposed activity has not been
previously approved by the OCC.2 For subsequent applications for
the same activity, the OCC also may publish a notice and seek comment.
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\2\ This new notice process will allow commenters to present
any issues they believe the OCC should take into account in
connection with the particular bank and its proposed activity, e.g.,
legal issues, safety and soundness concerns, and service to the
bank's community.
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The final rule contains a number of built-in safeguards, responding
to issues raised by commenters, to ensure that any new activities are
conducted safely and soundly. Moreover, new activities will be approved
only after case-by-case consideration has afforded the OCC the
opportunity not only to require conformance with the conditions
detailed in the final rule but also with any additional conditions that
may be appropriate for a particular activity and for the particular
applicant bank. This approach--tailoring the scope of the approval, if
approval is appropriate, to the circumstances of the activity in
question--allows the OCC to fulfill its continuing obligation to ensure
that risk is identified, managed and controlled.
The following sections discuss in detail the particular concerns
raised by certain commenters.
1. Authority Under 12 U.S.C. 24(Seventh) for the Final Operating
Subsidiary Rule
Some commenters asserted that 12 U.S.C. 24(Seventh) prohibits a
national bank from owning stock for its own account and that the OCC
does not have the authority to permit national bank operating
subsidiaries. These commenters also contended that, because of this,
the OCC lacks the authority under 12 U.S.C. 24(Seventh) to issue a
final rule permitting a national bank subsidiary to conduct an activity
deemed to be part of the business of banking or incidental thereto, but
different from that permitted for its parent bank to conduct directly.
The commenters who asserted that 12 U.S.C. 24(Seventh) precludes a
national bank from owning any stock in a corporation point to the
language in 12 U.S.C. 24(Seventh) that states: ``Except as hereinafter
provided or otherwise permitted by law, nothing herein contained shall
authorize the purchase [by the bank] of any shares of stock of any
corporation.''
This language, which was added to 12 U.S.C. 24(Seventh) by section
16 of the 1933 Act has, for decades, been consistently interpreted by
the OCC as preventing national banks from undertaking the types of
speculative stock purchases that were the object of the 1933 Act, not
as a bar to the ability of national banks to have subsidiaries or to
own stock, where such ownership is otherwise authorized. This
interpretation is entirely consistent with the language of 12 U.S.C.
24(Seventh) cited above--that the new provisions added in 1933 do not
authorize national banks to purchase corporate stock, but to the extent
other authority exists to do so, that authority remains intact.\3\
Thus, such ownership as is ``otherwise permitted by law'' remains
permissible. One such ``law'' is the powers sentence in 12 U.S.C.
24(Seventh), which was unaffected by the section 16 changes. This
analysis is amply supported by the legislative history accompanying the
enactment of this language.\4\
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\3\ See Legal Opinion from Julie L. Williams, Chief Counsel, to
Eugene A. Ludwig, Comptroller of the Currency, ``Legal Authority for
Revised Operating Subsidiary Regulation,'' (November 18, 1996),
(Legal Opinion), at 9-14.
\4\ See Legal Opinion at 8-11.
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The key national bank powers portion of section 24(Seventh), which
has existed essentially unchanged since its enactment in 1864, states
that a national bank is expressly authorized to carry on the business
of banking and to exercise ``all such incidental powers as shall be
necessary'' to carry on that business. The courts have construed the
term ``necessary'' to mean ``convenient and useful''. See Arnold Tours,
Inc. v. Camp, 472 F.2d 427 (1st Cir. 1972).
In NationsBank of North Carolina, N.A. v. Variable Annuity Life
Insurance Co., 115 S.Ct. 810, 130 L.Ed. 2d 740 (1995), (VALIC), the
Supreme Court confirmed that a national bank's permissible activities
are not limited to the five enumerated powers described in the powers
sentence of 12 U.S.C. 24(Seventh) and activities incidental to those
enumerated powers. ``[T]he Comptroller * * * has discretion to
authorize activities beyond those specifically enumerated. The exercise
of the Comptroller's discretion, however, must be kept within
reasonable bounds.'' Id. at 814, n.2.
It is clear that the authority under 12 U.S.C. 24(Seventh) includes
activities that are incident to being in business generally, and that a
bank, as a business, may engage in activities that are
[[Page 60352]]
convenient and useful to the conduct of that business. For example,
such powers as having employees and borrowing money to conduct
operations fall into this category. Moreover, Congress has repeatedly
recognized and regulated these business activities of banks without
deeming it necessary to authorize them explicitly because they are
authorized by the powers sentence in 12 U.S.C. 24(Seventh). Thus, for
example, various statutes refer to duties of bank employees and place
limits on the ownership of bank premises, assuming their existence in
each case.5
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\5\ See Legal Opinion at 2-5.
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The use of subsidiaries is convenient and useful to national banks
in conducting their banking business, and the ability of national banks
to own subsidiaries under the authority of 12 U.S.C. 24(Seventh) is
well founded. For example, the changes made to 12 U.S.C. 24(Seventh) by
the 1927 McFadden Act, (Act of February 25, 1927, Ch. 191, section
2(b), 44 Stat. 1226) (1927 Act) and the 1933 Act confirm that national
banks have authority to own subsidiaries pursuant to their incidental
powers. In each instance, the statute placed limitations on bank
subsidiary activities, presupposing the ability of the bank to own and
operate a subsidiary in the first place, even though such ownership was
not expressly identified in the statute as a bank power. For example,
the 1927 Act limited the amount a national bank could invest in a
corporation conducting a safe deposit business, thereby acknowledging
that banks already had authority to own this type of corporation under
12 U.S.C. 24(Seventh). Similarly, in one of many examples from the 1933
Act supporting this proposition, that Act limited the amount that a
national bank could invest in a bank premises subsidiary corporation,
thereby acknowledging the continued lawfulness of the investment.6
The 1933 Act also imposed limits on transactions by national banks (and
state member banks) with their ``affiliates,'' which were defined to
include companies that were controlled by a bank.7 The scope of
these provisions would make no sense unless Congress believed that
national banks had the authority in the first place to control a
company as a subsidiary.
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\6\ See Legal Opinion at 4-7, 13.
\7\ See Legal Opinion at 12-14.
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Nor does the OCC believe that the ownership of a subsidiary is
convenient or useful to its parent bank only when the subsidiary can do
no more than duplicate the activities permissible for its parent bank.
Clearly, the ability to operate something other than a precise clone of
itself could be convenient or useful to a bank in various situations.
Those situations have boundaries, however, since not just the ownership
of the subsidiary, but also what it does, must be part of or incidental
to the business of banking, or otherwise authorized for the bank or the
subsidiary.
Accordingly, under the final rule, a national bank operating
subsidiary remains limited in its activities to those that are part of
or incidental to the business of banking as determined by the OCC, or
otherwise permissible for national banks or their subsidiaries under
other statutory authority. The final rule confirms, however, that this
may include activities different from what the parent national bank may
conduct directly, if, in the circumstances presented, the reason or
rationale for restricting the parent bank's ability to conduct the
activity does not apply to the subsidiary, and if the ability of the
subsidiary to conduct the activity would not frustrate a congressional
purpose of preventing the activity from being undertaken by its parent
bank.8
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\8\ See Legal Opinion at 19-24.
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Under the final rule, therefore, the OCC must evaluate an operating
subsidiary application involving this type of activity on a case-by-
case basis. For each activity, the OCC will consider the particular
activity at issue, and weigh: (1) the form and specificity of the
restriction applicable to the parent bank; (2) why the restriction
applies to the parent bank; and (3) whether it would frustrate the
purpose underlying the restriction on the parent bank to permit a
subsidiary of the bank to engage in the particular activity. The OCC's
evaluation of all these factors will also take into account safety and
soundness implications of the activity, the regulatory safeguards that
apply to the operating subsidiary and to the activity itself, any
conditions that may be imposed in conjunction with an application
approval, and any additional undertakings by the bank or the operating
subsidiary that address the foregoing factors.
2. Consistency of the Final Rule With Past OCC Precedent
Some commenters have asserted that prior OCC characterizations of a
national bank operating subsidiary as a ``department of the bank'' and
other statements on the permissible activities of an operating
subsidiary preclude the OCC from determining that an operating
subsidiary may conduct an activity not directly permissible for the
parent bank, even if the activity is part of or incidental to the
business of banking. The OCC recognizes that some may have viewed the
terminology it has used as representing a legal conclusion regarding
the outer bounds of the activities permissible for a national bank
operating subsidiary. However, neither the OCC's position nor judicial
precedent is that limiting.
It is true that the OCC has generally taken a policy position that
the Federal banking laws applicable to a national bank should also
apply to its operating subsidiary. That this did not represent a legal
determination that an operating subsidiary may never permissibly
conduct activities different from those allowed its parent bank is
illustrated, however, by exceptions contained in even relatively early
OCC approvals. See, e.g., Letter from Deputy Comptroller DeShazo
(October 25, 1967); Letter from Deputy Comptroller Watson (January
1968). See also, Interpretive letter No. 289, reprinted in [1983-1984
Transfer Binder] Fed. Banking L. Rep. (CCH) para. 85,453 (approving an
operating subsidiary to act as a general partner of a partnership
formed to establish ATMs).9 See also Independent Bankers Ass'n of
Georgia v. Board of Governors of the Federal Reserve System, 516 F.2d
1206 (D.C. Cir. 1975) (a national bank could lawfully conduct, through
a subsidiary that was a holding company, banking operations at various
locations in a state that would have been barred for the bank directly
under the state's branching laws).
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\9\ See Legal Opinion at 21-23.
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The final rule resolves the ambiguities of OCC precedents by
clarifying that the permissible activities of an operating subsidiary
are not necessarily a carbon copy of the permissible activities of its
parent. However, the activities still must qualify as a part of the
business of banking or incidental thereto, or be permissible for
national banks or their subsidiaries under other statutory authority,
and the final rule also provides a specific (and public) process for
evaluating applications that involve this type of activity.
This approach is based not only on extensive reanalysis of the
relevant statutes and legislative history, but also on the availability
of enhanced supervisory tools for ensuring that these activities are
conducted safely and soundly. The OCC is not precluded from modifying
its policies where the modification is lawful and where enhanced
flexibility can be appropriately monitored and contained via the
imposition of conditions as
[[Page 60353]]
warranted and the availability of improved supervisory tools. Cf.
Smiley v. Citibank, 116 S.Ct. 1730, 135 L.Ed. 2d 25 (1996). For
example, as discussed later, Congress has provided the bank regulatory
agencies enhanced authority to levy civil money penalties and issue
cease and desist orders to deter unsafe or unsound activities. In
addition, an extensive ``prompt corrective action'' regime of mandatory
and discretionary supervisory tools was enacted in 1991 to enable
regulators to protect the financial stability of all types of insured
depository institutions.
3. Consistency With the Glass-Steagall Act
Some commenters also suggested that the proposal would not be
consistent with various provisions of the Glass-Steagall Act. These
commenters contended that Secs. 16 and 21 of the Glass-Steagall Act
prevent commercial and investment banking functions from being
conducted by a single entity.
The OCC notes that these comments are premised on the assumption
that the OCC will approve specific types of activities under this
regulation and go on to provide the commenters' views about the
legality of conducting those types of activities in an operating
subsidiary. However, the final rule only establishes a process that
enables the OCC to consider and act on a broader range of corporate
activities than is permitted for operating subsidiaries under former
part 5. By issuing this portion of the final rule, the OCC is not
addressing or approving any particular activity for national bank
operating subsidiaries. The OCC will evaluate applications to engage in
any new operating subsidiary activity on a case-by-case basis following
a comprehensive review of any supervisory, policy or legal concerns,
consistent with the new procedures for public notice and comment set
forth in the final rule.
4. Consistency With the Bank Holding Company Act
Some commenters asserted that the regulation is inconsistent with
the Bank Holding Company Act (BHCA) because the BHCA is the exclusive
means by which bank holding company affiliates can engage in activities
not permissible for banks to conduct themselves. Some of these
commenters asserted, for example, that the BHCA, which permits bank
holding companies to engage in ineligible securities activities through
nonbank subsidiaries provides the exclusive method by which Congress
intended to permit bank affiliates to engage in activities such as
ineligible securities activities.
As noted above, however, this final rule only establishes a process
for the OCC to consider a broader range of subsidiary activities.
Approval of a particular activity will be subject to the application
process set forth in the regulation. To the extent that specific
activities are questioned by commenters those issues will be addressed
in the context of a specific application; they are not presented by a
rule that only establishes an application process. Moreover, the
process in the regulation does not authorize ``nonbank'' activities;
only activities that are ``part of the business of banking or
incidental thereto,'' or permitted for national banks or their
subsidiaries under other statutory authority, could be permitted.
The OCC also notes that courts have specifically held that the BHCA
does not govern the permissible activities of banks or their
subsidiaries. For example, in Independent Insurance Agents of America,
Inc. v. Board of Governors of the Federal Reserve System, 890 F.2d 1275
(2d Cir. 1989) (Merchants II), cert. denied, 498 U.S. 810 (1990), the
Second Circuit upheld a Federal Reserve Board (FRB) order concluding
that the BHCA's activity restrictions did not apply to the activities
of a bank subsidiary of a bank holding company. In upholding the order,
the court noted that the FRB had a ``reasonable'' interpretation of the
BHCA, one that confided decisions regarding the scope of permissible
activities of bank subsidiaries to the banks' national and state
chartering authorities. Id. at 1284.
Shortly thereafter, in Citicorp v. Board of Governors of the
Federal Reserve System, 936 F.2d 66 (2nd Cir. 1991), cert. denied, 502
U.S. 1031 (1992), the court applied the reasoning of Merchants II to a
situation involving a subsidiary of a bank in a bank holding company
structure. In vacating a FRB order that required a state bank owned by
a bank holding company to terminate certain activities conducted
through the state bank's subsidiary, the court found that the BHCA
``cannot sensibly be interpreted to reimpose the authority of the [FRB]
on a generation-skipping basis to regulate the subsidiary's
subsidiary.'' Id. at 68. The activities of the bank's subsidiary in
question were, according to the court, appropriately the responsibility
of the bank's chartering authority to address.10
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\10\ Cf. Section (4)(c)(5) of the Bank Holding Company Act, 12
U.S.C. 1843(c)(5), that provides that the investment and activities
restrictions contained in section 4 of that Act do not apply to
``shares which are of the kinds and amounts eligible for investment
by national banking associations'' under section 24 of the National
Bank Act.
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5. OCC Authority Under 12 U.S.C. 93a
Some commenters asserted that the OCC lacks the authority under 12
U.S.C. 93a to issue Sec. 5.34. Federal law at 12 U.S.C. 93a authorizes
the Comptroller of the Currency to issue rules and regulations to carry
out the responsibilities of the office, except that the authority
conferred by 12 U.S.C. 93a does not apply to 12 U.S.C. 36 or the Glass-
Steagall Act. These commenters contended that 12 U.S.C. 93a does not
confer authority on the OCC to establish national bank powers that they
do not have under existing law.
The OCC believes that these commenters misunderstood the effect of
the proposal. As already described earlier, the final rule establishes
a procedure under which the OCC will consider applications for
activities for operating subsidiaries on a case-by-case basis.
Moreover, as discussed earlier, these activities must be part of or
incidental to the business of banking, or permitted for national banks
or their subsidiaries under other statutory authority.
Further, Sec. 5.34 does not purport to diminish or otherwise affect
the application of the Glass-Steagall Act to national banks. Glass-
Steagall Act prohibitions are still applicable to the same degree as
prior to the adoption of the rule. The final rule only recognizes that
operating subsidiaries are entities, distinct from a bank, whose
activities are not necessarily required to be an exact duplicate of the
activities permitted for their parent bank. In other words, the final
rule only recognizes the possibility that some activity restrictions
that apply to a national bank may not apply to a bank's subsidiary.
Thus, in this rulemaking, the OCC has not exercised its authority under
12 U.S.C. 93a to adopt that principle as a matter of law or as a final
interpretation.
6. Safety and Soundness Considerations
Some commenters also argued that the proposal would permit banks
through their operating subsidiaries to engage in risky activities that
would jeopardize the deposit insurance system.
The OCC does not today, and will not under this revised rule,
approve applications for operating subsidiaries to engage in activities
that would endanger the stability of their parent banks. Moreover, the
OCC does not assume that new activities would necessarily involve more
risk than many well-recognized banking activities conducted by banks
today. The OCC also has available a number of measures to address
safety and soundness issues that may arise in connection with
[[Page 60354]]
activities conducted under the authority of this section. These
safeguards include certain requirements added to the final rule in
response to commenters' suggestions, the ability to condition
application approvals on a case-by-case basis, and statutory changes in
recent years that have provided the banking agencies with additional
supervisory tools.
For example, in the proposal the OCC noted that it would impose
appropriate conditions in connection with the approval of a particular
operating subsidiary application in order to ensure bank safety and
soundness. After careful deliberation, the OCC has decided to include
in the final rule a number of additional conditions that would apply to
the parent bank and/or the subsidiary when the subsidiary engages in an
activity authorized under Sec. 5.34(d), but different from that
permitted for the bank directly to conduct.
The safeguards that are built into the final rule fall into two
categories. First, because the use of a separate subsidiary structure
can enhance the safety and soundness of conducting new activities by
distinguishing the subsidiary's activities from those of the parent
bank (as a legal matter) and allowing more focused management and
monitoring of its operations,11 the final rule contains a number
of requirements that are intended to emphasize the importance of the
subsidiary's independent legal and corporate existence.
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\11\ See e.g., OCC Interpretive Letter No. 725 (May 10, 1996)
reprinted in Fed. Banking L. Rep. (CCH) Para. 81,040 (special
purpose subsidiary established by NationsBank, N.A.). The FDIC in a
recent proposal also recognized that conducting activities in a
subsidiary can be helpful in containing risks to the bank. See 61 FR
43,486 (August 23, 1996).
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Specifically, the final rule requires the subsidiary to: (1) be
physically separate and distinct in its operations from the parent
bank, including ensuring that the employees of the subsidiary are
compensated by the subsidiary, although this requirement would not be
construed to prohibit the parent bank and the subsidiary from sharing
the same facility, provided that any area in which the subsidiary
conducts business with the public is distinguishable, to the extent
practicable, from the area in which customers of the bank conduct
business with the bank; (2) be held out as a separate and distinct
entity from the bank in its written material and direct contact with
outside parties, with all written marketing material clearly stating
that the subsidiary is a separate entity from the bank and the
obligations of the subsidiary are not obligations of the bank; (3) not
have the same name as its parent bank, and if the subsidiary has a name
similar to its parent bank to take appropriate steps to minimize the
risk of customer confusion, including clarifying the separate character
of the two entities and the extent to which their respective
obligations are insured or not insured by the Federal Deposit Insurance
Corporation; (4) be adequately capitalized according to relevant
industry measures and maintain capital adequate to support its
activities and to cover reasonably expected expenses and losses; (5)
maintain separate accounting and corporate records; (6) conduct its
operations pursuant to independent policies and procedures that are
also intended to inform customers that the subsidiary is an
organization separate from the bank; (7) contract with the bank for any
services only on terms and conditions substantially comparable to those
available to or from independent entities; (8) observe appropriate
separate corporate formalities, such as separate board of directors'
meetings; (9) maintain a board of directors at least one-third of whom
shall not be directors of the bank and shall have relevant expertise
capable of overseeing the subsidiary's activities; and (10) have
internal controls appropriate to manage the financial and operational
risks associated with the subsidiary. These internal controls should
also be maintained by the bank.
Second, if the subsidiary is engaged in a principal capacity in
activities authorized under Sec. 5.34(f), certain supervisory tools
will be particularly useful to protect the financial soundness of the
bank. For example, the final rule provides that the bank's capital and
total assets shall each be reduced by an amount equal to the amount of
the bank's equity investment in the subsidiary, and the subsidiary's
assets and liabilities shall not be consolidated with those of the
bank. For risk-based capital purposes, 50 percent of the bank's equity
investment in the subsidiary must be deducted from Tier 1 capital and
50 percent from Tier 2 capital. In addition, the OCC may require the
bank to calculate its capital on a consolidated basis for purposes of
determining whether the bank is adequately capitalized under 12 CFR
part 6.
The final rule also provides that a national bank must satisfy the
eligible bank criteria contained in Sec. 5.3(g) before commencement of
the activity, and thereafter, taking into account the required capital
deduction described above. The eligible bank criteria helps to ensure
that only financially strong and well-managed banks will undertake
these activities through their subsidiaries. If the bank ceases to be
well capitalized for two consecutive quarters, it must submit a plan to
the OCC detailing how it will become well capitalized.
The final rule also contains safeguards on transactions between the
bank and this type of subsidiary. Under the final rule, the standards
of sections 23A and 23B of the Federal Reserve Act, 12 U.S.C. 371c and
371c-1, shall apply to, and shall be enforced and applied by the OCC
with respect to, transactions between the bank and the subsidiary. The
application of these sections will limit a bank's investments in and
extensions of credit to this type of subsidiary to 10 percent of the
bank's capital, require extensions of credit to be fully
collateralized, and apply arm's-length safeguards to transactions
between the bank and the subsidiary.
Collectively, these conditions will help to contain risk, reduce
potential conflicts of interest, and help to ensure the safe and sound
operation of the parent bank. The arm's-length standards also address
concerns regarding inappropriate subsidization by the bank of its
subsidiary. In addition, the OCC retains the authority to impose
additional safeguards, either on a case-by-case or activity-by-activity
basis, to address safety and soundness issues presented by particular
types of operations. To the extent that the OCC's future experience
with the safeguards contained in the regulation indicates that the
safeguards need to be supplemented, or that other measures would more
effectively or efficiently accomplish their intended objectives, the
OCC will propose appropriate changes to the regulation.
Finally, Federal legislation in recent years has provided the
federal banking agencies with additional supervisory tools to address
promptly supervisory concerns that may arise in connection with
activities engaged in by banks or their subsidiaries. For example, the
Financial Institutions Reform, Recovery, and Enforcement Act of 1989
provided substantial civil money penalties for national banks engaging
in unsafe and unsound banking practices or for violations of conditions
imposed in writing in connection with the grant of an application or
other request by a national bank. Likewise, the Federal Deposit
Insurance Corporation Improvement Act of 1991, (Pub. L. 102-242, Dec.
19, 1991, 105 Stat. 2236), established a framework for prompt
corrective action when banks fail to meet specified capital
requirements, including the ability of the OCC to require an
undercapitalized institution to divest any subsidiary that may pose
[[Page 60355]]
a significant risk to the parent bank or that is likely to cause a
significant dissipation of the institution's assets or earnings. These
and other available supervisory actions provide the OCC with a
substantial array of tools--not available until relatively recently--to
address risks presented by national bank operating subsidiaries.
Bank Service Companies (Sec. 5.35)
Proposed Sec. 5.35 streamlined the application requirements and
clarified certain aspects of the rule. The proposal also minimized
regulatory burden with respect to low-risk activities by implementing
changes resulting from the Riegle Community Development and Regulatory
Improvement Act of 1994, Public Law 103-325, Sept. 23, 1994, 108 Stat.
2160 (Riegle Act), and conforming Sec. 5.35 with the procedures
proposed for operating subsidiaries.
The commenters supported the proposal, and, specifically, the
expedited review procedure and parallel construction to Sec. 5.34.
The OCC adopts this section as proposed, with modifications and
other technical changes to conform this section to Sec. 5.34. The
section is also changed from the proposal to account for the new
provisions in section 2613 of the Economic Growth and Regulatory
Paperwork Reduction Act of 1996 that authorize bank service companies
to organize as limited liability companies.
Other Equity Investments (Sec. 5.36)
The proposal restructured the section and removed OCC approval
requirements for equity investments in an agricultural credit
corporation or in a savings association to be acquired under section 13
of the Federal Deposit Insurance Act (FDIA), 12 U.S.C. 1823. Instead,
the proposal covered only investments authorized by statutes enacted
after February 12, 1990, that are not covered by other OCC regulations.
The proposal also incorporated an application process that
conformed with other sections in part 5. The proposal maintained the
30-day time frame for approval of other equity investments but
simplified the language to correspond to other similar provisions. The
OCC also requested comment on whether to remove the section.
The OCC received two comment letters, each supporting removal of
the provision. However, the OCC continues to believe that although an
application may not be warranted, some notification to the OCC of
certain equity investments by national banks facilitates examiner
supervision and bank safety and soundness. Therefore, the final rule
clarifies that 12 U.S.C. 24(Seventh) and other statutes authorize
national banks to make various types of equity investments. With
respect to equity investments in an agricultural credit corporation, a
savings association eligible to be acquired under section 13 of the
FDIA, 12 U.S.C. 1823, and equity investments authorized by statute
after February 12, 1990 and not covered by other applicable OCC
regulation, the OCC will continue to require the bank to file a notice
with the appropriate district office within 10 days after the
investment. Other types of equity investments permitted for national
banks will be reviewed by the OCC, as appropriate, on a case-by-case
basis.
Investment in Bank Premises (Sec. 5.37)
The proposal transferred certain provisions previously located in
12 CFR part 7, clarified the circumstances under which OCC approval is
required for national bank investment in bank premises in excess of the
bank's capital stock, and described the procedures for submitting an
application for OCC review. The proposal also provided that,
notwithstanding the capital stock limitation, an eligible bank may
provide an after-the-fact notice for aggregate investments in bank
premises up to 20 percent of the bank's ``capital and surplus'' as
defined in Sec. 5.3(d).
Commenters generally supported the proposed provision, especially
the expedited review process. However, a number of commenters had
additional recommendations. Most suggestions focused on proposed
Sec. 5.37(c)(3), which provided for a notice procedure for eligible
banks making qualifying investments in bank premises.
The OCC has reviewed the commenters' suggestions and the after-the-
fact notice procedures and determined that the examination and
supervision process contains sufficient safeguards to prevent excessive
investments in bank premises. Therefore, the final rule makes a number
of changes to further increase the amount a national bank may invest in
bank premises without seeking OCC approval and to conform with recent
changes in the Economic Growth and Regulatory Paperwork Reduction Act
of 1996. Under the final rule, a bank that has a CAMEL rating of 1 or 2
may make an aggregate investment in bank premises up to 150 percent of
the bank's capital and surplus (as defined in Sec. 5.3(d)) without
submitting an application for prior approval to the appropriate
district office, provided that the bank is well capitalized both before
and after the loan or investment is made. The bank must provide a
description of the investment to the appropriate district office within
30 days following the transaction.
The final rule also defines the term ``bank premises'' by adopting
certain provisions of the Call Report line item on Bank Premises and
Fixed Assets. Under the final rule, ``bank premises'' is defined as:
(1) premises that are owned and occupied (or to be occupied, if under
construction) by the bank, its branches, or its consolidated
subsidiaries; (2) capitalized leases and leasehold improvements,
vaults, and fixed machinery and equipment; (3) remodeling costs to
existing premises; (4) real estate acquired and intended, in good
faith, for use in future expansion; or (5) parking facilities that are
used by customers or employees of the bank, its branches, and its
consolidated subsidiaries. The inclusion of this definition will
clarify the types of investments and loans subject to this section.
Another commenter suggested the OCC clarify whether the entire
investment in bank premises must be made within eighteen months to
avoid the expiration of approval. The changes in the final rule to
Sec. 5.13(g) for situations beyond the control of the applicant
adequately address this concern.
Change in Location of Main Office (Sec. 5.40)
The proposal reorganized this section and streamlined the
procedures to change the location of a national bank's main office.
All comments received by the OCC on this section supported the
proposal. One commenter suggested including a notice procedure for a
temporary relocation of a main office in the event that the permanent
location is not immediately available. The OCC plans to include further
guidance on this issue in the Manual. The OCC adopts this section
substantially as proposed.
Corporate Title (Sec. 5.42)
The proposal rearranged this section for greater clarity and
specifically alerted banks to the restrictions in 18 U.S.C. 709
regarding the use of certain titles. No comments were received on this
section. The OCC adopts this section substantially as proposed.
Changes in Permanent Capital (Sec. 5.46)
The proposal restructured and streamlined this section to clarify
the requirements for a change to a national bank's permanent capital
and to reduce regulatory burden. The proposal no longer required
letters of intent, preliminary approval, and notification of changes in
par value (unless related
[[Page 60356]]
to selling stock for consideration other than cash). By dividing the
relevant information by subject matter, the proposal clarified the
procedures by which a national bank may make a change in its permanent
capital and drew a clear distinction between procedures increasing and
decreasing permanent capital.
The proposal also sought to facilitate increases in permanent
capital by clarifying that most increases in permanent capital do not
require OCC approval. Generally, a national bank need only file a
letter of notification with the OCC after the sale or completion of the
transaction. The proposal also provided an expedited review procedure
for eligible banks.
All the comments received on this section supported the OCC's
proposal. The OCC believes these procedures significantly clarify and
streamline the process for changes in permanent capital. Therefore, the
OCC is adopting this section as proposed with an additional change to
further reduce regulatory burden.
Under proposed Sec. 5.46, a national bank had to submit an
application and receive OCC approval each time it intended to decrease
its permanent capital. The final rule provides that an eligible bank
may submit an application for expedited processing that would cover
planned reductions of capital and distributions that would result in a
distribution of cash or assets or a transfer to undivided profits for
up to four consecutive quarters (i.e., one year), rather than requiring
four separate applications and related application fees. To qualify for
this treatment, the bank must continue to be an eligible bank following
each reduction in its capital. In addition, the application must
include the specified information for each quarter covered by the
application.
Subordinated Debt as Capital (Sec. 5.47)
Under the proposal, unless the OCC has previously notified a
national bank that prior approval is required, a national bank needed
no prior approval to prepay subordinated debt.
Most comments received on proposed Sec. 5.47 supported the OCC's
proposal to allow a national bank to issue subordinated debt as Tier 2
capital without prior OCC approval. However, one commenter noted that
prior regulatory approval and knowledge of reductions in capital may be
an important element of monitoring safety and soundness, and thus,
prepayments of subordinated debt should be subject to OCC approval.
The OCC shares the commenter's desire to ensure the safe and sound
operation of banks, particularly those institutions that are not well
capitalized. Therefore, the OCC has changed the proposal to provide
that only banks that remain eligible banks may dispense with prior OCC
approval for the prepayment of subordinated debt. This will ensure the
continued monitoring of prepayments of subordinated debt by
institutions more likely to present safety and soundness concerns
(i.e., banks that are not well capitalized, have a CAMEL rating of 3,
4, or 5, or are subject to certain OCC orders, agreements or
directives). The OCC also retains the authority to notify any other
bank that demonstrates safety and soundness concerns that the bank must
obtain prior OCC approval to issue or prepay subordinated debt. The OCC
believes that this approach ensures continued monitoring of safety and
soundness concerns without unduly restricting well-capitalized, well-
managed banks.
In addition, the final rule adds provisions relating to the
issuance of subordinated debt to count as Tier 3 capital in addition to
Tier 2 capital.
Voluntary Liquidation (Sec. 5.48)
The proposal reorganized and simplified this section. It clarified
that a national bank preparing to voluntarily liquidate must file a
notice with the OCC once the bank's shareholders have voted to
voluntarily liquidate the bank pursuant to 12 U.S.C. 182. The proposal
stated that the bank must also publish a public notice pursuant to that
statute.
The proposal also reduced the burden of dissolving shell banks
remaining after whole-bank purchase and assumptions involving
transactions between affiliated or non-affiliated banks, provided the
acquiring bank is adequately capitalized.
The comment received by the OCC supported this provision.
Therefore, the OCC adopts this section as proposed with minor
clarifying changes.
Change in Bank Control; Reporting of Stock Loans (Sec. 5.50)
The proposal substantially reorganized, clarified, and simplified
this section. Among other things, the proposal removed paragraphs that
were repetitive or confusing and incorporated a number of OCC
interpretations regarding Sec. 5.50. The proposal also applied the
standards of the Change in Bank Control Act of 1978 (CBCA), 12 U.S.C.
1817(j), to uninsured national banks.
The comments received by the OCC supported the proposed changes to
this section and suggested some additional clarifications. The OCC
adopts this section as proposed with a few modifications.
The newspaper publication required by proposed Sec. 5.50(g)(1)
required an applicant to publish a public announcement of its filing in
a newspaper widely available in the geographic area where the affected
national bank is located. This change is similar to that proposed in
Sec. 5.8, and commenters recommended that the OCC retain the language
in the former regulation because they believed that it provides the
public with more effective notice. The OCC agrees with the commenters,
and the final rule retains the language in the former regulation, i.e.,
requiring banks to publish a public announcement in a newspaper of
general circulation in the community where the affected national bank
is located.
Another commenter suggested that the OCC should revise proposed
Sec. 5.50(f)(2)(ii) (A) and (B) so that an acquiror must satisfy both
factors to create a rebuttable presumption that an acquisition is made
by a person with the power to direct the bank's management or policies.
The OCC concluded that this change in the OCC's longstanding policy
would be too restrictive and, therefore, the final rule adopts this
provision as proposed.
One commenter also suggested that the term ``default'' in the
definition of ``good faith'' be defined to mean only a failure to make
timely payments of interest or principal or a material default with
respect to other obligations in a loan agreement. Because these
situations may be fact dependent, the OCC did not add limiting language
in the final rule.
Finally, the final rule reflects recent amendments contained in
section 2226 of the Economic Growth and Regulatory Paperwork Reduction
Act of 1996 to the CBCA stock loan reporting requirements. These
amendments eliminate the stock loan reporting requirements for all
entities other than foreign banks and their affiliates. The OCC notes
that for purposes of reporting loans secured by the stock of a national
bank without FDIC deposit insurance, federal branches and agencies of
foreign banks only are subject to these reporting requirements.
Change in Directors or Senior Executive Officers (Sec. 5.51)
The proposal provided for certain exceptions to reduce unnecessary
regulatory burden, addressed agency appeal issues, and made additional
housekeeping-type changes to conform Sec. 5.51 to the rest of part 5.
[[Page 60357]]
The comments received by the OCC on this section all supported the
changes to this section. The final rule adopts this section as proposed
with additional changes to conform to the recent changes contained in
section 2209 of the Economic Growth and Regulatory Paperwork Reduction
Act of 1996. These changes removed the requirement of this section to
provide prior written notice to the OCC to add or replace directors or
senior executive officers if the national bank: (1) has operated as a
depository institution for less than two years; or (2) has undergone a
change in control within the preceding two years that required it to
file a notice under the CBCA. These changes also extend the prior
review period to 90 days and remove the requirements for suspending the
review period.
Change of Address (Sec. 5.52)
The proposal added this section to part 5 to require a national
bank that changes its address to inform the OCC of that change in a
timely manner.
The OCC received no comments on this section. The final rule adopts
this section substantially as proposed.
Dividends--Subpart E
The proposal organized the information in the current Secs. 5.61
and 5.62 into a new subpart to communicate better the standards and
procedures underlying a national bank's payment of dividends and to
conform to recent statutory changes. The proposal also clarified
definitions and procedures.
Commenters generally supported the proposed changes. A few
commenters suggested providing circumstances under which a bank could
pay dividends in kind without prior OCC approval. The OCC continues to
believe, however, that dividends other than for cash raise potential
valuation issues and should continue to receive prior OCC review.
The OCC adopts this subpart substantially as proposed with one
exception. The final rule clarifies that Sec. 5.64, which implements
the dividend restrictions contained in 12 U.S.C. 60, does not apply to
stock dividends. The provision is intended to prevent impairment of the
bank's capital structure through payment of excessive dividends. The
OCC believes that payments of stock dividends, which do not result in a
distribution of cash or assets, do not raise these concerns.
Federal Branches and Agencies--Subpart F
The proposal discussed relocating provisions relating to
applications of Federal branches and agencies, former Secs. 5.23, 5.25,
5.41, and 5.43, to 12 CFR part 28 to consolidate all of the regulations
concerning Federal branches and agencies and international activities
of national banks in one regulation. The proposal invited comment on
the advisability of relocating these provisions. The OCC received one
comment letter generally supporting the relocation of the provisions
relating to Federal branches and agencies.
The OCC determined that while it is desirable to consolidate all of
the regulations concerning Federal branches and agencies and
international activities of national banks in one regulation, it is
also desirable to address all procedures relating to the filing of
applications and notices in part 5. Therefore, the final rule includes
a new subpart F outlining the corporate procedures for Federal branches
and agencies and refers readers to part 28 for substantive rules and
policies relating to Federal branches and agencies of foreign banks.
Technical Amendment to 12 CFR Part 3
The final rule contains two technical and conforming amendments to
capital adequacy, 12 CFR part 3. These changes clarify that in most
circumstances prior OCC approval is not required for the issuance and
prepayment of subordinated debt.
Technical Amendment to 12 CFR Part 7
The final rule contains two technical changes to part 7 removing
provisions that are now accounted for in part 5. A technical change is
also made to Sec. 7.1000 to cross-reference the applicable provisions
in part 5 relating to investments in bank premises.
Technical Amendment to 12 CFR Part 16
The final rule contains a technical and conforming change to 12 CFR
16.20(d). The final rule changes the reference from Sec. 5.33(b)(6)(ii)
to Sec. 5.33(e)(8).
Technical Amendment to 12 CFR Part 28
The final rule contains technical corrections to Sec. 28.2(b) and
Sec. 28.10.
Derivation Table
[This table directs readers to the provision(s) of the former regulation, if any, upon which the provision in
the final rule is based]
----------------------------------------------------------------------------------------------------------------
Revised provision Original provision Comments
----------------------------------------------------------------------------------------------------------------
Sec. 5.1............................ Sec. 5.1.................... Modified.
Sec. 5.2(a)......................... Sec. 5.2(a)................. Modified.
(b).............................. Sec. 5.2(b)................. Modified.
(c).............................. Sec. 5.14................... Modified.
Sec. 5.3.................... Removed.
Sec. 5.3(a)......................... ............................. Added.
(b).............................. Sec. 5.2(e)................. Significant change.
(c).............................. ............................. Added.
(d).............................. ............................. Added.
(e).............................. ............................. Added.
(f).............................. ............................. Added.
(g).............................. ............................. Added.
(h).............................. ............................. Added.
(i).............................. ............................. Added.
(j).............................. Sec. 5.2(d)................. Modified.
(k).............................. ............................. Added.
(l).............................. ............................. Added.
Sec. 5.4(a)......................... Sec. 5.4.................... Significant change.
(b).............................. Sec. 5.4.................... Modified.
(c).............................. ............................. Added.
(d).............................. Sec. 5.4.................... Significant change.
(e).............................. ............................. Added.
Sec. 5.5............................ Sec. 5.5.................... Significant change.
[[Page 60358]]
Sec. 5.6.................... Removed.
Sec. 5.7(a)......................... Sec. 5.7.................... Modified.
(b).............................. Secs. 5.5(c), 5.7........... No change.
Sec. 5.8(a)......................... Sec. 5.8(a)................. Modified.
(b).............................. Sec. 5.8(a)................. Modified.
(c).............................. Sec. 5.8(a)................. Modified.
(d).............................. ............................. Added.
(e).............................. ............................. Added.
(f).............................. ............................. Added.
Sec. 5.9(a)......................... Sec. 5.9(b)................. Modified.
(b).............................. Sec. 5.9(a)................. Significant change.
(c).............................. Sec. 5.9(a)................. Significant change.
Sec. 5.10(a)........................ Sec. 5.10(a)................ Modified.
(b).............................. Sec. 5.10(a)................ Significant change.
Sec. 5.11(a)........................ Sec. 5.10(b)................ Modified.
(b).............................. Sec. 5.10(b)................ Modified.
(c).............................. Sec. 5.10(c)................ Modified.
Sec. 5.11(d)(1)..................... Sec. 5.11(a)................ Modified.
(d)(2)........................... Sec. 5.11(d)................ Modified.
(e).............................. Sec. 5.11(c)................ Modified.
(f).............................. Sec. 5.10(b)(5)............. Modified.
(g)(1)........................... Sec. 5.11(e)(1)............. Modified.
(g)(2)........................... Sec. 5.11(e)(3)............. Modified.
(g)(3)........................... Sec. 5.11(e)(3)............. Significant change.
(h).............................. Sec. 5.11(f)................ Modified.
(i).............................. ............................. Added.
Sec. 5.12........................... Sec. 5.12................... No change.
Sec. 5.13(a)........................ Sec. 5.13 (b), (c).......... Significant change.
(a)(1)........................... ............................. Added.
(a)(2)........................... ............................. Added.
(b).............................. Sec. 5.13(c)................ Significant change.
(c).............................. Sec. 5.7.................... Modified.
(d).............................. Sec. 5.13(a)................ Modified.
(e).............................. Sec. 5.13(a)................ Modified.
(f).............................. Sec. 5.13(d)................ Significant change.
(g).............................. ............................. Added.
(h).............................. Sec. 5.13(e)................ Significant change.
Sec. 5.14................... Removed.
Sec. 5.20(a)........................ Sec. 5.20(b)................ Significant change.
(b).............................. ............................. Added.
(c).............................. Secs. 5.20(a), 5.21(a), Significant change.
5.22(a)(2), 5.27(b).
(d)(1)........................... Sec. 5.27(c)................ Modified.
(d)(2)-(7)....................... ............................. Added.
(e)(1)........................... Sec. 5.20(b), (d)(4)(v)..... Significant change.
(e)(2)........................... Sec. 5.20(b)................ Modified.
(f)(1)........................... Sec. 5.20(d)................ Significant change.
(f)(2)........................... Sec. 5.20(c), (d)........... Significant change.
(f)(3)........................... Sec. 5.20(d)(1), (d)(1)(ii). Modified.
(g)(1)........................... Sec. 5.20(d)(2)(i).......... Modified.
(g)(2)........................... Sec. 5.20(d)(3)(ii)......... Modified.
(g)(3)(i)........................ Sec. 5.20(d)(2)(ii)......... No change.
(g)(3)(ii)....................... Sec. 5.20(d)(2)(iii)........ No change.
(g)(3)(iii)...................... Sec. 5.20(d)(2)(iv)......... No change.
(g)(4)(i)........................ Sec. 5.20(d)(4)(iii)(A)..... Modified.
(g)(4)(ii)....................... Sec. 5.20(d)(4)(iii)(C)..... Modified.
(g)(5)........................... Sec. 5.20(d)(1)(iv), Significant change.
(d)(2)(iii).
(h)(1)........................... Sec. 5.20(d)(1)(i), (d)(3).. Significant change.
(h)(2)........................... Sec. 5.20(d)(3)(i).......... Modified.
(h)(3)(i)........................ Sec. 5.20(d)(3)(ii)(A)...... Modified.
(h)(3)(ii)....................... Sec. 5.20(d)(3)(ii)(C)...... Significant change.
(h)(4)........................... Sec. 5.20(d)(3)(iii)........ Significant change.
(h)(5)(i)........................ Sec. 5.20(d)(3)(iv), Significant change.
(d)(3)(iv)(A).
(h)(5)(ii)....................... Sec. 5.20(b), (d)(3)(iv).... Modified.
(h)(5)(iii)...................... Sec. 5.20(d)(3)(iv)(B)...... Modified.
(h)(6)........................... Sec. 5.20(d)(3)(v), Modified.
(d)(3)(v)(A).
(h)(7)........................... ............................. Added.
(i)(1)........................... Sec. 5.20(e)................ Significant change.
(i)(2)........................... Sec. 5.20(d)................ Significant change.
(i)(3)........................... Sec. 5.20(d)(1)(iii)........ Significant change.
(i)(4)........................... Sec. 5.20(d)(1)(iii)........ Significant change.
(i)(5)(i)........................ Sec. 5.20(f)................ Modified.
[[Page 60359]]
(i)(5)(ii)....................... Sec. 5.20(d)(4)(ii)......... No change.
(i)(5)(iii)...................... Sec. 5.20(d)(3)(iii), (g)... Modified.
(j).............................. ............................. Added.
(k)(1)........................... Sec. 5.27(e)(1)............. Modified.
(k)(2)........................... Sec. 5.27(e)(2)............. Modified.
(k)(3)........................... Sec. 5.27(d)................ Significant change.
(l).............................. Sec. 5.22(a)(2), (c)........ Significant change.
Sec. 5.21................... Incorporated into Sec. 5.33.
Sec. 5.22................... Incorporated into Sec. 5.20.
Sec. 5.23................... Incorporated into Sec. 5.70.
Sec. 5.24(a)........................ Sec. 5.24(a)................ Modified.
(b).............................. ............................. Added.
(c).............................. ............................. Added.
(d)(1)........................... Sec. 5.24(c)(1)............. Significant change.
(d)(2)(i)........................ ............................. Added.
(d)(2)(ii)....................... Sec. 5.24(c)(2)............. Significant change.
(d)(2)(iii)...................... ............................. Added.
(d)(2)(iv)....................... Sec. 5.24(c)(4)............. Modified.
(d)(2)(v)........................ Sec. 5.24(c)(4)............. Modified.
(d)(3)........................... Sec. 5.24(b)................ No change.
(d)(4)........................... ............................. Added.
(e)(1)........................... Sec. 5.24(d)(1)............. Significant change.
(e)(2)........................... Sec. 5.24(d)(2)............. Modified.
(e)(3)........................... Sec. 5.24(d)(1)............. Modified.
(f).............................. ............................. Added.
Sec. 5.25................... Incorporated into Sec. 5.70.
Sec. 5.26(a)........................ Sec. 5.26(a)................ No change.
(b).............................. Sec. 5.26(d)................ Significant change.
(c).............................. Sec. 5.26(b)................ Significant change.
(d).............................. Sec. 5.26(d)................ Significant change.
(e)(1)........................... Sec. 5.26(d)................ Significant change.
(e)(2)........................... Sec. 5.26(e)................ Significant change.
(e)(3)........................... Sec. 5.26(f)................ Significant change.
(e)(4)........................... Sec. 5.26(g)................ Significant change.
(e)(5)........................... ............................. Added.
(e)(6)........................... Sec. 5.26(b)................ Modified.
(e)(7)........................... Sec. 5.26(h)................ Modified.
Sec. 5.27................... Incorporated into Sec. 5.20.
Sec. 5.30(a)........................ Sec. 5.30(a)................ Modified.
(b).............................. Sec. 5.30(a)................ Modified.
(c).............................. ............................. Added.
(d)(1)........................... Secs. 5.30(b), 5.31(b)...... Significant change.
(d)(2)........................... ............................. Added.
(d)(3)........................... ............................. Added.
(d)(4)........................... ............................. Added.
(d)(5)........................... ............................. Added.
(e).............................. Sec. 5.30(c)................ Significant change.
(f)(1)........................... ............................. Added.
(f)(2)........................... ............................. Added.
(f)(3)........................... ............................. Added.
(f)(4)........................... Sec. 5.30(g)................ No change.
(f)(5)........................... ............................. Added.
(g).............................. ............................. Added.
(h)(1)........................... ............................. Added.
(h)(2)........................... ............................. Added.
(h)(3)........................... ............................. Added.
(h)(4)........................... ............................. Added.
(i).............................. Sec. 5.30(f)................ Modified.
(j).............................. ............................. Added.
Sec. 5.31................... Incorporated into Sec. 5.30.
Sec. 5.32................... Incorporated into Sec. 5.70.
Sec. 5.33(a)........................ Sec. 5.33(a)................ Significant change.
(b).............................. ............................. Added.
(c).............................. ............................. Added.
(d)(1)........................... ............................. Added.
(d)(2)........................... ............................. Added.
(d)(3)........................... ............................. Added.
(d)(4)........................... Sec. 5.21(a)................ Significant change.
(e)(1)........................... Sec. 5.33(b)(2)............. Significant change.
(e)(1)(i)........................ Sec. 5.33 (b)(2)(i), (b)(3), Significant change.
(b)(4).
(e)(1)(ii)....................... Sec. 5.33 (b)(2)(iii), Significant change.
(b)(2)(iv), (b)(6).
[[Page 60360]]
(e)(1)(iii)...................... Sec. 5.33 (b)(2)(ii), (b)(5) Significant change.
(e)(1)(iv)....................... Sec. 5.33 (b)(2)(ii), (b)(5) Significant change.
(e)(2)........................... ............................. Added.
(e)(3)........................... ............................. Added.
(e)(4)(i)........................ Sec. 5.21................... Significant change.
(e)(4)(ii)....................... Sec. 5.21 (e), (f).......... Significant change.
(e)(4)(iii)...................... Sec. 5.21(g)................ Significant change.
(e)(4)(iv)....................... Sec. 5.21(h)................ Significant change.
(e)(5)........................... Sec. 5.33(b)(8)............. Significant change.
(e)(6)........................... ............................. Added.
(e)(7)........................... ............................. Added.
(e)(8)........................... Sec. 5.33(b)(6)(ii)......... Significant change.
(f)(1)........................... ............................. Added.
(f)(2)........................... Sec. 5.21(c)................ Modified.
(f)(3)........................... ............................. Added.
(g)(1)........................... Sec. 5.33(c)(1)............. Significant change.
(g)(2)........................... Sec. 5.33(c)(2)............. Significant change.
(g)(3)(i)........................ Sec. 5.33(h)(1)............. Significant change.
(g)(3)(ii)....................... Sec. 5.33(h)(2)............. Modified.
(g)(3)(iii)...................... Sec. 5.33(h)(3)............. Significant change.
(h).............................. ............................. Added.
(i).............................. ............................. Added.
(j).............................. ............................. Added.
Sec. 5.34(a)........................ Sec. 5.34(a)................ Modified.
(b).............................. ............................. Added.
(c).............................. ............................. Added.
(d)(1)........................... Sec. 5.34 (c), (d).......... Significant change.
(d)(2)........................... Sec. 5.34(c)................ Significant change.
(d)(3)........................... Sec. 5.34(d)(3)............. Modified.
(d)(4)........................... Sec. 5.34(d)(2)(ii)......... Modified.
(e)(1)(i)........................ Sec. 5.34(d)(1)(i).......... Significant change.
(e)(1)(ii)....................... Sec. 5.34(b)................ Modified.
(e)(1)(iii)...................... Sec. 5.34(d)(1)(iii)........ Modified.
(e)(2)........................... ............................. Added.
(e)(3)........................... ............................. Added.
(e)(4)........................... Sec. 5.34(d)(1)(iv)......... Significant change.
(e)(5)........................... ............................. Added.
(f).............................. ............................. Added.
Sec. 5.35(a)........................ Sec. 5.35(a)................ Modified.
(b).............................. ............................. Added.
(c).............................. ............................. Added.
(d)(1)-(5)....................... Sec. 5.35(c)................ Significant change.
(e).............................. Sec. 5.35(d)................ Significant change.
(f)(1)........................... Sec. 5.35 (e)(1), (e)(2).... Significant change.
(f)(2)........................... ............................. Added.
(f)(3)........................... ............................. Added.
(f)(4)........................... Sec. 5.35(e)(1)(i)(D)....... Modified.
(f)(5)........................... Sec. 5.35(e)(1)(i)(B)....... Significant change.
(f)(6)........................... Sec. 5.35(b)................ Modified.
(g).............................. Sec. 5.35(e)(1)(ii)(A)...... Modified.
(h).............................. Sec. 5.35(f)................ Modified.
(i)(1)........................... Sec. 5.35(e)(1)(ii)(A)...... Modified.
(i)(2)........................... ............................. Added.
Sec. 5.36(a)........................ Sec. 5.36(a)................ Modified.
(b).............................. Sec. 5.36(c)................ Modified.
(c)(1)........................... Sec. 5.36(d)(1)............. Significant change.
(c)(2)........................... Sec. 5.36(d)(1)............. Significant change.
(c)(3)........................... Sec. 5.36(d)(1)............. Modified.
(d).............................. Sec. 5.36(b)................ Modified.
Sec. 5.37........................... ............................. Added.
Sec. 5.40(a)........................ Sec. 5.40(a)................ Modified.
(b).............................. ............................. Added.
(c).............................. ............................. Added.
(d)(1)........................... Sec. 5.40(d)(1)............. No change.
(d)(2)........................... Sec. 5.40 (d)(2), (d)(3).... Significant change.
(d)(3)........................... Sec. 5.40(d)(4)............. Modified.
(d)(4)........................... ............................. Added.
(d)(5)........................... Sec. 5.40(c)................ Modified.
(e).............................. Sec. 5.40(h)................ Modified.
Sec. 5.41................... Incorporated into Sec. 5.70.
Sec. 5.42(a)........................ Sec. 5.42(a)................ Modified.
[[Page 60361]]
(b).............................. ............................. Added.
(c).............................. Sec. 5.42(c)................ Significant change.
(d)(1)........................... Sec. 5.42(d)................ Modified.
(d)(2)........................... Sec. 5.42(e)................ Modified.
(d)(3)........................... Sec. 5.42(b)................ Modified.
Sec. 5.43................... Incorporated into Sec. 5.70.
Sec. 5.44................... Removed.
Sec. 5.45................... Removed.
Sec. 5.46(a)........................ Sec. 5.46(a)................ Modified.
(b).............................. ............................. Added.
(c).............................. ............................. Added.
(d).............................. Sec. 5.46(b)................ Modified.
(e)(1)........................... ............................. Added.
(e)(2)........................... ............................. Added.
(e)(3)........................... ............................. Added.
(e)(4)........................... ............................. Added.
(f).............................. Sec. 5.46(f)................ Significant change.
(g).............................. Sec. 5.46(f) (2)-(5)........ Significant change.
(h).............................. Sec. 5.46(f)(5), (f)(6)..... Significant change.
(i)(1)........................... Sec. 5.46(g)(1)............. Significant change.
(i)(2)........................... Sec. 5.46(f)(1)(i).......... Significant change.
(i)(3)........................... Sec. 5.46(g)(2), (g)(3)..... Significant change.
(i)(4)........................... ............................. Added.
(i)(5)........................... Sec. 5.46(g)(4)............. Significant change.
(j).............................. Sec. 5.46(c)................ Modified.
(k).............................. Sec. 5.46(d)................ Significant change.
Sec. 5.47(a)........................ Sec. 5.47(a)................ No change.
(b).............................. Sec. 5.47(b)................ Modified.
(c).............................. Sec. 5.47(c)................ No change.
(d)(1)........................... Sec. 5.47(d)(1)............. No change.
(d)(2)........................... Sec. 5.47(d)(2)............. No change.
(d)(3)........................... ............................. Added.
(e)(1)........................... Sec. 5.47(e)(1)............. No change.
(e)(2)........................... ............................. Added.
(e)(3)........................... Sec. 5.47(e)(2)............. Modified.
(f)(1)........................... Sec. 5.47(f)(1)............. No change.
(f)(2)........................... Sec. 5.47(f)(2)............. Modified.
(g).............................. Sec. 5.47(g)................ Modified.
(h).............................. Sec. 5.47(h)................ No change.
(i).............................. Sec. 5.47(i)................ No change.
Sec. 5.48(a)........................ Sec. 5.48(a)................ Modified.
(b).............................. ............................. Added.
(c).............................. Sec. 5.48(b)................ Modified.
(d).............................. ............................. Added.
(e)(1)........................... Sec. 5.48(c)................ Significant change.
(e)(2)........................... Sec. 5.48(e)................ Significant change.
(e)(3)........................... Sec. 5.48(f)................ Modified.
(f)(1)........................... ............................. Added.
(f)(2)........................... ............................. Added.
(g).............................. Sec. 5.48(d)................ Modified.
Sec. 5.50(a)........................ Sec. 5.50(a)................ Modified.
(b).............................. ............................. Added.
(c)(1)........................... ............................. Added.
(c)(2)(i)........................ Sec. 5.50 (f)(1), (f)(2).... Modified.
(c)(2)(ii)....................... Sec. 5.50(f)(1)............. Modified.
(c)(2)(iii)...................... Sec. 5.50(f)(4)............. No change.
(c)(2)(iv)....................... Sec. 5.50(f)(5)............. No change.
(c)(2)(v)........................ Sec. 5.50(f)(6)............. No change.
(c)(2)(vi)....................... Sec. 5.50(f)(7)............. Modified.
(c)(3)........................... Sec. 5.50(g)(4)............. Significant change.
(d)(1)........................... ............................. Added.
(d)(2)........................... ............................. Added.
(d)(3)........................... Sec. 5.50(d) (ftnt 1)....... Modified.
(d)(4)........................... ............................. Added.
(d)(5)........................... Sec. 5.50(c), (d)(1) (ftnt Modified.
2).
(d)(6)........................... Sec. 5.50(c)................ Modified.
(e)(1)........................... Sec. 5.50(g)(1)(i), Significant change.
(g)(1)(iii).
(e)(2)........................... Sec. 5.50(g)(1)(ii), Modified.
(g)(3)(iii).
(e)(3)........................... Sec. 5.50(g)(1)(iii), (g)(5) Modified.
(f)(1)........................... Sec. 5.50(b)................ Significant change.
(f)(2)(i)........................ Sec. 5.50(d)(1)............. Modified.
[[Page 60362]]
(f)(2)(ii)....................... Sec. 5.50(d)(1)(i), Modified.
(d)(1)(ii).
(f)(2)(iii)...................... Sec. 5.50(d)(2)............. No change.
(f)(2)(iv)....................... Sec. 5.50(d)(1), (d)(3)..... Significant change.
(f)(2)(v)........................ Sec. 5.50(d)(3)............. Significant change.
(f)(3)(i)........................ Sec. 5.50 (e)(2), (g)(2).... Modified.
(f)(3)(i)(A), (B)................ Sec. 5.50(g)(2)............. Modified.
(f)(3)(ii)....................... Sec. 5.50(g)(1)(v).......... Modified.
(f)(3)(ii)(A).................... Sec. 5.50(g)(1)(v).......... Modified.
(f)(3)(ii)(B).................... Sec. 5.50(h)(1)............. Significant change.
(f)(3)(ii)(C).................... ............................. Added(1)
(f)(3)(iii)...................... Sec. 5.50(g)(1)(iv)......... Modified(1)
(f)(4)........................... Sec. 5.50(g)(5)............. Significant change(1)
(f)(5)........................... Sec. 5.50(g)(1)(iv)......... Significant change(1)
(g)(1)........................... Sec. 5.50(h)(1)............. Significant change(1)
(g)(2)........................... Sec. 5.50(h)(2)............. Significant change(1)
(h).............................. ............................. Added(1)
Sec. 5.51(a)........................ Sec. 5.51(a)................ No change(1)
(b).............................. ............................. Added(1)
(c)(1)........................... Sec. 5.51(c)(1)............. Modified(1)
(c)(2)........................... Sec. 5.51(c)(2)............. Modified(1)
(c)(3)........................... Sec. 5.51(c)(3)............. Modified(1)
(c)(4)........................... Sec. 5.51(c)(4)............. Modified(1)
(c)(5)........................... Sec. 5.51(c)(5)............. No change(1)
(c)(6)........................... Sec. 5.51(c)(6)............. No change(1)
(d).............................. Sec. 5.51(d)................ Modified(1)
(e)(1)........................... Sec. 5.51(e)(1)............. Modified(1)
(e)(2)........................... Sec. 5.51(e)(2)............. No change(1)
(e)(3)........................... Sec. 5.51(e)(3)............. Modified(1)
(e)(4)........................... Sec. 5.51(e)(5)............. Modified(1)
(e)(5)........................... Sec. 5.51(e)(6)............. No change(1)
(e)(6)........................... Sec. 5.51(e)(7)............. Modified(1)
(e)(7)........................... Sec. 5.51(e)(8)............. No change(1)
(e)(8)........................... Sec. 5.51(b)................ Modified(1)
(f)(1)........................... Sec. 5.51(f)(1)............. No change(1)
(f)(2)........................... Sec. 5.51(f)(2)............. No change(1)
(f)(3)........................... Sec. 5.51(f)(3)............. No change(1)
(f)(4)........................... Sec. 5.51(f)(4)............. No change(1)
Sec. 5.52........................... ............................. Added(1)
Sec. 5.60(a)........................ Secs. 5.61(a), 5.62(a)...... Significant change(1)
(b).............................. ............................. Added(1)
(c).............................. Secs. 5.61(b), 5.62(b)...... Modified(1)
Sec. 5.61(a)........................ ............................. Added(1)
(b).............................. ............................. Added(1)
Sec. 5.62........................... ............................. Added(1)
Sec. 5.63(a)........................ Sec. 5.61(a)................ Significant change(1)
(b).............................. Sec. 5.61(e)................ Modified(1)
Sec. 5.64(a)........................ Sec. 5.62(a)(1)............. Significant change(1)
(b).............................. Sec. 5.62(a)(2)............. Modified(1)
(c).............................. Sec. 5.61(d)(3)............. Significant change(1)
(c)(1)........................... Sec. 5.61(d)(3)(i).......... No change(1)
(c)(2)........................... Sec. 5.61(d)(3)(ii)......... Modified(1)
Sec. 5.65........................... ............................. Added(1)
Sec. 5.66........................... 12 CFR Sec. 7.2024.......... No change(1)
Sec. 5.67........................... 12 CFR Sec. 7.2023.......... No change(1)
Sec. 5.70........................... Secs. 5.23, 5.25, 5.27, Significant change(1)
5.32, 5.41, 5.43.
----------------------------------------------------------------------------------------------------------------
Regulatory Flexibility Act
It is hereby certified that this final rule will not have a
significant economic impact on a substantial number of small entities.
Accordingly, a regulatory flexibility analysis is not required. This
regulation will reduce somewhat the regulatory burden on national
banks, regardless of size, by simplifying and clarifying existing
regulatory requirements.
Executive Order 12866
The OCC has determined that this final rule is not a significant
regulatory action under Executive Order 12866.
Unfunded Mandates Act of 1995
Section 202 of the Unfunded Mandates Reform Act of 1995 (Unfunded
Mandates Act) requires that an agency prepare a budgetary impact
statement before promulgating a rule that includes a Federal mandate
that may result in the 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 promulgating a rule. Because the OCC
[[Page 60363]]
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. As discussed in the preamble, the final rule has the effect
of reducing burden and increasing the efficiency of corporate
activities and corporate transactions undertaken by national banks.
List of Subjects
12 CFR Part 3
Administrative practice and procedure, National banks, Reporting
and recordkeeping requirements.
12 CFR Part 5
Administrative practice and procedure, National banks, Reporting
and recordkeeping requirements, Securities.
12 CFR Part 7
Credit, Insurance, Investments, National banks, Reporting and
recordkeeping requirements, Securities.
12 CFR Part 16
National banks, Reporting and recordkeeping requirements,
Securities.
12 CFR Part 28
Foreign banking, 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:
PART 3--MINIMUM CAPITAL RATIOS; ISSUANCE OF DIRECTIVES
1. The authority citation for part 3 continues to read as follows:
Authority: 12 U.S.C. 93a, 161, 1818, 1828(n), 1828 note, 1831n
note, 1835, 3907 and 3909.
2. In Sec. 3.100, the heading of paragraph (f) and paragraph (f)(1)
are revised to read as follows:
Sec. 3.100 Capital and surplus.
* * * * *
(f) Requirements and restrictions: Limited life preferred stock,
mandatory convertible debt, and other subordinated debt--(1)
Requirements. Issues of limited life preferred stock and subordinated
notes and debentures (except mandatory convertible debt) shall have
original weighted average maturities of at least five years to be
included in the definition of surplus. In addition, a subordinated note
or debenture must also:
(i) Be subordinated to the claims of depositors;
(ii) State on the instrument that it is not a deposit and is not
insured by the FDIC;
(iii) Be unsecured;
(iv) Be ineligible as collateral for a loan by the issuing bank;
(v) Provide that once any scheduled payments of principal begin,
all scheduled payments shall be made at least annually and the amount
repaid in each year shall be no less than in the prior year; and
(vi) Provide that no prepayment (including payment pursuant to an
acceleration clause or redemption prior to maturity) shall be made
without prior OCC approval unless the bank remains an eligible bank, as
defined in 12 CFR 5.3(g), after the prepayment.
* * * * *
3. In appendix A to part 3, section 2, paragraph (b)(4) is revised
and footnote 5 is removed and reserved to read as follows:
Appendix A to Part 3--Risk-Based Capital Guidelines
* * * * *
Section 2. Components of capital.
* * * * *
(b) Tier 2 Capital. * * *
(4) Term subordinated debt instruments, and intermediate-term
preferred stock and related surplus are included in Tier 2 capital,
but only to a maximum of 50% of Tier 1 capital as calculated after
deductions pursuant to section 2(c) of this appendix. To be
considered capital, term subordinated debt instruments shall meet
the requirements of Sec. 3.100(f)(1). However, pursuant to 12 CFR
5.47, the OCC may, in some cases, require that the subordinated debt
be approved by the OCC before the subordinated debt may qualify as
Tier 2 capital or may require prior approval for any prepayment
(including payment pursuant to an acceleration clause or redemption
prior to maturity) of the subordinated debt. Also, at the beginning
of each of the last five years for the life of either type of
instrument, the amount that is eligible to be included as Tier 2
capital is reduced by 20% of the original amount of that instrument
(net of redemptions).
* * * * *
4. Part 5 is revised to read as follows:
PART 5--RULES, POLICIES, AND PROCEDURES FOR CORPORATE ACTIVITIES
Sec.
5.1 Scope.
Subpart A--Rules of General Applicability
5.2 Rules of general applicability.
5.3 Definitions.
5.4 Filing required.
5.5 Fees.
5.6 [Reserved]
5.7 Investigations.
5.8 Public notice.
5.9 Public availability.
5.10 Comments.
5.11 Hearings and other meetings.
5.12 Computation of time.
5.13 Decisions.
Subpart B--Initial Activities
5.20 Organizing a bank.
5.24 Conversion.
5.26 Fiduciary powers.
Subpart C--Expansion of Activities
5.30 Establishment, acquisition, and relocation of a branch.
5.33 Business combinations.
5.34 Operating subsidiaries.
5.35 Bank service companies.
5.36 Other equity investments.
5.37 Investment in bank premises.
Subpart D--Other Changes in Activities and Operations
5.40 Change in location of main office.
5.42 Corporate title.
5.46 Changes in permanent capital.
5.47 Subordinated debt as capital.
5.48 Voluntary liquidation.
5.50 Change in bank control; reporting of stock loans.
5.51 Changes in directors and senior executive officers.
5.52 Change of address.
Subpart E--Payment of Dividends
5.60 Authority, scope, and exceptions to rules of general
applicability.
5.61 Definitions.
5.62 Date of declaration of dividend.
5.63 Capital limitation under 12 U.S.C. 56.
5.64 Earnings limitation under 12 U.S.C. 60.
5.65 Restrictions on undercapitalized institutions.
5.66 Dividends payable in property other than cash.
5.67 Fractional shares.
Subpart F--Federal Branches and Agencies
5.70 Federal branches and agencies.
Authority: 12 U.S.C. 1 et seq., 93a.
Sec. 5.1 Scope.
This part establishes rules, policies and procedures of the Office
of the Comptroller of the Currency (OCC) for corporate activities and
transactions involving national banks. It contains information on rules
of general and specific applicability, where and how to file, and
requirements and policies applicable to filings. This part also
establishes the corporate filing procedures for Federal branches and
agencies of foreign banks.
Subpart A--Rules of General Applicability
Sec. 5.2 Rules of general applicability.
(a) General. The rules in this subpart apply to all sections in
this part unless otherwise stated.
[[Page 60364]]
(b) Exceptions. The OCC may adopt materially different procedures
for a particular filing, or class of filings, in exceptional
circumstances, such as natural disasters or unusual transactions, after
providing notice of the change to the applicant and to any other party
that the OCC determines should receive notice.
(c) Additional information. The ``Comptroller's Corporate Manual''
(Manual) provides additional guidance, including policies, procedures,
and sample forms. The Manual is sent to all national banks and is
available for a fee by writing to the Comptroller of the Currency, P.O.
Box 70004, Chicago, IL 60673-0004.
Sec. 5.3 Definitions.
(a) Applicant means a person or entity that submits a notice or
application to the OCC under this part.
(b) Application means a submission requesting OCC approval to
engage in various corporate activities and transactions.
(c) Appropriate district office means:
(1) The OCC's Multinational Banking Department for all national
banks that are subsidiaries of a designated multinational holding
company;
(2) The district office for the OCC district where the national
bank's supervisory office is located for all other banks; or
(3) The OCC's International Banking and Finance Department for
Federal branches and agencies.
(d) Capital and surplus means:
(1) A bank's Tier 1 and Tier 2 capital calculated under the OCC's
risk-based capital standards set forth in Appendix A to 12 CFR part 3
as reported in the bank's Consolidated Report of Condition and Income
filed under 12 U.S.C. 161; plus
(2) The balance of a bank's allowance for loan and lease losses not
included in the bank's Tier 2 capital, for purposes of the calculation
of risk-based capital described in paragraph (d)(1) of this section, as
reported in the bank's Consolidated Report of Condition and Income
filed under 12 U.S.C. 161.
(e) Central city means the city or cities identified as central
cities by the Director of the Office of Management and Budget.
(f) Depository institution means any bank or savings association.
(g) Eligible bank means a national bank that:
(1) Is well capitalized as defined in 12 CFR 6.4(b)(1);
(2) Has a composite rating of 1 or 2 under the Uniform Financial
Institutions Rating System (CAMEL);
(3) Has a Community Reinvestment Act (CRA), 12 U.S.C. 2901 et seq.,
rating of ``Outstanding'' or ``Satisfactory''; and
(4) Is not subject to a cease and desist order, consent order,
formal written agreement, or Prompt Corrective Action directive (see 12
CFR part 6, subpart B) or, if subject to any such order, agreement, or
directive, is informed in writing by the OCC that the bank may be
treated as an ``eligible bank'' for purposes of this part.
(h) Eligible depository institution means a state bank or a Federal
or state savings association that meets the criteria for an ``eligible
bank'' under Sec. 5.3(g) and is FDIC-insured.
(i) Filing means an application or notice submitted to the OCC
under this part.
(j) National bank means any national banking association and any
bank or trust company located in the District of Columbia operating
under the OCC's supervision.
(k) Notice means a submission notifying the OCC that a national
bank intends to engage in or has commenced certain corporate activities
or transactions.
(l) Short-distance relocation means moving the premises of a branch
or main office within a:
(1) One thousand foot-radius of the site if the branch is located
within a central city of an MSA;
(2) One-mile radius of the site if the branch is not located within
a central city, but is located within an MSA; or
(3) Two-mile radius of the site if the branch is not located within
an MSA.
Sec. 5.4 Filing required.
(a) Filing. A depository institution shall file an application or
notice with the OCC to engage in corporate activities and transactions
as described in this part.
(b) Availability of forms. Individual sample forms and instructions
for filings are available in the Manual and from each district office.
(c) Other applications accepted. At the request of the applicant,
the OCC may accept an application form or other filing submitted to
another Federal agency that covers the proposed action or transaction
and contains substantially the same information as required by the OCC.
The OCC may also require the applicant to submit supplemental
information.
(d) Where to file. An applicant should address a filing or other
submission under this part to the attention of the Licensing Manager at
the appropriate district office. However, the OCC may advise an
applicant through a pre-filing communication to send the filing or
submission directly to the Bank Organization and Structure Department
or elsewhere as otherwise directed by the OCC. Relevant addresses are
listed in the Manual.
(e) Incorporation of other material. An applicant may incorporate
any material contained in any other application or filing filed with
the OCC or other Federal agency by reference, provided that the
material is attached to the application and is current and responsive
to the information requested by the OCC. The filing must clearly
indicate that the information is so incorporated and include a cross-
reference to the information incorporated.
Sec. 5.5 Fees.
An applicant shall submit the appropriate filing fee, if any, in
connection with its filing. An applicant shall pay the fee by check
payable to the Comptroller of the Currency or by other means acceptable
to the OCC. The OCC publishes a fee schedule annually in the ``Notice
of Comptroller of the Currency fees,'' described in 12 CFR 8.8. The OCC
generally does not refund the filing fees.
Sec. 5.6 [Reserved]
Sec. 5.7 Investigations.
(a) Authority. The OCC may examine or investigate and evaluate
facts related to a filing to the extent necessary to reach an informed
decision.
(b) Fees. The OCC may assess fees for investigations or
examinations conducted under paragraph (a) of this section. The OCC
publishes the rates, described in 12 CFR 8.6, annually in the ``Notice
of Comptroller of the Currency fees.''
Sec. 5.8 Public notice.
(a) General. An applicant shall publish a public notice of its
filing in a newspaper of general circulation in the community in which
the applicant proposes to engage in business, on the date of filing, or
as soon as practicable before or after the date of filing.
(b) Contents of the public notice. The public notice shall state
that a filing is being made, the date of the filing, the name of the
applicant, the subject matter of the filing, that the public may submit
comments to the OCC, the address of the appropriate office(s) where
comments should be sent, the closing date of the public comment period,
and any other information that the OCC requires.
(c) Confirmation of public notice. The applicant shall mail or
otherwise deliver a statement containing the date of publication, the
name and address of the newspaper that published the public
[[Page 60365]]
notice, a copy of the public notice, and any other information that the
OCC requires, to the appropriate district office promptly following
publication.
(d) Multiple transactions. The OCC may consider more than one
transaction, or a series of transactions, to be a single filing for
purposes of the publication requirements of this section. When filing a
single public notice for multiple transactions, the applicant shall
explain in the notice how the transactions are related.
(e) Joint public notices accepted. Upon the request of an applicant
for a transaction subject to the OCC's public notice requirements and
public notice required by another Federal agency, the OCC may accept
publication of a single joint notice containing the information
required by both the OCC and the other Federal agency, provided that
the notice states that comments must be submitted to both the OCC and,
if applicable, the other Federal agency.
(f) Public notice by the OCC. In addition to the foregoing, the OCC
may require or give public notice and request comment on any filing and
in any manner the OCC determines appropriate for the particular filing.
Sec. 5.9 Public availability.
(a) General. The OCC provides a copy of the public file to any
person who requests it. A requestor should submit a request for the
public file concerning a pending application to the appropriate
district office. A requestor should submit a request for the public
file concerning a decided or closed application to the Disclosure
Officer, Communications Division, at the address listed in the Manual.
Requests should be in writing. The OCC may impose a fee in accordance
with 12 CFR 4.17 and with the rates the OCC publishes annually in the
``Notice of Comptroller of the Currency Fees'' described in 12 CFR 8.8.
(b) Public file. A public file consists of the portions of the
filing, supporting data, supplementary information, and information
submitted by interested persons, to the extent that those documents
have not been afforded confidential treatment. Applicants and other
interested persons may request that confidential treatment be afforded
information submitted to the OCC pursuant to paragraph (c) of this
section.
(c) Confidential treatment. The applicant or an interested person
submitting information may request that specific information be treated
as confidential under the Freedom of Information Act, 5 U.S.C. 552 (see
12 CFR 4.12(b)). A submitter should draft its request for confidential
treatment narrowly to extend only to those portions of a document it
considers to be confidential. If a submitter requests confidential
treatment for information that the OCC does not consider to be
confidential, the OCC may include that information in the public file
after providing notice to the submitter. Moreover, at its own
initiative, the OCC may determine that certain information should be
treated as confidential and withhold that information from the public
file. A person requesting information withheld from the public file
should submit the request to the Disclosure Officer, Communications
Division, under the procedures described in 12 CFR part 4, subpart B.
That request may be subject to the predisclosure notice procedures of
12 CFR 4.16.
Sec. 5.10 Comments.
(a) Submission of comments. During the comment period, any person
may submit written comments on a filing to the appropriate district
office.
(b) Comment period--(1) General. Unless otherwise stated, the
comment period is 30 days after publication of the public notice
required by Sec. 5.8(a).
(2) Extension. The OCC may extend the comment period if:
(i) The applicant fails to file all required publicly available
information on a timely basis to permit review by interested persons or
makes a request for confidential treatment not granted by the OCC that
delays the public availability of that information;
(ii) Any person requesting an extension of time satisfactorily
demonstrates to the OCC that additional time is necessary to develop
factual information that the OCC determines is necessary to consider
the application; or
(iii) The OCC determines that other extenuating circumstances
exist.
(3) Applicant response. The OCC may give the applicant an
opportunity to respond to comments received.
Sec. 5.11 Hearings and other meetings.
(a) Hearing requests. Prior to the end of the comment period, any
person may submit to the appropriate district office a written request
for a hearing on a filing. The request must describe the nature of the
issues or facts to be presented and the reasons why written submissions
would be insufficient to make an adequate presentation of those issues
or facts to the OCC. A person requesting a hearing shall simultaneously
submit a copy of the request to the applicant.
(b) Action on a hearing request. The OCC may grant or deny a
request for a hearing and may limit the issues to those it deems
relevant or material. The OCC generally grants a hearing request only
if the OCC determines that written submissions would be insufficient or
that a hearing would otherwise benefit the decisionmaking process. The
OCC also may order a hearing if it concludes that a hearing would be in
the public interest.
(c) Denial of a hearing request. If the OCC denies a hearing
request, it shall notify the person requesting the hearing of the
reason for the denial.
(d) OCC procedures prior to the hearing--(1) Notice of Hearing. The
OCC issues a Notice of Hearing if it grants a request for a hearing or
orders a hearing because it is in the public interest. The OCC sends a
copy of the Notice of Hearing to the applicant, to the person
requesting the hearing, and anyone else requesting a copy. The Notice
of Hearing states the subject and date of the filing, the time and
place of the hearing, and the issues to be addressed.
(2) Presiding officer. The OCC appoints a presiding officer to
conduct the hearing. The presiding officer is responsible for all
procedural questions not governed by this section.
(e) Participation in the hearing. Any person who wishes to appear
(participant) shall notify the appropriate district office of his or
her intent to participate in the hearing within ten days from the date
the OCC issues the Notice of Hearing. At least five days before the
hearing, each participant shall submit to the appropriate district
office, the applicant, and any other person the OCC requires, the names
of witnesses, and one copy of each exhibit the participant intends to
present.
(f) Transcripts. The OCC arranges for a hearing transcript. The
person requesting the hearing generally bears the cost of one copy of
the transcript for his or her use.
(g) Conduct of the hearing--(1) Presentations. Subject to the
rulings of the presiding officer, the applicant and participants may
make opening statements and present witnesses, material, and data.
(2) Information submitted. A person presenting documentary material
shall furnish one copy to the OCC, and one copy to the applicant and
each participant.
(3) Laws not applicable to hearings. The Administrative Procedure
Act (5 U.S.C. 551 et seq.), the Federal Rules of Evidence (28 U.S.C.
Appendix), the Federal Rules of Civil Procedure (28 U.S.C. Rule 1 et
seq.), and the OCC's Rules of Practice and Procedure (12 CFR part 19)
do not apply to hearings under this section.
[[Page 60366]]
(h) Closing the hearing record. At the applicant's or participant's
request, the OCC may keep the hearing record open for up to 14 days
following the OCC's receipt of the transcript. The OCC resumes
processing the filing after the record closes.
(i) Other meetings--(1) Public meetings. The OCC may arrange for a
public meeting in connection with an application, either upon receipt
of a written request for such a meeting which is made during the
comment period, or upon the OCC's own initiative. Public meetings will
be arranged and presided over by a representative of the OCC.
(2) Private meetings. The OCC may arrange a meeting with an
applicant or other interested parties to an application, or with an
applicant and other interested parties to an application, to clarify
and narrow the issues and to facilitate the resolution of the issues.
Sec. 5.12 Computation of time.
In computing the period of days, the OCC includes the day of the
act (e.g., the date an application is received by the OCC) from which
the period begins to run and the last day of the period, regardless of
whether it is a Saturday, Sunday, or legal holiday.
Sec. 5.13 Decisions.
(a) General. The OCC may approve, conditionally approve, or deny a
filing after appropriate review and consideration of the record. In
deciding an application under this part, the OCC may consider the
activities, resources, or condition of an affiliate of the applicant
that may reasonably reflect on or affect the applicant.
(1) Conditional approval. The OCC may impose conditions on any
approval, including to address a significant supervisory, CRA (if
applicable), or compliance concern, if the OCC determines that the
conditions are necessary or appropriate to ensure that approval is
consistent with relevant statutory and regulatory standards and OCC
policies thereunder and safe and sound banking practices.
(2) Expedited review. The OCC grants eligible banks expedited
review within a specified time after filing or commencement of the
public comment period, including any extension of the comment period
granted pursuant to Sec. 5.10, as described in applicable sections of
this part.
(i) The OCC may extend the expedited review process for a filing
subject to the CRA up to an additional 10 days if a comment contains
specific assertions concerning a bank's CRA performance that, if true,
would indicate a reasonable possibility that:
(A) A bank's CRA rating would be less than satisfactory,
institution-wide, or, where applicable, in a state or multistate MSA;
or
(B) A bank's CRA performance would be less than satisfactory in an
MSA, or in the non-MSA portion of a state, in which it seeks to expand
through approval of an application for a deposit facility as defined in
12 U.S.C. 2902(3).
(ii) The OCC will remove a filing from expedited review procedures,
if the OCC concludes that the filing, or an adverse comment regarding
the filing, presents a significant supervisory, CRA (if applicable), or
compliance concern, or raises a significant legal or policy issue,
requiring additional OCC review. The OCC will provide the applicant
with a written explanation if it decides not to process an application
from an eligible bank under expedited review pursuant to this paragraph
(a)(2)(ii). For purposes of this section, a significant CRA concern
exists if the OCC concludes that:
(A) A bank's CRA rating is less than satisfactory, institution-
wide, or, where applicable, in a state or multistate MSA; or
(B) A bank's CRA performance is less than satisfactory in an MSA,
or in the non-MSA portion of a state, in which it seeks to expand
through approval of an application for a deposit facility as defined in
12 U.S.C. 2902(3).
(iii) Adverse comments that the OCC determines do not raise a
significant supervisory, CRA (if applicable), or compliance concern, or
a significant legal or policy issue, or are frivolous, filed primarily
as a means of delaying action on the filing, or that raise a CRA
concern that the OCC determines has been satisfactorily resolved, do
not affect the OCC's decision under paragraphs (a)(2)(i) or (a)(2)(ii)
of this section. The OCC considers a CRA concern to have been
satisfactorily resolved if the OCC previously reviewed (e.g., in an
examination or an application) a concern presenting substantially the
same issue in substantially the same assessment area during
substantially the same time, and the OCC determines that the concern
would not warrant denial or imposition of a condition on approval of
the application.
(iv) If a bank files an application for any activity or transaction
that is dependent upon the approval of another application under this
part, or if requests for approval for more than one activity or
transaction are combined in a single application under applicable
sections of this part, none of the subject applications may be deemed
approved upon expiration of the applicable time periods, unless all of
the applications are subject to expedited review procedures and the
longest of the time periods expires without the OCC issuing a decision
or notifying the bank that the filings are not eligible for expedited
review under the standards in paragraph (a)(2)(ii) of this section.
(b) Denial. The OCC may deny a filing if:
(1) A significant supervisory, CRA (if applicable), or compliance
concern exists with respect to the applicant;
(2) Approval of the filing is inconsistent with applicable law,
regulation, or OCC policy thereunder; or
(3) The applicant fails to provide information requested by the OCC
that is necessary for the OCC to make an informed decision.
(c) Required information and abandonment of filing. A filing must
contain information required by the applicable section set forth in
this part. To the extent necessary to evaluate an application, the OCC
may require an applicant to provide additional information. The OCC may
deem a filing abandoned if information required or requested by the OCC
in connection with the filing is not furnished within the time period
specified by the OCC.
(d) Notification of final disposition. The OCC notifies the
applicant, and any person who makes a written request, of the final
disposition of a filing, including confirmation of an expedited review
under this part. If the OCC denies a filing, the OCC notifies the
applicant in writing of the reasons for the denial.
(e) Publication of decision. The OCC will issue a public decision
when a decision represents a new or changed policy or presents issues
of general interest to the public or the banking industry. In rendering
its decisions, the OCC may elect not to disclose information that the
OCC deems to be private or confidential.
(f) Appeal. An applicant may file an appeal of an OCC decision with
the Deputy Comptroller for Bank Organization and Structure or with the
Ombudsman. Relevant addresses and telephone numbers are located in the
Manual.
(g) Extension of time. When the OCC approves or conditionally
approves a filing, the OCC generally gives the applicant a specified
period of time to commence that new or expanded activity. The OCC does
not generally grant an extension of the time specified to commence a
new or expanded corporate activity approved under this
[[Page 60367]]
part, unless the OCC determines that the delay is beyond the
applicant's control.
(h) Nullifying a decision--(1) Material misrepresentation or
omission. An applicant shall certify that any filing or supporting
material submitted to the OCC contains no material misrepresentations
or omissions. The OCC may review and verify any information filed in
connection with a notice or an application. If the OCC discovers a
material misrepresentation or omission after the OCC has rendered a
decision on the filing, the OCC may nullify its decision. Any person
responsible for any material misrepresentation or omission in a filing
or supporting materials may be subject to enforcement action and other
penalties, including criminal penalties provided in 18 U.S.C. 1001.
(2) Other nullifications. The OCC may nullify any decision on a
filing that is:
(i) Contrary to law, regulation, or OCC policy thereunder; or
(ii) Granted due to clerical or administrative error, or a material
mistake of law or fact.
Subpart B--Initial Activities
Sec. 5.20 Organizing a bank.
(a) Authority. 12 U.S.C. 21, 22, 24(Seventh), 26, 27, 92a, 93a,
1814(b), 1816, and 2903.
(b) Licensing requirements. Any person desiring to establish a
national bank shall submit an application and obtain prior OCC
approval.
(c) Scope. This section describes the procedures and requirements
governing OCC review and approval of an application to establish a
national bank, including a national bank with a special purpose.
Information regarding an application to establish an interim national
bank solely to facilitate a business combination is set forth in
Sec. 5.33.
(d) Definitions. For purposes of this section:
(1) Bankers' bank means a bank owned exclusively (except to the
extent directors' qualifying shares are required by law) by other
depository institutions or depository institution holding companies (as
that term is defined in section 3 of the Federal Deposit Insurance Act,
12 U.S.C. 1813), the activities of which are limited by its articles of
association exclusively to providing services to or for other
depository institutions, their holding companies, and the officers,
directors, and employees of such institutions and companies, and to
providing correspondent banking services at the request of other
depository institutions or their holding companies.
(2) Control means control as used in section 2 of the Bank Holding
Company Act, 12 U.S.C. 1841(a)(2).
(3) Final approval means the OCC action issuing a charter
certificate and authorizing a national bank to open for business.
(4) Holding company means any company that controls or proposes to
control a national bank whether or not the company is a bank holding
company under section 2 of the Bank Holding Company Act, 12 U.S.C.
1841(a)(1).
(5) Lead depository institution means the largest depository
institution controlled by a bank holding company based on a comparison
of the average total assets controlled by each depository institution
as reported in its Consolidated Report of Condition and Income required
to be filed for the immediately preceding four calendar quarters.
(6) Organizing group means five or more persons acting on their own
behalf, or serving as representatives of a sponsoring holding company,
who apply to the OCC for a national bank charter.
(7) Preliminary approval means a decision by the OCC permitting an
organizing group to go forward with the organization of the proposed
national bank. A preliminary approval generally is subject to certain
conditions that an applicant must satisfy before the OCC will grant
final approval.
(e) Statutory requirements--(1) General. The OCC charters a
national bank under the authority of the National Bank Act of 1864, as
amended, 12 U.S.C. 1 et seq. The name of a proposed bank must include
the word ``national.'' In determining whether to approve an application
to establish a national bank, the OCC verifies that the proposed
national bank has complied with the following requirements of the
National Bank Act. A national bank shall:
(i) Draft and file articles of association with the OCC;
(ii) Draft and file an organization certificate containing
specified information with the OCC;
(iii) Ensure that all capital stock is paid in; and
(iv) Have at least five elected directors.
(2) Community Reinvestment Act. Twelve CFR part 25 requires the OCC
to take into account a proposed insured national bank's description of
how it will meet its CRA objectives.
(f) Policy--(1) General. The marketplace is normally the best
regulator of economic activity, and competition within the marketplace
promotes efficiency and better customer service. Accordingly, it is the
OCC's policy to approve proposals to establish national banks,
including minority-owned institutions, that have a reasonable chance of
success and that will be operated in a safe and sound manner. It is not
the OCC's policy to ensure that a proposal to establish a national bank
is without risk to the organizers or to protect existing institutions
from healthy competition from a new national bank.
(2) Policy considerations. (i) In evaluating an application to
establish a national bank, the OCC considers whether the proposed bank:
(A) Has organizers who are familiar with national banking laws and
regulations;
(B) Has competent management, including a board of directors, with
ability and experience relevant to the types of services to be
provided;
(C) Has capital that is sufficient to support the projected volume
and type of business;
(D) Can reasonably be expected to achieve and maintain
profitability; and
(E) Will be operated in a safe and sound manner.
(ii) The OCC may also consider additional factors listed in section
6 of the Federal Deposit Insurance Act, 12 U.S.C. 1816, including the
risk to the Federal deposit insurance fund, and whether the proposed
bank's corporate powers are consistent with the purposes of the Federal
Deposit Insurance Act and the National Bank Act.
(3) OCC evaluation. The OCC evaluates a proposed national bank's
organizing group and its operating plan together. The OCC's judgment
concerning one may affect the evaluation of the other. An organizing
group and its operating plan must be stronger in markets where economic
conditions are marginal or competition is intense.
(g) Organizing group--(1) General. Strong organizing groups
generally include diverse business and financial interests and
community involvement. An organizing group must have the experience,
competence, willingness, and ability to be active in directing the
proposed national bank's affairs in a safe and sound manner. The bank's
initial board of directors generally is comprised of many, if not all,
of the organizers. The operating plan and other information supplied in
the application must demonstrate an organizing group's collective
ability to establish and operate a successful bank in the economic and
competitive conditions of the market to be served. Each organizer
should be knowledgeable about the operating plan. A poor operating plan
reflects adversely on the organizing
[[Page 60368]]
group's ability, and the OCC generally denies applications with poor
operating plans.
(2) Management selection. The initial board of directors must
select competent senior executive officers before the OCC grants final
approval. Early selection of executive officers, especially the chief
executive officer, contributes favorably to the preparation and review
of an operating plan that is accurate, complete, and appropriate for
the type of bank proposed and its market, and reflects favorably upon
an application. As a condition of the charter approval, the OCC retains
the right to object to and preclude the hiring of any officer, or the
appointment or election of any director, for a two-year period from the
date the bank commences business.
(3) Financial resources. (i) Each organizer must have a history of
responsibility, personal honesty, and integrity. Personal wealth is not
a prerequisite to become an organizer or director of a national bank.
However, directors' stock purchases, individually and in the aggregate,
should reflect a financial commitment to the success of the national
bank that is reasonable in relation to their individual and collective
financial strength. A director should not have to depend on bank
dividends, fees, or other compensation to satisfy financial
obligations.
(ii) Because directors are often the primary source of additional
capital for a bank not affiliated with a holding company, it is
desirable that an organizer who is also proposed as a director of the
national bank be able to supply or have a realistic plan to enable the
bank to obtain capital when needed.
(iii) Any financial or other business arrangement, direct or
indirect, between the organizing group or other insider and the
proposed national bank must be on nonpreferential terms.
(4) Organizational expenses. (i) Organizers are expected to
contribute time and expertise to the organization of the bank.
Organizers should not bill excessive charges to the bank for
professional and consulting services or unduly rely upon these fees as
a source of income.
(ii) A proposed national bank shall not pay any fee that is
contingent upon an OCC decision. Such action generally is grounds for
denial of the application or withdrawal of preliminary approval.
Organizational expenses for denied applications are the sole
responsibility of the organizing group.
(5) Sponsor's experience and support. A sponsor must be financially
able to support the new bank's operations and to provide or locate
capital when needed. The OCC primarily considers the financial and
managerial resources of the sponsor and the sponsor's record of
performance, rather than the financial and managerial resources of the
organizing group, if an organizing group is sponsored by:
(i) An existing holding company;
(ii) Individuals currently affiliated with other depository
institutions; or
(iii) Individuals who, in the OCC's view, are otherwise
collectively experienced in banking and have demonstrated the ability
to work together effectively.
(h) Operating plan--(1) General. (i) Organizers of a proposed
national bank shall submit an operating plan that adequately addresses
the statutory and policy considerations set forth in paragraphs (e) and
(f)(2) of this section. The plan must reflect sound banking principles
and demonstrate realistic assessments of risk in light of economic and
competitive conditions in the market to be served.
(ii) The OCC may offset deficiencies in one factor by strengths in
one or more other factors. However, deficiencies in some factors, such
as unrealistic earnings prospects, may have a negative influence on the
evaluation of other factors, such as capital adequacy, or may be
serious enough by themselves to result in denial. The OCC considers
inadequacies in an operating plan to reflect negatively on the
organizing group's ability to operate a successful bank.
(2) Earnings prospects. The organizing group shall submit pro forma
balance sheets and income statements as part of the operating plan. The
OCC reviews all projections for reasonableness of assumptions and
consistency with the operating plan.
(3) Management. (i) The organizing group shall include in the
operating plan information sufficient to permit the OCC to evaluate the
overall management ability of the organizing group. If the organizing
group has limited banking experience or community involvement, the
senior executive officers must be able to compensate for such
deficiencies.
(ii) The organizing group may not hire an officer or elect or
appoint a director if the OCC objects to that person at any time prior
to the date the bank commences business.
(4) Capital. A proposed bank must have sufficient initial capital,
net of any organizational expenses that will be charged to the bank's
capital after it begins operations, to support the bank's projected
volume and type of business.
(5) Community service. (i) The operating plan must indicate the
organizing group's knowledge of and plans for serving the community.
The organizing group shall evaluate the banking needs of the community,
including its consumer, business, nonprofit, and government sectors.
The operating plan must demonstrate how the proposed bank responds to
those needs consistent with the safe and sound operation of the bank.
The provisions of this paragraph may not apply to an application to
organize a bank for a special purpose.
(ii) As part of its operating plan, the organizing group shall
submit a statement that demonstrates its plans to achieve CRA
objectives.
(iii) Because community support is important to the long-term
success of a bank, the organizing group shall include plans for
attracting and maintaining community support.
(6) Safety and soundness. The operating plan must demonstrate that
the organizing group (and the sponsoring company, if any), is aware of,
and understands, national banking laws and regulations, and safe and
sound banking operations and practices. The OCC will deny an
application that does not meet these safety and soundness requirements.
(7) Fiduciary services. The operating plan must indicate if the
proposed bank intends to offer fiduciary services. The information
required by Sec. 5.26 shall be filed with the charter application. A
separate application is not required.
(i) Procedures--(1) Prefiling meeting. The OCC normally requires a
prefiling meeting with the organizers of a proposed national bank
before the organizers file an application. Organizers should be
familiar with the OCC's chartering policy and procedural requirements
in the Manual before the prefiling meeting. The prefiling meeting
normally is held in the district office where the application will be
filed but may be held at another location at the request of the
applicant.
(2) Operating plan. An organizing group shall file an operating
plan that addresses the subjects discussed in paragraph (h) of this
section.
(3) Spokesperson. The organizing group shall designate a
spokesperson to represent the organizing group in all contacts with the
OCC. The spokesperson shall be an organizer and proposed director of
the new bank, except a representative of the sponsor or sponsors may
serve as spokesperson if an application is sponsored by an existing
holding company, individuals currently affiliated with other depository
institutions, or individuals who, in the OCC's view, are otherwise
collectively experienced in banking and
[[Page 60369]]
have demonstrated the ability to work together effectively.
(4) Decision notification. The OCC notifies the spokesperson and
other interested persons in writing of its decision on an application.
(5) Post-decision activities. (i) Before the OCC grants final
approval, a proposed national bank must be established as a legal
entity. A national bank becomes a legal entity after it has filed its
organization certificate and articles of association with the OCC as
required by law. In addition, the organizing group shall elect a board
of directors. The proposed bank may not conduct the business of banking
until the OCC grants final approval.
(ii) For all capital obtained through a public offering a proposed
national bank shall use an offering circular that complies with the
OCC's securities offering regulations, 12 CFR part 16.
(iii) A national bank in organization shall raise its capital
before it commences business. Preliminary approval expires if a
national bank in organization does not raise the required capital
within 12 months from the date the OCC grants preliminary approval.
Approval expires if the national bank does not commence business within
18 months from the date the OCC grants preliminary approval.
(j) Expedited review. An application to establish a full-service
national bank that is sponsored by a bank holding company whose lead
depository institution is an eligible bank or eligible depository
institution is deemed preliminarily approved by the OCC as of the 15th
day after the close of the public comment period or the 45th day after
the filing is received by the OCC, whichever is later, unless the OCC:
(1) Notifies the applicant prior to that date that the filing is
not eligible for expedited review, or the expedited review process is
extended, under Sec. 5.13(a)(2); or
(2) Notifies the applicant prior to that date that the OCC has
determined that the proposed bank will offer banking services that are
materially different than those offered by the lead depository
institution.
(k) National bankers' banks--(1) Activities and customers. In
addition to the other requirements of this section, when an organizing
group seeks to organize a national bankers' bank, the organizing group
shall list in the application the anticipated activities and customers
or clients of the proposed national bankers' bank.
(2) Waiver of requirements. At the organizing group's request, the
OCC may waive requirements that are applicable to national banks in
general if those requirements are inappropriate for a national bankers'
bank and would impede its ability to provide desired services to its
market. An applicant must submit a request for a waiver with the
application and must support the request with adequate justification
and legal analysis. A national bankers' bank that is already in
operation may also request a waiver. The OCC cannot waive statutory
provisions that specifically apply to national bankers' banks pursuant
to 12 U.S.C. 27(b)(1).
(3) Investments. A national bank may invest up to ten percent of
its capital and surplus in a bankers' bank and may own five percent or
less of any class of a bankers' bank's voting securities.
(l) Special purpose banks. An applicant for a national bank charter
that will limit its activities to fiduciary activities, credit card
operations, or another special purpose shall adhere to established
charter procedures with modifications appropriate for the circumstances
as determined by the OCC. An applicant for a national bank charter that
will have a community development focus shall also adhere to
established charter procedures with modifications appropriate for the
circumstances as determined by the OCC. In addition to the other
requirements in this section, a bank limited to fiduciary activities,
credit card operations, or another special purpose may not conduct that
business until the OCC grants final approval for the bank to commence
operations. A national bank that seeks to invest in a bank with a
community development focus must comply with applicable requirements of
12 CFR part 24.
Sec. 5.24 Conversion.
(a) Authority. 12 U.S.C. 35, 93a, 214a, 214b, 214c, and 2903.
(b) Licensing requirements. A state bank (including a ``state
bank'' as defined in 12 U.S.C. 214(a)) or a Federal savings association
shall submit an application and obtain prior OCC approval to convert to
a national bank charter. A national bank shall give notice to the OCC
before converting to a state bank (including a ``state bank'' as
defined in 12 U.S.C. 214(a)) or Federal savings association.
(c) Scope. This section describes procedures and standards
governing OCC review and approval of an application by a state bank or
Federal savings association to convert to a national bank charter. This
section also describes notice procedures for a national bank seeking to
convert to a state bank or Federal savings association.
(d) Conversion of a state bank or Federal savings association to a
national bank--(1) Policy. Consistent with the OCC's chartering policy,
it is OCC policy to allow conversion to a national bank charter by
another financial institution that can operate safely and soundly as a
national bank in compliance with applicable laws, regulations, and
policies. The OCC may deny an application by any state bank (including
a ``state bank'' as defined in 12 U.S.C. 214(a)) and any Federal
savings association to convert to a national bank charter on the basis
of the standards for denial set forth in Sec. 5.13(b), or when
conversion would permit the applicant to escape supervisory action by
its current regulator.
(2) Procedures. (i) Prefiling communications. The applicant should
consult with the appropriate district office prior to filing if it
anticipates that its application will raise unusual or complex issues.
If a prefiling meeting is appropriate, it will normally be held in the
district office where the application will be filed, but may be held at
another location at the request of the applicant.
(ii) A state bank (including a state bank as defined in 12 U.S.C.
214(a)) or Federal savings association shall submit its application to
convert to a national bank to the appropriate district office. The
application must:
(A) Be signed by the president or other duly authorized officer;
(B) Identify each branch that the resulting bank expects to operate
after conversion;
(C) Include the institution's most recent audited financial
statements (if any);
(D) Include the latest report of condition and report of income
(the most recent daily statement of condition will suffice if the
institution does not file these reports);
(E) Unless otherwise advised by the OCC in a prefiling
communication, include an opinion of counsel that, in the case of a
state bank, the conversion is not in contravention of applicable state
law, or in the case of a Federal savings association, the conversion is
not in contravention of applicable Federal law;
(F) State whether the institution wishes to exercise fiduciary
powers after the conversion;
(G) Identify all subsidiaries that will be retained following the
conversion, and provide the information and analysis of the
subsidiaries' activities that would be required if the converting bank
or savings association were a national bank establishing each
subsidiary pursuant to Sec. 5.34; and
[[Page 60370]]
(H) Identify any nonconforming assets (including nonconforming
subsidiaries) and nonconforming activities that the institution engages
in, and describe the plans to retain or divest those assets.
(iii) The OCC may permit a national bank to retain such
nonconforming assets of a state bank, subject to conditions and an OCC
determination of the carrying value of the retained assets, pursuant to
12 U.S.C. 35.
(iv) Approval for an institution to convert to a national bank
expires if the conversion has not occurred within six months of the
OCC's preliminary approval of the application.
(v) When the OCC determines that the applicant has satisfied all
statutory and regulatory requirements, including those set forth in 12
U.S.C. 35, and any other conditions, the OCC issues a charter
certificate. The certificate provides that the institution is
authorized to begin conducting business as a national bank as of a
specified date.
(3) Exceptions to rules of general applicability. Sections 5.8,
5.10, and 5.11 do not apply to this section. However, if the OCC
concludes that an application presents significant and novel policy,
supervisory, or legal issues, the OCC may determine that any or all
parts of Secs. 5.8, 5.10, and 5.11 apply.
(4) Expedited review. An application by an eligible depository
institution to convert to a national bank charter is deemed approved by
the OCC as of the 30th day after the filing is received by the OCC,
unless the OCC notifies the applicant prior to that date that the
filing is not eligible for expedited review under Sec. 5.13(a)(2).
(e) Conversion of a national bank to a state bank--(1) Procedure. A
national bank may convert to a state bank, in accordance with 12 U.S.C.
214c, without prior OCC approval. Termination of the national bank's
status as a national bank occurs upon the bank's completion of the
requirements of 12 U.S.C. 214a, and upon the appropriate district
office's receipt of the bank's national bank charter (or copy) in
connection with the consummation of the transaction.
(2) Notice of intent. A national bank that desires to convert to a
state bank shall submit to the appropriate district office a notice of
its intent to convert. The national bank shall file this notice when it
first submits a request to convert to the appropriate state
authorities. The appropriate district office then provides instructions
to the national bank for terminating its status as a national bank.
(3) Exceptions to the rules of general applicability. Sections 5.5
through 5.8, and 5.10 through 5.13, do not apply to the conversion of a
national bank to a state bank.
(f) Conversion of a national bank to a Federal savings association.
A national bank may convert to a Federal savings association without
prior OCC approval. The requirements and procedures set forth in
paragraph (e) of this section and 12 U.S.C. 214a and 12 U.S.C. 214c
apply to a conversion to a Federal savings association, except as
follows:
(1) In paragraph (e) of this section references to ``appropriate
state authorities'' mean ``appropriate Federal authorities''; and
(2) References in 12 U.S.C. 214c to the ``law of the State in which
the national banking association is located'' and ``any State
authority'' mean ``laws and regulations governing Federal savings
associations'' and ``Office of Thrift Supervision,'' respectively.
Sec. 5.26 Fiduciary powers.
(a) Authority. 12 U.S.C. 92a.
(b) Licensing requirements. A national bank must submit an
application and obtain prior approval from, or in certain circumstances
file a notice with, the OCC in order to exercise fiduciary powers. No
approval or notice is required in the following circumstances:
(1) Where two or more national banks consolidate or merge, and any
of the banks has, prior to the consolidation or merger, received OCC
approval to exercise fiduciary powers and that approval is in force at
the time of the consolidation or merger, the resulting bank may
exercise fiduciary powers in the same manner and to the same extent as
the national bank to which approval was originally granted; and
(2) Where a national bank with prior OCC approval to exercise
fiduciary powers is the resulting bank in a merger or consolidation
with a state bank.
(c) Scope. This section sets forth the procedures governing OCC
review and approval of an application, and in certain cases the filing
of a notice, by a national bank to exercise fiduciary powers. A
national bank's fiduciary activities are subject to the provisions of
12 CFR part 9.
(d) Policy. The exercise of fiduciary powers is primarily a
management decision of the national bank. The OCC generally permits a
national bank to exercise fiduciary powers if the bank is operating in
a satisfactory manner, the proposed activities comply with applicable
statutes and regulations, and the bank retains qualified fiduciary
management.
(e) Procedure--(1) General. The following institutions must obtain
approval from the OCC in order to offer fiduciary services to the
public:
(i) A national bank without fiduciary powers;
(ii) A national bank without fiduciary powers that desires to
exercise fiduciary powers after merging with a state bank or savings
association with fiduciary powers; and
(iii) A national bank that results from the conversion of a state
bank or a state or Federal savings association that was exercising
fiduciary powers prior to the conversion.
(2) Application. (i) Except as provided in paragraph (e)(2)(ii) of
this section, a national bank that desires to exercise fiduciary powers
shall submit to the OCC an application requesting approval. The
application must contain:
(A) A statement requesting full or limited powers (specifying which
powers);
(B) An opinion of counsel that the proposed activities do not
violate applicable Federal or state law, including citations to
applicable law;
(C) A statement that the capital and surplus of the national bank
is not less than the capital and surplus required by state law of state
banks, trust companies, and other corporations exercising comparable
fiduciary powers;
(D) Sufficient biographical information on proposed trust
management personnel to enable the OCC to assess their qualifications;
and
(E) A description of the locations where the bank will conduct
fiduciary activities.
(ii) If approval to exercise fiduciary powers is desired in
connection with any other transaction subject to an application under
this part, the applicant covered under paragraph (e)(1)(ii) or
(e)(1)(iii) of this section may include a request for approval of
fiduciary powers, including the information required by paragraph
(e)(2)(i) of this section, as part of its other application. The OCC
does not require a separate application requesting approval to exercise
fiduciary powers under these circumstances.
(3) Expedited review. (i) An application by an eligible bank to
exercise fiduciary powers is deemed approved by the OCC as of the 30th
day after the application is received by the OCC, unless the OCC
notifies the bank prior to that date that the filing is not eligible
for expedited review under Sec. 5.13(a)(2).
(ii) An eligible bank applying for fiduciary powers may omit the
opinion of counsel required by paragraph (e)(2)(i)(B) of this section
unless such opinion is specifically requested by the OCC.
[[Page 60371]]
(4) Permit. Approval of an application under this section
constitutes a permit under 12 U.S.C. 92a to conduct the fiduciary
powers requested in the application.
(5) Notice of fiduciary activities. No further application under
this section is required when a national bank with prior OCC approval
to exercise fiduciary powers commences fiduciary activities in a state
in addition to the state(s) described in the application for which it
received OCC approval to exercise fiduciary powers. Instead, the bank
shall provide written notice to the OCC within ten days after
commencing fiduciary activities. The written notice must identify the
state involved and describe the fiduciary activities to be conducted to
the extent that they materially differ from fiduciary activities the
bank was previously authorized to conduct.
(6) Exceptions to rules of general applicability. Sections 5.8,
5.10, and 5.11 do not apply to this section. However, if the OCC
concludes that an application presents significant and novel policy,
supervisory, or legal issues, the OCC may determine that any or all
parts of Secs. 5.8, 5.10, and 5.11 apply.
(7) Expiration of approval. Approval expires if a national bank
does not commence fiduciary activities within 18 months from the date
of approval.
Subpart C--Expansion of Activities
Sec. 5.30 Establishment, acquisition, and relocation of a branch.
(a) Authority. 12 U.S.C. 1-42, and 2901-2907.
(b) Licensing requirements. A national bank shall submit an
application and obtain prior OCC approval in order to establish or
relocate a branch.
(c) Scope. This section describes the procedures and standards
governing OCC review and approval of a national bank's application to
establish a new branch or to relocate a branch. The standards of this
section and, as applicable, 12 U.S.C. 36(b), but not the procedures set
forth in this section, apply to a branch established as a result of a
business combination approved under Sec. 5.33. A branch established
through a business combination is subject only to the procedures set
forth in Sec. 5.33.
(d) Definitions--(1) Branch includes any branch bank, branch
office, branch agency, additional office, or any branch place of
business established by a national bank in the United States or its
territories at which deposits are received, checks paid, or money lent.
A branch does not include an automated teller machine (ATM) or a remote
service unit.
(i) A branch established by a national bank includes a mobile
facility, temporary facility, drop box or a seasonal agency, as
described in 12 U.S.C. 36(c).
(ii) A facility otherwise described in this paragraph (d)(1) is not
a branch if:
(A) The bank establishing the facility does not permit members of
the public to have physical access to the facility for purposes of
making deposits, paying checks, or borrowing money (e.g., an office
established by the bank that receives deposits only through the mail);
or
(B) It is located at the site of, or is an extension of, an
approved main or branch office of the national bank. The OCC determines
whether a facility is an extension of an existing main or branch office
on a case-by-case basis.
(2) Home state means the state in which the national bank's main
office is located.
(3) Messenger service has the meaning set forth in 12 CFR 7.1012.
(4) Mobile branch is a branch, other than a messenger service
branch, that does not have a single, permanent site, and includes a
vehicle that travels to various public locations to enable customers to
conduct their banking business. A mobile branch may provide services at
various regularly scheduled locations or it may be open at irregular
times and locations such as at county fairs, sporting events, or school
registration periods. A branch license is needed for each mobile unit.
(5) Temporary branch means a branch that is located at a fixed site
and which, from the time of its opening, is scheduled to, and will,
permanently close no later than a certain date (not longer than one
year after the branch is first opened) specified in the branch
application and the public notice.
(e) Policy. In determining whether to approve an application to
establish or relocate a branch, the OCC is guided by the following
principles:
(1) Maintaining a sound banking system;
(2) Encouraging a national bank to help meet the credit needs of
its entire community;
(3) Relying on the marketplace as generally the best regulator of
economic activity; and
(4) Encouraging healthy competition to promote efficiency and
better service to customers.
(f) Procedures--(1) General. Except as provided in paragraph (f)(2)
of this section, each national bank proposing to establish a branch
shall submit to the appropriate district office a separate application
for each proposed branch.
(2) Messenger services. A national bank may request approval,
through a single application, for multiple messenger services to serve
the same general geographic area. (See 12 CFR 7.1012). Unless otherwise
required by law, the bank need not list the specific locations to be
served.
(3) Jointly established branches. If a national bank proposes to
establish a branch jointly with one or more national banks or
depository institutions, only one of the national banks must submit a
branch application. The national bank submitting the application may
act as agent for all national banks in the group of depository
institutions proposing to share the branch. The application must
include the name and main office address of each national bank in the
group.
(4) Authorization. The OCC authorizes operation of the branch when
all requirements and conditions for opening are satisfied.
(5) Expedited review. An application submitted by an eligible bank
to establish or relocate a branch is deemed approved by the OCC as of
the 15th day after the close of the applicable public comment period,
or the 45th day after the filing is received by the OCC, whichever is
later, unless the OCC notifies the bank prior to that date that the
filing is not eligible for expedited review, or the expedited review
process is extended, under Sec. 5.13(a)(2). An application to establish
or relocate more than one branch is deemed approved by the OCC as of
the 15th day after the close of the last public comment period.
(g) Interstate branches. A national bank that seeks to establish
and operate a de novo branch in any state other than the bank's home
state or a state in which the bank already has a branch shall satisfy
the standards and requirements of 12 U.S.C. 36(g).
(h) Exceptions to rules of general applicability. (1) A national
bank filing an application for a mobile branch or messenger service
branch shall publish a public notice, as described in Sec. 5.8, in the
communities in which the bank proposes to engage in business.
(2) The comment period on an application to engage in a short-
distance branch relocation is 15 days.
(3) The OCC may waive or reduce the public notice and comment
period, as appropriate, with respect to an application to establish a
branch to restore banking services to a community affected by a
disaster or to temporarily replace banking facilities where, because of
an emergency, the bank
[[Page 60372]]
cannot provide services or must curtail banking services.
(4) The OCC may waive or reduce the public notice and comment
period, as appropriate, for an application by a national bank with a
CRA rating of Satisfactory or better to establish a temporary branch
which, if it were established by a state bank to operate in the manner
proposed, would be permissible under state law without state approval.
(i) Expiration of approval. Approval expires if a branch has not
commenced business within 18 months after the date of approval.
(j) Branch closings. A national bank shall comply with the
requirements of 12 U.S.C. 1831r-1 with respect to procedures for branch
closings.
Sec. 5.33 Business combinations.
(a) Authority. 12 U.S.C. 24(Seventh), 93a, 181, 214a, 215, 215a,
215a-1, 215c, 1815(d)(3), 1828(c), 2903, and Sec. 102, Pub. L. 103-328,
108 Stat. 2338.
(b) Licensing requirements. A national bank shall submit an
application and obtain prior OCC approval for a business combination
between the national bank and another depository institution when the
resulting institution is a national bank. A national bank shall give
notice to the OCC prior to engaging in a combination where the
resulting institution will not be a national bank.
(c) Scope. This section sets forth the standards for OCC review and
approval of an application for a business combination resulting in a
national bank and for notices and other procedures for national banks
involved in all forms of combinations.
(d) Definitions--(1) Business combination means any merger or
consolidation between a national bank and one or more depository
institutions in which the resulting institution is a national bank, the
acquisition by a national bank of all, or substantially all, of the
assets of another depository institution, or the assumption by a
national bank of deposit liabilities of another depository institution.
(2) Business reorganization means either:
(i) A business combination between eligible banks, or between an
eligible bank and an eligible depository institution, that are
controlled by the same holding company or that will be controlled by
the same holding company prior to the date of the combination; or
(ii) A business combination between an eligible bank and an interim
bank chartered in a transaction in which a person or group of persons
exchanges its shares of the eligible bank for shares of a newly formed
holding company and receives after the transaction substantially the
same proportional share interest in the holding company as it held in
the eligible bank (except for changes in interests resulting from the
exercise of dissenters' rights), and the reorganization involves no
other transactions involving the bank.
(3) Home state means, with respect to a national bank, the state in
which the main office of the bank is located and, with respect to a
state bank, the state by which the bank is chartered.
(4) Interim bank means a national bank that does not operate
independently but exists solely as a vehicle to accomplish a business
combination.
(e) Policy--(1) Factors. The OCC considers the following factors in
evaluating an application for a business combination:
(i) Competition. (A) The OCC considers the effect of a proposed
business combination on competition. The applicant shall provide a
competitive analysis of the transaction, including a definition of the
relevant geographic market or markets. An applicant may refer to the
Manual for procedures to expedite its competitive analysis.
(B) The OCC will deny an application for a business combination if
the combination would result in a monopoly or would be in furtherance
of any combination or conspiracy to monopolize or attempt to monopolize
the business of banking in any part of the United States. The OCC also
will deny any proposed business combination whose effect in any section
of the United States may be substantially to lessen competition, or
tend to create a monopoly, or which in any other manner would be in
restraint of trade, unless the probable effects of the transaction in
meeting the convenience and needs of the community clearly outweigh the
anticompetitive effects of the transaction. For purposes of weighing
against anticompetitive effects, a business combination may have
favorable effects in meeting the convenience and needs of the community
if the depository institution being acquired has limited long-term
prospects, or if the resulting national bank will provide significantly
improved, additional, or less costly services to the community.
(ii) Financial and managerial resources and future prospects. The
OCC considers the financial and managerial resources and future
prospects of the existing or proposed institutions.
(iii) Convenience and needs of community. The OCC considers the
probable effects of the business combination on the convenience and
needs of the community served. The applicant shall describe these
effects in its application, including any planned office closings or
reductions in services following the business combination and the
likely impact on the community. The OCC also considers additional
relevant factors, including the resulting national bank's ability and
plans to provide expanded or less costly services to the community.
(iv) Community reinvestment. The OCC considers the performance of
the applicant and the other depository institutions involved in the
business combination in helping to meet the credit needs of the
relevant communities, including low- and moderate-income neighborhoods,
consistent with safe and sound banking practices.
(2) Acquisition and retention of branches. An applicant shall
disclose the location of any branch it will acquire and retain in a
business combination. The OCC considers the acquisition and retention
of a branch under the standards set out in Sec. 5.30, but it does not
require a separate application under Sec. 5.30.
(3) Subsidiaries. (i) An applicant shall identify any subsidiary to
be acquired in a business combination and state the activities of each
subsidiary. The OCC does not require a separate application under
Sec. 5.34.
(ii) An applicant proposing to acquire, through a business
combination, a subsidiary of a depository institution other than a
national bank shall provide the same information and analysis of the
subsidiary's activities that would be required if the applicant were
establishing the subsidiary pursuant to Sec. 5.34.
(4) Interim bank--(i) Application. An applicant for a business
combination that plans to use an interim bank to accomplish the
transaction shall file an application to organize an interim bank as
part of the application for the related business combination.
(ii) Conditional approval. The OCC grants conditional approval to
form an interim bank when it acknowledges receipt of the application
for the related business combination.
(iii) Corporate status. An interim bank becomes a legal entity and
may enter into legally valid agreements when it has filed, and the OCC
has accepted, the interim bank's duly executed articles of
[[Page 60373]]
association and organization certificate. OCC acceptance occurs:
(A) On the date the OCC advises the interim bank that its articles
of association and organization certificate are acceptable; or
(B) On the date the interim bank files articles of association and
an organization certificate that conform to the form for those
documents provided by the OCC in the Manual.
(iv) Other corporate procedures. An applicant should consult the
Manual to determine what other information is necessary to complete the
chartering of the interim bank as a national bank.
(5) Nonconforming assets. An applicant shall identify any
nonconforming activities and assets, including nonconforming
subsidiaries, of other institutions involved in the business
combination, that will not be disposed of or discontinued prior to
consummation of the transaction. The OCC generally requires a national
bank to divest or conform nonconforming assets, or discontinue
nonconforming activities, within a reasonable time following the
business combination.
(6) Fiduciary powers. An applicant shall state whether the
resulting bank intends to exercise fiduciary powers pursuant to
Sec. 5.26(b) (1) or (2).
(7) Expiration of approval. Approval of a business combination, and
conditional approval to form an interim bank charter, if applicable,
expires if the business combination is not consummated within one year
after the date of OCC approval.
(8) Adequacy of disclosure. (i) An applicant shall inform
shareholders of all material aspects of a business combination and
shall comply with any applicable requirements of the Federal securities
laws and securities regulations of the OCC. Accordingly, an applicant
shall ensure that all proxy and information statements prepared in
connection with a business combination do not contain any untrue or
misleading statement of a material fact, or omit to state a material
fact necessary in order to make the statements made, in the light of
the circumstances under which they were made, not misleading.
(ii) A national bank applicant with one or more classes of
securities subject to the registration provisions of section 12 (b) or
(g) of the Securities Exchange Act of 1934, 15 U.S.C. 78l(b) or 78l(g),
shall file preliminary proxy material or information statements for
review with the Director, Securities and Corporate Practices Division,
OCC, Washington, DC 20219, and with the appropriate district office.
Any other applicant shall submit the proxy materials or information
statements it uses in connection with the combination to the
appropriate district office no later than when the materials are sent
to the shareholders.
(f) Exceptions to rules of general applicability--(1) National bank
applicant. Section 5.8 (a) through (c) does not apply to a national
bank applicant that is subject to specific statutory notice
requirements for a business combination. A national bank applicant
shall follow, as applicable, the public notice requirements contained
in 12 U.S.C. 1828(c)(3) (business combinations), 12 U.S.C. 215(a)
(consolidation under a national bank charter), 12 U.S.C. 215a(a)(2)
(merger under a national bank charter), and paragraph (g) of this
section (merger or consolidation with a Federal savings association
resulting in a state bank).
(2) Interim bank. Sections 5.8, 5.10, and 5.11 do not apply to an
application to organize an interim bank. However, if the OCC concludes
that an application presents significant and novel policy, supervisory,
or legal issues, the OCC may determine that any or all parts of
Secs. 5.8, 5.10, and 5.11 apply. The OCC treats an application to
organize an interim bank as part of the related application to engage
in a business combination and does not require a separate public notice
and public comment process.
(3) State bank or Federal savings association as resulting
institution. Sections 5.2 and 5.5 through 5.13 do not apply to
transactions covered by paragraph (g)(3) of this section.
(g) Approval procedures and treatment of dissenting shareholders in
consolidations and mergers--(1) Consolidations and mergers with other
national banks and state banks as defined in 12 U.S.C. 215b(1)
resulting in a national bank. A national bank entering into a
consolidation or merger authorized pursuant to 12 U.S.C. 215 or 215a,
respectively, is subject to the approval procedures and requirements
with respect to treatment of dissenting shareholders set forth in those
provisions.
(2) Consolidations and mergers with Federal savings associations
under 12 U.S.C. 215c resulting in a national bank. (i) With the
approval of the OCC, any national bank and any Federal savings
association may consolidate or merge with a national bank as the
resulting institution by complying with the following procedures:
(A) A national bank entering into the consolidation or merger shall
follow the procedures of 12 U.S.C. 215 or 215a, respectively, as if the
Federal savings association were a state or national bank.
(B) A Federal savings association entering into the consolidation
or merger also shall follow the procedures of 12 U.S.C. 215 or 215a,
respectively, as if the Federal savings association were a state bank
or national bank, except where the laws or regulations governing
Federal savings associations specifically provide otherwise.
(ii) The OCC may conduct an appraisal or reappraisal of dissenters'
shares of stock in a national bank involved in a consolidation or
merger with a Federal savings association if all parties agree that the
determination is final and binding on each party.
(3) Merger or consolidation of a national bank resulting in a state
bank as defined in 12 U.S.C. 214(a) or a Federal savings association--
(i) Policy. Prior OCC approval is not required for the merger or
consolidation of a national bank with a state bank or Federal savings
association when the resulting institution will be a state bank or
Federal savings association. Termination of a national bank's status as
a national banking association is automatic upon completion of the
requirements of 12 U.S.C. 214a, in accordance with 12 U.S.C. 214c, in
the case of a merger or consolidation when the resulting institution is
a state bank, or paragraph (g)(3)(iii) of this section, in the case of
a merger or consolidation when the resulting institution is a Federal
savings association, and consummation of the transaction.
(ii) Procedures. A national bank desiring to merge or consolidate
with a state bank or a Federal savings association when the resulting
institution will be a state bank or Federal savings association shall
submit a notice to the appropriate district office advising of its
intention. The national bank shall submit this notice at the time the
application to merge or consolidate is filed with the responsible
agency under the Bank Merger Act, 12 U.S.C. 1828(c). The OCC then
provides instructions to the national bank for terminating its status
as a national bank, including requiring the bank to provide the
appropriate district office with the bank's charter (or a copy) in
connection with the consummation of the transaction.
(iii) Special procedures for merger or consolidation into a Federal
savings association. (A) With the exception of the procedures in
paragraph (g)(3)(iii)(B) of this section, a national bank entering into
a merger or consolidation with a Federal savings association when the
resulting institution will be a Federal savings association shall
comply with the requirements of 12 U.S.C. 214a and 12 U.S.C. 214c as if
the Federal savings
[[Page 60374]]
association were a state bank. However, for these purposes the
references in 12 U.S.C. 214c to ``law of the State in which such
national banking association is located'' and ``any State authority''
mean ``laws and regulations governing Federal savings associations''
and ``Office of Thrift Supervision,'' respectively.
(B) National bank shareholders who dissent from a plan to merge or
consolidate may receive in cash the value of their national bank shares
if they comply with the requirements of 12 U.S.C. 214a as if the
Federal savings association were a state bank. The OCC conducts an
appraisal or reappraisal of the value of the national bank shares held
by dissenting shareholders only if all parties agree that the
determination will be final and binding. The parties shall also agree
on how the total expenses of the OCC in making the appraisal will be
divided among the parties and paid to the OCC. The plan of merger or
consolidation must provide, consistent with the requirements of the
Office of Thrift Supervision, the manner of disposing of the shares of
the resulting Federal savings association not taken by the dissenting
shareholders of the national bank.
(h) Interstate combinations. A business combination between banks
under the authority of 12 U.S.C. 1831u(a)(1) must satisfy the standards
and requirements and comply with the procedures of 12 U.S.C. 1831u and
the procedures of 12 U.S.C. 215 and 215a as applicable. For purposes of
this section, the acquisition of a branch without the acquisition of
all or substantially all of the assets of a bank is treated as the
acquisition of a bank whose home state is the state in which the branch
is located.
(i) Expedited review for business reorganizations and streamlined
applications. A filing that qualifies as a business reorganization as
defined in paragraph (d)(2) of this section, or a filing that qualifies
as a streamlined application as described in paragraph (j) of this
section, is deemed approved by the OCC as of the 45th day after the
application is received by the OCC, or the 15th day after the close of
the comment period, whichever is later, unless the OCC notifies the
applicant that the filing is not eligible for expedited review, or the
expedited review process is extended, under Sec. 5.13(a)(2). An
application under this paragraph must contain all necessary information
for the OCC to determine if it qualifies as a business reorganization
or streamlined application.
(j) Streamlined applications. (1) An applicant may qualify for a
streamlined business combination application in the following
situations:
(i) At least one party to the transaction is an eligible bank, and
all other parties to the transaction are eligible banks or eligible
depository institutions, the resulting national bank will be well
capitalized immediately following consummation of the transaction, and
the total assets of the target institution are no more than 50 percent
of the total assets of the acquiring bank, as reported in each
institution's Consolidated Report of Condition and Income filed for the
quarter immediately preceding the filing of the application;
(ii) The acquiring bank is an eligible bank, the target bank is not
an eligible bank or an eligible depository institution, the resulting
national bank will be well capitalized immediately following
consummation of the transaction, and the applicants in a prefiling
communication request and obtain approval from the appropriate district
office to use the streamlined application; or
(iii) The acquiring bank is an eligible bank, the target bank is
not an eligible bank or an eligible depository institution, the
resulting bank will be well capitalized immediately following
consummation of the transaction, and the total assets acquired do not
exceed 10 percent of the total assets of the acquiring national bank,
as reported in each institution's Consolidated Report of Condition and
Income filed for the quarter immediately preceding the filing of the
application.
(2) When a business combination qualifies for a streamlined
application, the applicant should consult the Manual to determine the
abbreviated application information required by the OCC. The OCC
encourages prefiling communications between the applicants and the
appropriate district office before filing under paragraph (j) of this
section.
Sec. 5.34 Operating subsidiaries.
(a) Authority. 12 U.S.C. 24(Seventh) and 93a.
(b) Licensing requirements. A national bank generally shall submit
an application and obtain prior OCC approval to establish or commence
new activities in an operating subsidiary. In certain circumstances, a
national bank need only notify the OCC after it has established or
commenced specified activities in an operating subsidiary.
(c) Scope. This section sets forth authorized activities and
application and notice procedures for the establishment and operation
of an operating subsidiary by a national bank.
(d) Standards and requirements--(1) Authorized activities. A
national bank may establish or acquire an operating subsidiary to
conduct, or may conduct in an existing operating subsidiary, activities
that are part of or incidental to the business of banking, as
determined by the Comptroller of the Currency, pursuant to 12 U.S.C.
24(Seventh), and other activities permissible for national banks or
their subsidiaries under other statutory authority.
(2) Qualifying subsidiaries. For purposes of this section, an
operating subsidiary in which a national bank may invest includes a
corporation, limited liability company, or similar entity if the parent
bank owns more than 50 percent of the voting (or similar type of
controlling) interest of the subsidiary; or the parent bank otherwise
controls the subsidiary and no other party controls more than 50
percent of the voting (or similar type of controlling) interest of the
subsidiary. However, the following subsidiaries are not operating
subsidiaries subject to this section:
(i) A subsidiary in which the bank's investment is made pursuant to
specific authorization in a statute or OCC regulation (e.g., a
community development corporation subsidiary under 12 CFR part 24); and
(ii) A subsidiary in which the bank has acquired, in good faith,
shares through foreclosure on collateral, by way of compromise of a
doubtful claim, or to avoid a loss in connection with a debt previously
contracted.
(3) Examination and supervision. Each operating subsidiary is
subject to examination and supervision by the OCC. In conducting
activities authorized under this section, unless otherwise provided by
statute or regulation (including paragraph (f) of this section),
applicable provisions of Federal banking law and regulations pertaining
to the operations of the parent bank shall apply to the operations of
the bank's operating subsidiary. If, upon examination, the OCC
determines that the subsidiary is operating in violation of law,
regulation, or written condition, or in an unsafe or unsound manner or
otherwise threatens the safety and soundness of the bank, the OCC will
direct the bank or operating subsidiary to take appropriate remedial
action, which may include requiring the bank to divest or liquidate the
subsidiary, or discontinue specified activities.
(4) Consolidation of figures. Pertinent book figures of the parent
bank and its operating subsidiary shall be combined for the purpose of
applying statutory limitations when combination is needed
[[Page 60375]]
to effect the intent of the statute, e.g., for purposes of 12 U.S.C.
56, 60, 84 and 371d. However, in determining compliance with statutory
limits based on regulatory capital, the bank shall make any reductions
in regulatory capital required by paragraph (f) of this section.
(e) Procedures--(1) General--(i) Application required. (A) Except
as provided in paragraphs (e)(2) and (e)(4) of this section, a national
bank that intends to acquire or establish an operating subsidiary, or
to perform a new activity in an existing subsidiary, shall submit an
application to, and receive approval from, the OCC before acquiring or
establishing the subsidiary, or commencing the new activity. The
application must include a complete description of the bank's
investment in the subsidiary, the proposed activities of the
subsidiary, the organizational structure and management of the
subsidiary, the relations between the bank and the subsidiary, and
other information necessary to adequately describe the proposal. It
also must state whether the bank intends to conduct any activity of the
operating subsidiary at a location other than the main office or a
previously approved branch of the bank. The OCC may require the
applicant to submit a legal analysis if the proposal is novel,
unusually complex or raises substantial unresolved legal issues. In
such cases, the OCC encourages applicants to have a pre-filing meeting
with the OCC.
(B) Notwithstanding any other provision in this section, a national
bank shall file an application and obtain prior approval before
acquiring or establishing an operating subsidiary, or performing a new
activity in an existing subsidiary, if the bank controls the subsidiary
but owns 50 percent or less of the voting (or similar type of
controlling) interest of the subsidiary. These applications are not
subject to paragraph (e)(4) of this section and are not eligible for
the notice procedures in paragraph (e)(2) of this section or the
expedited review procedures in paragraph (e)(3) of this section.
(ii) Exceptions to rules of general applicability. Sections 5.8,
5.10, and 5.11 do not apply to this section. However, if the OCC
concludes that an application presents significant and novel policy,
supervisory, or legal issues, the OCC may determine that some or all
provisions in Secs. 5.8, 5.10, and 5.11 apply.
(iii) OCC review and approval. The OCC reviews a national bank's
application to determine whether the proposed activities are legally
permissible for an operating subsidiary and to ensure that the proposal
is consistent with safe and sound banking practices and OCC policy and
does not endanger the safety or soundness of the parent national bank.
As part of this process, the OCC may request additional information and
analysis from the applicant.
(2) Notice process for certain activities--(i) General. A national
bank that is ``adequately capitalized'' or ``well capitalized'' as
those terms are defined in 12 CFR part 6, and has not been notified
that it is in ``troubled condition'' as defined in Sec. 5.51, may
acquire or establish an operating subsidiary, or perform a new activity
in an existing operating subsidiary, by providing the appropriate
district office written notice within 10 days after acquiring or
establishing the subsidiary, or commencing the activity, provided the
activity is listed in paragraph (e)(2)(ii) of this section. The written
notice must include a complete description of the bank's investment in
the subsidiary and of the activity conducted and a representation and
undertaking that the activity will be conducted in accordance with OCC
policies contained in guidance issued by the OCC regarding the
activity. Any bank receiving approval under this paragraph is deemed to
have agreed that the subsidiary will conduct the activity in a manner
consistent with published OCC guidance.
(ii) Activities eligible for notice. The following activities
qualify for the preapproved notice procedures:
(A) Holding property, such as real estate, personal property,
securities, or other assets, acquired by the bank through foreclosure
or otherwise in good faith to compromise a doubtful claim, or in the
ordinary course of collecting a debt previously contracted;
(B) Business services for the bank or its affiliates. Furnishing
services for the internal operations of the bank or its affiliates,
including: accounting, auditing, appraising, advertising and public
relations, data processing and data transmission services, databases,
or facilities;
(C) Financial advice and consulting for the bank or its affiliates;
(D) Selling money orders, savings bonds, or travelers checks;
(E) Management consulting, operational advice, and specialized
services for other depository institutions;
(F) Courier services between financial institutions;
(G) Providing check guaranty and verification services;
(H) Data processing and warehousing products, services, and related
activities, including associated equipment and technology, for the
operating subsidiary, its parent bank, and their affiliates;
(I) Acting as investment or financial adviser, (not involving the
exercise of investment discretion), or providing financial counseling,
including:
(1) Serving as the advisory company for a mortgage or real estate
investment trust;
(2) Furnishing general economic information and advice, general
economic statistical forecasting services, and industry studies;
(3) Providing financial advice to state or local governments or
foreign governments with respect to issuance of securities;
(4) Providing tax planning and preparation; and
(5) Providing consumer financial counseling;
(J) Providing financial and transactional advice to customers and
assisting customers in structuring, arranging, and executing various
financial transactions (provided that the bank and its affiliates do
not participate as a principal), including:
(1) Mergers, acquisitions, divestitures, joint ventures, leveraged
buyouts, recapitalizations, capital structurings, and financial
transactions (including private and public financings and loan
syndications); and conducting financial feasibility studies; and
(2) Arranging commercial real estate equity financing;
(K) Investment advice, (not involving the exercise of investment
discretion), on futures and options on futures;
(L) Making, purchasing, selling, servicing, or warehousing loans or
other extensions of credit, or interests therein, for the subsidiary's
account, or for the account of others, including consumer loans, credit
cards loans, commercial loans, residential mortgage loans, and
commercial mortgage loans. The notice procedure is not available under
this paragraph, however, if the notice involves the direct or indirect
acquisition by the bank of any low-quality asset from an affiliate in
connection with a transaction subject to this section. For purposes of
this paragraph (e)(2)(ii)(L), the terms ``low-quality asset'' and
``affiliate'' have the same meaning as provided in section 23A of the
Federal Reserve Act, 12 U.S.C. 371c;
(M) Leasing of personal property, including:
(1) Leases in which the bank may invest pursuant to 12 U.S.C.
24(Seventh);
[[Page 60376]]
(2) Leases in which the bank may invest pursuant to 12 U.S.C.
24(Tenth); and
(3) Acting as agent, broker, or adviser in leases for others. The
notice process for any leasing activity under this paragraph is not
available, however, if the notice involves the direct or indirect
acquisition by the bank of any low-quality asset from an affiliate in
connection with a transaction subject to this section. For purposes of
this paragraph (M), the terms ``low-quality asset'' and ``affiliate''
have the same meaning as provided in section 23A of the Federal Reserve
Act, 12 U.S.C. 371c; or
(N) Owning, holding, and managing all or part of the parent bank's
investment securities portfolio.
(3) Expedited review--(i) General. An eligible bank may acquire or
establish an operating subsidiary to engage in the activities listed in
paragraph (e)(3)(ii) of this section, or may perform such activities in
an existing operating subsidiary, by submitting an application to the
appropriate district office and receiving approval thereof. Such an
application is deemed approved by the OCC 30 days after the filing is
received by the OCC, unless the OCC notifies the bank prior to that
date that the filing is not eligible for expedited review under
Sec. 5.13(a)(2). The application must include a complete description of
the bank's investment in the subsidiary and of the activity to be
conducted and a representation and undertaking that the activity will
be conducted in accordance with the OCC policies contained in guidance
issued by the OCC regarding the activity. All approvals are subject to
the condition that the subsidiary conduct the activity in a manner
consistent with OCC policies contained in the published guidance. The
OCC also may impose additional conditions in connection with any
approval under this section.
(ii) Activities eligible for expedited review. The following
activities qualify for expedited review:
(A) Providing securities brokerage, related securities credit, and
related activities, including investment advice;
(B) Underwriting and dealing in securities permissible for a
national bank under 12 U.S.C. 24(Seventh) and 12 CFR part 1;
(C) Acting as futures commission merchant;
(D) Serving as an investment adviser for investment companies under
the Investment Company Act of 1940, 15 U.S.C. 80a-1 et seq.;
(E) Providing financial and transactional advice to customers and
assisting customers in structuring, arranging, and executing various
financial transactions relating to swaps and other derivatives and
foreign exchange, coin and bullion, and related transactions;
(F) Data processing and warehousing products, services, and related
activities, including associated equipment and technology permissible
under 12 U.S.C. 24(Seventh) and 12 CFR 7.1019; or
(G) Real estate appraisal services for the subsidiary, parent bank
or other financial institution.
(4) No application or notice required. A bank may acquire or
establish an operating subsidiary without filing an application or
providing notice to the OCC, provided the bank is adequately
capitalized or well capitalized and the:
(i) Activities of the new subsidiary are limited to those
activities previously reported by the bank in connection with the
establishment or acquisition of a prior operating subsidiary;
(ii) Establishment or acquisition of the prior operating subsidiary
was deemed permissible by the OCC;
(iii) Activities in which the new subsidiary will engage continue
to be deemed legally permissible by the OCC; and
(iv) Activities of the new subsidiary will be conducted in
accordance with any conditions imposed by the OCC in approving the
conduct of these activities for any prior operating subsidiary of the
bank.
(5) Fiduciary powers. If an operating subsidiary proposes to
exercise investment discretion on behalf of customers or provide
investment advice for a fee, the national bank must have prior OCC
approval to exercise fiduciary powers pursuant to Sec. 5.26 and the
subsidiary shall be subject to the requirements of 12 CFR part 9,
unless:
(i) The subsidiary is registered under the Investment Advisers Act
of 1940, 15 U.S.C. 80b-1 et seq.; or
(ii) The subsidiary is registered, or has filed a notice, under the
applicable provisions of sections 15, 15B or 15C of the Securities
Exchange Act of 1934, 15 U.S.C. 78o, 78o-4, or 78o-5, as a broker,
dealer, municipal securities dealer, government securities broker or
government securities dealer; and the subsidiary's performance of
investment advisory services as described in 15 U.S.C. 80b-2(a)(11) is
solely incidental to the conduct of its business as broker or dealer
and there is no special compensation to the subsidiary for those
advisory services.
(f) Additional requirements for certain permissible activities. A
national bank may acquire or establish an operating subsidiary to
engage in an activity authorized under Sec. 5.34(d) for the subsidiary
but different from that permissible for the parent national bank, or
may perform such activities in an existing operating subsidiary,
subject to the following additional requirements:
(1) Notice and comment. If the OCC has not previously approved the
proposed activity, the OCC will provide public notice and opportunity
for comment on the application by publishing notice of the application
in the Federal Register. For subsequent applications to conduct the
activity, the OCC may also publish notice of the application in the
Federal Register and provide an opportunity for public comment.
(2) Corporate requirements. The following corporate requirements
apply:
(i) The subsidiary shall be physically separate and distinct in its
operations from the parent bank, including ensuring that the employees
of the subsidiary are compensated by the subsidiary. However, this
requirement shall not be construed to prohibit the parent bank and the
subsidiary from sharing the same facility, provided that any area in
which the subsidiary conducts business with the public is
distinguishable, to the extent practicable, from the area in which
customers of the bank conduct business with the bank;
(ii) The subsidiary shall be held out as a separate and distinct
entity from the bank in its written material and direct contact with
outside parties. All written marketing material shall clearly state
that the subsidiary is a separate entity from the bank and the
obligations of the subsidiary are not obligations of the bank;
(iii) The subsidiary's name shall not be the same name as its
parent bank, and a subsidiary that has a name similar to its parent
bank shall take appropriate steps to minimize the risk of customer
confusion, including with respect to the separate character of the two
entities and the extent to which their respective obligations are
insured or not insured by the Federal Deposit Insurance Corporation;
(iv) The subsidiary shall be adequately capitalized according to
relevant industry measures and shall maintain capital adequate to
support its activities and to cover reasonably expected expenses and
losses;
(v) The subsidiary shall maintain separate accounting and corporate
records;
(vi) The subsidiary shall conduct its operations pursuant to
independent policies and procedures that are also intended to inform
customers that the
[[Page 60377]]
subsidiary is an organization separate from the bank;
(vii) Contracts between the subsidiary and the bank for any
services shall be on terms and conditions substantially comparable to
those available to or from independent entities;
(viii) The subsidiary shall observe appropriate separate corporate
formalities, such as separate board of directors' meetings;
(ix) The subsidiary shall maintain a board of directors at least
one-third of whom shall not be directors of the bank and shall have
relevant expertise capable of overseeing the subsidiary's activities;
and
(x) The subsidiary and the parent bank shall have internal controls
appropriate to manage the financial and operational risks associated
with the subsidiary.
(3) Supervisory requirements. When the subsidiary will conduct an
activity described in this paragraph (f) as principal, the following
additional requirements apply:
(i) The bank's capital and total assets shall each be reduced by an
amount equal to the bank's equity investment in the subsidiary (for
purposes of risk-based capital this deduction shall be made equally
from Tier 1 and Tier 2 capital), and the subsidiary's assets and
liabilities shall not be consolidated with those of the bank. The OCC
may, however, require the bank to calculate its capital on a
consolidated basis for purposes of determining whether the bank is
adequately capitalized under 12 CFR part 6;
(ii) The standards of sections 23A and 23B of the Federal Reserve
Act (12 U.S.C. 371c and 371c-1) shall apply to, and shall be enforced
and applied by the OCC with respect to, transactions between the bank
and the subsidiary; and
(iii) The bank must qualify as an eligible bank under the criteria
set forth at Sec. 5.3(g), both prior to commencement of the activity,
and thereafter, taking into account the capital deduction required by
paragraph (f)(3)(i) of this section. If the bank ceases to be well
capitalized for two consecutive quarters, it shall submit to the OCC,
within the period specified by the OCC, an acceptable plan to become
well capitalized.
Sec. 5.35 Bank service companies.
(a) Authority. 12 U.S.C. 93a and 1861-1867.
(b) Licensing requirements. Except where otherwise provided, a
national bank shall submit a notice and obtain prior OCC approval to
invest in the equity of a bank service company or to perform new
activities in an existing bank service company.
(c) Scope. This section describes the procedures and requirements
regarding OCC review and approval of a notice to invest in a bank
service company.
(d) Definitions--(1) Bank service company means a corporation or
limited liability company organized to provide services authorized by
the Bank Service Company Act, 12 U.S.C. 1861 et seq., all of whose
capital stock is owned by one or more insured banks in the case of a
corporation, or all of the members of which are one or more insured
banks in the case of a limited liability company.
(2) Limited liability company means any non-corporate company,
partnership, trust, or similar business entity organized under the law
of a State (as defined in section 3 of the Federal Deposit Insurance
Act) which provides that a member or manager of such company is not
personally liable for a debt, obligation, or liability of the company
solely by reason of being, or acting as, a member or manager of such
company.
(3) Depository institution, for purposes of this section, means an
insured bank, a financial institution subject to examination by the
Office of Thrift Supervision, or the National Credit Union
Administration Board, or a financial institution whose accounts or
deposits are insured or guaranteed under state law and eligible to be
insured by the Federal Deposit Insurance Corporation or the National
Credit Union Administration Board.
(4) Invest includes making any advance of funds to a bank service
company, whether by the purchase of stock, the making of a loan, or
otherwise, except a payment for rent earned, goods sold and delivered,
or services rendered before the payment was made.
(5) Principal investor means the insured bank that has the largest
amount invested in the equity of a bank service company. In any case
where two or more insured banks have equal amounts invested, the bank
service company shall designate one of the banks as its principal
investor.
(e) Standards and requirements. A national bank may invest in the
equity of a bank service company that conducts, or through an existing
bank service company may conduct, activities described in paragraphs
(f)(4) and (f)(5) of this section, and activities (other than taking
deposits) permissible for the national bank and other state and
national bank shareholders or members in the bank service company.
(f) Procedures--(1) OCC notice and approval required. Except as
provided in paragraphs (f)(2) and (f)(5) of this section, a national
bank that intends to make an investment in the equity of a bank service
company, or to perform new activities in an existing bank service
company, shall submit a notice to and receive prior approval from the
OCC. The OCC approves or denies a proposed investment within 60 days
after the filing is received by the OCC, unless the OCC notifies the
bank prior to that date that the filing presents a significant
supervisory or compliance concern, or raises a significant legal or
policy issue. The notice must include the information required by
paragraph (g) of this section.
(2) Notice process only for certain activities. A national bank
that is ``adequately capitalized'' or ``well capitalized,'' as defined
in 12 CFR part 6, and has not been notified that it is in ``troubled
condition,'' as defined in Sec. 5.51, may invest in the equity of a
bank service company, or perform a new activity in an existing bank
service company, by providing the appropriate district office written
notice within ten days after the investment, provided that the bank
service company engages only in the activities listed in
Sec. 5.34(e)(2)(ii). No prior OCC approval is required. The written
notice must include a complete description of the bank's investment in
the subsidiary and of the activity conducted and a representation and
undertaking that the activity will be conducted in accordance with OCC
policies contained in guidance issued by the OCC regarding the
activity. Any bank receiving approval under paragraph (f)(2) of this
section is deemed to have agreed that the subsidiary will conduct the
activity in a manner consistent with the published OCC guidance.
(3) Expedited review. Notwithstanding paragraph (f)(1) of this
section, a notice by an eligible bank that seeks to make an investment
in the equity of a bank service company, or to perform a new activity
in an existing bank service company, is deemed approved by the OCC 30
days after the filing is received by the OCC, provided that the bank
service company will engage in an activity listed in
Sec. 5.34(e)(3)(ii), unless the OCC notifies the bank prior to that
date that the filing is not eligible for expedited review under
Sec. 5.13(a)(2). The written notice must include a complete description
of the bank's investment in the subsidiary and of the activity to be
conducted and a representation and undertaking that the activity will
be conducted in accordance with OCC policies contained in guidance
regarding the activity. Approval under this paragraph (f)(3) is subject
to the
[[Page 60378]]
condition that the bank service company conduct the activity in a
manner consistent with OCC policies contained in guidance issued by the
OCC regarding the activity. The OCC also may impose additional
conditions in connection with any approval under this section.
(4) Investments requiring no approval. A national bank does not
need OCC approval to invest in a bank service company, or to perform a
new activity in an existing bank service company, if the bank service
company will provide the following services only for depository
institutions: check and deposit posting and sorting; computation and
posting of interest and other credits and charges; preparation and
mailing of checks, statements, notices, and similar items; or any other
clerical, bookkeeping, accounting, statistical, or similar function.
(5) Federal Reserve approval. A national bank also may, with the
approval of the Board of Governors of the Federal Reserve System
(Federal Reserve Board), invest in the equity of a bank service company
that provides any other service (except deposit taking) that the
Federal Reserve Board has determined, by regulation, to be permissible
for a bank holding company under 12 U.S.C. 1843(c)(8).
(6) Exceptions to rules of general applicability. Sections 5.8,
5.10, and 5.11 do not apply to a request for approval to invest in a
bank service corporation. However, if the OCC concludes that an
application presents significant and novel policy, supervisory, or
legal issues, the OCC may determine that any or all parts of Secs. 5.8,
5.10, and 5.11 apply.
(g) Required information. A notice required under paragraph (f)(1),
of this section must contain the following:
(1) The name and location of the bank service company;
(2) A complete description of the activities the bank service
company will conduct;
(3) Information demonstrating that the bank will comply with the
investment limitations of paragraph (h) of this section;
(4) Information demonstrating that the bank service company and all
banks investing in the bank service company are located in the same
state, unless the Federal Reserve Board has approved an exception to
this requirement under the authority of 12 U.S.C. 1864(b); and
(5) Information demonstrating that the bank service company will
conduct these activities only at locations in a state where the
investing bank could be authorized to perform the activities directly.
(h) Examination and supervision. Each bank service company in which
a national bank is the principal investor is subject to examination and
supervision by the OCC in the same manner and to the same extent as
that national bank.
(i) Investment and other limitations--(1) Investment limitations. A
bank may not invest more than ten percent of its capital and surplus in
a bank service company. In addition, the bank's total investments in
all bank service companies may not exceed five percent of the bank's
total assets.
(2) Other limitations. Expect as provided in paragraph (f)(5) of
this section, a bank service company shall only conduct activities that
the national bank could conduct directly. If the bank service company
has both national and state bank shareholders or members, the
activities conducted must also be permissible for the state bank
shareholders or members.
Sec. 5.36 Other equity investments.
(a) Authority. 12 U.S.C. 1 et seq., 24(Seventh), and 93a.
(b) Scope. National banks are permitted to make various types of
equity investments pursuant to 12 U.S.C. 24(Seventh) and other
statutes. These investments are in addition to those subject to
Secs. 5.34, 5.35, and 5.37. This section describes the procedure
governing the filing of the notice that the OCC requires in connection
with certain of these investments. Other investments authorized under
this section may be reviewed on a case-by-case basis by the OCC.
(c) Procedure. (1) A national bank must provide the appropriate
district office with written notice within ten days after making an
equity investment in the following:
(i) An agricultural credit corporation;
(ii) A savings association eligible to be acquired under section 13
of the Federal Deposit Insurance Act (12 U.S.C. 1823); and
(iii) Any other equity investment that may be authorized by statute
after February 12, 1990, if not covered by other applicable OCC
regulation.
(2) The written notice required by paragraph (c)(1) of this section
must include a description, and the amount, of the bank's investment.
(3) The OCC reserves the right to require additional information as
necessary.
(d) Exceptions to rules of general applicability. Sections 5.8,
5.9, 5.10, and 5.11 of this part do not apply to filings for other
equity investments.
Sec. 5.37 Investment in bank premises.
(a) Authority. 12 U.S.C. 29, 93a, and 371d.
(b) Scope. This section sets forth the procedures governing OCC
review and approval of applications by national banks to invest in bank
premises or in certain bank premises related investments, loans, or
indebtedness, as described in paragraph (d)(1)(i) of this section.
(c) Definition--Bank premises for purposes of this section includes
the following:
(1) Premises that are owned and occupied (or to be occupied, if
under construction) by the bank, its branches, or its consolidated
subsidiaries;
(2) Capitalized leases and leasehold improvements, vaults, and
fixed machinery and equipment;
(3) Remodeling costs to existing premises;
(4) Real estate acquired and intended, in good faith, for use in
future expansion; or
(5) Parking facilities that are used by customers or employees of
the bank, its branches, and its consolidated subsidiaries.
(d) Procedure--(1) Application. (i) A national bank shall submit an
application to the appropriate district office to invest in bank
premises, or in the stock, bonds, debentures, or other such obligations
of any corporation holding the premises of the bank, or to make loans
to or upon the security of the stock of such corporation, if the
aggregate of all such investments and loans, together with the
indebtedness incurred by any such corporation that is an affiliate of
the bank, as defined in 12 U.S.C. 221a, will exceed the amount of the
capital stock of the bank.
(ii) The application must include:
(A) A description of the bank's present investment in bank
premises;
(B) The investment in bank premises that the bank intends to make,
and the business reason for making the investment; and
(C) The amount by which the bank's aggregate investment will exceed
the amount of the bank's capital stock.
(2) Approval. An application for national bank investment in bank
premises or in certain bank premises' related investments, loans or
indebtedness, as described in paragraph (d)(1)(i) of this section, is
deemed approved as of the 30th day after the filing is received by the
OCC, unless the OCC notifies the bank prior to that date that the
filing presents a significant supervisory, or compliance concern, or
raises a significant legal or policy issue. An approval for a specified
amount under this section remains valid up to that amount until the OCC
notifies the bank otherwise.
[[Page 60379]]
(3) Notice process. Notwithstanding paragraph (d)(1)(i) of this
section, a bank that is rated 1 or 2 under the Uniform Financial
Institutions Rating System (CAMEL) may make an aggregate investment in
bank premises up to 150 percent of the bank's capital and surplus
without the OCC's prior approval, provided that the bank is well
capitalized as defined in 12 CFR part 6 and will continue to be well
capitalized after the investment or loan is made. However, the bank
shall notify the appropriate district office in writing of the
investment within 30 days after the investment or loan is made. The
written notice must include a description of the bank's investment.
(4) Exceptions to rules of general applicability. Sections 5.8,
5.10, and 5.11 do not apply to this section. However, if the OCC
concludes that an application presents significant and novel policy,
supervisory, or legal issues, the OCC may determine that any or all
parts of Secs. 5.8, 5.10, and 5.11 apply.
Subpart D--Other Changes in Activities and Operations
Sec. 5.40 Change in location of main office.
(a) Authority 12 U.S.C. 30, 93a, and 2901 through 2907.
(b) Licensing requirements. A national bank shall give prior notice
to the OCC to relocate its main office within city, town, or village
limits to an authorized branch location. A national bank shall submit
an application and obtain prior OCC approval to relocate its main
office to any other location in the city, town, or village, or within
30 miles of the limits of the city, town, or village in which the main
office of the bank is located.
(c) Scope. This section describes OCC procedures and approval
standards for an application or a notice by a national bank to change
the location of its main office.
(d) Procedure--(1) Main office relocation to an authorized branch
location within city, town, or village limits. A national bank may
change the location of its main office to an authorized branch location
(approved or existing branch site) within the limits of the same city,
town, or village. The national bank shall submit a notice to the
appropriate district office before the relocation. The notice must
include the new address of the main office and the effective date of
the relocation.
(2) To any other location. To relocate its main office to any other
location, a national bank shall file an application to relocate with
the appropriate district office. If relocating the main office outside
the limits of its city, town, or village, a national bank shall also:
(i) Obtain the approval of shareholders owning two-thirds of the
voting stock of the bank; and
(ii) Amend its articles of association.
(3) Establishment of a branch at site of former main office. A
national bank desiring to establish a branch at its former main office
location shall obtain OCC approval pursuant to the standards of
Sec. 5.30.
(4) Expedited review. A main office relocation application
submitted by an eligible bank under paragraph (d)(2) of this section is
deemed approved by the OCC as of the 15th day after the close of the
public comment period or the 45th day after the filing is received by
the OCC, whichever is later, unless the OCC notifies the bank prior to
that time that the filing is not eligible for expedited review, or the
expedited review period is extended, under Sec. 5.13(a)(2).
(5) Exceptions to rules of general applicability. (i) Sections 5.8,
5.9, 5.10, and 5.11 do not apply to a main office relocation to an
authorized branch location within the limits of the city, town, or
village as described in paragraph (d)(1) of this section. However, if
the OCC concludes that the notice under paragraph (d)(1) of this
section presents a significant and novel policy, supervisory, or legal
issue, the OCC may determine that any or all parts of Secs. 5.8, 5.9,
5.10, and 5.11 apply.
(ii) The comment period on any application filed under paragraph
(d)(2) of this section to engage in a short-distance relocation of a
main office is 15 days.
(e) Expiration of approval. Approval expires if the national bank
has not opened its main office at the relocated site within 18 months
of the date of approval.
Sec. 5.42 Corporate title.
(a) Authority. 12 U.S.C. 21a, 30, and 93a.
(b) Scope. This section describes the method by which a national
bank may change its corporate title.
(c) Standards. A national bank may change its corporate title
provided that the new title includes the word ``national'' and complies
with other applicable Federal laws, including 18 U.S.C. 709, regarding
false advertising and the misuse of names to indicate a Federal agency,
and any applicable OCC guidance.
(d) Procedures--(1) Notice process. A national bank shall promptly
notify the appropriate district office if it changes its corporate
title. The notice must contain the old and new titles and the effective
date of the change.
(2) Amendment to articles of association. A national bank whose
corporate title is specified in its articles of association shall amend
its articles, in accordance with the procedures of 12 U.S.C. 21a, to
change its title.
(3) Exceptions to rules of general applicability. Sections 5.8,
5.9, 5.10, 5.11, and 5.13(a) do not apply to a national bank's change
of corporate title. However, if the OCC concludes that the application
presents a significant and novel policy, supervisory, or legal issue,
the OCC may determine that any or all parts of Secs. 5.8, 5.9, 5.10,
5.11, and 5.13(a) apply.
Sec. 5.46 Changes in permanent capital.
(a) Authority. 12 U.S.C. 21a, 51, 51a, 51b, 51b-1, 52, 56, 57, 59,
60, and 93a.
(b) Licensing requirements. A national bank shall submit an
application and obtain OCC approval to decrease its permanent capital.
Generally, a national bank need only submit a notice to increase its
permanent capital, although, in certain circumstances, a national bank
shall be required to submit an application and obtain OCC approval.
(c) Scope. This section describes procedures and standards relating
to a transaction resulting in a change in a national bank's permanent
capital.
(d) Exceptions to rules of general applicability. Sections 5.8,
5.10, and 5.11 do not apply to changes in a national bank's permanent
capital.
(e) Definitions. For the purposes of this section the following
definitions apply:
(1) Capital plan means a plan describing the manner and schedule by
which a national bank will attain specified capital levels or ratios,
including a plan to achieve minimum capital ratios filed with the
appropriate district office under 12 CFR 3.7 and a capital restoration
plan filed with the OCC under 12 U.S.C. 1831o and 12 CFR 6.5.
(2) Capital stock means the total amount of common stock and
preferred stock.
(3) Capital surplus means the total of:
(i) The amount paid in on capital stock in excess of the par or
stated value;
(ii) Direct capital contributions representing the amounts paid in
to the national bank other than for capital stock;
(iii) The amount transferred from undivided profits required by 12
U.S.C. 60; and
(iv) The amount transferred from undivided profits reflecting stock
dividends.
[[Page 60380]]
(4) Permanent capital means the sum of capital stock and capital
surplus.
(f) Policy. In determining whether to approve a proposed change to
a national bank's permanent capital, the OCC considers whether the
change is:
(1) Consistent with law, regulation, and OCC policy thereunder;
(2) Provides an adequate capital structure; and
(3) If appropriate, complies with the bank's capital plan.
(g) Increases in permanent capital--(1) Prior approval--(i)
Criteria. A national bank need not obtain prior OCC approval to
increase its permanent capital unless the bank is:
(A) Required to receive OCC approval pursuant to letter, order,
directive, written agreement or otherwise;
(B) Selling common or preferred stock for consideration other than
cash; or
(C) Receiving a material noncash contribution to capital surplus.
(ii) Application and letter of notification. A national bank that
proposes to increase its permanent capital and that must receive OCC
approval under paragraph (g)(1)(i) of this section shall file an
application under paragraph (i)(1) of this section and a letter of
notification under paragraph (i)(3) of this section. A national bank
not required to obtain prior approval under paragraph (g)(1)(i) of this
section for an increase in capital shall file only the letter of
notification under paragraph (i)(3) of this section.
(2) Preferred stock. Notwithstanding paragraph (g)(1)(i) of this
section, in the case of a sale of preferred stock, the national bank
shall also submit provisions in the articles of association concerning
preferred stock dividends, voting and conversion rights, retirement of
the stock, and rights to exercise control over management to the
appropriate district office prior to the sale of the preferred stock.
The provisions will be deemed approved by the OCC within 30 days of its
receipt, unless the OCC notifies the applicant otherwise, including a
statement of the reason for the delay.
(h) Decreases in permanent capital. A national bank shall submit an
application and obtain prior approval under paragraph (i)(1) or (i)(2)
of this section for any reduction of its permanent capital.
(i) Procedures--(1) Prior approval. A national bank proposing to
make a change in its permanent capital that requires prior OCC approval
under paragraphs (g) or (h) of this section shall submit an application
to the appropriate district office. The application must:
(i) Describe the type and amount of the proposed change in
permanent capital and explain the reason for the change;
(ii) In the case of a reduction in capital, provide a schedule
detailing the present and proposed capital structure;
(iii) In the case of a material noncash contribution to capital,
provide a description of the method of valuing the contribution; and
(iv) State if the bank is subject to a capital plan with the OCC
and how the proposed change would conform to a capital plan or if a
capital plan is otherwise required in connection with the proposed
change in permanent capital.
(2) Expedited review. An eligible bank's application is deemed
approved by the OCC 30 days after the date the OCC receives the
application described in paragraph (i)(1) of this section, unless the
OCC notifies the bank prior to that date that the application is not
eligible for expedited review under Sec. 5.13(a)(2). A bank seeking to
decrease its capital may request OCC approval for up to four
consecutive quarters. An eligible bank may decrease its capital
pursuant to such a plan only if the bank maintains its eligible bank
status before and after each decrease in its capital.
(3) Letter of notification. After a bank completes an increase in
capital it shall submit a letter of notification to the appropriate
district office in order to obtain a certification from the OCC. The
proposed change is deemed approved by the OCC and certified seven days
after the date on which the OCC receives the letter of notification.
The letter of notification must be acknowledged before a notary public
by the bank's president, vice president, or cashier and contain:
(i) A description of the transaction, unless already provided
pursuant to paragraph (i)(1) of this section;
(ii) The amount, including the par value of the stock, and
effective date of the increase;
(iii) A certification that the funds have been paid in, if
applicable;
(iv) A certified copy of the amendment to the articles of
association, if required; and
(v) A statement that the bank has complied with all laws,
regulations and conditions imposed by the OCC.
(4) Notice process. A national bank that decreases its capital in
accordance with paragraphs (i)(1) or (i)(2) of this section shall
notify the appropriate district office following the completion of the
transaction.
(5) Expiration of approval. Approval expires if a national bank has
not completed its change in permanent capital within one year of the
date of approval.
(j) Offers and sales of stock. A national bank shall comply with
the Securities Offering Disclosure Rules in 12 CFR part 16 for offers
and sales of common and preferred stock.
(k) Shareholder approval. A national bank shall obtain the
necessary shareholder approval required by statute for any change in
its permanent capital.
Sec. 5.47 Subordinated debt as capital.
(a) Authority. 12 U.S.C. 93a.
(b) Licensing requirements. A national bank does not need prior OCC
approval to issue subordinated debt, or to prepay subordinated debt
(including payment pursuant to an acceleration clause or redemption
prior to maturity) provided the bank remains an eligible bank after the
transaction, unless the OCC has previously notified the bank that prior
approval is required, or unless prior approval is required by law. No
prior approval is required for the bank to count the subordinated debt
as Tier 2 or Tier 3 capital. However, a bank issuing subordinated debt
shall notify the OCC after issuance if the debt is to be counted as
Tier 2 or Tier 3 capital.
(c) Scope. This section sets forth the procedures for OCC review
and approval of an application to issue or prepay subordinated debt.
(d) Definitions--(1) Capital plan means a plan describing the means
and schedule by which a national bank will attain specified capital
levels or ratios, including a plan to achieve minimum capital ratios
filed with the appropriate district office under 12 CFR 3.7 and a
capital restoration plan filed with the OCC under 12 U.S.C. 1831o and
12 CFR 6.5.
(2) Tier 2 capital has the same meaning as set forth in 12 CFR
3.2(d).
(3) Tier 3 capital has the same meaning as set forth in 12 CFR part
3, appendix B, section 2(d).
(e) Qualification as regulatory capital. (1) A national bank's
subordinated debt qualifies as Tier 2 capital if the subordinated debt
meets the requirements in 12 CFR part 3, appendix A, section 2(b)(4),
and complies with the ``OCC Guidelines for Subordinated Debt'' in the
Manual.
(2) A national bank's subordinated debt qualifies as Tier 3 capital
if the subordinated debt meets the requirements in 12 CFR part 3,
section 2(d) of Appendix B.
(3) If the OCC notifies a national bank that it must obtain OCC
approval before issuing subordinated debt, the subordinated debt will
not qualify as Tier 2 or Tier 3 capital until the bank obtains OCC
approval for its inclusion in capital.
[[Page 60381]]
(f) Prior approval procedure--(1) Application. A national bank
required to obtain OCC approval before issuing or prepaying
subordinated debt shall submit an application to the appropriate
district office. The application must include:
(i) A description of the terms and amount of the proposed issuance
or prepayment;
(ii) A statement of whether the bank is subject to a capital plan
or required to file a capital plan with the OCC and, if so, how the
proposed change conforms to the capital plan;
(iii) A copy of the proposed subordinated note format and note
agreement; and
(iv) A statement of whether the subordinated debt issue complies
with all laws, regulations, and the ``OCC Guidelines for Subordinated
Debt'' in the Manual.
(2) Approval--(i) General. The application is deemed approved by
the OCC as of the 30th day after the filing is received by the OCC,
unless the OCC notifies the bank prior to that date that the filing
presents a significant supervisory, or compliance concern, or raises a
significant legal or policy issue.
(ii) Tier 2 and Tier 3 capital. When the OCC notifies the bank that
the OCC approves the bank's application to issue or prepay the
subordinated debt, it also notifies the bank whether the subordinated
debt qualifies as Tier 2 or Tier 3 capital.
(iii) Expiration of approval. Approval expires if a national bank
does not complete the sale of the subordinated debt within one year of
approval.
(g) Notice procedure. If a national bank is not required to obtain
approval before issuing subordinated debt, the bank shall notify the
appropriate district office in writing within ten days after issuing
subordinated debt that is to be counted as Tier 2 or Tier 3 capital.
The notice must include:
(1) The terms of the issuance;
(2) The amount and date of receipt of funds;
(3) A copy of the final subordinated note format and note
agreement; and
(4) A statement that the issue complies with all laws, regulations,
and the ``OCC Guidelines for Subordinated Debt Instruments'' in the
Manual.
(h) Exceptions to rules of general applicability. Sections 5.8,
5.10, and 5.11 do not apply to the issuance of subordinated debt.
(i) Issuance of subordinated debt. A national bank shall comply
with the Securities Offering Disclosure Rules in 12 CFR part 16 when
issuing subordinated debt even if the bank is not required to obtain
prior approval to issue subordinated debt.
Sec. 5.48 Voluntary liquidation.
(a) Authority. 12 U.S.C. 93a, 181, and 182.
(b) Licensing requirements. A national bank considering going into
voluntary liquidation shall notify the OCC. The bank shall also file a
notice with the OCC once a liquidation plan is definite.
(c) Exceptions to rules of general applicability. Sections 5.8,
5.10, and 5.11 do not apply to a voluntary liquidation. However, if the
OCC concludes that the notice presents significant and novel policy,
supervisory or legal issues, the OCC may determine that any or all
parts of Secs. 5.8, 5.10, and 5.11 apply.
(d) Standards. A national bank may liquidate in accordance with the
terms of 12 U.S.C. 181 and 182.
(e) Procedure--(1) Notice of voluntary liquidation. When the
shareholders of a solvent national bank have voted to voluntarily
liquidate, the bank shall file a notice with the appropriate district
office and publish public notice in accordance with 12 U.S.C. 182.
(2) Report of condition. The liquidating bank shall submit reports
of the condition of its commercial, trust, and other departments to the
appropriate district office by filing the quarterly Consolidated
Reports of Condition and Income (Call Reports).
(3) Report of progress. The liquidating agent or committee shall
submit a ``Report of Progress of Liquidation'' annually to the
appropriate district office until the liquidation is complete.
(f) Expedited liquidations in connection with acquisitions--(1)
General. When an acquiring depository institution in a business
combination purchases all the assets, and assumes all the liabilities,
including contingent liabilities, of a target national bank, the
acquiring depository institution may dissolve the target national bank
immediately after the combination. However, if any liabilities will
remain in the target national bank, then the standard liquidation
procedures apply.
(2) Procedure. After its shareholders have voted to liquidate and
the national bank has notified the appropriate district office of its
plans, the bank may surrender its charter and dissolve immediately, if:
(i) The acquiring depository institution certifies to the OCC that
it has purchased all the assets and assumed all the liabilities,
including contingent liabilities, of the national bank in liquidation;
and
(ii) The acquiring depository institution and the national bank in
liquidation have published notice that the bank will dissolve after the
purchase and assumption to the acquiror. This is included in the notice
and publication for the purchase and assumption required under the Bank
Merger Act, 12 U.S.C. 1828(c).
(g) National bank as acquiror. If another national bank plans to
acquire a national bank in liquidation through merger or through the
purchase of the assets and the assumption of the liabilities of the
bank in liquidation, the acquiring bank shall comply with the Bank
Merger Act, 12 U.S.C. 1828(c), and Sec. 5.33.
Sec. 5.50 Change in bank control; reporting of stock loans.
(a) Authority. 12 U.S.C. 93a and 1817(j).
(b) Licensing requirements. Any person seeking to acquire control
of a national bank shall provide 60 days prior written notice of a
change in control to the OCC, except where otherwise provided in this
section.
(c) Scope--(1) General. This section describes the procedures and
standards governing OCC review of notices for a change in control of a
national bank and reports of stock loans.
(2) Exempt transactions. The following transactions are not subject
to the requirements of this section:
(i) The acquisition of additional shares of a national bank by a
person who:
(A) Has, continuously since March 9, 1979, (or since that
institution commenced business, if later) held power to vote 25 percent
or more of the voting securities of that bank; or
(B) Under paragraph (f)(2)(ii) of this section, would be presumed
to have controlled that bank continuously since March 9, 1979, if the
transaction will not result in that person's direct or indirect
ownership or power to vote 25 percent or more of any class of voting
securities of the national bank; or, in other cases, where the OCC
determines that the person has controlled the bank continuously since
March 9, 1979;
(ii) Unless the OCC otherwise provides in writing, the acquisition
of additional shares of a national bank by a person who has lawfully
acquired and maintained continuous control of the bank under paragraph
(f) of this section after complying with the procedures and filing the
notice required by this section;
(iii) A transaction subject to approval under section 3 of the Bank
Holding Company Act, 12 U.S.C. 1842, section 18 of Federal Deposit
Insurance Act, 12 U.S.C. 1828, or section 10 of the Home Owners' Loan
Act, 12 U.S.C. 1467a;
[[Page 60382]]
(iv) Any transaction described in section 2(a)(5) or 3(a) (A) or
(B) of the Bank Holding Company Act, 12 U.S.C. 1841(a)(5) and 1842(a)
(A) and (B), by a person described in those provisions;
(v) A customary one-time proxy solicitation or receipt of pro rata
stock dividends; and
(vi) The acquisition of shares of a foreign bank that has a
Federally licensed branch in the United States. This exemption does not
extend to the reports and information required under paragraph (h) of
this section.
(3) Prior notice exemption. The following transactions are not
subject to the prior notice requirements of this section but are
otherwise subject to this section, including filing a notice and paying
the appropriate filing fee, within 90 calendar days after the
transaction occurs:
(i) The acquisition of control as a result of acquisition of voting
shares of a national bank through testate or intestate succession;
(ii) The acquisition of control as a result of acquisition of
voting shares of a national bank as a bona fide gift;
(iii) The acquisition of voting shares of a national bank resulting
from a redemption of voting securities;
(iv) The acquisition of control of a national bank as a result of
actions by third parties (including the sale of securities) that are
not within the control of the acquiror; and
(v) The acquisition of control as a result of the acquisition of
voting shares of a national bank in satisfaction of a debt previously
contracted in good faith.
(A) ``Good faith'' means that a person must either make or acquire
a loan secured by voting securities of a national bank in advance of
any known default. A person who purchases a previously defaulted loan
secured by voting securities of a national bank may not rely on this
paragraph (c)(3)(v) to foreclose on that loan, seize or purchase the
underlying collateral, and acquire control of the national bank without
complying with the prior notice requirements of this section.
(B) To ensure compliance with this section, the acquiror of a
defaulted loan secured by a controlling amount of a national bank's
voting securities shall file a notice prior to the time the loan is
acquired unless the acquiror can demonstrate to the satisfaction of the
OCC that the voting securities are not the anticipated source of
repayment for the loan.
(d) Definitions. As used in this section:
(1) Acquisition includes a purchase, assignment, transfer, or
pledge of voting securities, or an increase in percentage ownership of
a national bank resulting from a redemption of voting securities.
(2) Acting in concert means:
(i) Knowing participation in a joint activity or parallel action
towards a common goal of acquiring control whether or not pursuant to
an express agreement; or
(ii) A combination or pooling of voting or other interests in the
securities of an issuer for a common purpose pursuant to any contract,
understanding, relationship, agreement, or other arrangement, whether
written or otherwise.
(3) Control means the power, directly or indirectly, to direct the
management or policies of a national bank or to vote 25 percent or more
of any class of voting securities of a national bank.
(4) Notice means a filing by a person in accordance with paragraph
(f) of this section.
(5) Person means an individual or a corporation, partnership,
trust, association, joint venture, pool, syndicate, sole
proprietorship, unincorporated organization, or any other form of
entity, and includes voting trusts and voting agreements and any group
of persons acting in concert.
(6) Voting securities means:
(i) Shares of common or preferred stock, or similar interests, if
the shares or interests, by statute, charter, or in any manner, allow
the holder to vote for or select directors (or persons exercising
similar functions) of the issuing national bank, or to vote on or to
direct the conduct of the operations or other significant policies of
the issuing national bank. However, preferred stock or similar
interests are not voting securities if:
(A) Any voting rights associated with the shares or interests are
limited solely to voting rights customarily provided by statute
regarding matters that would significantly affect the rights or
preference of the security or other interest. This includes the
issuance of additional amounts of classes of senior securities, the
modification of the terms of the security or interest, the dissolution
of the issuing national bank, or the payment of dividends by the
issuing national bank when preferred dividends are in arrears;
(B) The shares or interests are a passive investment or financing
device and do not otherwise provide the holder with control over the
issuing national bank; and
(C) The shares or interests do not allow the holder by statute,
charter, or in any manner, to select or to vote for the selection of
directors (or persons exercising similar functions) of the issuing
national bank.
(ii) Securities, other instruments, or similar interests that are
immediately convertible, at the option of the owner or holder thereof,
into voting securities.
(e) Policy--(1) General. The OCC seeks to enhance and maintain
public confidence in the banking system by preventing a change in
control of a national bank that could have serious adverse effects on a
bank's financial stability or management resources, the interests of
the bank's customers, the Federal deposit insurance fund, or
competition.
(2) Acquisitions subject to the Bank Holding Company Act. (i) If
corporations, partnerships, certain trusts, associations, and similar
organizations, that are not already bank holding companies, are not
required to secure prior Federal Reserve Board approval to acquire
control of a bank under section 3 of the Bank Holding Company Act, 12
U.S.C. 1842, they are subject to the notice requirements of this
section.
(ii) Certain transactions, including foreclosures by depository
institutions and other institutional lenders, fiduciary acquisitions by
depository institutions, and increases of majority holdings by bank
holding companies, are described in sections 2(a)(5)(D) and 3(a) (A)
and (B) of the Bank Holding Company Act, 12 U.S.C. 1841(a)(5)(D) and 12
U.S.C. 1842(a) (A) and (B), but do not require the Federal Reserve
Board's prior approval. For purposes of this section, they are
considered subject to section 3 of the Bank Holding Company Act, 12
U.S.C 1842, and do not require either a prior or subsequent notice to
the OCC under this section.
(3) Assessing financial condition. In assessing the financial
condition of the acquiring person, the OCC weighs any debt servicing
requirements in light of the acquiring person's overall financial
strength; the institution's earnings performance, asset condition,
capital adequacy, and future prospects; and the likelihood of the
acquiring party making unreasonable demands on the resources of the
institution.
(f) Procedures--(1) Exceptions to rules of general applicability.
Sections 5.8(a), 5.9, 5.10, 5.11, and 5.13(a) through (f) do not apply
to filings under this section.
(2) Who must file. (i) Any person seeking to acquire the power,
directly or indirectly, to direct the management or policies, or to
vote 25 percent or more of a class of voting securities of a national
bank, shall file a notice with the OCC 60 days prior to the proposed
acquisition, unless the acquisition is exempt under paragraph (c)(2) of
this section.
[[Page 60383]]
(ii) The OCC presumes, unless rebutted, that an acquisition or
other disposition of voting securities through which any person
proposes to acquire ownership of, or the power to vote, ten percent or
more of a class of voting securities of a national bank is an
acquisition by a person of the power to direct the bank's management or
policies if:
(A) The securities to be acquired or voted are subject to the
registration requirements of section 12 of the Securities Exchange Act
of 1934, 15 U.S.C. 78l; or
(B) Immediately after the transaction no other person will own or
have the power to vote a greater proportion of that class of voting
securities.
(iii) Other transactions resulting in a person's control of less
than 25 percent of a class of voting securities of a national bank are
not deemed by the OCC to result in control for purposes of this
section.
(iv) If two or more persons, not acting in concert, each propose to
acquire simultaneously equal percentages of ten percent or more of a
class of a national bank's voting securities, and either the
acquisitions are of a class of securities subject to the registration
requirements of section 12 of the Securities Exchange Act of 1934, 15
U.S.C. 78l, or immediately after the transaction no other shareholder
of the national bank would own or have the power to vote a greater
percentage of the class, each of the acquiring persons shall either
file a notice or rebut the presumption of control.
(v) An acquiring person may seek to rebut the presumption
established in paragraph (f)(2)(ii) of this section by presenting
relevant information in writing to the appropriate district office. The
OCC shall respond in writing to any person that seeks to rebut the
presumption of control. No rebuttal filing is effective unless the OCC
indicates in writing that the information submitted has been found to
be sufficient to rebut the presumption of control.
(3) Filings. (i) The OCC does not accept a notice of a change in
control unless it is technically complete, i.e., the information
provided is responsive to every item listed in the notice form and is
accompanied by the appropriate fee.
(A) The notice must contain personal and biographical information,
detailed financial information, details of the proposed change in
control, information on any structural or managerial changes
contemplated for the institution, and other relevant information
required by the OCC. The OCC may waive any of the informational
requirements of the notice if the OCC determines that it is in the
public interest.
(B) When the acquiring person is an individual, or group of
individuals acting in concert, the requirement to provide personal
financial data may be satisfied with a current statement of assets and
liabilities and an income summary, together with a statement of any
material changes since the date of the statement or summary. However,
the OCC may require additional information, if appropriate.
(ii) The OCC has 60 days from the date it declares the notice to be
technically complete to review the notice.
(A) When the OCC declares a notice technically complete, the
appropriate district office sends a letter of acknowledgment to the
applicant indicating the technically complete date.
(B) As set forth in paragraph (g) of this section, the applicant
shall publish an announcement within 10 days of filing the notice with
the OCC. The publication of the announcement triggers a 20-day public
comment period. The OCC may waive or shorten the public comment period
if an emergency exists. The OCC also may shorten the comment period for
other good cause. The OCC may act on a proposed change in control prior
to the expiration of the public comment period if the OCC makes a
written determination that an emergency exists.
(C) An applicant shall notify the OCC immediately of any material
changes in a notice submitted to the OCC, including changes in
financial or other conditions, that may affect the OCC's decision on
the filing.
(iii) Within the 60-day period, the OCC may inform the applicant
that the acquisition has been disapproved, has not been disapproved, or
that the OCC will extend the 60-day review period. The applicant may
request a hearing by the OCC within 10 days of receipt of a disapproval
(see 12 CFR part 19, subpart H, for hearing initiation procedures).
Following final agency action under 12 CFR part 19, further review by
the courts is available.
(4) Disapproval of notice. The OCC may disapprove a notice if it
finds that any of the following factors exist:
(i) The proposed acquisition of control would result in a monopoly
or would be in furtherance of any combination or conspiracy to
monopolize or to attempt to monopolize the business of banking in any
part of the United States;
(ii) The effect of the proposed acquisition of control in any
section of the country may be substantially to lessen competition or to
tend to create a monopoly or the proposed acquisition of control would
in any other manner be in restraint of trade, and the anticompetitive
effects of the proposed acquisition of control are not clearly
outweighed in the public interest by the probable effect of the
transaction in meeting the convenience and needs of the community to be
served;
(iii) The financial condition of any acquiring person is such as
might jeopardize the financial stability of the bank or prejudice the
interests of the depositors of the bank;
(iv) The competence, experience, or integrity of any acquiring
person, or of any of the proposed management personnel, indicates that
it would not be in the interest of the depositors of the bank, or in
the interest of the public, to permit that person to control the bank;
(v) An acquiring person neglects, fails, or refuses to furnish the
OCC all the information it requires; or
(vi) The OCC determines that the proposed transaction would result
in an adverse effect on the Bank Insurance Fund or the Savings
Association Insurance Fund.
(5) Disapproval notification. If the OCC disapproves a notice, it
mails a written notification to the proposed acquiring person within
three days after the decision containing a statement of the basis for
disapproval.
(g) Disclosure--(1) Announcement. The applicant shall publish an
announcement in a newspaper of general circulation in the community
where the affected national bank is located within ten days of filing.
The OCC may authorize a delayed announcement if an immediate
announcement would not be in the public interest.
(i) In addition to the information required by Sec. 5.8(b), the
announcement must include the name of the national bank named in the
notice and the comment period (i.e., 20 days from the date of the
announcement). The announcement also must state that the public portion
of the notice is available upon request.
(ii) Notwithstanding any other provisions of this paragraph (g), if
the OCC determines in writing that an emergency exists and that the
announcement requirements of this paragraph (g) would seriously
threaten the safety and soundness of the national bank to be acquired,
including situations where the OCC must act immediately in order to
prevent the probable failure of a national bank, the OCC may waive or
shorten the publication requirement.
[[Page 60384]]
(2) Release of information. (i) Upon the request of any person, the
OCC releases the information provided in the public portion of the
notice and makes it available for public inspection and copying as soon
as possible after a notice has been filed. In certain circumstances the
OCC may determine that the release of the information would not be in
the public interest. In addition, the OCC makes a public announcement
of a technically complete notice, the disposition of the notice, and
the consummation date of the transaction, if applicable, in the OCC's
``Weekly Bulletin.''
(ii) The OCC handles requests for the non-public portion of the
notice as requests under the Freedom of Information Act, 5 U.S.C. 552,
and other applicable law.
(h) Reporting of stock loans--(1) Requirements. (i) Any foreign
bank, or any affiliate thereof, shall file a consolidated report with
the appropriate district office of the national bank if the foreign
bank or any affiliate thereof, has credit outstanding to any person or
group of persons that, in the aggregate, is secured, directly or
indirectly, by 25 percent or more of any class of voting securities of
the same national bank.
(ii) The foreign bank, or any affiliate thereof, shall also file a
copy of the report with its appropriate district office if that office
is different from the national bank's appropriate district office. If
the foreign bank, or any affiliate thereof, is not supervised by the
OCC, it shall file a copy of the report filed with the OCC with its
appropriate Federal banking agency.
(iii) Any shares of the national bank held by the foreign bank, or
any affiliate thereof, as principal must be included in the calculation
of the number of shares in which the foreign bank or any affiliate
thereof has a security interest for purposes of paragraph (h)(1)(i) of
this section.
(2) Definitions. For purposes of this paragraph (h):
(i) Foreign bank and affiliate have the same meanings as in section
1 of the International Banking Act of 1978, 12 U.S.C. 3101.
(ii) Credit outstanding includes any loan or extension of credit;
the issuance of a guarantee, acceptance, or letter of credit, including
an endorsement or standby letter of credit; and any other type of
transaction that extends credit or financing to a person or group of
persons.
(iii) Group of persons includes any number of persons that a
foreign bank, or an affiliate thereof, has reason to believe:
(A) Are acting together, in concert, or with one another to acquire
or control shares of the same insured national bank, including an
acquisition of shares of the same national bank at approximately the
same time under substantially the same terms; or
(B) Have made, or propose to make, a joint filing under 15 U.S.C.
78m regarding ownership of the shares of the same depository
institution.
(3) Exceptions. Compliance with paragraph (h)(1) of this section is
not required if:
(i) The person or group of persons referred to in paragraph (h)(1)
of this section has disclosed the amount borrowed and the security
interest therein to the appropriate district office in connection with
a notice filed under this section or any other application filed with
the appropriate district office as a substitute for a notice under this
section, such as for a national bank charter; or
(ii) The transaction involves a person or group of persons that has
been the owner or owners of record of the stock for a period of one
year or more or, if the transaction involves stock issued by a newly
chartered bank, before the bank's opening.
(4) Report requirements. (i) The consolidated report must indicate
the number and percentage of shares securing each applicable extension
of credit, the identity of the borrower, and the number of shares held
as principal by the foreign bank and any affiliate thereof.
(ii) The foreign bank and all affiliates thereof shall file the
consolidated report in writing within 30 days of the date on which the
foreign bank or affiliate thereof first believes that the security for
any outstanding credit consists of 25 percent or more of any class of
voting securities of a national bank.
(5) Other reporting requirements. A foreign bank or any affiliate
thereof, supervised by the OCC and required to report credit
outstanding secured by the shares of a depository institution to
another Federal banking agency also shall file a copy of the report
with its appropriate district office.
Sec. 5.51 Changes in directors and senior executive officers.
(a) Authority. 12 U.S.C. 1831i.
(b) Scope. This section describes the circumstances when a national
bank must notify the OCC of a change in its directors and senior
executive officers, and the OCC's authority to disapprove those
notices.
(c) Definitions--(1) Director means a person who serves on the
board of directors of a national bank except:
(i) A director of a foreign bank that operates a Federal branch;
and
(ii) An advisory director who does not have the authority to vote
on matters before the board of directors and provides solely general
policy advice to the board of directors.
(2) National bank, as defined in Sec. 5.3(j), includes a Federal
branch for purposes of this section only.
(3) Senior executive officer means the chief executive officer,
chief operating officer, chief financial officer, chief lending
officer, chief investment officer, and any other individual the OCC
identifies to the national bank who exercises significant influence
over, or participates in, major policy making decisions of the bank
without regard to title, salary, or compensation. The term also
includes employees of entities retained by a national bank to perform
such functions in lieu of directly hiring the individuals, and, with
respect to a Federal branch operated by a foreign bank, the individual
functioning as the chief managing official of the Federal branch.
(4) Technically complete notice means a notice that provides all
the information requested in paragraph (e)(2) of this section,
including complete explanations where material issues arise regarding
the competence, experience, character, or integrity of proposed
directors or senior executive officers, and any additional information
that the OCC may request following a determination that the original
submission of the notice was not technically complete.
(5) Technically complete notice date means the date on which the
OCC has received a technically complete notice.
(6) Troubled condition means a national bank that:
(i) Has a composite rating of 4 or 5 under the Uniform Financial
Institutions Rating System (CAMEL);
(ii) Is subject to a cease and desist order, a consent order, or a
formal written agreement, unless otherwise informed in writing by the
OCC; or
(iii) Is informed in writing by the OCC that as a result of an
examination it has been designated in ``troubled condition'' for
purposes of this section.
(d) Prior notice. A national bank shall provide written notice to
the OCC at least 90 days before adding or replacing any member of its
board of directors, employing any person as a senior executive officer
of the national bank, or changing the responsibilities of any senior
executive officer so that the person would assume a different executive
officer position, if:
(1) The national bank is not in compliance with minimum capital
[[Page 60385]]
requirements applicable to such institution, as prescribed in 12 CFR
part 3, or is otherwise in troubled condition; or
(2) The OCC determines, in connection with the review by the agency
of the plan required under section 38 of the Federal Deposit Insurance
Act, 12 USC 1831o, or otherwise, that such prior notice is appropriate.
(e) Procedures--(1) Filing notice. A national bank shall file a
notice with its appropriate supervisory office. When a national bank
files a notice, the individual to whom the filing pertains shall attest
to the validity of the information pertaining to that individual. The
90-day review period begins on the technically complete notice date.
(2) Content of notice. A notice must contain the identity, personal
history, business background, and experience of each person whose
designation as a director or senior executive officer is subject to
this section. The notice must include:
(i) A description of his or her material business activities and
affiliations during the five years preceding the date of the notice;
(ii) A description of any material pending legal or administrative
proceedings to which he or she is a party;
(iii) Any criminal indictment or conviction by a state or Federal
court; and
(iv) Legible fingerprints of the person, except that fingerprints
are not required for any person who, within the three years immediately
preceding the date of the present notice, has been subject to a notice
filed with the OCC pursuant to section 32 of the FDIA, 12 U.S.C. 1831i,
or this section and has previously submitted fingerprints.
(3) Requests for additional information. Following receipt of a
technically complete notice, the OCC may request additional
information, in writing where feasible, and may specify a time period
during which the information must be provided.
(4) Notice of disapproval. The OCC may disapprove an individual
proposed as a member of the board of directors or as a senior executive
officer if the OCC determines on the basis of the individual's
competence, experience, character, or integrity that it would not be in
the best interests of the depositors of the national bank or the public
to permit the individual to be employed by, or associated with, the
national bank. The OCC sends a notice of disapproval to both the
national bank and the disapproved individual stating the basis for
disapproval.
(5) Notice of intent not to disapprove. An individual proposed as a
member of the board of directors or as a senior executive officer may
begin service before the expiration of the review period if the OCC
notifies the national bank that the OCC does not disapprove the
proposed director or senior executive officer.
(6) Waiver of prior notice. (i) A national bank may send a letter
to the appropriate supervisory office requesting a waiver of the prior
notice requirement. The OCC may waive the prior notice requirement but
not the filing required under this section. The OCC may grant a waiver
if it finds that delay could harm the national bank or the public
interest, or that other extraordinary circumstances justify waiving the
prior notice requirement. The length of any waiver depends on the
circumstances in each case. If the OCC grants a waiver, the national
bank shall file the required notice within the time period specified in
the waiver, and the proposed individual may assume the position on an
interim basis until the individual and the national bank receive a
notice of disapproval or, if an appeal has been filed, until a notice
of disapproval has been upheld on appeal as set forth in paragraph (f)
of this section. If the required notice is not filed within the time
period specified in the waiver, the proposed individual shall resign
his or her position. Thereafter, the individual may assume the position
on a permanent basis only after the national bank receives a notice of
intent not to disapprove, after the review period elapses, or after a
notice of disapproval has been overturned on appeal as set forth in
paragraph (f) of this section. A waiver does not affect the OCC's
authority to issue a notice of disapproval within 30 days of the
expiration of such waiver.
(ii) In the case of the election at a meeting of the shareholders
of a new director not proposed by management, a waiver is granted
automatically and the elected individual may begin service as a
director. However, under these circumstances, the national bank shall
file the required notice with the appropriate supervisory office as
soon as practical, but not later than seven days from the date the
individual is notified of the election. The individual's continued
service is subject to the conditions specified in paragraph (e)(6)(i)
of this section.
(7) Commencement of service. An individual proposed as a member of
the board of directors or as a senior executive officer may assume the
office following the end of the review period, which begins on the
technically complete notice date, unless:
(i) The OCC issues a notice of disapproval during the review
period; or
(ii) The national bank does not provide additional information
within the time period required by the OCC pursuant to paragraph (e)(3)
of this section and the OCC deems the notice to be abandoned pursuant
to Sec. 5.13(c).
(8) Exceptions to rules of general applicability. Sections 5.8,
5.10, 5.11, and 5.13 (a) through (f) do not apply to a notice for a
change in directors and senior executive officers.
(f) Appeal--(1) If the national bank, the proposed individual, or
both, disagree with a disapproval, they may seek review by appealing
the disapproval to the Comptroller, or an authorized delegate, within
15 days of the receipt of the notice of disapproval. The national bank
or the individual may appeal on the grounds that the reasons for
disapproval are contrary to fact or insufficient to justify
disapproval. The appellant shall submit all documents and written
arguments that the appellant wishes to be considered in support of the
appeal.
(2) The Comptroller, or an authorized delegate, may designate an
appellate official who was not previously involved in the decision
leading to the appeal at issue. The Comptroller, an authorized
delegate, or the appellate official considers all information submitted
with the original notice, the material before the OCC official who made
the initial decision, and any information submitted by the appellant at
the time of the appeal.
(3) The Comptroller, an authorized delegate, or the appellate
official shall independently determine whether the reasons given for
the disapproval are contrary to fact or insufficient to justify the
disapproval. If either is determined to be the case, the Comptroller,
an authorized delegate, or the appellate official may reverse the
disapproval.
(4) Upon completion of the review, the Comptroller, an authorized
delegate, or the appellate official shall notify the appellant in
writing of the decision. If the original decision is reversed, the
individual may assume the position in the bank for which he or she was
proposed.
Sec. 5.52 Change of address.
(a) Authority. 12 U.S.C. 93a, 161, and 481.
(b) Scope. This section describes the obligation of a national bank
to notify the OCC of any change in its address. However, no notice is
required if the
[[Page 60386]]
change in address results from a transaction approved under this part.
(c) Notice process. Any national bank with a change in the address
of its main office or in its post office box shall send a written
notice to the appropriate district office.
(d) Exceptions to rules of general applicability. Sections 5.8,
5.9, 5.10, 5.11, and 5.13 do not apply to changes in a national bank's
address.
Subpart E--Payment of Dividends
Sec. 5.60 Authority, scope, and exceptions to rules of general
applicability.
(a) Authority. 12 U.S.C. 56, 60, and 93a.
(b) Scope. Except as otherwise provided, the restrictions in this
subpart apply to the declaration and payment of all dividends by a
national bank, including dividends paid in property. However, the
provisions contained in Sec. 5.64 do not apply to dividends paid in
stock of the bank.
(c) Exceptions to the rules of general applicability. Sections 5.8,
5.10, and 5.11 do not apply to this subpart.
Sec. 5.61 Definitions.
For the purposes of subpart E, the following definitions apply:
(a) Capital stock, capital surplus, and permanent capital have the
same meaning as set forth in Sec. 5.46.
(b) Retained net income means the net income of a specified period
less the total amount of all dividends declared in that period.
Sec. 5.62 Date of declaration of dividend.
A national bank shall use the date a dividend is declared for the
purposes of determining compliance with this subpart.
Sec. 5.63 Capital limitation under 12 U.S.C. 56.
(a) General limitation. Except as provided by 12 U.S.C. 59 and
Sec. 5.46, a national bank may not withdraw, or permit to be withdrawn,
either in the form of a dividend or otherwise, any portion of its
permanent capital. Further, a national bank may not declare a dividend
in excess of undivided profits.
(b) Preferred stock. The provisions of 12 U.S.C. 56 do not apply to
dividends on preferred stock. However, if the undivided profits of the
national bank are not sufficient to cover a proposed dividend on
preferred stock, the proposed dividend constitutes a reduction in
capital subject to 12 U.S.C. 59 and Sec. 5.46.
Sec. 5.64 Earnings limitation under 12 U.S.C. 60.
(a) Transfers to capital surplus. Subject to the restrictions in 12
U.S.C. 56 and this subpart, the directors of a national bank may
declare and pay dividends as frequently and of such amount of undivided
profits as they judge prudent. However, a national bank may not declare
a dividend unless capital surplus equals or exceeds the capital stock
of the bank, except:
(1) In the case of an annual dividend, the bank may declare a
dividend if the bank transfers 10 percent of its net income for the
preceding four quarters to capital surplus; or
(2) In the case of a quarterly or semiannual dividend, or any other
special dividend, the bank may declare a dividend if the bank transfers
10 percent of its net income for the preceding two quarters to capital
surplus.
(b) Earnings limitation. For purposes of 12 U.S.C. 60, a national
bank may not declare a dividend if the total amount of all dividends
(common and preferred), including the proposed dividend, declared by
the national bank in any calendar year exceeds the total of the
national bank's retained net income of that year to date, combined with
its retained net income of the preceding two years, unless the dividend
is approved by the OCC. A national bank shall submit a request for OCC
approval of a dividend under 12 U.S.C. 60 to the appropriate district
office.
(c) Surplus surplus. Any amount in capital surplus in excess of
capital stock required by 12 U.S.C. 60(a) (referred to as ``surplus
surplus'') may be transferred to undivided profits and available as
dividends, provided:
(1) The bank can demonstrate that the surplus came from earnings of
prior periods, excluding the effect of any stock dividend; and
(2) The board of directors of the bank approves the transfer of the
surplus surplus from capital surplus to undivided profits.
Sec. 5.65 Restrictions on undercapitalized institutions.
Notwithstanding any other provision in this subpart, a national
bank may not declare or pay any dividend if, after making the dividend,
the national bank would be ``undercapitalized'' as defined in 12 CFR
part 6.
Sec. 5.66 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.
Sec. 5.67 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;
(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.
Subpart F--Federal Branches and Agencies
Sec. 5.70 Federal branches and agencies.
(a) Authority. 12 U.S.C. 93a and 3101 et seq.
(b) Scope. This subpart describes the filing requirements for
corporate activities and transactions involving Federal branches and
agencies of foreign banks. Substantive rules and policies for
[[Page 60387]]
specific applications are contained in 12 CFR part 28.
(c) Definitions. For purposes of this subpart:
(1) Change the status of an office means conversion of a:
(i) State branch or state agency operated by a foreign bank, or a
commercial lending company controlled by a foreign bank, into a Federal
branch, limited Federal branch, or Federal agency;
(ii) Federal agency to a Federal branch or limited Federal branch;
(iii) Federal branch to a limited Federal branch or Federal agency;
or
(iv) Limited Federal branch to a Federal branch or Federal agency.
(2) To establish a Federal branch or agency means to:
(i) Open and conduct business through a Federal branch or agency;
(ii) Acquire directly, through merger, consolidation, or similar
transaction with another foreign bank, the operations of a Federal
branch or agency that is open and conducting business;
(iii) Acquire a Federal branch or agency through the acquisition of
a foreign bank subsidiary that will cease to operate in the same
corporate form following the acquisition;
(iv) Change the status of an office; or
(v) Relocate a Federal branch or agency within a state or from one
state to another.
(d) Filing requirements--(1) General. Unless otherwise provided in
12 CFR part 28, a Federal branch or agency shall comply with the
applicable requirements of this part.
(2) Applications. A foreign bank shall submit an application and
obtain prior approval from the OCC before it:
(i) Establishes a Federal branch, Federal agency, or limited
Federal branch; or
(ii) Exercises fiduciary powers at a Federal branch. A foreign bank
may submit an application to exercise fiduciary powers at the time of
filing an application for a Federal branch license or at any subsequent
date.
PART 7--INTERPRETIVE RULINGS
5. The authority citation for part 7 continues to read as follows:
Authority: 12 U.S.C. 1 et seq. and 93a.
6. In Sec. 7.1000, paragraph (a)(2)(i) is amended by removing
``owned or'' and adding ``owned and'' and paragraph (c)(1) is revised
to read as follows:
Sec. 7.1000 National bank ownership of property.
* * * * *
(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. A bank may seek approval
from the OCC in accordance with the procedures set forth in 12 CFR
5.37.
* * * * *
Secs. 7.2023 and 7.2024 [Removed]
7. Part 7 is amended by removing Secs. 7.2023 and 7.2024.
PART 16--SECURITIES OFFERING DISCLOSURE RULES
8. The authority citation for part 16 continues to read as follows:
Authority: 12 U.S.C. 1 et seq. and 93a.
9. In Sec. 16.20 paragraph (d) is revised to read as follows:
Sec. 16.20 Current and periodic reports.
* * * * *
(d) Paragraph (a) of this section does not apply if the bank files
the registration statement in connection with a merger, consolidation,
or acquisition of assets subject to 12 CFR 5.33(e)(8).
PART 28--INTERNATIONAL BANKING ACTIVITIES
10. The authority citation for part 28 continues to read as
follows:
Authority: 12 U.S.C. 1 et seq., 93a, 161, 602, 1818, 3102, 3108,
and 3901 et seq.
11. In Sec. 28.2, paragraph (b) is revised to read as follows:
Sec. 28.2 Definitions.
* * * * *
(b) Edge corporation means a corporation that is organized under
section 25A of the FRA, 12 U.S.C. 611 through 631.
* * * * *
12. Section 28.10 is revised to read as follows:
Sec. 28.10 Authority, purpose, and scope.
(a) Authority. This subpart is issued pursuant to the authority in
the International Banking Act of 1978 (IBA), 12 U.S.C. 3101 et seq.,
and 12 U.S.C. 93a.
(b) Purpose and scope. This subpart implements the IBA pertaining
to the licensing, supervision, and operations of Federal branches and
agencies in the United States. For corporate procedures pertaining to
Federal branches and agencies, refer to 12 CFR part 5.
13. In section 28.11, paragraphs (f) and (v) are revised to read as
follows:
Sec. 28.11 Definitions.
* * * * *
(f) Edge corporation means a corporation that is organized under
section 25A of the FRA, 12 U.S.C. 611 through 631.
* * * * *
(v) Manual means the Comptroller's Corporate Manual (see 12 CFR
5.2(c)).
* * * * *
Dated: November 20, 1996.
Eugene A. Ludwig,
Comptroller of the Currency.
[FR Doc. 96-30058 Filed 11-21-96; 3:42 pm]
BILLING CODE 4810-33-P
