[Title 12 CFR ]
[Code of Federal Regulations (annual edition) - January 1, 2000 Edition]
[From the U.S. Government Printing Office]



[[Page i]]

          
          
                    12


          Parts 1 to 199

                         Revised as of January 1, 2000

Banks and Banking





          Containing a Codification of documents of general 
          applicability and future effect
          As of January 1, 2000
          With Ancillaries
          Published by:
          Office of the Federal Register
          National Archives and Records
          Administration

A Special Edition of the Federal Register



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                     U.S. GOVERNMENT PRINTING OFFICE
                            WASHINGTON : 2000



               For sale by U.S. Government Printing Office
 Superintendent of Documents, Mail Stop: SSOP, Washington, DC 20402-9328



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                            Table of Contents



                                                                    Page
  Explanation.................................................       v

  Title 12:
          Chapter I--Comptroller of the Currency, Department 
          of the Treasury                                            3
  Finding Aids:
      Table of CFR Titles and Chapters........................     301
      Alphabetical List of Agencies Appearing in the CFR......     319
      Redesignation Table.....................................     329
      List of CFR Sections Affected...........................     331



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                     ----------------------------

                     Cite this Code:  CFR
                     To cite the regulations in 
                       this volume use title, 
                       part and section number. 
                       Thus,  12 CFR 1.1 refers 
                       to title 12, part 1, 
                       section 1.

                     ----------------------------

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                               EXPLANATION

    The Code of Federal Regulations is a codification of the general and 
permanent rules published in the Federal Register by the Executive 
departments and agencies of the Federal Government. The Code is divided 
into 50 titles which represent broad areas subject to Federal 
regulation. Each title is divided into chapters which usually bear the 
name of the issuing agency. Each chapter is further subdivided into 
parts covering specific regulatory areas.
    Each volume of the Code is revised at least once each calendar year 
and issued on a quarterly basis approximately as follows:

Title 1 through Title 16.................................as of January 1
Title 17 through Title 27..................................as of April 1
Title 28 through Title 41...................................as of July 1
Title 42 through Title 50................................as of October 1

    The appropriate revision date is printed on the cover of each 
volume.

LEGAL STATUS

    The contents of the Federal Register are required to be judicially 
noticed (44 U.S.C. 1507). The Code of Federal Regulations is prima facie 
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HOW TO USE THE CODE OF FEDERAL REGULATIONS

    The Code of Federal Regulations is kept up to date by the individual 
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    To determine whether a Code volume has been amended since its 
revision date (in this case, January 1, 2000), consult the ``List of CFR 
Sections Affected (LSA),'' which is issued monthly, and the ``Cumulative 
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Register page number of the latest amendment of any given rule.

EFFECTIVE AND EXPIRATION DATES

    Each volume of the Code contains amendments published in the Federal 
Register since the last revision of that volume of the Code. Source 
citations for the regulations are referred to by volume number and page 
number of the Federal Register and date of publication. Publication 
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inserted following the text.

OMB CONTROL NUMBERS

    The Paperwork Reduction Act of 1980 (Pub. L. 96-511) requires 
Federal agencies to display an OMB control number with their information 
collection request.

[[Page vi]]

Many agencies have begun publishing numerous OMB control numbers as 
amendments to existing regulations in the CFR. These OMB numbers are 
placed as close as possible to the applicable recordkeeping or reporting 
requirements.

OBSOLETE PROVISIONS

    Provisions that become obsolete before the revision date stated on 
the cover of each volume are not carried. Code users may find the text 
of provisions in effect on a given date in the past by using the 
appropriate numerical list of sections affected. For the period before 
January 1, 1986, consult either the List of CFR Sections Affected, 1949-
1963, 1964-1972, or 1973-1985, published in seven separate volumes. For 
the period beginning January 1, 1986, a ``List of CFR Sections 
Affected'' is published at the end of each CFR volume.

CFR INDEXES AND TABULAR GUIDES

    A subject index to the Code of Federal Regulations is contained in a 
separate volume, revised annually as of January 1, entitled CFR Index 
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    An index to the text of ``Title 3--The President'' is carried within 
that volume.
    The Federal Register Index is issued monthly in cumulative form. 
This index is based on a consolidation of the ``Contents'' entries in 
the daily Federal Register.
    A List of CFR Sections Affected (LSA) is published monthly, keyed to 
the revision dates of the 50 CFR titles.

REPUBLICATION OF MATERIAL

    There are no restrictions on the republication of material appearing 
in the Code of Federal Regulations.

INQUIRIES

    For a legal interpretation or explanation of any regulation in this 
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the top of odd-numbered pages.
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or write to the Director, Office of the Federal Register, National 
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[[Page vii]]

    The Office of the Federal Register also offers a free service on the 
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                              Raymond A. Mosley,
                                    Director,
                          Office of the Federal Register.

January 1, 2000.



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                               THIS TITLE

    Title 12--Banks and Banking is composed of six volumes. The parts in 
these volumes are arranged in the following order: parts 1-199, 200-219, 
220-299, 300-499, 500-599, and part 600-end. The first volume containing 
parts 1-199 is comprised of chapter I--Comptroller of the Currency, 
Department of the Treasury. The second and third volumes containing 
parts 200-299 are comprised of chapter II--Federal Reserve System. The 
fourth volume containing parts 300-499 is comprised of chapter III--
Federal Deposit Insurance Corporation and chapter IV--Export-Import Bank 
of the United States. The fifth volume containing parts 500-599 is 
comprised of chapter V--Office of Thrift Supervision, Department of the 
Treasury. The sixth volume containing part 600-end is comprised of 
chapter VI--Farm Credit Administration, chapter VII--National Credit 
Union Administration, chapter VIII--Federal Financing Bank, chapter IX--
Federal Housing Finance Board, chapter XI--Federal Financial 
Institutions Examination Council, chapter XIV--Farm Credit System 
Insurance Corporation, chapter XV--Department of the Treasury, chapter 
XVII--Office of Federal Housing Enterprise Oversight, Department of 
Housing and Urban Development and chapter XVIII--Community Development 
Financial Institutions Fund, Department of the Treasury. The contents of 
these volumes represent all of the current regulations codified under 
this title of the CFR as of January 1, 2000.

    Redesignation tables appear in the volumes containing parts 1-199, 
parts 300-499, parts 500-599, and part 600-end.

    For this volume, Jonn V. Lilyea was Chief Editor. The Code of 
Federal Regulations publication program is under the direction of 
Frances D. McDonald, assisted by Alomha S. Morris.

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[[Page 1]]



                       TITLE 12--BANKS AND BANKING




                   (This book contains parts 1 to 199)

  --------------------------------------------------------------------
                                                                    Part

chapter i--Comptroller of the Currency, Department of the 
  Treasury..................................................           1


Cross References: Rural Housing Service: See Agriculture, 7 CFR, chapter 
  XVIII.

  Office of Assistant Secretary for Housing--Federal Housing 
Commissioner, Department of Housing and Urban Development: See Housing 
and Urban Development, 24 CFR, chapter II.

  Fiscal Service: See Money and Finance: Treasury, 31 CFR, chapter II.

  Monetary Offices: See Money and Finance: Treasury, 31 CFR, chapter I.

  Commodity Credit Corporation: See Agriculture, 7 CFR, chapter XIV.

  Small Business Administration: See Business Credit and Assistance, 13 
CFR, chapter I.

  Rural Utilities Service: See Agriculture, 7 CFR, chapter XVII.

[[Page 3]]



   CHAPTER I--COMPTROLLER OF THE CURRENCY, DEPARTMENT OF THE TREASURY




  --------------------------------------------------------------------
Part                                                                Page
1               Investment securities.......................           5
2               Sales of credit life insurance..............          12
3               Minimum capital ratios; issuance of 
                    directives..............................          13
4               Organization and functions, availability and 
                    release of information, contracting 
                    outreach program........................          41
5               Rules, policies, and procedures for 
                    corporate activities....................          61
6               Prompt corrective action....................         102
7               Bank activities and operations..............         110
8               Assessment of fees; national banks; District 
                    of Columbia banks.......................         125
9               Fiduciary activities of national banks......         128
10              Municipal securities dealers................         138
11              Securities Exchange Act disclosure rules....         138
12              Recordkeeping and confirmation requirements 
                    for securities transactions.............         139
13              Government securities sales practices.......         147
14-15           [Reserved]

16              Securities offering disclosure rules........         150
18              Disclosure of financial and other 
                    information by national banks...........         156
19              Rules of practice and procedure.............         158
21              Minimum security devices and procedures, 
                    reports of suspicious activities, and 
                    Bank Secrecy Act Compliance Program.....         195
22              Loans in areas having special flood hazards.         199
23              Leasing.....................................         203
24              Community development corporations, 
                    community development projects, and 
                    other public welfare investments........         206
25              Community Reinvestment Act and Interstate 
                    Deposit Production regulations..........         211
26              Management official interlocks..............         232
27              Fair housing home loan data system..........         236

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28              International banking activities............         247
29              [Reserved]

30              Safety and soundness standards..............         259
31              Extensions of credit to insiders and 
                    transactions with affiliates............         268
32              Lending limits..............................         273
33              [Reserved]

34              Real estate lending and appraisals..........         283
35-199          [Reserved]


  Note: Other regulations issued by the Department of the Treasury 
appear in title 19, chapter I, title 26, chapter I, title 27, chapter I, 
title 31, title 48, chapter 10.

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PART 1--INVESTMENT SECURITIES--Table of Contents




Sec.
1.1   Authority, purpose, and scope.
1.2   Definitions.
1.3   Limitations on dealing in, underwriting, and purchase and sale of 
          securities.
1.4   Calculation of limits.
1.5   Safe and sound banking practices; credit information required.
1.6   Convertible securities.
1.7   Securities held in satisfaction of debts previously contracted; 
          holding period; disposal; accounting treatment; non-
          speculative purpose.
1.8   Nonconforming investments.

                             Interpretations

1.100   Indirect general obligations.
1.110   Taxing powers of a State or political subdivision.
1.120   Prerefunded or escrowed bonds and obligations secured by Type I 
          securities.
1.130   Type II securities; guidelines for obligations issued for 
          university and housing purposes.

    Authority: 12 U.S.C. 1 et seq., 24 (Seventh), and 93a.

    Source: 61 FR 63982, Dec. 2, 1996, unless otherwise noted.



Sec. 1.1  Authority, purpose, and scope.

    (a) Authority. This part is issued pursuant to 12 U.S.C. 1 et seq., 
12 U.S.C. 24 (Seventh), and 12 U.S.C. 93a.
    (b) Purpose This part prescribes standards under which national 
banks may purchase, sell, deal in, underwrite, and hold securities, 
consistent with the authority contained in 12 U.S.C. 24 (Seventh) and 
safe and sound banking practices.
    (c) Scope. The standards set forth in this part apply to national 
banks, District of Columbia banks, and federal branches of foreign 
banks. Further, pursuant to 12 U.S.C. 335, State banks that are members 
of the Federal Reserve System are subject to the same limitations and 
conditions that apply to national banks in connection with purchasing, 
selling, dealing in, and underwriting securities and stock. In addition 
to activities authorized under this part, foreign branches of national 
banks are authorized to conduct international activities and invest in 
securities pursuant to 12 CFR part 211.



Sec. 1.2  Definitions.

    (a) 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 
(or comparable capital guidelines of the appropriate Federal banking 
agency) as reported in the bank's Consolidated Report of Condition and 
Income filed under 12 U.S.C. 161 (or under 12 U.S.C. 1817 in the case of 
a state member bank); 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 (a)(1) of this section, as 
reported in the bank's Consolidated Report of Condition and Income filed 
under 12 U.S.C. 161 (or under 12 U.S.C. 1817 in the case of a state 
member bank).
    (b) General obligation of a State or political subdivision means:
    (1) An obligation supported by the full faith and credit of an 
obligor possessing general powers of taxation, including property 
taxation; or
    (2) An obligation payable from a special fund or by an obligor not 
possessing general powers of taxation, when an obligor possessing 
general powers of taxation, including property taxation, has 
unconditionally promised to make payments into the fund or otherwise 
provide funds to cover all required payments on the obligation.
    (c) Investment company means an investment company, including a 
mutual fund, registered under section 8 of the Investment Company Act of 
1940, 15 U.S.C. 80a-8.
    (d) Investment grade means a security that is rated in one of the 
four highest rating categories by:
    (1) Two or more NRSROs; or
    (2) One NRSRO if the security has been rated by only one NRSRO.
    (e) Investment security means a marketable debt obligation that is 
not predominantly speculative in nature. A security is not predominantly 
speculative in nature if it is rated investment grade. When a security 
is not rated, the security must be the credit equivalent of a security 
rated investment grade.
    (f) Marketable means that the security:

[[Page 6]]

    (1) Is registered under the Securities Act of 1933, 15 U.S.C. 77a et 
seq.;
    (2) Is a municipal revenue bond exempt from registration under the 
Securities Act of 1933, 15 U.S.C. 77c(a)(2);
    (3) Is offered and sold pursuant to Securities and Exchange 
Commission Rule 144A, 17 CFR 230.144A, and rated investment grade or is 
the credit equivalent of investment grade; or
    (4) Can be sold with reasonable promptness at a price that 
corresponds reasonably to its fair value.
    (g) NRSRO means a nationally recognized statistical rating 
organization.
    (h) Political subdivision means a county, city, town, or other 
municipal corporation, a public authority, and generally any publicly-
owned entity that is an instrumentality of a State or of a municipal 
corporation.
    (i) Type I security means:
    (1) Obligations of the United States;
    (2) Obligations issued, insured, or guaranteed by a department or an 
agency of the United States Government, if the obligation, insurance, or 
guarantee commits the full faith and credit of the United States for the 
repayment of the obligation;
    (3) Obligations issued by a department or agency of the United 
States, or an agency or political subdivision of a State of the United 
States, that represent an interest in a loan or a pool of loans made to 
third parties, if the full faith and credit of the United States has 
been validly pledged for the full and timely payment of interest on, and 
principal of, the loans in the event of non-payment by the third party 
obligor(s);
    (4) General obligations of a State of the United States or any 
political subdivision;
    (5) Obligations authorized under 12 U.S.C. 24 (Seventh) as 
permissible for a national bank to deal in, underwrite, purchase, and 
sell for the bank's own account, including qualified Canadian government 
obligations; and
    (6) Other securities the OCC determines to be eligible as Type I 
securities under 12 U.S.C. 24 (Seventh).
    (j) Type II security means an investment security that represents:
    (1) Obligations issued by a State, or a political subdivision or 
agency of a State, for housing, university, or dormitory purposes;
    (2) Obligations of international and multilateral development banks 
and organizations listed in 12 U.S.C. 24 (Seventh);
    (3) Other obligations listed in 12 U.S.C. 24 (Seventh) as 
permissible for a bank to deal in, underwrite, purchase, and sell for 
the bank's own account, subject to a limitation per obligor of 10 
percent of the bank's capital and surplus; and
    (4) Other securities the OCC determines to be eligible as Type II 
securities under 12 U.S.C. 24 (Seventh).
    (k) Type III security means an investment security that does not 
qualify as a Type I, II, IV, or V security, such as corporate bonds and 
municipal revenue bonds.
    (l) Type IV security means:
    (1) A small business-related security as defined in section 
3(a)(53)(A) of the Securities Exchange Act of 1934, 15 U.S.C. 
78c(a)(53)(A), that is rated investment grade or is the credit 
equivalent thereof, that is fully secured by interests in a pool of 
loans to numerous obligors.
    (2) A commercial mortgage-related security that is offered or sold 
pursuant to section 4(5) of the Securities Act of 1933, 15 U.S.C. 
77d(5), that is rated investment grade or is the credit equivalent 
thereof, or a commercial mortgage-related security as described in 
section 3(a)(41) of the Securities Exchange Act of 1934, 15 U.S.C. 
78c(a)(41), that is rated investment grade in one of the two highest 
investment grade rating categories, and that represents ownership of a 
promissory note or certificate of interest or participation that is 
directly secured by a first lien on one or more parcels of real estate 
upon which one or more commercial structures are located and that is 
fully secured by interests in a pool of loans to numerous obligors.
    (3) A residential mortgage-related security that is offered and sold 
pursuant to section 4(5) of the Securities Act of 1933, 15 U.S.C. 
77d(5), that is rated investment grade or is the credit equivalent 
thereof, or a residential mortgage-related security as described in 
section 3(a)(41) of the Securities Exchange Act of 1934, 15 U.S.C. 
78c(a)(41)), that is

[[Page 7]]

rated investment grade in one of the two highest investment grade rating 
categories, and that does not otherwise qualify as a Type I security.
    (m) Type V security means a security that is:
    (1) Rated investment grade;
    (2) Marketable;
    (3) Not a Type IV security; and
    (4) Fully secured by interests in a pool of loans to numerous 
obligors and in which a national bank could invest directly.



Sec. 1.3  Limitations on dealing in, underwriting, and purchase and sale of securities.

    (a) Type I securities. A national bank may deal in, underwrite, 
purchase, and sell Type I securities for its own account. The amount of 
Type I securities that the bank may deal in, underwrite, purchase, and 
sell is not limited to a specified percentage of the bank's capital and 
surplus.
    (b) Type II securities. A national bank may deal in, underwrite, 
purchase, and sell Type II securities for its own account, provided the 
aggregate par value of Type II securities issued by any one obligor held 
by the bank does not exceed 10 percent of the bank's capital and 
surplus. In applying this limitation, a national bank shall take account 
of Type II securities that the bank is legally committed to purchase or 
to sell in addition to the bank's existing holdings.
    (c) Type III securities. A national bank may purchase and sell Type 
III securities for its own account, provided the aggregate par value of 
Type III securities issued by any one obligor held by the bank does not 
exceed 10 percent of the bank's capital and surplus. In applying this 
limitation, a national bank shall take account of Type III securities 
that the bank is legally committed to purchase or to sell in addition to 
the bank's existing holdings.
    (d) Type II and III securities; other investment securities 
limitations. A national bank may not hold Type II and III securities 
issued by any one obligor with an aggregate par value exceeding 10 
percent of the bank's capital and surplus. However, if the proceeds of 
each issue are to be used to acquire and lease real estate and related 
facilities to economically and legally separate industrial tenants, and 
if each issue is payable solely from and secured by a first lien on the 
revenues to be derived from rentals paid by the lessee under net 
noncancellable leases, the bank may apply the 10 percent investment 
limitation separately to each issue of a single obligor.
    (e) Type IV securities--(1) General. A national bank may purchase 
and sell Type IV securities for its own account. Except as described in 
paragraph (e)(2) of this section, the amount of the Type IV securities 
that a bank may purchase and sell is not limited to a specified 
percentage of the bank's capital and surplus.
    (2) Limitation on small business-related securities rated in the 
third and fourth highest rating categories by an NRSRO. A national bank 
may hold small business-related securities, as defined in section 
3(a)(53)(A) of the Securities Exchange Act of 1934, 15 U.S.C. 
78c(a)(53)(A), of any one issuer with an aggregate par value not 
exceeding 25 percent of the bank's capital and surplus if those 
securities are rated investment grade in the third or fourth highest 
investment grade rating categories. In applying this limitation, a 
national bank shall take account of securities that the bank is legally 
committed to purchase or to sell in addition to the bank's existing 
holdings. No percentage of capital and surplus limit applies to small 
business related securities rated investment grade in the highest two 
investment grade rating categories.
    (f) Type V securities. A national bank may purchase and sell Type V 
securities for its own account provided that the aggregate par value of 
Type V securities issued by any one issuer held by the bank does not 
exceed 25 percent of the bank's capital and surplus. In applying this 
limitation, a national bank shall take account of Type V securities that 
the bank is legally committed to purchase or to sell in addition to the 
bank's existing holdings.
    (g) Securitization. A national bank may securitize and sell assets 
that it holds, as a part of its banking business. The amount of 
securitized loans and obligations that a bank may sell is not

[[Page 8]]

limited to a specified percentage of the bank's capital and surplus.
    (h) Investment company shares--(1) General. A national bank may 
purchase and sell for its own account investment company shares provided 
that:
    (i) The portfolio of the investment company consists exclusively of 
assets that the national bank may purchase and sell for its own account 
under this part; and
    (ii) The bank's holdings of investment company shares do not exceed 
the limitations in Sec. 1.4(e).
    (2) Other issuers. The OCC may determine that a national bank may 
invest in an entity that is exempt from registration as an investment 
company under section 3(c)(1) of the Investment Company Act of 1940, 
provided that the portfolio of the entity consists exclusively of assets 
that a national bank may purchase and sell for its own account under 
this part.
    (i) Securities held based on estimates of obligor's performance. (1) 
Notwithstanding Secs. 1.2(d) and (e), a national bank may treat a debt 
security as an investment security for purposes of this part if the bank 
concludes, on the basis of estimates that the bank reasonably believes 
are reliable, that the obligor will be able to satisfy its obligations 
under that security, and the bank believes that the security may be sold 
with reasonable promptness at a price that corresponds reasonably to its 
fair value.
    (2) The aggregate par value of securities treated as investment 
securities under paragraph (i)(1) of this section may not exceed 5 
percent of the bank's capital and surplus.

[61 FR 63982, Dec. 2, 1996, as amended at 64 FR 60098, Nov. 4, 1999]



Sec. 1.4  Calculation of limits.

    (a) Calculation date. For purposes of determining compliance with 12 
U.S.C. 24 (Seventh) and this part, a bank shall determine its investment 
limitations as of the most recent of the following dates:
    (1) The last day of the preceding calendar quarter; or
    (2) The date on which there is a change in the bank's capital 
category for purposes of 12 U.S.C. 1831o and 12 CFR 6.3.
    (b) Effective date. (1) A bank's investment limit calculated in 
accordance with paragraph (a)(1) of this section will be effective on 
the earlier of the following dates:
    (i) The date on which the bank's Consolidated Report of Condition 
and Income (Call Report) is submitted; or
    (ii) The date on which the bank's Consolidated Report of Condition 
and Income is required to be submitted.
    (2) A bank's investment limit calculated in accordance with 
paragraph (a)(2) of this section will be effective on the date that the 
limit is to be calculated.
    (c) Authority of OCC to require more frequent calculations. If the 
OCC determines for safety and soundness reasons that a bank should 
calculate its investment limits more frequently than required by 
paragraph (a) of this section, the OCC may provide written notice to the 
bank directing the bank to calculate its investment limitations at a 
more frequent interval. The bank shall thereafter calculate its 
investment limits at that interval until further notice.
    (d) Calculation of Type III and Type V securities holdings--(1) 
General. In calculating the amount of its investment in Type III or Type 
V securities issued by any one obligor, a bank shall aggregate:
    (i) Obligations issued by obligors that are related directly or 
indirectly through common control; and
    (ii) Securities that are credit enhanced by the same entity.
    (2) Aggregation by type. The aggregation requirement in paragraph 
(d)(1) of this section applies separately to the Type III and Type V 
securities held by a bank.
    (e) Limit on investment company holdings--(1) General. In 
calculating the amount of its investment in investment company shares 
under this part, a bank shall use reasonable efforts to calculate and 
combine its pro rata share of a particular security in the portfolio of 
each investment company with the bank's direct holdings of that 
security. The bank's direct holdings of the particular security and the 
bank's pro rata interest in the same security in the investment 
company's portfolio may not, in the aggregate, exceed the

[[Page 9]]

investment limitation that would apply to that security.
    (2) Alternate limit for diversified investment companies. A national 
bank may elect not to combine its pro rata interest in a particular 
security in an investment company with the bank's direct holdings of 
that security if:
    (i) The investment company's holdings of the securities of any one 
issuer do not exceed 5 percent of its total portfolio; and
    (ii) The bank's total holdings of the investment company's shares do 
not exceed the most stringent investment limitation that would apply to 
any of the securities in the company's portfolio if those securities 
were purchased directly by the bank.



Sec. 1.5  Safe and sound banking practices; credit information required.

    (a) A national bank shall adhere to safe and sound banking practices 
and the specific requirements of this part in conducting the activities 
described in Sec. 1.3. The bank shall consider, as appropriate, the 
interest rate, credit, liquidity, price, foreign exchange, transaction, 
compliance, strategic, and reputation risks presented by a proposed 
activity, and the particular activities undertaken by the bank must be 
appropriate for that bank.
    (b) In conducting these activities, the bank shall determine that 
there is adequate evidence that an obligor possesses resources 
sufficient to provide for all required payments on its obligations, or, 
in the case of securities deemed to be investment securities on the 
basis of reliable estimates of an obligor's performance, that the bank 
reasonably believes that the obligor will be able to satisfy the 
obligation.
    (c) Each bank shall maintain records available for examination 
purposes adequate to demonstrate that it meets the requirements of this 
part. The bank may store the information in any manner that can be 
readily retrieved and reproduced in a readable form.



Sec. 1.6  Convertible securities.

    A national bank may not purchase securities convertible into stock 
at the option of the issuer.



Sec. 1.7  Securities held in satisfaction of debts previously contracted; holding period; disposal; accounting treatment; non-speculative purpose.

    (a) Securities held in satisfaction of debts previously contracted. 
The restrictions and limitations of this part, other than those set 
forth in paragraphs (b),(c), and (d) of this section, do not apply to 
securities acquired:
    (1) Through foreclosure on collateral;
    (2) In good faith by way of compromise of a doubtful claim; or
    (3) To avoid loss in connection with a debt previously contracted.
    (b) Holding period. A national bank holding securities pursuant to 
paragraph (a) of this section may do so for a period not to exceed five 
years from the date that ownership of the securities was originally 
transferred to the bank. The OCC may extend the holding period for up to 
an additional five years if a bank provides a clearly convincing 
demonstration as to why an additional holding period is needed.
    (c) Accounting treatment. A bank shall account for securities held 
pursuant to paragraph (a) of this section in accordance with Generally 
Accepted Accounting Principles.
    (d) Non-speculative purpose. A bank may not hold securities pursuant 
to paragraph (a) of this section for speculative purposes.



Sec. 1.8  Nonconforming investments.

    (a) A national bank's investment in securities that no longer 
conform to this part but conformed when made will not be deemed in 
violation but instead will be treated as nonconforming if the reason why 
the investment no longer conforms to this part is because:
    (1) The bank's capital declines;
    (2) Issuers, obligors, or credit-enhancers merge;
    (3) Issuers become related directly or indirectly through common 
control;
    (4) The investment securities rules change;
    (5) The security no longer qualifies as an investment security; or
    (6) Other events identified by the OCC occur.
    (b) A bank shall exercise reasonable efforts to bring an investment 
that is nonconforming as a result of events described in paragraph (a) 
of this section

[[Page 10]]

into conformity with this part unless to do so would be inconsistent 
with safe and sound banking practices.

                             Interpretations



Sec. 1.100  Indirect general obligations.

    (a) Obligation issued by an obligor not possessing general powers of 
taxation. Pursuant to Sec. 1.2(b), an obligation issued by an obligor 
not possessing general powers of taxation qualifies as a general 
obligation of a State or political subdivision for the purposes of 12 
U.S.C. 24 (Seventh), if a party possessing general powers of taxation 
unconditionally promises to make sufficient funds available for all 
required payments in connection with the obligation.
    (b) Indirect commitment of full faith and credit. The indirect 
commitment of the full faith and credit of a State or political 
subdivision (that possesses general powers of taxation) in support of an 
obligation may be demonstrated by any of the following methods, alone or 
in combination, when the State or political subdivision pledges its full 
faith and credit in support of the obligation.
    (1) Lease/rental agreement. The lease agreement must be valid and 
binding on the State or the political subdivision, and the State or 
political subdivision must unconditionally promise to pay rentals that, 
together with any other available funds, are sufficient for the timely 
payment of interest on, and principal of, the obligation. These lease/
rental agreement may, for instance, provide support for obligations 
financing the acquisition or operation of public projects in the areas 
of education, medical care, transportation, recreation, public 
buildings, and facilities.
    (2) Service/purchase agreement. The agreement must be valid and 
binding on the State or the political subdivision, and the State or 
political subdivision must unconditionally promise in the agreement to 
make payments for services or resources provided through or by the 
issuer of the obligation. These payments, together with any other 
available funds, must be sufficient for the timely payment of interest 
on, and principal of, the obligation. An agreement to purchase municipal 
sewer, water, waste disposal, or electric services may, for instance, 
provide support for obligations financing the construction or 
acquisition of facilities supplying those services.
    (3) Refillable debt service reserve fund. The reserve fund must at 
least equal the amount necessary to meet the annual payment of interest 
on, and principal of, the obligation as required by applicable law. The 
maintenance of a refillable reserve fund may be provided, for instance, 
by statutory direction for an appropriation, or by statutory automatic 
apportionment and payment from the State funds of amounts necessary to 
restore the fund to the required level.
    (4) Other grants or support. A statutory provision or agreement must 
unconditionally commit the State or the political subdivision to provide 
funds which, together with other available funds, are sufficient for the 
timely payment of interest on, and principal of, the obligation. Those 
funds may, for instance, be supplied in the form of annual grants or may 
be advanced whenever the other available revenues are not sufficient for 
the payment of principal and interest.



Sec. 1.110  Taxing powers of a State or political subdivision.

    (a) An obligation is considered supported by the full faith and 
credit of a State or political subdivision possessing general powers of 
taxation when the promise or other commitment of the State or the 
political subdivision will produce funds, which (together with any other 
funds available for the purpose) will be sufficient to provide for all 
required payments on the obligation. In order to evaluate whether a 
commitment of a State or political subdivision is likely to generate 
sufficient funds, a bank shall consider the impact of any possible 
limitations regarding the State's or political subdivision's taxing 
powers, as well as the availability of funds in view of the projected 
revenues and expenditures. Quantitative restrictions on the general 
powers of taxation of the State or political subdivision do not 
necessarily mean that an obligation is not supported by the full faith 
and credit of

[[Page 11]]

the State or political subdivision. In such case, the bank shall 
determine the eligibility of obligations by reviewing, on a case-by-case 
basis, whether tax revenues available under the limited taxing powers 
are sufficient for the full and timely payment of interest on, and 
principal of, the obligation. The bank shall use current and reasonable 
financial projections in calculating the availability of the revenues. 
An obligation expressly or implicitly dependent upon voter or 
legislative authorization of appropriations may be considered supported 
by the full faith and credit of a State or political subdivision if the 
bank determines, on the basis of past actions by the voters or 
legislative body in similar situations involving similar types of 
projects, that it is reasonably probable that the obligor will obtain 
all necessary appropriations.
    (b) An obligation supported exclusively by excise taxes or license 
fees is not a general obligation for the purposes of 12 U.S.C. 24 
(Seventh). Nevertheless, an obligation that is primarily payable from a 
fund consisting of excise taxes or other pledged revenues qualifies as a 
``general obligation,'' if, in the event of a deficiency of those 
revenues, the obligation is also supported by the general revenues of a 
State or a political subdivision possessing general powers of taxation.



Sec. 1.120  Prerefunded or escrowed bonds and obligations secured by Type I securities.

    (a) An obligation qualifies as a Type I security if it is secured by 
an escrow fund consisting of obligations of the United States or general 
obligations of a State or a political subdivision, and the escrowed 
obligations produce interest earnings sufficient for the full and timely 
payment of interest on, and principal of, the obligation.
    (b) If the interest earnings from the escrowed Type I securities 
alone are not sufficient to guarantee the full repayment of an 
obligation, a promise of a State or a political subdivision possessing 
general powers of taxation to maintain a reserve fund for the timely 
payment of interest on, and principal of, the obligation may further 
support a guarantee of the full repayment of an obligation.
    (c) An obligation issued to refund an indirect general obligation 
may be supported in a number of ways that, in combination, are 
sufficient at all times to support the obligation with the full faith 
and credit of the United States or a State or a political subdivision 
possessing general powers of taxation. During the period following its 
issuance, the proceeds of the refunding obligation may be invested in 
U.S. obligations or municipal general obligations that will produce 
sufficient interest income for payment of principal and interest. Upon 
the retirement of the outstanding indirect general obligation bonds, the 
same indirect commitment, such as a lease agreement or a reserve fund, 
that supported the prior issue, may support the refunding obligation.



Sec. 1.130  Type II securities; guidelines for obligations issued for university and housing purposes.

    (a) Investment quality. An obligation issued for housing, 
university, or dormitory purposes is a Type II security only if it:
    (1) Qualifies as an investment security, as defined in Sec. 1.2(e); 
and
    (2) Is issued for the appropriate purpose and by a qualifying 
issuer.
    (b) Obligation issued for university purposes. (1) An obligation 
issued by a State or political subdivision or agency of a State or 
political subdivision for the purpose of financing the construction or 
improvement of facilities at or used by a university or a degree-
granting college-level institution, or financing loans for studies at 
such institutions, qualifies as a Type II security. Facilities financed 
in this manner may include student buildings, classrooms, university 
utility buildings, cafeterias, stadiums, and university parking lots.
    (2) An obligation that finances the construction or improvement of 
facilities used by a hospital may be eligible as a Type II security, if 
the hospital is a department or a division of a university, or otherwise 
provides a nexus with university purposes, such as an affiliation 
agreement between the university and the hospital, faculty positions of 
the hospital staff, and training of medical students, interns, 
residents, and nurses (e.g., a ``teaching hospital'').

[[Page 12]]

    (c) Obligation issued for housing purposes. An obligation issued for 
housing purposes may qualify as a Type II security if the security 
otherwise meets the criteria for a Type II security.



PART 2--SALES OF CREDIT LIFE INSURANCE--Table of Contents




Sec.
2.1  Authority, purpose, and scope.
2.2  Definitions.
2.3  Distribution of credit life insurance income.
2.4  Bonus and incentive plans.
2.5  Bank compensation.

    Authority: 12 U.S.C. 24 (Seventh), 93a, and 1818(n).

    Source: 61 FR 51781, Oct. 4, 1996, unless otherwise noted.



Sec. 2.1  Authority, purpose, and scope.

    (a) Authority. A national bank may provide credit life insurance to 
loan customers pursuant to 12 U.S.C. 24 (Seventh).
    (b) Purpose. The purpose of this part is to set forth the principles 
and standards that apply to a national bank's provision of credit life 
insurance and the limitations that apply to the receipt of income from 
those sales by certain individuals and entities associated with the 
bank.
    (c) Scope. This part applies to the provision of credit life 
insurance by any national bank employee, officer, director, or principal 
shareholder, and certain entities in which such persons own an interest 
of more than ten percent.



Sec. 2.2  Definitions.

    (a) Bank means a national banking association or a bank located in 
the District of Columbia and subject to the supervision of the 
Comptroller of the Currency.
    (b) Credit life insurance means credit life, health, and accident 
insurance, sometimes referred to as credit life and disability 
insurance, and mortgage life and disability insurance.
    (c) Owning an interest includes:
    (1) Ownership through a spouse or minor child;
    (2) Ownership through a broker, nominee, or other agent; or
    (3) Ownership through any corporation, partnership, association, 
joint venture, or proprietorship, that is controlled by the director, 
officer, employee, or principal shareholder of the bank.
    (d) Officer, director, employee, or principal shareholder includes 
the spouse and minor children of an officer, director, employee, or 
principal shareholder.
    (e) Principal shareholder means any shareholder who directly or 
indirectly owns or controls an interest of more than ten percent of the 
bank's outstanding voting securities.



Sec. 2.3  Distribution of credit life insurance income.

    (a) Distribution of credit life insurance income by a national bank 
must be consistent with the requirements and principles of this section.
    (b) It is an unsafe and unsound practice for any director, officer, 
employee, or principal shareholder of a national bank (including any 
entity in which this person owns an interest of more than ten percent), 
who is involved in the sale of credit life insurance to loan customers 
of the national bank, to take advantage of that business opportunity for 
personal profit. Recommendations to customers to buy insurance should be 
based on the benefits of the policy, not the commissions received from 
the sale.
    (c) Except as provided in Secs. 2.4 and 2.5(b), and paragraph (d) of 
this section, a director, officer, employee, or principal shareholder of 
a national bank, or an entity in which such person owns an interest of 
more than ten percent, may not retain commissions or other income from 
the sale of credit life insurance in connection with any loan made by 
that bank, and income from credit life insurance sales to loan customers 
must be credited to the income accounts of the bank.
    (d) The requirements of paragraph (c) of this section do not apply 
to a director, officer, employee, or principal shareholder if:
    (1) The person is employed by a third party that has contracted with 
the bank on an arm's-length basis to sell financial products on bank 
premises; and

[[Page 13]]

    (2) The person is not involved in the bank's credit decision 
process.



Sec. 2.4  Bonus and incentive plans.

    A bank employee or officer may participate in a bonus or incentive 
plan based on the sale of credit life insurance if payments to the 
employee or officer in any one year do not exceed the greater of:
    (a) Five percent of the recipient's annual salary; or
    (b) Five percent of the average salary of all loan officers 
participating in the plan.



Sec. 2.5  Bank compensation.

    (a) Nothing contained in this part prohibits a bank employee, 
officer, director, or principal shareholder who holds an insurance 
agent's license from agreeing to compensate the bank for the use of its 
premises, employees, or good will. However, the employee, officer, 
director, or principal shareholder shall turn over to the bank as 
compensation all income received from the sale of the credit life 
insurance to the bank's loan customers.
    (b) Income derived from credit life insurance sales to loan 
customers may be credited to an affiliate operating under the Bank 
Holding Company Act of 1956, 12 U.S.C. 1841 et seq., or to a trust for 
the benefit of all shareholders, provided that the bank receives 
reasonable compensation in recognition of the role played by its 
personnel, premises, and good will in credit life insurance sales. 
Reasonable compensation generally means an amount equivalent to at least 
20 percent of the affiliate's net income attributable to the bank's 
credit life insurance sales.



PART 3--MINIMUM CAPITAL RATIOS; ISSUANCE OF DIRECTIVES--Table of Contents




                  Subpart A--Authority and Definitions

Sec.
3.1  Authority.
3.2  Definitions.
3.3  Transitional rules.
3.4  Reservation of authority.

                    Subpart B--Minimum Capital Ratios

3.5  Applicability.
3.6  Minimum capital ratios.
3.7  Plan to achieve minimum capital ratios.
3.8  Reservation of authority.

  Subpart C--Establishment of Minimum Capital Ratios for an Individual 
                                  Bank

3.9  Purpose and scope.
3.10  Applicability.
3.11  Standards for determination of appropriate individual minimum 
          capital ratios.
3.12  Procedures.
3.13  Relation to other actions.

                         Subpart D--Enforcement

3.14  Remedies.

                   Subpart E--Issuance of a Directive

3.15  Purpose and scope.
3.16  Notice of intent to issue a directive.
3.17  Response to notice.
3.18  Decision.
3.19  Issuance of a directive.
3.20  Change in circumstances.
3.21  Relation to other administrative actions.

                             Interpretations

3.100  Capital and surplus.

Appendix A to Part 3--Risk-Based Capital Guidelines
Appendix B to Part 3--Risk-Based Capital Guidelines; Market Risk 
          Adjustment

    Authority: 12 U.S.C. 93a, 161, 1818, 1828(n), 1828 note, 1831n note, 
1835, 3907, and 3909.

    Source: 50 FR 10216, Mar. 14, 1985, unless otherwise noted.



                  Subpart A--Authority and Definitions



Sec. 3.1  Authority.

    This part is issued under the authority of 12 U.S.C. 1 et seq., 93a, 
161, 1818, 3907 and 3909.

[59 FR 64563, Dec. 15, 1994]



Sec. 3.2  Definitions.

    For the purposes of this part:
    (a) Adjusted total assets means the average total assets figure 
required to be computed for and stated in a bank's most recent quarterly 
Consolidated Report of Condition and Income (Call Report) minus end-of-
quarter intangible assets and deferred tax assets that are deducted from 
Tier 1 capital. The OCC reserves the right to require a bank to compute 
and maintain its capital ratios on the basis of actual, rather than

[[Page 14]]

average, total assets when necessary to carry out the purposes of this 
part.
    (b) Bank means a national banking association or District of 
Columbia Bank.
    (c) Tier 1 capital means Tier 1 capital as determined according to 
section 2 of appendix A of this part, including the deductions described 
therein.
    (d) Tier 2 capital means Tier 2 capital as determined according to 
section 2 of appendix A of this part, including the limitations 
described therein.
    (e) Total capital means Total capital as determined according to 
section 1(25) and section 2 of appendix A of this part, including the 
deductions described therein.

[55 FR 38800, Sept. 21, 1990, as amended at 60 FR 7907, Feb. 10, 1995]



Sec. 3.3  Transitional rules.

    Intangible assets, other than mortgage servicing rights, purchased 
prior to April 15, 1985, and accounted for in accordance with the 
instruction of the OCC, need not be deducted from Tier 1 capital until 
December 31, 1992. However, when combined with other qualifying 
intangible assets, these intangibles may not exceed 25 percent of Tier 1 
capital. After December 31, 1992, only those intangible assets that meet 
the criteria contained in section 2(c)(2) of appendix A will not be 
deducted from Tier 1 capital.

[55 FR 38800, Sept. 21, 1990]



Sec. 3.4  Reservation of authority.

    Notwithstanding the definitions of Tier 1 capital and Tier 2 capital 
in Sec. 3.2 (c) and (d), the OCC may find that a newly developed or 
modified capital instrument constitutes Tier 1 capital or Tier 2 
capital, and may permit one or more banks to include all or a portion of 
funds obtained through such capital instruments as Tier 1 or Tier 2 
capital, permanently or on a temporary basis, for the purposes of 
compliance with this part or for other purposes. Similarly, the OCC may 
fined that a particular intangible asset need not be deducted from Tier 
1 or Tier 2 capital. Conversely, the OCC may find that a particular 
intangible asset or Tier 1 or Tier 2 capital component has 
characteristics or terms that diminish its contribution to a bank's 
ability to absorb losses, and may require the deduction of this 
component from the computation of Tier 1 or Tier 2 capital.

[55 FR 38800, Sept. 21, 1990]



                    Subpart B--Minimum Capital Ratios



Sec. 3.5  Applicability.

    This subpart is applicable to all banks unless the Office 
determines, pursuant to the procedures set forth in subpart C, that 
different minimum capital ratios are appropriate for an individual bank 
based upon its particular circumstances, or unless different minimum 
capital ratios have been established or are established for an 
individual bank in a written agreement or a temporary or final order 
pursuant to 12 U.S.C. 1818 (b) or (c), or as a condition for approval of 
an application.



Sec. 3.6  Minimum capital ratios.

    (a) Risk-based capital ratio. All national banks must have and 
maintain the minimum risk-based capital ratio as set forth in appendix A 
(and, for certain banks, in appendix B).
    (b) Total assets leverage ratio. All national banks must have and 
maintain Tier 1 capital in an amount equal to at least 3.0 percent of 
adjusted total assets.
    (c) Additional leverage ratio requirement. An institution operating 
at or near the level in paragraph (b) of this section should have well-
diversified risks, including no undue interest rate risk exposure; 
excellent control systems; good earnings; high asset quality; high 
liquidity; and well managed on-and off-balance sheet activities; and in 
general be considered a strong banking organization, rated composite 1 
under the Uniform Financial Institutions Rating System (CAMELS) rating 
system of banks. For all but the most highly-rated banks meeting the 
conditions set forth in this paragraph (c), the minimum Tier 1 leverage 
ratio is 4

[[Page 15]]

percent. In all cases, banking institutions should hold capital 
commensurate with the level and nature of all risks.

[55 FR 38800, Sept. 21, 1990, as amended at 61 FR 47367, Sept. 6, 1996; 
64 FR 10199, Mar. 2, 1999]



Sec. 3.7  Plan to achieve minimum capital ratios.

    Effective December 31, 1990, any bank having capital ratios less 
than the minimums required under Sec. 3.6 (a) and (b) shall, within 60 
days, submit to the OCC a plan describing the means and schedule by 
which the bank shall achieve the applicable minimum capital ratios. The 
plan may be considered acceptable unless the bank is notified to the 
contrary by the OCC. A bank in compliance with an acceptable plan to 
achieve the applicable minimum capital ratios will not be deemed to be 
in violation of Sec. 3.6.

[55 FR 38800, Sept. 21, 1990]



Sec. 3.8  Reservation of authority.

    When, in the opinion of the Office the circumstances so require, a 
bank may be authorized to have less than the minimum capital ratios in 
Sec. 3.6 during a time period specified by the Office.



  Subpart C--Establishment of Minimum Capital Ratios for an Individual 
                                  Bank



Sec. 3.9  Purpose and scope.

    The rules and procedures specified in this subpart are applicable to 
a proceeding to establish required minimum capital ratios that would 
otherwise be applicable to a bank under Sec. 3.6. The OCC is authorized 
under 12 U.S.C. 3907 (a)(2) to establish such minimum capital 
requirements for a bank as the OCC, in its discretion, deems appropriate 
in light of the particular circumstances at that bank. Proceedings under 
this subpart also may be initiated to require a bank having capital 
ratios above those set forth in Sec. 3.6, or other legal authority to 
continue to maintain those higher ratios.

[55 FR 38800, Sept. 21, 1990]



Sec. 3.10  Applicability.

    The OCC may require higher minimum capital ratios for an individual 
bank in view of its circumstances. For example, higher capital ratios 
may be appropriate for:
    (a) A newly chartered bank;
    (b) A bank receiving special supervisory attention;
    (c) A bank that has, or is expected to have, losses resulting in 
capital inadequacy;
    (d) A bank with significant exposure due to the risks from 
concentrations of credit, certain risks arising from nontraditional 
activities, or management's overall inability to monitor and control 
financial and operating risks presented by concentrations of credit and 
nontraditional activities;
    (e) A bank with significant exposure to declines in the economic 
value of its capital due to changes in interest rates;
    (f) A bank with significant exposure due to fiduciary or operational 
risk;
    (g) A bank exposed to a high degree of asset depreciation, or a low 
level of liquid assets in relation to short term liabilities;
    (h) A bank exposed to a high volume or, or particularly severe, 
problem loans;
    (i) A bank that is growing rapidly, either internally or through 
acquisitions; or
    (j) A bank that may be adversely affected by the activities or 
condition of its holding company, affiliate(s), or other persons or 
institutions including chain banking organizations, with which it has 
significant business relationships.

[60 FR 39493, Aug. 2, 1995]



Sec. 3.11  Standards for determination of appropriate individual minimum capital ratios.

    The appropriate minimum capital ratios for an individual bank cannot 
be determined solely through the application of a rigid mathematical 
formula or wholly objective criteria. The decision is necessarily based 
in part on subjective judgment grounded in agency expertise. The factors 
to be considered in the determination will vary in each case and may 
include, for example:

[[Page 16]]

    (a) The conditions or circumstances leading to the Office's 
determination that higher minimum capital ratios are appropriate or 
necessary for the bank;
    (b) The exigency of those circumstances or potential problems;
    (c) The overall condition, management strength, and future prospects 
of the bank and, if applicable, its holding company and/or affiliate(s);
    (d) The bank's liquidity, capital, risk asset and other ratios 
compared to the ratios of its peer group; and
    (e) The views of the bank's directors and senior management.



Sec. 3.12  Procedures.

    (a) Notice. When the OCC determines that minimum capital ratios 
above those set forth in Sec. 3.6 or other legal authority are necessary 
or appropriate for a particular bank, the OCC will notify the bank in 
writing of the proposed minimum capital ratios and the date by which 
they should be reached (if applicable) and will provide an explanation 
of why the ratios proposed are considered necessary or appropriate for 
the bank.
    (b) Response. (1) The bank may respond to any or all of the items in 
the notice. The response should include any matters which the bank would 
have the Office consider in deciding whether individual minimum capital 
ratios should be established for the bank, what those capital ratios 
should be, and, if applicable, when they should be achieved. The 
response must be in writing and delivered to the designated OCC official 
within 30 days after the date on which the bank received the notice. The 
Office may shorten the time period when, in the opinion of the Office, 
the condition of the bank so requires, provided that the bank is 
informed promptly of the new time period, or with the consent of the 
bank. In its discretion, the Office may extend the time period for good 
cause.
    (2) Failure to respond within 30 days or such other time period as 
may be specified by the Office shall constitute a waiver of any 
objections to the proposed minimum capital ratios or the deadline for 
their achievement.
    (c) Decision. After the close of the bank's response period, the 
Office will decide, based on a review of the bank's response and other 
information concerning the bank, whether individual minimum capital 
ratios should be established for the bank and, if so, the ratios and the 
date the requirements will become effective. The bank will be notified 
of the decision in writing. The notice will include an explanation of 
the decision, except for a decision not to establish individual minimum 
capital requirements for the bank.
    (d) Submission of plan. The decision may require the bank to develop 
and submit to the Office, within a time period specified, an acceptable 
plan to reach the minimum capital ratios established for the bank by the 
date required.
    (e) Change in circumstances. If, after the Office's decision in 
paragraph (c) of this section, there is a change in the circumstances 
affecting the bank's capital adequacy or its ability to reach the 
required minimum capital ratios by the specified date, either the bank 
or the Office may propose to the other a change in the minimum capital 
ratios for the bank, the date when the minimums must be achieved, or the 
bank's plan (if applicable). The Office may decline to consider 
proposals that are not based on a significant change in circumstances or 
are repetitive or frivolous. Pending a decision on reconsideration, the 
Office's original decision and any plan required under that decision 
shall continue in full force and effect.

[50 FR 10216, Mar. 14, 1985, as amended at 55 FR 38800, Sept. 21, 1990]



Sec. 3.13  Relation to other actions.

    In lieu of, or in addition to, the procedures in this subpart, the 
required minimum capital ratios for a bank may be established or revised 
through a written agreement or cease and desist proceedings under 12 
U.S.C. 1818 (b) or (c) (12 CFR 19.0 through 19.21), or as a condition 
for approval of an application.



                         Subpart D--Enforcement



Sec. 3.14  Remedies.

    A bank that does not have or maintain the minimum capital ratios 
applicable to it, whether required in subpart

[[Page 17]]

B of this part, in a decision pursuant to subpart C of this part, in a 
written agreement or temporary or final order under 12 U.S.C. 1818 (b) 
or (c), or in a condition for approval of an application, or a bank that 
has failed to submit or comply with an acceptable plan to attain those 
ratios, will be subject to such administrative action or sanctions as 
the OCC considers appropriate. These sanctions may include the issuance 
of a Directive pursuant to subpart E of this part or other enforcement 
action, assessment of civil money penalties, and/or the denial, 
conditioning, or revocation of applications. A national bank's failure 
to achieve or maintain minimum capital ratios in Sec. 3.6 (a) or (b) may 
also be the basis for an action by the Federal Deposit Insurance 
Corporation to terminate federal deposit insurance. See 12 CFR 325.4.

[55 FR 38801, Sept. 21, 1990]



                   Subpart E--Issuance of a Directive



Sec. 3.15  Purpose and scope.

    This subpart is applicable to proceedings by the Office to issue a 
directive under 12 U.S.C. 3907(b)(2). A directive is an order issued to 
a bank that does not have or maintain capital at or above the minimum 
ratios set forth in Sec. 3.6, or established for the bank under subpart 
C, by a written agreement under 12 U.S.C. 1818(b), or as a condition for 
approval of an application. A directive may order the bank to:
    (a) Achieve the minimum capital ratios applicable to it by a 
specified date;
    (b) Adhere to a previously submitted plan to achieve the applicable 
capital ratios;
    (c) Submit and adhere to a plan acceptable to the Office describing 
the means and time schedule by which the bank shall achieve the 
applicable capital ratios;
    (d) Take other action, such as reduction of assets or the rate of 
growth of assets, or restrictions on the payment of dividends, to 
achieve the applicable capital ratios; or
    (e) A combination of any of these or similar actions.

A directive issued under this rule, including a plan submitted under a 
directive, is enforceable in the same manner and to the same extent as 
an effective and outstanding cease and desist order which has become 
final as defined in 12 U.S.C. 1818(k). Violation of a directive may 
result in assessment of civil money penalties in accordance with 12 
U.S.C. 3909(d).



Sec. 3.16  Notice of intent to issue a directive.

    The Office will notify a bank in writing of its intention to issue a 
directive. The notice will state:
    (a) Reasons for issuance of the directive; and
    (b) The proposed contents of the directive.



Sec. 3.17  Response to notice.

    (a) A bank may respond to the notice by stating why a directive 
should not be issued and/or by proposing alternative contents for the 
directive. The response should include any matters which the bank would 
have the Office consider in deciding whether to issue a directive and/or 
what the contents of the directive should be. The response may include a 
plan for achieving the minimum capital ratios applicable to the bank. 
The response must be in writing and delivered to the designated OCC 
official within 30 days after the date on which the bank received the 
notice. The Office may shorten the 30-day time period:
    (1) When, in the opinion of the Office, the condition of the bank so 
requires, provided that the bank shall be informed promptly of the new 
time period;
    (2) With the consent of the bank; or
    (3) When the bank already has advised the Office that it cannot or 
will not achieve its applicable minimum capital ratios. In its 
discretion, the Office may extend the time period for good cause.
    (b) Failure to respond within 30 days or such other time period as 
may be specified by the Office shall constitute a waiver of any 
objections to the proposed directive.



Sec. 3.18  Decision.

    After the closing date of the bank's response period, or receipt of 
the bank's response, if earlier, the Office will consider the bank's 
response, and

[[Page 18]]

may seek additional information or clarification of the response. 
Thereafter, the Office will determine whether or not to issue a 
directive, and if one is to be issued, whether it should be as 
originally proposed or in modified form.



Sec. 3.19  Issuance of a directive.

    (a) A directive will be served by delivery to the bank. It will 
include or be accompanied by a statement of reasons for its issuance.
    (b) A directive is effective immediately upon its receipt by the 
bank, or upon such later date as may be specified therein, and shall 
remain effective and enforceable until it is stayed, modified, or 
terminated by the Office.



Sec. 3.20  Change in circumstances.

    Upon a change in circumstances, a bank may request the Office to 
reconsider the terms of its directive or may propose changes in the plan 
to achieve the bank's applicable minimum capital ratios. The Office also 
may take such action on its own motion. The Office may decline to 
consider requests or proposals that are not based on a significant 
change in circumstances or are repetitive or frivolous. Pending a 
decision on reconsideration, the directive and plan shall continue in 
full force and effect.



Sec. 3.21  Relation to other administrative actions.

    A directive may be issued in addition to, or in lieu of, any other 
action authorized by law, including cease and desist proceedings, civil 
money penalties, or the conditioning or denial of applications. The 
Office also may, in its discretion, take any action authorized by law, 
in lieu of a directive, in response to a bank's failure to achieve or 
maintain the applicable minimum capital ratios.

                             Interpretations



Sec. 3.100  Capital and surplus.

    For purposes of determining statutory limits that are based on the 
amount of bank's capital and/or surplus, the provisions of this section 
are to be used, rather than the definitions of capital contained in 
Sec. 3.2.
    (a) Capital. The term capital as used in provisions of law relating 
to the capital of national banking associations shall include the amount 
of common stock outstanding and unimpaired plus the amount of perpetual 
preferred stock outstanding and unimpaired.
    (b) Capital Stock. The term capital stock as used in provisions of 
law relating to the capital stock of national banking associations, 
other than 12 U.S.C. 101, 177 and 178, shall have the same meaning as 
the term capital set forth in paragraph (a) of this section.
    (c) Surplus. The term surplus as used in provisions of law relating 
to the surplus of national banking associations means the sum of 
paragraphs (c) (1), (2), (3) and (4) of this section:
    (1) Capital surplus; undivided profits; reserves for contingencies 
and other capital reserves (excluding accrued dividends on perpetual and 
limited life preferred stock); net worth certificates issued pursuant to 
12 U.S.C. 1823(i); minority interests in consolidated subsidiaries; and 
allowances for loan and lease losses; minus intangible assets;
    (2) Mortgage servicing assets;
    (3) Mandatory convertible debt to the extent of 20% of the sum of 
paragraphs (a) and (c) (1) and (2) of this section;
    (4) Other mandatory convertible debt, limited life preferred stock 
and subordinated notes and debentures to the extent set forth in 
paragraph (f)(2) of this section.
    (d) Unimpaired Surplus Fund. The term unimpaired surplus fund as 
used in provisions of law relating to the unimpaired surplus fund of 
national banking associations shall have the same meaning as the term 
surplus set forth in paragraph (c) of this section.
    (e) Definitions. (1) Allowance for loan and lease losses means the 
balance of the valuation reserve on December 31, 1968, plus additions to 
the reserve charged to operations since that date, less losses charged 
against the allowance net of recoveries.
    (2) Capital surplus means the total of those accounts reflecting:
    (i) Amounts paid in in excess of the par or stated value of capital 
stock;
    (ii) Amounts contributed to the bank other than for capital stock;

[[Page 19]]

    (iii) amounts transferred from undivided profits pursuant to 12 
U.S.C. 60; and
    (iv) Other amounts transferred from undivided profits.
    (3) Intangible assets means those purchased assets that are to be 
reported as intangible assets in accordance with the Instructions--
Consolidated Reports of Condition and Income (Call Report).
    (4) Limited Life preferred stock means preferred stock which has a 
maturity or which may be redeemed at the option of the holder.
    (5) Mandatory convertible debt means subordinated debt instruments 
which unqualifiedly require the issuer to exchange either common or 
perpetual preferred stock for such instruments by a date at or before 
the maturity of the instrument. The maturity of these instruments must 
be 12 years or less. In addition, the instrument must meet the 
requirements of paragraphs (f)(1)(i) through (v) of this section for 
subordinated notes and debentures or other requirements published by the 
OCC.
    (6) Minority interest in consolidated subsidiaries means the portion 
of equity capital accounts of all consolidated subsidiaries of the bank 
that is allocated to minority shareholders of such subsidiaries.
    (7) Mortgage servicing assets means the bank-owned rights to service 
for a fee mortgage loans that are owned by others.
    (8) Perpetual preferred stock means preferred stock that does not 
have a stated maturity date and cannot be redeemed at the option of the 
holder.
    (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.
    (2) Restrictions. The total amount of mandatory convertible debt not 
included in paragraph (c)(3) of this section, limited life preferred 
stock, and subordinated notes and debentures considered as surplus is 
limited to 50 percent of the sum of paragraphs (a) and (c) (1), (2) and 
(3) of this section.
    (3) Reservation of authority. The OCC expressly reserves the 
authority to waive the requirements and restrictions set forth in 
paragraphs (f) (1) and (2) of this section, in order to allow the 
inclusion of other limited life preferred stock, mandatory convertible 
notes and subordinated notes and debentures in the capital base of any 
national bank for capital adequacy purposes or for purposes of 
determining statutory limits. The OCC further expressly reserves the 
authority to impose more stringent conditions than those set forth in 
paragraphs (f) (1) and (2) of this section to exclude any component of 
Tier 1 or Tier 2 capital, in whole or in part, as part of a national 
bank's capital and surplus for any purpose.
    (g) Transitional rules. (1) Equity commitment notes approved by the 
OCC as capital and issued prior to April 15, 1985, may continue to be 
included in paragraph (c)(3) of this section. All other instruments 
approved by the OCC as capital and issued prior to April 15, 1985, are 
to be included in paragraph (c)(4) of this section.
    (2) Intangible assets (other than mortgage servicing assets) 
purchased prior to April 15, 1985, and accounted for in accordance with 
OCC instructions, may continue to be included as

[[Page 20]]

surplus up to 25% of the sum of paragraphs (a) and (c)(1) of this 
section.

(Approved by the Office of Management and Budget under control number 
1557-0166)

[50 FR 10216, Mar. 14, 1985, as amended at 55 FR 38801, Sept. 21, 1990; 
60 FR 39229, Aug. 1, 1995; 61 FR 60363, Nov. 27, 1996; 63 FR 42674, Aug. 
10, 1998]

           Appendix A to Part 3--Risk-Based Capital Guidelines

    Section 1. Purpose, Applicability of Guidelines, and Definitions.

    (a) Purpose. (1) An important function of the Office of the 
Comptroller of the Currency (OCC) is to evaluate the adequacy of capital 
maintained by each national bank. Such an evaluation involves the 
consideration of numerous factors, including the riskiness of a bank's 
assets and off-balance sheet items. This appendix A implements the OCC's 
risk-based capital guidelines. The risk-based capital ratio derived from 
those guidelines is more systematically sensitive to the credit risk 
associated with various bank activities than is a capital ratio based 
strictly on a bank's total balance sheet assets. A bank's risk-based 
capital ratio is obtained by dividing its capital base (as defined in 
section 2 of this appendix A) by its risk-weighted assets (as calculated 
pursuant to section 3 of this appendix A). These guidelines were created 
within the framework established by the report issued by the Committee 
on Banking Regulations and Supervisory Practices in July 1988. The OCC 
believes that the risk-based capital ratio is a useful tool in 
evaluating the capital adequacy of all national banks, not just those 
that are active in the international banking system.
    (2) The purpose of this appendix A is to explain precisely (i) how a 
national bank's risk-based capital ratio is determined and (ii) how 
these risk-based capital guidelines are applied to national banks. The 
OCC will review these guidelines periodically for possible adjustments 
commensurate with its experience with the risk-based capital ratio and 
with changes in the economy, financial markets and domestic and 
international banking practices.
    (b) Applicability. (1) The risk-based capital ratio derived from 
these guidelines is an important factor in the OCC's evaluation of a 
bank's capital adequacy. However, since this measure addresses only 
credit risk, the 8% minimum ratio should not be viewed as the level to 
be targeted, but rather as a floor. The final supervisory judgment on a 
bank's capital adequacy is based on an individualized assessment of 
numerous factors, including those listed in 12 CFR 3.10. With respect to 
the consideration of these factors, the OCC will give particular 
attention to any bank with significant exposure to declines in the 
economic value of its capital due to changes in interest rates. As a 
result, it may differ from the conclusion drawn from an isolated 
comparison of a bank's risk-based capital ration to the 8% minimum 
specified in these guidelines. In addition to the standards established 
by these risk-based capital guidelines, all national banks must maintain 
a minimum capital-to-total assets ratio in accordance with the 
provisions of 12 CFR part 3.
    (2) Effective December 31, 1990, these risk-based capital guidelines 
will apply to all national banks. In the interim, banks must maintain 
minimum capital-to-total assets ratios as required by 12 CFR part 3, and 
should begin preparing for the implementation of these risk-based 
capital guidelines. In this regard, each national bank that does not 
currently meet the final minimum ratio established in section 4(b)(1) of 
this appendix A should begin planning for achieving that standard.
    (3) These risk-based capital guidelines will not be applied to 
federal branches and agencies of foreign banks.
    (c) Definitions. For purposes of this appendix A, the following 
definitions apply:
    (1) Allowances for loan and lease losses means the balance of the 
valuation reserve on December 31, 1968, plus additions to the reserve 
charged to operations since that date, less losses charged against the 
allowance net of recoveries.
    (2) Associated company means any corporation, partnership, business 
trust, joint venture, association or similar organization in which a 
national bank directly or indirectly holds a 20 to 50 percent ownership 
interest.
    (3) Banking and finance subsidiary means any subsidiary of a 
national bank that engages in banking- and finance-related activities.
    (4) Cash items in the process of collection means checks or drafts 
in the process of collection that are drawn on another depository 
institution, including a central bank, and that are payable immediately 
upon presentation in the country in which the reporting bank's office 
that is clearing or collecting the check or draft is located; U.S. 
Government checks that are drawn on the United States Treasury or any 
other U.S. Government or Government-sponsored agency and that are 
payable immediately upon presentation; broker's security drafts and 
commodity or bill-of-lading drafts payable immediately upon presentation 
in the United States or the country in which the reporting bank's office 
that is handling the drafts is located; and unposted debits.
    (5) Central government means the national governing authority of a 
country; it includes the departments, ministries and agencies of the 
central government and the central bank. The U.S. Central Bank includes 
the 12

[[Page 21]]

Federal Reserve Banks. The definition of central government does not 
include the following: State, provincial, or local governments; 
commercial enterprises owned by the central government, which are 
entities engaged in activities involving trade, commerce, or profit that 
are generally conducted or performed in the private sector of the United 
States economy; and non-central government entities whose obligations 
are guaranteed by the central government.
    (6) Commitment means any arrangement that obligates a national bank 
to: (i) Purchase loans or securities; or (ii) extend credit in the form 
of loans or leases, participations in loans or leases, overdraft 
facilities, revolving credit facilities, or similar transactions.
    (7) Common stockholders' equity means common stock, common stock 
surplus, undivided profits, capital reserves, and adjustments for the 
cumulative effect of foreign currency translation, less net unrealized 
holding losses on available-for-sale equity securities with readily 
determinable fair values.
    (8) Conditional guarantee means a contingent obligation of the 
United States Government or its agencies, or the central government of 
an OECD country, the validity of which to the beneficiary is dependent 
upon some affirmative action--e.g., servicing requirements--on the part 
of the beneficiary of the guarantee or a third party.
    (9) Deferred tax assets means the tax consequences attributable to 
tax carryforwards and deductible temporary differences. Tax 
carryforwards are deductions or credits that cannot be used for tax 
purposes during the current period, but can be carried forward to reduce 
taxable income or taxes payable in a future period or periods. Temporary 
differences are financial events or transactions that are recognized in 
one period for financial statement purposes, but are recognized in 
another period or periods for income tax purposes. Deductible temporary 
differences are temporary differences that result in a reduction of 
taxable income in a future period or periods.
    (10) Derivative contract means generally a financial contract whose 
value is derived from the values of one or more underlying assets, 
reference rates or indexes of asset values. Derivative contracts include 
interest rate, foreign exchange rate, equity, precious metals and 
commodity contracts, or any other instrument that poses similar credit 
risks.
    (11) Depository institution means a financial institution that 
engages in the business of banking; that is recognized as a bank by the 
bank supervisory or monetary authorities of the country of its 
incorporation and the country of its principal banking operations; that 
receives deposits to a substantial extent in the regular course of 
business; and that has the power to accept demand deposits. In the U.S., 
this definition encompasses all federally insured offices of commercial 
banks, mutual and stock savings banks, savings or building and loan 
associations (stock and mutual), cooperative banks, credit unions, and 
international banking facilities of domestic depository institution. 
Bank holding companies are excluded from this definition. For the 
purposes of assigning risk weights, the differentiation between OECD 
depository institutions and non-OECD depository institutions is based on 
the country of incorporation. Claims on branches and agencies of foreign 
banks located in the United States are to be categorized on the basis of 
the parent bank's country of incorporation.
    (12) Exchange rate contracts include: Cross-currency interest rate 
swaps; forward foreign exchange rate contracts; currency options 
purchased; and any similar instrument that, in the opinion of the OCC, 
gives rise to similar risks.
    (13) Goodwill means an intangible asset that represents the excess 
of the purchase price over the fair market value of tangible and 
identifiable intangible assets acquired in purchases accounted for under 
the purchase method of accounting.
    (14) Intangible assets include mortgage and non-mortgage servicing 
assets (but exclude any interest only (IO) strips receivable related to 
these mortgage and nonmortgage servicing assets), purchased credit card 
relationships, goodwill, favorable leaseholds, and core deposit value.
    (15) Interest rate contracts include: Single currency interest rate 
swaps; basis swaps; forward rate agreements; interest rate options 
purchased; forward forward deposits accepted; and any similar instrument 
that, in the opinion of the OCC, gives rise to similar risks, including 
when-issued securities.
    (16) Multifamily residential property means any residential property 
consisting of five or more dwelling units including apartment buildings, 
condominiums, cooperatives, and other similar structures primarily for 
residential use, but not including hospitals, nursing homes, or other 
similar facilities.
    (17) The OECD-based group of countries comprises all full members of 
the Organization for Economic Cooperation and Development (OECD) 
regardless of entry date, as well as countries that have concluded 
special lending arrangements with the International Monetary Fund (IMF) 
associated with the IMF's General Arrangements to Borrow,1 
but

[[Page 22]]

excludes any country that has rescheduled its external sovereign debt 
within the previous five years. These countries are hereinafter referred 
to as OECD countries. A rescheduling of external sovereign debt 
generally would include any renegotiation of terms arising from a 
country's inability or unwillingness to meet its external debt service 
obligations, but generally would not include renegotiations of debt in 
the normal course of business, such as a renegotiation to allow the 
borrower to take advantage of a decline in interest rates or other 
change in market conditions.
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    \1\ As of November 1995, the OECD included the following countries: 
Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, 
Greece, Iceland, Ireland, Italy, Japan, Luxembourg, Mexico, the 
Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, 
Turkey, the United Kingdom, and the United States; and Saudi Arabia had 
concluded special lending arrangements with the IMF associated with the 
IMF's General Arrangements to Borrow.
---------------------------------------------------------------------------

    (18) Original maturity means, with respect to a commitment, the 
earliest possible date after a commitment is made on which the 
commitment is scheduled to expire (i.e., it will reach its stated 
maturity and cease to be binding on either party), provided that either:
    (i) The commitment is not subject to extension or renewal and will 
actually expire on its stated expiration date; or
    (ii) If the commitment is subject to extension or renewal beyond its 
stated expiration date, the stated expiration date will be deemed the 
original maturity only if the extension or renewal must be based upon 
terms and conditions independently negotiated in good faith with the 
customer at the time of the extension or renewal and upon a new, bona 
fide credit analysis utilizing current information on financial 
condition and trends.
    (19) Preferred stock includes the following instruments: (i) 
Convertible preferred stock, which means preferred stock that is 
mandatorily convertible into either common or perpetual preferred stock; 
(ii) Intermediate-term preferred stock, which means preferred stock with 
an original maturity of at least five years, but less than 20 years; 
(iii) Long-term preferred stock, which means preferred stock with an 
original maturity of 20 years or more; and (iv) Perpetual preferred 
stock, which means preferred stock without a fixed maturity date that 
cannot be redeemed at the option of the holder, and that has no other 
provisions that will require future redemption of the issue. For 
purposes of these instruments, preferred stock that can be redeemed at 
the option of the holder is deemed to have an original maturity of the 
earliest possible date on which it may be so redeemed.
    (20) Public-sector entities include states, local authorities and 
governmental subdivisions below the central government level in an OECD 
country. In the United States, this definition encompasses a state, 
county, city, town, or other municipal corporation, a public authority, 
and generally any publicly-owned entity that is an instrumentality of a 
state or municipal corporation. This definition does not include 
commercial companies owned by the public sector.1a
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    \1a\ See Definition (5), Central government, for further explanation 
of commercial companies owned by the public sector.
---------------------------------------------------------------------------

    (21) Reciprocal holdings of bank capital instruments means cross-
holdings or other formal or informal arrangements in which two or more 
banking organizations swap, exchange, or otherwise agree to hold each 
other's capital instruments. This definition does not include holdings 
of capital instruments issued by other banking organizations that were 
taken in satisfaction of debts previously contracted, provided that the 
reporting national bank has not held such instruments for more than five 
years or a longer period approved by the OCC.
    (22) Replacement cost means, with respect to interest rate and 
exchange rate contracts, the loss that would be incurred in the event of 
a counterparty default, as measured by the net cost of replacing the 
contract at the current market value. If default would result in a 
theoretical profit, the replacement value is considered to be zero. The 
mark-to-market process should incorporate changes in both interest rates 
and counterparty credit quality.
    (23) Residential properties means houses, condominiums, cooperative 
units, and manufactured homes. This definition does not include boats or 
motor homes, even if used as a primary residence.
    (24) Risk-weighted assets means the sum of total risk-weighted 
balance sheet assets and the total of risk-weighted off-balance sheet 
credit equivalent amounts. Risk-weighted balance sheet and off-balance 
sheet assets are calculated in accordance with section 3 of this 
appendix A.
    (25) State means any one of the several states of the United States 
of America, the District of Columbia, Puerto Rico, and the territories 
and possessions of the United States.
    (26) Subsidiary means any corporation, partnership, business trust, 
joint venture, association or similar organization in which a national 
bank directly or indirectly holds more than a 50% ownership interest. 
This definition does not include ownership interests that were taken in 
satisfaction of debts previously contracted, provided that the reporting 
bank has not held the interest for more than five years or a longer 
period approved by the OCC.
    (27) Total capital means the sum of a national bank's core (Tier 1) 
and qualifying supplementary (Tier 2) capital elements.

[[Page 23]]

    (28) Unconditionally cancelable means, with respect to a commitment-
type lending arrangement, that the bank may, at any time, with or 
without cause, refuse to advance funds or extend credit under the 
facility. In the case of home equity lines of credit, the bank is deemed 
able to unconditionally cancel the commitment if it can, at its option, 
prohibit additional extensions of credit, reduce the line, and terminate 
the commitment to the full extent permitted by relevant Federal law.
    (29) United States Government or its agencies means an 
instrumentality of the U.S. Government whose debt obligations are fully 
and explicitly guaranteed as to the timely payment of principal and 
interest by the full faith and credit of the United States Government.
    (30) United States Government-sponsored agency means an agency 
originally established or chartered to serve public purposes specified 
by the United States Congress, but whose obligations are not explicitly 
guaranteed by the full faith and credit of the United States Government.
    (31) Walkaway clause means a provision in a bilateral netting 
contract that permits a nondefaulting counterparty to make a lower 
payment than it would make otherwise under the bilateral netting 
contract, or no payment at all, to a defaulter or the estate of a 
defaulter, even if the defaulter or the estate of the defaulter is a net 
creditor under the bilateral netting contract.

                    Section 2. Components of Capital.

    A national bank's qualifying capital base consists of two types of 
capital--core (Tier 1) and supplementary (Tier 2).
    (a) Tier 1 Capital. The following elements comprise a national 
bank's Tier 1 capital:
    (1) Common stockholders' equity;
    (2) Noncumulative perpetual preferred stock and related surplus; and 
\2\
---------------------------------------------------------------------------

    \2\ Preferred stock issues where the dividend is reset periodically 
based upon current market conditions and the bank's current credit 
rating, including but not limited to, auction rate, money market or 
remarketable preferred stock, are assigned to Tier 2 capital, regardless 
of whether the dividends are cumulative or noncumulative.
---------------------------------------------------------------------------

    (3) Minority interests in the equity accounts of consolidated 
subsidiaries.
    (b) Tier 2 Capital. The following elements comprise a national 
bank's Tier 2 capital:
    (1) Allowance for loan and lease losses, up to a maximum of 1.25% of 
risk-weighted assets,\3\ subject to the transition rules in section 
4(a)(2) of this appendix A;
---------------------------------------------------------------------------

    \3\ The amount of the allowance for loan and lease losses that may 
be included in capital is based on a percentage of risk-weighted assets. 
The gross sum of risk-weighted assets used in this calculation includes 
all risk-weighted assets, with the exception of the assets required to 
be deducted under section 3 in establishing risk-weighted assets (i.e., 
the assets required to be deducted from capital under section 2(c)) of 
this appendix. A banking organization may deduct reserves for loan and 
lease losses in excess of the amount permitted to be included as 
capital, as well as allocated transfer risk reserves and reserves held 
against other real estate owned, from the gross sum of risk-weighted 
assets in computing the denominator of the risk-based capital ratio.
---------------------------------------------------------------------------

    (2) Cumulative perpetual preferred stock, long-term preferred stock, 
convertible preferred stock, and any related surplus, without limit, if 
the issuing national bank has the option to defer payment of dividends 
on these instruments. For long-term preferred stock, the amount that is 
eligible to be included as Tier 2 capital is reduced by 20% of the 
original amount of the instrument (net of redemptions) at the beginning 
of each of the last five years of the life of the instrument;
    (3) Hybrid capital instruments, without limit. Hybrid capital 
instruments are those instruments that combine certain characteristics 
of debt and equity, such as perpetual debt. To be included as Tier 2 
capital, these instruments must meet the following criteria: \4\
---------------------------------------------------------------------------

    \4\ Mandatory convertible debt instruments that meet the 
requirements of 12 CFR 3.100(e)(5), or that have been previously 
approved as capital by the OCC, are treated as qualifying hybrid capital 
instruments.
---------------------------------------------------------------------------

    (i) The instrument must be unsecured, subordinated to the claims of 
depositors and general creditors, and fully paid-up;
    (ii) The instrument must not be redeemable at the option of the 
holder prior to maturity, except with the prior approval of the OCC;
    (iii) The instrument must be available to participate in losses 
while the issuer is operating as a going concern (in this regard, the 
instrument must automatically convert to common stock or perpetual 
preferred stock, if the sum of the retained earnings and capital surplus 
accounts of the issuer shows a negative balance); and
    (iv) The instrument must provide the option for the issuer to defer 
principal and interest payments, if
    (A) The issuer does not report a net profit for the most recent 
combined four quarters, and
    (B) The issuer eliminates cash dividends on its common and preferred 
stock.
    (4) Term subordinated debt instruments, and intermediate-term 
preferred stock and related surplus are included in Tier 2 capital,

[[Page 24]]

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).
---------------------------------------------------------------------------

    \5\ [Reserved]
    \6\ [Reserved]
---------------------------------------------------------------------------

    (5) Up to 45 percent of the pretax net unrealized holding gains 
(that is, the excess, if any, of the fair value over historical cost) on 
available-for-sale equity securities with readily determinable fair 
values.5 Unrealized gains (losses) on other types of assets, 
such as bank premises and available-for-sale debt securities, are not 
included in Tier 2 capital, but the OCC may take these unrealized gains 
(losses) into account as additional factors when assessing a bank's 
overall capital adequacy.
---------------------------------------------------------------------------

    \5\ The OCC reserves the authority to exclude all or a portion of 
unrealized gains from Tier 2 capital if the OCC determines that the 
equity securities are not prudently valued.
---------------------------------------------------------------------------

    (c) Deductions from Capital. The following items are deducted from 
the appropriate portion of a national bank's capital base when 
calculating its risk-based capital ratio:
    (1) Deductions from Tier 1 Capital. The following items are deducted 
from Tier 1 capital before the Tier 2 portion of the calculation is 
made:
    (i) Goodwill;
    (ii) Other intangible assets, except as provided in section 2(c)(2) 
of this appendix A; and
    (iii) Deferred tax assets, except as provided in section 2(c)(3) of 
this appendix A, that are dependent upon future taxable income, which 
exceed the lesser of either:
    (A) The amount of deferred tax assets that the bank could reasonably 
expect to realize within one year of the quarter-end Call Report, based 
on its estimate of future taxable income for that year; or
    (B) 10% of Tier 1 capital, net of goodwill and all intangible assets 
other than mortgage servicing assets, non-mortgage servicing assets, and 
purchased credit card relationships, and before any disallowed deferred 
tax assets are deducted.
    (2) Qualifying intangible assets. Subject to the following 
conditions, mortgage servicing assets, nonmortgage servicing assets 
6 and purchased credit card relationships need not be 
deducted from Tier 1 capital:
---------------------------------------------------------------------------

    \6\ Intangible assets are defined to exclude any IO strips 
receivable related to these mortgage and non-mortgage servicing assets. 
See section 1(c)(14) of this appendix A. Consequently, IO strips 
receivable related to mortgage and non-mortgage servicing assets are not 
required to be deducted under section 2(c)(2) of this appendix A. 
However, these IO strips receivable are subject to a 100 percent risk 
weight under section 3(a)(4) of this appendix A.
---------------------------------------------------------------------------

    (i) The total of all intangible assets that are included in Tier 1 
capital is limited to 100 percent of Tier 1 capital, of which no more 
than 25 percent of Tier 1 capital can consist of purchased credit card 
relationships and non-mortgage servicing assets in the aggregate. 
Calculation of these limitations must be based on Tier 1 capital net of 
goodwill and all identifiable intangible assets, other than mortgage 
servicing assets, nonmortgage servicing assets and purchased credit card 
relationships.
    (ii) Banks must value each intangible asset included in Tier 1 
capital at least quarterly at the lesser of:
    (A) 90 percent of the fair value of each intangible asset, 
determined in accordance with section 2(c)(2)(iii) of this appendix A; 
or
    (B) 100 percent of the remaining unamortized book value.
    (iii) The quarterly determination of the current fair value of the 
intangible asset must include adjustments for any significant changes in 
original valuation assumptions, including changes in prepayment 
estimates.
    (iv) Banks may elect to deduct disallowed servicing assets on a 
basis that is net of any associated deferred tax liability. Deferred tax 
liabilities netted in this manner cannot also be netted against deferred 
tax assets when determining the amount of deferred tax assets that are 
dependent upon future taxable income.
    (3) Deferred tax assets--(i) Net unrealized gains and losses on 
available-for-sale securities. Before calculating the amount of deferred 
tax assets subject to the limit in section 2(c)(1)(iii) of this appendix 
A, a bank may eliminate the deferred tax effects of any net unrealized 
holding gains and losses on available-for-sale debt securities. Banks 
report these net unrealized holding gains and losses in their Call 
Reports as a separate component of equity capital, but exclude them from 
the definition of common stockholders' equity for regulatory capital 
purposes. A bank that adopts a policy to deduct these amounts must apply 
that approach consistently in all future calculations of the

[[Page 25]]

amount of disallowed deferred tax assets under section 2(c)(1)(iii) of 
this appendix A.
    (ii) Consolidated groups. The amount of deferred tax assets that a 
bank can realize from taxes paid in prior carryback years and from 
reversals of existing taxable temporary differences generally would not 
be deducted from capital. However, for a bank that is a member of a 
consolidated group (for tax purposes), the amount of carryback potential 
a bank may consider in calculating the limit on deferred tax assets 
under section 2(c)(1)(iii) of this appendix A, may not exceed the amount 
that the bank could reasonably expect to have refunded by its parent 
holding company.
    (iii) Nontaxable Purchase Business Combination. In calculating the 
amount of net deferred tax assets under section 2(c)(1)(iii) of this 
appendix A, a deferred tax liability that is specifically associated 
with an intangible asset (other than purchased mortgage servicing rights 
and purchased credit card relationships) due to a nontaxable purchase 
business combination may be netted against that intangible asset. Only 
the net amount of the intangible asset must be deducted from Tier 1 
capital. Deferred tax liabilities netted in this manner cannot also be 
netted against deferred tax assets when determining the amount of net 
deferred tax assets that are dependent upon future taxable income.
    (iv) Estimated future taxable income. Estimated future taxable 
income does not include net operating loss carryforwards to be used 
during that year or the amount of existing temporary differences 
expected to reverse within the year. A bank may use future taxable 
income projections for their closest fiscal year, provided it adjusts 
the projections for any significant changes that occur or that it 
expects to occur. Such projections must include the estimated effect of 
tax planning strategies that the bank expects to implement to realize 
net operating losses or tax credit carryforwards that will otherwise 
expire during the year.
    (4) Deductions from total capital. The following items are deducted 
from total capital:
    (i) Investments, both equity and debt, in unconsolidated banking and 
finance subsidiaries that are deemed to be capital of the subsidiary;\7\ 
and
---------------------------------------------------------------------------

    \7\ The OCC may require deduction of investments in other 
subsidiaries and associated companies, on a case-by-case basis.
---------------------------------------------------------------------------

    (ii) Reciprocal holdings of bank capital instruments.

 Section 3. Risk Categories/Weights for On-Balance Sheet Assets and Off-
                           Balance Sheet Items

    The denominator of the risk-based capital ratio, i.e., a national 
bank's risk-weighted assets,\8\ is derived by assigning that bank's 
assets and off-balance sheet items to one of the four risk categories 
detailed in section 3(a) of this appendix A. Each category has a 
specific risk weight. Before an off-balance sheet item is assigned a 
risk weight, it is converted to an on-balance sheet credit equivalent 
amount in accordance with section 3(b) of this appendix A. The risk 
weight assigned to a particular asset or on-balance sheet credit 
equivalent amount determines the percentage of that asset/credit 
equivalent that is included in the denominator of the bank's risk-based 
capital ratio. Any asset deducted from a bank's capital in computing the 
numerator of the risk-based capital ratio is not included as part of the 
bank's risk-weighted assets.
---------------------------------------------------------------------------

    \8\ The OCC reserves the right to require a bank to compute its 
risk-based capital ratio on the basis of average, rather than period-
end, risk-weighted assets when necessary to carry out the purposes of 
these guidelines.
---------------------------------------------------------------------------

    Some of the assets on a bank's balance sheet may represent an 
indirect holding of a pool of assets, e.g., mutual funds, that 
encompasses more than one risk weight within the pool. In those 
situations, the bank may assign the asset to the risk category 
applicable to the highest risk-weighted asset that pool is permitted to 
hold pursuant to its stated investment objectives in the fund's 
prospectus. Alternatively, the bank may assign the asset on a pro rata 
basis to different risk categories according to the investment limits in 
the fund's prospectus. In either case, the minimum risk weight that may 
be assigned to such a pool is 20%. If a bank assigns the asset on a pro 
rata basis, and the sum of the investment limits in the fund's 
prospectus exceeds 100%, the bank must assign the highest pro rata 
amounts of its total investment to the higher risk category. If, in 
order to maintain a necessary degree of liquidity, the fund is permitted 
to hold an insignificant amount of its assets in short-term, highly-
liquid securities of superior credit quality (that do not qualify for a 
preferential risk weight), such securities generally will not be taken 
into account in determining the risk category into which the bank's 
holding in the overall pool should be assigned. The prudent use of 
hedging instruments by a fund to reduce the risk of its assets will not 
increase the risk weighting of the investment in that fund above the 20% 
category. However, if a fund engages in any activities that are deemed 
to be speculative in nature or has any other characteristics that are 
inconsistent with the preferential risk weighting assigned to the fund's 
assets, the bank's investment in the fund will be assigned to the 100% 
risk category. More detail

[[Page 26]]

on the treatment of mortgage-backed securities is provided in section 
3(a)(3)(vi) of this appendix A.
    (a) On-Balance Sheet Assets. The following are the risk categories/
weights for on-balance sheet assets.
    (1) Zero percent risk weight. (i) Cash, including domestic and 
foreign currency owned and held in all offices of a national bank or in 
transit. Any foreign currency held by a national bank should be 
converted into U.S. dollar equivalents.
    (ii) Deposit reserves and other balances at Federal Reserve Banks.
    (iii) Securities issued by, and other direct claims on, the United 
States Government or its agencies, or the central government of an OECD 
country.
    (iv) That portion of assets directly and unconditionally guaranteed 
by the United States Government or its agencies, or the central 
government of an OECD country.\9\
---------------------------------------------------------------------------

    \9\ For the treatment of privately-issued mortgage-backed securities 
where the underlying pool is comprised solely of mortgage-related 
securities issued by GNMA, see infra note 10.
---------------------------------------------------------------------------

    (v) That portion of local currency claims on or unconditionally 
guaranteed by central governments of non-OECD countries, to the extent 
the bank has local currency liabilities in that country. Any amount of 
such claims that exceeds the amount of the bank's local currency 
liabilities is assigned to the 100% risk category of section 3(a)(4) of 
this appendix.
    (vi) Gold bullion held in the bank's own vaults or in another bank's 
vaults on an allocated basis, to the extent it is backed by gold bullion 
liabilities.
    (vii) The book value of paid-in Federal Reserve Bank stock.
    (viii) That portion of assets and off-balance sheet transactions 
9a collateralized by cash or securities issued or directly 
and unconditionally guaranteed by the United States Government or its 
agencies, or the central government of an OECD country, provided that: 
9b
---------------------------------------------------------------------------

    \9a\ See footnote 22 in section 3(b)(5)(iii) of this appendix A 
(collateral held against derivative contracts).
    \9b\ Assets and off-balance sheet transactions collateralized by 
securities issued or guaranteed by the United States Government or its 
agencies, or the central government of an OECD country include, but are 
not limited to, securities lending transactions, repurchase agreements, 
collateralized letters of credit, such as reinsurance letters of credit, 
and other similar financial guarantees. Swaps, forwards, futures, and 
options transactions are also eligible, if they meet the collateral 
requirements. However, the OCC may at its discretion require that 
certain collateralized transactions be risk weighted at 20 percent if 
they involve more than a minimal risk.
---------------------------------------------------------------------------

    (A) The bank maintains control over the collateral:
    (1) If the collateral consists of cash, the cash must be held on 
deposit by the bank or by a third-party for the account of the bank;
    (2) If the collateral consists of OECD government securities, then 
the OECD government securities must be held by the bank or by a third-
party acting on behalf of the bank;
    (B) The bank maintains a daily positive margin of collateral fully 
taking into account any change in the market value of the collateral 
held as security;
    (C) Where the bank is acting as a customer's agent in a transaction 
involving the loan or sale of securities that is collateralized by cash 
or OECD government securities delivered to the bank, any obligation by 
the bank to indemnify the customer is limited to no more than the 
difference between the market value of the securities lent and the 
market value of the collateral received, and any reinvestment risk 
associated with the collateral is borne by the customer; and
    (D) The transaction involves no more than minimal risk.
    (2) 20 percent risk weight. (i) All claims on depository 
institutions incorporated in an OECD country, and all assets backed by 
the full faith and credit of depository institutions incorporated in an 
OECD country. This includes the credit equivalent amount of 
participations in commitments and standby letters of credit sold to 
other depository institutions incorporated in an OECD country, but only 
if the originating bank remains liable to the customer or beneficiary 
for the full amount of the commitment or standby letter of credit. Also 
included in this category are the credit equivalent amounts of risk 
participations in bankers' acceptances conveyed to other depository 
institutions incorporated in an OECD country. However, bank-issued 
securities that qualify as capital of the issuing bank are not included 
in this risk category, but are assigned to the 100% risk category of 
section 3(a)(4) of this appendix A.
    (ii) Claims on, or guaranteed by depository institutions, other than 
the central bank, incorporated in a non-OECD country, with a residual 
maturity of one year or less.
    (iii) Cash items in the process of collection.
    (iv) That portion of assets collateralized by cash or by securities 
issued or directly and unconditionally guaranteed by the United States 
Government or its agencies, or the central government of an OECD 
country,

[[Page 27]]

that does not qualify for the zero percent risk-weight category.
    (v) That portion of assets conditionally guaranteed by the United 
States Government or its agencies, or the central government of an OECD 
country.
    (vi) Securities issued by, or other direct claims on, United States 
Government-sponsored agencies.
    (vii) That portion of assets guaranteed by United States Government-
sponsored agencies.\10\
---------------------------------------------------------------------------

    \10\ Privately issued mortgage-backed securities, e.g., CMOs and 
REMICs, where the underlying pool is comprised solely of mortgage-
related securities issued by GNMA, FNMA and FHLMC, will be treated as an 
indirect holding of the underlying assets and assigned to the 20% risk 
category of this section 3(a)(2). If the underlying pool is comprised of 
assets which attract different risk weights, e.g., FNMA securities and 
conventional mortgages, the bank should generally assign the security to 
the highest risk category appropriate for any asset in the pool. 
However, on a case-by-case basis, the OCC may allow the bank to assign 
the security proportionately to the various risk categories based on the 
proportion in which the risk categories are represented by the 
composition cash flows of the underlying pool of assets. Before the OCC 
will consider a request to proportionately risk-weight such a security, 
the bank must have current information for the reporting date that 
details the composition and cash flows of the underlying pool of assets. 
Furthermore, before a mortgage-related security will receive a risk 
weight lower than 100%, it must meet the criteria set forth in section 
3(a)(3)(vi) of this appendix A.
---------------------------------------------------------------------------

    (viii) That portion of assets collateralized by the current market 
value of securities issued or guaranteed by United States Government-
sponsored agencies.
    (ix) Claims representing general obligations of any public-sector 
entity in an OECD country, and that portion of any claims guaranteed by 
any such public-sector entity. In the U.S., these obligations must meet 
the requirements of 12 CFR 1.3(g).
    (x) Claims on, or guaranteed by, official multilateral lending 
institutions or regional development institutions in which the United 
States Government is a shareholder or contributing member.\11\
---------------------------------------------------------------------------

    \11\ These institutions include, but are not limited to, the 
International Bank for Reconstruction and Development (World Bank), the 
Inter-American Development Bank, the Asian Development Bank, the African 
Development Bank, the European Investments Bank, the International 
Monetary Fund and the Bank for International Settlements.
---------------------------------------------------------------------------

    (xi) That portion of assets collateralized by the current market 
value of securities issued by official multilateral lending institutions 
or regional development institutions in which the United States 
Government is a shareholder or contributing member.
    (xii) That portion of local currency claims conditionally guaranteed 
by central governments of non-OECD countries, to the extent the bank has 
local currency liabilities in that country. Any amount of such claims 
that exceeds the amount of the bank's local currency liabilities is 
assigned to the 100% risk category of section 3(a)(4) of this appendix.
    (3) 50 percent risk weight. (i) Revenue obligations of any public-
sector entity in an OECD country for which the underlying obligor is the 
public-sector entity, but which are repayable solely from the revenues 
generated by the project financed through the issuance of the 
obligations.
    (ii) The credit equivalent amount of derivative contracts, 
calculated in accordance with section 3(b)(5) of this appendix A, that 
do not qualify for inclusion in a lower risk category.
    (iii) Loans secured by first mortgages on one-to-four family 
residential properties, either owner-occupied or rented, provided that 
such loans are not otherwise 90 days or more past due, or on nonaccrual 
or restructured. It is presumed that such loans will meet prudent 
underwriting standards. If a bank holds a first lien and junior lien on 
a one-to-four family residential property and no other party holds an 
intervening lien, the transaction is treated as a single loan secured by 
a first lien for the purposes of both determining the loan-to-value 
ratio and assigning a risk weight to the transaction. Furthermore, 
residential property loans made for the purpose of construction 
financing are assigned to the 100% risk category of section 3(a)(4) of 
this appendix A; however, these loans may be included in the 50% risk 
category of this section 3(a)(3) of this appendix A if they are subject 
to a legally binding sales contract and satisfy the requirements of 
section 3(a)(3)(iv) of this appendix A.
    (iv) Loans to residential real estate builders for one-to-four 
family residential property construction, if the bank obtains sufficient 
documentation demonstrating that the buyer of the home intends to 
purchase the home (i.e., a legally binding written sales contract) and 
has the ability to obtain a mortgage loan sufficient to purchase the 
home (i.e., a firm written commitment for permanent financing of the 
home upon completion), subject to the following additional criteria:
    (A) The builder must incur at least the first 10% of the direct 
costs (i.e., actual costs of the land, labor, and material) before any 
drawdown is made under the construction

[[Page 28]]

loan and the construction loan may not exceed 80% of the sales price of 
the resold home;
    (B) The individual purchaser has made a substantial ``earnest money 
deposit'' of no less than 3% of the sales price of the home that must be 
subject to forfeiture by the individual purchaser if the sales contract 
is terminated by the individual purchaser; however, the earnest money 
deposit shall not be subject to forfeiture by reason of breach or 
termination of the sales contract on the part of the builder;
    (C) The earnest money deposit must be held in escrow by the bank 
financing the builder or by an independent party in a fiduciary 
capacity; the escrow agreement must provide that in the event of default 
the escrow funds must be used to defray any cost incurred relating to 
any cancellation of the sales contract by the buyer;
    (D) If the individual purchaser terminates the contract or if the 
loan fails to satisfy any other criterion under this section, then the 
bank must immediately recategorize the loan at a 100% risk weight and 
must accurately report the loan in the bank's next quarterly 
Consolidated Reports of Condition and Income (Call Report);
    (E) The individual purchaser must intend that the home will be 
owner-occupied;
    (F) The loan is made by the bank in accordance with prudent 
underwriting standards;
    (G) The loan is not more than 90 days past due, or on nonaccrual; 
and
    (H) The purchaser is an individual(s) and not a partnership, joint 
venture, trust, corporation, or any other entity (including an entity 
acting as a sole proprietorship) that is purchasing one or more of the 
homes for speculative purposes.

    (v) Loans secured by a first mortgage on multifamily residential 
properties : 11a
---------------------------------------------------------------------------

    \11a\ The portion of multifamily residential property loans that is 
sold subject to a pro rata loss sharing arrangement may be treated by 
the selling bank as sold to the extent that the sales agreement provides 
for the purchaser of the loan to share in any loss incurred on the loan 
on a pro rata basis with the selling bank. The portion of multifamily 
residential property loans sold subject to any loss sharing arrangement 
other than pro rata sharing of the loss shall be accorded the same 
treatment as any other asset sold under an agreement to repurchase or 
sold with recourse under section 3(b)(1)(iii) (footnote 14) of this 
appendix A.
---------------------------------------------------------------------------

    (A) The amortization of principal and interest occurs in not more 
than 30 years;
    (B) The minimum original maturity for repayment of principal is not 
less than 7 years;
    (C) All principal and interest payments have been made on a timely 
basis in accordance with the terms of the loan for at least one year 
immediately preceding the risk weighting of the loan in the 50% risk 
weight category, and the loan is not otherwise 90 days or more past due, 
or on nonaccrual status;
    (D) The loan is made in accordance with all applicable requirements 
and prudent underwriting standards;
    (E) If the rate of interest does not change over the term of the 
loan:
    (I) The current loan amount outstanding does not exceed 80% of the 
current value of the property, as measured by either the value of the 
property at origination of the loan (which is the lower of the purchase 
price or the value as determined by the initial appraisal, or if 
appropriate, the initial evaluation) or the most current appraisal, or 
if appropriate, the most current evaluation; and
    (II) In the most recent fiscal year, the ratio of annual net 
operating income generated by the property (before payment of any debt 
service on the loan) to annual debt service on the loan is not less than 
120%; 11b
---------------------------------------------------------------------------

    \11b\ For the purposes of the debt service requirements in sections 
3(a)(3)(v)(E)(II) and 3(a)(3)(v)(F)(II) of this appendix A, other forms 
of debt service coverage that generate sufficient cash flows to provide 
comparable protection to the institution may be considered for (a) a 
loan secured by cooperative housing or (b) a multifamily residential 
property loan if the purpose of the loan is for the development or 
purchase of multifamily residential property primarily intended to 
provide low- to moderate-income housing, including special operating 
reserve accounts or special operating subsidies provided by federal, 
state, local or private sources. However, the OCC reserves the right, on 
a case-by-case basis, to review the adequacy of any other forms of 
comparable debt service coverage relied on by the bank.
---------------------------------------------------------------------------

    (F) If the rate of interest changes over the term of the loan:
    (I) The current loan amount outstanding does not exceed 75% of the 
current value of the property, as measured by either the value of the 
property at origination of the loan (which is the lower of the purchase 
price or the value as determined by the initial appraisal, or if 
appropriate, the initial evaluation) or the most current appraisal, or 
if appropriate, the most current evaluation; and
    (II) In the most recent fiscal year, the ratio of annual net 
operating income generated by the property (before payment of any debt 
service on the loan) to annual debt service on the loan is not less than 
115%; and
    (G) If the loan was refinanced by the borrower:

[[Page 29]]

    (I) All principal and interest payments on the loan being refinanced 
which were made in the preceding year prior to refinancing shall apply 
in determining the one-year timely payment requirement under paragraph 
(a)(3)(v)(C) of this section; and
    (II) The net operating income generated by the property in the 
preceding year prior to refinancing shall apply in determining the 
applicable debt service requirements under paragraphs (a)(3)(v)(E) and 
(a)(3)(v)(F) of this section.
    (vi) Privately-issued mortgage-backed securities, i.e. those that do 
not carry the guarantee of a government or government-sponsored agency, 
if the privately-issued mortgage-backed securities are at the time the 
mortgage-backed securities are originated fully secured by or otherwise 
represent a sufficiently secure interest in mortgages that qualify for 
the 50% risk weight under paragraphs (a)(3) (iii), (iv) and (v) of this 
section,12 provided that they meet the following criteria:
---------------------------------------------------------------------------

    \12\ If all of the underlying mortgages in the pool do not qualify 
for the 50% risk weight, the bank should generally assign the entire 
value of the security to the 100% risk category of section 3(a)(4) of 
this appendix A; however, on a case-by-case basis, the OCC may allow the 
bank to assign only the portion of the security which represents an 
interest in, and the cash flows of, nonqualifying mortgages to the 100% 
risk category, with the remainder being assigned a risk weight of 50%. 
Before the OCC will consider a request to risk weight a mortgage-backed 
security on a proportionate basis, the bank must have current 
information for the reporting date that details the composition and cash 
flows of the underlying pool of mortgages.
---------------------------------------------------------------------------

    (A) The underlying assets must be held by an independent trustee 
that has a first priority, perfected security interest in the underlying 
assets for the benefit of the holders of the security;
    (B) The holder of the security must have an undivided pro rata 
ownership interest in the underlying assets or the trust that issues the 
security must have no liabilities unrelated to the issued securities;
    (C) The trust that issues the security must be structured such that 
the cash flows from the underlying assets fully meet the cash flows 
requirements of the security without undue reliance on any reinvestment 
income; and
    (D) There must not be any material reinvestment risk associated with 
any funds awaiting distribution to the holder of the security.
    (4) 100 percent risk weight. All other assets not specified above, 
including, but not limited to:
    (i) Claims on or guaranteed by depository institutions incorporated 
in a non-OECD country, as well as claims on the central bank of a non-
OECD country, with a residual maturity exceeding one year.
    (ii) All non-local currency claims on non-OECD central governments, 
as well as local currency claims on non-OECD central governments that 
are not included in section 3(a)(1)(v) of this appendix A.
    (iii) Any classes of a mortgage-backed security that can absorb more 
than their pro rata share of the principal loss without the whole issue 
being in default, e.g., subordinated classes or residual interests, 
regardless of the issuer or guarantor.
    (iv) All stripped mortgage-backed securities, including interest 
only portions (IOs), principal only portions (POs) and other similar 
instruments, regardless of the issuer or guarantor.
    (v) Obligations issued by any state or any political subdivision 
thereof for the benefit of a private party or enterprise where that 
party or enterprise, rather than the issuing state or political 
subdivision, is responsible for the timely payment of principal and 
interest on the obligation, e.g., industrial development bonds.
    (vi) Claims on commercial enterprises owned by non-OECD and OECD 
central governments.
    (vii) Any investment in an unconsolidated subsidiary that is not 
required to be deducted from total capital pursuant to section 2(c)(3) 
of this appendix A.
    (viii) Instruments issued by depository institutions incorporated in 
OECD and non-OECD countries that qualify as capital of the issuer.
    (ix) Investments in fixed assets, premises, and other real estate 
owned.
    (b) Off-Balance Sheet Activities. The risk weight assigned to an 
off-balance sheet item is determined by a two-step process. First, the 
face amount of the off-balance sheet item is multiplied by the 
appropriate credit conversion factor specified in this section. This 
calculation translates the face amount of an off-balance sheet item into 
an on-balance sheet credit equivalent amount. Second, the resulting 
credit equivalent amount is then assigned to the proper risk category 
using the criteria regarding obligors, guarantors, and collateral listed 
in section 3(a) of this appendix A. Collateral and guarantees are 
applied to the face amount of an off-balance sheet item; however, with 
respect to derivative contracts under section 3(b)(5) of this appendix 
A, collateral and guarantees are applied to the credit equivalent 
amounts of such derivative contracts. The following are the credit 
conversion factors and the off-balance sheet items to which they apply.
    (1) 100 percent credit conversion factor. (i) Direct credit 
substitutes, including financial guarantee-type standby letters of 
credit that

[[Page 30]]

support financial claims on the account party.\13\ The face amount of a 
direct credit substitute is netted against the amount of any 
participations sold in that item. The amount not sold is converted to an 
on-balance sheet credit equivalent and assigned to the proper risk 
category using the criteria regarding obligors, guarantors and 
collateral listed in section 3(a) of this appendix A. Participations are 
treated as follows:
---------------------------------------------------------------------------

    \13\ For purposes of this section 3(b)(1)(i), a ``financial 
guarantee-type standby letter of credit'' is any letter of credit, or 
similar arrangement, however named or described, which represents an 
irrevocable obligation to the beneficiary on the part of the issuer (1) 
to repay money borrowed by or advanced to or for the account of the 
account party or (2) to make payment on account of any indebtedness 
undertaken by the account party, in the event that the account party 
fails to fulfill its obligation to the beneficiary. Performance-based 
standby letters of credit are defined differently in section 3(b)(2)(i), 
infra note 16.
---------------------------------------------------------------------------

    (A) If the originating bank remains liable to the beneficiary for 
the full amount of the standby letter of credit, in the event the 
participant fails to perform under its participation agreement, the 
amount of participations sold are converted to an on-balance sheet 
credit equivalent using a credit conversion factor of 100%, with that 
amount then being assigned to the risk category appropriate for the 
purchaser of the participation.
    (B) If the participations are such that each participant is 
responsible only for its pro rata share of the risk, and there is no 
recourse to the originating bank, the full amount of the participations 
sold is excluded from the originating bank's risk-weighted assets;
    (ii) Risk participations purchased in bankers' acceptances and 
participations purchased in direct credit substitutes;
    (iii) Assets sold under an agreement to repurchase and assets sold 
with recourse,\14\ to the extent that these assets are not reported on a 
national bank's statement of condition (this includes loan strips sold 
without direct recourse, where the maturity of the participation is 
shorter than the maturity of the underlying loan); and
---------------------------------------------------------------------------

    \14\ For risk-based capital purposes, the definition of the sale of 
assets with recourse, including one-to-four family residential 
mortgages, is generally the same as the definition contained in the 
Instructions for the Preparation of the Consolidated Reports of 
Condition and Income (the Call Report). Assets sold in transactions in 
which the bank retains risk in a manner constituting recourse under the 
Call Report instructions, but which are not reported on the bank's 
statement of condition, are included in section 3(b)(1)(iii), even 
though the Call Report allows such transfers to be reported as sales. 
However, mortgage loans sold in transactions in which the bank retains 
only an insignificant amount of risk and makes concurrent provision for 
that risk are not considered assets sold with recourse under section 3. 
In order to qualify for sales treatment, such transactions must meet 
three conditions: (1) The bank has not retained any significant risk of 
loss, either directly or indirectly; (2) The bank's maximum contractual 
exposure under the recourse provision (or through the retention of a 
subordinated interest in the mortgages) at the time of the transfer is 
equal to or less than the amount of probable loss that the bank has 
reasonably estimated that it will incur on the transferred mortgages; 
and (3) The bank must have created a liability account or other special 
reserve in an amount equal to its maximum exposure. The amount of this 
liability account or other special reserve may not be included in 
capital for the purpose of determining compliance with either the risk-
based capital requirement or the leverage ratio; nor may it be included 
in the allowance for loan and lease losses.
---------------------------------------------------------------------------

    (iv) Contingent obligations with a certain draw down, e.g., legally 
binding agreements to purchase assets as a specified future date.
    (v) Indemnification of customers whose securities the bank has lent 
as agent. If the customer is not indemnified against loss by the bank, 
the transaction is excluded from the risk-based capital calculation.\15\
---------------------------------------------------------------------------

    \15\ When a bank lends its own securities, the transaction is 
treated as a loan. When a bank lends its own securities or, acting as 
agent, agrees to indemnify a customer, the transaction is assigned to 
the risk weight appropriate to the obligor or collateral that is 
delivered to the lending or indemnifying institution or to an 
independent custodian acting on their behalf.
---------------------------------------------------------------------------

    (2) 50 percent credit conversion factor. (i) Transaction-related 
contingencies including, among other things, performance bonds and 
performance-based standby letters of credit related to a particular 
transaction.\16\ To the

[[Page 31]]

extent permitted by law or regulation, performance-based standby letters 
of credit include such things as arrangements backing subcontractors' 
and suppliers' performance, labor and materials contracts, and 
construction bids;
---------------------------------------------------------------------------

    \16\ For purposes of this section 3(b)(2)(i), a ``performance-based 
standby letter of credit'' is any letter of credit, or similar 
arrangement, however named or described, which represents an irrevocable 
obligation to the beneficiary on the part of the issuer to make payment 
on account of any default by the account party in the performance of a 
nonfinancial or commercial obligation. Participations in performance-
based standby letters of credit are treated in accordance with the 
provisions of section 3(b)(1)(i)(A)&(B) of this appendix A. Financial 
guarantee-type standby letters of credit are defined in section 
3(b)(1)(i), supra note 13.
---------------------------------------------------------------------------

    (ii) Unused portion of commitments, including home equity lines of 
credit, with an original maturity exceeding one year; \17\ and
---------------------------------------------------------------------------

    \17\ Participations in commitments are treated in accordance with 
the provisions of section 3(b)(1)(i)(A)&(B) of this appendix A. Until 
December 31, 1992, national banks will be permitted to use remaining 
maturity in determining the appropriate credit conversion factor for the 
unused portion of loan commitments.
---------------------------------------------------------------------------

    (iii) Revolving underwriting facilities, note issuance facilities, 
and similar arrangements pursuant to which the bank's customer can issue 
short-term debt obligations in its own name, but for which the bank has 
a legally binding commitment to either:
    (A) Purchase the obligations the customer is unable to sell by a 
stated date; or
    (B) Advance funds to its customer, if the obligations cannot be 
sold.
    (3) 20 percent credit conversion factor. (i) Trade-related 
contingencies. These are short-term self-liquidating instruments used to 
finance the movement of goods and are collateralized by the underlying 
shipment. A commercial letter of credit is an example of such an 
instrument.
    (4) Zero percent credit conversion factor. (i) Unused portion of 
commitments with an original maturing of one year or less;
    (ii) Unused portion of commitments with an original maturity of 
greater than one year, if they are unconditionally cancelable \18\ at 
any time at the option of the bank and the bank has the contractual 
right to make, and in fact does make, either--
---------------------------------------------------------------------------

    \18\ See section 1(c)(26) of appendix A to this part.
---------------------------------------------------------------------------

    (A) A separate credit decision based upon the borrower's current 
financial condition, before each drawing under the lending facility; or
    (B) An annual (or more frequent) credit review based upon the 
borrower's current financial condition to determine whether or not the 
lending facility should be continued; and
    (iii) The unused portion of retail credit card lines or other 
related plans that are unconditionally cancelable by the bank in 
accordance with applicable law.
    (5) Derivative contracts--(i) Calculation of credit equivalent 
amounts. The credit equivalent amount of a derivative contract equals 
the sum of the current credit exposure and the potential future credit 
exposure of the derivative contract. The calculation of credit 
equivalent amounts must be measured in U.S. dollars, regardless of the 
currency or currencies specified in the derivative contract.
    (A) Current credit exposure. The current credit exposure for a 
single derivative contract is determined by the mark-to-market value of 
the derivative contract. If the mark-to-market value is positive, then 
the current credit exposure equals that mark-to-market value. If the 
mark-to-market is zero or negative, then the current credit exposure is 
zero. The current credit exposure for multiple derivative contracts 
executed with a single counterparty and subject to a qualifying 
bilateral netting contract is determined as provided by section 
3(b)(5)(ii)(A) of this appendix A.
    (B) Potential future credit exposure. The potential future credit 
exposure for a single derivative contract, including a derivative 
contract with negative mark-to-market value, is calculated by 
multiplying the notional principal 19 of the derivative 
contract by one of the credit conversion factors in Table A--Conversion 
Factor Matrix of this appendix A, for the appropriate 
category.20 The potential future credit exposure for gold 
contracts shall be calculated using the foreign exchange rate conversion 
factors. For any derivative contract that does not fall within one of 
the specified categories in Table A--Conversion Factor Matrix of this 
appendix A, the potential future credit exposure shall be calculated 
using the other commodity conversion factors. Subject to examiner 
review, banks should use the effective rather than the apparent or 
stated notional amount in calculating the potential future credit 
exposure. The potential future credit exposure for multiple derivatives 
contracts executed with a single counterparty and subject to a 
qualifying bilateral netting contract is determined as provided by 
section 3(b)(5)(ii)(A) of this appendix A.
---------------------------------------------------------------------------

    \19\ For purposes of calculating either the potential future credit 
exposure under section 3(b)(5)(i)(B) of this appendix A or the gross 
potential future credit exposure under section 3(b)(5)(ii)(A)(2) of this 
appendix A for foreign exchange contracts and other similar contracts in 
which the notional principal is equivalent to the cash flows, total 
notional principal is the net receipts to each party falling due on each 
value date in each currency.
    \20\ No potential future credit exposure is calculated for single 
currency interest rate swaps in which payments are made based upon two 
floating indices, so-called floating/floating or basis swaps; the credit 
equivalent amount is measured solely on the basis of the current credit 
exposure.

[[Page 32]]



                                      Table A--Conversion Factor Matrix\1\
----------------------------------------------------------------------------------------------------------------
                                                                Foreign
                                                   Interest     exchange                  Precious      Other
             Remaining maturity \2\                  rate       rate and    Equity\2\      metals     commodity
                                                                  gold
----------------------------------------------------------------------------------------------------------------
One year or less...............................          0.0          1.0          6.0          7.0         10.0
Over one to five years.........................          0.5          5.0          8.0          7.0         12.0
Over five years................................          1.5          7.5         10.0          8.0        15.0
----------------------------------------------------------------------------------------------------------------
\1\ For derivative contracts with multiple exchanges of principal, the conversion factors are multiplied by the
  number of remaining payments in the derivative contract.
\2\ For derivative contracts that automatically reset to zero value following a payment, the remaining maturity
  equals the time until the next payment. However, interest rate contracts with remaining maturities of greater
  than one year shall be subject to a minimum conversion factor of 0.5 percent.

    (ii) Derivative contracts subject to a qualifying bilateral netting 
contract--(A) Netting calculation. The credit equivalent amount for 
multiple derivative contracts executed with a single counterparty and 
subject to a qualifying bilateral netting contract as provided by 
section (3)(b)(5)(ii)(B) of this appendix A is calculated by adding the 
net current credit exposure and the adjusted sum of the potential future 
credit exposure for all derivative contracts subject to the qualifying 
bilateral netting contract.
    (1) Net current credit exposure. The net current credit exposure is 
the net sum of all positive and negative mark-to-market values of the 
individual derivative contracts subject to a qualifying bilateral 
netting contract. If the net sum of the mark-to-market value is 
positive, then the net current credit exposure equals that net sum of 
the mark-to-market value. If the net sum of the mark-to-market value is 
zero or negative, then the net current credit exposure is zero.
    (2) Adjusted sum of the potential future credit exposure. The 
adjusted sum of the potential future credit exposure is calculated as:

Anet=0.4 x Agross+(0.6 x NGR x Agross)

Anet is the adjusted sum of the potential future credit 
exposure, Agross is the gross potential future credit 
exposure, and NGR is the net to gross ratio. Agross is the 
sum of the potential future credit exposure (as determined under section 
3(b)(5)(i)(B) of this appendix A) for each individual derivative 
contract subject to the qualifying bilateral netting contract. The NGR 
is the ratio of the net current credit exposure to the gross current 
credit exposure. In calculating the NGR, the gross current credit 
exposure equals the sum of the positive current credit exposures (as 
determined under section 3(b)(5)(i)(A) of this appendix A) of all 
individual derivative contracts subject to the qualifying bilateral 
netting contract.
    (B) Qualifying bilateral netting contract. In determining the 
current credit exposure for multiple derivative contracts executed with 
a single counterparty, a bank may net derivative contracts subject to a 
qualifying bilateral netting contract by offsetting positive and 
negative mark-to-market values, provided that:
    (1) The qualifying bilateral netting contract is in writing.
    (2) The qualifying bilateral netting contract is not subject to a 
walkaway clause.
    (3) The qualifying bilateral netting contract creates a single legal 
obligation for all individual derivative contracts covered by the 
qualifying bilateral netting contract. In effect, the qualifying 
bilateral netting contract must provide that the bank would have a 
single claim or obligation either to receive or to pay only the net 
amount of the sum of the positive and negative mark-to-market values on 
the individual derivative contracts covered by the qualifying bilateral 
netting contract. The single legal obligation for the net amount is 
operative in the event that a counterparty, or a counterparty to whom 
the qualifying bilateral netting contract has been assigned, fails to 
perform due to any of the following events: default, insolvency, 
bankruptcy, or other similar circumstances.
    (4) The bank obtains a written and reasoned legal opinion(s) that 
represents, with a high degree of certainty, that in the event of a 
legal challenge, including one resulting from default, insolvency, 
bankruptcy, or similar circumstances, the relevant court and 
administrative authorities would find the bank's exposure to be the net 
amount under:
    (i) The law of the jurisdiction in which the counterparty is 
chartered or the equivalent location in the case of noncorporate 
entities, and if a branch of the counterparty is involved, then also 
under the law of the jurisdiction in which the branch is located;
    (ii) The law of the jurisdiction that governs the individual 
derivative contracts covered by the bilateral netting contract; and
    (iii) The law of the jurisdiction that governs the qualifying 
bilateral netting contract.
    (5) The bank establishes and maintains procedures to monitor 
possible changes in relevant law and to ensure that the qualifying 
bilateral netting contract continues to satisfy the requirement of this 
section.

[[Page 33]]

    (6) The bank maintains in its files documentation adequate to 
support the netting of a derivative contract.\21\
---------------------------------------------------------------------------

    \21\ By netting individual derivative contracts for the purpose of 
calculating its credit equivalent amount, a bank represents that 
documentation adequate to support the netting of a set of derivative 
contract is in the bank's files and available for inspection by the OCC. 
Upon determination by the OCC that a bank's files are inadequate or that 
a qualifying bilateral netting contract may not be legally enforceable 
in any one of the bodies of law described in section 
3(b)(5)(ii)(B)(3)(i) through (iii) of this appendix A, the underlying 
derivative contracts may not be netted for the purposes of this section.
---------------------------------------------------------------------------

    (iii) Risk weighting. Once the bank determines the credit equivalent 
amount for a derivative contract or a set of derivative contracts 
subject to a qualifying bilateral netting contract, the bank assigns 
that amount to the risk weight category appropriate to the counterparty, 
or, if relevant, the nature of any collateral or guarantee.\22\ However, 
the maximum weight that will be applied to the credit equivalent amount 
of such derivative contract(s) is 50 percent.
---------------------------------------------------------------------------

    \22\ Derivative contracts are an exception to the general rule of 
applying collateral and guarantees to the face value of off-balance 
sheet items. The sufficiency of collateral and guarantees is determined 
on the basis of the credit equivalent amount of derivative contracts. 
However, collateral and guarantees held against a qualifying bilateral 
netting contract is not recognized for capital purposes unless it is 
legally available for all contracts included in the qualifying bilateral 
netting contract.
---------------------------------------------------------------------------

    (iv) Exceptions. The following derivative contracts are not subject 
to the above calculation, and therefore, are not part of the denominator 
of a national bank's risk-based capital ratio:
    (A) An exchange rate contract with an original maturity of 14 
calendar days or less;\23\ and
---------------------------------------------------------------------------

    \23\ Notwithstanding section 3(b)(5)(B) of this appendix A, gold 
contracts do not qualify for this exception.
---------------------------------------------------------------------------

    (B) A derivative contract that is traded on an exchange requiring 
the daily payment of any variations in the market value of the contract.
    (c) Alternative Capital Calculation for Small Business Obligations. 
(1) Definitions. For purposes of this section 3(c):
    (i) Qualified bank means a bank that:
    (A) Is well capitalized as defined in 12 CFR 6.4 without applying 
the capital treatment described in this section 3(c), or
    (B) Is adequately capitalized as defined in 12 CFR 6.4 without 
applying the capital treatment described in this section 3(c) and has 
received written permission from the appropriate district office of the 
OCC to apply the capital treatment described in this section 3(c).
    (ii) Recourse has the meaning given to such term under generally 
accepted accounting principles.
    (iii) Small business means a business that meets the criteria for a 
small business concern established by the Small Business Administration 
in 13 CFR part 121 pursuant to 15 U.S.C. 632.
    (2) Capital and reserve requirements. With respect to a transfer of 
a small business loan or a lease of personal property with recourse that 
is a sale under generally accepted accounting principles, a qualified 
bank may elect to apply the following treatment:
    (i) The bank establishes and maintains a non-capital reserve under 
generally accepted accounting principles sufficient to meet the 
reasonable estimated liability of the bank under the recourse 
arrangement;
    (ii) For purposes of calculating the bank's risk-based capital 
ratio, the bank includes only the amount of its retained recourse in its 
risk-weighted assets; and
    (iii) For purposes of calculating the bank's tier 1 leverage ratio, 
the bank excludes from its average total consolidated assets the 
outstanding principal amount of the small business loans and leases 
transferred with recourse.
    (3) Limit on aggregate amount of recourse. The total outstanding 
amount of recourse retained by a qualified bank with respect to 
transfers of small business loans and leases of personal property and 
included in the risk-weighted assets of the bank as described in section 
3(c)(2) of this appendix A may not exceed 15 percent of the bank's total 
capital after adjustments and deductions, unless the OCC specifies a 
greater amount by order.
    (4) Bank that ceases to be qualified or that exceeds aggregate 
limit. If a bank ceases to be a qualified bank or exceeds the aggregate 
limit in section 3(c)(3) of this appendix A, the bank may continue to 
apply the capital treatment described in section 3(c)(2) of this 
appendix A to transfers of small business loans and leases of personal 
property that occurred when the bank was qualified and did not exceed 
the limit.
    (5) Prompt Corrective Action not affected. (i) A bank shall compute 
its capital without regard to this section 3(c) for purposes of prompt 
corrective action (12 U.S.C. 1831o and 12 CFR part 6) unless the bank is 
an adequately or well capitalized bank (without applying the capital 
treatment described in this section 3(c)) and, after applying the 
capital treatment described in this section 3(c), the bank would be well 
capitalized.
    (ii) A bank shall compute its capital without regard to this section 
3(c) for purposes of

[[Page 34]]

12 U.S.C. 1831o(g) regardless of the bank's capital level.
    (d) Recourse Obligations. Where the amount of recourse liability 
retained by a bank is less than the capital requirement for credit-risk 
exposure, the bank shall maintain capital for the recourse liability 
equal to the amount of credit-risk exposure retained. Any recourse 
liability that is subject to this section 3(c) is not subject to any 
additional capital treatment under sections 3(a) or 3(b) of this 
appendix A.

     Section 4.  Implementation, Transition Rules, and Target Ratios

    (a) December 31, 1990 to December 30, 1992. During this time period:
    (1) All national banks are expected to maintain a minimum ratio of 
total capital (after deductions) to risk-weighted assets of 7.25%.
    (i) Fifty percent of this 7.25% must be made up of Tier 1 capital; 
however, up to 10% of Tier 1 capital can be comprised of Tier 2 capital 
elements, before any deductions for goodwill. The amount of Tier 2 
elements included in Tier 1 will not be subject to the sublimits on the 
amount of such elements in Tier 2 capital, with the exception of the 
allowance for loan and lease losses.
    (ii) Goodwill that national banks have been allowed to count as 
capital as a result of the transition rules contained in 12 CFR 3.3 is 
grandfathered until December 31, 1992, but will be deducted from Tier 1 
capital after that date.
    (2) The allowance for loan and lease losses can be included in total 
capital up to a maximum of 1.5% of a bank's risk-weighted assets, 
including the portion that can be borrowed to make up Tier 1.
    (3) Tier 2 capital elements that are not used as part of Tier 1 
capital will qualify as part of a national bank's total capital base up 
to a maximum of 100% of the bank's Tier 1 capital.
    (4) In addition to the standards established by these risk-based 
capital guidelines, all national banks must maintain a minimum capital-
to-total assets ratio in accordance with the provisions of 12 CFR part 
3.
    (b) On December 31, 1992. (1) All national banks are expected to 
maintain a minimum ratio of total capital (after deductions) to risk-
weighted assets of 8.0%.
    (2) Tier 2 capital elements qualify as part of a national bank's 
total capital base up to a maximum of 100% of that bank's Tier 1 
capital.
    (3) In addition to the standards established by these risk-based 
capital guidelines, all national banks must maintain a minimum capital-
to-total assets ratio in accordance with the provisions of 12 CFR part 
3.

          Table 1--Summary of Risk Weights and Risk Categories

                        Category 1: Zero Percent

    1. Cash (domestic and foreign).
    2. Balances due from, and claims on, Federal Reserve Banks and 
central banks in other OECD countries.
    3. Claims on, or unconditionally guaranteed by, the U.S. Government 
or its agencies, or other OECD central governments.\1\
---------------------------------------------------------------------------

    \1\ For the purpose of calculating the risk-based capital ratio, a 
U.S. Government agency is defined as an instrumentality of the U.S. 
Government whose obligations are fully and explicitly guaranteed as to 
the timely repayment of principal and interest by the full faith and 
credit of the U.S. Government.
---------------------------------------------------------------------------

    4. That portion of local currency claims on or unconditionally 
guaranteed by non-OECD central governments to the extent the bank has 
local currency liabilities in that country.
    5. Gold bullion held in the bank's own vaults or in another bank's 
vaults on an allocated basis, to the extent it is backed by gold bullion 
liabilities.
    6. Federal Reserve Bank stock.

                         Category 2: 20 Percent

    1. Portions of loans and other assets collateralized by securities 
issued or guaranteed by the U.S. Government or its agencies, or other 
OECD central governments.\2\
---------------------------------------------------------------------------

    \2\ Degree of collateralization is determined by current market 
value.
---------------------------------------------------------------------------

    2. Portions of loans and other assets conditionally guaranteed by 
the U.S. Government or its agencies, or other OECD central governments.
    3. Portions of loans and other assets collateralized by cash on 
deposit in the lending institution.
    4. All claims (long- and short-term) on, or guaranteed by, OECD 
depository institutions.
    5. Claims on, or guaranteed by, non-OECD depository institutions 
with a residual maturity of one year or less.
    6. Cash items in the process of collection.
    7. Securities and other claims on, or guaranteed by, U.S. 
Government-sponsored agencies.\3\
---------------------------------------------------------------------------

    \3\ For the purpose of calculating the risk-based capital ratio, a 
U.S. Government-sponsored agency is defined as an agency originally 
established or chartered to serve public purposes specified by the U.S. 
Congress but whose obligations are not explicitly guaranteed by the full 
faith and credit of the U.S. Government.
---------------------------------------------------------------------------

    8. Portions of loans and other assets collateralized by securities 
issued by, or

[[Page 35]]

guaranteed by, U.S. Government-sponsored agencies.\4\
---------------------------------------------------------------------------

    \4\ Degree of collateralization is determined by current market 
value.
---------------------------------------------------------------------------

    9. Claims that represent general obligations of, and portions of 
claims guaranteed by, public-sector entities in OECD countries, below 
the level of central government.
    10. Claims on or guaranteed by official multilateral lending 
institutions or regional development institutions in which the U.S. 
Government is a shareholder or a contributing member.
    11. Portions of loans and other assets collateralized with 
securities issued by official multilateral lending institutions or 
regional development institutions in which the U.S. Government is a 
shareholder or a contributing member.
    12. That portion of local currency claims conditionally guaranteed 
by central governments of non-OECD countries, to the extent the bank has 
local currency liabilities in that country.

                         Category 3: 50 Percent

    1. Revenue bonds or similar obligations, including loans and leases, 
that are obligations of public sector entities in OECD countries, but 
for which the government entity is committed to repay the debt only out 
of revenues from the facilities financed.
    2. Credit equivalent amounts of interest rate and exchange rate 
related contracts, except for those assigned to a lower risk category.
    3. Assets secured by a first mortgage on a one-to-four family 
residential property that are not more than 90 days past due, on 
nonaccrual or restructured.
    4. Loans to residential real estate builders for one-to-four family 
residential property construction that have been presold pursuant to 
legally binding written sales contract.
    5. Assets secured by a first mortgage on multifamily residential 
properties.

                         Category 4: 100 Percent

    1. All other claims on private obligors.
    2. Claims on non-OECD financial institutions with a residual 
maturity exceeding one year. Claims on non-OECD central banks with a 
residual maturity exceeding one year are included in this category 
unless they qualify for item 4 of Category 1.
    3. Claims on non-OECD central governments that are not included in 
item 4 of Category 1.
    4. Obligations issued by state or local governments (including 
industrial development authorities and similar entities) repayable 
solely by a private party or enterprise.
    5. Premises, plant, and equipment; other fixed assets; and other 
real estate owned.
    6. Investments in unconsolidated subsidiaries, joint ventures, or 
associated companies (unless deducted from capital).
    7. Capital instruments issued by other banking organizations.
    8. All other assets (including claims on commercial firms owned by 
the public sector).

     Table 2--Credit Conversion Factors for Off-Balance Sheet Items

                      100 Percent Conversion Factor

    1. Direct credit substitutes (general guarantees of indebtedness and 
guarantee-type instruments, including standby letters of credit serving 
as financial guarantees for, or supporting, loans and securities).
    2. Risk participations in bankers acceptances and participations in 
direct credit substitutes (e.g., standby letters of credit).
    3. Sale and repurchase agreements and asset sales with recourse, if 
not already included on the balance sheet.
    4. Forward agreements (i.e., contractual obligations) to purchase 
assets, including financing facilities with certain drawdown.

                      50 Percent Conversion Factor

    1. Transaction-related contingencies (e.g., bid bonds, performance 
bonds, warranties, and standby letters of credit related to particular 
transactions).
    2. Unused portion of commitments with an original maturity exceeding 
one year.
    3. Revolving underwriting facilities (RUFs), note issuance 
facilities (NIFs) and other similar arrangements.

                      20 Percent Conversion Factor

    1. Short-term, self-liquidating trade-related contingencies, 
including commercial letters of credit.

                     Zero Percent Conversion Factor

    1. Unused portion of commitments with an original maturity of one 
year or less.
    2. Unused portion of commitments which are unconditionally 
cancelable at any time, regardless of maturity.

               Table 3--Treatment of Derivative Contracts

    1. The current exposure method is used to calculate the credit 
equivalent amounts of derivative contracts. These amounts are assigned a 
risk weight appropriate to the obligor or any collateral or guarantee. 
However, the maximum risk weight is limited to 50 percent. Multiple 
derivative contracts with a single counterparty may be netted if those

[[Page 36]]

contracts are subject to a qualifying bilateral netting contract.

                                          Conversion Factor Matrix \1\
                                                    [Percent]
----------------------------------------------------------------------------------------------------------------
                                                                Foreign
                                                   Interest     exchange                  Precious      Other
             Remaining maturity \2\                  rate       rate and    Equity \2\     metals     commodity
                                                                  gold
----------------------------------------------------------------------------------------------------------------
One year or less...............................          0.0          1.0          6.0          7.0         10.0
Over one to five years.........................          0.5          5.0          8.0          7.0         12.0
Over five years................................          1.5          7.5         10.0          8.0        15.0
----------------------------------------------------------------------------------------------------------------
\1\ For derivative contracts with multiple exchanges of principal, the conversion factors are multiplied by the
  number of remaining payments in the derivative contract.
\2\ For derivative contracts that automatically reset to zero value following a payment, the remaining maturity
  equals the time until the next payment. However, interest rate contracts with remaining maturities of greater
  than one year shall be subject to a minimum conversion factor of 0.5 percent.

    2. The following derivative contracts will be excluded:
    a. Exchange rate contract with an original maturity of 14 calendar 
days or less; and
    b. Derivative contract traded on exchanges and subject to daily 
margin requirements.

                     Table 4--Definition of Capital

    Capital components are distributed between two categories (Tier 1 
and Tier 2). Tier 2 capital elements will qualify as part of a bank's 
total capital base up to a maximum of 100% of that bank's Tier 1 
capital. Beginning December 31, 1992, the minimum risk-based capital 
standard will be 8.0%.

                          Definition of Capital

    Tier 1:
     Common stockholders' equity;
     Noncumulative perpetual preferred stock and any related 
surplus; and
     Minority interests in the equity accounts of consolidated 
subsidiaries.
    Tier 2:
     Cumulative perpetual, long-term and convertible preferred 
stock, and any related surplus; \5\
---------------------------------------------------------------------------

    \5\ The amount of long-term and intermediate-term preferred stock, 
as well as term subordinated debt that is eligible to be included as 
Tier 2 capital is reduced by 20% of the original amount of the 
instrument at the beginning of each of the last five years of the life 
of the instrument.
---------------------------------------------------------------------------

     Perpetual debt and other hybrid debt/equity instruments;
     Intermediate-term preferred stock and term subordinated 
debt (to a maximum of 50% of Tier 1 capital); and
     Loan loss reserves (to a maximum of 1.25% of risk-weighted 
assets).
    Deductions from Capital:
    From Tier 1:
     Goodwill and other intangibles, with the exception of 
identified intangibles that satisfy the criteria included in the 
guidelines.
    From Total Capital:
     Investments in unconsolidated banking and finance 
subsidiaries;
     Reciprocal holdings of capital instruments

                         Transitional Definition

    During a transition period beginning December 31, 1990, all national 
banks are expected to maintain a capital to risk-weighted asset ratio of 
7.25%, of which at least 3.25 percentage points must consist of Tier 1 
capital. In other words, during this period upon to approximately 4 
percentage points of the 7.25% capital ratio may consist of Tier 2 
capital. Also during this period, the sublimit on loan loss reserves 
will be 1.5% of risk-weighted assets.Q04

[54 FR 4177, Jan. 27, 1989]

    Editorial Note: For Federal Register citations affecting Appendix A 
to part 3 of title 12, see the List of CFR Sections Affected in the 
Finding Aids section of this volume.

    Appendix B to Part 3--Risk-Based Capital Guidelines; Market Risk 
                               Adjustment

      Section 1. Purpose, Applicability, Scope, and Effective Date

    (a) Purpose. The purpose of this appendix is to ensure that banks 
with significant exposure to market risk maintain adequate capital to 
support that exposure.1 This appendix

[[Page 37]]

supplements and adjusts the risk-based capital ratio calculations under 
appendix A of this part with respect to those banks.
---------------------------------------------------------------------------

    \1\ This appendix is based on a framework developed jointly by 
supervisory authorities from the countries represented on the Basle 
Committee on Banking Supervision and endorsed by the Group of Ten 
Central Bank Governors. The framework is described in a Basle Committee 
paper entitled ``Amendment to the Capital Accord to Incorporate Market 
Risk,'' January 1996.
---------------------------------------------------------------------------

    (b) Applicability. (1) This appendix applies to any national bank 
whose trading activity 2 (on a worldwide consolidated basis) 
equals:
---------------------------------------------------------------------------

    \2\ Trading activity means the gross sum of trading assets and 
liabilities as reported in the bank's most recent quarterly Consolidated 
Report of Condition and Income (Call Report).
---------------------------------------------------------------------------

    (i) 10 percent or more of total assets; 3 or
---------------------------------------------------------------------------

    \3\ Total assets means quarter-end total assets as reported in the 
bank's most recent Call Report.
---------------------------------------------------------------------------

    (ii) $1 billion or more.
    (2) The OCC may apply this appendix to any national bank if the OCC 
deems it necessary or appropriate for safe and sound banking practices.
    (3) The OCC may exclude a national bank otherwise meeting the 
criteria of paragraph (b)(1) of this section from coverage under this 
appendix if it determines the bank meets such criteria as a consequence 
of accounting, operational, or similar considerations, and the OCC deems 
it consistent with safe and sound banking practices.
    (c) Scope. The capital requirements of this appendix support market 
risk associated with a bank's covered positions.
    (d) Effective date. This appendix is effective as of January 1, 
1997. Compliance is not mandatory until January 1, 1998. Subject to 
supervisory approval, a bank may opt to comply with this appendix as 
early as January 1, 1997.4
---------------------------------------------------------------------------

    \4\ A bank that voluntarily complies with the final rule prior to 
January 1, 1998, must comply with all of its provisions.
---------------------------------------------------------------------------

                         Section 2. Definitions

    For purposes of this appendix, the following definitions apply:
    (a) Covered positions means all positions in a bank's trading 
account, and all foreign exchange 5 and commodity positions, 
whether or not in the trading account.6 Positions include on-
balance-sheet assets and liabilities and off-balance-sheet items. 
Securities subject to repurchase and lending agreements are included as 
if they are still owned by the lender.
---------------------------------------------------------------------------

    \5\ Subject to supervisory review, a bank may exclude structural 
positions in foreign currencies from its covered positions.
    \6\ The term trading account is defined in the instructions to the 
Call Report.
---------------------------------------------------------------------------

    (b) Market risk means the risk of loss resulting from movements in 
market prices. Market risk consists of general market risk and specific 
risk components.
    (1) General market risk means changes in the market value of covered 
positions resulting from broad market movements, such as changes in the 
general level of interest rates, equity prices, foreign exchange rates, 
or commodity prices.
    (2) Specific risk means changes in the market value of specific 
positions due to factors other than broad market movements and includes 
default and event risk as well as idiosyncratic variations.
    (c) Tier 1 and Tier 2 capital are the same as defined in appendix A 
of this part.
    (d) Tier 3 capital is subordinated debt that is unsecured; is fully 
paid up; has an original maturity of at least two years; is not 
redeemable before maturity without prior approval by the OCC; includes a 
lock-in clause precluding payment of either interest or principal (even 
at maturity) if the payment would cause the issuing bank's risk-based 
capital ratio to fall or remain below the minimum required under 
appendix A of this part; and does not contain and is not covered by any 
covenants, terms, or restrictions that are inconsistent with safe and 
sound banking practices.
    (e) Value-at-risk (VAR) means the estimate of the maximum amount 
that the value of covered positions could decline during a fixed holding 
period within a stated confidence level, measured in accordance with 
section 4 of this appendix.

   Section 3. Adjustments to the Risk-Based Capital Ratio Calculations

    (a) Risk-based capital ratio denominator. A bank subject to this 
appendix shall calculate its risk-based capital ratio denominator as 
follows:
    (1) Adjusted risk-weighted assets. Calculate adjusted risk-weighted 
assets, which equals risk-weighted assets (as determined in accordance 
with appendix A of this part), excluding the risk-weighted amounts of 
all covered positions (except foreign exchange positions outside the 
trading account and over-the-counter derivative positions).7
---------------------------------------------------------------------------

    \7\ Foreign exchange positions outside the trading account and all 
over-the-counter derivative positions, whether or not in the trading 
account, must be included in adjusted risk-weighted assets as determined 
in appendix A of this part.
---------------------------------------------------------------------------

    (2) Measure for market risk. Calculate the measure for market risk, 
which equals the sum of the VAR-based capital charge, the specific risk 
add-on (if any), and the capital charge for de minimis exposure (if 
any).
    (i) VAR-based capital charge. The VAR-based capital charge equals 
the higher of:
    (A) The previous day's VAR measure; or
    (B) The average of the daily VAR measures for each of the preceding 
60 business days multiplied by three, except as provided in section 4(e) 
of this appendix;

[[Page 38]]

    (ii) Specific risk add-on. The specific risk add-on is calculated in 
accordance with section 5 of this appendix; and
    (iii) Capital charge for de minimis exposure. The capital charge for 
de minimis exposure is calculated in accordance with section 4(a) of 
this appendix.
    (3) Market risk equivalent assets. Calculate market risk equivalent 
assets by multiplying the measure for market risk (as calculated in 
paragraph (a)(2) of this section) by 12.5.
    (4) Denominator calculation. Add market risk equivalent assets (as 
calculated in paragraph (a)(3) of this section) to adjusted risk-
weighted assets (as calculated in paragraph (a)(1) of this section). The 
resulting sum is the bank's risk-based capital ratio denominator.
    (b) Risk-based capital ratio numerator. A bank subject to this 
appendix shall calculate its risk-based capital ratio numerator by 
allocating capital as follows:
    (1) Credit risk allocation. Allocate Tier 1 and Tier 2 capital equal 
to 8.0 percent of adjusted risk-weighted assets (as calculated in 
paragraph (a)(1) of this section).8
---------------------------------------------------------------------------

    \8\ A bank may not allocate Tier 3 capital to support credit risk 
(as calculated under appendix A).
---------------------------------------------------------------------------

    (2) Market risk allocation. Allocate Tier 1, Tier 2, and Tier 3 
capital equal to the measure for market risk as calculated in paragraph 
(a)(2) of this section. The sum of Tier 2 and Tier 3 capital allocated 
for market risk must not exceed 250 percent of Tier 1 capital allocated 
for market risk. (This requirement means that Tier 1 capital allocated 
in this paragraph (b)(2) must equal at least 28.6 percent of the measure 
for market risk.)
    (3) Restrictions. (i) The sum of Tier 2 capital (both allocated and 
excess) and Tier 3 capital (allocated in paragraph (b)(2) of this 
section) may not exceed 100 percent of Tier 1 capital (both allocated 
and excess).9
---------------------------------------------------------------------------

    \9\ Excess Tier 1 capital means Tier 1 capital that has not been 
allocated in paragraphs (b)(1) and (b)(2) of this section. Excess Tier 2 
capital means Tier 2 capital that has not been allocated in paragraph 
(b)(1) and (b)(2) of this section, subject to the restrictions in 
paragraph (b)(3) of this section.
---------------------------------------------------------------------------

    (ii) Term subordinated debt (and intermediate-term preferred stock 
and related surplus) included in Tier 2 capital (both allocated and 
excess) may not exceed 50 percent of Tier 1 capital (both allocated and 
excess).
    (4) Numerator calculation. Add Tier 1 capital (both allocated and 
excess), Tier 2 capital (both allocated and excess), and Tier 3 capital 
(allocated under paragraph (b)(2) of this section). The resulting sum is 
the bank's risk-based capital ratio numerator.

                       Section 4. Internal Models

    (a) General. For risk-based capital purposes, a bank subject to this 
appendix must use its internal model to measure its daily VAR, in 
accordance with the requirements of this section.10 The OCC 
may permit a bank to use alternative techniques to measure the market 
risk of de minimis exposures so long as the techniques adequately 
measure associated market risk.
---------------------------------------------------------------------------

    \10\ A bank's internal model may use any generally accepted 
measurement techniques, such as variance-covariance models, historical 
simulations, or Monte Carlo simulations. However, the level of 
sophistication and accuracy of a bank's internal model must be 
commensurate with the nature and size of its covered positions. A bank 
that modifies its existing modeling procedures to comply with the 
requirements of this appendix for risk-based capital purposes should, 
nonetheless, continue to use the internal model it considers most 
appropriate in evaluating risks for other purposes.
---------------------------------------------------------------------------

    (b) Qualitative requirements. A bank subject to this appendix must 
have a risk management system that meets the following minimum 
qualitative requirements:
    (1) The bank must have a risk control unit that reports directly to 
senior management and is independent from business trading units.
    (2) The bank's internal risk measurement model must be integrated 
into the daily management process.
    (3) The bank's policies and procedures must identify, and the bank 
must conduct, appropriate stress tests and backtests.11 The 
bank's policies and procedures must identify the procedures to follow in 
response to the results of such tests.
---------------------------------------------------------------------------

    \11\ Stress tests provide information about the impact of adverse 
market events on a bank's covered positions. Backtests provide 
information about the accuracy of an internal model by comparing a 
bank's daily VAR measures to its corresponding daily trading profits and 
losses.
---------------------------------------------------------------------------

    (4) The bank must conduct independent reviews of its risk 
measurement and risk management systems at least annually.
    (c) Market risk factors. The bank's internal model must use risk 
factors sufficient to measure the market risk inherent in all covered 
positions. The risk factors must address interest rate 
risk,12 equity price risk, foreign

[[Page 39]]

exchange rate risk, and commodity price risk.
---------------------------------------------------------------------------

    \12\ For material exposures in the major currencies and markets, 
modeling techniques must capture spread risk and must incorporate enough 
segments of the yield curve--at least six--to capture differences in 
volatility and less than perfect correlation of rates along the yield 
curve.
---------------------------------------------------------------------------

    (d) Quantitative requirements. For regulatory capital purposes, VAR 
measures must meet the following quantitative requirements:
    (1) The VAR measures must be calculated on a daily basis using a 99 
percent, one-tailed confidence level with a price shock equivalent to a 
ten-business day movement in rates and prices. In order to calculate VAR 
measures based on a ten-day price shock, the bank may either calculate 
ten-day figures directly or convert VAR figures based on holding periods 
other than ten days to the equivalent of a ten-day holding period (for 
instance, by multiplying a one-day VAR measure by the square root of 
ten).
    (2) The VAR measures must be based on an historical observation 
period (or effective observation period for a bank using a weighting 
scheme or other similar method) of at least one year. The bank must 
update data sets at least once every three months or more frequently as 
market conditions warrant.
    (3) The VAR measures must include the risks arising from the non-
linear price characteristics of options positions and the sensitivity of 
the market value of the positions to changes in the volatility of the 
underlying rates or prices. A bank with a large or complex options 
portfolio must measure the volatility of options positions by different 
maturities.
    (4) The VAR measures may incorporate empirical correlations within 
and across risk categories, provided that the bank's process for 
measuring correlations is sound. In the event that the VAR measures do 
not incorporate empirical correlations across risk categories, then the 
bank must add the separate VAR measures for the four major risk 
categories to determine its aggregate VAR measure.
    (e) Backtesting. (1) Beginning one year after a bank starts to 
comply with this appendix, a bank must conduct backtesting by comparing 
each of its most recent 250 business days' actual net trading profit or 
loss 13 with the corresponding daily VAR measures generated 
for internal risk measurement purposes and calibrated to a one-day 
holding period and a 99 percent, one-tailed confidence level.
---------------------------------------------------------------------------

    \13\ Actual net trading profits and losses typically include such 
things as realized and unrealized gains and losses on portfolio 
positions as well as fee income and commissions associated with trading 
activities.
---------------------------------------------------------------------------

    (2) Once each quarter, the bank must identify the number of 
exceptions, that is, the number of business days for which the magnitude 
of the actual daily net trading loss, if any, exceeds the corresponding 
daily VAR measure.
    (3) A bank must use the multiplication factor indicated in Table 1 
of this appendix in determining its capital charge for market risk under 
section 3(a)(2)(i)(B) of this appendix until it obtains the next 
quarter's backtesting results, unless the OCC determines that a 
different adjustment or other action is appropriate.

     Table 1.--Multiplication Factor Based on Results of Backtesting
------------------------------------------------------------------------
                                                          Multiplication
                  Number of exceptions                        factor
------------------------------------------------------------------------
4 or fewer..............................................          3.00
5.......................................................          3.40
6.......................................................          3.50
7.......................................................          3.65
8.......................................................          3.75
9.......................................................          3.85
10 or more..............................................          4.00
------------------------------------------------------------------------

                        Section 5. Specific Risk

    (a) Specific risk surcharge. For purposes of section 3(a)(2)(ii) of 
this appendix, a bank shall calculate its specific risk surcharge as 
follows:
    (1) Internal models that incorporate specific risk. (i) No specific 
risk surcharge required for qualifying internal models. A bank that 
incorporates specific risk in its internal model has no specific risk 
surcharge for purposes of section 3(a)(2)(ii) of this appendix if the 
bank demonstrates to the OCC that its internal model adequately measures 
all aspects of specific risk, including default and event risk, of 
covered debt and equity positions. In evaluating a bank's internal model 
the OCC will take into account the extent to which the internal model:
    (A) Explains the historical price variation in the trading 
portfolio; and
    (B) Captures concentrations.
    (ii) Specific risk surcharge for modeled specific risk that fails to 
adequately measure default or event risk. A bank that incorporates 
specific risk in its internal model but fails to demonstrate that its 
internal model adequately measures all aspects of specific risk, 
including default and event risk, as provided by this section 5(a)(1), 
must calculate its specific risk surcharge in accordance with one of the 
following methods:
    (A) If the bank's internal model separates the VAR measure into a 
specific risk portion and a general market risk portion, then the 
specific risk surcharge equals the previous day's specific risk portion.
    (B) If the bank's internal model does not separate the VAR measure 
into a specific risk portion and a general market risk portion, then the 
specific risk surcharge equals the sum of the previous day's VAR measure

[[Page 40]]

for subportfolios of covered debt and equity positions.
    (2) Specific risk surcharge for specific risk not modeled. If a bank 
does not model specific risk in accordance with section 5(a)(1) of this 
appendix, then the bank shall calculate its specific risk surcharge 
using the standard specific risk capital charge in accordance with 
section 5(c) of this appendix.
    (b) Covered debt and equity positions. If a model includes the 
specific risk of covered debt positions but not covered equity positions 
(or vice versa), then the bank may reduce its specific risk charge for 
the included positions under section 5(a)(1)(ii) of this appendix. The 
specific risk charge for the positions not included equals the standard 
specific risk capital charge under paragraph (c) of this section.
    (c) Standard specific risk capital charge. The standard specific 
risk capital charge equals the sum of the components for covered debt 
and equity positions as follows:
    (1) Covered debt positions. (i) For purposes of this section 5, 
covered debt positions means fixed-rate or floating-rate debt 
instruments located in the trading account and instruments located in 
the trading account with values that react primarily to changes in 
interest rates, including certain non-convertible preferred stock, 
convertible bonds, and instruments subject to repurchase and lending 
agreements. Also included are derivatives (including written and 
purchased options) for which the underlying instrument is a covered debt 
instrument that is subject to a non-zero specific risk capital charge.
    (A) For covered debt positions that are derivatives, a bank must 
risk-weight (as described in paragraph (c)(1)(iii) of this section) the 
market value of the effective notional amount of the underlying debt 
instrument or index portfolio. Swaps must be included as the notional 
position in the underlying debt instrument or index portfolio, with a 
receiving side treated as a long position and a paying side treated as a 
short position; and
    (B) For covered debt positions that are options, whether long or 
short, a bank must risk-weight (as described in paragraph (c)(1)(iii) of 
this section) the market value of the effective notional amount of the 
underlying debt instrument or index multiplied by the option's delta.
    (ii) A bank may net long and short covered debt positions (including 
derivatives) in identical debt issues or indices.
    (iii) A bank must multiply the absolute value of the current market 
value of each net long or short covered debt position by the appropriate 
specific risk weighting factor indicated in Table 2 of this appendix. 
The specific risk capital charge component for covered debt positions is 
the sum of the weighted values.

   Table 2--Specific Risk Weighting Factors for Covered Debt Positions
------------------------------------------------------------------------
                                                               Weighting
                                         Remaining maturity      factor
              Category                     (contractual)          (in
                                                                percent)
------------------------------------------------------------------------
Government \1\......................  N/A....................       0.00
Qualifying \2\......................  6 months or less.......       0.25
                                      Over 6 months to 24           1.00
                                       months.
                                      Over 24 months.........       1.60
Other \3\...........................  N/A....................      8.00
------------------------------------------------------------------------
\1\ The ``government'' category includes all debt instruments of central
  governments of OECD countries (as defined in appendix A of this part)
  including bonds, Treasury bills, and other short-term instruments, as
  well as local currency instruments of non-OECD central governments to
  the extent the bank has liabilities booked in that currency.
\2\ The ``qualifying'' category includes debt instruments of U.S.
  government-sponsored agencies (as defined in appendix A of this part),
  general obligation debt instruments issued by states and other
  political subdivisions of OECD countries, multilateral development
  banks (as defined in appendix A of this part), and debt instruments
  issued by U.S. depository institutions or OECD-banks (as defined in
  appendix A of this part) that do not qualify as capital of the issuing
  institution. This category also includes other debt instruments,
  including corporate debt and revenue instruments issued by states and
  other political subdivisions of OECD countries, that are: (1) Rated
  investment grade by at least two nationally recognized credit rating
  services; (2) rated investment grade by one nationally recognized
  credit rating agency and not rated less than investment grade by any
  other credit rating agency; or (3) unrated, but deemed to be of
  comparable investment quality by the reporting bank and the issuer has
  instruments listed on a recognized stock exchange, subject to review
  by the OCC.
\3\ The ``other'' category includes debt instruments that are not
  included in the government or qualifying categories.


    (2) Covered equity positions. (i) For purposes of this section 5, 
covered equity positions means equity instruments located in the trading 
account and instruments located in the trading account with values that 
react primarily to changes in equity prices, including voting or non-
voting common stock, certain convertible bonds, and commitments to buy 
or sell equity instruments. Also included are derivatives (including 
written and purchased options) for which the underlying is a covered 
equity position.
    (A) For covered equity positions that are derivatives, a bank must 
risk weight (as described in paragraph (c)(2)(iii) of this section) the 
market value of the effective notional amount of the underlying equity 
instrument or equity portfolio. Swaps must be included as the notional 
position in the underlying equity instrument or index portfolio, with a 
receiving side treated as a long position and a paying side treated as a 
short position; and
    (B) For covered equity positions that are options, whether long or 
short, a bank must risk weight (as described in paragraph (c)(2)(iii) of 
this section) the market value of the effective notional amount of the 
underlying equity instrument or index multiplied by the option's delta.
    (ii) A bank may net long and short covered equity positions 
(including derivatives) in

[[Page 41]]

identical equity issues or equity indices in the same 
market.14
---------------------------------------------------------------------------

    \14\ A bank may also net positions in depository receipts against an 
opposite position in the underlying equity or identical equity in 
different markets, provided that the bank includes the costs of 
conversion.
---------------------------------------------------------------------------

    (iii)(A) A bank must multiply the absolute value of the current 
market value of each net long or short covered equity position by a risk 
weighting factor of 8.0 percent, or by 4.0 percent if the equity is held 
in a portfolio that is both liquid and well-diversified.15 
For covered equity positions that are index contracts comprising a well-
diversified portfolio of equity instruments, the net long or short 
position is multiplied by a risk weighting factor of 2.0 percent.
---------------------------------------------------------------------------

    \15\ A portfolio is liquid and well-diversified if: (1) It is 
characterized by a limited sensitivity to price changes of any single 
equity issue or closely related group of equity issues held in the 
portfolio; (2) the volatility of the portfolio's value is not dominated 
by the volatility of any individual equity issue or by equity issues 
from any single industry or economic sector; (3) it contains a large 
number of individual equity positions, with no single position 
representing a substantial portion of the portfolio's total market 
value; and (4) it consists mainly of issues traded on organized 
exchanges or in well-established over-the-counter markets.
---------------------------------------------------------------------------

    (B) For covered equity positions from the following futures-related 
arbitrage strategies, a bank may apply a 2.0 percent risk weighting 
factor to one side (long or short) of each position with the opposite 
side exempt from charge:
    (1) Long and short positions in exactly the same index at different 
dates or in different market centers; or
    (2) Long and short positions in index contracts at the same date in 
different but similar indices.
    (C) For futures contracts on broadly-based indices that are matched 
by offsetting positions in a basket of stocks comprising the index, a 
bank may apply a 2.0 percent risk weighting factor to the futures and 
stock basket positions (long and short), provided that such trades are 
deliberately entered into and separately controlled, and that the basket 
of stocks comprises at least 90 percent of the capitalization of the 
index.
    (iv) The specific risk capital charge component for covered equity 
positions is the sum of the weighted values.

                   Section 6. Reservation of Authority

    The OCC reserves the authority to modify the application of any of 
the provisions in this appendix to any bank, upon reasonable 
justification.

[61 FR 47367, Sept. 6, 1996, as amended at 62 FR 68067, Dec. 30, 1997]



PART 4--ORGANIZATION AND FUNCTIONS, AVAILABILITY AND RELEASE OF INFORMATION, CONTRACTING OUTREACH PROGRAM--Table of Contents




                  Subpart A--Organization and Functions

Sec.
4.1  Purpose.
4.2  Office of the Comptroller of the Currency.
4.3  Comptroller of the Currency.
4.4  Washington office.
4.5  District and field offices.
4.6  Frequency of examination of national banks.
4.7  Frequency of examination of Federal agencies and branches.

Subpart B--Availability of Information Under the Freedom of Information 
                                   Act

4.11  Purpose and scope.
4.12  Information available under the FOIA.
4.13  Publication in the Federal Register.
4.14  Public inspection and copying.
4.15  Specific requests for records.
4.16  Predisclosure notice for confidential commercial information.
4.17  Fees for services.

            Subpart C--Release of Non-Public OCC Information

4.31  Purpose and scope.
4.32  Definitions.
4.33  Requirements for a request of records or testimony.
4.34  Where to submit a request.
4.35  Consideration of requests.
4.36  Disclosure of non-public OCC information.
4.37  Persons and entities with access to OCC information; prohibition 
          on dissemination.
4.38  Restrictions on dissemination of released information.
4.39  Notification of parties and procedures for sharing and using OCC 
          records in litigation.
4.40  Fees for services.

Appendix A to Subpart C--Model Stipulation for Protective Order and 
          Model Protective Order

[[Page 42]]

 Subpart D--Minority-, Women-, and Individuals With Disabilities-Owned 
    Business Contracting Outreach Program; Contracting for Goods and 
                                Services

4.61  Purpose.
4.62  Definitions.
4.63  Policy.
4.64  Promotion.
4.65  Certification.
4.66  Oversight and monitoring.

    Authority: 12 U.S.C. 93a. Subpart A also issued under 5 U.S.C. 552; 
Subpart B also issued under 5 U.S.C. 552; E.O. 12600 (3 CFR 1987 Comp., 
p. 235). Subpart C also issued under 5 U.S.C. 301, 552; 12 U.S.C. 161, 
481, 482, 484(a), 1442, 1817(a)(3), 1818(u) and (v), 1820(d)(6), 
1821(c), 1821(o), 1821(t), 1831m, 1831p-1, 1831o, 1867, 1951 et seq., 
2601 et seq., 2801 et seq., 2901 et seq., 3101 et seq., 3401 et seq.; 15 
U.S.C. 77uu(b), 78q(c)(3); 18 U.S.C. 641, 1905, 1906; 29 U.S.C. 1204; 31 
U.S.C. 9701; 42 U.S.C. 3601; 44 U.S.C. 3506, 3510. Subpart D also issued 
under 12 U.S.C. 1833e.

    Source: 60 FR 57322, Nov. 15, 1995, unless otherwise noted.



                  Subpart A--Organization and Functions



Sec. 4.1  Purpose.

    This subpart describes the organization and functions of the Office 
of the Comptroller of the Currency (OCC), and provides the OCC's 
principal addresses.



Sec. 4.2  Office of the Comptroller of the Currency.

    The OCC supervises and regulates national banks and Federal branches 
and agencies of foreign banks by examining these institutions to 
determine compliance with applicable laws and regulations; approving or 
denying applications for new charters or for changes in corporate or 
banking structure; approving or denying activities; taking supervisory 
or enforcement actions; appointing receivers and conservators; and 
issuing rules and regulations applicable to these institutions, their 
subsidiaries, and affiliates.



Sec. 4.3  Comptroller of the Currency.

    The Comptroller of the Currency (Comptroller), as head of the OCC, 
is responsible for all OCC programs and functions. The Comptroller is 
appointed by the President, by and with the advice and consent of the 
Senate, for a term of five years. The Comptroller serves as a member of 
the board of the Federal Deposit Insurance Corporation, a member of the 
Federal Financial Institutions Examination Council, and a member of the 
board of the Neighborhood Reinvestment Corporation. The Comptroller is 
advised and assisted by OCC staff, who perform the duties and functions 
that the Comptroller directs.



Sec. 4.4  Washington office.

    The Washington office of the OCC is the main office and headquarters 
of the OCC. The Washington office directs OCC policy, oversees OCC 
operations, and is responsible for the direct supervision of certain 
national banks, including the largest national banks (through its 
Multinational Banking Department) and other national banks requiring 
special supervision. The Washington office is located at 250 E Street, 
SW, Washington, DC 20219.



Sec. 4.5  District and field offices.

    (a) District offices. Each district office of the OCC is responsible 
for the direct supervision of the national banks and Federal branches 
and agencies of foreign banks in its district, with the exception of the 
national banks supervised by the Washington office. The six district 
offices cover the United States, Puerto Rico, the Virgin Islands, Guam, 
and the Northern Mariana Islands. The office address and the 
geographical composition of each district follows:

------------------------------------------------------------------------
                                                        Geographical
         District               Office address          composition
------------------------------------------------------------------------
Northeastern..............  Office of the          Connecticut,
                             Comptroller of the     Delaware, District
                             Currency, 1114         of Columbia, Maine,
                             Avenue of the          Maryland,
                             Americas, Suite        Massachusetts, New
                             3900, New York, NY     Hampshire, New
                             10036.                 Jersey, New York,
                                                    Pennsylvania, Puerto
                                                    Rico, Rhode Island,
                                                    Vermont, Virgin
                                                    Islands
Southeastern..............  Office of the          Alabama, Florida,
                             Comptroller of the     Georgia,
                             Currency, Marquis      Mississippi, North
                             One Tower, Suite       Carolina, South
                             600, 245 Peachtree     Carolina, Tennessee,
                             Center Ave., NE,       Virginia, West
                             Atlanta, GA 30303.     Virginia

[[Page 43]]

 
Central...................  Office of the          Illinois, Indiana,
                             Comptroller of the     Kentucky, Michigan,
                             Currency, One          Ohio, Wisconsin
                             Financial Place,
                             Suite 2700, 440
                             South LaSalle
                             Street, Chicago, IL
                             60605.
Midwestern................  Office of the          Iowa, Kansas,
                             Comptroller of the     Minnesota, Missouri,
                             Currency, 2345 Grand   Nebraska, North
                             Ave., Suite 700,       Dakota, South Dakota
                             Kansas City, MO
                             64108.
Southwestern..............  Office of the          Arkansas, Louisiana,
                             Comptroller of the     New Mexico,
                             Currency, 1600         Oklahoma, Texas.
                             Lincoln Plaza, 500
                             N. Akard Street,
                             Dallas, TX 75201.
Western...................  Office of the          Alaska, Arizona,
                             Comptroller of the     California,
                             Currency, 50 Fremont   Colorado, Guam,
                             Street, Suite 3900,    Hawaii, Idaho,
                             San Francisco, CA      Montana, Nevada,
                             94105.                 Northern Mariana
                                                    Islands, Oregon,
                                                    Washington, Wyoming,
                                                    Utah.
------------------------------------------------------------------------

    (b) Field offices and duty stations. Field offices and duty stations 
support the bank supervisory responsibilities of the district offices.



Sec. 4.6  Frequency of examination of national banks.

    (a) General. The OCC examines national banks pursuant to authority 
conferred by 12 U.S.C. 481 and the requirements of 12 U.S.C. 1820(d). 
The OCC is required to conduct a full-scope, on-site examination of 
every national bank at least once during each 12-month period.
    (b) 18-month rule for certain small institutions. The OCC may 
conduct a full-scope, on-site examination of a national bank at least 
once during each 18-month period, rather than each 12-month period as 
provided in paragraph (a) of this section, if the following conditions 
are satisfied:
    (1) The bank has total assets of $250 million or less;
    (2) The bank is well capitalized as defined in part 6 of this 
chapter;
    (3) At the most recent examination, the OCC found the bank to be 
well managed;
    (4) At the most recent examination, the OCC assigned the bank a 
composite rating of 1 or 2 under the Uniform Financial Institutions 
Rating System (copies are available at the addresses specified in 
Sec. 4.14);
    (5) The bank currently is not subject to a formal enforcement 
proceeding or order by the FDIC, OCC, or Federal Reserve System; and
    (6) No person acquired control of the bank during the preceding 12-
month period in which a full-scope, on-site examination would have been 
required but for this section.
    (c) Authority to conduct more frequent examinations. This section 
does not limit the authority of the OCC to examine any national bank as 
frequently as the agency deems necessary.

[63 FR 16380, Apr. 2, 1998]



Sec. 4.7  Frequency of examination of Federal agencies and branches.

    (a) General. The OCC examines Federal agencies and Federal branches 
(as these entities are defined in Sec. 28.11 (h) and (i), respectively, 
of this chapter) pursuant to the authority conferred by 12 U.S.C. 
3105(c)(1)(C). Except as noted in paragraph (b) of this section, the OCC 
will conduct a full-scope, on-site examination of every Federal branch 
and agency at least once during each 12-month period.
    (b) 18-month rule for certain small institutions--(1) Mandatory 
standards. The OCC may conduct a full-scope, on-site examination at 
least once during each 18-month period, rather than each 12-month period 
as provided in paragraph (a) of this section, if the Federal branch or 
AGENCY:
    (i) Has total assets of $250 million or less;
    (ii) Has received a composite ROCA supervisory rating (which rates 
risk management, operational controls, compliance, and asset quality) of 
1 or 2 at its most recent examination;
    (iii) Satisfies the requirements of either the following paragraph 
(b)(1)(iii) (A) or (B):
    (A) The foreign bank's most recently reported capital adequacy 
position consists of, or is equivalent to, Tier 1 and total risk-based 
capital ratios of at least 6 percent and 10 percent, respectively, on a 
consolidated basis; or

[[Page 44]]

    (B) The branch or agency has maintained on a daily basis, over the 
past three quarters, eligible assets in an amount not less than 108 
percent of the preceding quarter's average third party liabilities 
(determined consistent with applicable federal and state law), and 
sufficient liquidity is currently available to meet its obligations to 
third parties;
    (iv) Is not subject to a formal enforcement action or order by the 
Federal Reserve Board, the Federal Deposit Insurance Corporation, or the 
OCC; and
    (v) Has not experienced a change in control during the preceding 12-
month period in which a full-scope, on-site examination would have been 
required but for this section.
    (2) Discretionary standards. In determining whether a Federal branch 
or agency that meets the standards of paragraph (b)(1) of this section 
should not be eligible for an 18-month examination cycle pursuant to 
this paragraph (b), the OCC may consider additional factors, including 
whether:
    (i) Any of the individual components of the ROCA rating of the 
Federal branch or agency is rated ``3'' or worse;
    (ii) The results of any off-site supervision indicate a 
deterioration in the condition of the Federal branch or agency;
    (iii) The size, relative importance, and role of a particular office 
when reviewed in the context of the foreign bank's entire U.S. 
operations otherwise necessitate an annual examination; and
    (iv) The condition of the foreign bank gives rise to such a need.
    (c) Authority to conduct more frequent examinations. Nothing in 
paragraph (a) or (b) of this section limits the authority of the OCC to 
examine any Federal branch or agency as frequently as the OCC deems 
necessary.

[63 FR 46120, Aug. 28, 1998, as amended at 64 FR 56952, Oct. 22, 1999]



Subpart B--Availability of Information Under the Freedom of Information 
                                   Act



Sec. 4.11  Purpose and scope.

    (a) Purpose. This subpart sets forth the standards, policies, and 
procedures that the OCC applies in administering the Freedom of 
Information Act (FOIA) (5 U.S.C. 552) to facilitate the OCC's 
interaction with the banking industry and the public.
    (b) Scope. (1) This subpart describes the information that the FOIA 
requires the OCC to disclose to the public (Sec. 4.12), and the three 
methods by which the OCC discloses that information under the FOIA 
(Secs. 4.13, 4.14, and 4.15).
    (2) This subpart also sets forth predisclosure notice procedures 
that the OCC follows, in accordance with Executive Order 12600 (3 CFR, 
1987 Comp., p. 235), when the OCC receives a request under Sec. 4.15 for 
disclosure of records that arguably are exempt from disclosure as 
confidential commercial information (Sec. 4.16). Finally, this subpart 
describes the fees that the OCC assesses for the services it renders in 
providing information under the FOIA (Sec. 4.17).
    (3) This subpart does not apply to a request for records pursuant to 
the Privacy Act (5 U.S.C. 552a). A person requesting records from the 
OCC pursuant to the Privacy Act should refer to 31 CFR part 1, subpart 
C, and appendix J of subpart C.



Sec. 4.12  Information available under the FOIA.

    (a) General. In accordance with the FOIA, OCC records are available 
to the public, except the exempt records described in paragraph (b) of 
this section.
    (b) Exemptions from availability. The following records, or portions 
thereof, are exempt from disclosure under the FOIA:
    (1) A record that is specifically authorized, under criteria 
established by an Executive order, to be kept secret in

[[Page 45]]

the interest of national defense or foreign policy, and that is properly 
classified pursuant to that Executive order;
    (2) A record relating solely to the internal personnel rules and 
practices of an agency;
    (3) A record specifically exempted from disclosure by statute (other 
than 5 U.S.C. 552b), provided that the statute requires that the matters 
be withheld from the public in such a manner as to leave no discretion 
on the issue, establishes particular criteria for withholding, or refers 
to particular types of matters to be withheld;
    (4) A record that is privileged or contains trade secrets, or 
commercial or financial information, furnished in confidence, that 
relates to the business, personal, or financial affairs of any person 
(see Sec. 4.16 for notice requirements regarding disclosure of 
confidential commercial information);
    (5) An intra-agency or interagency memorandum or letter not 
routinely available by law to a private party in litigation, including 
memoranda, reports, and other documents prepared by OCC employees, and 
records of deliberations and discussions at meetings of OCC employees;
    (6) A personnel, medical, or similar record, including a financial 
record, or any portion thereof, where disclosure would constitute a 
clearly unwarranted invasion of personal privacy;
    (7) A record or information compiled for law enforcement purposes, 
but only to the extent that the OCC reasonably believes that producing 
the record or information may:
    (i) Interfere with enforcement proceedings;
    (ii) Deprive a person of the right to a fair trial or an impartial 
adjudication;
    (iii) Constitute an unwarranted invasion of personal privacy;
    (iv) Disclose the identity of a confidential source, including a 
State, local, or foreign agency or authority, or any private institution 
that furnished information on a confidential basis;
    (v) Disclose information furnished by a confidential source, in the 
case of a record or information compiled by a criminal law enforcement 
authority in the course of a criminal investigation, or by an agency 
conducting a lawful national security intelligence investigation;
    (vi) Disclose techniques and procedures for law enforcement 
investigations or prosecutions, or disclose guidelines for law 
enforcement investigations or prosecutions if such disclosure reasonably 
could be expected to risk circumvention of the law; or
    (vii) Endanger the life or physical safety of any individual;
    (8) A record contained in or related to an examination, operating, 
or condition report prepared by, on behalf of, or for the use of the OCC 
or any other agency responsible for regulating or supervising financial 
institutions; and
    (9) A record containing or relating to geological and geophysical 
information and data, including maps, concerning wells.
    (c) Discretionary disclosure of exempt records. Even if a record is 
exempt under paragraph (b) of this section, the OCC may elect, on a 
case-by-case basis, not to apply the exemption to the requested record. 
The OCC's election not to apply an exemption to a requested record has 
no precedential significance as to the application or nonapplication of 
the exemption to any other requested record, regardless of who requests 
the record or when the OCC receives the request. The OCC will provide 
predisclosure notice to submitters of confidential commercial 
information in accordance with Sec. 4.16.
    (d) Segregability. The OCC provides copies of reasonably segregable 
portions of a record to any person properly requesting the record 
pursuant to Sec. 4.15, after redacting any portion that is exempt under 
paragraph (b) of this section.



Sec. 4.13  Publication in the Federal Register.

    The OCC publishes certain documents in the Federal Register for the 
guidance of the public, including the following:
    (a) Proposed and final rules; and
    (b) Certain notices and policy statements of concern to the general 
public.



Sec. 4.14  Public inspection and copying.

    (a) Available information. Subject to the exemptions listed in 
Sec. 4.12(b), the OCC makes the following information

[[Page 46]]

readily available for public inspection and copying:
    (1) Any final order, agreement, or other enforceable document issued 
in the adjudication of an OCC enforcement case, including a final order 
published pursuant to 12 U.S.C. 1818(u);
    (2) Any final opinion issued in the adjudication of an OCC 
enforcement case;
    (3) Any statement of general policy or interpretation of general 
applicability not published in the Federal Register;
    (4) Any administrative staff manual or instruction to staff that may 
affect a member of the public as such;
    (5) A current index identifying the information referred to in 
paragraphs (a)(1) through (a)(4) of this section issued, adopted, or 
promulgated after July 4, 1967;
    (6) A list of available OCC publications;
    (7) A list of forms available from the OCC, and specific forms and 
instructions; 1
---------------------------------------------------------------------------

    \1\ Some forms and instructions that national banks use, such as the 
Consolidated Report of Condition and Income (FFIEC 031-034), are not 
available from the OCC. The OCC will provide information on where 
persons may obtain these forms and instructions upon request.
---------------------------------------------------------------------------

    (8) Any public Community Reinvestment Act performance evaluation;
    (9) Any public securities-related filing required under part 11 or 
16 of this chapter;
    (10) Any public comment letter regarding a proposed rule; and
    (11) The public file (as defined in 12 CFR 5.9) with respect to a 
pending application described in part 5 of this chapter.
    (b) Redaction of identifying details. To the extent necessary to 
prevent an invasion of personal privacy, the OCC may redact identifying 
details from any information described in paragraph (a) of this section 
before making the information available for public inspection and 
copying.
    (c) Addresses. The information described in paragraphs (a)(1) 
through (a)(10) of this section is available from the Disclosure 
Officer, Communications Division, Office of the Comptroller of the 
Currency, 250 E Street, SW, Washington, DC 20219. The information 
described in paragraph (a)(11) of this section is available from the 
Licensing Manager at the appropriate district office at the address 
listed in Sec. 4.5(a), or in the case of banks supervised by the 
Multinational Banking Department, from the Licensing Manager, 
Multinational Banking, Office of the Comptroller of the Currency, 250 E 
Street, SW, Washington, DC 20219.



Sec. 4.15  Specific requests for records.

    (a) Available information. Subject to the exemptions described in 
Sec. 4.12(b), any OCC record is available to any person upon specific 
request in accordance with this section.
    (b) Where to submit request or appeal--(1) General. Except as 
provided in paragraph (b)(2) of this section, a person requesting a 
record or filing an administrative appeal under this section must submit 
the request or appeal to the Disclosure Officer, Communications 
Division, Office of the Comptroller of the Currency, 250 E Street, SW, 
Washington, DC 20219.
    (2) Exceptions--(i) Records at the Federal Deposit Insurance 
Corporation. A person requesting any of the following records, other 
than blank forms (see Sec. 4.14(a)(7)), must submit the request to the 
Disclosure Group, Federal Deposit Insurance Corporation, 550-17th 
Street, NW, Washington, DC 20429, (800) 945-2186:
    (A) Consolidated Report of Condition and Income (FFIEC 031, 032, 
033, 034);
    (B) Annual Report of Trust Assets (FFIEC 001);
    (C) Uniform Bank Performance Report; and
    (D) Special Report.
    (ii) Records of another agency. When the OCC receives a request for 
records in its possession that another Federal agency either generated 
or provided to the OCC, the OCC promptly informs the requester and 
immediately forwards the request to that agency for processing in 
accordance with that agency's regulations.
    (c) Request for records--(1) Content of request for records. A 
person requesting records under this section must state, in writing:
    (i) The requester's full name, address, and telephone number;

[[Page 47]]

    (ii) A reasonable description of the records sought (including 
sufficient detail to enable OCC employees who are familiar with the 
subject matter of the request to locate the records with a reasonable 
amount of effort);
    (iii) A statement agreeing to pay all fees that the OCC assesses 
under Sec. 4.17;
    (iv) A description of how the requester intends to use the records, 
if a requester seeks placement in a lower fee category (i.e., a fee 
category other than ``commercial use requester'') under Sec. 4.17; and
    (v) Whether the requester prefers the OCC to deliver a copy of the 
records or to allow the requester to inspect the records at the 
appropriate OCC office.
    (2) Initial determination. The OCC's Director of Communications or 
that person's delegate initially determines whether to grant a request 
for OCC records.
    (3) If request is granted. If the OCC grants a request for records, 
in whole or in part, the OCC promptly discloses the records in one of 
two ways, depending on the requester's stated preference:
    (i) The OCC may deliver a copy of the records to the requester. If 
the OCC delivers a copy of the records to the requester, the OCC 
duplicates the records at reasonable and proper times that do not 
interfere with their use by the OCC or preclude other persons from 
making inspections; or
    (ii) The OCC may allow the requester to inspect the records at 
reasonable and proper times that do not interfere with their use by the 
OCC or preclude other persons from making inspections. If the OCC allows 
the requester to inspect the records, the OCC may place a reasonable 
limit on the number of records that a person may inspect during a day.
    (4) If request is denied. If the OCC denies a request for records, 
in whole or in part, the OCC notifies the requester by mail. The 
notification is dated and contains a brief statement of the reasons for 
the denial, sets forth the name and title or position of the official 
making the decision, and advises the requester of the right to an 
administrative appeal in accordance with paragraph (d) of this section.
    (d) Administrative appeal of a denial--(1) Procedure. A requester 
must submit an administrative appeal of denial of a request for records 
in writing within 35 days of the date of the initial determination. The 
appeal must include the circumstances and arguments supporting 
disclosure of the requested records.
    (2) Appellate determination. The Comptroller or the Comptroller's 
delegate determines whether to grant an appeal of a denial of a request 
for OCC records.
    (3) If appeal is granted. If the OCC grants an appeal, in whole or 
in part, the OCC treats the request as if it were originally granted, in 
whole or in part, by the OCC in accordance with paragraph (c)(3) of this 
section.
    (4) If appeal is denied. If the OCC denies an appeal, in whole or in 
part, the OCC notifies the requester by mail. The notification contains 
a brief statement of the reasons for the denial, sets forth the name and 
title or position of the official making the decision, and advises the 
requester of the right to judicial review of the denial under 5 U.S.C. 
552(a)(4)(B).
    (e) Judicial review--(1) General. If the OCC denies an appeal 
pursuant to paragraph (d) of this section, or if the OCC fails to make a 
determination within the time limits specified in paragraph (f) of this 
section, the requester may commence an action to compel disclosure of 
records, pursuant to 5 U.S.C. 552(a)(4)(B), in the United States 
district court in:
    (i) The district where the requester resides;
    (ii) The district where the requester's principal place of business 
is located;
    (iii) The district where the records are located; or
    (iv) The District of Columbia.
    (2) Service of process. In commencing an action described in 
paragraph (e)(1) of this section, the requester, in addition to 
complying with the Federal Rules of Civil Procedure (28 U.S.C. appendix) 
for service upon the United States or agencies thereof, must serve 
process on the Chief Counsel or the Chief Counsel's delegate at the 
following location: Office of the Comptroller of the Currency, 250 E 
Street, SW, Washington, DC 20219.

[[Page 48]]

    (f) Time limits--(1) Request. The OCC makes an initial determination 
to grant or deny a request for records within 10 business days after the 
date of receipt of the request, as described in paragraph (g) of this 
section, except as stated in paragraph (f)(3) of this section.
    (2) Appeal. The OCC makes a determination to grant or deny an 
administrative appeal within 20 business days after the date of receipt 
of the appeal, as described in paragraph (g) of this section, except as 
stated in paragraph (f)(3) of this section.
    (3) Extension of time. The time limits set forth in paragraphs 
(f)(1) and (2) of this section may be extended as follows:
    (i) In unusual circumstances. The OCC may extend the time limits in 
unusual circumstances for a maximum of 10 business days. If the OCC 
extends the time limits, the OCC provides written notice to the person 
making the request or appeal, containing the reason for the extension 
and the date on which the OCC expects to make a determination. Unusual 
circumstances exist when the OCC requires additional time to:
    (A) Search for and collect the requested records from field 
facilities or other buildings that are separate from the office 
processing the request or appeal;
    (B) Search for, collect, and appropriately examine a voluminous 
amount of requested records;
    (C) Consult with another agency that has a substantial interest in 
the determination of the request; or
    (D) Allow two or more components of the OCC that have substantial 
interest in the determination of the request to consult with each other;
    (ii) By agreement. A requester may agree to extend the time limits 
for any amount of time; or
    (iii) By judicial action. If a requester commences an action 
pursuant to paragraph (e) of this section for failure to comply with the 
time limits set forth in this paragraph (f), a court with jurisdiction 
may, pursuant to 5 U.S.C. 552(a)(6)(C), allow the OCC additional time to 
complete the review of the records requested.
    (g) Date of receipt of request or appeal. The date of receipt of a 
request for records or an appeal is the date that OCC Communications 
Division receives a request that satisfies the requirements of paragraph 
(c)(1) or (d)(1) of this section, except as provided in Sec. 4.17(d).



Sec. 4.16  Predisclosure notice for confidential commercial information.

    (a) Definitions. For purposes of this section, the following 
definitions apply:
    (1) Confidential commercial information means records that arguably 
contain material exempt from release under Exemption 4 of the FOIA (5 
U.S.C. 552(b)(4); Sec. 4.12(b)(4)), because disclosure reasonably could 
cause substantial competitive harm to the submitter.
    (2) Submitter means any person or entity that provides confidential 
commercial information to the OCC. This term includes corporations, 
State governments, foreign governments, and banks and their employees, 
officers, directors, and principal shareholders.
    (b) Notice to submitter--(1) When provided. In accordance with 
Executive Order 12600 (3 CFR, 1987 Comp., p. 235), when the OCC receives 
a request under Sec. 4.15(c) or, where appropriate, an appeal under 
Sec. 4.15(d) for disclosure of confidential commercial information, the 
OCC provides a submitter with prompt written notice of the receipt of 
that request (except as provided in paragraph (b)(2) of this section) in 
the following circumstances:
    (i) With respect to confidential commercial information submitted to 
the OCC prior to January 1, 1988, if:
    (A) The records are less than 10 years old and the submitter 
designated the information as confidential commercial information;
    (B) The OCC reasonably believes that disclosure of the information 
may cause substantial competitive harm to the submitter; or
    (C) The information is subject to a prior express OCC commitment of 
confidentiality; and
    (ii) With respect to confidential commercial information submitted 
to the OCC on or after January 1, 1988, if:

[[Page 49]]

    (A) The submitter in good faith designated the information as 
confidential commercial information;
    (B) The OCC designated the class of information to which the 
requested information belongs as confidential commercial information; or
    (C) The OCC reasonably believes that disclosure of the information 
may cause substantial competitive harm to the submitter.
    (2) Exceptions. The OCC generally does not provide notice under 
paragraph (b)(1) of this section if the OCC determines that:
    (i) It will not disclose the information;
    (ii) The information already has been disclosed officially to the 
public;
    (iii) The OCC is required by law (other than 5 U.S.C. 552) to 
disclose the information;
    (iv) The OCC acquired the information in the course of a lawful 
investigation of a possible violation of criminal law;
    (v) The submitter had an opportunity to designate the requested 
information as confidential commercial information at the time of 
submission of the information or a reasonable time thereafter and did 
not do so, unless the OCC has substantial reason to believe that 
disclosure of the information would result in competitive harm; or
    (vi) The OCC determines that the submitter's designation under 
paragraph (b)(1)(ii)(A) of this section is frivolous; in such case, 
however, the OCC will provide the submitter with written notice of any 
final administrative determination to disclose the information at least 
10 business days prior to the date that the OCC intends to disclose the 
information.
    (3) Content of notice. The OCC either describes in the notice the 
exact nature of the confidential commercial information requested or 
includes with the notice copies of the records or portions of records 
containing that information.
    (4) Expiration of notice period. The OCC provides notice under this 
paragraph (b) with respect to information that the submitter designated 
under paragraph (b)(1)(ii)(A) of this section only for a period of 10 
years after the date of the submitter's designation, unless the 
submitter requests and justifies to the OCC's satisfaction a specific 
notice period of greater duration.
    (5) Certification of confidentiality. If possible, the submitter 
should support the claim of confidentiality with a statement or 
certification that the requested information is confidential commercial 
information that the submitter has not disclosed to the public. This 
statement should be prepared by an officer or authorized representative 
if the submitter is a corporation or other entity.
    (c) Notice to requester. If the OCC provides notice to a submitter 
under paragraph (b) of this section, the OCC notifies the person 
requesting confidential commercial information (requester) that it has 
provided notice to the submitter. The OCC also advises the requester 
that if there is a delay in its decision whether to grant or deny access 
to the information sought, the delay may be considered a denial of 
access to the information, and that the requester may proceed with an 
administrative appeal or seek judicial review. However, the requester 
may agree to a voluntary extension of time to allow the OCC to review 
the submitter's objection to disclosure (see Sec. 4.15(f)(3)(ii)).
    (d) Opportunity to object to disclosure. Within 10 days after 
receiving notice under paragraph (b) of this section, the submitter may 
provide the OCC with a detailed statement of objection to disclosure of 
the information. That statement must specify the grounds for withholding 
any of the information under any exemption of the FOIA. Any statement 
that the submitter provides under this paragraph (d) may be subject to 
disclosure under the FOIA.
    (e) Notice of intent to disclose. The OCC considers carefully a 
submitter's objection and specific grounds for nondisclosure prior to 
determining whether to disclose the requested information. If the OCC 
decides to disclose information over the objection of the submitter, the 
OCC provides to the submitter, with a copy to the requester, a written 
notice that includes:
    (1) A statement of the OCC's reasons for not sustaining the 
submitter's objections to disclosure;
    (2) A description of the information to be disclosed;

[[Page 50]]

    (3) The anticipated disclosure date, which is not less than 10 
business days after the OCC mails the written notice required under this 
paragraph (e); and
    (4) A statement that the submitter must notify the OCC immediately 
if the submitter intends to seek injunctive relief.
    (f) Notice of requester's lawsuit. Whenever the OCC receives service 
of process indicating that a requester has brought suit seeking to 
compel the OCC to disclose information covered by paragraph (b)(1) of 
this section, the OCC promptly notifies the submitter.



Sec. 4.17  Fees for services.

    (a) Definitions. For purposes of this section, the following 
definitions apply:
    (1) Actual costs means those expenditures that the OCC incurs in 
providing services (including searching for, reviewing, and duplicating 
records) in response to a request for records under Sec. 4.15.
    (2) Search means the process of locating a record in response to a 
request, including page-by-page or line-by-line identification of 
material within a record. The OCC may perform a search manually or by 
electronic means.
    (3) Review means the process of examining a record located in 
response to a request to determine which portions of that record should 
be released. It also includes processing a record for disclosure.
    (4) Duplication means the process of copying a record in response to 
a request. A copy may take the form of a paper copy, microform, 
audiovisual materials, or machine readable material (e.g., magnetic tape 
or disk), among others.
    (5) Commercial use requester means a person who seeks records for a 
use or purpose that furthers the commercial, trade, or profit interests 
of the requester or the person on whose behalf the request is made.
    (6) Educational institution requester means a person who seeks 
records on behalf of a public or private educational institution, 
including a preschool, an elementary or secondary school, an institution 
of undergraduate or graduate higher education, an institution of 
professional education, or an institution of vocational education that 
operates a program of scholarly research.
    (7) Noncommercial scientific institution requester means a person 
who is not a ``commercial use requester,'' as that term is defined in 
paragraph (a)(5) of this section, and who seeks records on behalf of an 
institution operated solely for the purpose of conducting scientific 
research, the results of which are not intended to promote any 
particular product or industry.
    (8) Requester who is a representative of the news media means a 
person who seeks records for the purpose of gathering news (i.e., 
information about current events or of current interest to the public) 
on behalf of, or a free-lance journalist who reasonably expects to have 
his or her work product published or broadcast by, an entity organized 
and operated to publish or broadcast news to the public.
    (b) Fees--(1) General. The hourly and per page rate that the OCC 
generally charges requesters is set forth in the ``Notice of Comptroller 
of the Currency Fees'' (Notice) described in 12 CFR 8.8. Any interested 
person may request a copy of the Notice from the OCC by mail or may 
obtain a copy at the location described in Sec. 4.14(c). The OCC may 
contract with a commercial service to search for, duplicate, or 
disseminate records, provided that the OCC determines that the fee 
assessed upon a requester is no greater than if the OCC performed the 
tasks itself. The OCC does not contract out responsibilities that the 
FOIA provides that the OCC alone may discharge, such as determining the 
applicability of an exemption or whether to waive or reduce a fee.
    (2) Fee categories. The OCC assesses a fee based on the fee category 
in which the OCC places the requester. If the request states how the 
requester intends to use the requested records (see 
Sec. 4.15(c)(1)(iv)), the OCC may place the requester in a lower fee 
category; otherwise, the OCC categorizes the requester as a ``commercial 
use requester.'' If the OCC reasonably doubts the requester's stated 
intended use, or if that use is not clear from the request, the OCC may 
place the requester in the ``commercial use'' category or

[[Page 51]]

may seek additional clarification. The fee categories are as follows:
    (i) Commercial use requesters. The OCC assesses a fee for a 
requester in this category for the actual cost of search, review, and 
duplication. A requester in this category does not receive any free 
search, review, or duplication services.
    (ii) Educational institution requesters, noncommercial scientific 
institution requesters, and requesters who are representatives of the 
news media. The OCC assesses a fee for a requester in this category for 
the actual cost of duplication. A requester in this category receives 
100 free pages.
    (iii) All other requesters. The OCC assesses a fee for a requester 
who does not fit into either of the above categories for the actual cost 
of search and duplication. A requester in this category receives 100 
free pages and two hours of free search time.
    (3) Special services. The OCC may, in its discretion, accommodate a 
request for special services. The OCC may recover the actual cost of 
providing any special services.
    (4) Waiving or reducing a fee. The OCC may waive or reduce a fee 
under this section whenever, in its opinion, disclosure of records is in 
the public interest because the disclosure:
    (i) Is likely to contribute significantly to public understanding of 
the operations or activities of the government; and
    (ii) Is not primarily in the commercial interest of the requester.
    (5) Fee for unsuccessful search. The OCC may assess a fee for time 
spent searching for records, even if the OCC does not locate the records 
requested.
    (c) Payment of fees--(1) General. The OCC generally assesses a fee 
when it delivers the records in response to the request, if any. A 
requester must send payment within 30 calendar days of the billing date 
to the Communications Division, Office of the Comptroller of the 
Currency, 250 E Street, SW., Washington, DC 20219.
    (2) Fee likely to exceed $25. If the OCC estimates that a fee is 
likely to exceed $25, the OCC notifies the requester of the estimated 
fee, unless the requester has indicated in advance a willingness to pay 
a fee as high as the estimated fee. If so notified by the OCC, the 
requester may confer with OCC employees to revise the request to reflect 
a lower fee.
    (3) Fee likely to exceed $250. If the OCC estimates that a fee is 
likely to exceed $250, the OCC notifies the requester of the estimated 
fee. In this circumstance, the OCC may require, as a condition to 
processing the request, that the requester:
    (i) Provide satisfactory assurance of full payment, if the requester 
has a history of prompt payment; or
    (ii) Pay the estimated fee in full, if the requester does not have a 
history of prompt payment.
    (4) Failure to pay a fee. If the requester fails to pay a fee within 
30 days of the date of the billing, the OCC may require, as a condition 
to processing any further request, that the requester pay any unpaid 
fee, plus interest (as provided in paragraph (c)(5) of this section), 
and any estimated fee in full for that further request.
    (5) Interest on unpaid fee. The OCC may assess interest charges on 
an unpaid fee beginning on the 31st day following the billing date. The 
OCC charges interest at the rate prescribed in 31 U.S.C. 3717.
    (d) Tolling of time limits. Under the circumstances described in 
paragraphs (c) (2), (3), and (4) of this section, the time limits set 
forth in Sec. 4.15(f) (i.e., 10 business days from the receipt of a 
request for records and 20 business days from the receipt of an 
administrative appeal, plus any permissible extension) begin only after 
the OCC receives a revised request under paragraph (c)(2) of this 
section, an assurance of payment under paragraph (c)(3)(i) of this 
section, or the required payments under paragraph (c)(3)(i) or (c)(4) of 
this section.
    (e) Aggregating requests. When the OCC reasonably believes that a 
requester or group of requesters is attempting to break a request into a 
series of requests for the purpose of evading the assessment of a fee, 
the OCC may aggregate the requests and assess a fee accordingly.

[[Page 52]]



            Subpart C--Release of Non-Public OCC Information



Sec. 4.31  Purpose and scope.

    (a) Purpose. The purposes of this subpart are to:
    (1) Afford an orderly mechanism for the OCC to process expeditiously 
requests for non-public OCC information; to address the release of non-
public OCC information without a request; and, when appropriate, for the 
OCC to assert evidentiary privileges in litigation;
    (2) Recognize the public's interest in obtaining access to relevant 
and necessary information and the countervailing public interest of 
maintaining the effectiveness of the OCC supervisory process and 
appropriate confidentiality of OCC supervisory information;
    (3) Ensure that the OCC's information is used in a manner that 
supports the public interest and the interests of the OCC;
    (4) Ensure that OCC resources are used in the most efficient manner 
consistent with the OCC's statutory mission;
    (5) Minimize burden on national banks, the public, and the OCC;
    (6) Limit the expenditure of government resources for private 
purposes; and
    (7) Maintain the OCC's impartiality among private litigants.
    (b) Scope. (1) This subpart applies to requests for, and 
dissemination of, non-public OCC information, including requests for 
records or testimony arising out of civil lawsuits and administrative 
proceedings to which the OCC is not a party and the release of non-
public OCC information without a specific request. Lawsuits and 
administrative proceedings to which the OCC is not a party include 
proceedings in which a Federal agency is a party in opposition to the 
private requester.
    (2) This subpart does not apply to:
    (i) A request for a record or testimony in a proceeding in which the 
OCC is a party; or
    (ii) A request for a record that is required to be disclosed under 
the Freedom of Information Act (FOIA) (5 U.S.C. 552), as described in 
Sec. 4.12.
    (3) A request for a record or testimony made by the Board of 
Governors of the Federal Reserve System, the Federal Deposit Insurance 
Corporation, a government agency of the United States or a foreign 
government, a state agency with authority to investigate violations of 
criminal law, or a state bank regulatory agency is governed solely by 
Sec. 4.37(c).

[60 FR 57322, Nov. 15, 1995, as amended at 63 FR 62929, Nov. 10, 1998; 
64 FR 29216, June 1, 1999]



Sec. 4.32  Definitions.

    (a) Complete request means a request containing sufficient 
information to allow the OCC to make an informed decision.
    (b) Non-public OCC information. Non-public OCC information:
    (1) Means information that the OCC is not required to release under 
the FOIA (5 U.S.C. 552) or that the OCC has not yet published or made 
available pursuant to 12 U.S.C. 1818(u) and includes:
    (i) A record created or obtained by the OCC in connection with the 
OCC's performance of its responsibilities, such as a record concerning 
supervision, licensing, regulation, and examination of a national bank, 
a bank holding company, or an affiliate;
    (ii) A record compiled by the OCC in connection with the OCC's 
enforcement responsibilities;
    (iii) A report of examination, supervisory correspondence, an 
investigatory file compiled by the OCC in connection with an 
investigation, and any internal agency memorandum, whether the 
information is in the possession of the OCC or some other individual or 
entity;
    (iv) Confidential OCC information obtained by a third party or 
otherwise incorporated in the records of a third party, including 
another government agency;
    (v) Testimony from, or an interview with, a current or former OCC 
employee, officer, or agent concerning information acquired by that 
person in the course of his or her performance of official duties with 
the OCC or due to that person's official status at the OCC;

[[Page 53]]

    (vi) Confidential information relating to operating and no longer 
operating national banks as well as their subsidiaries and their 
affiliates; and
    (vii) A Suspicious Activity Report filed by the OCC, a national 
bank, or a Federal branch or agency of a foreign bank licensed or 
chartered by the OCC under 12 CFR 21.11; and
    (2) Is the property of the Comptroller. A report of examination is 
loaned to the bank or holding company for its confidential use only.
    (c) Relevant means could contribute substantially to the resolution 
of one or more specifically identified issues in the case.
    (d) Show a compelling need means, in support of a request for 
testimony, demonstrate with as much detail as is necessary under the 
circumstances, that the requested information is relevant and that the 
relevant material contained in the testimony is not available from any 
other source. Sources, without limitation, include the books and records 
of other persons or entities and non-public OCC records that have been, 
or might be, released.
    (e) Supervised entity includes a national bank, a subsidiary of a 
national bank, a Federal branch or agency of a foreign bank licensed by 
the OCC as defined under 12 CFR 28.11(h) and (i), or any other entity 
supervised by the OCC.
    (f) Testimony means an interview or sworn testimony on the record.

[60 FR 57322, Nov. 15, 1995, as amended at 63 FR 62929, Nov. 10, 1998; 
64 FR 29216, June 1, 1999]



Sec. 4.33  Requirements for a request of records or testimony.

    (a) Generally--(1) Form of request. A person seeking non-public OCC 
information must submit a request in writing to the OCC. The requester 
must explain, in as detailed a description as is necessary under the 
circumstances, the bases for the request and how the requested non-
public OCC information relates to the issues in the lawsuit or matter.
    (2) Expedited request. A requester seeking a response in less than 
60 days must explain why the request was not submitted earlier and why 
the OCC should expedite the request.
    (3) Request arising from adversarial matters. Where the requested 
information is to be used in connection with an adversarial matter:
    (i) The OCC generally will require that the lawsuit or 
administrative action has been filed before it will consider the 
request;
    (ii) The request must include:
    (A) A copy of the complaint or other pleading setting forth the 
assertions in the case;
    (B) The caption and docket number of the case;
    (C) The name, address, and phone number of counsel to each party in 
the case; and
    (D) A description of any prior judicial decisions or pending motions 
in the case that may bear on the asserted relevance of the requested 
information;
    (iii) The request must also:
    (A) Show that the information is relevant to the purpose for which 
it is sought;
    (B) Show that other evidence reasonably suited to the requester's 
needs is not available from any other source;
    (C) Show that the need for the information outweighs the public 
interest considerations in maintaining the confidentiality of the OCC 
information and outweighs the burden on the OCC to produce the 
information;
    (D) Explain how the issues in the case and the status of the case 
warrant that the OCC allow disclosure; and
    (E) Identify any other issue that may bear on the question of waiver 
of privilege by the OCC.
    (b) Request for records. If the request is for a record, the 
requester must adequately describe the record or records sought by type 
and date.
    (c) Request for testimony--(1) Generally. A requester seeking 
testimony:
    (i) Must show a compelling need for the requested information; and
    (ii) Should request OCC testimony with sufficient time to obtain the 
testimony in deposition form.
    (2) Trial or hearing testimony. A requester seeking testimony at a 
trial or hearing must show that a deposition would not suffice.

[[Page 54]]



Sec. 4.34  Where to submit a request.

    (a) A request for non-public OCC information. A person requesting 
information under this subpart, requesting authentication of a record 
under Sec. 4.39(d), or submitting a notification of the issuance of a 
subpoena or compulsory process under Sec. 4.37, shall send the request 
or notification to: Office of the Comptroller of the Currency, 250 E 
Street, SW, Washington, DC 20219, Attention: Director, Litigation 
Division.
    (b) Combined requests for non-public and other OCC information. A 
person requesting public OCC information and non-public OCC information 
under this subpart may submit a combined request for both to the address 
in paragraph (a) of this section. If a requester decides to submit a 
combined request under this section, the OCC will process the combined 
request under this subpart and not under subpart B of this part (FOIA).
    (c) Request by government agencies. A request made pursuant to 
Sec. 4.37(c) must be submitted:
    (1) In a civil action, to the Director of the OCC's Litigation 
Division at the Washington office; or
    (2) In a criminal action, to the appropriate district counsel or the 
Director of the OCC's Enforcement and Compliance Division at the 
Washington office.

[60 FR 57322, Nov. 15, 1995, as amended at 64 FR 29216, June 1, 1999]



Sec. 4.35  Consideration of requests.

    (a) In general--(1) OCC discretion. The OCC decides whether to 
release non-public OCC information based on its weighing of all 
appropriate factors including the requestor's fulfilling of the 
requirements enumerated in Sec. 4.33. Each decision is at the sole 
discretion of the Comptroller or the Comptroller's delegate and is a 
final agency decision. OCC action on a request for non-public OCC 
information exhausts administrative remedies for discovery of the 
information.
    (2) Bases for denial. The OCC may deny a request for non-public OCC 
information for reasons that include the following:
    (i) The requester was unsuccessful in showing that the information 
is relevant to the pending matter;
    (ii) The requester seeks testimony and the requestor did not show a 
compelling need for the information;
    (iii) The request arises from an adversarial matter and other 
evidence reasonably suited to the requester's need is available from 
another source;
    (iv) A lawsuit or administrative action has not yet been filed and 
the request was made in connection with potential litigation; or
    (v) The production of the information would be contrary to the 
public interest or unduly burdensome to the OCC.
    (3) Additional information. A requester must submit a complete 
request. The OCC may require the requester to provide additional 
information to complete a request. Consistent with the purposes stated 
in Sec. 4.31, the OCC may inquire into the circumstances of any case 
underlying the request and rely on sources of information other than the 
requester, including other parties.
    (4) Time required by the OCC to respond. The OCC generally will 
process requests in the order in which they are received. The OCC will 
notify the requester in writing of the final decision. Absent exigent or 
unusual circumstances, the OCC will respond to a request within 60 days 
from the date that the OCC receives a request that it deems a complete 
request. Consistent with Sec. 4.33(a)(2), the OCC weighs a request to 
respond to provide information in less than 60 days against the 
unfairness to other requesters whose pending requests may be delayed and 
the burden imposed on the OCC by the expedited processing.
    (5) Notice to subject national banks. Following receipt of a request 
for non-public OCC information, the OCC generally notifies the national 
bank that is the subject of the requested information, unless the OCC, 
in its discretion, determines that to do so would advantage or prejudice 
any of the parties in the matter at issue.
    (b) Testimony. (1) The OCC generally will not authorize a current 
OCC employee to provide expert or opinion evidence for a private party.
    (2) The OCC may restrict the scope of any authorized testimony and 
may act to ensure that the scope of testimony given by the OCC employee 
adheres to the scope authorized by the OCC.

[[Page 55]]

    (3) Once a request for testimony has been submitted, and before the 
requested testimony occurs, a party to the relevant case, who did not 
join in the request and who wishes to question the witness beyond the 
scope of testimony sought by the request, shall timely submit the 
party's own request for OCC information pursuant to this subpart.
    (4) The OCC may offer the requester the employee's written 
declaration in lieu of testimony.
    (c) Release of non-public OCC information by others. In appropriate 
cases, the OCC may respond to a request for information by authorizing a 
party to the case who is in possession of non-public OCC information to 
release the information to the requester. An OCC authorization to 
release records does not preclude the party in possession from asserting 
its own privilege, arguing that the records are not relevant, or 
asserting any other argument for which it has standing to protect the 
records from release.



Sec. 4.36  Disclosure of non-public OCC information.

    (a) Discretionary disclosure of non-public OCC information. The OCC 
may make non-public OCC information available to a supervised entity and 
to other persons, that in the sole discretion of the Comptroller may be 
necessary or appropriate, without a request for records or testimony.
    (b) OCC policy. It is the OCC's policy regarding non-public OCC 
information that such information is confidential and privileged. 
Accordingly, the OCC will not normally disclose this information to 
third parties.
    (c) Conditions and limitations. The OCC may impose any conditions or 
limitations on disclosures under this section, including the 
restrictions on dissemination contained in Sec. 4.38, that it determines 
are necessary to effect the purposes of this section.
    (d) Unauthorized disclosures prohibited. All non-public OCC 
information remains the property of the OCC. No supervised entity, 
government agency, person, or other party to whom the information is 
made available, or any officer, director, employee, or agent thereof, 
may disclose non-public OCC information without the prior written 
permission of the OCC, except in published statistical material that 
does not disclose, either directly or when used in conjunction with 
other publicly available information, the affairs of any individual, 
corporation, or other entity. Except as authorized by the OCC, no person 
obtaining access to non-public OCC information under this section may 
make a copy of the information and no person may remove non-public OCC 
information from the premises of the institution, agency, or other party 
in authorized possession of the information.

[63 FR 62929, Nov. 10, 1998, as amended at 64 FR 29216, June 1, 1999]



Sec. 4.37  Persons and entities with access to OCC information; prohibition on dissemination.

    (a) Current and former OCC employees or agents--(1) Generally. 
Except as authorized by this subpart or otherwise by the OCC, no current 
or former OCC employee or agent may, in any manner, disclose or permit 
the disclosure of any non-public OCC information to anyone other than an 
employee or agent of the Comptroller for use in the performance of OCC 
duties.
    (2) Duty of person served. Any current or former OCC employee or 
agent subpoenaed or otherwise requested to provide information covered 
by this subpart must immediately notify the OCC as provided in this 
paragraph. The OCC may intervene, attempt to have the compulsory process 
withdrawn, and register appropriate objections when a current or former 
OCC employee or agent receives a subpoena and the subpoena requires the 
current or former employee or agent to appear or produce OCC 
information. If necessary, the current or former employee or agent must 
appear as required and respectfully decline to produce the information 
sought, citing this subpart as authority and United States ex rel. Touhy 
v. Ragen, 340 U.S. 462 (1951). The current or former OCC employee or 
agent must immediately notify the OCC if subpoenaed or otherwise asked 
for non-public OCC information:
    (i) In a civil action, by notifying the Director of the OCC's 
Litigation Division at the Washington office; or

[[Page 56]]

    (ii) In a criminal action, by notifying the appropriate district 
counsel for current and former district employees or agents; or the 
Director of the OCC's Enforcement and Compliance Division at the 
Washington office, for current and former Washington employees or 
agents.
    (b) Non-OCC employees or entities--(1) Generally. (i) Without OCC 
approval, no person, national bank, or other entity, including one in 
lawful possession of non-public OCC information under paragraph (b)(2) 
of this section, may disclose information covered by this subpart in any 
manner, except:
    (A) After the requester has sought the information from the OCC 
pursuant to the procedures set forth in this subpart; and
    (B) As ordered by a Federal court in a judicial proceeding in which 
the OCC has had the opportunity to appear and oppose discovery.
    (ii) Any person who discloses or uses non-public OCC information 
except as expressly permitted by the Comptroller of the Currency or as 
ordered by a Federal court, under paragraph (b)(1)(i) of this section, 
may be subject to the penalties provided in 18 U.S.C. 641.
    (2) Exception for national banks. When necessary or appropriate for 
bank business purposes, a national bank or holding company, or any 
director, officer, or employee thereof, may disclose non-public OCC 
information, including information contained in, or related to, OCC 
reports of examination, to a person or organization officially connected 
with the bank as officer, director, employee, attorney, auditor, or 
independent auditor. A national bank or holding company or a director, 
officer, or employee thereof may also release non-public OCC information 
to a consultant under this paragraph if the consultant is under a 
written contract to provide services to the bank and the consultant has 
a written agreement with the bank in which the consultant:
    (i) States its awareness of, and agreement to abide by, the 
prohibition on the dissemination of non-public OCC information contained 
in paragraph (b)(1) of this section; and
    (ii) Agrees not to use the non-public OCC information for any 
purpose other than as provided under its contract to provide services to 
the bank.
    (3) Duty of person or entity served. Any person, national bank, or 
other entity served with a request, subpoena, order, motion to compel, 
or other judicial or administrative process to provide non-public OCC 
information shall:
    (i) Immediately notify the Director of the OCC's Litigation Division 
at the Washington, DC office and inform the Director of all relevant 
facts, including the documents and information requested, so that the 
OCC may intervene in the judicial or administrative action if 
appropriate;
    (ii) Inform the requester of the substance of these rules and, in 
particular, of the obligation to follow the request procedures in 
Secs. 4.33 and 4.34; and
    (iii) At the appropriate time, inform the court or tribunal that 
issued the process of the substance of these rules.
    (4) Actions of the OCC following notice of service. Following 
receipt of notice pursuant to paragraph (b)(3) of this section, the OCC 
may direct the requester to comply with Secs. 4.33 and 4.34, intervene 
in the judicial or administrative action, attempt to have the compulsory 
process withdrawn, or register other appropriate objections.
    (5) Return of records. The OCC may require any person in possession 
of OCC records to return the records to the OCC.
    (c) Disclosure to government agencies. When not prohibited by law, 
the Comptroller may make available to the Board of Governors of the 
Federal Reserve System, the Federal Deposit Insurance Corporation, and, 
in the Comptroller's sole discretion, to certain other government 
agencies of the United States and foreign governments, state agencies 
with authority to investigate violations of criminal law, and state bank 
regulatory agencies, a copy of a report of examination, testimony, or 
other non-public OCC information for their use, when necessary, in the 
performance of their official duties. All non-public OCC information 
made available pursuant to this paragraph is OCC property, and the OCC 
may condition its use on appropriate confidentiality protections, 
including the mechanisms identified in Sec. 4.37.

[[Page 57]]

    (d) Intention of OCC not to waive rights. The possession by any of 
the entities or individuals described in paragraphs (a), (b), and (c) of 
this section of non-public OCC information does not constitute a waiver 
by the OCC of its right to control, or impose limitations on, the 
subsequent use and dissemination of the information.

[60 FR 57322, Nov. 15, 1995. Redesignated and amended at 63 FR 62929, 
Nov. 10, 1998; 64 FR 29217, June 1, 1999]



Sec. 4.38  Restrictions on dissemination of released information.

    (a) Records. The OCC may condition a decision to release non-public 
OCC information on entry of a protective order by the court or 
administrative tribunal presiding in the particular case or, in non-
adversarial matters, on a written agreement of confidentiality. In a 
case in which a protective order has already been entered, the OCC may 
condition approval for release of non-public OCC information upon the 
inclusion of additional or amended provisions in the protective order. 
The OCC may authorize a party who obtained records for use in one case 
to provide them to another party in another case.
    (b) Testimony. The OCC may condition its authorization of deposition 
testimony on an agreement of the parties to appropriate limitations, 
such as an agreement to keep the transcript of the testimony under seal 
or to make the transcript available only to the parties, the court, and 
the jury. Upon request or on its own initiative, the OCC may allow use 
of a transcript in other litigation. The OCC may require the requester, 
at the requester's expense, to furnish the OCC with a copy of the 
transcript. The OCC employee whose deposition was transcribed does not 
waive his or her right to review the transcript and to note errors.

[60 FR 57322, Nov. 15, 1995. Redesignated at 63 FR 62929, Nov. 10, 1998]



Sec. 4.39  Notification of parties and procedures for sharing and using OCC records in litigation.

    (a) Responsibility of litigants to notify parties of a request for 
testimony. Upon submitting a request to the OCC for the testimony of an 
OCC employee or former employee, the requester shall notify all other 
parties to the case that a request has been submitted.
    (b) Responsibility of litigants to share released records. The 
requester shall promptly notify other parties to a case of the release 
of non-public OCC information obtained pursuant to this subpart, and, 
upon entry of a protective order, shall provide copies of OCC 
information, including OCC information obtained pursuant to Sec. 4.15, 
to the other parties.
    (c) Retrieval and destruction of released records. At the conclusion 
of an action:
    (1) The requester shall retrieve any non-public OCC information from 
the court's file as soon as the court no longer requires the 
information;
    (2) Each party shall destroy the non-public OCC information covered 
by the protective order; and
    (3) Each party shall certify to the OCC that the non-public OCC 
information covered by the protective order has been destroyed.
    (d) Authentication for use as evidence. Upon request, the OCC 
authenticates released records to facilitate their use as evidence. 
Requesters who require authenticated records or certificates of 
nonexistence of records should, as early as possible, request 
certificates from the OCC's Litigation Division pursuant to 
Sec. 4.34(a).

[60 FR 57322, Nov. 15, 1995. Redesignated at 63 FR 62929, Nov. 10, 1998]



Sec. 4.40  Fees for services.

    (a) Fees for records search, copying, and certification. The 
requester shall pay a fee to the OCC, or to a commercial copier under 
contract to the OCC, for any records search, copying, or certification 
in accordance with the standards specified in Sec. 4.17. The OCC may 
require a requester to remit payment prior to providing the requested 
information.
    (b) Witness fees and mileage. A person whose request for testimony 
of a current OCC employee is approved shall, upon completion of the 
testimonial appearance, tender promptly to the OCC payment for the 
witness fees and mileage. The litigant shall compute these amounts in 
accordance with 28 U.S.C. 1821. A litigant whose request for testimony 
of a former OCC employee is approved shall tender promptly to the

[[Page 58]]

witness any witness fees or mileage due in accordance with 28 U.S.C. 
1821.

[60 FR 57322, Nov. 15, 1995. Redesignated at 63 FR 62929, Nov. 10, 1998]

  Appendix A to Subpart C--Model Stipulation for Protective Order and 
                         Model Protective Order

                          I. Model Stipulation

CASE CAPTION

                 MODEL STIPULATION FOR PROTECTIVE ORDER

    Whereas, counsel for ____________ have applied to the Comptroller of 
the Currency (hereinafter ``Comptroller'') pursuant to 12 CFR Part 4, 
Subpart C, for permission to have made available, in connection with the 
captioned action, certain records; and
    Whereas, such records are deemed by the Comptroller to be 
confidential and privileged, pursuant to 12 U.S.C. 481; 5 U.S.C. 
552(b)(8); 18 U.S.C. 641, 1906; and 12 CFR 4.12, and Part 4, Subpart C; 
and
    Whereas, following consideration by the Comptroller of the 
application of the above described party, the Comptroller has determined 
that the particular circumstances of the captioned action warrant making 
certain possibly relevant records as denoted in Appendix ``A'' to this 
Stipulation [records to be specified by type and date] available to the 
parties in this action, provided that appropriate protection of their 
confidentiality can be secured;
    Therefore, it is hereby stipulated by and between the parties 
hereto, through their respective attorneys that they will be bound by 
the following protective order which may be entered by the Court without 
further notice.
    Dated this __ day of ____, 19__.

_______________________________________________________________________
Attorney for Plaintiff

_______________________________________________________________________
Attorney for Defendant

                       II. Model Protective Order

                              CASE CAPTION

                         MODEL PROTECTIVE ORDER

    Whereas, counsel for ____________ have applied to the Comptroller of 
the Currency (hereinafter Comptroller'') pursuant to 12 CFR Part 4, 
Subpart C, for permission to have made available, in connection with the 
captioned action, certain records; and
    Whereas, such records are deemed by the Comptroller to be 
confidential and privileged, pursuant to 12 U.S.C. 481; 5 U.S.C. 
552(b)(8); 18 U.S.C. 641, 1906; and 12 CFR 4.12, and Part 4, Subpart C;
    Whereas, following consideration by the Comptroller of the 
application of the above described party, the Comptroller has determined 
that the particular circumstances of the captioned action warrant making 
certain possibly relevant records available to the parties in this 
action, provided that appropriate protection of their confidentiality 
can be secured;
    Now, Therefore, it is Ordered That:
    1. The records, as denoted in Appendix ``A'' to the Stipulation for 
this Protective Order, upon being furnished [or released for use] by the 
Comptroller, shall be disclosed only to the parties to this action, 
their counsel, and the court [and the jury].
    2. The parties to this action and their counsel shall keep such 
records and any information contained in such records confidential and 
shall in no way divulge the same to any person or entity, except to such 
experts, consultants and non-party witnesses to whom the records and 
their contents shall be disclosed, solely for the purpose of properly 
preparing for and trying the action.
    3. No person to whom information and records covered by this Order 
are disclosed shall make any copies or otherwise use such information or 
records or their contents for any purpose whatsoever, except in 
connection with this action.
    4. Any party or other person who wishes to use the information or 
records or their contents in any other action shall make a separate 
application to the Comptroller pursuant to 12 CFR Part 4, Subpart C.
    5. Should any records covered by this Order be filed with the Court 
or utilized as exhibits at depositions in the captioned action, or 
should information or records or their contents covered by this Order be 
disclosed in the transcripts of depositions or the trial in the 
captioned action, such records, exhibits and transcripts shall be filed 
in sealed envelopes or other sealed containers marked with the title of 
this action, identifying each document and article therein and bearing a 
statement substantially in the following form:

                              CONFIDENTIAL

    Pursuant to the Order of the Court dated ____________ this envelope 
containing the above-identified papers filed by (the name of the party) 
is not to be opened nor the contents thereof displayed or revealed 
except to the parties to this action or their counsel or by further 
Order of the Court.
    6. FOR JURY TRIAL: Any party offering any of the records into 
evidence shall offer only those pages, or portions thereof, that are 
relevant and material to the issues to be decided in the action and 
shall block out any portion of any page that contains information not 
relevant or material. Furthermore, the name of any person or entity 
contained on any page of the records who is not a party

[[Page 59]]

to this action, or whose name is not otherwise relevant or material to 
the action, shall be blocked out prior to the admission of such page 
into evidence. Any disagreement regarding what portion of any page that 
should be blocked out in this manner shall be resolved by the Court in 
camera, and the Court shall decide its admissibility into evidence.
    7. At the conclusion of this action, all parties shall certify to 
the Comptroller that the records covered by this Order have been 
destroyed. Furthermore, counsel for ____________, pursuant to 12 CFR 
4.39(c), shall retrieve any records covered by this Order that may have 
been filed with the Court.

    So Ordered:

_______________________________________________________________________
Judge

    Date

[60 FR 57322, Nov. 15, 1995, as amended at 64 FR 29217, June 1, 1999]



Subpart D--Minority- , Women- , and Individuals With Disabilities-Owned 
    Business Contracting Outreach Program; Contracting for Goods and 
                                Services



Sec. 4.61  Purpose.

    Pursuant to the Financial Institutions Reform, Recovery, and 
Enforcement Act of 1989, Sec. 1216(c), Pub. L. 101-73, 103 Stat. 183, 
529 (12 U.S.C. 1833e(c)) and consistent with the Rehabilitation Act of 
1973, as amended (29 U.S.C. 701 et seq.), this subpart establishes the 
OCC Minority- , Women- , and Individuals with Disabilities-Owned 
Business Contracting Outreach Program (Outreach Program). The Outreach 
Program is intended to ensure that firms owned and operated by 
minorities, women, and individuals with disabilities have the 
opportunity to participate, to the maximum extent possible, in all 
contracting activities of the OCC.



Sec. 4.62  Definitions.

    (a) Minority- and/or women-owned (small and large) businesses and 
entities owned by minorities and women (MWOB) means firms at least 51 
percent unconditionally-owned by one or more members of a minority group 
or by one or more women who are citizens of the United States. In the 
case of publicly-owned companies, at least 51 percent of each class of 
voting stock must be unconditionally-owned by one or more members of a 
minority group or by one or more women who are citizens of the United 
States. In the case of a partnership, at least 51 percent of the 
partnership interest must be unconditionally-owned by one or more 
members of a minority group or by one or more women who are citizens of 
the United States. Additionally, for the foregoing cases, the management 
and daily business operations must be controlled by one or more such 
individuals.
    (b) Minority means any African American, Native American (i.e., 
American Indian, Eskimo, Aleut and Native Hawaiian), Hispanic American, 
Asian-Pacific American, or Subcontinent-Asian American.
    (c) Individual with disabilities-owned (small and large) businesses 
and entities owned by individuals with disabilities (IDOB) means firms 
at least 51 percent unconditionally-owned by one or more members who are 
individuals with disabilities and citizens of the United States. In the 
case of publicly-owned companies, at least 51 percent of each class of 
voting stock must be unconditionally-owned by one or more members who 
are individuals with disabilities and who are citizens of the United 
States. In the case of a partnership, at least 51 percent of the 
partnership interest must be unconditionally-owned by one or more 
members who are individuals with disabilities and citizens of the United 
States. Additionally, for the foregoing cases, the management and daily 
business operations must be controlled by one or more such individuals.
    (d) Individual with disabilities means any person who has a physical 
or mental impairment that substantially limits one or more of such 
person's major life activities, has a record of such an impairment, or 
is regarded as having such an impairment. For purposes of this part, it 
does not include an individual who is currently engaging in the illegal 
use of drugs nor an individual who has a currently contagious disease or 
infection and who, by reason of such disease or infection, would 
constitute a direct threat to the health or safety of other individuals 
or who, by reason of

[[Page 60]]

the currently contagious disease or infection, is unable to perform the 
duties of the job as defined by the IDOB.
    (e) Unconditional ownership means ownership that is not subject to 
conditions or similar arrangements which cause the benefits of the 
Outreach Program to accrue to persons other than the participating MWOB 
or IDOB.



Sec. 4.63  Policy.

    The OCC's policy is to ensure that MWOBs and IDOBs have the 
opportunity to participate, to the maximum extent possible, in contracts 
awarded by the OCC. The OCC awards contracts consistent with the 
principles of full and open competition and best value acquisition, and 
with the concept of contracting for agency needs at the lowest 
practicable cost. The OCC ensures that MWOBs and IDOBs have the 
opportunity to participate fully in all contracting activities that the 
OCC enters into for goods and services, whether generated by the 
headquarters office in Washington, DC, or any other office of the OCC. 
Contracting opportunities may include small purchase awards, contracts 
above the small purchase threshold, and delivery orders issued against 
other governmental agency contracts.



Sec. 4.64  Promotion.

    (a) Scope. The OCC, under the direction of the Deputy Comptroller 
for Resource Management, engages in promotion and outreach activities 
designed to identify MWOBs and IDOBs capable of providing goods and 
services needed by the OCC, to facilitate interaction between the OCC 
and the MWOBs and IDOBs community, and to indicate the OCC's commitment 
to doing business with that community. The Outreach Program is designed 
to facilitate OCC's participation in business promotion events sponsored 
by other government agencies and attended by minorities, women and 
individuals with disabilities. Once the OCC has identified a prospective 
participant, it will assist the minority- or women-owned business or 
individual with disabilities-owned business in understanding the OCC's 
needs and contracting process.
    (b) Outreach activities. OCC's Outreach Program includes the 
following:
    (1) Obtaining various lists and directories of MWOBs and IDOBs 
maintained by government agencies;
    (2) Contacting appropriate firms for participation in the OCC's 
Outreach Program;
    (3) Participating in business promotion events comprised of or 
attended by MWOBs and IDOBs to explain OCC contracting opportunities and 
to obtain names of potential MWOBs and IDOBs;
    (4) Ensuring that the OCC contracting staff understands and actively 
promotes this Outreach Program; and
    (5) Registering MWOBs and IDOBs in the Department of the Treasury's 
database to facilitate their participation in the competitive 
procurement process for OCC contracts. This database is used by OCC 
procurement staff to identify firms to be solicited for OCC 
procurements.



Sec. 4.65  Certification.

    (a) Objective. To preserve the integrity and foster the Outreach 
Program's objectives, each prospective MWOB or IDOB must demonstrate 
that it meets the ownership and control requirements for participation 
in the Outreach Program.
    (b) MWOB. A prospective MWOB may demonstrate its eligibility for 
participation in the Outreach Program by:
    (1) Submitting a valid MWOB certification received from another 
government agency whose definition of MWOB is substantially similar to 
that specified in Sec. 4.62(a);
    (2) Self-certifying MWOB ownership status by filing with the OCC a 
completed and signed certification form as prescribed by the Federal 
Acquisition Regulation, 48 CFR 53.301-129; or
    (3) Submitting a valid MWOB certification received from the Small 
Business Administration.
    (c) IDOB. A prospective IDOB may demonstrate its eligibility for 
participation in the Outreach Program by:
    (1) Submitting a valid IDOB certification received from another 
government agency whose definition of IDOB is substantially similar to 
that specified in Sec. 4.62(c); or

[[Page 61]]

    (2) Self-certifying IDOB ownership status by filing with the OCC a 
completed and signed certification as prescribed in the Federal 
Acquisition Regulation, 48 CFR 53.301-129, and adding an additional 
certifying statement to read as follows:
    I certify that I am an individual with disabilities as defined in 12 
CFR 4.62(d), and that my firm, (Name of Firm) qualifies as an individual 
with disabilities-owned business as defined in 12 CFR 4.62(c).



Sec. 4.66  Oversight and monitoring.

    The Deputy Comptroller for Resource Management shall appoint an 
Outreach Program Manager, who shall appoint an Outreach Program 
Specialist. The Outreach Program Manager is primarily responsible for 
program advocacy, oversight and monitoring.



PART 5--RULES, POLICIES, AND PROCEDURES FOR CORPORATE ACTIVITIES--Table of Contents




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.

    Source: 61 FR 60363, Nov. 27, 1996, unless otherwise noted.



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.
    (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.

[[Page 62]]

    (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) Bank Organization and Structure for all national bank 
subsidiaries of certain holding companies assigned to the Washington, 
D.C., licensing unit;
    (2) The appropriate OCC district office for all national bank 
subsidiaries of certain holding companies assigned to a district office 
licensing unit;
    (3) The OCC's district office where the national bank's supervisory 
office is located for all other banks; or
    (4) The OCC's International Banking and Finance Department for 
federal branches and agencies of foreign banks.
    (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 (CAMELS);
    (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.

[61 FR 60363, Nov. 27, 1996, as amended at 64 FR 60098, Nov. 4, 1999]



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.

[[Page 63]]

    (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 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

[[Page 64]]

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

[[Page 65]]

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.
    (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 presiding officer.
    (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.

[61 FR 60363, Nov. 27, 1996, as amended at 64 FR 60098, Nov. 4, 1999]



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.

[[Page 66]]

    (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

[[Page 67]]

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 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

[[Page 68]]

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

[[Page 69]]

plan reflects adversely on the organizing 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.

[[Page 70]]

    (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 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.

[[Page 71]]

    (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

[[Page 72]]

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
    (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

[[Page 73]]

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

[[Page 74]]

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.
    (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

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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

[[Page 76]]

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 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 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

[[Page 77]]

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 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

[[Page 78]]

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.

[[Page 79]]

    (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 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

[[Page 80]]

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.

[61 FR 60363, Nov. 27, 1996, as amended at 64 FR 60098, Nov. 4, 1999]



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

[[Page 81]]

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 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

[[Page 82]]

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);
    (2) Leases in which the bank may invest pursuant to 12 U.S.C. 
24(Tenth); and

[[Page 83]]

    (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

[[Page 84]]

    (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 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

[[Page 85]]

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

[[Page 86]]

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 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 (i) of this section;
    (4) Information demonstrating that the bank service company and all 
banks investing in the bank service

[[Page 87]]

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.

[61 FR 60363, Nov. 27, 1996, as amended at 64 FR 60098, Nov. 4, 1999]



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 supervisory 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

[[Page 88]]

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.
    (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 (CAMELS) 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 supervisory 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.

[61 FR 60363, Nov. 27, 1996, as amended at 64 FR 60098, Nov. 4, 1999]



          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.

[[Page 89]]

    (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

[[Page 90]]

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.
    (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

[[Page 91]]

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.
    (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

[[Page 92]]

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

[[Page 93]]

    (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;
    (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.

[[Page 94]]

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

[[Page 95]]

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.
    (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.

[[Page 96]]

    (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

[[Page 97]]

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.
    (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,

[[Page 98]]

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 (CAMELS);
    (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 
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.

[[Page 99]]

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,

[[Page 100]]

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.

[61 FR 60363, Nov. 27, 1996, as amended at 64 FR 60098, Nov. 4, 1999]



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 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.

[[Page 101]]



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 supervisory 
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.

[61 FR 60363, Nov. 27, 1996, as amended at 64 FR 60098, Nov. 4, 1999]



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

[[Page 102]]

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 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 6--PROMPT CORRECTIVE ACTION--Table of Contents




                      Subpart A--Capital Categories

Sec.
6.1  Authority, purpose, scope, and other supervisory authority.
6.2  Definitions.
6.3  Notice of capital category.
6.4  Capital measures and capital category definitions.
6.5  Capital restoration plans.
6.6  Mandatory and discretionary supervisory actions under section 38.

         Subpart B--Directives To Take Prompt Corrective Action

6.20  Scope.
6.21  Notice of intent to issue a directive.
6.22  Response to notice.
6.23  Decision and issuance of a prompt corrective action directive.
6.24  Request for modification or rescission of directive.

[[Page 103]]

6.25  Enforcement of directive.

    Authority: 12 U.S.C. 93a, 1831o.

    Source: 57 FR 44891, Sept. 29, 1992, unless otherwise noted.



                      Subpart A--Capital Categories



Sec. 6.1  Authority, purpose, scope, and other supervisory authority.

    (a) Authority. This part is issued by the Office of the Comptroller 
of the Currency (OCC) pursuant to section 38 (section 38) of the Federal 
Deposit Insurance Act (FDI Act) as added by section 131 of the Federal 
Deposit Insurance Corporation Improvement Act of 1991 (Pub. L. 102-242, 
105 Stat. 2236 (1991)) (12 U.S.C. 1831o).
    (b) Purpose. Section 38 of the FDI Act establishes a framework of 
supervisory actions for insured depository institutions that are not 
adequately capitalized. The principal purpose of this subpart is to 
define, for insured national banks, the capital measures and capital 
levels, and for insured federal branches, comparable asset-based 
measures and levels, that are used for determining the supervisory 
actions authorized under section 38 of the FDI Act. This part 6 also 
establishes procedures for submission and review of capital restoration 
plans and for issuance and review of directives and orders pursuant to 
section 38.
    (c) Scope. This subpart implements the provisions of section 38 of 
the FDI Act as they apply to insured national banks and insured federal 
branches. Certain of these provisions also apply to officers, directors 
and employees of these insured institutions. Other provisions apply to 
any company that controls an insured national bank or insured federal 
branch and to the affiliates of an insured national bank or insured 
federal branch.
    (d) Other supervisory authority. Neither section 38 nor this part in 
any way limits the authority of the OCC under any other provision of law 
to take supervisory actions to address unsafe or unsound practices, 
deficient capital levels, violations of law, unsafe or unsound 
conditions, or other practices. Action under section 38 of the FDI Act 
and this part may be taken independently of, in conjunction with, or in 
addition to any other enforcement action available to the OCC, including 
issuance of cease and desist orders, capital directives, approval or 
denial of applications or notices, assessment of civil money penalties, 
or any other actions authorized by law.
    (e) Disclosure of capital categories. The assignment of an insured 
national bank or insured federal branch under this subpart within a 
particular capital category is for purposes of implementing and applying 
the provisions of section 38. Unless permitted by the OCC or otherwise 
required by law, no bank may state in any advertisement or promotional 
material its capital category under this subpart or that the OCC or any 
other federal banking agency has assigned the bank to a particular 
capital category.



Sec. 6.2  Definitions.

    For purposes of section 38 and this part, the definitions related to 
capital in part 3 of this chapter shall apply. In addition, except as 
modified in this section or unless the context otherwise requires, the 
terms used in this subpart have the same meanings as set forth in 
section 38 and section 3 of the FDI Act.
    (a) Bank means all insured national banks and all insured federal 
branches, except where otherwise provided in this subpart.
    (b)(1) Control has the same meaning assigned to it in section 2 of 
the Bank Holding Company Act (12 U.S.C. 1841), and the term controlled 
shall be construed consistently with the term control.
    (2) Exclusion for fiduciary ownership. No insured depository 
institution or company controls another insured depository institution 
or company by virtue of its ownership or control of shares in a 
fiduciary capacity. Shares shall not be deemed to have been acquired in 
a fiduciary capacity if the acquiring insured depository institution or 
company has sole discretionary authority to exercise voting rights with 
respect thereto.
    (3) Exclusion for debts previously contracted. No insured depository 
institution or company controls another insured depository institution 
or company by virtue of its ownership or control of shares acquired in 
securing or collecting a debt previously contracted

[[Page 104]]

in good faith, until two years after the date of acquisition. The two-
year period may be extended at the discretion of the appropriate federal 
banking agency for up to three one-year periods.
    (c) Controlling person means any person having control of an insured 
depository institution and any company controlled by that person.
    (d) Leverage ratio means the ratio of Tier 1 capital to adjusted 
total assets, as calculated in accordance with the OCC's Minimum Capital 
Ratios in part 3 of this chapter.
    (e) Management fee means any payment of money or provision of any 
other thing of value to a company or individual for the provision of 
management services or advice to the bank or related overhead expenses, 
including payments related to supervisory, executive, managerial, or 
policymaking functions, other than compensation to an individual in the 
individual's capacity as an officer or employee of the bank.
    (f) Risk-weighted assets means total risk weighted assets, as 
calculated in accordance with the OCC's Minimum Capital Ratios in part 3 
of this chapter.
    (g) Tangible equity means the amount of Tier 1 capital elements in 
the OCC's Risk-Based Capital Guidelines (appendix A to part 3 of this 
chapter) plus the amount of outstanding cumulative perpetual preferred 
stock (including related surplus) minus all intangible assets except 
mortgage servicing assets to the extent permitted in Tier 1 capital 
under section 2(c)(2) in appendix A to part 3 of this chapter.
    (h) Tier 1 capital means the amount of Tier 1 capital as defined in 
the OCC's Minimum Capital Ratios in part 3 of this chapter.
    (i) Tier 1 risk-based capital ratio means the ratio of Tier 1 
capital to risk weighted assets, as calculated in accordance with the 
OCC's Minimum Capital Ratios in part 3 of this chapter.
    (j) Total assets means quarterly average total assets as reported in 
a bank's Consolidated Reports of Condition and Income (Call Report), 
minus intangible assets as provided in the definition of tangible 
equity. The OCC reserves the right to require a bank to compute and 
maintain its capital ratios on the basis of actual, rather than average, 
total assets when computing tangible equity.
    (k) Total risk-based capital ratio means the ratio of qualifying 
total capital to risk-weighted assets, as calculated in accordance with 
the OCC's Minimum Capital Ratios in part 3 of this chapter.

[57 FR 44891, Sept. 29, 1992, as amended at 60 FR 39229, Aug. 1, 1995; 
63 FR 42674, Aug. 10, 1998]



Sec. 6.3  Notice of capital category.

    (a) Effective date of determination of capital category. A bank 
shall be deemed to be within a given capital category for purposes of 
section 38 of the FDI Act and this part as of the date the bank is 
notified of, or is deemed to have notice of, its capital category 
pursuant to paragraph (b) of this section.
    (b) Notice of capital category. A bank shall be deemed to have been 
notified of its capital levels and its capital category as of the most 
recent date:
    (1) A Consolidated Report of Condition and Income (Call Report) is 
required to be filed with the OCC;
    (2) A final report of examination is delivered to the bank; or
    (3) Written notice is provided by the OCC to the bank of its capital 
category for purposes of section 38 of the FDI Act and this part or that 
the bank's capital category has changed as provided in paragraph (c) of 
this section or Sec. 6.1 of this subpart and subpart M of part 19 of 
this chapter.
    (c) Adjustments to reported capital levels and capital category--(1) 
Notice of adjustment by bank. A bank shall provide the OCC with written 
notice that an adjustment to the bank's capital category may have 
occurred no later than 15 calendar days following the date that any 
material event has occurred that would cause the bank to be placed in a 
lower capital category from the category assigned to the bank for 
purposes of section 38 and this part on the basis of the bank's most 
recent Call Report or report of examination.
    (2) Determination to change capital category. After receiving notice 
pursuant to paragraph (c)(1) of this section, the OCC shall determine 
whether to change the capital category of the bank and shall notify the 
bank of the OCC's determination.

[[Page 105]]



Sec. 6.4  Capital measures and capital category definitions.

    (a) Capital measures. For purposes of section 38 and this part, the 
relevant capital measures shall be:
    (1) The total risk-based capital ratio;
    (2) The Tier 1 risk-based capital ratio;
    (3) The leverage ratio.
    (b) Capital categories. For purposes of the provisions of section 38 
and this part, a bank shall be deemed to be:
    (1) Well capitalized if the bank:
    (i) Has a total risk-based capital ratio of 10.0 percent or greater; 
and
    (ii) Has a Tier 1 risk-based capital ratio of 6.0 percent or 
greater; and
    (iii) Has a leverage ratio of 5.0 percent or greater; and
    (iv) Is not subject to any written agreement, order or capital 
directive, or prompt corrective action directive issued by the OCC 
pursuant to section 8 of the FDI Act, the International Lending 
Supervision Act of 1983 (12 U.S.C. 3907), or section 38 of the FDI Act, 
or any regulation thereunder, to meet and maintain a specific capital 
level for any capital measure.
    (2) Adequately capitalized if the bank:
    (i) Has a total risk-based capital ratio of 8.0 percent or greater; 
and
    (ii) Has a Tier 1 risk-based capital ratio of 4.0 percent or 
greater; and
    (iii) Has:
    (A) A leverage ratio of 4.0 percent or greater; or
    (B) A leverage ratio of 3.0 percent or greater if the bank is rated 
1 in the most recent examination of the bank; and
    (iv) Does not meet the definition of a well capitalized bank.
    (3) Undercapitalized if the bank:
    (i) Has a total risk-based capital ratio that is less than 8.0 
percent; or
    (ii) Has a Tier 1 risk-based capital ratio that is less than 4.0 
percent; or
    (iii) (A) Except as provided in paragraph (b)(3)(iii) (B) of this 
section, has a leverage ratio that is less than 4.0 percent; or
    (B) If the bank is rated 1 in the most recent examination of the 
bank, has a leverage ratio that is less than 3.0 percent.
    (4) Significantly undercapitalized if the bank has:
    (i) A total risk-based capital ratio that is less than 6.0 percent; 
or
    (ii) A Tier 1 risk-based capital ratio that is less than 3.0 
percent; or
    (iii) A leverage ratio that is less than 3.0 percent.
    (5) Critically undercapitalized if the bank has a ratio of tangible 
equity to total assets that is equal to or less than 2.0 percent.
    (c) Capital categories for insured federal branches. For purposes of 
the provisions of section 38 of the FDI Act and this part, an insured 
federal branch shall be deemed to be:
    (1) Well capitalized if the insured federal branch:
    (i) Maintains the pledge of assets required under 12 CFR 346.19; and
    (ii) Maintains the eligible assets prescribed under 12 CFR 346.20 at 
108 percent or more of the preceding quarter's average book value of the 
insured branch's third-party liabilities; and
    (iii) Has not received written notification from:
    (A) The OCC to increase its capital equivalency deposit pursuant to 
Sec. 28.6(a) of this chapter, or to comply with asset maintenance 
requirements pursuant to Sec. 28.9 of this chapter; or
    (B) The FDIC to pledge additional assets pursuant to 12 CFR 346.19 
or to maintain a higher ratio of eligible assets pursuant to 12 CFR 
346.20.
    (2) Adequately Capitalized if the insured federal branch:
    (i) Maintains the pledge of assets prescribed under 12 CFR 346.19; 
and
    (ii) Maintains the eligible assets prescribed under 12 CFR 346.20 at 
106 percent or more of the preceding quarter's average book value of the 
insured branch's third-party liabilities; and
    (iii) Does not meet the definition of a well capitalized insured 
federal branch.
    (3) Undercapitalized if the insured federal branch:
    (i) Fails to maintain the pledge of assets required under 12 CFR 
346.19; or
    (ii) Fails to maintain the eligible assets prescribed under 12 CFR 
346.20 at 106 percent or more of the preceding quarter's average book 
value of the insured branch's third-party liabilities.
    (4) Significantly undercapitalized if it fails to maintain the 
eligible assets prescribed under 12 CFR 346.20 at 104

[[Page 106]]

percent or more of the preceding quarter's average book value of the 
insured federal branch's third-party liabilities.
    (5) Critically undercapitalized if it fails to maintain the eligible 
assets prescribed under 12 CFR 346.20 at 102 percent or more of the 
preceding quarter's average book value of the insured federal branch's 
third-party liabilities.
    (d) Reclassification based on supervisory criteria other than 
capital. The OCC may reclassify a well capitalized bank as adequately 
capitalized and may require an adequately capitalized or an 
undercapitalized bank to comply with certain mandatory or discretionary 
supervisory actions as if the bank were in the next lower capital 
category (except that the OCC may not reclassify a significantly 
undercapitalized bank as critically undercapitalized) (each of these 
actions are hereinafter referred to generally as reclassifications) in 
the following circumstances:
    (1) Unsafe or unsound condition. The OCC has determined, after 
notice and opportunity for hearing pursuant to subpart M of part 19 of 
this chapter, that the bank is in unsafe or unsound condition; or
    (2) Unsafe or unsound practice. The OCC has determined, after notice 
and opportunity for hearing pursuant to subpart M of part 19 of this 
chapter, that in the most recent examination of the bank, the bank 
received, and has not corrected a less-than-satisfactory rating for any 
of the categories of asset quality, management, earnings, or liquidity.



Sec. 6.5  Capital restoration plans.

    (a) Schedule for filing plan--(1) In general. A bank shall file a 
written capital restoration plan with the OCC within 45 days of the date 
that the bank receives notice or is deemed to have notice that the bank 
is undercapitalized, significantly undercapitalized, or critically 
undercapitalized, unless the OCC notifies the bank in writing that the 
plan is to be filed within a different period. An adequately capitalized 
bank that has been required pursuant to Sec. 6.4 and subpart M of part 
19 of this chapter to comply with supervisory actions as if the bank 
were undercapitalized is not required to submit a capital restoration 
plan solely by virtue of the reclassification.
    (2) Additional capital restoration plans. Notwithstanding paragraph 
(a)(1) of this section, a bank that has already submitted and is 
operating under a capital restoration plan approved under section 38 and 
this subpart is not required to submit an additional capital restoration 
plan based on a revised calculation of its capital measures or a 
reclassification of the institution under Sec. 6.4 and subpart M of part 
19 of this chapter unless the OCC notifies the bank that it must submit 
a new or revised capital plan. A bank that is notified that it must 
submit a new or revised capital restoration plan shall file the plan in 
writing with the OCC within 45 days of receiving such notice, unless the 
OCC notifies the bank in writing that the plan must be filed within a 
different period.
    (b) Contents of plan. All financial data submitted in connection 
with a capital restoration plan shall be prepared in accordance with the 
instructions provided on the Call Report, unless the OCC instructs 
otherwise. The capital restoration plan shall include all of the 
information required to be filed under section 38(e)(2) of the FDI Act. 
A bank that is required to submit a capital restoration plan as the 
result of a reclassification of the bank, pursuant to Sec. 6.4 and 
subpart M of part 19 of this chapter, shall include a description of the 
steps the bank will take to correct the unsafe or unsound condition or 
practice. No plan shall be accepted unless it includes any performance 
guarantee described in section 38(e)(2)(C) of that Act by each company 
that controls the bank.
    (c) Review of capital restoration plans. Within 60 days after 
receiving a capital restoration plan under this subpart, the OCC shall 
provide written notice to the bank of whether the plan has been 
approved. The OCC may extend the time within which notice regarding 
approval of a plan shall be provided.
    (d) Disapproval of capital restoration plan. If a capital 
restoration plan is not approved by the OCC, the bank shall submit a 
revised capital restoration plan within the time specified by the OCC. 
Upon receiving notice that its capital restoration plan has not been

[[Page 107]]

approved, any undercapitalized bank (as defined in Sec. 6.4) shall be 
subject to all of the provisions of section 38 and this part applicable 
to significantly undercapitalized institutions. These provisions shall 
be applicable until such time as a new or revised capital restoration 
plan submitted by the bank has been approved by the OCC.
    (e) Failure to submit a capital restoration plan. A bank that is 
undercapitalized (as defined in Sec. 6.4) and that fails to submit a 
written capital restoration plan within the period provided in this 
section shall, upon the expiration of that period, be subject to all of 
the provisions of section 38 and this part applicable to significantly 
undercapitalized banks.
    (f) Failure to implement a capital restoration plan. Any 
undercapitalized bank that fails, in any material respect, to implement 
a capital restoration plan shall be subject to all of the provisions of 
section 38 and this part applicable to significantly undercapitalized 
banks.
    (g) Amendment of capital restoration plan. A bank that has submitted 
an approved capital restoration plan may, after prior written notice to 
and approval by the OCC, amend the plan to reflect a change in 
circumstance. Until such time as a proposed amendment has been approved, 
the bank shall implement the capital restoration plan as approved prior 
to the proposed amendment.
    (h) Notice to FDIC. Within 45 days of the effective date of OCC 
approval of a capital restoration plan, or any amendment to a capital 
restoration plan, the OCC shall provide a copy of the plan or amendment 
to the Federal Deposit Insurance Corporation.
    (i) Performance guarantee by companies that control a bank--(1) 
Limitation on liability--(i) Amount limitation. The aggregate liability 
under the guarantee provided under section 38 and this subpart for all 
companies that control a specific bank that is required to submit a 
capital restoration plan under this subpart shall be limited to the 
lesser of:
    (A) An amount equal to 5.0 percent of the bank's total assets at the 
time the bank was notified or deemed to have notice that the bank was 
undercapitalized; or
    (B) The amount necessary to restore the relevant capital measures of 
the bank to the levels required for the bank to be classified as 
adequately capitalized, as those capital measures and levels are defined 
at the time that the bank initially fails to comply with a capital 
restoration plan under this subpart.
    (ii) Limit on duration. The guarantee and limit of liability under 
section 38 and this subpart shall expire after the OCC notifies the bank 
that it has remained adequately capitalized for each of four consecutive 
calendar quarters. The expiration or fulfillment by a company of a 
guarantee of a capital restoration plan shall not limit the liability of 
the company under any guarantee required or provided in connection with 
any capital restoration plan filed by the same bank after expiration of 
the first guarantee.
    (iii) Collection on guarantee. Each company that controls a given 
bank shall be jointly and severally liable for the guarantee for such 
bank as required under section 38 and this subpart, and the OCC may 
require payment of the full amount of that guarantee from any or all of 
the companies issuing the guarantee.
    (2) Failure to provide guarantee. In the event that a bank that is 
controlled by any company submits a capital restoration plan that does 
not contain the guarantee required under section 38(e)(2) of the FDI 
Act, the bank shall, upon submission of the plan, be subject to the 
provisions of section 38 and this part that are applicable to banks that 
have not submitted an acceptable capital restoration plan.
    (3) Failure to perform guarantee. Failure by any company that 
controls a bank to perform fully its guarantee of any capital plan shall 
constitute a material failure to implement the plan for purposes of 
section 38(f) of the FDI Act. Upon such failure, the bank shall be 
subject to the provisions of section 38 and this part that are 
applicable to banks that have failed in a material respect to implement 
a capital restoration plan.

[[Page 108]]

    (j) Enforcement of capital restoration plan. The failure of a bank 
to implement, in any material respect, a capital restoration plan 
required under section 38 and this section shall subject the bank to the 
assessment of civil money penalties pursuant to section 8(i)(2)(A) of 
the FDI Act.



Sec. 6.6  Mandatory and discretionary supervisory actions under section 38.

    (a) Mandatory supervisory actions--(1) Provisions applicable to all 
banks. All banks are subject to the restrictions contained in section 
38(d) of the FDI Act on payment of capital distributions and management 
fees.
    (2) Provisions applicable to undercapitalized, significantly 
undercapitalized, and critically undercapitalized banks. Immediately 
upon receiving notice or being deemed to have notice, as provided in 
Sec. 6.3, that the bank is undercapitalized, significantly 
undercapitalized, or critically undercapitalized, the bank shall become 
subject to the provisions of section 38 of the FDI Act--
    (i) Restricting payment of capital distributions and management fees 
(section 38(d));
    (ii) Requiring that the OCC monitor the condition of the bank 
(section 38(e)(1));
    (iii) Requiring submission of a capital restoration plan within the 
schedule established in this subpart (section 38(e)(2));
    (iv) Restricting the growth of the bank's assets (section 38(e)(3)); 
and
    (v) Requiring prior approval of certain expansion proposals (section 
38(e)(4)).
    (3) Additional provisions applicable to significantly 
undercapitalized, and critically undercapitalized banks. In addition to 
the provisions of section 38 of the FDI Act described in paragraph 
(a)(2) of this section, immediately upon receiving notice or being 
deemed to have notice, as provided in this subpart, that the bank is 
significantly undercapitalized, or critically undercapitalized or that 
the bank is subject to the provisions applicable to institutions that 
are significantly undercapitalized because it has failed to submit or 
implement, in any material respect, an acceptable capital restoration 
plan, the bank shall become subject to the provisions of section 38 of 
the FDI Act that restrict compensation paid to senior executive officers 
of the institution (section 38(f)(4)).
    (4) Additional provisions applicable to critically undercapitalized 
banks. In addition to the provisions of section 38 of the FDI Act 
described in paragraphs (a) (2) and (3) of this section, immediately 
upon receiving notice or being deemed to have notice, as provided in 
Sec. 6.3, that the bank is critically undercapitalized, the bank shall 
become subject to the provisions of section 38 of the FDI Act--
    (i) Restricting the activities of the bank (section 38(h)(1)); and
    (ii) Restricting payments on subordinated debt of the bank (section 
38(h)(2)).
    (b) Discretionary supervisory actions. In taking any action under 
section 38 that is within the OCC's discretion to take in connection 
with a bank that is deemed to be undercapitalized, significantly 
undercapitalized, or critically undercapitalized, or has been 
reclassified as undercapitalized or significantly undercapitalized; an 
officer or director of such bank; or a company that controls such bank, 
the OCC shall follow the procedures for issuing directives under subpart 
B of this part and subpart N of part 19 of this chapter, unless 
otherwise provided in section 38 or this part.



         Subpart B--Directives To Take Prompt Corrective Action



Sec. 6.20  Scope.

    The rules and procedures set forth in this subpart apply to insured 
national banks, insured federal branches and senior executive officers 
and directors of banks that are subject to the provisions of section 38 
of the Federal Deposit Insurance Act (section 38) and subpart A of this 
part.



Sec. 6.21  Notice of intent to issue a directive.

    (a) Notice of intent to issue a directive--(1) In general. The OCC 
shall provide an undercapitalized, significantly undercapitalized, or 
critically undercapitalized bank prior written notice of the

[[Page 109]]

OCC's intention to issue a directive requiring such bank or company to 
take actions or to follow proscriptions described in section 38 that are 
within the OCC's discretion to require or impose under section 38 of the 
FDI Act, including section 38 (e)(5), (f)(2), (f)(3), or (f)(5). The 
bank shall have such time to respond to a proposed directive as provided 
under Sec. 6.22.
    (2) Immediate issuance of final directive. If the OCC finds it 
necessary in order to carry out the purposes of section 38 of the FDI 
Act, the OCC may, without providing the notice prescribed in paragraph 
(a)(1) of this section, issue a directive requiring a bank immediately 
to take actions or to follow proscriptions described in section 38 that 
are within the OCC's discretion to require or impose under section 38 of 
the FDI Act, including section 38 (e)(5), (f)(2), (f)(3), or (f)(5). A 
bank that is subject to such an immediately effective directive may 
submit a written appeal of the directive to the OCC. Such an appeal must 
be received by the OCC within 14 calendar days of the issuance of the 
directive, unless the OCC permits a longer period. The OCC shall 
consider any such appeal, if filed in a timely matter, within 60 days of 
receiving the appeal. During such period of review, the directive shall 
remain in effect unless the OCC, in its sole discretion, stays the 
effectiveness of the directive.
    (b) Contents of notice. A notice of intention to issue a directive 
shall include:
    (1) A statement of the bank's capital measures and capital levels;
    (2) A description of the restrictions, prohibitions or affirmative 
actions that the OCC proposes to impose or require;
    (3) The proposed date when such restrictions or prohibitions would 
be effective or the proposed date for completion of such affirmative 
actions; and
    (4) The date by which the bank subject to the directive may file 
with the OCC a written response to the notice.



Sec. 6.22  Response to notice.

    (a) Time for response. A bank may file a written response to a 
notice of intent to issue a directive within the time period set by the 
OCC. The date shall be at least 14 calendar days from the date of the 
notice unless the OCC determines that a shorter period is appropriate in 
light of the financial condition of the bank or other relevant 
circumstances.
    (b) Content of response. The response should include:
    (1) An explanation why the action proposed by the OCC is not an 
appropriate exercise of discretion under section 38;
    (2) Any recommended modification of the proposed directive; and
    (3) Any other relevant information, mitigating circumstances, 
documentation, or other evidence in support of the position of the bank 
regarding the proposed directive.
    (c) Failure to file response. Failure by a bank to file with the 
OCC, within the specified time period, a written response to a proposed 
directive shall constitute a waiver of the opportunity to respond and 
shall constitute consent to the issuance of the directive.



Sec. 6.23  Decision and issuance of a prompt corrective action directive.

    (a) OCC consideration of response. After considering the response, 
the OCC may:
    (1) Issue the directive as proposed or in modified form;
    (2) Determine not to issue the directive and so notify the bank; or
    (3) Seek additional information or clarification of the response 
from the bank, or any other relevant source.
    (b) [Reserved]



Sec. 6.24  Request for modification or rescission of directive.

    Any bank that is subject to a directive under this subpart may, upon 
a change in circumstances, request in writing that the OCC reconsider 
the terms of the directive, and may propose that the directive be 
rescinded or modified. Unless otherwise ordered by the OCC, the 
directive shall continue in place while such request is pending before 
the OCC.



Sec. 6.25  Enforcement of directive.

    (a) Judicial remedies. Whenever a bank fails to comply with a 
directive issued

[[Page 110]]

under section 38, the OCC may seek enforcement of the directive in the 
appropriate United States district court pursuant to section 8(i)(1) of 
the FDI Act.
    (b) Administrative remedies. Pursuant to section 8(i)(2)(A) of the 
FDI Act, the OCC may assess a civil money penalty against any bank that 
violates or otherwise fails to comply with any final directive issued 
under section 38 and against any institution-affiliated party who 
participates in such violation or noncompliance.
    (c) Other enforcement action. In addition to the actions described 
in paragraphs (a) and (b) of this section, the OCC may seek enforcement 
of the provisions of section 38 or this part through any other judicial 
or administrative proceeding authorized by law.



PART 7--BANK ACTIVITIES AND OPERATIONS--Table of Contents




                         Subpart A--Bank Powers

Sec.
7.1000  National bank ownership of property.
7.1001  National bank acting as general insurance agent.
7.1002  National bank acting as finder.
7.1003  Money lent at banking offices or at other than banking offices.
7.1004  Loans originating at other than banking offices.
7.1005  Credit decisions at other than banking offices.
7.1006  Loan agreement providing for a share in profits, income, or 
          earnings or for stock warrants.
7.1007  Acceptances.
7.1008  Preparing income tax returns for customers or public.
7.1009  National bank holding collateral stock as nominee.
7.1010  Postal service by national bank.
7.1011  National bank acting as payroll issuer.
7.1012  Messenger service.
7.1013  Debt cancellation contracts.
7.1014  Sale of money orders at nonbanking outlets.
7.1015  Receipt of stock from a small business investment company.
7.1016  Independent undertakings to pay against documents.
7.1017  National bank as guarantor or surety on indemnity bond.
7.1018  Automatic payment plan account.
7.1019  Furnishing of products and services by electronic means and 
          facilities.
7.1020  Purchase of open accounts.

                     Subpart B--Corporate Practices

7.2000  Corporate governance procedures.
7.2001  Notice of shareholders' meetings.
7.2002  Director or attorney as proxy.
7.2003  Annual meeting for election of directors.
7.2004  Honorary directors or advisory boards.
7.2005  Ownership of stock necessary to qualify as director.
7.2006  Cumulative voting in election of directors.
7.2007  Filling vacancies and increasing board of directors other than 
          by shareholder action.
7.2008  Oath of directors.
7.2009  Quorum of the board of directors; proxies not permissible.
7.2010  Directors' responsibilities.
7.2011  Compensation plans.
7.2012  President as director; chief executive officer.
7.2013  Fidelity bonds covering officers and employees.
7.2014  Indemnification of institution-affiliated parties.
7.2015  Cashier.
7.2016  Restricting transfer of stock and record dates.
7.2017  Facsimile signatures on bank stock certificates.
7.2018  Lost stock certificates.
7.2019  Loans secured by a bank's own shares.
7.2020  Acquisition and holding of shares as treasury stock.
7.2021  Preemptive rights.
7.2022  Voting trusts.
7.2023  Reverse stock splits.

                       Subpart C--Bank Operations

7.3000  Bank hours and closings.
7.3001  Sharing space and employees.

                          Subpart D--Preemption

7.4000  Visitorial powers.
7.4001  Charging interest at rates permitted competing institutions; 
          charging interest to corporate borrowers.
7.4002  National bank charges.
7.4003  Establishment and operation of a remote service unit by a 
          national bank.
7.4004  Establishment and operation of a deposit production office by a 
          national bank.
7.4005  Combination of loan production office, deposit production 
          office, and remote service unit.

    Authority: 12 U.S.C. 1 et seq. and 93a.

    Source: 61 FR 4862, Feb. 9, 1996, unless otherwise noted.

[[Page 111]]



                         Subpart A--Bank Powers



Sec. 7.1000  National bank ownership of property.

    (a) Investment in real estate necessary for the transaction of 
business--(1) General. Under 12 U.S.C. 29(First), a national bank may 
invest in real estate that is necessary for the transaction of its 
business.
    (2) Type of real estate. For purposes of 12 U.S.C. 29(First), this 
real estate includes:
    (i) Premises that are owned and occupied (or to be occupied, if 
under construction) by the bank, its branches, or its consolidated 
subsidiaries;
    (ii) Real estate acquired and intended, in good faith, for use in 
future expansion;
    (iii) Parking facilities that are used by customers or employees of 
the bank, its branches, and its consolidated subsidiaries;
    (iv) Residential property for the use of bank officers or employees 
who are:
    (A) Located in remote areas where suitable housing at a reasonable 
price is not readily available; or
    (B) Temporarily assigned to a foreign country, including foreign 
nationals temporarily assigned to the United States; and
    (v) Property for the use of bank officers, employees, or customers, 
or for the temporary lodging of such persons in areas where suitable 
commercial lodging is not readily available, provided that the purchase 
and operation of the property qualifies as a deductible business expense 
for Federal tax purposes.
    (3) Permissible means of holding. A national bank may acquire and 
hold real estate under this paragraph (a) by any reasonable and prudent 
means, including ownership in fee, a leasehold estate, or in an interest 
in a cooperative. The bank may hold this real estate directly or through 
one or more subsidiaries. The bank may organize a bank premises 
subsidiary as a corporation, partnership, or similar entity (e.g., a 
limited liability company).
    (b) Fixed assets. A national bank may own fixed assets necessary for 
the transaction of its business, such as fixtures, furniture, and data 
processing equipment.
    (c) Investment in bank premises--(1) Investment limitation; 
approval. 12 U.S.C. 371d governs when OCC approval is required for 
national bank investment in bank premises. A bank may seek approval from 
the OCC in accordance with the procedures set forth in 12 CFR 5.37.
    (2) Option to purchase. An unexercised option to purchase bank 
premises or stock in a corporation holding bank premises is not an 
investment in bank premises. A national bank must receive OCC approval 
to exercise the option if the price of the option and the bank's other 
investments in bank premises exceed the amount of the bank's capital 
stock.
    (d) Other real property--(1) Lease financing of public facilities. A 
national bank may purchase or construct a municipal building, school 
building, or other similar public facility and, as holder of legal 
title, lease the facility to a municipality or other public authority 
having resources sufficient to make all rental payments as they become 
due. The lease agreement must provide that the lessee will become the 
owner of the building or facility upon the expiration of the lease.
    (2) Purchase of employee's residence. To facilitate the efficient 
use of bank personnel, a national bank may purchase the residence of an 
employee who has been transferred to another area in order to spare the 
employee a loss in the prevailing real estate market. The bank must 
arrange for early divestment of title to such property.

[61 FR 4862, Feb. 9, 1996, as amended at 61 FR 60387, Nov. 27, 1996]



Sec. 7.1001  National bank acting as general insurance agent.

    Pursuant to 12 U.S.C. 92, a national bank may act as an agent for 
any fire, life, or other insurance company in any place the population 
of which does not exceed 5,000 inhabitants. This provision is applicable 
to any office of a national bank when the office is located in a 
community having a population of less than 5,000, even though the 
principal office of such bank is located in a community whose population 
exceeds 5,000.

[[Page 112]]



Sec. 7.1002  National bank acting as finder.

    (a) General. A national bank may act as a finder in bringing 
together a buyer and seller.
    (b) Qualification. Acting as a finder includes, without limitation, 
identifying potential parties, making inquiries as to interest, 
introducing or arranging meetings of interested parties, and otherwise 
bringing parties together for a transaction that the parties themselves 
negotiate and consummate. Acting as a finder does not include activities 
that would characterize the bank as a broker under applicable Federal 
law.
    (c) Advertisement and fee. Unless otherwise prohibited, a national 
bank may advertise the availability of, and accept a fee for, the 
services provided pursuant to this section.



Sec. 7.1003  Money lent at banking offices or at other than banking offices.

    (a) General. For purposes of what constitutes a branch within the 
meaning of 12 U.S.C. 36(j) and 12 CFR 5.30, ``money'' is deemed to be 
``lent'' only at the place, if any, where the borrower in-person 
receives loan proceeds directly from bank funds:
    (1) From the lending bank or its operating subsidiary; or
    (2) At a facility that is established by the lending bank or its 
operating subsidiary.
    (b) Receipt of bank funds representing loan proceeds. Loan proceeds 
directly from bank funds may be received by a borrower in person at a 
place that is not the bank's main office and is not licensed as a branch 
without violating 12 U.S.C. 36, 12 U.S.C. 81 and 12 CFR 5.30, provided 
that a third party is used to deliver the funds and the place is not 
established by the lending bank or its operating subsidiary. A third 
party includes a person who satisfies the requirements of 
Sec. 7.1012(c)(2), or one who customarily delivers loan proceeds 
directly from bank funds under accepted industry practice, such as an 
attorney or escrow agent at a real estate closing.



Sec. 7.1004  Loans originating at other than banking offices.

    (a) General. A national bank may use the services of, and compensate 
persons not employed by, the bank for originating loans.
    (b) Approval. An employee or agent of a national bank or of its 
operating subsidiary may originate a loan at a site other than the main 
office or a branch office of the bank. This action does not violate 12 
U.S.C. 36 and 12 U.S.C. 81 if the loan is approved and made at the main 
office or a branch office of the bank or at an office of the operating 
subsidiary located on the premises of, or contiguous to, the main office 
or branch office of the bank.



Sec. 7.1005  Credit decisions at other than banking offices.

    A national bank and its operating subsidiary may make a credit 
decision regarding a loan application at a site other than the main 
office or a branch office of the bank without violating 12 U.S.C. 36 and 
12 U.S.C. 81, provided that ``money'' is not deemed to be ``lent' at 
those other sites within the meaning of Sec. 7.1003.



Sec. 7.1006  Loan agreement providing for a share in profits, income, or earnings or for stock warrants.

    A national bank may take as consideration for a loan a share in the 
profit, income, or earnings from a business enterprise of a borrower. A 
national bank also may take as consideration for a loan a stock warrant 
issued by a business enterprise of a borrower, provided that the bank 
does not exercise the warrant. The share or stock warrant may be taken 
in addition to, or in lieu of, interest. The borrower's obligation to 
repay principal, however, may not be conditioned upon the value of the 
profit, income, or earnings of the business enterprise or upon the value 
of the warrant received.



Sec. 7.1007  Acceptances.

    A national bank is not limited in the character of acceptances it 
may make in financing credit transactions. Bankers' acceptances may be 
used for such purpose, since the making of acceptances is an essential 
part of banking authorized by 12 U.S.C. 24.

[[Page 113]]



Sec. 7.1008  Preparing income tax returns for customers or public.

    A national bank may not serve as an expert tax consultant. However, 
a national bank may assist its customers in preparing their tax returns, 
either gratuitously or for a reasonable fee.



Sec. 7.1009  National bank holding collateral stock as nominee.

    A national bank that accepts stock as collateral for a loan may have 
such stock transferred to the bank's name as nominee.



Sec. 7.1010  Postal service by national bank.

    (a) General. A national bank may maintain and operate a postal 
substation on banking premises and receive income from it. The services 
performed by the substation are those permitted under applicable rules 
of the United States Postal Service and may include meter stamping of 
letters and packages, and the sale of related insurance. The bank may 
advertise, develop, and extend the services of the substation for the 
purpose of attracting customers to the bank.
    (b) Postal regulations. A national bank operating a postal 
substation shall do so in accordance with the rules and regulations of 
the United States Postal Service. The national bank shall keep the books 
and records of the substation separate from those of other banking 
operations. Under 39 U.S.C. 404 and any regulations issued pursuant 
thereto, the United States Postal Service may inspect the books and 
records of the substation.



Sec. 7.1011  National bank acting as payroll issuer.

    A national bank may disburse to an employee of a customer payroll 
funds deposited with the bank by that customer. The bank may disburse 
those funds by direct payment to the employee, by crediting an account 
in the employee's name at the disbursing bank, or by forwarding funds to 
another institution in which an employee maintains an account.



Sec. 7.1012  Messenger service.

    (a) Definition. For purposes of this section, a ``messenger 
service'' means any service, such as a courier service or armored car 
service, used by a national bank and its customers to pick up from, and 
deliver to, specific customers at locations such as their homes or 
offices, items relating to transactions between the bank and those 
customers.
    (b) Pick-up and delivery of items constituting nonbranching 
activities. Pursuant to 12 U.S.C. 24 (Seventh), a national bank may 
establish and operate a messenger service, or use, with its customers, a 
third party messenger service. The bank may use the messenger service to 
transport items relevant to the bank's transactions with its customers 
without regard to the branching limitations set forth in 12 U.S.C. 36, 
provided the service does not engage in branching functions within the 
meaning of 12 U.S.C. 36(j). In establishing or using such a facility, 
the national bank may establish terms, conditions, and limitations 
consistent with this section and appropriate to assure compliance with 
safe and sound banking practices.
    (c) Pick-up and delivery of items constituting branching functions 
by a messenger service established by a third party. (1) Pursuant to 12 
U.S.C. 24 (Seventh), a national bank and its customers may use a 
messenger service to pick up from, and deliver to customers items that 
relate to branching functions within the meaning of 12 U.S.C. 36, 
provided the messenger service is established and operated by a third 
party. In using such a facility, a national bank may establish terms, 
conditions, and limitations, consistent with this section and 
appropriate to assure compliance with safe and sound banking practices.
    (2) The OCC reviews whether a messenger service is established by a 
third party on a case-by-case basis, considering all of the 
circumstances. However, a messenger service is clearly established by a 
third party if:
    (i) A party other than the national bank owns or rents the messenger 
service and its facilities and employs the persons who provide the 
service;
    (ii)(A) The messenger service retains the discretion to determine in 
its own business judgment which customers and geographic areas it will 
serve; or

[[Page 114]]

    (B) If the messenger service and the bank are under common ownership 
or control, the messenger service actually provides its services to the 
general public, including other depository institutions, and retains the 
discretion to determine in its own business judgment which customers and 
geographic areas it will serve;
    (iii) The messenger service maintains ultimate responsibility for 
scheduling, movement, and routing;
    (iv) The messenger service does not operate under the name of the 
bank, and the bank and the messenger service do not advertise, or 
otherwise represent, that the bank itself is providing the service, 
although the bank may advertise that its customers may use one or more 
third party messenger services to transact business with the bank;
    (v) The messenger service assumes responsibility for the items 
during transit and for maintaining adequate insurance covering thefts, 
employee fidelity, and other in-transit losses; and
    (vi) The messenger service acts as the agent for the customer when 
the items are in transit. The bank deems items intended for deposit to 
be deposited when credited to the customer's account at the bank's main 
office, one of its branches, or another permissible facility, such as a 
back office facility that is not a branch. The bank deems items 
representing withdrawals to be paid when the items are given to the 
messenger service.
    (3) A national bank may defray all or part of the costs incurred by 
a customer in transporting items through a messenger service. Payment of 
those costs may only cover expenses associated with each transaction 
involving the customer and the messenger service. The national bank may 
impose terms, conditions, and limitations that it deems appropriate with 
respect to the payment of such costs.
    (d) Pickup and delivery of items pertaining to branching activities 
where the messenger service is established by the national bank. A 
national bank may establish and operate a messenger service to transport 
items relevant to the bank's transactions with its customers if such 
transactions constitute one or more branching functions within the 
meaning of 12 U.S.C. 36(j), provided the bank receives approval to 
establish a branch pursuant to 12 CFR 5.30.

[61 FR 4862, Feb. 9, 1996, as amended at 64 FR 60098, Nov. 4, 1999]



Sec. 7.1013  Debt cancellation contracts.

    A national bank may enter into a contract to provide for loss 
arising from cancellation of an outstanding loan upon the death or 
disability of a borrower. The imposition of an additional charge and the 
establishment of necessary reserves in order to enable the bank to enter 
into such debt cancellation contracts are a lawful exercise of the 
powers of a national bank.



Sec. 7.1014  Sale of money orders at nonbanking outlets.

    A national bank may designate bonded agents to sell the bank's money 
orders at nonbanking outlets. The responsibility of both the bank and 
its agent should be defined in a written agreement setting forth the 
duties of both parties and providing for remuneration of the agent. The 
bank's agents need not report on sales and transmit funds from the 
nonbanking outlets more frequently than at the end of the third business 
day following receipt of the funds.



Sec. 7.1015  Receipt of stock from a small business investment company.

    A national bank may purchase the stock of a small business 
investment company (SBIC) (see 15 U.S.C. 682(b)), and may receive the 
benefits of such stock ownership (e.g., stock dividends). The receipt 
and retention of a dividend by a national bank from an SBIC in the form 
of stock of a corporate borrower of the SBIC is not a purchase of stock 
within the meaning of 12 U.S.C. 24 (Seventh).



Sec. 7.1016  Independent undertakings to pay against documents.

    (a) General authority. A national bank may issue and commit to issue 
letters of credit and other independent undertakings within the scope of 
the applicable laws or rules of practice recognized by law.30 
Under such letters of credit

[[Page 115]]

and other independent undertakings, the bank's obligation to honor 
depends upon the presentation of specified documents and not upon 
nondocumentary conditions or resolution of questions of fact or law at 
issue between the applicant and the beneficiary. A national bank may 
also confirm or otherwise undertake to honor or purchase specified 
documents upon their presentation under another person's independent 
undertaking within the scope of such laws or rules.
---------------------------------------------------------------------------

    \30\ Examples of such laws or rules of practice include: The 
applicable version of Article 5 of the Uniform Commercial Code (UCC) 
(1962, as amended 1990) or revised Article 5 of the UCC (as amended 
1995) (available from West Publishing Co., 1/800/328-4880); the Uniform 
Customs and Practice for Documentary Credits (International Chamber of 
Commerce (ICC) Publication No. 500) (available from ICC Publishing, 
Inc., 212/206-1150; http://www.iccwbo.org); the International Standby 
Practices (ISP98) (ICC Publication No. 590) (available from the 
Institute of International Banking Law & Practice, 301/869-9840; http://
www.iiblp.org); the United Nations Convention on Independent Guarantees 
and Stand-by Letters of Credit (adopted by the U.N. General Assembly in 
1995 and signed by the U.S. in 1997) (available from the U.N. Commission 
on International Trade Law, 212/963-5353); and the Uniform Rules for 
Bank-to-Bank Reimbursements Under Documentary Credits (ICC Publication 
No. 525) (available from ICC Publishing, Inc., 212/206-1150; http://
www.iccwbo.org); as any of the foregoing may be amended from time to 
time.
---------------------------------------------------------------------------

    (b) Safety and soundness considerations--(1) Terms. As a matter of 
safe and sound banking practice, banks that issue independent 
undertakings should not be exposed to undue risk. At a minimum, banks 
should consider the following:
    (i) The independent character of the undertaking should be apparent 
from its terms (such as terms that subject it to laws or rules providing 
for its independent character);
    (ii) The undertaking should be limited in amount;
    (iii) The undertaking should:
    (A) Be limited in duration; or
    (B) Permit the bank to terminate the undertaking either on a 
periodic basis (consistent with the bank's ability to make any necessary 
credit assessments) or at will upon either notice or payment to the 
beneficiary; or
    (C) Entitle the bank to cash collateral from the applicant on demand 
(with a right to accelerate the applicant's obligations, as 
appropriate); and
    (iv) The bank either should be fully collateralized or have a post-
honor right of reimbursement from the applicant or from another issuer 
of an independent undertaking. Alternatively, if the bank's undertaking 
is to purchase documents of title, securities, or other valuable 
documents, the bank should obtain a first priority right to realize on 
the documents if the bank is not otherwise to be reimbursed.
    (2) Additional considerations in special circumstances. Certain 
undertakings require particular protections against credit, operational, 
and market risk:
    (i) In the event that the undertaking is to honor by delivery of an 
item of value other than money, the bank should ensure that market 
fluctuations that affect the value of the item will not cause the bank 
to assume undue market risk;
    (ii) In the event that the undertaking provides for automatic 
renewal, the terms for renewal should be consistent with the bank's 
ability to make any necessary credit assessments prior to renewal;
    (iii) In the event that a bank issues an undertaking for its own 
account, the underlying transaction for which it is issued must be 
within the bank's authority and comply with any safety and soundness 
requirements applicable to that transaction.
    (3) Operational expertise. The bank should possess operational 
expertise that is commensurate with the sophistication of its 
independent undertaking activities.
    (4) Documentation. The bank must accurately reflect the bank's 
undertakings in its records, including any acceptance or deferred 
payment or other absolute obligation arising out of its contingent 
undertaking.
    (c) Coverage. An independent undertaking within the meaning of this 
section is not subject to the provisions of Sec. 7.1017.

[61 FR 4862, Feb. 9, 1996, as amended at 64 FR 60099, Nov. 4, 1999]

[[Page 116]]



Sec. 7.1017  National bank as guarantor or surety on indemnity bond.

    A national bank may lend its credit, bind itself as a surety to 
indemnify another, or otherwise become a guarantor (including, pursuant 
to 12 CFR 28.4, guaranteeing the deposits and other liabilities of its 
Edge corporations and Agreement corporations and of its corporate 
instrumentalities in foreign countries), if:
    (a) The bank has a substantial interest in the performance of the 
transaction involved (for example, a bank, as fiduciary, has a 
sufficient interest in the faithful performance by a cofiduciary of its 
duties to act as surety on the bond of such cofiduciary); or
    (b) The transaction is for the benefit of a customer and the bank 
obtains from the customer a segregated deposit that is sufficient in 
amount to cover the bank's total potential liability. A segregated 
deposit under this section includes collateral:
    (1) In which the bank has perfected its security interest (for 
example, if the collateral is a printed security, the bank must have 
obtained physical control of the security, and, if the collateral is a 
book entry security, the bank must have properly recorded its security 
interest); and
    (2) That has a market value, at the close of each business day, 
equal to the bank's total potential liability and is composed of:
    (i) Cash;
    (ii) Obligations of the United States or its agencies;
    (iii) Obligations fully guaranteed by the United States or its 
agencies as to principal and interest; or
    (iv) Notes, drafts, or bills of exchange or bankers' acceptances 
that are eligible for rediscount or purchase by a Federal Reserve Bank; 
or
    (3) That has a market value, at the close of each business day, 
equal to 110 percent of the bank's total potential liability and is 
composed of obligations of a State or political subdivision of a State.

[61 FR 4862, Feb. 9, 1996, as amended at 64 FR 60099, Nov. 4, 1999]



Sec. 7.1018  Automatic payment plan account.

    A national bank may, for the benefit and convenience of its savings 
depositors, adopt an automatic payment plan under which a savings 
account will earn dividends at the current rate paid on regular savings 
accounts. The depositor, upon reaching a previously designated age, 
receives his or her accumulated savings and earned interest in 
installments of equal amounts over a specified period.



Sec. 7.1019  Furnishing of products and services by electronic means and facilities.

    A national bank may perform, provide, or deliver through electronic 
means and facilities any activity, function, product, or service that it 
is otherwise authorized to perform, provide, or deliver. A national bank 
may also, in order to optimize the use of the bank's resources, market 
and sell to third parties electronic capacities acquired or developed by 
the bank in good faith for banking purposes.



Sec. 7.1020  Purchase of open accounts.

    (a) General. The purchase of open accounts is a part of the business 
of banking and within the power of a national bank.
    (b) Export transactions. A national bank may purchase open accounts 
in connection with export transactions; the accounts should be protected 
by insurance such as that provided by the Foreign Credit Insurance 
Association and the Export-Import Bank.



                     Subpart B--Corporate Practices



Sec. 7.2000  Corporate governance procedures.

    (a) General. A national bank proposing to engage in a corporate 
governance procedure shall comply with applicable Federal banking 
statutes and regulations, and safe and sound banking practices.
    (b) Other sources of guidance. To the extent not inconsistent with 
applicable Federal banking statutes or regulations, or bank safety and 
soundness, a national bank may elect to follow the corporate governance 
procedures of the

[[Page 117]]

law of the state in which the main office of the bank is located, the 
law of the state in which the holding company of the bank is 
incorporated, the Delaware General Corporation Law, Del. Code Ann. tit. 
8 (1991, as amended 1994, and as amended thereafter), or the Model 
Business Corporation Act (1984, as amended 1994, and as amended 
thereafter). A national bank shall designate in its bylaws the body of 
law selected for its corporate governance procedures.
    (c) No-objection procedures. The OCC also considers requests for its 
staff's position on the ability of a national bank to engage in a 
particular corporate governance procedure in accordance with the no-
objection procedures set forth in Banking Circular 205 or any 
subsequently published agency procedures.2 Requests should 
demonstrate how the proposed practice is not inconsistent with 
applicable Federal statutes or regulations, and is consistent with safe 
and sound banking practices.
---------------------------------------------------------------------------

    \2\ Available upon request from the OCC Communications Division, 250 
E Street, SW., Washington, DC 20219, (202) 874-4700.
---------------------------------------------------------------------------



Sec. 7.2001  Notice of shareholders' meetings.

    A national bank must mail shareholders notice of the time, place, 
and purpose of all shareholders' meetings at least 10 days prior to the 
meeting by first class mail, unless the OCC determines that an emergency 
circumstance exists. Where a national bank is a wholly-owned subsidiary, 
the sole shareholder is permitted to waive notice of the shareholder's 
meeting. The articles of association, bylaws, or law applicable to a 
national bank may require a longer period of notice.



Sec. 7.2002  Director or attorney as proxy.

    Any person or group of persons, except the bank's officers, clerks, 
tellers, or bookkeepers, may be designated to act as proxy. The bank's 
directors or attorneys may act as proxy if they are not also employed as 
an officer, clerk, teller or bookkeeper of the bank.



Sec. 7.2003  Annual meeting for election of directors.

    When the day fixed for the regular annual meeting of the 
shareholders falls on a legal holiday in the state in which the bank is 
located, the shareholders' meeting shall be held, and the directors 
elected, on the next following banking day.



Sec. 7.2004  Honorary directors or advisory boards.

    A national bank may appoint honorary or advisory members of a board 
of directors to act in advisory capacities without voting power or power 
of final decision in matters concerning the business of the bank. Any 
listing of honorary or advisory directors must distinguish between them 
and the bank's board of directors or indicate their advisory status.



Sec. 7.2005  Ownership of stock necessary to qualify as director.

    (a) General. A national bank director must own a qualifying equity 
interest in a national bank or a company that has control of a national 
bank. The director must own the qualifying equity interest in his or her 
own right and meet a certain minimum threshold ownership.
    (b) Qualifying equity interest--(1) Minimum required equity 
interest. For purposes of this section, a qualifying equity interest 
includes common or preferred stock of the bank or of a company that 
controls the bank that has not less than an aggregate par value of 
$1,000, an aggregate shareholders' equity of $1,000, or an aggregate 
fair market value of $1,000.
    (i) The value of the common or preferred stock held by a national 
bank director is valued as of the date purchased or the date on which 
the individual became a director, whichever value is greater.
    (ii) In the case of a company that owns more than one national bank, 
a director may use his or her equity interest in the controlling company 
to satisfy, in whole or in part, the equity interest requirement for any 
or all of the controlled national banks.

[[Page 118]]

    (iii) Upon request, the OCC may consider whether other interests in 
a company controlling a national bank constitute an interest equivalent 
to $1,000 par value of national bank stock.
    (2) Joint ownership and tenancy in common. Shares held jointly or as 
a tenant in common are qualifying shares held by a director in his or 
her own right only to the extent of the aggregate value of the shares 
which the director would be entitled to receive on dissolution of the 
joint tenancy or tenancy in common.
    (3) Shares in a living trust. Shares deposited by a person in a 
living trust (inter vivos trust) as to which the person is a trustee and 
retains an absolute power of revocation are shares owned by the person 
in his or her own right.
    (4) Other arrangements--(i) Shares held through retirement plans and 
similar arrangements. A director may hold his or her qualifying interest 
through a profit-sharing plan, individual retirement account, retirement 
plan, or similar arrangement, if the director retains beneficial 
ownership and legal control over the shares.
    (ii) Shares held subject to buyback agreements. A director may 
acquire and hold his or her qualifying interest pursuant to a stock 
repurchase or buyback agreement with a transferring shareholder under 
which the director purchases the qualifying shares subject to an 
agreement that the transferring shareholder will repurchase the shares 
when, for any reason, the director ceases to serve in that capacity. The 
agreement may give the transferring shareholder a right of first refusal 
to repurchase the qualifying shares if the director seeks to transfer 
ownership of the shares to a third person.
    (iii) Assignment of right to dividends or distributions. A director 
may assign the right to receive all dividends or distributions on his or 
her qualifying shares to another, including a transferring shareholder, 
if the director retains beneficial ownership and legal control over the 
shares.
    (iv) Execution of proxy. A director may execute a revocable or 
irrevocable proxy authorizing another, including a transferring 
shareholder, to vote his or her qualifying shares, provided the director 
retains beneficial ownership and legal control over the shares.
    (c) Non-qualifying ownership. The following are not shares held by a 
director in his or her own right:
    (1) Shares pledged by the holder to secure a loan. However, all or 
part of the funds used to purchase the required qualifying equity 
interest may be borrowed from any party, including the bank or its 
affiliates;
    (2) Shares purchased subject to an absolute option vested in the 
seller to repurchase the shares within a specified period; and
    (3) Shares deposited in a voting trust where the depositor 
surrenders:
    (i) Legal ownership (depositor ceases to be registered owner of the 
stock);
    (ii) Power to vote the stock or to direct how it shall be voted; or
    (iii) Power to transfer legal title to the stock.

[61 FR 4862, Feb. 9, 1996, as amended at 64 FR 60099, Nov. 4, 1999]



Sec. 7.2006  Cumulative voting in election of directors.

    When electing directors, a shareholder shall have as many votes as 
the number of directors to be elected multiplied by the number of the 
shareholder's shares. The shareholder may cast all these votes for one 
candidate, or distribute the votes among as many candidates as the 
shareholder chooses. If, after the first ballot, subsequent ballots are 
necessary to elect directors, a shareholder may not vote shares that he 
or she has already fully cumulated and voted in favor of a successful 
candidate.



Sec. 7.2007  Filling vacancies and increasing board of directors other than by shareholder action.

    (a) Increasing board of directors. If authorized by the bank's 
articles of association, between shareholder meetings a majority of the 
board of directors may increase the number of the bank's directors 
within the limits specified in 12 U.S.C. 71a. The board of directors may 
increase the number of directors only by up to two directors, when the 
number of directors last elected by shareholders was 15 or fewer, and by 
up to four directors, when the number of

[[Page 119]]

directors last elected by shareholders was 16 or more.
    (b) Vacancies. If a vacancy occurs on the board of directors, 
including a vacancy resulting from an increase in the number of 
directors, the vacancy may be filled by the shareholders, a majority of 
the board of directors remaining in office, or, if the directors 
remaining in office constitute fewer than a quorum, by an affirmative 
vote of a majority of all the directors remaining in office.



Sec. 7.2008  Oath of directors.

    (a) Administration of the oath. A notary public, including one who 
is a director but not an officer of the national bank, may administer 
the oath of directors. Any person, other than an officer of the bank, 
having an official seal and authorized by the state to administer oaths, 
may also administer the oath.
    (b) Execution of the oath. Each director attending the organization 
meeting shall execute either a joint or individual oath. A director not 
attending the organization meeting (the first meeting after the election 
of the directors) shall execute the individual oath. A director shall 
take another oath upon re-election, notwithstanding uninterupted 
service. Appropriate sample oaths are located in the ``Comptroller's 
Corporate Manual''.
    (c) Filing and recordkeeping. A national bank must file the original 
executed oaths of directors with the OCC and retain a copy in the bank's 
records in accordance with the Comptroller's Corporate Manual filing and 
recordkeeping instructions for executed oaths of directors.

[61 FR 4862, Feb. 9, 1996, as amended at 64 FR 60099, Nov. 4, 1999]



Sec. 7.2009  Quorum of the board of directors; proxies not permissible.

    A national bank shall provide in its articles of association or 
bylaws that for the transaction of business, a quorum of the board of 
directors is at least a majority of the entire board then in office. A 
national bank director may not vote by proxy.



Sec. 7.2010  Directors' responsibilities.

    The business and affairs of the bank shall be managed by or under 
the direction of the board of directors. The board of directors should 
refer to OCC published guidance for additional information regarding 
responsibilities of directors.



Sec. 7.2011  Compensation plans.

    Consistent with safe and sound banking practices and the 
compensation provisions of 12 CFR part 30, a national bank may adopt 
compensation plans, including, among others, the following:
    (a) Bonus and profit-sharing plans. A national bank may adopt a 
bonus or profit-sharing plan designed to ensure adequate remuneration of 
bank officers and employees.
    (b) Pension plans. A national bank may provide employee pension 
plans and make reasonable contributions to the cost of the pension plan.
    (c) Employee stock option and stock purchase plans. A national bank 
may provide employee stock option and stock purchase plans.



Sec. 7.2012  President as director; chief executive officer.

    Pursuant to 12 U.S.C. 76, the president of a national bank must be a 
member of the board of directors, but a director other than the 
president may be elected chairman of the board. A person other than the 
president may serve as chief executive officer, and this person is not 
required to be a director of the bank.



Sec. 7.2013  Fidelity bonds covering officers and employees.

    (a) Adequate coverage. All officers and employees of a national bank 
must have adequate fidelity coverage. The failure of directors to 
require bonds with adequate sureties and in sufficient amount may make 
the directors liable for any losses that the bank sustains because of 
the absence of such bonds. Directors should not serve as sureties on 
such bonds.
    (b) Factors. The board of directors should determine the amount of 
such coverage, premised upon a consideration of factors, including:
    (1) Internal auditing safeguards employed;

[[Page 120]]

    (2) Number of employees;
    (3) Amount of deposit liabilities; and
    (4) Amount of cash and securities normally held by the bank.



Sec. 7.2014  Indemnification of institution-affiliated parties.

    (a) Administrative proceedings or civil actions initiated by Federal 
banking agencies. A national bank may only make or agree to make 
indemnification payments to an institution-affiliated party with respect 
to an administrative proceeding or civil action initiated by any Federal 
banking agency, that are reasonable and consistent with the requirements 
of 12 U.S.C. 1828(k) and the implementing regulations thereunder. The 
term ``institution-affiliated party'' has the same meaning as set forth 
at 12 U.S.C. 1813(u).
    (b) Administrative proceeding or civil actions not initiated by a 
Federal banking agency--(1) General. In cases involving an 
administrative proceeding or civil action not initiated by a Federal 
banking agency, a national bank may indemnify an institution-affiliated 
party for damages and expenses, including the advancement of expenses 
and legal fees, in accordance with the law of the state in which the 
main office of the bank is located, the law of the state in which the 
bank's holding company is incorporated, or the relevant provisions of 
the Model Business Corporation Act (1984, as amended 1994, and as 
amended thereafter), or Delaware General Corporation Law, Del. Code Ann. 
tit. 8 (1991, as amended 1994, and as amended thereafter), provided such 
payments are consistent with safe and sound banking practices. A 
national bank shall designate in its bylaws the body of law selected for 
making indemnification payments under this paragraph.
    (2) Insurance premiums. A national bank may provide for the payment 
of reasonable premiums for insurance covering the expenses, legal fees, 
and liability of institution-affiliated parties to the extent that the 
expenses, fees, or liability could be indemnified under paragraph (b)(1) 
of this section.



Sec. 7.2015  Cashier.

    A national bank's bylaws, board of directors, or a duly designated 
officer may assign some or all of the duties previously performed by the 
bank's cashier to its president, chief executive officer, or any other 
officer.



Sec. 7.2016  Restricting transfer of stock and record dates.

    (a) Conditions for stock transfer. Under 12 U.S.C. 52, a national 
bank may impose conditions upon the transfer of its stock reasonably 
calculated to simplify the work of the bank with respect to stock 
transfers, voting at shareholders' meetings, and related matters and to 
protect it against fraudulent transfers.
    (b) Record dates. A national bank may close its stock records for a 
reasonable period to ascertain shareholders for voting purposes. The 
board of directors may fix a record date for determining the 
shareholders entitled to notice of, and to vote at, any meeting of 
shareholders. The record date should be in reasonable proximity to the 
date that notice is given to the shareholders of the meeting.



Sec. 7.2017  Facsimile signatures on bank stock certificates.

    The president and cashier, or other officers authorized by the 
bank's bylaws, shall sign each national bank stock certificate. The 
signatures may be manual or facsimile, including electronic means of 
signature. Each certificate must be sealed with the seal of the 
association.



Sec. 7.2018  Lost stock certificates.

    If a national bank does not provide for replacing lost, stolen, or 
destroyed stock certificates in its articles of association or bylaws, 
the bank may adopt procedures in accordance with Sec. 7.2000.



Sec. 7.2019  Loans secured by a bank's own shares.

    (a) Permitted agreements, relating to bank shares. A national bank 
may require a borrower holding shares of the bank to execute agreements:
    (1) Not to pledge, give away, transfer, or otherwise assign such 
shares;

[[Page 121]]

    (2) To pledge such shares at the request of the bank when necessary 
to prevent loss; and
    (3) To leave such shares in the bank's custody.
    (b) Use of capital notes and debentures. A national bank may not 
make loans secured by a pledge of the bank's own capital notes and 
debentures. Such notes and debentures must be subordinated to the claims 
of depositors and other creditors of the issuing bank, and are, 
therefore, capital instruments within the purview of 12 U.S.C. 83.



Sec. 7.2020  Acquisition and holding of shares as treasury stock.

    (a) Acquisition of outstanding shares. Pursuant to 12 U.S.C. 59, 
including the requirements for prior approval by the bank's shareholders 
and the OCC imposed by that statute, a national bank may acquire its 
outstanding shares and hold them as treasury stock, if the acquisition 
and retention of the shares is, and continues to be, for a legitimate 
corporate purpose.
    (b) Legitimate corporate purpose. Examples of legitimate corporate 
purposes include the acquisition and holding of treasury stock to:
    (1) Have shares available for use in connection with employee stock 
option, bonus, purchase, or similar plans;
    (2) Sell to a director for the purpose of acquiring qualifying 
shares;
    (3) Purchase a director's qualifying shares upon the cessation of 
the director's service in that capacity if there is no ready market for 
the shares;
    (4) Reduce the number of shareholders in order to qualify as a 
Subchapter S corporation; and
    (5) Reduce costs associated with shareholder communications and 
meetings.
    (c) Prohibition. It is not a legitimate corporate purpose to acquire 
or hold treasury stock on speculation about changes in its value.

[64 FR 60099, Nov. 4, 1999]



Sec. 7.2021  Preemptive rights.

    A national bank in its articles of association must grant or deny 
preemptive rights to the bank's shareholders. Any amendment to a 
national bank's articles of association which modifies such preemptive 
rights must be approved by a vote of the holders of two-thirds of the 
bank's outstanding voting shares.



Sec. 7.2022  Voting trusts.

    The shareholders of a national bank may establish a voting trust 
under the applicable law of a state selected by the participants and 
designated in the trust agreement, provided the implementation of the 
trust is consistent with safe and sound banking practices.



Sec. 7.2023  Reverse stock splits.

    (a) Authority to engage in reverse stock splits. A national bank may 
engage in a reverse stock split if the transaction serves a legitimate 
corporate purpose and provides adequate dissenting shareholders' rights.
    (b) Legitimate corporate purpose. Examples of legitimate corporate 
purposes include a reverse stock split to:
    (1) Reduce the number of shareholders in order to qualify as a 
Subchapter S corporation; and
    (2) Reduce costs associated with shareholder communications and 
meetings.

[64 FR 60099, Nov. 4, 1999]



                       Subpart C--Bank Operations



Sec. 7.3000  Bank hours and closings.

    (a) Bank hours. A national bank's board of directors should review 
its banking hours, and, independently of any other bank, take 
appropriate action to establish a schedule of banking hours.
    (b) Emergency closings. Pursuant to 12 U.S.C. 95(b)(1), the 
Comptroller of the Currency (Comptroller), a state, or a legally 
authorized state official may declare a day a legal holiday if emergency 
conditions exist. That day is a legal holiday for national banks or 
their offices in the affected geographic area (i.e., throughout the 
country, in a state, or in part of a state). Emergency conditions 
include natural disasters and civil and municipal emergencies (e.g., 
severe flooding, or a power emergency declared by a local power company 
or government requesting that businesses in the affected area close). 
The Comptroller issues a proclamation authorizing the emergency closing 
in

[[Page 122]]

accordance with 12 U.S.C. 95 at the time of the emergency condition, or 
soon thereafter. When the Comptroller, a state, or a legally authorized 
state official declares a day to be a legal holiday due to emergency 
conditions, a national bank may choose to remain open or to close any of 
its banking offices in the affected geographic area.
    (c) Ceremonial closings. A state or a legally authorized state 
official may declare a day a legal holiday for ceremonial reasons. When 
a state or a legally authorized state official declares a day to be a 
legal holiday for ceremonial reasons, a national bank may choose to 
remain open or to close.
    (d) Liability. A national bank should assure that all liabilities or 
other obligations under the applicable law due to the bank's closing are 
satisfied.



Sec. 7.3001  Sharing space and employees.

    (a) Sharing space. A national bank may:
    (1) Lease excess space on bank premises to one or more other 
businesses (including other banks and financial institutions);
    (2) Share space jointly held with one or more other businesses; or
    (3) Offer its services in space owned or leased to other businesses.
    (b) Sharing employees. When sharing space with other businesses as 
described in paragraph (a) of this section, a national bank may provide, 
under one or more written agreements among the bank, the other 
businesses, and their employees, that:
    (1) A bank employee may act as agent for the other business; or
    (2) An employee of the other business may act as agent for the bank.
    (c) Supervisory conditions. When a national bank engages in 
arrangements of the types listed in paragraphs (a) and (b) of this 
section, the bank shall ensure that:
    (1) The other business is conspicuously, accurately, and separately 
identified;
    (2) Shared employees clearly and fully disclose the nature of their 
agency relationship to customers of the bank and of the other businesses 
so that customers will know the identity of the bank or business that is 
providing the product or service;
    (3) The arrangement does not constitute a joint venture or 
partnership with the other business under applicable state law;
    (4) All aspects of the relationship between the bank and the other 
business are conducted at arm's length, unless a special arrangement is 
warranted because the other business is a subsidiary of the bank;
    (5) Security issues arising from the activities of the other 
business on the premises are addressed;
    (6) The activities of the other business do not adversely affect the 
safety and soundness of the bank;
    (7) The shared employees or the entity for which they perform 
services are duly licensed or meet qualification requirements of 
applicable statutes and regulations pertaining to agents or employees of 
such other business; and
    (8) The assets and records of the parties are segregated.
    (d) Other legal requirements. When entering into arrangements, of 
the types described in paragraphs (a) and (b) of this section, and in 
conducting operations pursuant to those arrangements the bank must 
ensure that each arrangement complies with 12 U.S.C. 29 and 36 and with 
any other applicable laws and regulations. If the arrangement involves 
an affiliate or a shareholder, director, officer or employee of the 
bank:
    (1) The bank must ensure compliance with all applicable statutory 
and regulatory provisions governing bank transactions with these persons 
or entities;
    (2) The parties must comply with all applicable fiduciary duties; 
and
    (3) The parties, if they are in competition with each other, must 
consider limitations, if any, imposed by applicable antitrust laws.



                          Subpart D--Preemption



Sec. 7.4000  Visitorial powers.

    (a) General rule. (1) Only the OCC or an authorized representative 
of the OCC may exercise visitorial powers with respect to national 
banks, except as provided in paragraph (b) of this section. State 
officials may not exercise

[[Page 123]]

visitorial powers with respect to national banks, such as conducting 
examinations, inspecting or requiring the production of books or records 
of national banks, or prosecuting enforcement actions, except in limited 
circumstances authorized by federal law. However, production of a bank's 
records (other than non-public OCC information under 12 CFR part 4, 
subpart C) may be required under normal judicial procedures.
    (2) For purposes of this section, visitorial powers include:
    (i) Examination of a bank;
    (ii) Inspection of a bank's books and records;
    (iii) Regulation and supervision of activities authorized or 
permitted pursuant to federal banking law; and
    (iv) Enforcing compliance with any applicable federal or state laws 
concerning those activities.
    (b) Exceptions to the general rule. Federal law expressly provides 
special authority for state or other federal officials to:
    (1) Inspect the list of shareholders, provided the official is 
authorized to assess taxes under state authority (12 U.S.C. 62; this 
section also authorizes inspection of the shareholder list by 
shareholders and creditors of a national bank);
    (2) Review, at reasonable times and upon reasonable notice to a 
bank, the bank's records solely to ensure compliance with applicable 
state unclaimed property or escheat laws upon reasonable cause to 
believe that the bank has failed to comply with those laws (12 U.S.C. 
484(b));
    (3) Verify payroll records for unemployment compensation purposes 
(26 U.S.C. 3305(c));
    (4) Ascertain the correctness of federal tax returns (26 U.S.C. 
7602); and
    (5) Enforce the Fair Labor Standards Act (29 U.S.C. 211).
    (c) Report of examination. The report of examination made by an OCC 
examiner is designated solely for use in the supervision of the bank. 
The bank's copy of the report is the property of the OCC and is loaned 
to the bank and any holding company thereof solely for its confidential 
use. The bank's directors, in keeping with their responsibilities both 
to depositors and to shareholders, should thoroughly review the report. 
The report may be made available to other persons only in accordance 
with the rules on disclosure in 12 CFR part 4.

[61 FR 4862, Feb. 9, 1996, as amended at 64 FR 60100, Nov. 4, 1999]



Sec. 7.4001  Charging interest at rates permitted competing institutions; charging interest to corporate borrowers.

    (a) Definition. The term ``interest'' as used in 12 U.S.C. 85 
includes any payment compensating a creditor or prospective creditor for 
an extension of credit, making available of a line of credit, or any 
default or breach by a borrower of a condition upon which credit was 
extended. It includes, among other things, the following fees connected 
with credit extension or availability: numerical periodic rates, late 
fees, not sufficient funds (NSF) fees, overlimit fees, annual fees, cash 
advance fees, and membership fees. It does not ordinarily include 
appraisal fees, premiums and commissions attributable to insurance 
guaranteeing repayment of any extension of credit, finders' fees, fees 
for document preparation or notarization, or fees incurred to obtain 
credit reports.
    (b) Authority. A national bank located in a state may charge 
interest at the maximum rate permitted to any state-chartered or 
licensed lending institution by the law of that state. If state law 
permits different interest charges on specified classes of loans, a 
national bank making such loans is subject only to the provisions of 
state law relating to that class of loans that are material to the 
determination of the permitted interest. For example, a national bank 
may lawfully charge the highest rate permitted to be charged by a state-
licensed small loan company, without being so licensed, but subject to 
state law limitations on the size of loans made by small loan companies.
    (c) Effect on state definitions of interest. The Federal definition 
of the term ``interest'' in paragraph (a) of this section does not 
change how interest is defined by the individual states (nor how the 
state definition of interest is used) solely for purposes of state law.

[[Page 124]]

For example, if late fees are not ``interest'' under state law where a 
national bank is located but state law permits its most favored lender 
to charge late fees, then a national bank located in that state may 
charge late fees to its intrastate customers. The national bank may also 
charge late fees to its interstate customers because the fees are 
interest under the Federal definition of interest and an allowable 
charge under state law where the national bank is located. However, the 
late fees would not be treated as interest for purposes of evaluating 
compliance with state usury limitations because state law excludes late 
fees when calculating the maximum interest that lending institutions may 
charge under those limitations.
    (d) Usury. A national bank located in a state the law of which 
denies the defense of usury to a corporate borrower may charge a 
corporate borrower any rate of interest agreed upon by a corporate 
borrower.



Sec. 7.4002  National bank charges.

    (a) Customer charges and fees. A national bank may charge its 
customers non-interest charges and fees, including deposit account 
service charges. For example, a national bank may impose deposit account 
service charges that its board of directors determines to be reasonable 
on dormant accounts. A national bank may also charge a borrower 
reasonable fees for credit reports or investigations with respect to a 
borrower's credit. All charges and fees should be arrived at by each 
bank on a competitive basis and not on the basis of any agreement, 
arrangement, undertaking, understanding, or discussion with other banks 
or their officers.
    (b) Considerations. The establishment of non-interest charges and 
fees, and the amounts thereof, is a business decision to be made by each 
bank, in its discretion, according to sound banking judgment and safe 
and sound banking principles. A bank reasonably establishes non-interest 
charges and fees if the bank considers the following factors, among 
others:
    (1) The cost incurred by the bank, plus a profit margin, in 
providing the service;
    (2) The deterrence of misuse by customers of banking services;
    (3) The enhancement of the competitive position of the bank in 
accordance with the bank's marketing strategy; and
    (4) The maintenance of the safety and soundness of the institution.
    (c) Interest. Charges and fees that are ``interest'' within the 
meaning of 12 U.S.C. 85 are governed by Sec. 7.4001 and not by this 
section.
    (d) State law. The OCC evaluates on a case-by-case basis whether a 
national bank may establish non-interest charges or fees pursuant to 
paragraphs (a) and (b) of this section notwithstanding a contrary state 
law that purports to limit or prohibit such charges or fees. In issuing 
an opinion on whether such state laws are preempted, the OCC applies 
preemption principles derived from the Supremacy Clause of the United 
States Constitution and applicable judicial precedent.
    (e) National bank as fiduciary. This section does not apply to 
charges imposed by a national bank in its capacity as a fiduciary, which 
are governed by 12 CFR part 9.



Sec. 7.4003  Establishment and operation of a remote service unit by a national bank.

    A remote service unit (RSU) is an automated facility, operated by a 
customer of a bank, that conducts banking functions, such as receiving 
deposits, paying withdrawals, or lending money. A national bank may 
establish and operate an RSU pursuant to 12 U.S.C. 24(Seventh). An RSU 
includes an automated teller machine, automated loan machine, and 
automated device for receiving deposits. An RSU may be equipped with a 
telephone or televideo device that allows contact with bank personnel. 
An RSU is not a ``branch'' within the meaning of 12 U.S.C. 36(j), and is 
not subject to state geographic or operational restrictions or licensing 
laws.

[64 FR 60100, Nov. 4, 1999]



Sec. 7.4004  Establishment and operation of a deposit production office by a national bank.

    (a) General rule. A national bank or its operating subsidiary may 
engage in

[[Page 125]]

deposit production activities at a site other than the main office or a 
branch of the bank. A deposit production office (DPO) may solicit 
deposits, provide information about deposit products, and assist persons 
in completing application forms and related documents to open a deposit 
account. A DPO is not a branch within the meaning of 12 U.S.C. 36(j) and 
12 CFR 5.30(d)(1) so long as it does not receive deposits, pay 
withdrawals, or make loans. All deposit and withdrawal transactions of a 
bank customer using a DPO must be performed by the customer, either in 
person at the main office or a branch office of the bank, or by mail, 
electronic transfer, or a similar method of transfer.
    (b) Services of other persons. A national bank may use the services 
of, and compensate, persons not employed by the bank in its deposit 
production activities.

[64 FR 60100, Nov. 4, 1999]



Sec. 7.4005  Combination of loan production office, deposit production office, and remote service unit.

    A location at which a national bank operates a loan production 
office (LPO), a deposit production office (DPO), and a remote service 
unit (RSU) is not a ``branch'' within the meaning of 12 U.S.C. 36(j) by 
virtue of that combination. Since an LPO, DPO, or RSU is not, 
individually, a branch under 12 U.S.C. 36(j), any combination of these 
facilities at one location does not create a branch.

[64 FR 60100, Nov. 4, 1999]



PART 8--ASSESSMENT OF FEES; NATIONAL BANKS; DISTRICT OF COLUMBIA BANKS--Table of Contents




Sec.
8.1  Scope and application.
8.2  Semiannual assessment.
8.6  Fees for fiduciary activities examinations, special examinations 
          and investigations fees, examination of affiliates, 
          examinations related to corporate activities.
8.7  Payment of interest on delinquent assessments and examination and 
          investigation fees.
8.8  Notice of Comptroller of the Currency fees.

    Authority: 12 U.S.C. 93a, 481, 482, and 3102 and 3108; 15 U.S.C. 78c 
and 78l; and 26 D.C. Code 102.



Sec. 8.1  Scope and application.

    The assessments contained in this part are made pursuant to the 
authority contained in 12 U.S.C. 93A, 481, 482 and 3102; 15 U.S.C. 78 c 
and l; and 26 D.C. Code 102.

[55 FR 49842, Nov. 30, 1990]



Sec. 8.2  Semiannual assessment.

    (a) Each national bank and each District of Columbia bank shall pay 
to the Comptroller of the Currency a semiannual assessment fee, due by 
January 31 and July 31 of each year, for the six-month period beginning 
30 days before each payment date. The amount of the semiannual 
assessment paid by each bank is computed as follows:

----------------------------------------------------------------------------------------------------------------
  If the banks' total assets (consolidated                       The semiannual assessment is:
    domestic and foreign subsidies) are:     -------------------------------------------------------------------
---------------------------------------------     This amount--               Plus            Of excess over--
        Over--             But not over--    -------------------------------------------------------------------
---------------------------------------------      Base amount           Marginal rates
                                             ----------------------------------------------        Column E
       Column A               Column B               Column C               Column D
----------------------------------------------------------------------------------------------------------------
Million                           Million                                                             Million
                $0                     $2                     $0                     Y1                    $0
                 2                     20                     X1                     Y2                     2
                20                    100                     X2                     Y3                    20
               100                    200                     X3                     Y4                   100
               200                  1,000                     X4                     Y5                   200
             1,000                  2,000                     X5                     Y6                 1,000
             2,000                  6,000                     X6                     Y7                 2,000
             6,000                 20,000                     X7                     Y8                 6,000
            20,000                 40,000                     X8                     Y9                20,000
            40,000                                            X9                    Y10                40,000
----------------------------------------------------------------------------------------------------------------


[[Page 126]]

    (1) Every national bank falls into one of the ten asset-size 
brackets denoted by Columns A and B. A bank's semiannual assessment is 
composed of two parts. The first part is the calculation of a base 
amount of the assessment, which is computed on the assets of the bank up 
to the lower endpoint (Column A) of the bracket in which it falls. This 
base amount of the assessment is calculated by the OCC in Column C.
    (2) The second part is the calculation by the bank of assessments 
due on the remaining assets of the bank in excess of Column E. The 
excess is assessed at the marginal rate shown in Column D.
    (3) The total semiannual assessment is the amount in Column C, plus 
the amount of the bank's assets in excess Column E times the marginal 
rate in Column D: Assessments = C+[(Assets--E) x D].
    (4) Each year, the OCC may index the marginal rates in Column D to 
adjust for the percent change in the level of prices, as measured by 
changes in the Gross Domestic Product Implicit Price Deflator (GDPIPD) 
for each June-to-June period. The OCC may at its discretion adjust 
marginal rates by amounts less than the percentage change in GDPIPD. The 
OCC will also adjust the amounts in Column C to reflect any change made 
to the marginal rate.
    (5) The specific marginal rates and complete assessment schedule 
will be published in the ``Notice of Comptroller of the Currency Fees'', 
provided for at Sec. 8.8 of this part. Each semiannual assessment is 
based upon the total assets shown in the bank's most recent 
``Consolidated Report of Condition (Including Domestic and Foreign 
Subsidiaries)'' (Call Report) preceding the payment date. The assessment 
shall be computed in the manner and on the form provided by the 
Comptroller of the Currency. Each bank subject to the jurisdiction of 
the Comptroller of the Currency on the date of the second or fourth 
quarterly Call Report required by the Office under 12 U.S.C. 161 is 
subject to the full assessment for the next six-month period.
    (6)(i) Notwithstanding any other provision of this part, the OCC may 
reduce the semiannual assessment for each non-lead bank by a percentage 
that it will specify in the Notice of Comptroller of the Currency Fees 
described in Sec. 8.8.
    (ii) For purposes of this paragraph (a)(6):
    (A) Lead bank means the largest national bank controlled by a 
company, based on a comparison of the total assets held by each national 
bank controlled by that company as reported in each bank's Call Report 
filed for the quarter immediately preceding the payment of a semiannual 
assessment.
    (B) Non-lead bank means a national bank that is not the lead bank 
controlled by a company that controls two or more national banks.
    (C) Control and company have the same meanings as these terms have 
in sections 2(a)(2) and 2(b), respectively, of the Bank Holding Company 
Act of 1956 (12 U.S.C. 1841 (a)(2) and (b)).
    (7) The OCC shall adjust the semiannual assessment computed in 
accordance with paragraphs (a)(1) through (a)(6) of this section by 
multiplying that figure by 1.25 for each bank that receives a rating of 
3, 4, or 5 under the Uniform Financial Institutions Rating System at its 
most recent examination.
    (b)(1) Each Federal branch and each Federal agency shall pay to the 
Comptroller of the Currency on or before January 31 and July 31 of each 
year a semiannual assessment fee for the six month period beginning 
thirty days before each payment date.
    (2) The amount of the semiannual assessment paid by each Federal 
branch and Federal agency shall be computed at the same rate as provided 
in the Table in 12 CFR 8.2(a); however, only the total domestic assets 
of the Federal branch or Federal agency shall be subject to assessment.
    (3) Each semiannual assessment of each Federal branch or Federal 
agency is based upon the total assets shown in the Call Report most 
recently preceding the payment date. The assessment shall be computed in 
the manner and on the form provided by the OCC. Each Federal branch or 
Federal agency subject to the jurisdiction of the OCC on the date of the 
second and fourth Call Reports is subject to the full assessment for the 
next six month period.

[[Page 127]]

    (4)(i) Notwithstanding any other provision of this part, the OCC may 
reduce the semiannual assessment for each non-lead Federal branch or 
agency by an amount that it will specify in the Notice of Comptroller of 
the Currency Fees described in Sec. 8.8.
    (ii) For purposes of this paragraph (b)(4):
    (A) Lead Federal branch or agency means the largest Federal branch 
or agency of a foreign bank, based on a comparison of the total assets 
held by each Federal branch or agency of that foreign bank as reported 
in each Federal branch's or agency's Call Report filed for the quarter 
immediately preceding the payment of a semiannual assessment.
    (B) Non-lead Federal branch or agency means a Federal branch or 
Federal agency that is not the lead Federal branch or agency of a 
foreign bank that controls two or more Federal branches or agencies.
    (5) The OCC shall adjust the semiannual assessment computed in 
accordance with paragraphs (b)(1) through (b)(4) of this section by 
multiplying that figure by 1.25 for each Federal branch or Federal 
agency that receives a ROCA rating (which rates risk management, 
operational controls, compliance, and asset quality) of 3, 4, or 5 at 
its most recent examination.

[44 FR 20065, Apr. 4, 1979, as amended at 49 FR 26205, June 27, 1984; 49 
FR 50602, Dec. 31, 1984; 53 FR 48627, Dec. 1, 1988; 55 FR 49842, Nov. 
30, 1990; 57 FR 22416, May 28, 1992; 61 FR 64002, Dec. 2, 1996; 62 FR 
54745, Oct. 21, 1997; 62 FR 64137, Dec. 4, 1997]



Sec. 8.6  Fees for fiduciary activities examinations, special examinations and investigations fees, examination of affiliates, examinations related to corporate 
          activities.

    (a) Fees. Pursuant to the authority contained in 12 U.S.C. 481 and 
482, the Office of the Comptroller of the Currency assesses a fee for 
examining fiduciary activities of national and District of Columbia 
banks and related entities, for conducting special examinations and 
investigations of national and District of Columbia banks, for 
conducting examinations of affiliates of national and District of 
Columbia banks, and for conducting examinations and investigations made 
pursuant to 12 CFR Part 5, Rules, Policies, and Procedures for Corporate 
Activities.
    (b) Notice of Comptroller of the Currency Fees. The OCC publishes 
the fee schedule for fiduciary activities, special examinations and 
investigations, examinations of affiliates and examinations related to 
corporate activities in the Notice of Comptroller of the Currency Fees 
described in Sec. 8.8.

[59 FR 59642, Nov. 18, 1994]



Sec. 8.7  Payment of interest on delinquent assessments and examination and investigation fees.

    (a) Each national bank, each district bank, each Federal branch, and 
each Federal agency shall pay to the Comptroller of the currency 
interest on its delinquent payments of semiannual assessments. In 
addition, each national bank and each entity with a trust department 
examined by the Comptroller of the Currency and each institution that is 
the subject of a special examination or investigation conducted by the 
Comptroller of the Currency shall pay to the Comptroller of the Currency 
interest on its delinquent payments of examination and investigation 
fees. Semiannual assessment payments will be considered delinquent 
payments of examination and investigation fees. Semiannual assessment 
payments will be considered delinquent if they are received after the 
time for payment specified in Sec. 8.2. Examination and investigation 
fees will be considered delinquent if not received by the Comptroller of 
the Currency within 30 calendar days of the invoice date.
    (b) Where an entity which is required to make semiannual assessment 
payments or trust examination fee payments determines that it has made 
any such payment in an amount exceeding that required by the Comptroller 
of the Currency, that entity shall provide the Office of Financial 
Operations, Comptroller of the Currency, with written notice of the 
overpayment. Within 30 calendar days of receipt of such notice, the 
Comptroller of the Currency shall either--
    (1) Refund the amount of the overpayment or

[[Page 128]]

    (2) Provide notice of its unwillingness to accept the calculation of 
overpayment. In the latter instance, the Comptroller of the Currency and 
the entity claiming the overpayment shall thereafter attempt to reach 
agreement on the amount, if any, to be refunded; the Comptroller of the 
Currency shall refund this amount within 30 calendar days of such 
agreement.

The Comptroller of the Currency shall be considered delinquent if it 
fails to return an overpayment in accordance with the time limitations 
specified in this paragraph (b). The Comptroller of the Currency shall 
pay interest on any such delinquent payments.
    (c) Interest on delinquent payments, as described in paragraphs (a) 
and (b) of this section, will be assessed beginning the first calendar 
day on which payment is considered delinquent, and on each calendar day 
thereafter up to and including the day payment is received. Interest 
will be simple interest, calculated for each day payment is delinquent 
by multiplying the daily equivalent of the applicable interest rate by 
the amount delinquent. The rate of interest will be the United States 
Treasury Department's current value of funds rate (the ``TFRM rate''); 
that rate is issued under the Treasury Fiscal Requirements Manual and is 
published quarterly in the Federal Register. The interest rates 
applicable to a delinquent payment will be determined as follows:
    (1) For delinquent days occurring from January 1 to March 31, the 
rate will be the TFRM rate that is published the preceding December for 
the first quarter of the ensuing year.
    (2) For delinquent days occurring from April 1 to June 30, the rate 
will be the TFRM rate that is published the preceding March for the 
second quarter of that year.
    (3) For delinquent days occurring from July 1 to September 30, the 
rate will be the TFRM rate that is published the preceding June for the 
third quarter of that year.
    (4) For delinquent days occurring from October 1 to December 31, the 
rate will be the TFRM rate that is published the preceding September for 
the fourth quarter of that year.

[48 FR 30599, July 1, 1983. Redesignated and amended at 49 FR 50605, 
Dec. 31, 1984]



Sec. 8.8  Notice of Comptroller of the Currency fees.

    (a) December notice of fees. A ``Notice of Comptroller of the 
Currency Fees'' shall be published no later than the first business day 
in December of each year for fees to be charged by the Office during the 
upcoming year. These fees will be effective January 1 of that upcoming 
year.
    (b) Interim notice of comptroller of the Currency fees. The Office 
may issue an ``Interim Notice of Comptroller of the Currency Fees'' or 
issue an amended ``Notice of Comptroller of the Currency Fees'' from 
time to time throughout the year as necessary. Interim or amended 
notices will be effective 30 days after issuance.

[55 FR 49842, Nov. 30, 1990]



PART 9--FIDUCIARY ACTIVITIES OF NATIONAL BANKS--Table of Contents




                               Regulations

Sec.
9.1  Authority, purpose, and scope.
9.2  Definitions.
9.3  Approval requirements.
9.4  Administration of fiduciary powers.
9.5  Policies and procedures.
9.6  Review of fiduciary accounts.
9.8  Recordkeeping.
9.9  Audit of fiduciary activities.
9.10  Fiduciary funds awaiting investment or distribution.
9.11  Investment of fiduciary funds.
9.12  Self-dealing and conflicts of interest.
9.13  Custody of fiduciary assets.
9.14  Deposit of securities with state authorities.
9.15  Fiduciary compensation.
9.16  Receivership or voluntary liquidation of bank.
9.17  Surrender or revocation of fiduciary powers.
9.18  Collective investment funds.
9.20  Transfer agents.

                             Interpretations

9.100  Acting as indenture trustee and creditor.
9.101  Providing investment advice for a fee.

    Authority: 12 U.S.C. 24 (Seventh), 92a, and 93a; 15 U.S.C. 78q, 78q-
1, and 78w.

[[Page 129]]


    Source: 61 FR 68554, Dec. 30, 1996, unless otherwise noted.

                               Regulations



Sec. 9.1  Authority, purpose, and scope.

    (a) Authority. The Office of the Comptroller of the Currency (OCC) 
issues this part pursuant to its authority under 12 U.S.C. 24 (Seventh), 
92a, and 93a, and 15 U.S.C. 78q, 78q-1, and 78w.
    (b) Purpose. The purpose of this part is to set forth the standards 
that apply to the fiduciary activities of national banks.
    (c) Scope. This part applies to all national banks that act in a 
fiduciary capacity, as defined in Sec. 9.2(e). This part also applies to 
all Federal branches of foreign banks to the same extent as it applies 
to national banks.



Sec. 9.2  Definitions.

    For the purposes of this part, the following definitions apply:
    (a) Affiliate has the same meaning as in 12 U.S.C. 221a(b).
    (b) Applicable law means the law of a state or other jurisdiction 
governing a national bank's fiduciary relationships, any applicable 
Federal law governing those relationships, the terms of the instrument 
governing a fiduciary relationship, or any court order pertaining to the 
relationship.
    (c) Custodian under a uniform gifts to minors act means a fiduciary 
relationship established pursuant to a state law substantially similar 
to the Uniform Gifts to Minors Act or the Uniform Transfers to Minors 
Act as published by the American Law Institute.
    (d) Fiduciary account means an account administered by a national 
bank acting in a fiduciary capacity.
    (e) Fiduciary capacity means: trustee, executor, administrator, 
registrar of stocks and bonds, transfer agent, guardian, assignee, 
receiver, or custodian under a uniform gifts to minors act; investment 
adviser, if the bank receives a fee for its investment advice; any 
capacity in which the bank possesses investment discretion on behalf of 
another; or any other similar capacity that the OCC authorizes pursuant 
to 12 U.S.C. 92a.
    (f) Fiduciary officers and employees means all officers and 
employees of a national bank to whom the board of directors or its 
designee has assigned functions involving the exercise of the bank's 
fiduciary powers.
    (g) Fiduciary powers means the authority the OCC permits a national 
bank to exercise pursuant to 12 U.S.C. 92a. The extent of fiduciary 
powers is the same for out-of-state national banks as for in-state 
national banks, and that extent depends upon what powers the state 
grants to the fiduciaries in the state with which national banks 
compete.
    (h) Guardian means the guardian or conservator, by whatever name 
used by state law, of the estate of a minor, an incompetent person, an 
absent person, or a person over whose estate a court has taken 
jurisdiction, other than under bankruptcy or insolvency laws.
    (i) Investment discretion means, with respect to an account, the 
sole or shared authority (whether or not that authority is exercised) to 
determine what securities or other assets to purchase or sell on behalf 
of the account. A bank that delegates its authority over investments and 
a bank that receives delegated authority over investments are both 
deemed to have investment discretion.



Sec. 9.3  Approval requirements.

    (a) A national bank may not exercise fiduciary powers unless it 
obtains prior approval from the OCC to the extent required under 12 CFR 
5.26.
    (b) A person seeking approval to organize a special-purpose national 
bank limited to fiduciary powers shall file an application with the OCC 
pursuant to 12 CFR 5.20.



Sec. 9.4  Administration of fiduciary powers.

    (a) Responsibilities of the board of directors. A national bank's 
fiduciary activities shall be managed by or under the direction of its 
board of directors. In discharging its responsibilities, the board may 
assign any function related to the exercise of fiduciary powers to any 
director, officer, employee, or committee thereof.
    (b) Use of other personnel. The national bank may use any qualified 
personnel and facilities of the bank or its affiliates to perform 
services related to

[[Page 130]]

the exercise of its fiduciary powers, and any department of the bank or 
its affiliates may use fiduciary officers, employees, and facilities to 
perform services unrelated to the exercise of fiduciary powers, to the 
extent not prohibited by applicable law.
    (c) Agency agreements. Pursuant to a written agreement, a national 
bank exercising fiduciary powers may perform services related to the 
exercise of fiduciary powers for another bank or other entity, and may 
purchase services related to the exercise of fiduciary powers from 
another bank or other entity.
    (d) Bond requirement. A national bank shall ensure that all 
fiduciary officers and employees are adequately bonded.



Sec. 9.5  Policies and procedures.

    A national bank exercising fiduciary powers shall adopt and follow 
written policies and procedures adequate to maintain its fiduciary 
activities in compliance with applicable law. Among other relevant 
matters, the policies and procedures should address, where appropriate, 
the bank's:
    (a) Brokerage placement practices;
    (b) Methods for ensuring that fiduciary officers and employees do 
not use material inside information in connection with any decision or 
recommendation to purchase or sell any security;
    (c) Methods for preventing self-dealing and conflicts of interest;
    (d) Selection and retention of legal counsel who is readily 
available to advise the bank and its fiduciary officers and employees on 
fiduciary matters; and
    (e) Investment of funds held as fiduciary, including short-term 
investments and the treatment of fiduciary funds awaiting investment or 
distribution.



Sec. 9.6  Review of fiduciary accounts.

    (a) Pre-acceptance review. Before accepting a fiduciary account, a 
national bank shall review the prospective account to determine whether 
it can properly administer the account.
    (b) Initial post-acceptance review. Upon the acceptance of a 
fiduciary account for which a national bank has investment discretion, 
the bank shall conduct a prompt review of all assets of the account to 
evaluate whether they are appropriate for the account.
    (c) Annual review. At least once during every calendar year, a bank 
shall conduct a review of all assets of each fiduciary account for which 
the bank has investment discretion to evaluate whether they are 
appropriate, individually and collectively, for the account.



Sec. 9.8  Recordkeeping.

    (a) Documentation of accounts. A national bank shall adequately 
document the establishment and termination of each fiduciary account and 
shall maintain adequate records for all fiduciary accounts.
    (b) Retention of records. A national bank shall retain records 
described in paragraph (a) of this section for a period of three years 
from the later of the termination of the account or the termination of 
any litigation relating to the account.
    (c) Separation of records. A national bank shall ensure that records 
described in paragraph (a) of this section are separate and distinct 
from other records of the bank.



Sec. 9.9  Audit of fiduciary activities.

    (a) Annual audit. At least once during each calendar year, a 
national bank shall arrange for a suitable audit (by internal or 
external auditors) of all significant fiduciary activities, under the 
direction of its fiduciary audit committee, unless the bank adopts a 
continuous audit system in accordance with paragraph (b) of this 
section. The bank shall note the results of the audit (including 
significant actions taken as a result of the audit) in the minutes of 
the board of directors.
    (b) Continuous audit. In lieu of performing annual audits under 
paragraph (a) of this section, a national bank may adopt a continuous 
audit system under which the bank arranges for a discrete audit (by 
internal or external auditors) of each significant fiduciary activity 
(i.e., on an activity-by-activity basis), under the direction of its 
fiduciary audit committee, at an interval commensurate with the nature 
and risk of that activity. Thus, certain fiduciary activities may 
receive audits at intervals greater or less than one year, as

[[Page 131]]

appropriate. A bank that adopts a continuous audit system shall note the 
results of all discrete audits performed since the last audit report 
(including significant actions taken as a result of the audits) in the 
minutes of the board of directors at least once during each calendar 
year .
    (c) Fiduciary audit committee. A national bank's fiduciary audit 
committee must consist of a committee of the bank's directors or an 
audit committee of an affiliate of the bank. However, in either case, 
the committee:
    (1) Must not include any officers of the bank or an affiliate who 
participate significantly in the administration of the bank's fiduciary 
activities; and
    (2) Must consist of a majority of members who are not also members 
of any committee to which the board of directors has delegated power to 
manage and control the fiduciary activities of the bank.



Sec. 9.10  Fiduciary funds awaiting investment or distribution.

    (a) In general. With respect to a fiduciary account for which a 
national bank has investment discretion or discretion over 
distributions, the bank may not allow funds awaiting investment or 
distribution to remain uninvested and undistributed any longer than is 
reasonable for the proper management of the account and consistent with 
applicable law. With respect to a fiduciary account for which a national 
bank has investment discretion, the bank shall obtain for funds awaiting 
investment or distribution a rate of return that is consistent with 
applicable law.
    (b) Self-deposits--(1) In general. A national bank may deposit funds 
of a fiduciary account that are awaiting investment or distribution in 
the commercial, savings, or another department of the bank, unless 
prohibited by applicable law. To the extent that the funds are not 
insured by the Federal Deposit Insurance Corporation, the bank shall set 
aside collateral as security, under the control of appropriate fiduciary 
officers and employees, in accordance with paragraph (b)(2) of this 
section. The market value of the collateral set aside must at all times 
equal or exceed the amount of the uninsured fiduciary funds.
    (2) Acceptable collateral. A national bank may satisfy the 
collateral requirement of paragraph (b)(1) of this section with any of 
the following:
    (i) Direct obligations of the United States, or other obligations 
fully guaranteed by the United States as to principal and interest;
    (ii) Securities that qualify as eligible for investment by national 
banks pursuant to 12 CFR part 1;
    (iii) Readily marketable securities of the classes in which state 
banks, trust companies, or other corporations exercising fiduciary 
powers are permitted to invest fiduciary funds under applicable state 
law;
    (iv) Surety bonds, to the extent they provide adequate security, 
unless prohibited by applicable law; and
    (v) Any other assets that qualify under applicable state law as 
appropriate security for deposits of fiduciary funds.
    (c) Affiliate deposits. A national bank, acting in its fiduciary 
capacity, may deposit funds of a fiduciary account that are awaiting 
investment or distribution with an affiliated insured depository 
institution, unless prohibited by applicable law. A national bank may 
set aside collateral as security for a deposit by or with an affiliate 
of fiduciary funds awaiting investment or distribution, unless 
prohibited by applicable law.



Sec. 9.11  Investment of fiduciary funds.

    A national bank shall invest funds of a fiduciary account in a 
manner consistent with applicable law.



Sec. 9.12  Self-dealing and conflicts of interest.

    (a) Investments for fiduciary accounts--(1) In general. Unless 
authorized by applicable law, a national bank may not invest funds of a 
fiduciary account for which a national bank has investment discretion in 
the stock or obligations of, or in assets acquired from: the bank or any 
of its directors, officers, or employees; affiliates of the bank or any 
of their directors, officers, or employees; or individuals or 
organizations with whom there exists an interest that

[[Page 132]]

might affect the exercise of the best judgment of the bank.
    (2) Additional securities investments. If retention of stock or 
obligations of the bank or its affiliates in a fiduciary account is 
consistent with applicable law, the bank may:
    (i) Exercise rights to purchase additional stock (or securities 
convertible into additional stock) when offered pro rata to 
stockholders; and
    (ii) Purchase fractional shares to complement fractional shares 
acquired through the exercise of rights or the receipt of a stock 
dividend resulting in fractional share holdings.
    (b) Loans, sales, or other transfers from fiduciary accounts--(1) In 
general. A national bank may not lend, sell, or otherwise transfer 
assets of a fiduciary account for which a national bank has investment 
discretion to the bank or any of its directors, officers, or employees, 
or to affiliates of the bank or any of their directors, officers, or 
employees, or to individuals or organizations with whom there exists an 
interest that might affect the exercise of the best judgment of the 
bank, unless:
    (i) The transaction is authorized by applicable law;
    (ii) Legal counsel advises the bank in writing that the bank has 
incurred, in its fiduciary capacity, a contingent or potential 
liability, in which case the bank, upon the sale or transfer of assets, 
shall reimburse the fiduciary account in cash at the greater of book or 
market value of the assets;
    (iii) As provided in Sec. 9.18(b)(8)(iii) for defaulted investments; 
or
    (iv) Required in writing by the OCC.
    (2) Loans of funds held as trustee. Notwithstanding paragraph (b)(1) 
of this section, a national bank may not lend to any of its directors, 
officers, or employees any funds held in trust, except with respect to 
employee benefit plans in accordance with the exemptions found in 
section 408 of the Employee Retirement Income Security Act of 1974 (29 
U.S.C. 1108).
    (c) Loans to fiduciary accounts. A national bank may make a loan to 
a fiduciary account and may hold a security interest in assets of the 
account if the transaction is fair to the account and is not prohibited 
by applicable law.
    (d) Sales between fiduciary accounts. A national bank may sell 
assets between any of its fiduciary accounts if the transaction is fair 
to both accounts and is not prohibited by applicable law.
    (e) Loans between fiduciary accounts. A national bank may make a 
loan between any of its fiduciary accounts if the transaction is fair to 
both accounts and is not prohibited by applicable law.



Sec. 9.13  Custody of fiduciary assets.

    (a) Control of fiduciary assets. A national bank shall place assets 
of fiduciary accounts in the joint custody or control of not fewer than 
two of the fiduciary officers or employees designated for that purpose 
by the board of directors. A national bank may maintain the investments 
of a fiduciary account off-premises, if consistent with applicable law 
and if the bank maintains adequate safeguards and controls.
    (b) Separation of fiduciary assets. A national bank shall keep the 
assets of fiduciary accounts separate from the assets of the bank. A 
national bank shall keep the assets of each fiduciary account separate 
from all other accounts or shall identify the investments as the 
property of a particular account, except as provided in Sec. 9.18.



Sec. 9.14  Deposit of securities with state authorities.

    (a) In general. If state law requires corporations acting in a 
fiduciary capacity to deposit securities with state authorities for the 
protection of private or court trusts, then before a national bank acts 
as a private or court-appointed trustee in that state, it shall make a 
similar deposit with state authorities. If the state authorities refuse 
to accept the deposit, the bank shall deposit the securities with the 
Federal Reserve Bank of the district in which the national bank is 
located, to be held for the protection of private or court trusts to the 
same extent as if the securities had been deposited with state 
authorities.
    (b) Assets held in more than one state. If a national bank 
administers trust assets in more than one state, the bank may compute 
the amount of deposit required for each state on the basis of trust 
assets that the bank administers

[[Page 133]]

primarily from offices located in that state.



Sec. 9.15  Fiduciary compensation.

    (a) Compensation of bank. If the amount of a national bank's 
compensation for acting in a fiduciary capacity is not set or governed 
by applicable law, the bank may charge a reasonable fee for its 
services.
    (b) Compensation of co-fiduciary officers and employees. A national 
bank may not permit any officer or employee to retain any compensation 
for acting as a co-fiduciary with the bank in the administration of a 
fiduciary account, except with the specific approval of the bank's board 
of directors.



Sec. 9.16  Receivership or voluntary liquidation of bank.

    If the OCC appoints a receiver for an uninsured national bank, or if 
a national bank places itself in voluntary liquidation, the receiver or 
liquidating agent shall promptly close or transfer to a substitute 
fiduciary all fiduciary accounts, in accordance with OCC instructions 
and the orders of the court having jurisdiction.



Sec. 9.17  Surrender or revocation of fiduciary powers.

    (a) Surrender. In accordance with 12 U.S.C. 92a(j), a national bank 
seeking to surrender its fiduciary powers shall file with the OCC a 
certified copy of the resolution of its board of directors evidencing 
that intent. If, after appropriate investigation, the OCC is satisfied 
that the bank has been discharged from all fiduciary duties, the OCC 
will provide written notice that the bank is no longer authorized to 
exercise fiduciary powers.
    (b) Revocation. If the OCC determines that a national bank has 
unlawfully or unsoundly exercised, or has failed for a period of five 
consecutive years to exercise its fiduciary powers, the Comptroller may, 
in accordance with the provisions of 12 U.S.C. 92a(k), revoke the bank's 
fiduciary powers.



Sec. 9.18  Collective investment funds.

    (a) In general. Where consistent with applicable law, a national 
bank may invest assets that it holds as fiduciary in the following 
collective investment funds: 1
---------------------------------------------------------------------------

    \1\ In determining whether investing fiduciary assets in a 
collective investment fund is proper, the bank may consider the fund as 
a whole and, for example, shall not be prohibited from making that 
investment because any particular asset is nonincome producing.
---------------------------------------------------------------------------

    (1) A fund maintained by the bank, or by one or more affiliated 
banks,2 exclusively for the collective investment and 
reinvestment of money contributed to the fund by the bank, or by one or 
more affiliated banks, in its capacity as trustee, executor, 
administrator, guardian, or custodian under a uniform gifts to minors 
act.
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    \2\ A fund established pursuant to this paragraph (a)(1) that 
includes money contributed by entities that are affiliates under 12 
U.S.C. 221a(b), but are not members of the same affiliated group, as 
defined at 26 U.S.C. 1504, may fail to qualify for tax-exempt status 
under the Internal Revenue Code. See 26 U.S.C. 584.
---------------------------------------------------------------------------

    (2) A fund consisting solely of assets of retirement, pension, 
profit sharing, stock bonus or other trusts that are exempt from Federal 
income tax.
    (i) A national bank may invest assets of retirement, pension, profit 
sharing, stock bonus, or other trusts exempt from Federal income tax and 
that the bank holds in its capacity as trustee in a collective 
investment fund established under paragraph (a)(1) or (a)(2) of this 
section.
    (ii) A national bank may invest assets of retirement, pension, 
profit sharing, stock bonus, or other employee benefit trusts exempt 
from Federal income tax and that the bank holds in any capacity 
(including agent), in a collective investment fund established under 
this paragraph (a)(2) if the fund itself qualifies for exemption from 
Federal income tax.
    (b) Requirements. A national bank administering a collective 
investment fund authorized under paragraph (a) of this section shall 
comply with the following requirements:
    (1) Written plan. The bank shall establish and maintain each 
collective investment fund in accordance with a written plan (Plan) 
approved by a resolution of the bank's board of directors or by a 
committee authorized by the board. The bank shall make a copy of

[[Page 134]]

the Plan available for public inspection at its main office during all 
banking hours, and shall provide a copy of the Plan to any person who 
requests it. The Plan must contain appropriate provisions, not 
inconsistent with this part, regarding the manner in which the bank will 
operate the fund, including provisions relating to:
    (i) Investment powers and policies with respect to the fund;
    (ii) Allocation of income, profits, and losses;
    (iii) Fees and expenses that will be charged to the fund and to 
participating accounts;
    (iv) Terms and conditions governing the admission and withdrawal of 
participating accounts;
    (v) Audits of participating accounts;
    (vi) Basis and method of valuing assets in the fund;
    (vii) Expected frequency for income distribution to participating 
accounts;
    (viii) Minimum frequency for valuation of fund assets;
    (ix) Amount of time following a valuation date during which the 
valuation must be made;
    (x) Bases upon which the bank may terminate the fund; and
    (xi) Any other matters necessary to define clearly the rights of 
participating accounts.
    (2) Fund management. A bank administering a collective investment 
fund shall have exclusive management thereof, except as a prudent person 
might delegate responsibilities to others.3
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    \3\ If a fund, the assets of which consist solely of Individual 
Retirement Accounts, Keogh Accounts, or other employee benefit accounts 
that are exempt from taxation, is registered under the Investment 
Company Act of 1940 (15 U.S.C. 80a-1 et seq.), the fund will not be 
deemed in violation of this paragraph (b)(2) as a result of its 
compliance with section 10(c) of the Investment Company Act of 1940 (15 
U.S.C. 80a-10(c)).
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    (3) Proportionate interests. Each participating account in a 
collective investment fund must have a proportionate interest in all the 
fund's assets.
    (4) Valuation--(i) Frequency of valuation. A bank administering a 
collective investment fund shall determine the value of the fund's 
assets at least once every three months. However, in the case of a fund 
described in paragraph (a)(2) of this section that is invested primarily 
in real estate or other assets that are not readily marketable, the bank 
shall determine the value of the fund's assets at least once each year.
    (ii) Method of valuation--(A) In general. Except as provided in 
paragraph (b)(4)(ii)(B) of this section, a bank shall value each fund 
asset at market value as of the date set for valuation, unless the bank 
cannot readily ascertain market value, in which case the bank shall use 
a fair value determined in good faith.
    (B) Short-term investment funds. A bank may value a fund's assets on 
a cost, rather than market value, basis for purposes of admissions and 
withdrawals, if the Plan requires the bank to:
    (1) Maintain a dollar-weighted average portfolio maturity of 90 days 
or less;
    (2) Accrue on a straight-line basis the difference between the cost 
and anticipated principal receipt on maturity; and
    (3) Hold the fund's assets until maturity under usual circumstances.
    (5) Admission and withdrawal of accounts--(i) In general. A bank 
administering a collective investment fund shall admit an account to or 
withdraw an account from the fund only on the basis of the valuation 
described in paragraph (b)(4) of this section.
    (ii) Prior request or notice. A bank administering a collective 
investment fund may admit an account to or withdraw an account from a 
collective investment fund only if the bank has approved a request for 
or a notice of intention of taking that action on or before the 
valuation date on which the admission or withdrawal is based. No 
requests or notices may be canceled or countermanded after the valuation 
date.
    (iii) Prior notice period for withdrawals from funds with assets not 
readily marketable. A bank administering a collective investment fund 
described in paragraph (a)(2) of this section that is invested primarily 
in real estate or other assets that are not readily marketable, may 
require a prior notice period, not to exceed one year, for withdrawals.

[[Page 135]]

    (iv) Method of distributions. A bank administering a collective 
investment fund shall make distributions to accounts withdrawing from 
the fund in cash, ratably in kind, a combination of cash and ratably in 
kind, or in any other manner consistent with applicable law in the state 
in which the bank maintains the fund.
    (v) Segregation of investments. If an investment is withdrawn in 
kind from a collective investment fund for the benefit of all 
participants in the fund at the time of the withdrawal but the 
investment is not distributed ratably in kind, the bank shall segregate 
and administer it for the benefit ratably of all participants in the 
collective investment fund at the time of withdrawal.
    (6) Audits and financial reports--(i) Annual audit. At least once 
during each 12-month period, a bank administering a collective 
investment fund shall arrange for an audit of the collective investment 
fund by auditors responsible only to the board of directors of the 
bank.4
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    \4\ If a fund, the assets of which consist solely of Individual 
Retirement Accounts, Keogh Accounts, or other employee benefit accounts 
that are exempt from taxation, is registered under the Investment 
Company Act of 1940 (15 U.S.C. 80a-1 et seq.), the fund will not be 
deemed in violation of this paragraph (b)(6)(i) as a result of its 
compliance with section 10(c) of the Investment Company Act of 1940 (15 
U.S.C. 80a-10(c)), if the bank has access to the audit reports of the 
fund.
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    (ii) Financial report. At least once during each 12-month period, a 
bank administering a collective investment fund shall prepare a 
financial report of the fund based on the audit required by paragraph 
(b)(6)(i) of this section. The report must disclose the fund's fees and 
expenses in a manner consistent with applicable law in the state in 
which the bank maintains the fund. This report must contain a list of 
investments in the fund showing the cost and current market value of 
each investment, and a statement covering the period after the previous 
report showing the following (organized by type of investment):
    (A) A summary of purchases (with costs);
    (B) A summary of sales (with profit or loss and any other investment 
changes);
    (C) Income and disbursements; and
    (D) An appropriate notation of any investments in default.
    (iii) Limitation on representations. A bank may include in the 
financial report a description of the fund's value on previous dates, as 
well as its income and disbursements during previous accounting periods. 
A bank may not publish in the financial report any predictions or 
representations as to future performance. In addition, with respect to 
funds described in paragraph (a)(1) of this section, a bank may not 
publish the performance of individual funds other than those 
administered by the bank or its affiliates.
    (iv) Availability of the report. A bank administering a collective 
investment fund shall provide a copy of the financial report, or shall 
provide notice that a copy of the report is available upon request 
without charge, to each person who ordinarily would receive a regular 
periodic accounting with respect to each participating account. The bank 
may provide a copy of the financial report to prospective customers. In 
addition, the bank shall provide a copy of the report upon request to 
any person for a reasonable charge.
    (7) Advertising restriction. A bank may not advertise or publicize 
any fund authorized under paragraph (a)(1) of this section, except in 
connection with the advertisement of the general fiduciary services of 
the bank.
    (8) Self-dealing and conflicts of interest. A national bank 
administering a collective investment fund must comply with the 
following (in addition to Sec. 9.12):
    (i) Bank interests. A bank administering a collective investment 
fund may not have an interest in that fund other than in its fiduciary 
capacity. If, because of a creditor relationship or otherwise, the bank 
acquires an interest in a participating account, the participating 
account must be withdrawn on the next withdrawal date. However, a bank 
may invest assets that it holds as fiduciary for its own employees in a 
collective investment fund.
    (ii) Loans to participating accounts. A bank administering a 
collective investment fund may not make any loan on the security of a 
participant's interest in the fund. An unsecured advance to a

[[Page 136]]

fiduciary account participating in the fund until the time of the next 
valuation date does not constitute the acquisition of an interest in a 
participating account by the bank.
    (iii) Purchase of defaulted investments. A bank administering a 
collective investment fund may purchase for its own account any 
defaulted investment held by the fund (in lieu of segregating the 
investment in accordance with paragraph (b)(5)(v) of this section) if, 
in the judgment of the bank, the cost of segregating the investment is 
excessive in light of the market value of the investment. If a bank 
elects to purchase a defaulted investment, it shall do so at the greater 
of market value or the sum of cost and accrued unpaid interest.
    (9) Management fees. A bank administering a collective investment 
fund may charge a reasonable fund management fee only if:
    (i) The fee is permitted under applicable law (and complies with fee 
disclosure requirements, if any) in the state in which the bank 
maintains the fund; and
    (ii) The amount of the fee does not exceed an amount commensurate 
with the value of legitimate services of tangible benefit to the 
participating fiduciary accounts that would not have been provided to 
the accounts were they not invested in the fund.
    (10) Expenses. A bank administering a collective investment fund may 
charge reasonable expenses incurred in operating the collective 
investment fund, to the extent not prohibited by applicable law in the 
state in which the bank maintains the fund. However, a bank shall absorb 
the expenses of establishing or reorganizing a collective investment 
fund.
    (11) Prohibition against certificates. A bank administering a 
collective investment fund may not issue any certificate or other 
document representing a direct or indirect interest in the fund, except 
to provide a withdrawing account with an interest in a segregated 
investment.
    (12) Good faith mistakes. The OCC will not deem a bank's mistake 
made in good faith and in the exercise of due care in connection with 
the administration of a collective investment fund to be a violation of 
this part if, promptly after the discovery of the mistake, the bank 
takes whatever action is practicable under the circumstances to remedy 
the mistake.
    (c) Other collective investments. In addition to the collective 
investment funds authorized under paragraph (a) of this section, a 
national bank may collectively invest assets that it holds as fiduciary, 
to the extent not prohibited by applicable law, as follows:
    (1) Single loans or obligations. In the following loans or 
obligations, if the bank's only interest in the loans or obligations is 
its capacity as fiduciary:
    (i) A single real estate loan, a direct obligation of the United 
States, or an obligation fully guaranteed by the United States, or a 
single fixed amount security, obligation, or other property, either 
real, personal, or mixed, of a single issuer; or
    (ii) A variable amount note of a borrower of prime credit, if the 
bank uses the note solely for investment of funds held in its fiduciary 
accounts.
    (2) Mini-funds. In a fund maintained by the bank for the collective 
investment of cash balances received or held by a bank in its capacity 
as trustee, executor, administrator, guardian, or custodian under a 
uniform gifts to minors act, that the bank considers too small to be 
invested separately to advantage. The total assets in the fund must not 
exceed $1,000,000 and the number of participating accounts must not 
exceed 100.
    (3) Trust funds of corporations and closely-related settlors. In any 
investment specifically authorized by the instrument creating the 
fiduciary account or a court order, in the case of trusts created by a 
corporation, including its affiliates and subsidiaries, or by several 
individual settlors who are closely related.
    (4) Other authorized funds. In any collective investment authorized 
by applicable law, such as investments pursuant to a state pre-need 
funeral statute.
    (5) Special exemption funds. In any other manner described by the 
bank in a written plan approved by the OCC.5

[[Page 137]]

In order to obtain a special exemption, a bank shall submit to the OCC a 
written plan that sets forth:
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    \5\ Any institution that must comply with this section in order to 
receive favorable tax treatment under 26 U.S.C. 584 (namely, any 
corporate fiduciary) may seek OCC approval of special exemption funds in 
accordance with this paragraph (c)(5).
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    (i) The reason that the proposed fund requires a special exemption;
    (ii) The provisions of the proposed fund that are inconsistent with 
paragraphs (a) and (b) of this section;
    (iii) The provisions of paragraph (b) of this section for which the 
bank seeks an exemption; and
    (iv) The manner in which the proposed fund addresses the rights and 
interests of participating accounts.



Sec. 9.20  Transfer agents.

    (a) The rules adopted by the Securities and Exchange Commission 
(SEC) pursuant to section 17A of the Securities Exchange Act of 1934 (15 
U.S.C. 78q-1) prescribing procedures for registration of transfer agents 
for which the SEC is the appropriate regulatory agency (17 CFR 
240.17Ac2-1) apply to the domestic activities of national bank transfer 
agents. References to the ``Commission'' are deemed to refer to the 
``OCC.''
    (b) The rules adopted by the SEC pursuant to section 17A of the 
Securities Exchange Act of 1934 prescribing operational and reporting 
requirements for transfer agents (17 CFR 240.17Ac2-2, and 240.17Ad-1 
through 240.17Ad-16) apply to the domestic activities of national bank 
transfer agents.

                             Interpretations



Sec. 9.100  Acting as indenture trustee and creditor.

    With respect to a debt securities issuance, a national bank may act 
both as indenture trustee and as creditor until 90 days after default, 
if the bank maintains adequate controls to manage the potential 
conflicts of interest.



Sec. 9.101  Providing investment advice for a fee.

    (a) In general. The term ``fiduciary capacity'' at Sec. 9.2(e) is 
defined to include ``investment adviser, if the bank receives a fee for 
its investment advice.'' In other words, if a bank is providing 
investment advice for a fee, then it is acting in a fiduciary capacity. 
For purposes of that definition, ``investment adviser'' generally means 
a national bank that provides advice or recommendations concerning the 
purchase or sale of specific securities, such as a national bank engaged 
in portfolio advisory and management activities (including acting as 
investment adviser to a mutual fund). Additionally, the qualifying 
phrase ``if the bank receives a fee for its investment advice'' excludes 
those activities in which the investment advice is merely incidental to 
other services.
    (b) Specific activities--(1) Full-service brokerage. Engaging in 
full-service brokerage may entail providing investment advice for a fee, 
depending upon the commission structure and specific facts. Full-service 
brokerage involves investment advice for a fee if a non-bank broker 
engaged in that activity is considered an investment adviser under the 
Investment Advisers Act of 1940 (15 U.S.C. 80b-1 et seq.).
    (2) Activities not involving investment advice for a fee. The 
following activities generally do not entail providing investment advice 
for a fee:
    (i) Financial advisory and counseling activities, including 
strategic planning of a financial nature, merger and acquisition 
advisory services, advisory and structuring services related to project 
finance transactions, and providing market economic information to 
customers in general;
    (ii) Client-directed investment activities (i.e., the bank has no 
investment discretion) where investment advice and research may be made 
available to the client, but the fee does not depend on the provision of 
investment advice;
    (iii) Investment advisory activities incidental to acting as a 
municipal securities dealer;
    (iv) Real estate management services provided to other financial 
institutions;
    (v) Real estate consulting services, including acting as a finder in 
locating, analyzing, and making recommendations regarding the purchase 
of property, and making recommendations concerning the sale of property;
    (vi) Advisory activities concerning bridge loans;

[[Page 138]]

    (vii) Advisory activities for homeowners' associations;
    (viii) Advisory activities concerning tax planning and structuring; 
and
    (ix) Investment advisory activities authorized by the OCC under 12 
U.S.C. 24(Seventh) as incidental to the business of banking.

[63 FR 6473, Feb. 9, 1998]



PART 10--MUNICIPAL SECURITIES DEALERS--Table of Contents




Sec.
10.1  Scope.
10.2  Filing requirements.

    Authority: 5 U.S.C. 93a, 481, and 1818; 15 U.S.C. 78o-4(c)(5) and 
78q-78w.

    Source: 63 FR 29094, May 28, 1998, unless otherwise noted.



Sec. 10.1  Scope.

    This part applies to:
    (a) Any national bank, District bank, and separately identifiable 
department or division of either (collectively, a national bank) that 
acts as a municipal securities dealer, as that term is defined in 
section 3(a)(30) of the Securities Exchange Act of 1934 (15 U.S.C. 
78c(a)(30)); and
    (b) Any person who is associated or to be associated with a national 
bank in the capacity of a municipal securities principal or a municipal 
securities representative, as those terms are defined in Rule G-3 of the 
Municipal Securities Rulemaking Board (MSRB).1
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    \1\ The MSRB rules may be obtained by contacting the Municipal 
Securities Rulemaking Board at 1150 18th Street, NW., Suite 400, 
Washington, DC 20036-3816.
---------------------------------------------------------------------------



Sec. 10.2  Filing requirements.

    (a) A national bank shall use Form MSD-4 (Uniform Application for 
Municipal Securities Principal or Municipal Securities Representative 
Associated with a Bank Municipal Securities Dealer) for obtaining the 
information required by MSRB Rule G-7(b)(i)-(x) from a person identified 
in Sec. 10.1(b). A national bank receiving a completed MSD-4 form from a 
person identified in Sec. 10.1(b) must submit this form to the OCC 
before permitting the person to be associated with it as a municipal 
securities principal or a municipal securities representative.
    (b) A national bank must submit Form MSD-5 (Uniform Termination 
Notice for Municipal Securities Principal or Municipal Securities 
Representative Associated with a Bank Municipal Securities Dealer) to 
the OCC within 30 days of terminating a person's association with the 
bank as a municipal securities principal or municipal securities 
representative.
    (c) Forms MSD-4 and MSD-5, with instructions, may be obtained by 
contacting the OCC at 250 E Street, SW., Washington, DC 20219, 
Attention: Bank Dealer Activities.

[63 FR 29094, May 28, 1998, as amended at 63 FR 71343, Dec. 24, 1998]



PART 11--SECURITIES EXCHANGE ACT DISCLOSURE RULES--Table of Contents




Sec.
11.1  Authority and OMB control number.
11.2  Requirements under certain sections of the Securities Exchange Act 
          of 1934.
11.3  Filing requirements and inspection of documents.
11.4  Filing fees.

    Authority: 12 U.S.C. 93a; 15 U.S.C. 78l, 78m, 78n, 78p, and 78w.

    Source: 57 FR 46084, Oct. 7, 1992; 57 FR 54499, Nov. 19, 1992.



Sec. 11.1  Authority and OMB control number.

    (a) Authority. The Office of the Comptroller of the Currency (OCC) 
is vested with the powers, functions, and duties otherwise vested in the 
Securities and Exchange Commission (Commission) to administer and 
enforce the provisions of sections 12, 13, 14(a), 14(c), 14(d), 14(f), 
and 16 of the Securities Exchange Act of 1934, as amended (1934 Act) (15 
U.S.C. 78l, 78m, 78n(a), 78n(c), 78n(d), 78n(f), and 78p), regarding 
national banks and banks chartered in the District of Columbia with one 
or more classes of securities subject to the registration provisions of 
sections 12(b) and (g) of the 1934 Act (registered national banks). 
Further, the OCC has general rulemaking authority under 12 U.S.C. 93a, 
to promulgate rules and regulations concerning the activities of 
national banks and banks chartered in the District of Columbia.

[[Page 139]]

    (b) OMB control number. The collection of information contained in 
this part was approved by the Office of Management and Budget under OMB 
control number 1557-0106.

[57 FR 46084, Oct. 7, 1992; 57 FR 54499, Nov. 19, 1992, as amended at 60 
FR 57332, Nov. 15, 1995]



Sec. 11.2  Requirements under certain sections of the Securities Exchange Act of 1934.

    (a) In general and except as otherwise provided in this part, the 
rules, regulations, and forms adopted by the Commission pursuant to the 
sections of the 1934 Act described in Sec. 11.1 of this part apply to 
the securities issued by registered national banks. References to the 
``Commission'' are deemed to refer to the ``OCC'' unless the context 
otherwise requires.
    (b) The following list of Commission rules and regulations apply to 
registered national banks:
    (1) Regulations adopted by the Commission under sections 12, 13, 
14(a), 14(c), 14(d), and 14(f) of the 1934 Act, as codified at 17 CFR 
240.12a-4 up to but not including 17 CFR 240.15a-2; and
    (2) Regulations adopted by the Commission under section 16 of the 
1934 Act, as codified at 17 CFR 240.16a-1 up to but not including 
240.17a-1.
    (c) Registered national banks required to file papers with the OCC 
pursuant to the provisions of the rules and regulations cited in 
paragraph (b) of this section shall use the forms and schedules adopted 
by the Commission, as described in the respective rules and regulations 
identified in paragraph (b) of this section.

[57 FR 46084, Oct. 7, 1992; 57 FR 54499, Nov. 19, 1992, as amended at 60 
FR 57332, Nov. 15, 1995]



Sec. 11.3  Filing requirements and inspection of documents.

    (a) All papers required to be filed with the OCC pursuant to the 
1934 Act or regulations thereunder shall be submitted in quadruplicate 
to the Securities and Corporate Practices Division, Office of the 
Comptroller of the Currency, 250 E Street, SW., Washington, DC 20219. 
Material may be filed by delivery to the OCC through the mail or 
otherwise. The date on which papers are actually received by the OCC 
shall be the date of filing, if the person or bank filing the papers has 
complied with all applicable requirements.
    (b) Copies of registration statements, definitive proxy solicitation 
materials, reports, and annual reports to shareholders required by this 
part (exclusive of exhibits) are available from the Disclosure Officer, 
Communications Division, Office of the Comptroller of the Currency, at 
the address listed in paragraph (a) of this section.

[60 FR 57332, Nov. 15, 1995]



Sec. 11.4  Filing fees.

    (a) The OCC may require filing fees to accompany certain filings 
made under this part before it will accept the filing. The OCC provides 
an applicable fee schedule for such filings in the ``Notice of 
Comptroller of the Currency Fees'' described in 12 CFR 8.8.
    (b) Fees must be paid by check payable to the Comptroller of the 
Currency.

[57 FR 46084, Oct. 7, 1992; 57 FR 54499, Nov. 19, 1992, as amended at 60 
FR 57332, Nov. 15, 1995]



PART 12--RECORDKEEPING AND CONFIRMATION REQUIREMENTS FOR SECURITIES TRANSACTIONS--Table of Contents




Sec.
12.1  Authority, purpose, and scope.
12.2  Definitions.
12.3  Recordkeeping.
12.4  Content and time of notification.
12.5  Notification by agreement; alternative forms and times of 
          notification.
12.6  Fees.
12.7  Securities trading policies and procedures.
12.8  Waivers.
12.9  Settlement of securities transactions.

                             Interpretations

12.101  National bank disclosure of remuneration for mutual fund 
          transactions.
12.102  National bank use of electronic communications as customer 
          notifications.

    Authority: 12 U.S.C. 24, 92a, and 93a.

    Source: 61 FR 63965, Dec. 2, 1996, unless otherwise noted.



Sec. 12.1  Authority, purpose, and scope.

    (a) Authority. This part is issued pursuant to 12 U.S.C. 24, 92a, 
and 93a.
    (b) Purpose. This part establishes rules, policies, and procedures 
applicable to recordkeeping and confirmation

[[Page 140]]

requirements for certain securities transactions effected by national 
banks for customers.
    (c) Scope--(1) General. Any security transaction effected for a 
customer by a national bank is subject to this part, except as provided 
by paragraph (c)(2) of this section. This part applies to a national 
bank effecting transactions in government securities. This part also 
applies to municipal securities transactions by a national bank that is 
not registered as a ``municipal securities dealer'' with the Securities 
and Exchange Commission. See 15 U.S.C. 78c(a)(30) and 78o-4. This part, 
as well as 12 CFR part 9, applies to securities transactions effected by 
a national bank as fiduciary.
    (2) Exceptions--(i) Small number of transactions. The requirements 
of Secs. 12.3(a)(2) through (4) and 12.7(a)(1) through (3) do not apply 
to a national bank having an average of fewer than 200 securities 
transactions per year for customers over the prior three calendar year 
period. The calculation of this average does not include transactions in 
government securities.
    (ii) Government securities. The recordkeeping requirements of 
Sec. 12.3 do not apply to national banks effecting fewer than 500 
government securities brokerage transactions per year. This exception 
does not apply to government securities dealer transactions by national 
banks. See 17 CFR 404.4(a).
    (iii) Municipal securities. This part does not apply to transactions 
in municipal securities conducted by a national bank registered with the 
Securities and Exchange Commission as a ``municipal securities dealer'' 
as defined in title 15 U.S.C. 78c(a)(30). See 15 U.S.C. 78o-4.
    (iv) Foreign branches. This part does not apply to securities 
transactions conducted by a foreign branch of a national bank.
    (v) Transactions effected by registered broker/dealers. This part 
does not apply to securities transactions effected by a broker or dealer 
registered with the Securities and Exchange Commission (SEC) where the 
SEC-registered broker or dealer directly provides the customer a 
confirmation; including, transactions effected by a national bank 
employee when acting as an employee of an SEC-registered broker/dealer.
    (3) Safe and sound operations. Notwithstanding paragraph (c)(2) of 
this section, every national bank conducting securities transactions for 
customers shall maintain effective systems of records and controls 
regarding their customer securities transactions to ensure safe and 
sound operations. The systems maintained must clearly and accurately 
reflect appropriate information and provide an adequate basis for an 
audit.



Sec. 12.2  Definitions.

    (a) Asset-backed security means a security that is primarily 
serviced by the cashflows of a discrete pool of receivables or other 
financial assets, either fixed or revolving, that by their terms convert 
into cash within a finite time period plus any rights or other assets 
designed to assure the servicing or timely distribution of proceeds to 
the security holders.
    (b) Collective investment fund means any fund established pursuant 
to 12 CFR 9.18.
    (c) Completion of the transaction means:
    (1) In the case of a customer who purchases a security through or 
from a national bank, except as provided in paragraph (c)(2) of this 
section, the time when the customer pays the bank any part of the 
purchase price, or, if payment is made by a bookkeeping entry, the time 
when the bank makes the bookkeeping entry for any part of the purchase 
price;
    (2) In the case of a customer who purchases a security through or 
from a national bank and who makes payment for the security prior to the 
time when payment is requested or notification is given that payment is 
due, the time when the bank delivers the security to or into the account 
of the customer;
    (3) In the case of a customer who sells a security through or to a 
national bank, except as provided in paragraph (c)(4) of this section, 
if the security is not in the custody of the bank at the time of sale, 
the time when the security is delivered to the bank, and if the security 
is in the custody of the bank at the time of sale, the time when

[[Page 141]]

the bank transfers the security from the account of the customer;
    (4) In the case of a customer who sells a security through or to a 
national bank and who delivers the security to the bank prior to the 
time when delivery is requested or notification is given that delivery 
is due, the time when the bank makes payment to or into the account of 
the customer.
    (d) Crossing of buy and sell orders means a security transaction in 
which the same bank acts as agent for both the buyer and the seller.
    (e) Customer means any person or account, including any agency, 
trust, estate, guardianship, or other fiduciary account for which a 
national bank makes or participates in making the purchase or sale of 
securities, but does not include a broker, dealer, bank acting as a 
broker or dealer, bank acting as the fiduciary of an account, bank as 
trustee acting as shareholder of record for the purchase or sale of 
securities, or issuer of securities that are the subject of the 
transaction.
    (f) Debt security means any security, such as a bond, debenture, 
note, or any other similar instrument that evidences a liability of the 
issuer (including any security of this type that is convertible into 
stock or a similar security) and fractional or participation interests 
in one or more of any of the foregoing. This definition does not include 
securities issued by an investment company registered under the 
Investment Company Act of 1940, 15 U.S.C. 80a-1 et seq.
    (g) Government security means:
    (1) A security that is a direct obligation of, or obligation 
guaranteed as to principal and interest by, the United States;
    (2) A security that is issued or guaranteed by a corporation in 
which the United States has a direct or indirect interest and which is 
designated by the Secretary of the Treasury for exemption as necessary 
or appropriate in the public interest or for the protection of 
investors;
    (3) A security issued or guaranteed as to principal and interest by 
any corporation whose securities are designated, by statute specifically 
naming the corporation, to constitute exempt securities within the 
meaning of the laws administered by the Securities and Exchange 
Commission; or
    (4) Any put, call, straddle, option, or privilege on a security 
described in paragraph (g)(1), (2), or (3) of this section, other than a 
put, call, straddle, option, or privilege:
    (i) That is traded on one or more national securities exchanges; or
    (ii) For which quotations are disseminated through an automated 
quotation system operated by a registered securities association.
    (h) Investment discretion means that, with respect to an account, a 
bank directly or indirectly:
    (1) Is authorized to determine what securities or other property 
shall be purchased or sold by or for the account; or
    (2) Makes decisions as to what securities or other property shall be 
purchased or sold by or for the account even though some other person 
may have responsibility for these investment decisions.
    (i) Municipal security means:
    (1) A security that is a direct obligation of, or an obligation 
guaranteed as to principal or interest by, a State or any political 
subdivision, or any agency or instrumentality of a State or any 
political subdivision;
    (2) A security that is a direct obligation of, or an obligation 
guaranteed as to principal or interest by, any municipal corporate 
instrumentality of one or more States; or
    (3) A security that is an industrial development bond (as defined in 
section 103(c)(2) of the Internal Revenue Code of 1954 (26 U.S.C. 
103(c)(2) (1970)) (Code)) the interest on which is excludable from gross 
income under section 103(a)(1) of the Code (26 U.S.C. 103(a)(1)) if, by 
reason of the application of paragraph (4) or (6) of section 103(c) of 
the Code (26 U.S.C. 103(c)) (determined as if paragraphs (4)(A), (5), 
and (7) were not included in section 103(c) (26 U.S.C. 103(c)), 
paragraph (1) of section 103(c) (26 U.S.C. 103(c)) does not apply to the 
security.
    (j) Periodic plan means:
    (1) A written authorization for a national bank to act as agent to 
purchase or sell for a customer a specific security or securities, in a 
specific amount (calculated in security units or dollars)

[[Page 142]]

or to the extent of dividends and funds available, at specific time 
intervals, and setting forth the commission or charges to be paid by the 
customer or the manner of calculating them. These plans include dividend 
reinvestment plans, automatic investment plans, and employee stock 
purchase plans.
    (2) Any prearranged, automatic transfer or ``sweep'' of funds from a 
deposit account to purchase a security, or any prearranged, automatic 
redemption or sale of a security with the funds being transferred into a 
deposit account (including cash management sweep services).
    (k) Security: (1) Means any note, stock, treasury stock, bond, 
debenture, certificate of interest or participation in any profit-
sharing agreement or in any oil, gas, or other mineral royalty or lease, 
any collateral-trust certificate, preorganization certificate or 
subscription, transferable share, investment contract, voting-trust 
certificate, and any put, call, straddle, option, or privilege on any 
security or group or index of securities (including any interest therein 
or based on the value thereof), or, in general, any instrument commonly 
known as a ``security''; or any certificate of interest or participation 
in, temporary or interim certificate for, receipt for, or warrant or 
right to subscribe to or purchase, any of the foregoing;
    (2) Does not mean currency; any note, draft, bill of exchange, or 
banker's acceptance which has a maturity at the time of issuance not 
exceeding nine months, exclusive of days of grace, or any renewal 
thereof, the maturity of which is likewise limited; a deposit or share 
account in a Federal or State chartered depository institution; a loan 
participation; a letter of credit or other form of bank indebtedness 
incurred in the ordinary course of business; units of a collective 
investment fund; interests in a variable amount note in accordance with 
12 CFR 9.18; U.S. Savings Bonds; or any other instrument the OCC 
determines does not constitute a security for purposes of this part.



Sec. 12.3  Recordkeeping.

    (a) General rule. A national bank effecting securities transactions 
for customers shall maintain the following records for at least three 
years:
    (1) Chronological records. An itemized daily record of each purchase 
and sale of securities maintained in chronological order, and including:
    (i) Account or customer name for which each transaction was 
effected;
    (ii) Description of the securities;
    (iii) Unit and aggregate purchase or sale price;
    (iv) Trade date; and
    (v) Name or other designation of the broker/dealer or other person 
from whom the securities were purchased or to whom the securities were 
sold;
    (2) Account records. Account records for each customer, reflecting:
    (i) Purchases and sales of securities;
    (ii) Receipts and deliveries of securities;
    (iii) Receipts and disbursements of cash; and
    (iv) Other debits and credits pertaining to transactions in 
securities;
    (3) Memorandum order. A separate memorandum (order ticket) of each 
order to purchase or sell securities (whether executed or canceled), 
including:
    (i) Account or customer name for which the transaction was effected;
    (ii) Type of order (market order, limit order, or subject to special 
instructions);
    (iii) Time the trader or other bank employee responsible for 
effecting the transaction received the order;
    (iv) Time the trader placed the order with the broker/dealer, or if 
there was no broker/dealer, time the order was executed or canceled;
    (v) Price at which the order was executed; and
    (vi) Name of the broker/dealer utilized;
    (4) Record of broker/dealers. A record of all broker/dealers 
selected by the bank to effect securities transactions and the amount of 
commissions paid or allocated to each broker during the calendar year; 
and
    (5) Notifications. A copy of the written notification required by 
Secs. 12.4 and 12.5.
    (b) Manner of maintenance. The records required by this section must

[[Page 143]]

clearly and accurately reflect the information required and provide an 
adequate basis for the audit of the information. Record maintenance may 
include the use of automated or electronic records provided the records 
are easily retrievable, readily available for inspection, and capable of 
being reproduced in a hard copy.



Sec. 12.4  Content and time of notification.

    Unless a national bank elects to provide notification by one of the 
means specified in Sec. 12.5, a national bank effecting a securities 
transaction for a customer shall give or send to the customer either of 
the following types of notifications at or before completion of the 
transaction or, if the bank uses a registered broker/dealer's 
confirmation, within one business day from the bank's receipt of the 
registered broker/dealer's confirmation:
    (a) Written notification. A written notification disclosing:
    (1) Name of the bank;
    (2) Name of the customer;
    (3) Capacity in which the bank acts (i.e., as agent for the 
customer, as agent for both the customer and some other person, as 
principal for its own account, or in any other capacity);
    (4) Date and time of execution, or a statement that the bank will 
furnish the time of execution within a reasonable time upon written 
request of the customer, and the identity, price, and number of shares 
or units (or principal amount in the case of debt securities) of the 
security purchased or sold by the customer;
    (5) Amount of any remuneration that the customer has provided or is 
to provide any broker/dealer, directly or indirectly, in connection with 
the transaction;
    (6) (i) Amount of any remuneration that the bank has received or 
will receive from the customer, and the source and amount of any other 
remuneration that the bank has received or will receive in connection 
with the transaction; unless:
    (A) The bank and its customer have determined remuneration pursuant 
to a written agreement; or
    (B) In the case of government securities and municipal securities, 
the bank received the remuneration in other than an agency transaction.
    (ii) If the bank elects not to disclose the source and amount of 
remuneration it has or will receive from a party other than the customer 
pursuant to paragraph (a)(6)(i) of this section, the written 
notification must disclose whether the bank has received or will receive 
remuneration from a party other than the customer, and that the bank 
will furnish within a reasonable time the source and amount of this 
remuneration upon written request of the customer. This election is not 
available, however, if, with respect to a purchase, the bank was 
participating in a distribution of that security; or, with respect to a 
sale, the bank was participating in a tender offer for that security;
    (7) Name of the registered broker/dealer utilized; or where there is 
no registered broker/dealer, the name of the person from whom the 
security was purchased or to whom the security was sold, or a statement 
that the bank will furnish this information within a reasonable time 
upon written request from the customer;
    (8) In the case of any transaction in a debt security subject to 
redemption before maturity, a statement to the effect that the debt 
security may be redeemed in whole or in part before maturity, that the 
redemption could affect the yield represented and that additional 
information is available upon request;
    (9) In the case of a transaction in a debt security effected 
exclusively on the basis of a dollar price:
    (i) The dollar price at which the transaction was effected; and
    (ii) The yield to maturity calculated from the dollar price, unless 
the transaction is for a debt security that either:
    (A) Has a maturity date that may be extended by the issuer thereof, 
with a variable interest payable thereon; or
    (B) Is an asset-backed security that represents an interest in or is 
secured by a pool of receivables or other financial assets that 
continuously are subject to prepayment;
    (10) In the case of a transaction in a debt security effected on the 
basis of yield:

[[Page 144]]

    (i) The yield at which the transaction was effected, including the 
percentage amount and its characterization (e.g., current yield, yield 
to maturity, or yield to call) and if effected at yield to call, the 
type of call, the call date, and call price;
    (ii) The dollar price calculated from the yield at which the 
transaction was effected; and
    (iii) If effected on a basis other than yield to maturity and the 
yield to maturity is lower than the represented yield, the yield to 
maturity as well as the represented yield, unless the transaction is for 
a debt security that either:
    (A) Has a maturity date that may be extended by the issuer thereof, 
with a variable interest rate payable thereon; or
    (B) Is an asset-backed security that represents an interest in or is 
secured by a pool of receivables or other financial assets that 
continuously are subject to prepayment;
    (11) In the case of a transaction in a debt security that is an 
asset-backed security, which represents an interest in or is secured by 
a pool of receivables or other financial assets that continuously are 
subject to prepayment, a statement indicating that the actual yield of 
the asset-backed security may vary according to the rate at which the 
underlying receivables or other financial assets are prepaid and a 
statement that information concerning the factors that affect yield 
(including at a minimum estimated yield, weighted average life, and the 
prepayment assumptions underlying yield) will be furnished upon written 
request of the customer; and
    (12) In the case of a transaction in a debt security, other than a 
government security, that the security is unrated by a nationally 
recognized statistical rating organization, if that is the case; or
    (b) Copy of the registered broker/dealer's confirmation. A copy of 
the confirmation of a registered broker/dealer relating to the 
securities transaction and, if the customer or any other source will 
provide remuneration to the bank in connection with the transaction and 
a written agreement between the bank and the customer does not determine 
the remuneration, a statement of the source and amount of any 
remuneration that the customer or any other source is to provide the 
bank.



Sec. 12.5  Notification by agreement; alternative forms and times of notification.

    A national bank may elect to use the following notification 
procedures as an alternative to complying with Sec. 12.4:
    (a) Notification by agreement. A national bank effecting a 
securities transaction for an account in which the bank does not 
exercise investment discretion shall give or send written notification 
at the time and in the form agreed to in writing by the bank and 
customer, provided that the agreement makes clear the customer's right 
to receive the written notification pursuant to Sec. 12.4 (a) or (b) at 
no additional cost to the customer.
    (b) Trust transactions. A national bank effecting a securities 
transaction for an account in which the bank exercises investment 
discretion other than in an agency capacity shall give or send written 
notification within a reasonable time if a person having the power to 
terminate the account, or, if there is no such person, any person 
holding a vested beneficial interest in the account, requests written 
notification pursuant to Sec. 12.4 (a) or (b). Otherwise, notification 
is not required.
    (c) Agency transactions. (1) A national bank effecting a securities 
transaction for an account in which the bank exercises investment 
discretion in an agency capacity shall give or send, not less than once 
every three months, an itemized statement to each customer that 
specifies the funds and securities in the custody or possession of the 
bank at the end of the period and all debits, credits and transactions 
in the customer's account during the period.
    (2) If requested by the customer, the bank shall give or send 
written notification to the customer pursuant to Sec. 12.4 (a) or (b) 
within a reasonable time.
    (d) Collective investment fund transactions. A national bank 
effecting a securities transaction for a collective investment fund 
shall follow 12 CFR 9.18.

[[Page 145]]

    (e) Periodic plan transactions. (1) A national bank effecting a 
securities transaction for a periodic plan (except for a cash management 
sweep service) shall give or send to its customer not less than once 
every three months, a written statement showing:
    (i) The customer's funds and securities in the custody or possession 
of the bank;
    (ii) All service charges and commissions paid by the customer in 
connection with the transaction; and
    (iii) All other debits and credits of the customer's account 
involved in the transaction.
    (2) A national bank effecting a securities transaction for a cash 
management sweep service or other periodic plan as defined in 
Sec. 12.2(j)(2) shall give or send its customer a written statement, in 
the same form as under paragraph (e)(1) of this section, for each month 
in which a purchase or sale of a security takes place in a deposit 
account and not less than once every three months if there are no 
securities transactions in the account, subject to any other applicable 
laws and regulations.
    (3) Upon written request of the customer, the bank shall give or 
send the information described in Sec. 12.4 (a) or (b), except that the 
bank need not provide to the customer any information relating to 
remuneration paid in connection with the transaction when the 
remuneration is paid by a source other than the customer.



Sec. 12.6  Fees.

    A national bank may charge a reasonable fee for providing 
notification pursuant to Sec. 12.5(b), (c), and (e). A national bank may 
not charge a fee for providing notification pursuant to Sec. 12.4 or 
Sec. 12.5 (a) and (d).



Sec. 12.7  Securities trading policies and procedures.

    (a) Policies and procedures; reports of securities trading. A 
national bank effecting securities transactions for customers shall 
maintain and adhere to policies and procedures that:
    (1) Assign responsibility for supervision of all officers or 
employees who:
    (i) Transmit orders to or place orders with registered broker/
dealers;
    (ii) Execute transactions in securities for customers; or
    (iii) Process orders for notification or settlement purposes, or 
perform other back office functions with respect to securities 
transactions effected for customers. Policies and procedures for 
personnel described in this paragraph (a)(1)(iii) must provide for 
supervision and reporting lines that are separate from supervision and 
reporting lines for personnel described in paragraphs (a)(1) (i) and 
(ii) of this section;
    (2) Provide for the fair and equitable allocation of securities and 
prices to accounts when the bank receives orders for the same security 
at approximately the same time and places the orders for execution 
either individually or in combination;
    (3) Provide for the crossing of buy and sell orders on a fair and 
equitable basis to the parties to the transaction, where permissible 
under applicable law; and
    (4) Require bank officers and employees to report to the bank, 
within ten business days after the end of the calendar quarter, all 
personal transactions in securities made by them or on their behalf in 
which they have a beneficial interest, if the officers and employees:
    (i) Make investment recommendations or decisions for the accounts of 
customers;
    (ii) Participate in the determination of the recommendations or 
decisions; or
    (iii) In connection with their duties, obtain information concerning 
which securities are purchased, sold, or recommended for purchase or 
sale by the bank.
    (b) Required information. The report required under paragraph (a)(4) 
of this section must contain the following information:
    (1) The date of the transaction, the title and number of shares, and 
the principal amount of each security involved;
    (2) The nature of the transaction (i.e. purchase, sale, or other 
type of acquisition or disposition);
    (3) The price at which the transaction was effected; and
    (4) The name of the registered broker, registered dealer, or bank 
with

[[Page 146]]

or through whom the transaction was effected.
    (c) Report not required. This section does not require a bank 
officer or employee to report transactions if:
    (1) The officer or employee has no direct or indirect influence or 
control over the transaction;
    (2) The transaction is in mutual fund shares;
    (3) The transaction is in government securities; or
    (4) The transactions involve an aggregate amount of purchases and 
sales per officer or employee of $10,000 or less during the calendar 
quarter.
    (d) Additional reporting requirement. A national bank that acts as 
an investment adviser to an investment company is subject to the 
requirements of Securities and Exchange Commission (SEC) Rule 17j-1 (17 
CFR 270.17j-1) issued under the Investment Company Act of 1940. SEC Rule 
17j-1 requires an ``access person'' of the investment adviser to report 
certain personal securities transactions to the investment adviser for 
review by the Securities and Exchange Commission. ``Access person'' 
includes directors, officers, and certain employees of the investment 
adviser. The reporting requirement under paragraph (a)(4) of this 
section is a separate requirement from any applicable requirements under 
SEC Rule 17j-1. However, an ``access person'' required to file a report 
with a national bank pursuant to SEC Rule 17j-1 need not file a separate 
report under paragraph (a)(4) of this section if the required 
information is the same.



Sec. 12.8  Waivers.

    A national bank may file a written request with the OCC for waiver 
of one or more of the requirements set forth in Secs. 12.2 through 12.7, 
either in whole or in part. The OCC may grant a waiver from the 
requirements of this part to any national bank, or any class of national 
banks, with regard to a specific transaction or a specific class of 
transactions.



Sec. 12.9  Settlement of securities transactions.

    (a) A national bank shall not effect or enter into a contract for 
the purchase or sale of a security (other than an exempted security as 
defined in 15 U.S.C. 78c(a)(12), government security, municipal 
security, commercial paper, bankers' acceptances, or commercial bills) 
that provides for payment of funds and delivery of securities later than 
the third business day after the date of the contract, unless otherwise 
expressly agreed to by the parties at the time of the transaction.
    (b) Paragraphs (a) and (c) of this section do not apply to 
contracts:
    (1) For the purchase or sale of limited partnership interests that 
are not listed on an exchange or for which quotations are not 
disseminated through an automated quotation system of a registered 
securities association;
    (2) For the purchase or sale of securities that the Securities and 
Exchange Commission (SEC) may from time to time, taking into account 
then existing market practices, exempt by order from the requirements of 
paragraph (a) of SEC Rule 15c6-1, 17 CFR 240.15c6-1(a), either 
unconditionally or on specified terms and conditions, if the SEC 
determines that an exemption is consistent with the public interest and 
the protection of investors.
    (c) Paragraph (a) of this section does not apply to contracts for 
the sale for cash of securities that are priced after 4:30 p.m. Eastern 
time on the date the securities are priced and that are sold by an 
issuer to an underwriter pursuant to a firm commitment underwritten 
offering registered under the Securities Act of 1933, 15 U.S.C. 77a et 
seq., or sold to an initial purchaser by a national bank participating 
in the offering. A national bank shall not effect or enter into a 
contract for the purchase or sale of the securities that provides for 
payment of funds and delivery of securities later than the fourth 
business day after the date of the contract unless otherwise expressly 
agreed to by the parties at the time of the transaction.
    (d) For purposes of paragraphs (a) and (c) of this section, the 
parties to a contract are deemed to have expressly agreed to an 
alternate date for payment of funds and delivery of securities at the 
time of the transaction for a

[[Page 147]]

contract for the sale for cash of securities pursuant to a firm 
commitment offering if the managing underwriter and the issuer have 
agreed to the date for all securities sold pursuant to the offering and 
the parties to the contract have not expressly agreed to another date 
for payment of funds and delivery of securities at the time of the 
transaction.

                             Interpretations



Sec. 12.101  National bank disclosure of remuneration for mutual fund transactions.

    A national bank may fulfill its obligation to disclose information 
on the source and amount of remuneration, required by Sec. 12.4, for 
mutual fund transactions by providing this information to the customer 
in a current prospectus, at or before completion of the securities 
transaction. The OCC's view is consistent with the position of the 
Securities and Exchange Commission (SEC) as provided in a no-action 
letter dated March 19, 1979, which permits confirmations for mutual 
funds to refer to the sales load disclosed in the prospectus. See Letter 
to the Investment Company Institute, reprinted in [1979 Transfer Binder] 
Fed. Sec. L. Rep. (CCH) 82041 (Mar. 19, 1979). The OCC would reconsider 
its position upon any change in the SEC's practice.



Sec. 12.102  National bank use of electronic communications as customer notifications.

    (a) In appropriate situations, a national bank may satisfy the 
``written'' notification requirement under Secs. 12.4 and 12.5 through 
electronic communications. Where a customer has a facsimile machine, a 
national bank may fulfill its notification delivery requirement by 
sending the notification by facsimile transmission. Similarly, a bank 
may satisfy the notification delivery requirement by other electronic 
communications when:
    (1) The parties agree to use electronic instead of hard-copy 
notifications;
    (2) The parties have the ability to print or download the 
notification;
    (3) The recipient affirms or rejects the trade through electronic 
notification;
    (4) The system cannot automatically delete the electronic 
notification; and
    (5) Both parties have the capacity to receive electronic messages.
    (b) The OCC would consider the permissibility of other situations 
using electronic notifications on a case-by-case basis.



PART 13--GOVERNMENT SECURITIES SALES PRACTICES--Table of Contents




Sec.
13.1  Scope.
13.2  Definitions.
13.3  Business conduct.
13.4  Recommendations to customers.
13.5  Customer information.

                             Interpretations

13.100  Obligations concerning institutional customers.

    Authority: 12 U.S.C. 1 et seq., and 93a; 15 U.S.C. 78o-5.

    Source: 62 FR 13283, Mar. 19, 1997, unless otherwise noted.



Sec. 13.1  Scope.

    This part applies to national banks that have filed notice as, or 
are required to file notice as, government securities brokers or dealers 
pursuant to section 15C of the Securities Exchange Act (15 U.S.C. 78o-5) 
and Department of the Treasury rules under section 15C (17 CFR 400.1(d) 
and part 401).



Sec. 13.2  Definitions.

    (a) Bank that is a government securities broker or dealer means a 
national bank that has filed notice, or is required to file notice, as a 
government securities broker or dealer pursuant to section 15C of the 
Securities Exchange Act (15 U.S.C. 78o-5) and Department of the Treasury 
rules under section 15C (17 CFR 400.1(d) and part 401).
    (b) Customer does not include a broker or dealer or a government 
securities broker or dealer.
    (c) Government security has the same meaning as this term has in 
section 3(a)(42) of the Securities Exchange Act of 1934 (15 U.S.C. 
78c(a)(42)).
    (d) Non-institutional customer means any customer other than:
    (1) A bank, savings association, insurance company, or registered 
investment company;

[[Page 148]]

    (2) An investment adviser registered under section 203 of the 
Investment Advisers Act of 1940 (15 U.S.C. 80b-3); or
    (3) Any entity (whether a natural person, corporation, partnership, 
trust, or otherwise) with total assets of at least $50 million.



Sec. 13.3  Business conduct.

    A bank that is a government securities broker or dealer shall 
observe high standards of commercial honor and just and equitable 
principles of trade in the conduct of its business as a government 
securities broker or dealer.



Sec. 13.4  Recommendations to customers.

    In recommending to a customer the purchase, sale or exchange of a 
government security, a bank that is a government securities broker or 
dealer shall have reasonable grounds for believing that the 
recommendation is suitable for the customer upon the basis of the facts, 
if any, disclosed by the customer as to the customer's other security 
holdings and as to the customer's financial situation and needs.



Sec. 13.5  Customer information.

    Prior to the execution of a transaction recommended to a non-
institutional customer, a bank that is a government securities broker or 
dealer shall make reasonable efforts to obtain information concerning:
    (a) The customer's financial status;
    (b) The customer's tax status;
    (c) The customer's investment objectives; and
    (d) Such other information used or considered to be reasonable by 
the bank in making recommendations to the customer.

                             Interpretations



Sec. 13.100  Obligations concerning institutional customers.

    (a) As a result of broadened authority provided by the Government 
Securities Act Amendments of 1993 (15 U.S.C. 78o-3 and 78o-5), the OCC 
is adopting sales practice rules for the government securities market, a 
market with a particularly broad institutional component. Accordingly, 
the OCC believes it is appropriate to provide further guidance to banks 
on their suitability obligations when making recommendations to 
institutional customers.
    (b) The OCC's suitability rule (Sec. 13.4) is fundamental to fair 
dealing and is intended to promote ethical sales practices and high 
standards of professional conduct. Banks' responsibilities include 
having a reasonable basis for recommending a particular security or 
strategy, as well as having reasonable grounds for believing the 
recommendation is suitable for the customer to whom it is made. Banks 
are expected to meet the same high standards of competence, 
professionalism, and good faith regardless of the financial 
circumstances of the customer.
    (c) In recommending to a customer the purchase, sale, or exchange of 
any government security, the bank shall have reasonable grounds for 
believing that the recommendation is suitable for the customer upon the 
basis of the facts, if any, disclosed by the customer as to the 
customer's other security holdings and financial situation and needs.
    (d) The interpretation in this section concerns only the manner in 
which a bank determines that a recommendation is suitable for a 
particular institutional customer. The manner in which a bank fulfills 
this suitability obligation will vary, depending on the nature of the 
customer and the specific transaction. Accordingly, the interpretation 
in this section deals only with guidance regarding how a bank may 
fulfill customer-specific suitability obligations under 
Sec. 13.4.1
---------------------------------------------------------------------------

    \1\ The interpretation in this section does not address the 
obligation related to suitability that requires that a bank have ``* * * 
a `reasonable basis' to believe that the recommendation could be 
suitable for at least some customers.'' In the Matter of the Application 
of F.J. Kaufman and Company of Virginia and Frederick J. Kaufman, Jr., 
50 SEC 164 (1989).
---------------------------------------------------------------------------

    (e) While it is difficult to define in advance the scope of a bank's 
suitability obligation with respect to a specific institutional customer 
transaction recommended by a bank, the OCC has identified certain 
factors that may be relevant when considering compliance with Sec. 13.4. 
These factors are not intended to be requirements or the only factors to 
be considered but are

[[Page 149]]

offered merely as guidance in determining the scope of a bank's 
suitability obligations.
    (f) The two most important considerations in determining the scope 
of a bank's suitability obligations in making recommendations to an 
institutional customer are the customer's capability to evaluate 
investment risk independently and the extent to which the customer is 
exercising independent judgement in evaluating a bank's recommendation. 
A bank must determine, based on the information available to it, the 
customer's capability to evaluate investment risk. In some cases, the 
bank may conclude that the customer is not capable of making independent 
investment decisions in general. In other cases, the institutional 
customer may have general capability, but may not be able to understand 
a particular type of instrument or its risk. This is more likely to 
arise with relatively new types of instruments, or those with 
significantly different risk or volatility characteristics than other 
investments generally made by the institution. If a customer is either 
generally not capable of evaluating investment risk or lacks sufficient 
capability to evaluate the particular product, the scope of a bank's 
customer-specific obligations under Sec. 13.4 would not be diminished by 
the fact that the bank was dealing with an institutional customer. On 
the other hand, the fact that a customer initially needed help 
understanding a potential investment need not necessarily imply that the 
customer did not ultimately develop an understanding and make an 
independent investment decision.
    (g) A bank may conclude that a customer is exercising independent 
judgement if the customer's investment decision will be based on its own 
independent assessment of the opportunities and risks presented by a 
potential investment, market factors and other investment 
considerations. Where the bank has reasonable grounds for concluding 
that the institutional customer is making independent investment 
decisions and is capable of independently evaluating investment risk, 
then a bank's obligations under Sec. 13.4 for a particular customer are 
fulfilled.2 Where a customer has delegated decision-making 
authority to an agent, such as an investment advisor or a bank trust 
department, the interpretation in this section shall be applied to the 
agent.
---------------------------------------------------------------------------

    \2\ See footnote 1 in paragraph (d) of this section.
---------------------------------------------------------------------------

    (h) A determination of capability to evaluate investment risk 
independently will depend on an examination of the customer's capability 
to make its own investment decisions, including the resources available 
to the customer to make informed decisions. Relevant considerations 
could include:
    (1) The use of one or more consultants, investment advisers, or bank 
trust departments;
    (2) The general level of experience of the institutional customer in 
financial markets and specific experience with the type of instruments 
under consideration;
    (3) The customer's ability to understand the economic features of 
the security involved;
    (4) The customer's ability to independently evaluate how market 
developments would affect the security; and
    (5) The complexity of the security or securities involved.
    (i) A determination that a customer is making independent investment 
decisions will depend on the nature of the relationship that exists 
between the bank and the customer.
    Relevant considerations could include:
    (1) Any written or oral understanding that exists between the bank 
and the customer regarding the nature of the relationship between the 
bank and the customer and the services to be rendered by the bank;
    (2) The presence or absence of a pattern of acceptance of the bank's 
recommendations;
    (3) The use by the customer of ideas, suggestions, market views and 
information obtained from other government securities brokers or dealers 
or market professionals, particularly those relating to the same type of 
securities; and
    (4) The extent to which the bank has received from the customer 
current

[[Page 150]]

comprehensive portfolio information in connection with discussing 
recommended transactions or has not been provided important information 
regarding its portfolio or investment objectives.
    (j) Banks are reminded that these factors are merely guidelines that 
will be utilized to determine whether a bank has fulfilled its 
suitability obligation with respect to a specific institutional customer 
transaction and that the inclusion or absence of any of these factors is 
not dispositive of the determination of suitability. Such a 
determination can only be made on a case-by-case basis taking into 
consideration all the facts and circumstances of a particular bank/
customer relationship, assessed in the context of a particular 
transaction.
    (k) For purposes of the interpretation in this section, an 
institutional customer shall be any entity other than a natural person. 
In determining the applicability of the interpretation in this section 
to an institutional customer, the OCC will consider the dollar value of 
the securities that the institutional customer has in its portfolio and/
or under management. While the interpretation in this section is 
potentially applicable to any institutional customer, the guidance 
contained in this section is more appropriately applied to an 
institutional customer with at least $10 million invested in securities 
in the aggregate in its portfolio and/or under management.

                         PARTS 14-15--[RESERVED]



PART 16--SECURITIES OFFERING DISCLOSURE RULES--Table of Contents




Sec.
16.1  Authority, purpose, and scope.
16.2  Definitions.
16.3  Registration statement and prospectus requirements.
16.4  Communications not deemed an offer.
16.5  Exemptions.
16.6  Sales of nonconvertible debt.
16.7  Nonpublic offerings.
16.8  Small issues.
16.15  Form and content.
16.16  Effectiveness.
16.17  Filing requirements and inspection of documents.
16.18  Use of prospectus.
16.19  Withdrawal or abandonment.
16.20  Current and periodic reports.
16.30  Request for interpretive advice or no-objection letter.
16.31  Escrow requirement.
16.32  Fraudulent transactions and unsafe and unsound practices.
16.33  Filing fees.

    Authority: 12 U.S.C. 1 et seq. and 93a.

    Source: 59 FR 54798, Nov. 2, 1994, unless otherwise noted.



Sec. 16.1  Authority, purpose, and scope.

    (a) Authority. This part is issued under the general authority of 
the national banking laws, 12 U.S.C. 1 et seq., and the OCC's general 
rulemaking authority in 12 U.S.C. 93a.
    (b) Purpose. This part sets forth rules governing the offer and sale 
of securities issued by a bank.
    (c) Scope. This part applies to offers and sales of bank securities 
by issuers, underwriters, and dealers.



Sec. 16.2  Definitions.

    For purposes of this part, the following definitions apply:
    (a) Accredited investor means the same as in Commission Rule 501(a) 
(17 CFR 230.501(a)).
    (b) Bank means an existing national bank, a national bank in 
organization, a bank operating under the Code of Law of the District of 
Columbia, or a federal branch or agency of a foreign bank.
    (c) Commission means the Securities and Exchange Commission. When 
used in the rules, regulations, or forms of the Commission referred to 
in this part, the term ``Commission'' shall be deemed to refer to the 
OCC.
    (d) Dealer means the same as in section 2(12) of the Securities Act 
(15 U.S.C. 77b(12)).
    (e) Exchange Act means the Securities Exchange Act of 1934 (15 
U.S.C. 78a through 78jj).
    (f) Insured depository institution means the same as in section 
3(c)(2) of the Federal Deposit Insurance Act (12 U.S.C. 1813(c)(2)).
    (g) Investment grade means that a security is rated investment grade 
(i.e., in one of the top four rating categories) by each nationally 
recognized statistical rating organization that has rated the security.

[[Page 151]]

    (h) Issuer means a bank that issues or proposes to issue any 
security.
    (i) Nonconvertible debt means a general obligation of the bank, 
whether senior or subordinated, that is not convertible into any class 
of common or preferred stock or any derivative thereof.
    (j) OCC means the Office of the Comptroller of the Currency.
    (k) Person means the same as in section 2(2) of the Securities Act 
(15 U.S.C. 77b(2)) and includes a bank.
    (l) Prospectus means an offering document that includes the 
information required by section 10(a) of the Securities Act (15 U.S.C. 
77j(a)).
    (m) Registration statement means a filing that includes the 
prospectus and other information required by section 7 of the Securities 
Act (15 U.S.C. 77g).
    (n) Sale, sell, offer to sell, offer for sale, and offer mean the 
same as in section 2(3) of the Securities Act (15 U.S.C. 77b(3)).
    (o) Securities Act means the Securities Act of 1933 (15 U.S.C. 77a 
through 77aa).
    (p) Security means the same as in section 2(1) of the Securities Act 
(15 U.S.C. 77b(1)).
    (q) Underwriter means the same as in section 2(11) of the Securities 
Act (15 U.S.C. 77b(11)). Commission Rules 137, 140, 141, 142, and 144 
(17 CFR 230.137, 230.140, 230.141, 230.142, and 230.144) (which apply to 
section 2(11) of the Securities Act) apply to this part.



Sec. 16.3  Registration statement and prospectus requirements.

    (a) No person shall offer or sell, directly or indirectly, any bank 
issued security unless:
    (1) A registration statement for the security meeting the 
requirements of Sec. 16.15 of this part has been filed with and declared 
effective by the OCC pursuant to this part, and the offer or sale is 
accompanied or preceded by a prospectus that has been filed with and 
declared effective by the OCC as a part of that registration statement; 
or
    (2) An exemption is available under Sec. 16.5 of this part.
    (b) Notwithstanding paragraph (a) of this section, securities of a 
bank may be offered through the use of a preliminary prospectus before a 
registration statement and prospectus for the securities have been 
declared effective by the OCC if:
    (1) A registration statement including the preliminary prospectus 
has been filed with the OCC;
    (2) The preliminary prospectus contains the information required by 
Sec. 16.15 of this part except for the omission of information with 
respect to the offering price, underwriting discounts or commissions, 
discounts or commissions to dealers, amount of proceeds, conversion 
rates, call prices, or other matters dependent upon the offering price; 
and
    (3) A copy of the prospectus as declared effective containing the 
information specified in paragraph (b)(2) of this section is furnished 
to each purchaser prior to or simultaneously with the sale of the 
security.
    (c) Commission Rule 174 (17 CFR 230.174--Delivery of prospectus by 
dealers; Exemptions under section 4(3) of the Act) applies to 
transactions by dealers in bank issued securities.



Sec. 16.4  Communications not deemed an offer.

    (a) The OCC will not deem the following communications to be an 
offer under Sec. 16.3 of this part:
    (1) Prior to the filing of a registration statement, any notice of a 
proposed offering that satisfies the requirements of Commission Rule 135 
(17 CFR 230.135);
    (2) Subsequent to the filing of a registration statement, any 
notice, circular, advertisement, letter, or other communication 
published or transmitted to any person that satisfies the requirements 
of Commission Rule 134 (17 CFR 230.134);
    (3) Subsequent to the filing of a registration statement, any oral 
offer of securities covered by that registration statement;
    (4) Subsequent to the filing of a registration statement, any 
summary prospectus that is filed as a part of that registration 
statement and satisfies the requirements of Commission Rule 431 (17 CFR 
230.431);
    (5) Subsequent to the effective date of a registration statement, 
any written communication if it is proved that each recipient of the 
communication simultaneously or previously received

[[Page 152]]

a written prospectus meeting the requirements of section 10(a) of the 
Securities Act (15 U.S.C. 77j(a)) and Sec. 16.15 of this part that was 
filed with and declared effective by the OCC;
    (6) A notice of a proposed unregistered offering that satisfies the 
requirements of Commission Rule 135c (17 CFR 230.135c); and
    (7) A communication that satisfies the requirements of Commission 
Rule 138 or 139 (17 CFR 230.138 or 230.139).
    (b) The OCC may request that communications not deemed an offer 
under paragraph (a) of this section be submitted to the OCC.
    (c) The OCC may prohibit the publication or distribution of any 
communication not deemed an offer under paragraph (a) of this section if 
necessary to protect the investing public.



Sec. 16.5  Exemptions.

    The registration statement and prospectus requirements of Sec. 16.3 
of this part do not apply to an offer or sale of bank securities:
    (a) If the securities are exempt from registration under section 3 
of the Securities Act (15 U.S.C. 77c), but only by reason of an 
exemption other than section 3(a)(2) (exemption for bank securities) and 
section 3(a)(11) (exemption for intrastate offerings) of the Securities 
Act. Commission Rules 149 and 150 (17 CFR 230.149 and 230.150) (which 
apply to section 3(a)(9) of the Securities Act) apply to this part;
    (b) In a transaction exempt from registration under section 4 of the 
Securities Act (15 U.S.C. 77d). Commission Rules 152 and 152a (17 CFR 
230.152 and 230.152a) (which apply to sections 4(2) and 4(1) of the 
Securities Act) apply to this part;
    (c) In a transaction that satisfies the requirements of Sec. 16.7 of 
this part;
    (d) In a transaction that satisfies the requirements of Sec. 16.8 of 
this part;
    (e) In a transaction that satisfies the requirements of Commission 
Rule 144, 144A, 148, or 236 (17 CFR 230.144, 230.144A, 230.148, or 
230.236);
    (f) In a transaction that satisfies the requirements of Commission 
Rule 701 (17 CFR 230.701); or
    (g) In a transaction that is an offer or sale occurring outside the 
United States under Commission Regulation S (17 CFR part 230, Regulation 
S--Rules Governing Offers and Sales Made Outside the United States 
Without Registration Under the Securities Act of 1933).

[59 FR 54798, Nov. 2, 1994; 59 FR 67153, Dec. 29, 1994]



Sec. 16.6  Sales of nonconvertible debt.

    (a) The OCC will deem offers or sales of bank issued nonconvertible 
debt to be in compliance with Secs. 16.3, 16.15 (a) and (b), and 16.20 
of this part if all of the following requirements are met:
    (1) The bank issuing the debt has securities registered under the 
Exchange Act or is a subsidiary of a bank holding company that has 
securities registered under the Exchange Act;
    (2) The debt is offered and sold only to accredited investors;
    (3) The debt is sold in minimum denominations of $250,000 and each 
note or debenture is legended to provide that it cannot be exchanged for 
notes or debentures of the bank in smaller denominations;
    (4) The debt is rated investment grade;
    (5) Prior to or simultaneously with the sale of the debt, each 
purchaser receives an offering document that contains a description of 
the terms of the debt, the use of proceeds, and method of distribution, 
and incorporates the bank's latest Consolidated Reports of Condition and 
Income (Call Report) and the bank's or its bank holding company's Forms 
10-K, 10-Q (or 10-KSB, 10-QSB), and 8-K (17 CFR part 249) filed under 
the Exchange Act; and
    (6) The offering document and any amendments are filed with the OCC 
no later than the fifth business day after they are first used.
    (b) Offers or sales of nonconvertible debt issued by a federal 
branch or agency of a foreign bank need not need comply with the 
requirements of paragraph (a)(1) of this section, if the federal branch 
or agency provides the OCC the information specified in Commission Rule 
12g3-2(b) (17 CFR 240.12g3-2(b)) and provides purchasers the information 
specified in Commission Rule 144A(d)(4)(i) (17 CFR 230.144A(d)(4)(i)). A 
federal branch or agency that provides the OCC the information specified 
in

[[Page 153]]

Commission Rule 12g3-2(b) need not incorporate that information by 
reference into the offering document provided to purchasers pursuant to 
paragraph (a)(5) of this section. However, the federal branch or agency 
must make that information available to the potential purchasers upon 
request. The OCC will make the information available for public 
inspection.



Sec. 16.7  Nonpublic offerings.

    (a) The OCC will deem offers and sales of bank issued securities 
that meet all of the following requirements to be exempt from the 
registration and prospectus requirements of Sec. 16.3 pursuant to 
Sec. 16.5(c) of this part:
    (1) All the securities are offered and sold in a transaction that 
satisfies the requirements of Commission Regulation D (17 CFR part 230, 
Regulation D--Rules Governing the Limited Offer and Sale of Securities 
Without Registration Under the Securities Act of 1933);
    (2) Each purchaser who is not an accredited investor either alone or 
with its purchaser representative(s) has the knowledge and experience in 
financial and business matters that it is capable of evaluating the 
merits and risks of the prospective investment, or the issuer reasonably 
believes immediately prior to making any sale that the purchaser comes 
within this description; and
    (3) A notice that meets the requirements of Commission Rule 503 (17 
CFR 230.503) is filed with the OCC.
    (b) All subsequent sales of bank issued securities subject to the 
limitations on resale of Commission Regulation D (17 CFR part 230, 
Regulation D--Rules Governing the Limited Offer and Sale of Securities 
Without Registration Under the Securities Act of 1933) must be made 
pursuant to Commission Rule 144 (17 CFR 230.144), Commission Rule 144A 
(17 CFR 230.144A), another exemption from registration under the 
Securities Act referenced in Sec. 16.5 of this part, or in accordance 
with the registration and prospectus requirements of Sec. 16.3 of this 
part.
    (c) No offer or sale of bank issued securities shall be made in 
reliance on Commission Regulation D (17 CFR part 230, Regulation D--
Rules Governing the Limited Offer and Sale of Securities Without 
Registration Under the Securities Act of 1933) without compliance with 
paragraphs (a)(1) and (a)(2) of this section.



Sec. 16.8  Small issues.

    (a) The OCC will deem offers and sales of bank issued securities 
that satisfy the requirements of Commission Regulation A (17 CFR part 
230, Regulation A--Conditional Small Issues Exemption) to be exempt from 
the registration and prospectus requirements of Sec. 16.3 pursuant to 
Sec. 16.5(d) of this part.
    (b) A filer should consult the Commission's Securities Act Industry 
Guide 3--Statistical Disclosure by Bank Holding Companies (17 CFR 
229.801(c) and 231) and requirement 7 (Loans) of Rule 9-03 of Commission 
Regulation S-X (17 CFR 230.9-03) for guidance on appropriate disclosures 
when preparing offering documents to be filed with the OCC pursuant to 
Regulation A.



Sec. 16.15  Form and content.

    (a) Any registration statement filed pursuant to this part must be 
on the form for registration (17 CFR part 239) that the bank would be 
eligible to use were it required to register the securities under the 
Securities Act and must meet the requirements of the Commission 
regulations referred to in the applicable form for registration. A filer 
should consult the Commission's Securities Act Industry Guide 3--
Statistical Disclosure by Bank Holding Companies (17 CFR 229.801(c) and 
231) for guidance on appropriate disclosures when preparing registration 
statements.
    (b) Any registration statement or amendment filed pursuant to this 
part must comply with the requirements of Commission Regulation C (17 
CFR part 230, Regulation C--Registration), except to the extent those 
requirements conflict with specific requirements of this part.
    (c) In addition to the information expressly required to be included 
in the registration statement by paragraphs (a) and (b) of this section, 
the registration statement must include any additional material 
information that is necessary to make the required statements, in light 
of the circumstances

[[Page 154]]

under which they are made, not misleading.
    (d) Notwithstanding paragraph (a) of this section, the registration 
statement for securities issued by a bank that is not in compliance with 
the regulatory capital requirements set forth in part 3 of this chapter 
must be on the Form S-1 (17 CFR part 239) registration statement under 
the Securities Act.



Sec. 16.16  Effectiveness.

    (a) Registration statements and amendments filed with the OCC 
pursuant to this part will become effective in accordance with sections 
8(a) and (c) of the Securities Act (15 U.S.C. 77h(a) and (c)) and 
Commission Regulation C (17 CFR part 230, Regulation C--Registration).
    (b) The OCC will deem registration statements and amendments that 
become effective pursuant to paragraph (a) of this section to be 
declared effective. If the OCC deems a registration statement to be 
declared effective, the OCC will also deem the prospectus that was filed 
as a part of that registration statement to be declared effective.



Sec. 16.17  Filing requirements and inspection of documents.

    (a) Except as provided in paragraph (b) of this section, all 
registration statements, offering documents, amendments, notices, or 
other documents must be filed with the Securities, Investments, and 
Fiduciary Practices Division, Office of the Comptroller of the Currency, 
250 E Street, SW, Washington, DC 20219.
    (b) All registration statements, offering documents, amendments, 
notices, or other documents relating to a bank in organization must be 
filed with the appropriate District office of the OCC.
    (c) Where this part refers to a section of the Securities Act or the 
Exchange Act or a Commission rule that requires the filing of a notice 
or other document with the Commission, that notice or other document 
must be filed with the OCC.
    (d) Unless otherwise requested by the OCC, any filing under this 
part must include four copies of any document filed. Material may be 
filed by delivery to the OCC through use of the mails or otherwise. The 
date on which documents are actually received by the OCC will be the 
date of filing of those documents, if the person filing the documents 
has complied with all requirements regarding the filing, including the 
submission of any fee required under Sec. 16.33 of this part.
    (e) Any filing of amendments or revisions must include at least four 
copies, two of which are marked to indicate clearly and precisely, by 
underlining or in some other appropriate manner, the changes made.
    (f) The OCC will make available for public inspection copies of the 
registration statements, offering documents, amendments, exhibits, 
notices or reports filed pursuant to this part at the address identified 
in Sec. 4.17(b) of this chapter.



Sec. 16.18  Use of prospectus.

    (a) No person shall use a prospectus or amendment declared effective 
by the OCC more than nine months after the effective date unless the 
information contained in the prospectus or amendment is as of a date not 
more than 16 months prior to the date of use.
    (b) If any event arises, or change in fact occurs, after the 
effective date and that event or change in fact, individually or in the 
aggregate, results in the prospectus containing any untrue statement of 
material fact, or omitting to state a material fact necessary in order 
to make statements made in the prospectus not misleading under the 
circumstances, then no person shall use the prospectus that has been 
declared effective under this part until an amendment reflecting the 
event or change has been filed with and declared effective by the OCC.



Sec. 16.19  Withdrawal or abandonment.

    (a) Any registration statement, amendment, or exhibit may be 
withdrawn prior to the effective date. A withdrawal must be signed and 
state the grounds upon which it is made. The OCC will not remove any 
withdrawn document from its files, but will mark the document Withdrawn 
upon the request of the registrant on (date).
    (b) When a registration statement or amendment has been on file with 
the OCC for a period of nine months and has not become effective, the 
OCC may,

[[Page 155]]

in its discretion, determine whether the filing has been abandoned. 
Before determining that a filing has been abandoned, the OCC will notify 
the filer that the filing is out of date and must either be amended to 
comply with the applicable requirements of this part or be withdrawn 
within 30 days after the date of notice. When a filing is abandoned, the 
OCC will not remove the filing from its files but will mark the filing 
Declared abandoned by the OCC on (date).



Sec. 16.20  Current and periodic reports.

    (a) Each bank that files a registration statement that has been 
declared effective pursuant to this part must file with the OCC, after 
the effective date, the periodic and current reports required by section 
13 of the Exchange Act (15 U.S.C. 78m), as if the securities covered by 
the registration statement were securities registered pursuant to 
section 12 of the Exchange Act (15 U.S.C. 78l). Banks must file periodic 
and current reports in accordance with Commission Regulation 15D (17 CFR 
240.15d-1 up to but not including 240.15Aa-1).
    (b) Suspension of the duty to file periodic and current reports 
under this section will be in accordance with section 15(d) of the 
Exchange Act (15 U.S.C. 78o(d)), Commission Regulation 15D (17 CFR 
240.15d-1 up to but not including 240.15Aa-1), and Commission Rule 12h-3 
(17 CFR 240.12h-3).
    (c) Paragraph (a) of this section does not apply if the bank is a 
subsidiary of a one-bank holding company, the financial statements of 
the bank and the parent bank holding company are substantially the same, 
and the bank's parent bank holding company files current and periodic 
reports pursuant to section 13 of the Exchange Act (15 U.S.C. 78m).
    (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).

[59 FR 54798, Nov. 2, 1994, as amended at 61 FR 60387, Nov. 27, 1996]



Sec. 16.30  Request for interpretive advice or no-objection letter.

    Any person requesting interpretive advice or a no-objection letter 
from the OCC with respect to any provision of this part shall:
    (a) File a copy of the request, including any supporting attachments 
with the Securities, Investments, and Fiduciary Practices Division at 
the address listed in Sec. 16.17;
    (b) Identify or describe the provisions of this part to which the 
request relates, the participants in the proposed transaction, and the 
reasons for the request; and
    (c) Include with the request a legal opinion as to each legal issue 
raised and an accounting opinion as to each accounting issue raised.



Sec. 16.31  Escrow requirement.

    The OCC may require that any funds received in connection with an 
offer or sale of securities be held in an independent escrow account at 
an unrelated insured depository institution when the use of an escrow 
account is in the best interests of shareholders.



Sec. 16.32  Fraudulent transactions and unsafe and unsound practices.

    (a) No person in the offer or sale of bank securities shall directly 
or indirectly:
    (1) Employ any device, scheme or artifice to defraud;
    (2) Make any untrue statement of a material fact or omit to state a 
material fact necessary in order to make the statements made, in light 
of the circumstances under which they were made, not misleading; or
    (3) Engage in any act, practice, or course of business which 
operates as a fraud or deceit upon any person, in connection with the 
purchase or sale of any security of a bank.
    (b) Nothing in this section limits the applicability of section 17 
of the Securities Act (15 U.S.C. 77q) or section 10(b) of the Exchange 
Act (15 U.S.C. 78j) or Rule 10b-5 promulgated thereunder (17 CFR 
240.10b-5).
    (c) Any violation of this section also constitutes an unsafe or 
unsound practice under 12 U.S.C. 1818.

[[Page 156]]

    (d) Commission Rule 175 (17 CFR 230.175--Liability for certain 
statements by issuers) applies to this part.



Sec. 16.33  Filing fees.

    (a) Filing fees must accompany certain filings made under the 
provisions of this part before the OCC will accept those filings. The 
applicable fee schedule is provided in the Notice of Comptroller of the 
Currency Fees published pursuant to Sec. 8.8 of this chapter.
    (b) Filing fees must be paid by check payable to the Comptroller of 
the Currency.



PART 18--DISCLOSURE OF FINANCIAL AND OTHER INFORMATION BY NATIONAL BANKS--Table of Contents




Sec.
18.1  Purpose and OMB control number.
18.2  Definitions.
18.3  Preparation of annual disclosure statement.
18.4  Contents of annual disclosure statement.
18.5  Alternative annual disclosure statements.
18.6  Signature and attestation.
18.7  Notice of availability.
18.8  Delivery.
18.9  Disclosure of examination reports.
18.10  Prohibited conduct and penalties.
18.11  Safe harbor provision.

    Authority: 12 U.S.C. 93a, 161, and 1818.

    Source: 53 FR 3866, Feb. 10, 1988, unless otherwise noted.



Sec. 18.1  Purpose and OMB control number.

    (a) Purpose. The purpose of this part is to require all national 
banks and federal branches and agencies to prepare an annual financial 
disclosure statement, and to make this statement available to security 
holders, depositors, and anyone who requests it. The bank may, at its 
option, supplement this financial disclosure statement with narrative 
information management deems important. The availability of this 
information is expected to promote better public understanding of, and 
confidence in, individual national banks and the national banking 
system. The annual disclosure statement will serve to complement the 
supervisory efforts of the Office of the Comptroller of the Currency 
(OCC) to promote bank safety and soundness and public confidence in the 
national banking system.
    (b) OMB control number. The collection of information requirements 
contained in this part were approved by the Office of Management and 
Budget under OMB control number 1557-0182.

[53 FR 3866, Feb. 10, 1988, as amended at 60 FR 57332, Nov. 15, 1995]



Sec. 18.2  Definitions.

    Unless otherwise defined in this part, the terms used have the same 
meaning as in the instructions to the Consolidated Reports of Condition 
and Income (Call Reports).



Sec. 18.3  Preparation of annual disclosure statement.

    (a) Beginning with calendar year 1987, each national bank and 
federal branch and agency shall prepare an annual disclosure statement 
as of December 31. The annual disclosure statement shall contain 
information required by Sec. 18.4 (a), (b) and (d) may include other 
information that bank management believes important, as discussed in 
Sec. 18.4(c).
    (b) The annual disclosure statement shall be available by March 31 
of each year, or by an earlier date as necessary to be made available to 
security holders in advance of the annual meeting of shareholders. A 
bank shall continually make its annual disclosure statement available 
until the annual disclosure statement for the succeeding year becomes 
available.



Sec. 18.4  Contents of annual disclosure statement.

    (a) Information concerning financial condition and results of 
operations. The annual disclosure statement for any year shall reflect a 
fair presentation of the bank's financial condition at the end of that 
year and the preceding year. The annual disclosure statement may, at the 
option of bank management, consist of the bank's entire Call Reports, or 
applicable portions thereof, for the relevant periods. At a minimum, the 
statement must contain the same or comparable information as provided in 
the following Call Report schedules.
    (1) For national banks:

[[Page 157]]

    (i) Schedule RC (Balance Sheet);
    (ii) Schedule RC-N (Past Due and Nonaccrual Loans, Leases, and Other 
Assets--column A and memorandum Item 1 need not be included);
    (iii) Schedule RI (Income Statement);
    (iv) Schedule RI-A (Changes in Equity Capital); and
    (v) Schedule RI-B (Charge-Offs and Recoveries and Changes in 
Allowance for Loan and Lease Losses--part I may be omitted).
    (2) For federal branches or agencies:
    (i) Schedule RAL (Assets and Liabilities);
    (ii) Schedule E (Deposit Liabilities and Credit Balances); and
    (iii) Schedule P (Other Borrowed Money).
    (b) Other required information. The annual disclosure statement 
shall include such other information as the OCC may require. This may 
include a discussion of enforcement actions when the OCC deems it in the 
public interest.
    (c) Optional narrative. Bank management may, at its option, provide 
a narrative discussion to supplement the annual disclosure statement. 
This narrative may include information that bank management deems 
important in evaluating the overall condition of the bank. Information 
that bank management might present includes, but is not limited to, a 
discussion of the financial data; pertinent information relating to 
mergers and acquisitions; the existence and underlying causes of 
enforcement actions; business plans; material changes in balance sheet 
and income statement items; and future plans.
    (d) Disclaimer. The following legend shall be included in the annual 
disclosure statement to advise the public that the OCC has not reviewed 
the information contained therein:

    This statement has not been reviewed, or confirmed for accuracy or 
relevance by the Office of the Comptroller of the Currency.

[53 FR 3866, Feb. 10, 1988, as amended at 60 FR 57332, Nov. 15, 1995]



Sec. 18.5  Alternative annual disclosure statements.

    The Sec. 18.3(a) requirement to prepare an annual disclosure 
statement is satisfied:
    (a) In the case of a national bank having a class of securities 
registered pursuant to section 12 of the Securities Exchange Act of 1934 
(15 U.S.C. 78l), by its annual report to security holders for meetings 
at which directors are to be elected;
    (b) In the case of a national bank with audited financial 
statements, by those statements, provided all of the required 
information is included;
    (c) In the case of a bank subsidiary of a one-bank holding company, 
by an annual report of the one-bank holding company prepared in 
conformity with the regulations of the Securities and Exchange 
Commission or by schedules from the holding company's consolidated 
financial statements on Form FR Y-9c pursuant to Regulation Y of the 
Federal Reserve Board (12 CFR part 225). Such schedules must be 
comparable to the Call Report schedules enumerated in Sec. 18.4(a). In 
either case, not less than 95 percent of the holding company's 
consolidated total assets and total liabilities must be attributable to 
the bank and the bank's subsidiaries.

[53 FR 3866, Feb. 10, 1988, as amended at 60 FR 57332, Nov. 15, 1995]



Sec. 18.6  Signature and attestation.

    A duly authorized officer of the bank shall sign the annual 
disclosure statement and shall attest to the correctness of the 
information contained in the statement if the financial reports are not 
accompanied by a report of an independent accountant.



Sec. 18.7  Notice of availability.

    (a) Shareholders. In its notice of the annual meeting of 
shareholders, each national bank shall indicate that any person may 
obtain the annual disclosure statement from the bank, and shall include 
the address and telephone number of the person or office to be contacted 
for a copy. The first copy shall be provided without charge.
    (b) Depositors, Other Security Holders, and the General Public. In 
the lobby of its main office and each branch, each national bank shall 
prominently display, at all times, a notice that any person may obtain 
the annual disclosure statement from the bank. The notice shall include 
the address and telephone number of the person or office to

[[Page 158]]

be contacted for a copy. The first copy shall be provided without 
charge.



Sec. 18.8  Delivery.

    Each national bank shall, after receiving a request for an annual 
disclosure statement, promptly mail or otherwise furnish the statement 
to the requester.



Sec. 18.9  Disclosure of examination reports.

    Except as permitted under part 4 of this chapter, a national bank 
may not disclose any report of examination or report of supervisory 
activity, or any portion thereof, prepared by the OCC. The bank also 
shall not make any representation concerning such report or the findings 
therein.

[53 FR 3866, Feb. 10, 1988, as amended at 60 FR 57333, Nov. 15, 1995]



Sec. 18.10  Prohibited conduct and penalties.

    (a) No national bank or institution-affiliated party shall, directly 
or indirectly:
    (1) Disclose or cause to be disclosed false or misleading 
information in the annual disclosure statement, or omit or cause the 
omission of material or required information in the annual disclosure 
statement; or
    (2) Represent that the OCC, or any employee thereof, has passed upon 
the accuracy or completeness of the annual disclosure statement.
    (b) For purposes of this part, institution-affiliated party means:
    (1) Any director, officer, employee, or controlling stockholder 
(other than a bank holding company) of, or agent for, a national bank;
    (2) Any other person who has filed or is required to file a change-
in-control notice with the OCC under 12 U.S.C. 1817(j);
    (3) Any shareholder (other than a bank holding company), consultant, 
joint venture partner, and any other person as determined by the OCC (by 
regulation or case-by-case) who participates in the conduct of the 
affairs of a national bank; and
    (4) Any independent contractor (including any attorney, appraiser, 
or accountant) who knowingly or recklessly participates in:
    (i) Any violation of any law or regulation;
    (ii) Any breach of fiduciary duty; or
    (iii) Any unsafe or unsound practice, which caused or is likely to 
cause more than a minimal financial loss to, or a significant adverse 
effect on, the national bank.
    (c) Conduct that violates paragraph (a) of this section also may 
constitute an unsafe or unsound banking practice or otherwise serve as a 
basis for enforcement action by the OCC including, but not limited to, 
the assessment of civil money penalties against the bank or any 
institution-affiliated party who violates this part.

[60 FR 57333, Nov. 15, 1995]



Sec. 18.11  Safe harbor provision.

    The provisions of Sec. 18.10(c) shall apply unless it is shown by 
the person or bank involved that the information disclosed was included 
with a reasonable basis or in good faith.



PART 19--RULES OF PRACTICE AND PROCEDURE--Table of Contents




           Subpart A--Uniform Rules of Practice and Procedure

Sec.
19.1  Scope.
19.2  Rules of construction.
19.3  Definitions.
19.4  Authority of the Comptroller.
19.5  Authority of the administrative law judge.
19.6  Appearance and practice in adjudicatory proceedings.
19.7  Good faith certification.
19.8  Conflicts of interest.
19.9  Ex parte communications.
19.10  Filing of papers.
19.11  Service of papers.
19.12  Construction of time limits.
19.13  Change of time limits.
19.14  Witness fees and expenses.
19.15  Opportunity for informal settlement.
19.16  OCC's right to conduct examination.
19.17  Collateral attacks on adjudicatory proceeding.
19.18  Commencement of proceeding and contents of notice.
19.19  Answer.
19.20  Amended pleadings.
19.21  Failure to appear.
19.22  Consolidation and severance of actions.
19.23  Motions.
19.24  Scope of document discovery.

[[Page 159]]

19.25  Request for document discovery from parties.
19.26  Document subpoenas to nonparties.
19.27  Deposition of witness unavailable for hearing.
19.28  Interlocutory review.
19.29  Summary disposition.
19.30  Partial summary disposition.
19.31  Scheduling and prehearing conferences.
19.32  Prehearing submissions.
19.33  Public hearings.
19.34  Hearing subpoenas.
19.35  Conduct of hearings.
19.36  Evidence.
19.37  Post-hearing filings.
19.38  Recommended decision and filing of record.
19.39  Exceptions to recommended decision.
19.40  Review by the Comptroller.
19.41  Stays pending judicial review.

            Subpart B--Procedural Rules for OCC Adjudications

19.100  Filing documents.
19.101  Delegation to OFIA.

   Subpart C--Removals, Suspensions, and Prohibitions When a Crime Is 
                   Charged or a Conviction is Obtained

19.110  Scope.
19.111  Suspension or removal.
19.112  Informal hearing.
19.113  Recommended and final decisions.

  Subpart D--Exemption Hearings Under Section 12(h) of the Securities 
                          Exchange Act of 1934

19.120  Scope.
19.121  Application for exemption.
19.122  Newspaper notice.
19.123  Informal hearing.
19.124  Decision of the Comptroller.

  Subpart E--Disciplinary Proceedings Involving the Federal Securities 
                                  Laws

19.130  Scope.
19.131  Notice of charges and answer.
19.132  Disciplinary orders.
19.135  Applications for stay or review of disciplinary actions imposed 
          by registered clearing agencies.

   Subpart F--Civil Money Penalty Authority Under the Securities Laws

19.140  Scope.

     Subpart G--Cease-and-Desist Authority Under the Securities Laws

19.150  Scope.

                    Subpart H--Change in Bank Control

19.160  Scope.
19.161  Notice of disapproval and hearing initiation.

             Subpart I--Discovery Depositions and Subpoenas

19.170  Discovery depositions.
19.171  Deposition subpoenas.

                    Subpart J--Formal Investigations

19.180  Scope.
19.181  Confidentiality of formal investigations.
19.182  Order to conduct a formal investigation.
19.183  Rights of witnesses.
19.184  Service of subpoena and payment of witness expenses.

    Subpart K--Parties and Representational Practice Before the OCC; 
                          Standards of Conduct

19.190  Scope.
19.191  Definitions.
19.192  Sanctions relating to conduct in an adjudicatory proceeding.
19.193  Censure, suspension or debarment.
19.194  Eligibility of attorneys and accountants to practice.
19.195  Incompetence.
19.196  Disreputable conduct.
19.197  Initiation of disciplinary proceeding.
19.198  Conferences.
19.199  Proceedings under this subpart.
19.200  Effect of suspension, debarment or censure.
19.201  Petition for reinstatement.

                 Subpart L--Equal Access to Justice Act

19.210  Scope.

 Subpart M--Procedures for Reclassifying a Bank Based on Criteria Other 
                              Than Capital

19.220  Scope.
19.221  Reclassification of a bank based on unsafe or unsound condition 
          or practice.
19.222  Request for rescission of reclassification.

   Subpart N--Order To Dismiss a Director or Senior Executive Officer

19.230  Scope.
19.231  Order to dismiss a director or senior executive officer.

           Subpart O-Civil Money Penalty Inflation Adjustments

19.240  Inflation adjustments.
19.241  Applicability.


[[Page 160]]


    Authority: 5 U.S.C. 504, 554-557; 12 U.S.C. 93(b), 164, 505, 1817, 
1818, 1820, 1831o, 1972, 3102, 3108(a), 3909 and 4717; 15 U.S.C. 78 (h) 
and (i), 78o-4(c), 78o-5, 78q-1, 78u, 78u-2, 78u-3, and 78w; 28 U.S.C. 
2461 note; 31 U.S.C. 330 and 5321; and 42 U.S.C. 4012a.

    Source: 56 FR 38028, Aug. 9, 1991, unless otherwise noted.



           Subpart A--Uniform Rules of Practice and Procedure



Sec. 19.1  Scope.

    This subpart prescribes Uniform Rules of practice and procedure 
applicable to adjudicatory proceedings required to be conducted on the 
record after opportunity for a hearing under the following statutory 
provisions:
    (a) Cease-and-desist proceedings under section 8(b) of the Federal 
Deposit Insurance Act (``FDIA'') (12 U.S.C. 1818(b));
    (b) Removal and prohibition proceedings under section 8(e) of the 
FDIA (12 U.S.C. 1818(e));
    (c) Change-in-control proceedings under section 7(j)(4) of the FDIA 
(12 U.S.C. 1817(j)(4)) to determine whether the Office of the 
Comptroller of the Currency (``OCC'') should issue an order to approve 
or disapprove a person's proposed acquisition of an institution;
    (d) Proceedings under section 15C(c)(2) of the Securities Exchange 
Act of 1934 (``Exchange Act'') (15 U.S.C. 78o-5), to impose sanctions 
upon any government securities broker or dealer or upon any person 
associated or seeking to become associated with a government securities 
broker or dealer for which the OCC is the appropriate agency;
    (e) Assessment of civil money penalties by the OCC against 
institutions, institution-affiliated parties, and certain other persons 
for which it is the appropriate agency for any violation of:
    (1) Any provision of law referenced in 12 U.S.C. 93, or any 
regulation issued thereunder, and certain unsafe or unsound practices 
and breaches of fiduciary duty, pursuant to 12 U.S.C. 93;
    (2) Sections 22 and 23 of the Federal Reserve Act (``FRA''), or any 
regulation issued thereunder, and certain unsafe or unsound practices 
and breaches of fiduciary duty, pursuant to 12 U.S.C. 504 and 505;
    (3) Section 106(b) of the Bank Holding CompanyAmendments of 1970, 
pursuant to 12 U.S.C. 1972(2)(F);
    (4) Any provision of the Change in Bank Control Act of 1978 or any 
regulation or order issued thereunder, and certain unsafe or unsound 
practices and breaches of fiduciary duty, pursuant to 12 U.S.C. 
1817(j)(16);
    (5) Any provision of the International Lending Supervision Act of 
1983 (``ILSA''), or any rule, regulation or order issued thereunder, 
pursuant to 12 U.S.C. 3909;
    (6) Any provision of the International Banking Act of 1978 
(``IBA''), or any rule, regulation or order issued thereunder, pursuant 
to 12 U.S.C. 3108;
    (7) Section 5211 of the Revised Statutes (12 U.S.C. 161), pursuant 
to 12 U.S.C. 164;
    (8) Certain provisions of the Exchange Act, pursuant to section 21B 
of the Exchange Act (15 U.S.C. 78u-2);
    (9) Section 1120 of the Financial Institutions Reform, Recovery, and 
Enforcement Act of 1989 (``FIRREA'') (12 U.S.C. 3349), or any order or 
regulation issued thereunder;
    (10) The terms of any final or temporary order issued under section 
8 of the FDIA or any written agreement executed by the OCC, the terms of 
any condition imposed in writing by the OCC in connection with the grant 
of an application or request, certain unsafe or unsound practices, 
breaches of fiduciary duty, or any law or regulation not otherwise 
provided herein, pursuant to 12 U.S.C. 1818(i)(2);
    (11) Any provision of law referenced in section 102(f) of the Flood 
Disaster Protection Act of 1973 (42 U.S.C. 4012a(f)) or any order or 
regulation issued thereunder; and
    (12) Any provision of law referenced in 31 U.S.C. 5321 or any order 
or regulation issued thereunder;
    (f) Remedial action under section 102(g) of the Flood Disaster 
Protection Act of 1973 (42 U.S.C. 4012a(g)); and
    (g) This subpart also applies to all other adjudications required by 
statute to be determined on the record after

[[Page 161]]

opportunity for an agency hearing, unless otherwise specifically 
provided for in the Local Rules.

[56 FR 38028, Aug. 9, 1991, as amended at 61 FR 20334, May 6, 1996]



Sec. 19.2  Rules of construction.

    For purposes of this part:
    (a) Any term in the singular includes the plural, and the plural 
includes the singular, if such use would be appropriate;
    (b) Any use of a masculine, feminine, or neuter gender encompasses 
all three, if such use would be appropriate;
    (c) The term counsel includes a non-attorney representative; and
    (d) Unless the context requires otherwise, a party's counsel of 
record, if any, may, on behalf of that party, take any action required 
to be taken by the party.



Sec. 19.3  Definitions.

    For purposes of this part, unless explicitly stated to the contrary:
    (a) Administrative law judge means one who presides at an 
administrative hearing under authority set forth at 5 U.S.C. 556.
    (b) Adjudicatory proceeding means a proceeding conducted pursuant to 
these rules and leading to the formulation of a final order other than a 
regulation.
    (c) Comptroller means the Comptroller of the Currency or a person 
delegated to perform the functions of the Comptroller of the Currency 
under this part.
    (d) Decisional employee means any member of the Comptroller's or 
administrative law judge's staff who has not engaged in an investigative 
or prosecutorial role in a proceeding and who may assist the Comptroller 
or the administrative law judge, respectively, in preparing orders, 
recommended decisions, decisions, and other documents under the Uniform 
Rules.
    (e) Enforcement Counsel means any individual who files a notice of 
appearance as counsel on behalf of the OCC in an adjudicatory 
proceeding.
    (f) Final order means an order issued by the Comptroller with or 
without the consent of the affected institution or the institution-
affiliated party, that has become final, without regard to the pendency 
of any petition for reconsideration or review.
    (g) Institution includes any national bank, District of Columbia 
bank, or Federal branch or agency of a foreign bank.
    (h) Institution-affiliated party means any institution- affiliated 
party as that term is defined in section 3(u) of the FDIA (12 U.S.C. 
1813(u)).
    (i) Local Rules means those rules promulgated by the OCC in the 
subparts of this part excluding subpart A.
    (j) OCC means the Office of the Comptroller of the Currency.
    (k) OFIA means the Office of Financial Institution Adjudication, the 
executive body charged with overseeing the administration of 
administrative enforcement proceedings for the OCC, the Board of 
Governors of the Federal Reserve System (``Board of Governors''), the 
Federal Deposit Insurance Corporation (``FDIC''), the Office of Thrift 
Supervision (``OTS''), and the National Credit Union Administration 
(``NCUA'').
    (l) Party means the OCC and any person named as a party in any 
notice.
    (m) Person means an individual, sole proprietor, partnership, 
corporation, unincorporated association, trust, joint venture, pool, 
syndicate, agency or other entity or organization, including an 
institution as defined in paragraph (g) of this section.
    (n) Respondent means any party other than the OCC.
    (o) Uniform Rules means those rules in subpart A of this part that 
are common to the OCC, the Board of Governors, the FDIC, the OTS, and 
the NCUA.
    (p) Violation includes any action (alone or with another or others) 
for or toward causing, bringing about, participating in, counseling, or 
aiding or abetting a violation.



Sec. 19.4  Authority of the Comptroller.

    The Comptroller may, at any time during the pendency of a 
proceeding, perform, direct the performance of, or waive performance of, 
any act which could be done or ordered by the administrative law judge.

[[Page 162]]



Sec. 19.5  Authority of the administrative law judge.

    (a) General rule. All proceedings governed by this part shall be 
conducted in accordance with the provisions of chapter 5 of title 5 of 
the United States Code. The administrative law judge shall have all 
powers necessary to conduct a proceeding in a fair and impartial manner 
and to avoid unnecessary delay.
    (b) Powers. The administrative law judge shall have all powers 
necessary to conduct the proceeding in accordance with paragraph (a) of 
this section, including the following powers:
    (1) To administer oaths and affirmations;
    (2) To issue subpoenas, subpoenas duces tecum, and protective 
orders, as authorized by this part, and to quash or modify any such 
subpoenas and orders;
    (3) To receive relevant evidence and to rule upon the admission of 
evidence and offers of proof;
    (4) To take or cause depositions to be taken as authorized by this 
subpart;
    (5) To regulate the course of the hearing and the conduct of the 
parties and their counsel;
    (6) To hold scheduling and/or pre-hearing conferences as set forth 
in Sec. 19.31;
    (7) To consider and rule upon all procedural and other motions 
appropriate in an adjudicatory proceeding, provided that only the 
Comptroller shall have the power to grant any motion to dismiss the 
proceeding or to decide any other motion that results in a final 
determination of the merits of the proceeding;
    (8) To prepare and present to the Comptroller a recommended decision 
as provided herein;
    (9) To recuse himself or herself by motion made by a party or on his 
or her own motion;
    (10) To establish time, place and manner limitations on the 
attendance of the public and the media for any public hearing; and
    (11) To do all other things necessary and appropriate to discharge 
the duties of a presiding officer.

[56 FR 38028, Aug. 9, 1991; 56 FR 41726, Aug. 22, 1991]



Sec. 19.6  Appearance and practice in adjudicatory proceedings.

    (a) Appearance before the OCC or an administrative law judge--(1) By 
attorneys. Any member in good standing of the bar of the highest court 
of any state, commonwealth, possession, territory of the United States, 
or the District of Columbia may represent others before the OCC if such 
attorney is not currently suspended or debarred from practice before the 
OCC.
    (2) By non-attorneys. An individual may appear on his or her own 
behalf; a member of a partnership may represent the partnership; a duly 
authorized officer, director, or employee of any government unit, 
agency, institution, corporation or authority may represent that unit, 
agency, institution, corporation or authority if such officer, director, 
or employee is not currently suspended or debarred from practice before 
the OCC.
    (3) Notice of appearance. Any individual acting as counsel on behalf 
of a party, including the Comptroller, shall file a notice of appearance 
with OFIA at or before the time that the individual submits papers or 
otherwise appears on behalf of a party in the adjudicatory proceeding. 
The notice of appearance must include a written declaration that the 
individual is currently qualified as provided in paragraph (a)(1) or 
(a)(2) of this section and is authorized to represent the particular 
party. By filing a notice of appearance on behalf of a party in an 
adjudicatory proceeding, the counsel agrees and represents that he or 
she is authorized to accept service on behalf of the represented party 
and that, in the event of withdrawal from representation, he or she 
will, if required by the administrative law judge, continue to accept 
service until new counsel has filed a notice of appearance or until the 
represented party indicates that he or she will proceed on a pro se 
basis.
    (b) Sanctions. Dilatory, obstructionist, egregious, contemptuous or 
contumacious conduct at any phase of any adjudicatory proceeding may be 
grounds for exclusion or suspension of counsel from the proceeding.

[56 FR 38028, Aug. 9, 1991; 56 FR 41726, Aug. 22, 1991; 56 FR 63551, 
Dec. 4, 1991; 61 FR 20334, May 6, 1996]

[[Page 163]]



Sec. 19.7  Good faith certification.

    (a) General requirement. Every filing or submission of record 
following the issuance of a notice shall be signed by at least one 
counsel of record in his or her individual name and shall state that 
counsel's address and telephone number. A party who acts as his or her 
own counsel shall sign his or her individual name and state his or her 
address and telephone number on every filing or submission of record.
    (b) Effect of signature. (1) The signature of counsel or a party 
shall constitute a certification that: the counsel or party has read the 
filing or submission of record; to the best of his or her knowledge, 
information, and belief formed after reasonable inquiry, the filing or 
submission of record is well-grounded in fact and is warranted by 
existing law or a good faith argument for the extension, modification, 
or reversal of existing law; and the filing or submission of record is 
not made for any improper purpose, such as to harass or to cause 
unnecessary delay or needless increase in the cost of litigation.
    (2) If a filing or submission of record is not signed, the 
administrative law judge shall strike the filing or submission of 
record, unless it is signed promptly after the omission is called to the 
attention of the pleader or movant.
    (c) Effect of making oral motion or argument. The act of making any 
oral motion or oral argument by any counsel or party constitutes a 
certification that to the best of his or her knowledge, information, and 
belief formed after reasonable inquiry, his or her statements are well-
grounded in fact and are warranted by existing law or a good faith 
argument for the extension, modification, or reversal of existing law, 
and are not made for any improper purpose, such as to harass or to cause 
unnecessary delay or needless increase in the cost of litigation.



Sec. 19.8  Conflicts of interest.

    (a) Conflict of interest in representation. No person shall appear 
as counsel for another person in an adjudicatory proceeding if it 
reasonably appears that such representation may be materially limited by 
that counsel's responsibilities to a third person or by the counsel's 
own interests. The administrative law judge may take corrective measures 
at any stage of a proceeding to cure a conflict of interest in 
representation, including the issuance of an order limiting the scope of 
representation or disqualifying an individual from appearing in a 
representative capacity for the duration of the proceeding.
    (b) Certification and waiver. If any person appearing as counsel 
represents two or more parties to an adjudicatory proceeding or also 
represents a non-party on a matter relevant to an issue in the 
proceeding, counsel must certify in writing at the time of filing the 
notice of appearance required by Sec. 19.6(a):
    (1) That the counsel has personally and fully discussed the 
possibility of conflicts of interest with each such party and non-party; 
and
    (2) That each such party and non-party waives any right it might 
otherwise have had to assert any known conflicts of interest or to 
assert any non-material conflicts of interest during the course of the 
proceeding.

[56 FR 38028, Aug. 9, 1991, as amended at 61 FR 20334, May 6, 1996]



Sec. 19.9  Ex parte communications.

    (a) Definition--(1) Ex parte communication means any material oral 
or written communication relevant to the merits of an adjudicatory 
proceeding that was neither on the record nor on reasonable prior notice 
to all parties that takes place between:
    (i) An interested person outside the OCC (including such person's 
counsel); and
    (ii) The administrative law judge handling that proceeding, the 
Comptroller, or a decisional employee.
    (2) Exception. A request for status of the proceeding does not 
constitute an ex parte communication.
    (b) Prohibition of ex parte communications. From the time the notice 
is issued by the Comptroller until the date that the Comptroller issues 
his or her final decision pursuant to Sec. 19.40(c):
    (1) No interested person outside the OCC shall make or knowingly 
cause to be made an ex parte communication to the Comptroller, the 
administrative

[[Page 164]]

law judge, or a decisional employee; and
    (2) The Comptroller, administrative law judge, or decisional 
employee shall not make or knowingly cause to be made to any interested 
person outside the OCC any ex parte communication.
    (c) Procedure upon occurrence of ex parte communication. If an ex 
parte communication is received by the administrative law judge, the 
Comptroller or any other person identified in paragraph (a) of this 
section, that person shall cause all such written communications (or, if 
the communication is oral, a memorandum stating the substance of the 
communication) to be placed on the record of the proceeding and served 
on all parties. All other parties to the proceeding shall have an 
opportunity, within ten days of receipt of service of the ex parte 
communication, to file responses thereto and to recommend any sanctions, 
in accordance with paragraph (d) of this section, that they believe to 
be appropriate under the circumstances.
    (d) Sanctions. Any party or his or her counsel who makes a 
prohibited ex parte communication, or who encourages or solicits another 
to make any such communication, may be subject to any appropriate 
sanction or sanctions imposed by the Comptroller or the administrative 
law judge including, but not limited to, exclusion from the proceedings 
and an adverse ruling on the issue which is the subject of the 
prohibited communication.
    (e) Separation of functions. Except to the extent required for the 
disposition of ex parte matters as authorized by law, the administrative 
law judge may not consult a person or party on any matter relevant to 
the merits of the adjudication, unless on notice and opportunity for all 
parties to participate. An employee or agent engaged in the performance 
of investigative or prosecuting functions for the OCC in a case may not, 
in that or a factually related case, participate or advise in the 
decision, recommended decision, or agency review of the recommended 
decision under Sec. 19.40, except as witness or counsel in public 
proceedings.

[56 FR 38028, Aug. 9, 1991, as amended at 60 FR 30184, June 8, 1995]



Sec. 19.10  Filing of papers.

    (a) Filing. Any papers required to be filed, excluding documents 
produced in response to a discovery request pursuant to Secs. 19.25 and 
19.26, shall be filed with OFIA, except as otherwise provided.
    (b) Manner of filing. Unless otherwise specified by the Comptroller 
or the administrative law judge, filing may be accomplished by:
    (1) Personal service;
    (2) Delivering the papers to a reliable commercial courier service, 
overnight delivery service, or to the U.S. Post Office for Express Mail 
delivery;
    (3) Mailing the papers by first class, registered, or certified 
mail; or
    (4) Transmission by electronic media, only if expressly authorized, 
and upon any conditions specified, by the Comptroller or the 
administrative law judge. All papers filed by electronic media shall 
also concurrently be filed in accordance with paragraph (c) of this 
section.
    (c) Formal requirements as to papers filed--(1) Form. All papers 
filed must set forth the name, address, and telephone number of the 
counsel or party making the filing and must be accompanied by a 
certification setting forth when and how service has been made on all 
other parties. All papers filed must be double-spaced and printed or 
typewritten on 8\1/2\ x 11 inch paper, and must be clear and legible.
    (2) Signature. All papers must be dated and signed as provided in 
Sec. 19.7.
    (3) Caption. All papers filed must include at the head thereof, or 
on a title page, the name of the OCC and of the filing party, the title 
and docket number of the proceeding, and the subject of the particular 
paper.
    (4) Number of copies. Unless otherwise specified by the Comptroller 
or the administrative law judge, an original and one copy of all 
documents and papers shall be filed, except that only one copy of 
transcripts of testimony and exhibits shall be filed.



Sec. 19.11  Service of papers.

    (a) By the parties. Except as otherwise provided, a party filing 
papers shall serve a copy upon the counsel of record for all other 
parties to the proceeding

[[Page 165]]

so represented, and upon any party not so represented.
    (b) Method of service. Except as provided in paragraphs (c)(2) and 
(d) of this section, a serving party shall use one or more of the 
following methods of service:
    (1) Personal service;
    (2) Delivering the papers to a reliable commercial courier service, 
overnight delivery service, or to the U.S. Post Office for Express Mail 
delivery;
    (3) Mailing the papers by first class, registered, or certified 
mail; or
    (4) Transmission by electronic media, only if the parties mutually 
agree. Any papers served by electronic media shall also concurrently be 
served in accordance with the requirements of Sec. 19.10(c).
    (c) By the Comptroller or the administrative law judge. (1) All 
papers required to be served by the Comptroller or the administrative 
law judge upon a party who has appeared in the proceeding in accordance 
with Sec. 19.6 shall be served by any means specified in paragraph (b) 
of this section.
    (2) If a party has not appeared in the proceeding in accordance with 
Sec. 19.6, the Comptroller or the administrative law judge shall make 
service by any of the following methods:
    (i) By personal service;
    (ii) If the person to be served is an individual, by delivery to a 
person of suitable age and discretion at the physical location where the 
individual resides or works;
    (iii) If the person to be served is a corporation or other 
association, by delivery to an officer, managing or general agent, or to 
any other agent authorized by appointment or by law to receive service 
and, if the agent is one authorized by statute to receive service and 
the statute so requires, by also mailing a copy to the party;
    (iv) By registered or certified mail addressed to the person's last 
known address; or
    (v) By any other method reasonably calculated to give actual notice.
    (d) Subpoenas. Service of a subpoena may be made:
    (1) By personal service;
    (2) If the person to be served is an individual, by delivery to a 
person of suitable age and discretion at the physical location where the 
individual resides or works;
    (3) By delivery to an agent, which, in the case of a corporation or 
other association, is delivery to an officer, managing or general agent, 
or to any other agent authorized by appointment or by law to receive 
service and, if the agent is one authorized by statute to receive 
service and the statute so requires, by also mailing a copy to the 
party;
    (4) By registered or certified mail addressed to the person's last 
known address; or
    (5) By any other method reasonably calculated to give actual notice.
    (e) Area of service. Service in any state, territory, possession of 
the United States, or the District of Columbia, on any person or company 
doing business in any state, territory, possession of the United States, 
or the District of Columbia, or on any person as otherwise provided by 
law, is effective without regard to the place where the hearing is held, 
provided that if service is made on a foreign bank in connection with an 
action or proceeding involving one or more of its branches or agencies 
located in any state, territory, possession of the United States, or the 
District of Columbia, service shall be made on at least one branch or 
agency so involved.

[56 FR 38028, Aug. 9, 1991, as amended at 61 FR 20334, May 6, 1996]



Sec. 19.12  Construction of time limits.

    (a) General rule. In computing any period of time prescribed by this 
subpart, the date of the act or event that commences the designated 
period of time is not included. The last day so computed is included 
unless it is a Saturday, Sunday, or Federal holiday. When the last day 
is a Saturday, Sunday, or Federal holiday, the period runs until the end 
of the next day that is not a Saturday, Sunday, or Federal holiday. 
Intermediate Saturdays, Sundays, and Federal holidays are included in 
the computation of time. However, when the time period within which an 
act is to be performed is ten days or less, not including any additional 
time allowed for in paragraph (c) of this section, intermediate 
Saturdays, Sundays, and Federal holidays are not included.

[[Page 166]]

    (b) When papers are deemed to be filed or served. (1) Filing and 
service are deemed to be effective:
    (i) In the case of personal service or same day commercial courier 
delivery, upon actual service;
    (ii) In the case of overnight commercial delivery service, U.S. 
Express Mail delivery, or first class, registered, or certified mail, 
upon deposit in or delivery to an appropriate point of collection;
    (iii) In the case of transmission by electronic media, as specified 
by the authority receiving the filing, in the case of filing, and as 
agreed among the parties, in the case of service.
    (2) The effective filing and service dates specified in paragraph 
(b)(1) of this section may be modified by the Comptroller or 
administrative law judge in the case of filing or by agreement of the 
parties in the case of service.
    (c) Calculation of time for service and filing of responsive papers. 
Whenever a time limit is measured by a prescribed period from the 
service of any notice or paper, the applicable time limits are 
calculated as follows:
    (1) If service is made by first class, registered, or certified 
mail, add three calendar days to the prescribed period;
    (2) If service is made by express mail or overnight delivery 
service, add one calendar day to the prescribed period; or
    (3) If service is made by electronic media transmission, add one 
calendar day to the prescribed period, unless otherwise determined by 
the Comptroller or the administrative law judge in the case of filing, 
or by agreement among the parties in the case of service.

[56 FR 38028, Aug. 9, 1991, as amended at 61 FR 20335, May 6, 1996]



Sec. 19.13  Change of time limits.

    Except as otherwise provided by law, the administrative law judge 
may, for good cause shown, extend the time limits prescribed by the 
Uniform Rules or by any notice or order issued in the proceedings. After 
the referral of the case to the Comptroller pursuant to Sec. 19.38, the 
Comptroller may grant extensions of the time limits for good cause 
shown. Extensions may be granted at the motion of a party after notice 
and opportunity to respond is afforded all non-moving parties or on the 
Comptroller's or the administrative law judge's own motion.



Sec. 19.14  Witness fees and expenses.

    Witnesses subpoenaed for testimony or depositions shall be paid the 
same fees for attendance and mileage as are paid in the United States 
district courts in proceedings in which the United States is a party, 
provided that, in the case of a discovery subpoena addressed to a party, 
no witness fees or mileage need be paid. Fees for witnesses shall be 
tendered in advance by the party requesting the subpoena, except that 
fees and mileage need not be tendered in advance where the OCC is the 
party requesting the subpoena. The OCC shall not be required to pay any 
fees to, or expenses of, any witness not subpoenaed by the OCC.



Sec. 19.15  Opportunity for informal settlement.

    Any respondent may, at any time in the proceeding, unilaterally 
submit to Enforcement Counsel written offers or proposals for settlement 
of a proceeding, without prejudice to the rights of any of the parties. 
No such offer or proposal shall be made to any OCC representative other 
than Enforcement Counsel. Submission of a written settlement offer does 
not provide a basis for adjourning or otherwise delaying all or any 
portion of a proceeding under this part. No settlement offer or 
proposal, or any subsequent negotiation or resolution, is admissible as 
evidence in any proceeding.



Sec. 19.16  OCC's right to conduct examination.

    Nothing contained in this subpart limits in any manner the right of 
the OCC to conduct any examination, inspection, or visitation of any 
institution or institution-affiliated party, or the right of the OCC to 
conduct or continue any form of investigation authorized by law.



Sec. 19.17  Collateral attacks on adjudicatory proceeding.

    If an interlocutory appeal or collateral attack is brought in any 
court

[[Page 167]]

concerning all or any part of an adjudicatory proceeding, the challenged 
adjudicatory proceeding shall continue without regard to the pendency of 
that court proceeding. No default or other failure to act as directed in 
the adjudicatory proceeding within the times prescribed in this subpart 
shall be excused based on the pendency before any court of any 
interlocutory appeal or collateral attack.

[56 FR 38028, Aug. 9, 1991; 56 FR 41726, Aug. 22, 1991]



Sec. 19.18  Commencement of proceeding and contents of notice.

    (a) Commencement of proceeding. (1)(i) Except for change-in-control 
proceedings under section 7(j)(4) of the FDIA, 12 U.S.C. 1817(j)(4), a 
proceeding governed by this subpart is commenced by issuance of a notice 
by the Comptroller.
    (ii) The notice must be served by the Comptroller upon the 
respondent and given to any other appropriate financial institution 
supervisory authority where required by law.
    (iii) The notice must be filed with OFIA.
    (2) Change-in control proceedings under section 7(j)(4) of the FDIA 
(12 U.S.C. 1817(j)(4)) commence with the issuance of an order by the 
Comptroller.
    (b) Contents of notice. The notice must set forth:
    (1) The legal authority for the proceeding and for the OCC's 
jurisdiction over the proceeding;
    (2) A statement of the matters of fact or law showing that the OCC 
is entitled to relief;
    (3) A proposed order or prayer for an order granting the requested 
relief;
    (4) The time, place, and nature of the hearing as required by law or 
regulation;
    (5) The time within which to file an answer as required by law or 
regulation;
    (6) The time within which to request a hearing as required by law or 
regulation; and
    (7) That the answer and/or request for a hearing shall be filed with 
OFIA.



Sec. 19.19  Answer.

    (a) When. Within 20 days of service of the notice, respondent shall 
file an answer as designated in the notice. In a civil money penalty 
proceeding, respondent shall also file a request for a hearing within 20 
days of service of the notice.
    (b) Content of answer. An answer must specifically respond to each 
paragraph or allegation of fact contained in the notice and must admit, 
deny, or state that the party lacks sufficient information to admit or 
deny each allegation of fact. A statement of lack of information has the 
effect of a denial. Denials must fairly meet the substance of each 
allegation of fact denied; general denials are not permitted. When a 
respondent denies part of an allegation, that part must be denied and 
the remainder specifically admitted. Any allegation of fact in the 
notice which is not denied in the answer must be deemed admitted for 
purposes of the proceeding. A respondent is not required to respond to 
the portion of a notice that constitutes the prayer for relief or 
proposed order. The answer must set forth affirmative defenses, if any, 
asserted by the respondent.
    (c) Default--(1) Effect of failure to answer. Failure of a 
respondent to file an answer required by this section within the time 
provided constitutes a waiver of his or her right to appear and contest 
the allegations in the notice. If no timely answer is filed, Enforcement 
Counsel may file a motion for entry of an order of default. Upon a 
finding that no good cause has been shown for the failure to file a 
timely answer, the administrative law judge shall file with the 
Comptroller a recommended decision containing the findings and the 
relief sought in the notice. Any final order issued by the Comptroller 
based upon a respondent's failure to answer is deemed to be an order 
issued upon consent.
    (2) Effect of failure to request a hearing in civil money penalty 
proceedings. If respondent fails to request a hearing as required by law 
within the time provided, the notice of assessment constitutes a final 
and unappealable order.

[[Page 168]]



Sec. 19.20  Amended pleadings.

    (a) Amendments. The notice or answer may be amended or supplemented 
at any stage of the proceeding. The respondent must answer an amended 
notice within the time remaining for the respondent's answer to the 
original notice, or within ten days after service of the amended notice, 
whichever period is longer, unless the Comptroller or administrative law 
judge orders otherwise for good cause.
    (b) Amendments to conform to the evidence. When issues not raised in 
the notice or answer are tried at the hearing by express or implied 
consent of the parties, they will be treated in all respects as if they 
had been raised in the notice or answer, and no formal amendments are 
required. If evidence is objected to at the hearing on the ground that 
it is not within the issues raised by the notice or answer, the 
administrative law judge may admit the evidence when admission is likely 
to assist in adjudicating the merits of the action and the objecting 
party fails to satisfy the administrative law judge that the admission 
of such evidence would unfairly prejudice that party's action or defense 
upon the merits. The administrative law judge may grant a continuance to 
enable the objecting party to meet such evidence.

[61 FR 20335, May 6, 1996]



Sec. 19.21  Failure to appear.

    Failure of a respondent to appear in person at the hearing or by a 
duly authorized counsel constitutes a waiver of respondent's right to a 
hearing and is deemed an admission of the facts as alleged and consent 
to the relief sought in the notice. Without further proceedings or 
notice to the respondent, the administrative law judge shall file with 
the Comptroller a recommended decision containing the findings and the 
relief sought in the notice.



Sec. 19.22  Consolidation and severance of actions.

    (a) Consolidation. (1) On the motion of any party, or on the 
administrative law judge's own motion, the administrative law judge may 
consolidate, for some or all purposes, any two or more proceedings, if 
each such proceeding involves or arises out of the same transaction, 
occurrence or series of transactions or occurrences, or involves at 
least one common respondent or a material common question of law or 
fact, unless such consolidation would cause unreasonable delay or 
injustice.
    (2) In the event of consolidation under paragraph (a)(1) of this 
section, appropriate adjustment to the prehearing schedule must be made 
to avoid unnecessary expense, inconvenience, or delay.
    (b) Severance. The administrative law judge may, upon the motion of 
any party, sever the proceeding for separate resolution of the matter as 
to any respondent only if the administrative law judge finds that:
    (1) Undue prejudice or injustice to the moving party would result 
from not severing the proceeding; and
    (2) Such undue prejudice or injustice would outweigh the interests 
of judicial economy and expedition in the complete and final resolution 
of the proceeding.



Sec. 19.23  Motions.

    (a) In writing. (1) Except as otherwise provided herein, an 
application or request for an order or ruling must be made by written 
motion.
    (2) All written motions must state with particularity the relief 
sought and must be accompanied by a proposed order.
    (3) No oral argument may be held on written motions except as 
otherwise directed by the administrative law judge. Written memoranda, 
briefs, affidavits or other relevant material or documents may be filed 
in support of or in opposition to a motion.
    (b) Oral motions. A motion may be made orally on the record unless 
the administrative law judge directs that such motion be reduced to 
writing.
    (c) Filing of motions. Motions must be filed with the administrative 
law judge, except that following the filing of the recommended decision, 
motions must be filed with the Comptroller.
    (d) Responses. (1) Except as otherwise provided herein, within ten 
days after service of any written motion, or within such other period of 
time as may be established by the administrative law judge or the 
Comptroller, any party

[[Page 169]]

may file a written response to a motion. The administrative law judge 
shall not rule on any oral or written motion before each party has had 
an opportunity to file a response.
    (2) The failure of a party to oppose a written motion or an oral 
motion made on the record is deemed a consent by that party to the entry 
of an order substantially in the form of the order accompanying the 
motion.
    (e) Dilatory motions. Frivolous, dilatory or repetitive motions are 
prohibited. The filing of such motions may form the basis for sanctions.
    (f) Dispositive motions. Dispositive motions are governed by 
Secs. 19.29 and 19.30.



Sec. 19.24  Scope of document discovery.

    (a) Limits on discovery. (1) Subject to the limitations set out in 
paragraphs (b), (c), and (d) of this section, a party to a proceeding 
under this subpart may obtain document discovery by serving a written 
request to produce documents. For purposes of a request to produce 
documents, the term ``documents'' may be defined to include drawings, 
graphs, charts, photographs, recordings, data stored in electronic form, 
and other data compilations from which information can be obtained, or 
translated, if necessary, by the parties through detection devices into 
reasonably usable form, as well as written material of all kinds.
    (2) Discovery by use of deposition is governed by subpart I of this 
part.
    (3) Discovery by use of interrogatories is not permitted.
    (b) Relevance. A party may obtain document discovery regarding any 
matter, not privileged, that has material relevance to the merits of the 
pending action. Any request to produce documents that calls for 
irrelevant material, that is unreasonable, oppressive, excessive in 
scope, unduly burdensome, or repetitive of previous requests, or that 
seeks to obtain privileged documents will be denied or modified. A 
request is unreasonable, oppressive, excessive in scope, or unduly 
burdensome if, among other things, it fails to include justifiable 
limitations on the time period covered and the geographic locations to 
be searched, the time provided to respond in the request is inadequate, 
or the request calls for copies of documents to be delivered to the 
requesting party and fails to include the requestor's written agreement 
to pay in advance for the copying, in accordance with Sec. 19.25.
    (c) Privileged matter. Privileged documents are not discoverable. 
Privileges include the attorney-client privilege, work-product 
privilege, any government's or government agency's deliberative process 
privilege, and any other privileges the Constitution, any applicable act 
of Congress, or the principles of common law provide.
    (d) Time limits. All discovery, including all responses to discovery 
requests, shall be completed at least 20 days prior to the date 
scheduled for the commencement of the hearing, except as provided in the 
Local Rules. No exceptions to this time limit shall be permitted, unless 
the administrative law judge finds on the record that good cause exists 
for waiving the requirements of this paragraph.

[56 FR 38028, Aug. 9, 1991, as amended at 61 FR 20335, May 6, 1996]



Sec. 19.25  Request for document discovery from parties.

    (a) General rule. Any party may serve on any other party a request 
to produce for inspection any discoverable documents that are in the 
possession, custody, or control of the party upon whom the request is 
served. The request must identify the documents to be produced either by 
individual item or by category, and must describe each item and category 
with reasonable particularity. Documents must be produced as they are 
kept in the usual course of business or must be organized to correspond 
with the categories in the request.
    (b) Production or copying. The request must specify a reasonable 
time, place, and manner for production and performing any related acts. 
In lieu of inspecting the documents, the requesting party may specify 
that all or some of the responsive documents be copied and the copies 
delivered to the requesting party. If copying of fewer than 250 pages is 
requested, the party to whom the request is addressed shall bear the 
cost of copying and shipping charges. If a party requests 250 pages or 
more of copying, the requesting party shall pay

[[Page 170]]

for the copying and shipping charges. Copying charges are the current 
per-page copying rate imposed by 12 CFR part 4 implementing the Freedom 
of Information Act (5 U.S.C. 552). The party to whom the request is 
addressed may require payment in advance before producing the documents.
    (c) Obligation to update responses. A party who has responded to a 
discovery request with a response that was complete when made is not 
required to supplement the response to include documents thereafter 
acquired, unless the responding party learns that:
    (1) The response was materially incorrect when made; or
    (2) The response, though correct when made, is no longer true and a 
failure to amend the response is, in substance, a knowing concealment.
    (d) Motions to limit discovery. (1) Any party that objects to a 
discovery request may, within ten days of being served with such 
request, file a motion in accordance with the provisions of Sec. 19.23 
to strike or otherwise limit the request. If an objection is made to 
only a portion of an item or category in a request, the portion objected 
to shall be specified. Any objections not made in accordance with this 
paragraph and Sec. 19.23 are waived.
    (2) The party who served the request that is the subject of a motion 
to strike or limit may file a written response within five days of 
service of the motion. No other party may file a response.
    (e) Privilege. At the time other documents are produced, the 
producing party must reasonably identify all documents withheld on the 
grounds of privilege and must produce a statement of the basis for the 
assertion of privilege. When similar documents that are protected by 
deliberative process, attorney work-product, or attorney-client 
privilege are voluminous, these documents may be identified by category 
instead of by individual document. The administrative law judge retains 
discretion to determine when the identification by category is 
insufficient.
    (f) Motions to compel production. (1) If a party withholds any 
documents as privileged or fails to comply fully with a discovery 
request, the requesting party may, within ten days of the assertion of 
privilege or of the time the failure to comply becomes known to the 
requesting party, file a motion in accordance with the provisions of 
Sec. 19.23 for the issuance of a subpoena compelling production.
    (2) The party who asserted the privilege or failed to comply with 
the request may file a written response to a motion to compel within 
five days of service of the motion. No other party may file a response.
    (g) Ruling on motions. After the time for filing responses pursuant 
to this section has expired, the administrative law judge shall rule 
promptly on all motions filed pursuant to this section. If the 
administrative law judge determines that a discovery request, or any of 
its terms, calls for irrelevant material, is unreasonable, oppressive, 
excessive in scope, unduly burdensome, or repetitive of previous 
requests, or seeks to obtain privileged documents, he or she may deny or 
modify the request, and may issue appropriate protective orders, upon 
such conditions as justice may require. The pendency of a motion to 
strike or limit discovery or to compel production is not a basis for 
staying or continuing the proceeding, unless otherwise ordered by the 
administrative law judge. Notwithstanding any other provision in this 
part, the administrative law judge may not release, or order a party to 
produce, documents withheld on grounds of privilege if the party has 
stated to the administrative law judge its intention to file a timely 
motion for interlocutory review of the administrative law judge's order 
to produce the documents, and until the motion for interlocutory review 
has been decided.
    (h) Enforcing discovery subpoenas. If the administrative law judge 
issues a subpoena compelling production of documents by a party, the 
subpoenaing party may, in the event of noncompliance and to the extent 
authorized by applicable law, apply to any appropriate United States 
district court for an order requiring compliance with the subpoena. A 
party's right to seek court enforcement of a subpoena shall not in any 
manner limit the sanctions that may be imposed by the administrative

[[Page 171]]

law judge against a party who fails to produce subpoenaed documents.

[56 FR 38028, Aug. 9, 1991, as amended at 61 FR 20335, May 6, 1996]



Sec. 19.26  Document subpoenas to nonparties.

    (a) General rules. (1) Any party may apply to the administrative law 
judge for the issuance of a document discovery subpoena addressed to any 
person who is not a party to the proceeding. The application must 
contain a proposed document subpoena and a brief statement showing the 
general relevance and reasonableness of the scope of documents sought. 
The subpoenaing party shall specify a reasonable time, place, and manner 
for making production in response to the document subpoena.
    (2) A party shall only apply for a document subpoena under this 
section within the time period during which such party could serve a 
discovery request under Sec. 19.24(d). The party obtaining the document 
subpoena is responsible for serving it on the subpoenaed person and for 
serving copies on all parties. Document subpoenas may be served in any 
state, territory, or possession of the United States, the District of 
Columbia, or as otherwise provided by law.
    (3) The administrative law judge shall promptly issue any document 
subpoena requested pursuant to this section. If the administrative law 
judge determines that the application does not set forth a valid basis 
for the issuance of the subpoena, or that any of its terms are 
unreasonable, oppressive, excessive in scope, or unduly burdensome, he 
or she may refuse to issue the subpoena or may issue it in a modified 
form upon such conditions as may be consistent with the Uniform Rules.
    (b) Motion to quash or modify. (1) Any person to whom a document 
subpoena is directed may file a motion to quash or modify such subpoena, 
accompanied by a statement of the basis for quashing or modifying the 
subpoena. The movant shall serve the motion on all parties, and any 
party may respond to such motion within ten days of service of the 
motion.
    (2) Any motion to quash or modify a document subpoena must be filed 
on the same basis, including the assertion of privilege, upon which a 
party could object to a discovery request under Sec. 19.25(d), and 
during the same time limits during which such an objection could be 
filed.
    (c) Enforcing document subpoenas. If a subpoenaed person fails to 
comply with any subpoena issued pursuant to this section or any order of 
the administrative law judge which directs compliance with all or any 
portion of a document subpoena, the subpoenaing party or any other 
aggrieved party may, to the extent authorized by applicable law, apply 
to an appropriate United States district court for an order requiring 
compliance with so much of the document subpoena as the administrative 
law judge has not quashed or modified. A party's right to seek court 
enforcement of a document subpoena shall in no way limit the sanctions 
that may be imposed by the administrative law judge on a party who 
induces a failure to comply with subpoenas issued under this section.



Sec. 19.27  Deposition of witness unavailable for hearing.

    (a) General rules. (1) If a witness will not be available for the 
hearing, a party desiring to preserve that witness' testimony for the 
record may apply in accordance with the procedures set forth in 
paragraph (a)(2) of this section, to the administrative law judge for 
the issuance of a subpoena, including a subpoena duces tecum, requiring 
the attendance of the witness at a deposition. The administrative law 
judge may issue a deposition subpoena under this section upon showing 
that:
    (i) The witness will be unable to attend or may be prevented from 
attending the hearing because of age, sickness or infirmity, or will 
otherwise be unavailable;
    (ii) The witness' unavailability was not procured or caused by the 
subpoenaing party;
    (iii) The testimony is reasonably expected to be material; and
    (iv) Taking the deposition will not result in any undue burden to 
any other party and will not cause undue delay of the proceeding.
    (2) The application must contain a proposed deposition subpoena and 
a

[[Page 172]]

brief statement of the reasons for the issuance of the subpoena. The 
subpoena must name the witness whose deposition is to be taken and 
specify the time and place for taking the deposition. A deposition 
subpoena may require the witness to be deposed at any place within the 
country in which that witness resides or has a regular place of 
employment or such other convenient place as the administrative law 
judge shall fix.
    (3) Any requested subpoena that sets forth a valid basis for its 
issuance must be promptly issued, unless the administrative law judge on 
his or her own motion, requires a written response or requires 
attendance at a conference concerning whether the requested subpoena 
should be issued.
    (4) The party obtaining a deposition subpoena is responsible for 
serving it on the witness and for serving copies on all parties. Unless 
the administrative law judge orders otherwise, no deposition under this 
section shall be taken on fewer than ten days' notice to the witness and 
all parties. Deposition subpoenas may be served in any state, territory, 
possession of the United States, or the District of Columbia, on any 
person or company doing business in any state, territory, possession of 
the United States, or the District of Columbia, or as otherwise 
permitted by law.
    (b) Objections to deposition subpoenas. (1) The witness and any 
party who has not had an opportunity to oppose a deposition subpoena 
issued under this section may file a motion with the administrative law 
judge to quash or modify the subpoena prior to the time for compliance 
specified in the subpoena, but not more than ten days after service of 
the subpoena.
    (2) A statement of the basis for the motion to quash or modify a 
subpoena issued under this section must accompany the motion. The motion 
must be served on all parties.
    (c) Procedure upon deposition. (1) Each witness testifying pursuant 
to a deposition subpoena must be duly sworn, and each party shall have 
the right to examine the witness. Objections to questions or documents 
must be in short form, stating the grounds for the objection. Failure to 
object to questions or documents is not deemed a waiver except where the 
ground for the objection might have been avoided if the objection had 
been timely presented. All questions, answers, and objections must be 
recorded.
    (2) Any party may move before the administrative law judge for an 
order compelling the witness to answer any questions the witness has 
refused to answer or submit any evidence the witness has refused to 
submit during the deposition.
    (3) The deposition must be subscribed by the witness, unless the 
parties and the witness, by stipulation, have waived the signing, or the 
witness is ill, cannot be found, or has refused to sign. If the 
deposition is not subscribed by the witness, the court reporter taking 
the deposition shall certify that the transcript is a true and complete 
transcript of the deposition.
    (d) Enforcing subpoenas. If a subpoenaed person fails to comply with 
any order of the administrative law judge which directs compliance with 
all or any portion of a deposition subpoena under paragraph (b) or 
(c)(3) of this section, the subpoenaing party or other aggrieved party 
may, to the extent authorized by applicable law, apply to an appropriate 
United States district court for an order requiring compliance with the 
portions of the subpoena that the administrative law judge has ordered 
enforced. A party's right to seek court enforcement of a deposition 
subpoena in no way limits the sanctions that may be imposed by the 
administrative law judge on a party who fails to comply with, or 
procures a failure to comply with, a subpoena issued under this section.



Sec. 19.28  Interlocutory review.

    (a) General rule. The Comptroller may review a ruling of the 
administrative law judge prior to the certification of the record to the 
Comptroller only in accordance with the procedures set forth in this 
section and Sec. 19.23.
    (b) Scope of review. The Comptroller may exercise interlocutory 
review of a ruling of the administrative law judge if the Comptroller 
finds that:
    (1) The ruling involves a controlling question of law or policy as 
to which

[[Page 173]]

substantial grounds exist for a difference of opinion;
    (2) Immediate review of the ruling may materially advance the 
ultimate termination of the proceeding;
    (3) Subsequent modification of the ruling at the conclusion of the 
proceeding would be an inadequate remedy; or
    (4) Subsequent modification of the ruling would cause unusual delay 
or expense.
    (c) Procedure. Any request for interlocutory review shall be filed 
by a party with the administrative law judge within ten days of his or 
her ruling and shall otherwise comply with Sec. 19.23. Any party may 
file a response to a request for interlocutory review in accordance with 
Sec. 19.23(d). Upon the expiration of the time for filing all responses, 
the administrative law judge shall refer the matter to the Comptroller 
for final disposition.
    (d) Suspension of proceeding. Neither a request for interlocutory 
review nor any disposition of such a request by the Comptroller under 
this section suspends or stays the proceeding unless otherwise ordered 
by the administrative law judge or the Comptroller.



Sec. 19.29  Summary disposition.

    (a) In general. The administrative law judge shall recommend that 
the Comptroller issue a final order granting a motion for summary 
disposition if the undisputed pleaded facts, admissions, affidavits, 
stipulations, documentary evidence, matters as to which official notice 
may be taken, and any other evidentiary materials properly submitted in 
connection with a motion for summary disposition show that:
    (1) There is no genuine issue as to any material fact; and
    (2) The moving party is entitled to a decision in its favor as a 
matter of law.
    (b) Filing of motions and responses. (1) Any party who believes 
there is no genuine issue of material fact to be determined and that he 
or she is entitled to a decision as a matter of law may move at any time 
for summary disposition in its favor of all or any part of the 
proceeding. Any party, within 20 days after service of such a motion, or 
within such time period as allowed by the administrative law judge, may 
file a response to such motion.
    (2) A motion for summary disposition must be accompanied by a 
statement of the material facts as to which the moving party contends 
there is no genuine issue. Such motion must be supported by documentary 
evidence, which may take the form of admissions in pleadings, 
stipulations, depositions, investigatory depositions, transcripts, 
affidavits and any other evidentiary materials that the moving party 
contends support his or her position. The motion must also be 
accompanied by a brief containing the points and authorities in support 
of the contention of the moving party. Any party opposing a motion for 
summary disposition must file a statement setting forth those material 
facts as to which he or she contends a genuine dispute exists. Such 
opposition must be supported by evidence of the same type as that 
submitted with the motion for summary disposition and a brief containing 
the points and authorities in support of the contention that summary 
disposition would be inappropriate.
    (c) Hearing on motion. At the request of any party or on his or her 
own motion, the administrative law judge may hear oral argument on the 
motion for summary disposition.
    (d) Decision on motion. Following receipt of a motion for summary 
disposition and all responses thereto, the administrative law judge 
shall determine whether the moving party is entitled to summary 
disposition. If the administrative law judge determines that summary 
disposition is warranted, the administrative law judge shall submit a 
recommended decision to that effect to the Comptroller. If the 
administrative law judge finds that no party is entitled to summary 
disposition, he or she shall make a ruling denying the motion.



Sec. 19.30  Partial summary disposition.

    If the administrative law judge determines that a party is entitled 
to summary disposition as to certain claims only, he or she shall defer 
submitting a recommended decision as to those claims. A hearing on the 
remaining issues must be ordered. Those claims for which the 
administrative law judge

[[Page 174]]

has determined that summary disposition is warranted will be addressed 
in the recommended decision filed at the conclusion of the hearing.



Sec. 19.31  Scheduling and prehearing conferences.

    (a) Scheduling conference. Within 30 days of service of the notice 
or order commencing a proceeding or such other time as parties may 
agree, the administrative law judge shall direct counsel for all parties 
to meet with him or her in person at a specified time and place prior to 
the hearing or to confer by telephone for the purpose of scheduling the 
course and conduct of the proceeding. This meeting or telephone 
conference is called a ``scheduling conference.'' The identification of 
potential witnesses, the time for and manner of discovery, and the 
exchange of any prehearing materials including witness lists, statements 
of issues, stipulations, exhibits and any other materials may also be 
determined at the scheduling conference.
    (b) Prehearing conferences. The administrative law judge may, in 
addition to the scheduling conference, on his or her own motion or at 
the request of any party, direct counsel for the parties to meet with 
him or her (in person or by telephone) at a prehearing conference to 
address any or all of the following:
    (1) Simplification and clarification of the issues;
    (2) Stipulations, admissions of fact, and the contents, authenticity 
and admissibility into evidence of documents;
    (3) Matters of which official notice may be taken;
    (4) Limitation of the number of witnesses;
    (5) Summary disposition of any or all issues;
    (6) Resolution of discovery issues or disputes;
    (7) Amendments to pleadings; and
    (8) Such other matters as may aid in the orderly disposition of the 
proceeding.
    (c) Transcript. The administrative law judge, in his or her 
discretion, may require that a scheduling or prehearing conference be 
recorded by a court reporter. A transcript of the conference and any 
materials filed, including orders, becomes part of the record of the 
proceeding. A party may obtain a copy of the transcript at his or her 
expense.
    (d) Scheduling or prehearing orders. At or within a reasonable time 
following the conclusion of the scheduling conference or any prehearing 
conference, the administrative law judge shall serve on each party an 
order setting forth any agreements reached and any procedural 
determinations made.



Sec. 19.32  Prehearing submissions.

    (a) Within the time set by the administrative law judge, but in no 
case later than 14 days before the start of the hearing, each party 
shall serve on every other party, his or her:
    (1) Prehearing statement;
    (2) Final list of witnesses to be called to testify at the hearing, 
including name and address of each witness and a short summary of the 
expected testimony of each witness;
    (3) List of the exhibits to be introduced at the hearing along with 
a copy of each exhibit; and
    (4) Stipulations of fact, if any.
    (b) Effect of failure to comply. No witness may testify and no 
exhibits may be introduced at the hearing if such witness or exhibit is 
not listed in the prehearing submissions pursuant to paragraph (a) of 
this section, except for good cause shown.



Sec. 19.33  Public hearings.

    (a) General rule. All hearings shall be open to the public, unless 
the Comptroller, in the Comptroller's discretion, determines that 
holding an open hearing would be contrary to the public interest. Within 
20 days of service of the notice or, in the case of change-in-control 
proceedings under section 7(j)(4) of the FDIA (12 U.S.C. 1817(j)(4)), 
within 20 days from service of the hearing order, any respondent may 
file with the Comptroller a request for a private hearing, and any party 
may file a reply to such a request. A party must serve on the 
administrative law judge a copy of any request or reply the party files 
with the Comptroller. The form of, and procedure for, these requests and 
replies are governed by Sec. 19.23. A party's

[[Page 175]]

failure to file a request or a reply constitutes a waiver of any 
objections regarding whether the hearing will be public or private.
    (b) Filing document under seal. Enforcement Counsel, in his or her 
discretion, may file any document or part of a document under seal if 
disclosure of the document would be contrary to the public interest. The 
administrative law judge shall take all appropriate steps to preserve 
the confidentiality of such documents or parts thereof, including 
closing portions of the hearing to the public.

[56 FR 38028, Aug. 9, 1991, as amended at 61 FR 20336, May 6, 1996]



Sec. 19.34  Hearing subpoenas.

    (a) Issuance. (1) Upon application of a party showing general 
relevance and reasonableness of scope of the testimony or other evidence 
sought, the administrative law judge may issue a subpoena or a subpoena 
duces tecum requiring the attendance of a witness at the hearing or the 
production of documentary or physical evidence at the hearing. The 
application for a hearing subpoena must also contain a proposed subpoena 
specifying the attendance of a witness or the production of evidence 
from any state, territory, or possession of the United States, the 
District of Columbia, or as otherwise provided by law at any designated 
place where the hearing is being conducted. The party making the 
application shall serve a copy of the application and the proposed 
subpoena on every other party.
    (2) A party may apply for a hearing subpoena at any time before the 
commencement of a hearing. During a hearing, a party may make an 
application for a subpoena orally on the record before the 
administrative law judge.
    (3) The administrative law judge shall promptly issue any hearing 
subpoena requested pursuant to this section. If the administrative law 
judge determines that the application does not set forth a valid basis 
for the issuance of the subpoena, or that any of its terms are 
unreasonable, oppressive, excessive in scope, or unduly burdensome, he 
or she may refuse to issue the subpoena or may issue it in a modified 
form upon any conditions consistent with this subpart. Upon issuance by 
the administrative law judge, the party making the application shall 
serve the subpoena on the person named in the subpoena and on each 
party.
    (b) Motion to quash or modify. (1) Any person to whom a hearing 
subpoena is directed or any party may file a motion to quash or modify 
the subpoena, accompanied by a statement of the basis for quashing or 
modifying the subpoena. The movant must serve the motion on each party 
and on the person named in the subpoena. Any party may respond to the 
motion within ten days of service of the motion.
    (2) Any motion to quash or modify a hearing subpoena must be filed 
prior to the time specified in the subpoena for compliance but not more 
than ten days after the date of service of the subpoena upon the movant.
    (c) Enforcing subpoenas. If a subpoenaed person fails to comply with 
any subpoena issued pursuant to this section or any order of the 
administrative law judge which directs compliance with all or any 
portion of a document subpoena, the subpoenaing party or any other 
aggrieved party may seek enforcement of the subpoena pursuant to 
Sec. 19.26(c).

[56 FR 38028, Aug. 9, 1991, as amended at 61 FR 20336, May 6, 1996]



Sec. 19.35  Conduct of hearings.

    (a) General rules. (1) Hearings shall be conducted so as to provide 
a fair and expeditious presentation of the relevant disputed issues. 
Each party has the right to present its case or defense by oral and 
documentary evidence and to conduct such cross examination as may be 
required for full disclosure of the facts.
    (2) Order of hearing. Enforcement Counsel shall present its case-in-
chief first, unless otherwise ordered by the administrative law judge, 
or unless otherwise expressly specified by law or regulation. 
Enforcement Counsel shall be the first party to present an opening 
statement and a closing statement, and may make a rebuttal statement 
after the respondent's closing statement. If there are multiple 
respondents, respondents may agree among themselves as to their order of 
presentation

[[Page 176]]

of their cases, but if they do not agree, the administrative law judge 
shall fix the order.
    (3) Examination of witnesses. Only one counsel for each party may 
conduct an examination of a witness, except that in the case of 
extensive direct examination, the administrative law judge may permit 
more than one counsel for the party presenting the witness to conduct 
the examination. A party may have one counsel conduct the direct 
examination and another counsel conduct re-direct examination of a 
witness, or may have one counsel conduct the cross examination of a 
witness and another counsel conduct the re-cross examination of a 
witness.
    (4) Stipulations. Unless the administrative law judge directs 
otherwise, all stipulations of fact and law previously agreed upon by 
the parties, and all documents, the admissibility of which have been 
previously stipulated, will be admitted into evidence upon commencement 
of the hearing.
    (b) Transcript. The hearing must be recorded and transcribed. The 
reporter will make the transcript available to any party upon payment by 
that party to the reporter of the cost of the transcript. The 
administrative law judge may order the record corrected, either upon 
motion to correct, upon stipulation of the parties, or following notice 
to the parties upon the administrative law judge's own motion.

[56 FR 38028, Aug. 9, 1991, as amended at 61 FR 20336, May 6, 1996]



Sec. 19.36  Evidence.

    (a) Admissibility. (1) Except as is otherwise set forth in this 
section, relevant, material, and reliable evidence that is not unduly 
repetitive is admissible to the fullest extent authorized by the 
Administrative Procedure Act and other applicable law.
    (2) Evidence that would be admissible under the Federal Rules of 
Evidence is admissible in a proceeding conducted pursuant to this 
subpart.
    (3) Evidence that would be inadmissible under the Federal Rules of 
Evidence may not be deemed or ruled to be inadmissible in a proceeding 
conducted pursuant to this subpart if such evidence is relevant, 
material, reliable and not unduly repetitive.
    (b) Official notice. (1) Official notice may be taken of any 
material fact which may be judicially noticed by a United States 
district court and any material information in the official public 
records of any Federal or state government agency.
    (2) All matters officially noticed by the administrative law judge 
or the Comptroller shall appear on the record.
    (3) If official notice is requested or taken of any material fact, 
the parties, upon timely request, shall be afforded an opportunity to 
object.
    (c) Documents. (1) A duplicate copy of a document is admissible to 
the same extent as the original, unless a genuine issue is raised as to 
whether the copy is in some material respect not a true and legible copy 
of the original.
    (2) Subject to the requirements of paragraph (a) of this section, 
any document, including a report of examination, supervisory activity, 
inspection or visitation, prepared by an appropriate Federal financial 
institutions regulatory agency or by a state regulatory agency, is 
admissible either with or without a sponsoring witness.
    (3) Witnesses may use existing or newly created charts, exhibits, 
calendars, calculations, outlines or other graphic material to 
summarize, illustrate, or simplify the presentation of testimony. Such 
materials may, subject to the administrative law judge's discretion, be 
used with or without being admitted into evidence.
    (d) Objections. (1) Objections to the admissibility of evidence must 
be timely made and rulings on all objections must appear on the record.
    (2) When an objection to a question or line of questioning 
propounded to a witness is sustained, the examining counsel may make a 
specific proffer on the record of what he or she expected to prove by 
the expected testimony of the witness either by representation of 
counsel or by direct interrogation of the witness.
    (3) The administrative law judge shall retain rejected exhibits, 
adequately marked for identification, for the record, and transmit such 
exhibits to the Comptroller.
    (4) Failure to object to admission of evidence or to any ruling 
constitutes a waiver of the objection.

[[Page 177]]

    (e) Stipulations. The parties may stipulate as to any relevant 
matters of fact or the authentication of any relevant documents. Such 
stipulations must be received in evidence at a hearing and are binding 
on the parties with respect to the matters therein stipulated.
    (f) Depositions of unavailable witnesses. (1) If a witness is 
unavailable to testify at a hearing, and that witness has testified in a 
deposition to which all parties in a proceeding had notice and an 
opportunity to participate, a party may offer as evidence all or any 
part of the transcript of the deposition, including deposition exhibits, 
if any.
    (2) Such deposition transcript is admissible to the same extent that 
testimony would have been admissible had that person testified at the 
hearing, provided that if a witness refused to answer proper questions 
during the depositions, the administrative law judge may, on that basis, 
limit the admissibility of the deposition in any manner that justice 
requires.
    (3) Only those portions of a deposition received in evidence at the 
hearing constitute a part of the record.



Sec. 19.37  Post-hearing filings.

    (a) Proposed findings and conclusions and supporting briefs. (1) 
Using the same method of service for each party, the administrative law 
judge shall serve notice upon each party that the certified transcript, 
together with all hearing exhibits and exhibits introduced but not 
admitted into evidence at the hearing, has been filed. Any party may 
file with the administrative law judge proposed findings of fact, 
proposed conclusions of law, and a proposed order within 30 days 
following service of this notice by the administrative law judge or 
within such longer period as may be ordered by the administrative law 
judge.
    (2) Proposed findings and conclusions must be supported by citation 
to any relevant authorities and by page references to any relevant 
portions of the record. A post-hearing brief may be filed in support of 
proposed findings and conclusions, either as part of the same document 
or in a separate document. Any party who fails to file timely with the 
administrative law judge any proposed finding or conclusion is deemed to 
have waived the right to raise in any subsequent filing or submission 
any issue not addressed in such party's proposed finding or conclusion.
    (b) Reply briefs. Reply briefs may be filed within 15 days after the 
date on which the parties' proposed findings, conclusions, and order are 
due. Reply briefs must be strictly limited to responding to new matters, 
issues, or arguments raised in another party's papers. A party who has 
not filed proposed findings of fact and conclusions of law or a post-
hearing brief may not file a reply brief.
    (c) Simultaneous filing required. The administrative law judge shall 
not order the filing by any party of any brief or reply brief in advance 
of the other party's filing of its brief.

[56 FR 38028, Aug. 9, 1991, as amended at 61 FR 20336, May 6, 1996]



Sec. 19.38  Recommended decision and filing of record.

    (a) Filing of recommended decision and record. Within 45 days after 
expiration of the time allowed for filing reply briefs under 
Sec. 19.37(b), the administrative law judge shall file with and certify 
to the Comptroller, for decision, the record of the proceeding. The 
record must include the administrative law judge's recommended decision, 
recommended findings of fact, recommended conclusions of law, and 
proposed order; all prehearing and hearing transcripts, exhibits, and 
rulings; and the motions, briefs, memoranda, and other supporting papers 
filed in connection with the hearing. The administrative law judge shall 
serve upon each party the recommended decision, findings, conclusions, 
and proposed order.
    (b) Filing of index. At the same time the administrative law judge 
files with and certifies to the Comptroller for final determination the 
record of the proceeding, the administrative law judge shall furnish to 
the Comptroller a certified index of the entire record of the 
proceeding. The certified index shall include, at a minimum, an entry 
for each paper, document or motion filed with the administrative law 
judge in the proceeding, the date of the filing, and the identity of the 
filer. The certified index shall also include an exhibit index 
containing, at a minimum,

[[Page 178]]

an entry consisting of exhibit number and title or description for: Each 
exhibit introduced and admitted into evidence at the hearing; each 
exhibit introduced but not admitted into evidence at the hearing; each 
exhibit introduced and admitted into evidence after the completion of 
the hearing; and each exhibit introduced but not admitted into evidence 
after the completion of the hearing.

[61 FR 20336, May 6, 1996]



Sec. 19.39  Exceptions to recommended decision.

    (a) Filing exceptions. Within 30 days after service of the 
recommended decision, findings, conclusions, and proposed order under 
Sec. 19.38, a party may file with the Comptroller written exceptions to 
the administrative law judge's recommended decision, findings, 
conclusions or proposed order, to the admission or exclusion of 
evidence, or to the failure of the administrative law judge to make a 
ruling proposed by a party. A supporting brief may be filed at the time 
the exceptions are filed, either as part of the same document or in a 
separate document.
    (b) Effect of failure to file or raise exceptions. (1) Failure of a 
party to file exceptions to those matters specified in paragraph (a) of 
this section within the time prescribed is deemed a waiver of objection 
thereto.
    (2) No exception need be considered by the Comptroller if the party 
taking exception had an opportunity to raise the same objection, issue, 
or argument before the administrative law judge and failed to do so.
    (c) Contents. (1) All exceptions and briefs in support of such 
exceptions must be confined to the particular matters in, or omissions 
from, the administrative law judge's recommendations to which that party 
takes exception.
    (2) All exceptions and briefs in support of exceptions must set 
forth page or paragraph references to the specific parts of the 
administrative law judge's recommendations to which exception is taken, 
the page or paragraph references to those portions of the record relied 
upon to support each exception, and the legal authority relied upon to 
support each exception.



Sec. 19.40  Review by the Comptroller.

    (a) Notice of submission to the Comptroller. When the Comptroller 
determines that the record in the proceeding is complete, the 
Comptroller shall serve notice upon the parties that the proceeding has 
been submitted to the Comptroller for final decision.
    (b) Oral argument before the Comptroller. Upon the initiative of the 
Comptroller or on the written request of any party filed with the 
Comptroller within the time for filing exceptions, the Comptroller may 
order and hear oral argument on the recommended findings, conclusions, 
decision, and order of the administrative law judge. A written request 
by a party must show good cause for oral argument and state reasons why 
arguments cannot be presented adequately in writing. A denial of a 
request for oral argument may be set forth in the Comptroller's final 
decision. Oral argument before the Comptroller must be on the record.
    (c) Comptroller's final decision. (1) Decisional employees may 
advise and assist the Comptroller in the consideration and disposition 
of the case. The final decision of the Comptroller will be based upon 
review of the entire record of the proceeding, except that the 
Comptroller may limit the issues to be reviewed to those findings and 
conclusions to which opposing arguments or exceptions have been filed by 
the parties.
    (2) The Comptroller shall render a final decision within 90 days 
after notification of the parties that the case has been submitted for 
final decision, or 90 days after oral argument, whichever is later, 
unless the Comptroller orders that the action or any aspect thereof be 
remanded to the administrative law judge for further proceedings. Copies 
of the final decision and order of the Comptroller shall be served upon 
each party to the proceeding, upon other persons required by statute, 
and, if directed by the Comptroller or required by statute, upon any 
appropriate state or Federal supervisory authority.



Sec. 19.41  Stays pending judicial review.

    The commencement of proceedings for judicial review of a final 
decision and order of the Comptroller may not, unless specifically 
ordered by the

[[Page 179]]

Comptroller or a reviewing court, operate as a stay of any order issued 
by the Comptroller. The Comptroller may, in his or her discretion, and 
on such terms as he or she finds just, stay the effectiveness of all or 
any part of an order pending a final decision on a petition for review 
of that order.



            Subpart B--Procedural Rules for OCC Adjudications



Sec. 19.100  Filing documents.

    All materials required to be filed with or referred to the 
Comptroller or the administrative law judge in any proceeding under this 
part must be filed with the Hearing Clerk, Office of the Comptroller of 
the Currency, 250 E Street, SW, Washington, DC 20219. Filings to be made 
with the Hearing Clerk include the notice and answer; motions and 
responses to motions; briefs; the record filed by the administrative law 
judge after the issuance of a recommended decision; the recommended 
decision filed by the administrative law judge following a motion for 
summary disposition (except that in removal and prohibition cases the 
administrative law judge will file the record and the recommended 
decision with the Board of Governors of the Federal Reserve System); 
referrals by the administrative law judge of motions for interlocutory 
review; exceptions and requests for oral argument; and any other papers 
required to be filed with the Comptroller or the administrative law 
judge under this part.

[61 FR 20337, May 6, 1996]



Sec. 19.101  Delegation to OFIA.

    Unless otherwise ordered by the Comptroller, administrative 
adjudications subject to subpart A of this part shall be conducted by an 
administrative law judge assigned to OFIA.



   Subpart C--Removals, Suspensions, and Prohibitions When a Crime Is 
                   Charged or a Conviction is Obtained



Sec. 19.110  Scope.

    This subpart applies to informal hearings afforded to any 
institution-affiliated party who has been suspended or removed from 
office or prohibited from further participation in bank affairs by a 
notice or order issued by the Comptroller.



Sec. 19.111  Suspension or removal.

    The Comptroller may serve a notice of suspension or order of removal 
or prohibition on an institution-affiliated party. A copy of such notice 
or order will be served on the bank, whereupon the institution-
affiliated party involved must immediately cease service to the bank or 
participation in the affairs of the bank. The notice or order will 
indicate the basis for suspension, removal or prohibition and will 
inform the institution-affiliated party of the right to request in 
writing, to be received by the OCC within 30 days from the date that the 
institution-affiliated party was served with such notice or order, an 
opportunity to show at an informal hearing that continued service to or 
participation in the conduct of the affairs of the bank does not, or is 
not likely to, pose a threat to the interest of the bank's depositors or 
threaten to impair public confidence in the bank. The written request 
must be sent by certified mail to, or served personally with a signed 
receipt on, the District Administrator in the OCC district in which the 
bank in question is located, or to the Deputy Comptroller for 
Multinational Banking, Office of the Comptroller of the Currency, 
Washington, DC 20219, if the bank is supervised by the Multinational 
Banking Department. The request must state specifically the relief 
desired and the grounds on which that relief is based.



Sec. 19.112  Informal hearing.

    (a) Issuance of hearing order. After receipt of a request for 
hearing, the District Deputy Comptroller or Administrator, the Deputy 
Comptroller for Multinational Banking, or the Deputy Comptroller or 
Director for Special Supervision, as appropriate, must notify the 
petitioner requesting the hearing, the OCC's Enforcement and Compliance 
Division, and the appropriate OCC District Counsel of the date, time, 
and place fixed for the hearing. The hearing must be scheduled to be 
held not later than 30 days from the date when a request for hearing is 
received unless the

[[Page 180]]

time is extended in response to a written request of the petitioner. The 
District Deputy Comptroller or Administrator, the Deputy Comptroller for 
Multinational Banking, or the Deputy Comptroller or Director for Special 
Supervision, as appropriate, may extend the hearing date only for a 
specific period of time and must take appropriate action to ensure that 
the hearing is not unduly delayed.
    (b) Appointment of presiding officer. The District Deputy 
Comptroller or Administrator, the Deputy Comptroller for Multinational 
Banking, or the Deputy Comptroller or Director for Special Supervision, 
as appropriate, must appoint one or more OCC employees as the presiding 
officer to conduct the hearing. The presiding officer(s) may not have 
been involved in the proceeding, a factually related proceeding, or the 
underlying enforcement action in a prosecutorial or investigative role.
    (c) Waiver of oral hearing--(1) Petitioner. When the petitioner 
requests a hearing, the petitioner may elect to have the matter 
determined by the presiding officer solely on the basis of written 
submissions by serving on the District Deputy Comptroller or 
Administrator, the Deputy Comptroller for Multinational Banking, or the 
Deputy Comptroller or Director for Special Supervision, as appropriate, 
and all parties, a signed document waiving the statutory right to appear 
and make oral argument. The petitioner must present the written 
submissions to the presiding officer, and serve the other parties, not 
later than ten days prior to the date fixed for the hearing, or within 
such shorter time period as the presiding officer may permit.
    (2) OCC. The OCC may respond to the petitioner's submissions by 
presenting the presiding officer with a written response, and by serving 
the other parties, not later than the date fixed for the hearing, or 
within such other time period as the presiding officer may require.
    (d) Hearing procedures--(1) Conduct of hearing. Hearings under this 
subpart are not subject to the provisions of subpart A of this part or 
the adjudicative provisions of the Administrative Procedure Act (5 
U.S.C. 554-557).
    (2) Powers of the presiding officer. The presiding officer shall 
determine all procedural issues that are governed by this subpart. The 
presiding officer may also permit or limit the number of witnesses and 
impose time limitations as he or she deems reasonable. The informal 
hearing will not be governed by the formal rules of evidence. All oral 
presentations, when permitted, and documents deemed by the presiding 
officer to be relevant and material to the proceeding and not unduly 
repetitious will be considered. The presiding officer may ask questions 
of any person participating in the hearing and may make any rulings 
reasonably necessary to facilitate the effective and efficient operation 
of the hearing.
    (3) Presentation. (i) The OCC may appear and the petitioner may 
appear personally or through counsel at the hearing to present relevant 
written materials and oral argument. Except as permitted in paragraph 
(c) of this section, each party, including the OCC, must file a copy of 
any affidavit, memorandum, or other written material to be presented at 
the hearing with the presiding officer and must serve the other parties 
not later than ten days prior to the hearing or within such shorter time 
period as permitted by the presiding officer.
    (ii) If the petitioner or the appointed OCC attorney desires to 
present oral testimony or witnesses at the hearing, he or she must file 
a written request with the presiding officer not later than ten days 
prior to the hearing, or within a shorter time period as permitted by 
the presiding officer. The names of proposed witnesses should be 
included, along with the general nature of the expected testimony, and 
the reasons why oral testimony is necessary. The presiding officer 
generally will not admit oral testimony or witnesses unless a specific 
and compelling need is demonstrated. Witnesses, if admitted, shall be 
sworn.
    (iii) In deciding on any suspension, the presiding officer shall not 
consider the ultimate question of the guilt or innocence of the 
individual with respect to the criminal charges which are outstanding. 
In deciding on any removal, the presiding officer shall not

[[Page 181]]

consider challenges to or efforts to impeach the validity of the 
conviction. The presiding officer may consider facts in either 
situation, however, which show the nature of the events on which the 
indictment or conviction was based.
    (4) Record. A transcript of the proceedings may be taken if the 
petitioner requests a transcript and agrees to pay all expenses or if 
the presiding officer determines that the nature of the case warrants a 
transcript. The presiding officer may order the record to be kept open 
for a reasonable period following the hearing, not to exceed five 
business days, to permit the petitioner or the appointed OCC attorney to 
submit additional documents for the record. Thereafter, no further 
submissions may be accepted except for good cause shown.

[56 FR 38028, Aug. 9, 1991, as amended at 61 FR 20337, May 6, 1996]



Sec. 19.113  Recommended and final decisions.

    (a) The presiding officer must issue a recommended decision to the 
Comptroller within 20 days of the conclusion of the hearing or, when the 
petitioner has waived an oral hearing, within 20 days of the date fixed 
for the hearing. The presiding officer must serve promptly a copy of the 
recommended decision on the parties to the proceeding. The decision must 
include a summary of the facts and arguments of the parties.
    (b) Each party may, within ten days of being served with the 
presiding officer's recommended decision, submit to the Comptroller 
comments on the recommended decision.
    (c) Within 60 days of the conclusion of the hearing or, when the 
petitioner has waived an oral hearing, within 60 days from the date 
fixed for the hearing, the Comptroller must notify the petitioner by 
registered mail whether the suspension or removal from office, and 
prohibition from participation in any manner in the affairs of the bank, 
will be affirmed, terminated, or modified. The Comptroller's decision 
must include a statement of reasons supporting the decision. The 
Comptroller's decision is a final and unappealable order.
    (d) A finding of not guilty or other disposition of the charge on 
which a notice of suspension was based does not preclude the Comptroller 
from thereafter instituting removal proceedings pursuant to section 8(e) 
of the FDIA (12 U.S.C. 1818(e)) and subpart: A of this part.
    (e) A removal or prohibition by order remains in effect until 
terminated by the Comptroller. A suspension or prohibition by notice 
remains in effect until the criminal charge is disposed of or until 
terminated by the Comptroller.
    (f) A suspended or removed individual may petition the Comptroller 
to reconsider the decision any time after the expiration of a 12-month 
period from the date of the decision, but no petition for 
reconsideration may be made within 12 months of a previous petition. The 
petition must state specifically the relief sought and the grounds 
therefor, and may be accompanied by a supporting memorandum and any 
other documentation the petitioner wishes to have considered. No hearing 
need be granted on the petition for reconsideration.

[56 FR 38028, Aug. 9, 1991, as amended at 61 FR 20337, May 6, 1996]



  Subpart D--Exemption Hearings Under Section 12(h) of the Securities 
                          Exchange Act of 1934



Sec. 19.120  Scope.

    The rules in this subpart apply to informal hearings that may be 
held by the Comptroller to determine whether, pursuant to authority in 
sections 12 (h) and (i) of the Exchange Act (15 U.S.C. 78l (h) and (i)), 
to exempt in whole or in part an issuer or a class of issuers from the 
provisions of section 12(g), or from section 13 or 14 of the Exchange 
Act (15 U.S.C. 78l(g), 78m or 78n), or whether to exempt from section 16 
of the Exchange Act (15 U.S.C. 78p) any officer, director, or beneficial 
owner of securities of an issuer. The only issuers covered by this 
subpart are banks whose securities are registered pursuant to section 
12(g) of the Exchange Act (15 U.S.C. 78l(g)). The Comptroller may deny 
an application for exemption without a hearing.

[[Page 182]]



Sec. 19.121  Application for exemption.

    An issuer or an individual (officer, director or shareholder) may 
submit a written application for an exemption order to the Securities 
and Corporate Practices Division, Office of the Comptroller of the 
Currency, Washington, DC 20219. The application must specify the type of 
exemption sought and the reasons therefor, including an explanation of 
why an exemption would not be inconsistent with the public interest or 
the protection of investors. The Securities and Corporate Practices 
Division shall inform the applicant in writing whether a hearing will be 
held to consider the matter.



Sec. 19.122  Newspaper notice.

    Upon being informed that an application will be considered at a 
hearing, the applicant shall publish a notice one time in a newspaper of 
general circulation in the community where the issuer's main office is 
located. The notice must state: the name and title of any individual 
applicants; the type of exemption sought; the fact that a hearing will 
be held; and a statement that interested persons may submit to the 
Securities and Corporate Practices Division, Office of the Comptroller 
of the Currency, Washington, DC 20219, within 30 days from the date of 
the newspaper notice, written comments concerning the application and a 
written request for an opportunity to be heard. The applicant shall 
promptly furnish a copy of the notice to the Securities and Corporate 
Practices Division, and to bank shareholders.



Sec. 19.123  Informal hearing.

    (a) Conduct of proceeding. The adjudicative provisions of the 
Administrative Procedure Act, formal rules of evidence and subpart A of 
this part do not apply to hearings conducted under this subpart, except 
as provided in Sec. 19.100(b).
    (b) Notice of hearing. Following the comment period, the Comptroller 
shall send a notice which fixes a date, time and place for hearing to 
each applicant and to any person who has requested an opportunity to be 
heard.
    (c) Presiding officer. The Comptroller shall designate a presiding 
officer to conduct the hearing. The presiding officer shall determine 
all procedural questions not governed by this subpart and may limit the 
number of witnesses and impose time and presentation limitations as are 
deemed reasonable. At the conclusion of the informal hearing, the 
presiding officer shall issue a recommended decision to the Comptroller 
as to whether the exemption should issue. The decision shall include a 
summary of the facts and arguments of the parties.
    (d) Attendance. The applicant and any person who has requested an 
opportunity to be heard may attend the hearing, with or without counsel. 
The hearing shall be open to the public. In addition, the applicant and 
any other hearing participant may introduce oral testimony through such 
witnesses as the presiding officer shall permit.
    (e) Order of presentation. (1) The applicant may present an opening 
statement of a length decided by the presiding officer. Then each of the 
hearing participants, or one among them selected with the approval of 
the presiding officer, may present an opening statement. The opening 
statement should summarize concisely what the applicant and each 
participant intends to show.
    (2) The applicant shall have an opportunity to make an oral 
presentation of facts and materials or submit written materials for the 
record. One or more of the hearing participants may make an oral 
presentation or a written submission.
    (3) After the above presentations, the applicant, followed by one or 
more of the hearing participants, may make concise summary statements 
reviewing their position.
    (f) Witnesses. The obtaining and use of witnesses is the 
responsibility of the parties afforded the hearing. All witnesses shall 
be present on their own volition, but any person appearing as a witness 
may be questioned by each applicant, any hearing participant, and the 
presiding officer. Witnesses shall be sworn unless otherwise directed by 
the presiding officer.
    (g) Evidence. The presiding officer may exclude data or materials 
deemed to be improper or irrelevant. Formal rules of evidence do not 
apply. Documentary material must be of a size

[[Page 183]]

consistent with ease of handling and filing. The presiding officer may 
determine the number of copies that must be furnished for purposes of 
the hearing.
    (h) Transcript. A transcript of each proceeding will be arranged by 
the OCC, with all expenses, including the furnishing of a copy to the 
presiding officer, being borne by the applicant.



Sec. 19.124  Decision of the Comptroller.

    Following the conclusion of the hearing and the submission of the 
record and the presiding officer's recommended decision to the 
Comptroller for decision, the Comptroller shall notify the applicant and 
all persons who have so requested in writing of the final disposition of 
the application. Exemptions granted must be in the form of an order 
which specifies the type of exemption granted and its terms and 
conditions.



  Subpart E--Disciplinary Proceedings Involving the Federal Securities 
                                  Laws



Sec. 19.130  Scope.

    (a) Except as provided in this subpart, subpart A of this part 
applies to proceedings by the Comptroller to determine whether, pursuant 
to authority contained in sections 15B(c)(5), 15C(c)(2)(A), 17A(c)(3), 
and 17A(c)(4)(C) of the Exchange Act (15 U.S.C. 78o-4(c)(5), 78o-
5(c)(2)(A), 78q-1(c)(3)(A), and 78q-1(c)(4)(C)), to take disciplinary 
action against the following:
    (1) A bank which is a municipal securities dealer, or any person 
associated or seeking to become associated with such a municipal 
securities dealer;
    (2) A bank which is a government securities broker or dealer, or any 
person associated with such government securities broker or dealer; or
    (3) A bank which is a transfer agent, or any person associated or 
seeking to become associated with such transfer agent.
    (b) In addition to the issuance of disciplinary orders after 
opportunity for hearing, the Comptroller or the Comptroller's delegate 
may issue and serve any notices and temporary or permanent cease-and-
desist orders and take any actions that are authorized by section 8 of 
the FDIA (12 U.S.C. 1818), sections 15B(c)(5), 15C(c)(2)(B), and 
17A(d)(2) of the Exchange Act, and other subparts of this part against 
the following:
    (1) The parties listed in paragraph (a) of this section; and
    (2) A bank which is a clearing agency.
    (c) Nothing in this subpart impairs the powers conferred on the 
Comptroller by other provisions of law.



Sec. 19.131  Notice of charges and answer.

    (a) Proceedings are commenced when the Comptroller serves a notice 
of charges on a bank or associated person. The notice must indicate the 
type of disciplinary action being contemplated and the grounds therefor, 
and fix a date, time and place for hearing. The hearing must be set for 
a date at least 30 days after service of the notice. A party served with 
a notice of charges may file an answer as prescribed in Sec. 19.19. Any 
party who fails to appear at a hearing personally or by a duly 
authorized representative shall be deemed to have consented to the 
issuance of a disciplinary order.
    (b) All proceedings under this subpart must be commenced, and the 
notice of charges must be filed, on a public basis, unless otherwise 
ordered by the Comptroller. Pursuant to Sec. 19.33(a), a request for a 
private hearing may be filed within 20 days of service of the notice.



Sec. 19.132  Disciplinary orders.

    (a) In the event of consent, or if on the record filed by the 
administrative law judge, the Comptroller finds that any act or omission 
or violation specified in the notice of charges has been established, 
the Comptroller may serve on the bank or persons concerned a 
disciplinary order, as provided in the Exchange Act. The order may:
    (1) Censure, limit the activities, functions or operations, or 
suspend or revoke the registration of a bank which is a municipal 
securities dealer;
    (2) Censure, suspend or bar any person associated or seeking to 
become associated with a municipal securities dealer;
    (3) Censure, limit the activities, functions or operations, or 
suspend or bar a

[[Page 184]]

bank which is a government securities broker or dealer;
    (4) Censure, limit the activities, functions or operations, or 
suspend or bar any person associated with a government securities broker 
or dealer;
    (5) Deny registration to, limit the activities, functions, or 
operations or suspend or revoke the registration of a bank which is a 
transfer agent; or
    (6) Censure or limit the activities or functions, or suspend or bar, 
any person associated or seeking to become associated with a transfer 
agent.
    (b) A disciplinary order is effective when served on the party or 
parties involved and remains effective and enforceable until it is 
stayed, modified, terminated, or set aside by action of the Comptroller 
or a reviewing court.



Sec. 19.135  Applications for stay or review of disciplinary actions imposed by registered clearing agencies.

    (a) Stays. The rules adopted by the Securities and Exchange 
Commission (SEC) pursuant to section 19 of the Securities Exchange Act 
of 1934 (15 U.S.C. 78s) regarding applications by persons for whom the 
SEC is the appropriate regulatory agency for stays of disciplinary 
sanctions or summary suspensions imposed by registered clearing agencies 
(17 CFR 240.19d-2) apply to applications by national banks. References 
to the ``Commission'' are deemed to refer to the ``OCC.''
    (b) Reviews. The regulations adopted by the SEC pursuant to section 
19 of the Securities Exchange Act of 1934 (15 U.S.C. 78s) regarding 
applications by persons for whom the SEC is the appropriate regulatory 
agency for reviews of final disciplinary sanctions, denials of 
participation, or prohibitions or limitations of access to services 
imposed by registered clearing agencies (17 CFR 240.19d-3(a)-(f)) apply 
to applications by national banks. References to the ``Commission'' are 
deemed to refer to the ``OCC.''

[61 FR 68559, Dec. 30, 1996]



   Subpart F--Civil Money Penalty Authority Under the Securities Laws



Sec. 19.140  Scope.

    (a) Except as provided in this subpart, subpart A of this part 
applies to proceedings by the Comptroller to determine whether, pursuant 
to authority contained in section 21B of the Exchange Act (15 U.S.C. 
78u-2), in proceedings commenced pursuant to sections 15B, 15C, and 17A 
of the Exchange Act (15 U.S.C. 78o-4, 78o-5, or 78q-1) for which the OCC 
is the appropriate regulatory agency under section 3(a)(34) of the 
Exchange Act (15 U.S.C. 78c(a)(34)), the Comptroller may impose a civil 
money penalty against the following:
    (1) A bank which is a municipal securities dealer, or any person 
associated or seeking to become associated with such a municipal 
securities dealer;
    (2) A bank which is a government securities broker or dealer, or any 
person associated with such government securities broker or dealer; or
    (3) A bank which is a transfer agent, or any person associated or 
seeking to become associated with such transfer agent.
    (b) All proceedings under this subpart must be commenced, and the 
notice of assessment must be filed, on a public basis, unless otherwise 
ordered by the Comptroller. Pursuant to Sec. 19.33(a), any request for a 
private hearing must be filed within 20 days of service of the notice.



     Subpart G--Cease-and-Desist Authority Under the Securities Laws



Sec. 19.150  Scope.

    (a) Except as provided in this subpart, subpart A of this part 
applies to proceedings by the Comptroller to determine whether, pursuant 
to authority contained in sections 12(i) and 21C of the Exchange Act (15 
U.S.C. 78l(i) and 78u-3), the Comptroller may initiate cease-and-desist 
proceedings against a national bank for violations of sections 12, 13, 
14(a), 14(c), 14(d), 14(f),

[[Page 185]]

and 16 of the Exchange Act or regulations or rules issued thereunder (15 
U.S.C. 78l, 78m, 78n(a), 78n(c), 78n(d), 78n(f), and 78p) .
    (b) All proceedings under this subpart must be commenced, and the 
notice of charges must be filed, on a public basis, unless otherwise 
ordered by the Comptroller. Pursuant to Sec. 19.33(a), any request for a 
private hearing must be filed within 20 days of service of the notice.



                    Subpart H--Change in Bank Control



Sec. 19.160  Scope.

    (a) Section 7(j) of the FDIA (12 U.S.C. 1817(j)) provides that no 
person may acquire control of an insured depository institution unless 
the appropriate Federal bank regulatory agency has been given prior 
written notice of the proposed acquisition. If, after investigating and 
soliciting comment on the proposed acquisition, the agency decides that 
the acquisition should be disapproved, the agency shall mail a written 
notification to the proposed acquiring person in writing within three 
days of the decision. The party can then request an agency hearing on 
the proposed acquisition. The OCC's procedures for reviewing notices of 
proposed acquisitions in change-in-control proceedings are set forth in 
Sec. 5.50 of this chapter.
    (b) Unless otherwise provided in this subpart, the rules in subpart 
A of this part set forth the procedures applicable to requests for OCC 
hearings.

[56 FR 38028, Aug. 9, 1991, as amended at 61 FR 20337, May 6, 1996]



Sec. 19.161  Notice of disapproval and hearing initiation.

    (a) Notice of disapproval. The OCC's written disapproval of a 
proposed acquisition of control of a national bank must:
    (1) Contain a statement of the basis for the disapproval; and
    (2) Indicate that the filer may request a hearing.
    (b) Hearing request. Following receipt of a notice of disapproval, a 
filer may request a hearing on the proposed acquisition. A hearing 
request must:
    (1) Be in writing; and
    (2) Be filed with the Hearing Clerk of the OCC within ten days after 
service on the filer of the notice of disapproval. If a filer fails to 
request a hearing with a timely written request, the notice of 
disapproval constitutes a final and unappealable order.
    (c) Hearing order. Following receipt of a hearing request, the 
Comptroller shall issue, within 20 days, an order that sets forth:
    (1) The legal authority for the proceeding and for the OCC's 
jurisdiction over the proceeding;
    (2) The matters of fact or law upon which the disapproval is based; 
and
    (3) The requirement for filing an answer to the hearing order with 
OFIA within 20 days after service of the hearing order.
    (d) Answer. An answer to a hearing order must specifically deny 
those portions of the order that are disputed. Those portions of the 
order that the filer does not specifically deny are deemed admitted by 
the filer. Any hearing under this subpart is limited to those portions 
of the order that are specifically denied.
    (e) Effect of failure to answer. Failure of a filer to file an 
answer within 20 days after service of the hearing order constitutes a 
waiver of the filer's right to appear and contest the allegations in the 
hearing order. If a filer does not file a timely answer, enforcement 
counsel may file a motion for entry of an order of default. Upon a 
finding that no good cause has been shown for the failure to file a 
timely answer, the administrative law judge shall file with the 
Comptroller a recommended decision containing the findings and the 
relief sought in the hearing order. Any final order issued by the 
Comptroller based upon a filer's failure to answer is deemed to be an 
order issued upon consent and is a final and unappealable order.

[61 FR 20337, May 6, 1996]

[[Page 186]]



             Subpart I--Discovery Depositions and Subpoenas



Sec. 19.170  Discovery depositions.

    (a) General rule. In any proceeding instituted under or subject to 
the provisions of subpart A of this part, a party may take the 
deposition of an expert, or of a person, including another party, who 
has direct knowledge of matters that are non-privileged, relevant, and 
material to the proceeding, and where there is need for the deposition. 
The deposition of experts shall be limited to those experts who are 
expected to testify at the hearing.
    (b) Notice. A party desiring to take a deposition shall give 
reasonable notice in writing to the deponent and to every other party to 
the proceeding. The notice must state the time and place for taking the 
deposition, and the name and address of the person to be deposed.
    (c) Time limits. A party may take depositions at any time after the 
commencement of the proceeding, but no later than ten days before the 
scheduled hearing date, except with permission of the administrative law 
judge for good cause shown.
    (d) Conduct of the deposition. The witness must be duly sworn, and 
each party will have the right to examine the witness with respect to 
all non-privileged, relevant, and material matters of which the witness 
has factual, direct, and personal knowledge. Objections to questions or 
exhibits must be in short form and must state the grounds for the 
objection. Failure to object to questions or exhibits is not a waiver 
except where the grounds for the objection might have been avoided if 
the objection had been timely presented.
    (e) Recording the testimony--(1) Generally. The party taking the 
deposition must have a certified court reporter record the witness's 
testimony:
    (i) By stenotype machine or electronic sound recording device;
    (ii) Upon agreement of the parties, by any other method; or
    (iii) For good cause and with leave of the administrative law judge, 
by any other method.
    (2) Cost. The party taking the deposition must bear the cost of the 
recording and transcribing the witness's testimony.
    (3) Transcript. Unless the parties agree that a transcription is not 
necessary, the court reporter must provide a transcript of the witness's 
testimony to the party taking the deposition and must make a copy of the 
transcript available to each party upon payment by that party of the 
cost of the copy.
    (f) Protective orders. At any time after notice of a deposition has 
been given, a party may file a motion for the issuance of a protective 
order. Such protective order may prohibit, terminate, or limit the scope 
or manner of the taking of a deposition. The administrative law judge 
shall grant such protective order upon a showing of sufficient grounds, 
including that the deposition:
    (1) Is unreasonable, oppressive, excessive in scope, or unduly 
burdensome;
    (2) Involves privileged, irrelevant, or immaterial matters;
    (3) Involves unwarranted attempts to pry into a party's preparation 
for trial; or
    (4) Is being conducted in bad faith or in such manner as to 
unreasonably annoy, embarrass, or oppress the witness.
    (g) Fees. Deposition witnesses, including expert witnesses, shall be 
paid the same expenses in the same manner as are paid witnesses in the 
district courts of the United States in proceedings in which the United 
States is a party. Expenses in accordance with this paragraph shall be 
paid by the party seeking to take the deposition.

[56 FR 38028, Aug. 9, 1991, as amended at 61 FR 20338, May 6, 1996]



Sec. 19.171  Deposition subpoenas.

    (a) Issuance. At the request of a party, the administrative law 
judge shall issue a subpoena requiring the attendance of a witness at a 
discovery deposition under paragraph (a) of this section. The attendance 
of a witness may be required from any place in any state or territory 
that is subject to the jurisdiction of the United States or as otherwise 
permitted by law.
    (b) Service--(1) Methods of service. The party requesting the 
subpoena must serve it on the person named therein,

[[Page 187]]

or on that person's counsel, by any of the methods identified in 
Sec. 19.11(d).
    (2) Proof of service. The party serving the subpoena must file proof 
of service with the administrative law judge.
    (c) Motion to quash. A person named in a subpoena may file a motion 
to quash or modify the subpoena. A statement of the reasons for the 
motion must accompany it and a copy of the motion must be served on the 
party which requested the subpoena. The motion must be made prior to the 
time for compliance specified in the subpoena and not more than ten days 
after the date of service of the subpoena, or if the subpoena is served 
within 15 days of the hearing, within five days after the date of 
service.
    (d) Enforcement of deposition subpoena. Enforcement of a deposition 
subpoena shall be in accordance with the procedures of Sec. 19.27(d).

[56 FR 38028, Aug. 9, 1991, as amended at 61 FR 20338, May 6, 1996]



                    Subpart J--Formal Investigations



Sec. 19.180  Scope.

    This subpart and Sec. 19.8 apply to formal investigations initiated 
by order of the Comptroller or the Comptroller's delegate and pertain to 
the exercise of powers specified in 12 U.S.C. 481, 1818(n) and 1820(c), 
and section 21 of the Exchange Act (15 U.S.C. 78u). This subpart does 
not restrict or in any way affect the authority of the Comptroller to 
conduct examinations into the affairs or ownership of banks and their 
affiliates.



Sec. 19.181  Confidentiality of formal investigations.

    Information or documents obtained in the course of a formal 
investigation are confidential and may be disclosed only in accordance 
with the provisions of part 4 of this chapter.



Sec. 19.182  Order to conduct a formal investigation.

    A formal investigation begins with the issuance of an order signed 
by the Comptroller or the Comptroller's delegate. The order must 
designate the person or persons who will conduct the investigation. Such 
persons are authorized, among other things, to issue subpoenas duces 
tecum, to administer oaths, and receive affirmations as to any matter 
under investigation by the Comptroller. Upon application and for good 
cause shown, the Comptroller may limit, modify, or withdraw the order at 
any stage of the proceedings.



Sec. 19.183  Rights of witnesses.

    (a) Any person who is compelled or requested to furnish testimony, 
documentary evidence, or other information with respect to any matter 
under formal investigation shall, on request, be shown the order 
initiating the investigation.
    (b) Any person who, in a formal investigation, is compelled to 
appear and testify, or who appears and testifies by request or 
permission of the Comptroller, may be accompanied, represented, and 
advised by counsel. The right to be accompanied, represented, and 
advised by counsel means the right of a person testifying to have an 
attorney present at all times while testifying and to have the 
attorney--
    (1) Advise the person before, during and after the conclusion of 
testimony;
    (2) Question the person briefly at the conclusion of testimony to 
clarify any of the answers given; and
    (3) Make summary notes during the testimony solely for the use of 
the person.
    (c) Any person who has given or will give testimony and counsel 
representing the person may be excluded from the proceedings during the 
taking of testimony of any other witness.
    (d) Any person who is compelled to give testimony is entitled to 
inspect any transcript that has been made of the testimony but may not 
obtain a copy if the Comptroller's representatives conducting the 
proceedings have cause to believe that the contents should not be 
disclosed pending completion of the investigation.
    (e) Any designated representative conducting an investigative 
proceeding shall report to the Comptroller any instances where a person 
has been guilty of dilatory, obstructionist or insubordinate conduct 
during the course of the proceeding or any other instance involving a 
violation of this part. The Comptroller may take such action as the 
circumstances warrant, including

[[Page 188]]

exclusion of the offending individual or individuals from participation 
in the proceedings.



Sec. 19.184  Service of subpoena and payment of witness expenses.

    (a) Methods of service. Service of a subpoena may be made by any of 
the methods identified in Sec. 19.11(d).
    (b) Expenses. A witness who is subpoenaed will be paid the same 
expenses in the same manner as witnesses in the district courts of the 
United States. The expenses need not be tendered at the time a subpoena 
is served.

[61 FR 20338, May 6, 1996]



    Subpart K--Parties and Representational Practice Before the OCC; 
                          Standards of Conduct



Sec. 19.190  Scope.

    This subpart contains rules relating to parties and representational 
practice before the OCC. This subpart includes the imposition of 
sanctions by the administrative law judge, any other presiding officer 
appointed pursuant to subparts C and D of this part, or the Comptroller 
against parties or their counsel in an adjudicatory proceeding under 
this part. This subpart also covers other disciplinary sanctions--
censure, suspension or debarment--against individuals who appear before 
the OCC in a representational capacity either in an adjudicatory 
proceeding under this part or in any other matters connected with 
presentations to the OCC relating to a client's rights, privileges, or 
liabilities. This representation includes, but is not limited to, the 
practice of attorneys and accountants. Employees of the OCC are not 
subject to disciplinary proceedings under this subpart.

[56 FR 38028, Aug. 9, 1991; 56 FR 41726, Aug. 22, 1991]



Sec. 19.191  Definitions.

    As used in Secs. 19.190 through 19.201, the following terms shall 
have the meaning given in this section unless the context otherwise 
requires:
    (a) Practice before the OCC includes any matters connected with 
presentations to the OCC or any of its officers or employees relating to 
a client's rights, privileges or liabilities under laws or regulations 
administered by the OCC. Such matters include, but are not limited to, 
representation of a client in an adjudicatory proceeding under this 
part; the preparation of any statement, opinion or other paper or 
document by an attorney, accountant, or other licensed professional 
which is filed with, or submitted to, the OCC, on behalf of another 
person in, or in connection with, any application, notification, report 
or document; the representation of a person at conferences, hearings and 
meetings; and the transaction of other business before the OCC on behalf 
of another person. The term ``practice before the OCC'' does not include 
work prepared for a bank solely at its request for use in the ordinary 
course of its business.
    (b) Attorney means any individual who is a member in good standing 
of the bar of the highest court of any state, possession, territory, 
commonwealth, of the United States or the District of Columbia.
    (c) Accountant means any individual who is duly qualified to 
practice as a certified public accountant or a public accountant in any 
state, possession, territory, commonwealth of the United States, or the 
District of Columbia.



Sec. 19.192  Sanctions relating to conduct in an adjudicatory proceeding.

    (a) General rule. Appropriate sanctions may be imposed when any 
party or person representing a party in an adjudicatory proceeding under 
this part has failed to comply with an applicable statute, regulation, 
or order, and that failure to comply:
    (1) Constitutes contemptuous conduct;
    (2) Materially injures or prejudices another party in terms of 
substantive injury, incurring additional expenses including attorney's 
fees, prejudicial delay, or otherwise;
    (3) Is a clear and unexcused violation of an applicable statute, 
regulation, or order; or
    (4) Unduly delays the proceeding.
    (b) Sanctions. Sanctions which may be imposed include any one or 
more of the following:
    (1) Issuing an order against the party;

[[Page 189]]

    (2) Rejecting or striking any testimony or documentary evidence 
offered, or other papers filed, by the party;
    (3) Precluding the party from contesting specific issues or 
findings;
    (4) Precluding the party from offering certain evidence or from 
challenging or contesting certain evidence offered by another party;
    (5) Precluding the party from making a late filing or conditioning a 
late filing on any terms that are just; and
    (6) Assessing reasonable expenses, including attorney's fees, 
incurred by any other party as a result of the improper action or 
failure to act.
    (c) Procedure for imposition of sanctions. (1) Upon the motion of 
any party, or on his or her own motion, the administrative law judge or 
other presiding officer may impose sanctions in accordance with this 
section. The administrative law judge or other presiding officer shall 
submit to the Comptroller for final ruling any sanction entering a final 
order that determines the case on the merits.
    (2) No sanction authorized by this section, other than refusal to 
accept late filings, shall be imposed without prior notice to all 
parties and an opportunity for any party against whom sanctions would be 
imposed to be heard. Such opportunity to be heard may be on such notice, 
and the response may be in such form as the administrative law judge or 
other presiding officer directs. The administrative law judge or other 
presiding officer may limit the opportunity to be heard to an 
opportunity of a party or a party's representative to respond orally 
immediately after the act or inaction covered by this section is noted 
by the administrative law judge or other presiding officer.
    (3) Requests for the imposition of sanctions by any party, and the 
imposition of sanctions, are subject to interlocutory review pursuant to 
Sec. 19.25 in the same manner as any other ruling.
    (d) Section not exclusive. Nothing in this section shall be read as 
precluding the administrative law judge or other presiding officer or 
the Comptroller from taking any other action, or imposing any 
restriction or sanction, authorized by applicable statute or regulation.



Sec. 19.193  Censure, suspension or debarment.

    The Comptroller may censure an individual or suspend or debar such 
individual from practice before the OCC if he or she is incompetent in 
representing a client's rights or interest in a significant matter 
before the OCC; or engages, or has engaged, in disreputable conduct; or 
refuses to comply with the rules and regulations in this part; or with 
intent to defraud in any manner, willfully and knowingly deceives, 
misleads, or threatens any client or prospective client. The suspension 
or debarment of an individual may be initiated only upon a finding by 
the Comptroller that the basis for the disciplinary action is 
sufficiently egregious.



Sec. 19.194  Eligibility of attorneys and accountants to practice.

    (a) Attorneys. Any attorney who is qualified to practice as an 
attorney and is not currently under suspension or debarment pursuant to 
this subpart may practice before the OCC.
    (b) Accountants. Any accountant who is qualified to practice as a 
certified public accountant or public accountant and is not currently 
under suspension or debarment by the OCC may practice before the OCC.



Sec. 19.195  Incompetence.

    Incompetence in the representation of a client's rights and 
interests in a significant matter before the OCC is grounds for 
suspension or debarment. The term ``incompetence'' encompasses conduct 
that reflects a lack of the knowledge, judgment and skill that a 
professional would ordinarily and reasonably be expected to exercise in 
adequately representing the rights and interests of a client. Such 
conduct includes, but is not limited to:
    (a) Handling a matter which the individual knows or should know that 
he or she is not competent to handle, without associating with a 
professional who is competent to handle such matter.
    (b) Handling a matter without adequate preparation under the 
circumstances.

[[Page 190]]

    (c) Neglect in a matter entrusted to him or her.



Sec. 19.196  Disreputable conduct.

    Disreputable conduct for which an individual may be censured, 
debarred or suspended from practice before the OCC includes, but is not 
limited to:
    (a) Willfully violating or willfully aiding and abetting the 
violation of any provision of the Federal banking or applicable 
securities laws or the rules and regulations thereunder or conviction of 
any offense involving dishonesty or breach of trust.
    (b) Knowingly giving false or misleading information, or 
participating in any way in the giving of false information to the OCC 
or any officer or employee thereof, or to any tribunal authorized to 
pass upon matters administered by the OCC in connection with any matter 
pending or likely to be pending before it. The term ``information'' 
includes facts or other statements contained in testimony, financial 
statements, applications for enrollment, affidavits, declarations, or 
any other document or written or oral statement.
    (c) Directly or indirectly attempting to influence, or offering or 
agreeing to attempt to influence, the official action of any officer or 
employee of the OCC by the use of threats, false accusations, duress or 
coercion, by the offer of any special inducement or promise of advantage 
or by the bestowing of any gift, favor, or thing of value.
    (d) Disbarment or suspension from practice as an attorney, or 
debarment or suspension from practice as a certified public accountant 
or public accountant, by any duly constituted authority of any state, 
possession, or commonwealth of the United States, or the District of 
Columbia for the conviction of a felony or misdemeanor involving moral 
turpitude in matters relating to the supervisory responsibilities of the 
OCC, where the conviction has not been reversed on appeal.
    (e) Knowingly aiding or abetting another individual to practice 
before the OCC during that individual's period of suspension, debarment, 
or ineligibility.
    (f) Contemptuous conduct in connection with practice before the OCC, 
and knowingly making false accusations and statements, or circulating or 
publishing malicious or libelous matter.
    (g) Suspension or debarment from practice before the Board of 
Governors, the FDIC, the OTS, the Securities and Exchange Commission, 
the Commodity Futures Trading Commission, or any other Federal agency 
based on matters relating to the supervisory responsibilities of the 
OCC.
    (h) Willful violation of any of the regulations contained in this 
part.



Sec. 19.197  Initiation of disciplinary proceeding.

    (a) Receipt of information. An individual, including any employee of 
the OCC, who has reason to believe that an individual practicing before 
the OCC in a representative capacity has engaged in any conduct that 
would serve as a basis for censure, suspension or debarment under 
Sec. 19.192, may make a report thereof and forward it to the OCC or to 
such person as may be delegated responsibility for such matters by the 
Comptroller.
    (b) Censure without formal proceeding. Upon receipt of information 
regarding an individual's qualification to practice before the OCC, the 
Comptroller or the Comptroller's delegate may, after giving the 
individual notice and opportunity to respond, censure such individual.
    (c) Institution of formal disciplinary proceeding. When the 
Comptroller has reason to believe that any individual who practices 
before the OCC in a representative capacity has engaged in conduct that 
would serve as a basis for censure, suspension or debarment under 
Sec. 19.192, the Comptroller may, after giving the individual notice and 
opportunity to respond, institute a formal disciplinary proceeding 
against such individual. The proceeding will be conducted pursuant to 
Sec. 19.199 and initiated by a complaint which names the individual as a 
respondent and is signed by the Comptroller or the Comptroller's 
delegate. Except in cases of willfulness, or when time, the nature of 
the proceeding, or the public interest do not permit, a proceeding under 
this section may not be commenced until the respondent has been 
informed, in writing, of the facts or conduct which warrant institution 
of a proceeding and

[[Page 191]]

the respondent has been accorded the opportunity to comply with all 
lawful requirements or take whatever action may be necessary to remedy 
the conduct that is the basis for the commencement of the proceeding.

[56 FR 38028, Aug. 9, 1991; 56 FR 46667, Sept. 13, 1991]



Sec. 19.198  Conferences.

    (a) General. The Comptroller may confer with a proposed respondent 
concerning allegations of misconduct or other grounds for censure, 
debarment or suspension, regardless of whether a proceeding for 
debarment or suspension has been commenced. If a conference results in a 
stipulation in connection with a proceeding in which the individual is 
the respondent, the stipulation may be entered in the record at the 
request of either party to the proceeding.
    (b) Resignation or voluntary suspension. In order to avoid the 
institution of, or a decision in, a debarment or suspension proceeding, 
a person who practices before the OCC may consent to suspension from 
practice. At the discretion of the Comptroller, the individual may be 
suspended or debarred in accordance with the consent offered.



Sec. 19.199  Proceedings under this subpart.

    Any hearing held under this subpart is held before an administrative 
law judge pursuant to procedures set forth in subpart A of this part. 
The Comptroller or the Comptroller's delegate shall appoint a person to 
represent the OCC in the hearing. Any person having prior involvement in 
the matter which is the basis for the suspension or debarment proceeding 
is disqualified from representing the OCC in the hearing. The hearing 
will be closed to the public unless the Comptroller on his or her own 
initiative, or on the request of a party, otherwise directs. The 
administrative law judge shall issue a recommended decision to the 
Comptroller who shall issue the final decision and order. The 
Comptroller may censure, debar or suspend an individual, or take such 
other disciplinary action as the Comptroller deems appropriate.



Sec. 19.200  Effect of suspension, debarment or censure.

    (a) Debarment. If the final order against the respondent is for 
debarment, the individual may not practice before the OCC unless 
otherwise permitted to do so by the Comptroller.
    (b) Suspension. If the final order against the respondent is for 
suspension, the individual may not practice before the OCC during the 
period of suspension.
    (c) Censure. If the final order against the respondent is for 
censure, the individual may be permitted to practice before the OCC, but 
such individual's future representations may be subject to conditions 
designed to promote high standards of conduct. If a written letter of 
censure is issued, a copy will be maintained in the OCC's files.
    (d) Notice of debarment or suspension. Upon the issuance of a final 
order for suspension or debarment, the Comptroller shall give notice of 
the order to appropriate officers and employees of the OCC and to 
interested departments and agencies of the Federal government. The 
Comptroller or the Comptroller's delegate shall also give notice to the 
appropriate authorities of the state in which any debarred or suspended 
individual is or was licensed to practice.



Sec. 19.201  Petition for reinstatement.

    At the expiration of the period of time designated in the order of 
debarment, the Comptroller may entertain a petition for reinstatement 
from any person debarred from practice before the OCC. The Comptroller 
may grant reinstatement only if satisfied that the petitioner is likely 
to act in accordance with the regulations in this part, and that 
granting reinstatement would not be contrary to the public interest. Any 
request for reinstatement shall be limited to written submissions unless 
the Comptroller, in his or her discretion, affords the petitioner a 
hearing.

[[Page 192]]



                 Subpart L--Equal Access to Justice Act



Sec. 19.210  Scope.

    The Equal Access to Justice Act regulations applicable to formal OCC 
adjudicatory proceedings under this part are set forth at 31 CFR part 6.



 Subpart M--Procedures for Reclassifying a Bank Based on Criteria Other 
                              Than Capital

    Source: 57 FR 44895, Sept. 29, 1992, unless otherwise noted.



Sec. 19.220  Scope.

    This subpart applies to the procedures afforded to any bank that has 
been reclassified to a lower capital category by a notice or order 
issued by the OCC pursuant to section 38 of the Federal Deposit 
Insurance Act and this part.



Sec. 19.221  Reclassification of a bank based on unsafe or unsound condition or practice.

    (a) Issuance of notice of proposed reclassification--(1) Grounds for 
reclassification. (i) Pursuant to Sec. 6.4 of this chapter, the OCC may 
reclassify a well capitalized bank as adequately capitalized or subject 
an adequately capitalized bank or undercapitalized bank to the 
supervisory actions applicable to the next lower capital category if:
    (A) The OCC determines that the bank is in an unsafe or unsound 
condition; or
    (B) The OCC deems the bank to be engaging in an unsafe or unsound 
practice and not to have corrected the deficiency.
    (ii) Any action pursuant to this paragraph (a)(1) shall hereinafter 
be referred to as ``reclassification.''
    (2) Prior notice to institution. Prior to taking action pursuant to 
Sec. 6.4 of this chapter, the OCC shall issue and serve on the bank a 
written notice of the OCC's intention to reclassify the bank.
    (b) Contents of notice. A notice of intention to reclassify a bank 
based on unsafe or unsound condition will include:
    (1) A statement of the bank's capital measures and capital levels 
and the category to which the bank would be reclassified;
    (2) The reasons for reclassification of the bank;
    (3) The date by which the bank subject to the notice of 
reclassification may file with the OCC a written appeal of the proposed 
reclassification and a request for a hearing, which shall be at least 14 
calendar days from the date of service of the notice unless the OCC 
determines that a shorter period is appropriate in light of the 
financial condition of the bank or other relevant circumstances.
    (c) Response to notice of proposed reclassification. A bank may file 
a written response to a notice of proposed reclassification within the 
time period set by the OCC. The response should include:
    (1) An explanation of why the bank is not in unsafe or unsound 
condition or otherwise should not be reclassified;
    (2) Any other relevant information, mitigating circumstances, 
documentation, or other evidence in support of the position of the bank 
or company regarding the reclassification.
    (d) Failure to file response. Failure by a bank to file, within the 
specified time period, a written response with the OCC to a notice of 
proposed reclassification shall constitute a waiver of the opportunity 
to respond and shall constitute consent to the reclassification.
    (e) Request for hearing and presentation of oral testimony or 
witnesses. The response may include a request for an informal hearing 
before the OCC under this section. If the bank desires to present oral 
testimony or witnesses at the hearing, the bank shall include a request 
to do so with the request for an informal hearing. A request to present 
oral testimony or witnesses shall specify the names of the witnesses and 
the general nature of their expected testimony. Failure to request a 
hearing shall constitute a waiver of any right to a hearing, and failure 
to request the opportunity to present oral testimony or witnesses shall 
constitute a waiver of any right to present oral testimony or witnesses.
    (f) Order for informal hearing. Upon receipt of a timely written 
request that includes a request for a hearing, the OCC shall issue an 
order directing an

[[Page 193]]

informal hearing to commence no later than 30 days after receipt of the 
request, unless the OCC allows further time at the request of the bank. 
The hearing shall be held in Washington, DC or at such other place as 
may be designated by the OCC, before a presiding officer(s) designated 
by the OCC to conduct the hearing.
    (g) Hearing procedures. (1) The bank shall have the right to 
introduce relevant written materials and to present oral argument at the 
hearing. The bank may introduce oral testimony and present witnesses 
only if expressly authorized by the OCC or the presiding officer(s). 
Neither the provisions of the Administrative Procedure Act (5 U.S.C. 
554-557) governing adjudications required by statute to be determined on 
the record nor the Uniform Rules of Practice and Procedure in subpart A 
of this part apply to an informal hearing under this section unless the 
OCC orders that such procedures shall apply.
    (2) The informal hearing shall be recorded, and a transcript 
furnished to the bank upon request and payment of the cost thereof. 
Witnesses need not be sworn, unless specifically requested by a party or 
the presiding officer(s). The presiding officer(s) may ask questions of 
any witness.
    (3) The presiding officer(s) may order that the hearing be continued 
for a reasonable period (normally five business days) following 
completion of oral testimony or argument to allow additional written 
submissions to the hearing record.
    (h) Recommendation of presiding officer(s). Within 20 calendar days 
following the date the hearing and the record on the proceeding are 
closed, the presiding officer(s) shall make a recommendation to the OCC 
on the reclassification.
    (i) Time for decision. Not later than 60 calendar days after the 
date the record is closed or the date of the response in a case where no 
hearing was requested, the OCC will decide whether to reclassify the 
bank and notify the bank of the OCC's decision.



Sec. 19.222  Request for rescission of reclassification.

    Any bank that has been reclassified under part 6 of this chapter and 
this subpart, may, upon a change in circumstances, request in writing 
that the OCC reconsider the reclassification, and may propose that the 
reclassification be rescinded and that any directives issued in 
connection with the reclassification be modified, rescinded, or removed. 
Unless otherwise ordered by the OCC, the bank shall remain subject to 
the reclassification and to any directives issued in connection with 
that reclassification while such request is pending before the OCC.



   Subpart N--Order To Dismiss a Director or Senior Executive Officer

    Source: 57 FR 44896, Sept. 29, 1992, unless otherwise noted.



Sec. 19.230  Scope.

    This subpart applies to informal hearings afforded to any director 
or senior executive officer dismissed pursuant to an order issued under 
12 U.S.C. 1831o and part 6 of this chapter.



Sec. 19.231  Order to dismiss a director or senior executive officer.

    (a) Service of notice. When the OCC issues and serves a directive on 
a bank pursuant to subpart B of part 6 of this chapter requiring the 
bank to dismiss from office any director or senior executive officer 
under section 38(f)(2)(F)(ii) of the FDI Act, the OCC shall also serve a 
copy of the directive, or the relevant portions of the directive where 
appropriate, upon the person to be dismissed.
    (b) Response to directive--(1) Request for reinstatement. A director 
or senior executive officer who has been served with a directive under 
paragraph (a) of this section (Respondent) may file a written request 
for reinstatement. The request for reinstatement shall be filed within 
10 calendar days of the receipt of the directive by the Respondent, 
unless further time is allowed by the OCC at the request of the 
Respondent.
    (2) Contents of request; informal hearing. The request for 
reinstatement shall include reasons why the Respondent should be 
reinstated, and may include a request for an informal hearing before the 
OCC or its designee under this section. If the Respondent desires

[[Page 194]]

to present oral testimony or witnesses at the hearing, the Respondent 
shall include a request to do so with the request for an informal 
hearing. The request to present oral testimony or witnesses shall 
specify the names of the witnesses and the general nature of their 
expected testimony. Failure to request a hearing shall constitute a 
waiver of any right to a hearing and failure to request the opportunity 
to present oral testimony or witnesses shall constitute a waiver of any 
right or opportunity to present oral testimony or witnesses.
    (3) Effective date. Unless otherwise ordered by the OCC, the 
dismissal shall remain in effect while a request for reinstatement is 
pending.
    (c) Order for informal hearing. Upon receipt of a timely written 
request from a Respondent for an informal hearing on the portion of a 
directive requiring a bank to dismiss from office any director or senior 
executive officer, the OCC shall issue an order directing an informal 
hearing to commence no later than 30 days after receipt of the request, 
unless the Respondent requests a later date. The hearing shall be held 
in Washington, DC, or at such other place as may be designated by the 
OCC, before a presiding officer(s) designated by the OCC to conduct the 
hearing.
    (d) Hearing procedures. (1) A Respondent may appear at the hearing 
personally or through counsel. A Respondent shall have the right to 
introduce relevant written materials and to present oral argument. A 
Respondent may introduce oral testimony and present witnesses only if 
expressly authorized by the OCC or the presiding officer(s). Neither the 
provisions of the Administrative Procedure Act governing adjudications 
required by statute to be determined on the record nor the Uniform Rules 
of Practice and Procedure in subpart A of this part apply to an informal 
hearing under this section unless the OCC orders that such procedures 
shall apply.
    (2) The informal hearing shall be recorded, and a transcript 
furnished to the Respondent upon request and payment of the cost 
thereof. Witnesses need not be sworn, unless specifically requested by a 
party or the presiding officer(s). The presiding officer(s) may ask 
questions of any witness.
    (3) The presiding officer(s) may order that the hearing be continued 
for a reasonable period (normally five business days) following 
completion of oral testimony or argument to allow additional written 
submissions to the hearing record.
    (e) Standard for review. A Respondent shall bear the burden of 
demonstrating that his or her continued employment by or service with 
the bank would materially strengthen the bank's ability:
    (1) To become adequately capitalized, to the extent that the 
directive was issued as a result of the bank's capital level or failure 
to submit or implement a capital restoration plan; and
    (2) To correct the unsafe or unsound condition or unsafe or unsound 
practice, to the extent that the directive was issued as a result of 
classification of the bank based on supervisory criteria other than 
capital, pursuant to section 38(g) of the FDI Act.
    (f) Recommendation of presiding officer. Within 20 calendar days 
following the date the hearing and the record on the proceeding are 
closed, the presiding officer(s) shall make a recommendation to the OCC 
concerning the Respondent's request for reinstatement with the bank.
    (g) Time for decision. Not later than 60 calendar days after the 
date the record is closed or the date of the response in a case where no 
hearing was requested, the OCC shall grant or deny the request for 
reinstatement and notify the Respondent of the OCC's decision. If the 
OCC denies the request for reinstatement, the OCC shall set forth in the 
notification the reasons for the OCC's action.



          Subpart O--Civil Money Penalty Inflation Adjustments

    Source: 62 FR 3200, Jan. 22, 1997, unless otherwise noted.



Sec. 19.240  Inflation adjustments.

    The maximum amount of each civil money penalty within the OCC's 
jurisdiction is adjusted in accordance with the Federal Civil Penalties 
Inflation Adjustment Act of 1990 (28 U.S.C. 2461 note) as follows:

[[Page 195]]



----------------------------------------------------------------------------------------------------------------
                                                                                                     Adjusted
         U.S. code citation                                   Description                             maximum
                                                                                                      penalty
----------------------------------------------------------------------------------------------------------------
12 U.S.C. 93(b), 504, 1817(j)(16),    Tier 1....................................................           5,500
 1818(i)(2), and 1972(2)(F).          Tier 2....................................................          27,500
                                      Tier 3....................................................       1,100,000
12 U.S.C. 164 and 3110(c)...........  Tier 1....................................................           2,000
                                      Tier 2....................................................          22,000
                                      Tier 3....................................................       1,100,000
12 U.S.C. 1832(c) and 3909(d)(1)....  ..........................................................           1,100
12 U.S.C. 1884......................  ..........................................................             110
12 U.S.C. 3110(a)...................  ..........................................................          27,500
15 U.S.C. 78u-2(b)..................  Tier 1 (natural person)...................................           5,500
                                      Tier 1 (other person).....................................          55,000
                                      Tier 2 (natural person)...................................          55,000
                                      Tier 2 (other person).....................................         275,000
                                      Tier 3 (natural person)...................................         110,000
                                      Tier 3 (other person).....................................         550,000
42 U.S.C. 4012a(f)(5)...............  Per violation.............................................             350
                                      Per year..................................................         105,000
----------------------------------------------------------------------------------------------------------------



Sec. 19.241  Applicability.

    The adjustments in Sec. 19.240 apply to violations that occur after 
January 22, 1997.



PART 21--MINIMUM SECURITY DEVICES AND PROCEDURES, REPORTS OF SUSPICIOUS ACTIVITIES, AND BANK SECRECY ACT COMPLIANCE PROGRAM--Table of Contents




           Subpart A--Minimum Security Devices and Procedures

Sec.
21.1  Purpose and scope of subpart A of this part.
21.2  Designation of security officer.
21.3  Security program.
21.4  Report.

               Subpart B--Reports of Suspicious Activities

21.11  Suspicious Activity Report.

    Subpart C--Procedures for Monitoring Bank Secrecy Act Compliance

21.21  Bank Secrecy Act compliance.

    Authority: 12 U.S.C. 93a, 1818, 1881-1884, and 3401-3422; 31 U.S.C. 
5318.



           Subpart A--Minimum Security Devices and Procedures

    Source: 56 FR 29564, June 28, 1991, unless otherwise noted.



Sec. 21.1  Purpose and scope of subpart A of this part.

    (a) This subpart is issued by the Comptroller of the Currency 
pursuant to section 3 of the Bank Protection Act of 1968 (12 U.S.C. 
1882) and is applicable to all national banking associations and all 
banks located in the District of Columbia subject to the supervision of 
the Office of the Comptroller of the Currency. It requires each bank to 
adopt appropriate security procedures to discourage robberies, 
burglaries, and larcenies and to assist in identifying and apprehending 
persons who commit such acts.
    (b) It is the responsibility of a bank's board of directors to 
comply with this regulation and ensure that a security program which 
equals or exceeds the standards prescribed by this part is developed and 
implemented for the bank's main office and branches (as the term 
``branch'' is used in 12 U.S.C. 36).



Sec. 21.2  Designation of security officer.

    Within 30 days after the opening of a new bank, the Bank's board of 
directors shall designate a security officer who shall have the 
authority, subject to the approval of the board of directors, for 
immediately developing and administering a written security program to 
protect each banking office from robberies, burglaries, and larcenies 
and to assist in identifying and apprehending persons who commit such 
acts.

(Approval by the Office of Management and Budget under control number 
1557-0180)



Sec. 21.3  Security program.

    (a) Contents of security program. The security program shall:

[[Page 196]]

    (1) Establish procedures for opening and closing for business and 
for the safekeeping of all currency, negotiable securities, and similar 
valuables at all times;
    (2) Establish procedures that will assist in identifying persons 
committing crimes against the institution and that will preserve 
evidence that may aid in their identification or conviction; such 
procedures may include, but are not limited to:
    (i) Using identification devices, such as prerecorded serial-
numbered bills, or chemical and electronic devices;
    (ii) Maintaining a camera that records activity in the banking 
office; and
    (iii) Retaining a record of any robbery, burglary or larceny 
committed or attempted against a banking office;
    (3) Provide for initial and periodic training of employees in their 
responsibilities under the security program and in proper employee 
conduct during and after a robbery; and
    (4) Provide for selecting, testing, operating and maintaining 
appropriate security devices, as specified in paragraph (b) of this 
section.
    (b) Security devices. Each national bank shall have, at a minimum, 
the following security devices:
    (1) A means of protecting cash or other liquid assets, such as a 
vault, safe, or other secure space;
    (2) A lighting system for illuminating, during the hours of 
darkness, the area around the vault, if the vault is visible from 
outside the banking office;
    (3) Tamper-resistant locks on exterior doors and exterior windows 
designed to be opened;
    (4) An alarm system or other appropriate device for promptly 
notifying the nearest responsible law enforcement officers of an 
attempted or perpetrated robbery, burglary or larceny; and
    (5) Such other devices as the security officer determines to be 
appropriate, taking into consideration:
    (i) The incidence of crimes against financial institutions in the 
area;
    (ii) The amount of currency or other valuables exposed to robbery, 
burglary, or larceny;
    (iii) The distance of the banking office from the nearest 
responsible law enforcement officers and the time required for such law 
enforcement officers ordinarily to arrive at the banking office;
    (iv) The cost of the security devices;
    (v) Other security measures in effect at the banking office; and
    (vi) The physical characteristics of the banking office structure 
and its surroundings.



Sec. 21.4  Report.

    The security officer for a national bank shall report at least 
annually to the bank's board of directors on the effectiveness of the 
security program. The substance of such report shall be reflected in the 
minutes of the Board meeting in which it is given.

(Approved by the Office of Management and Budget under control number 
1557-0180)



               Subpart B--Reports of Suspicious Activities



Sec. 21.11  Suspicious Activity Report.

    (a) Purpose and scope. This section ensures that national banks file 
a Suspicious Activity Report when they detect a known or suspected 
violation of Federal law or a suspicious transaction related to a money 
laundering activity or a violation of the Bank Secrecy Act. This section 
applies to all national banks as well as any Federal branches and 
agencies of foreign banks licensed or chartered by the OCC.
    (b) Definitions. For the purposes of this section:
    (1) FinCEN means the Financial Crimes Enforcement Network of the 
Department of the Treasury.
    (2) Institution-affiliated party means any institution-affiliated 
party as that term is defined in sections 3(u) and 8(b)(5) of the 
Federal Deposit Insurance Act (12 U.S.C. 1813(u) and 1818(b)(5)).
    (3) SAR means a Suspicious Activity Report on the form prescribed by 
the OCC.
    (c) SARs required. A national bank shall file a SAR with the 
appropriate Federal law enforcement agencies and the Department of the 
Treasury in accordance with the form's instructions, by sending a 
completed SAR to

[[Page 197]]

FinCEN in the following circumstances:
    (1) Insider abuse involving any amount. Whenever the national bank 
detects any known or suspected Federal criminal violation, or pattern of 
criminal violations, committed or attempted against the bank or 
involving a transaction or transactions conducted through the bank, 
where the bank believes that it was either an actual or potential victim 
of a criminal violation, or series of criminal violations, or that the 
bank was used to facilitate a criminal transaction, and the bank has a 
substantial basis for identifying one of its directors, officers, 
employees, agents or other institution-affiliated parties as having 
committed or aided in the commission of a criminal act, regardless of 
the amount involved in the violation.
    (2) Violations aggregating $5,000 or more where a suspect can be 
identified. Whenever the national bank detects any known or suspected 
Federal criminal violation, or pattern of criminal violations, committed 
or attempted against the bank or involving a transaction or transactions 
conducted through the bank and involving or aggregating $5,000 or more 
in funds or other assets where the bank believes that it was either an 
actual or potential victim of a criminal violation, or series of 
criminal violations or that it was used to facilitate a criminal 
transaction, and the bank has a substantial basis for identifying a 
possible suspect or group of suspects. If it is determined prior to 
filing this report that the identified suspect or group of suspects has 
used an alias, then information regarding the true identity of the 
suspect or group of suspects, as well as alias identifiers, such as 
drivers' license or social security numbers, addresses and telephone 
numbers, must be reported.
    (3) Violations aggregating $25,000 or more regardless of potential 
suspects. Whenever the national bank detects any known or suspected 
Federal criminal violation, or pattern of criminal violations, committed 
or attempted against the bank or involving a transaction or transactions 
conducted through the bank and involving or aggregating $25,000 or more 
in funds or other assets where the bank believes that it was either an 
actual or potential victim of a criminal violation, or series of 
criminal violations, or that the bank was used to facilitate a criminal 
transaction, even though there is no substantial basis for identifying a 
possible suspect or group of suspects.
    (4) Transactions aggregating $5,000 or more that involve potential 
money laundering or violate the Bank Secrecy Act. Any transaction (which 
for purposes of this paragraph (c)(4) means a deposit, withdrawal, 
transfer between accounts, exchange of currency, loan, extension of 
credit, or purchase or sale of any stock, bond, certificate of deposit, 
or other monetary instrument or investment security, or any other 
payment, transfer, or delivery by, through, or to a financial 
institution, by whatever means effected) conducted or attempted by, at 
or through the national bank and involving or aggregating $5,000 or more 
in funds or other assets, if the bank knows, suspects, or has reason to 
suspect that:
    (i) The transaction involves funds derived from illegal activities 
or is intended or conducted in order to hide or disguise funds or assets 
derived from illegal activities (including, without limitation, the 
ownership, nature, source, location, or control of such funds or assets) 
as part of a plan to violate or evade any law or regulation or to avoid 
any transaction reporting requirement under Federal law;
    (ii) The transaction is designed to evade any regulations 
promulgated under the Bank Secrecy Act; or
    (iii) The transaction has no business or apparent lawful purpose or 
is not the sort in which the particular customer would normally be 
expected to engage, and the institution knows of no reasonable 
explanation for the transaction after examining the available facts, 
including the background and possible purpose of the transaction.
    (d) Time for reporting. A national bank is required to file a SAR no 
later than 30 calendar days after the date of the initial detection of 
facts that may constitute a basis for filing a SAR. If no suspect was 
identified on the date of detection of the incident requiring the 
filing, a national bank may delay filing a SAR for an additional 30 
calendar

[[Page 198]]

days to identify a suspect. In no case shall reporting be delayed more 
than 60 calendar days after the date of initial detection of a 
reportable transaction. In situations involving violations requiring 
immediate attention, such as when a reportable violation is ongoing, the 
financial institution shall immediately notify, by telephone, an 
appropriate law enforcement authority and the OCC in addition to filing 
a timely SAR.
    (e) Reports to state and local authorities. National banks are 
encouraged to file a copy of the SAR with state and local law 
enforcement agencies where appropriate.
    (f) Exceptions. (1) A national bank need not file a SAR for a 
robbery or burglary committed or attempted that is reported to 
appropriate law enforcement authorities.
    (2) A national bank need not file a SAR for lost, missing, 
counterfeit, or stolen securities if it files a report pursuant to the 
reporting requirements of 17 CFR 240.17f-1.
    (g) Retention of records. A national bank shall maintain a copy of 
any SAR filed and the original or business record equivalent of any 
supporting documentation for a period of five years from the date of the 
filing of the SAR. Supporting documentation shall be identified and 
maintained by the bank as such, and shall be deemed to have been filed 
with the SAR. A national bank shall make all supporting documentation 
available to appropriate law enforcement agencies upon request.
    (h) Notification to board of directors--(1) Generally. Whenever a 
national bank files a SAR pursuant to this section, the management of 
the bank shall promptly notify its board of directors, or a committee of 
directors or executive officers designated by the board of directors to 
receive notice.
    (2) Suspect is a director or executive officer. If the bank files a 
SAR pursuant to paragraph (c) of this section and the suspect is a 
director or executive officer, the bank may not notify the suspect, 
pursuant to 31 U.S.C. 5318(g)(2), but shall notify all directors who are 
not suspects.
    (i) Compliance. Failure to file a SAR in accordance with this 
section and the instructions may subject the national bank, its 
directors, officers, employees, agents, or other institution-affiliated 
parties to supervisory action.
    (j) Obtaining SARs. A national bank may obtain SARs and the 
Instructions from the appropriate OCC District Office listed in 12 CFR 
part 4.
    (k) Confidentiality of SARs. SARs are confidential. Any national 
bank or person subpoenaed or otherwise requested to disclose a SAR or 
the information contained in a SAR shall decline to produce the SAR or 
to provide any information that would disclose that a SAR has been 
prepared or filed, citing this section, applicable law (e.g., 31 U.S.C. 
5318(g)), or both, and shall notify the OCC.
    (l) Safe harbor. The safe harbor provision of 31 U.S.C. 5318(g), 
which exempts any financial institution that makes a disclosure of any 
possible violation of law or regulation from liability under any law or 
regulation of the United States, or any constitution, law, or regulation 
of any state or political subdivision, covers all reports of suspected 
or known criminal violations and suspicious activities to law 
enforcement and financial institution supervisory authorities, including 
supporting documentation, regardless of whether such reports are 
required to be filed pursuant to this section or are filed on a 
voluntary basis.

[61 FR 4337, Feb. 5, 1996]



    Subpart C--Procedures for Monitoring Bank Secrecy Act Compliance



Sec. 21.21  Bank Secrecy Act compliance.

    (a) Purpose. This subpart is issued to assure that all national 
banks establish and maintain procedures reasonably designed to assure 
and monitor their compliance with the requirements of subchapter II of 
chapter 53 of title 31, United States Code, and the implementing 
regulations promulgated thereunder by the Department of Treasury at 31 
CFR part 103.
    (b) Compliance procedures. On or before April 27, 1987, each bank 
shall develop and provide for the continued administration of a program 
reasonably

[[Page 199]]

designed to assure and monitor compliance with the recordkeeping and 
reporting requirements set forth in subchapter II of chapter 53 of title 
31, United States Code, and the implementing regulations promulgated 
thereunder by the Department of Treasury at 31 CFR part 103. The 
compliance program shall be reduced to writing, approved by the board of 
directors and noted in the minutes.
    (c) Contents of compliance program. The compliance program shall, at 
a minimum:
    (1) Provide for a system of internal controls to assure ongoing 
compliance;
    (2) Provide for independent testing for compliance to be conducted 
by bank personnel or by an outside party;
    (3) Designate an individual or individuals responsible for 
coordinating and monitoring day-to-day compliance; and
    (4) Provide training for appropriate personnel.

(Approved by the Office of Management and Budget under control number 
1557-0180)

[52 FR 2859, Jan. 27, 1987]



PART 22--LOANS IN AREAS HAVING SPECIAL FLOOD HAZARDS--Table of Contents




Sec.
22.1  Authority, purpose, and scope.
22.2  Definitions.
22.3  Requirement to purchase flood insurance where available.
22.4  Exemptions.
22.5  Escrow requirement.
22.6  Required use of standard flood hazard determination form.
22.7  Forced placement of flood insurance.
22.8  Determination fees.
22.9  Notice of special flood hazards and availability of Federal 
          disaster relief assistance.
22.10  Notice of servicer's identity.

 Appendix A to Part 22--Sample Form of Notice of Special Flood Hazards 
         and Availability of Federal Disaster Relief Assistance

    Authority: 12 U.S.C. 93a; 42 U.S.C. 4012a, 4104a, 4104b, 4106, and 
4128.

    Source: 61 FR 45702, Aug. 29, 1996, unless otherwise noted.



Sec. 22.1  Authority, purpose, and scope.

    (a) Authority. This part is issued pursuant to 12 U.S.C. 93a and 42 
U.S.C. 4012a, 4104a, 4104b, 4106, and 4128.
    (b) Purpose. The purpose of this part is to implement the 
requirements of the National Flood Insurance Act of 1968 and the Flood 
Disaster Protection Act of 1973, as amended (42 U.S.C. 4001-4129).
    (c) Scope. This part, except for Secs. 22.6 and 22.8, applies to 
loans secured by buildings or mobile homes located or to be located in 
areas determined by the Director of the Federal Emergency Management 
Agency to have special flood hazards. Sections 22.6 and 22.8 apply to 
loans secured by buildings or mobile homes, regardless of location.



Sec. 22.2  Definitions.

    (a) Act means the National Flood Insurance Act of 1968, as amended 
(42 U.S.C. 4001-4129).
    (b) Bank means a national bank or a bank located in the District of 
Columbia and subject to the supervision of the Comptroller of the 
Currency.
    (c) Building means a walled and roofed structure, other than a gas 
or liquid storage tank, that is principally above ground and affixed to 
a permanent site, and a walled and roofed structure while in the course 
of construction, alteration, or repair.
    (d) Community means a State or a political subdivision of a State 
that has zoning and building code jurisdiction over a particular area 
having special flood hazards.
    (e) Designated loan means a loan secured by a building or mobile 
home that is located or to be located in a special flood hazard area in 
which flood insurance is available under the Act.
    (f) Director of FEMA means the Director of the Federal Emergency 
Management Agency.
    (g) Mobile home means a structure, transportable in one or more 
sections, that is built on a permanent chassis and designed for use with 
or without a permanent foundation when attached to the required 
utilities. The term mobile home does not include a recreational vehicle. 
For purposes of this part, the term mobile home means a mobile home on a 
permanent foundation.

[[Page 200]]

The term mobile home includes a manufactured home as that term is used 
in the NFIP.
    (h) NFIP means the National Flood Insurance Program authorized under 
the Act.
    (i) Residential improved real estate means real estate upon which a 
home or other residential building is located or to be located.
    (j) Servicer means the person responsible for:
    (1) Receiving any scheduled, periodic payments from a borrower under 
the terms of a loan, including amounts for taxes, insurance premiums, 
and other charges with respect to the property securing the loan; and
    (2) Making payments of principal and interest and any other payments 
from the amounts received from the borrower as may be required under the 
terms of the loan.
    (k) Special flood hazard area means the land in the flood plain 
within a community having at least a one percent chance of flooding in 
any given year, as designated by the Director of FEMA.
    (l) Table funding means a settlement at which a loan is funded by a 
contemporaneous advance of loan funds and an assignment of the loan to 
the person advancing the funds.



Sec. 22.3  Requirement to purchase flood insurance where available.

    (a) In general. A bank shall not make, increase, extend, or renew 
any designated loan unless the building or mobile home and any personal 
property securing the loan is covered by flood insurance for the term of 
the loan. The amount of insurance must be at least equal to the lesser 
of the outstanding principal balance of the designated loan or the 
maximum limit of coverage available for the particular type of property 
under the Act. Flood insurance coverage under the Act is limited to the 
overall value of the property securing the designated loan minus the 
value of the land on which the property is located.
    (b) Table funded loans. A bank that acquires a loan from a mortgage 
broker or other entity through table funding shall be considered to be 
making a loan for the purposes of this part.



Sec. 22.4  Exemptions.

    The flood insurance requirement prescribed by Sec. 22.3 does not 
apply with respect to:
    (a) Any State-owned property covered under a policy of self-
insurance satisfactory to the Director of FEMA, who publishes and 
periodically revises the list of States falling within this exemption; 
or
    (b) Property securing any loan with an original principal balance of 
$5,000 or less and a repayment term of one year or less.



Sec. 22.5  Escrow requirement.

    If a bank requires the escrow of taxes, insurance premiums, fees, or 
any other charges for a loan secured by residential improved real estate 
or a mobile home that is made, increased, extended, or renewed on or 
after October 1, 1996, the bank shall also require the escrow of all 
premiums and fees for any flood insurance required under Sec. 22.3. The 
bank, or a servicer acting on behalf of the bank, shall deposit the 
flood insurance premiums on behalf of the borrower in an escrow account. 
This escrow account will be subject to escrow requirements adopted 
pursuant to section 10 of the Real Estate Settlement Procedures Act of 
1974 (12 U.S.C. 2609) (RESPA), which generally limits the amount that 
may be maintained in escrow accounts for certain types of loans and 
requires escrow account statements for those accounts, only if the loan 
is otherwise subject to RESPA. Following receipt of a notice from the 
Director of FEMA or other provider of flood insurance that premiums are 
due, the bank, or a servicer acting on behalf of the bank, shall pay the 
amount owed to the insurance provider from the escrow account by the 
date when such premiums are due.



Sec. 22.6  Required use of standard flood hazard determination form.

    (a) Use of form. A bank shall use the standard flood hazard 
determination form developed by the Director of FEMA when determining 
whether the building or mobile home offered as collateral security for a 
loan is or will be located in a special flood hazard area in which flood 
insurance is available

[[Page 201]]

under the Act. The standard flood hazard determination form may be used 
in a printed, computerized, or electronic manner. A bank may obtain the 
standard flood hazard determination form from FEMA, P.O. Box 2012, 
Jessup, MD 20794-2012.
    (b) Retention of form. A bank shall retain a copy of the completed 
standard flood hazard determination form, in either hard copy or 
electronic form, for the period of time the bank owns the loan.

[61 FR 45702, Aug. 29, 1996, as amended at 64 FR 71273, Dec. 21, 1999]



Sec. 22.7  Forced placement of flood insurance.

    If a bank, or a servicer acting on behalf of the bank, determines at 
any time during the term of a designated loan that the building or 
mobile home and any personal property securing the designated loan is 
not covered by flood insurance or is covered by flood insurance in an 
amount less than the amount required under Sec. 22.3, then the bank or 
its servicer shall notify the borrower that the borrower should obtain 
flood insurance, at the borrower's expense, in an amount at least equal 
to the amount required under Sec. 22.3, for the remaining term of the 
loan. If the borrower fails to obtain flood insurance within 45 days 
after notification, then the bank or its servicer shall purchase 
insurance on the borrower's behalf. The bank or its servicer may charge 
the borrower for the cost of premiums and fees incurred in purchasing 
the insurance.



Sec. 22.8  Determination fees.

    (a) General. Notwithstanding any Federal or State law other than the 
Flood Disaster Protection Act of 1973 as amended (42 U.S.C. 4001-4129), 
any bank, or a servicer acting on behalf of the bank, may charge a 
reasonable fee for determining whether the building or mobile home 
securing the loan is located or will be located in a special flood 
hazard area. A determination fee may also include, but is not limited 
to, a fee for life-of-loan monitoring.
    (b) Borrower fee. The determination fee authorized by paragraph (a) 
of this section may be charged to the borrower if the determination:
    (1) Is made in connection with a making, increasing, extending, or 
renewing of the loan that is initiated by the borrower;
    (2) Reflects the Director of FEMA's revision or updating of 
floodplain areas or flood-risk zones;
    (3) Reflects the Director of FEMA's publication of a notice or 
compendium that:
    (i) Affects the area in which the building or mobile home securing 
the loan is located; or
    (ii) By determination of the Director of FEMA, may reasonably 
require a determination whether the building or mobile home securing the 
loan is located in a special flood hazard area; or
    (4) Results in the purchase of flood insurance coverage by the bank 
or its servicer on behalf of the borrower under Sec. 22.7.
    (c) Purchaser or transferee fee. The determination fee authorized by 
paragraph (a) of this section may be charged to the purchaser or 
transferee of a loan in the case of the sale or transfer of the loan.



Sec. 22.9  Notice of special flood hazards and availability of Federal disaster relief assistance.

    (a) Notice requirement. When a bank makes, increases, extends, or 
renews a loan secured by a building or a mobile home located or to be 
located in a special flood hazard area, the bank shall mail or deliver a 
written notice to the borrower and to the servicer in all cases whether 
or not flood insurance is available under the Act for the collateral 
securing the loan.
    (b) Contents of notice. The written notice must include the 
following information:
    (1) A warning, in a form approved by the Director of FEMA, that the 
building or the mobile home is or will be located in a special flood 
hazard area;
    (2) A description of the flood insurance purchase requirements set 
forth in section 102(b) of the Flood Disaster Protection Act of 1973, as 
amended (42 U.S.C. 4012a(b));
    (3) A statement, where applicable, that flood insurance coverage is 
available under the NFIP and may also be available from private 
insurers; and

[[Page 202]]

    (4) A statement whether Federal disaster relief assistance may be 
available in the event of damage to the building or mobile home caused 
by flooding in a Federally declared disaster.
    (c) Timing of notice. The bank shall provide the notice required by 
paragraph (a) of this section to the borrower within a reasonable time 
before the completion of the transaction, and to the servicer as 
promptly as practicable after the bank provides notice to the borrower 
and in any event no later than the time the bank provides other similar 
notices to the servicer concerning hazard insurance and taxes. Notice to 
the servicer may be made electronically or may take the form of a copy 
of the notice to the borrower.
    (d) Record of receipt. The bank shall retain a record of the receipt 
of the notices by the borrower and the servicer for the period of time 
the bank owns the loan.
    (e) Alternate method of notice. Instead of providing the notice to 
the borrower required by paragraph (a) of this section, a bank may 
obtain satisfactory written assurance from a seller or lessor that, 
within a reasonable time before the completion of the sale or lease 
transaction, the seller or lessor has provided such notice to the 
purchaser or lessee. The bank shall retain a record of the written 
assurance from the seller or lessor for the period of time the bank owns 
the loan.
    (f) Use of prescribed form of notice. A bank will be considered to 
be in compliance with the requirement for notice to the borrower of this 
section by providing written notice to the borrower containing the 
language presented in appendix A to this part within a reasonable time 
before the completion of the transaction. The notice presented in 
appendix A to this part satisfies the borrower notice requirements of 
the Act.



Sec. 22.10  Notice of servicer's identity.

    (a) Notice requirement. When a bank makes, increases, extends, 
renews, sells, or transfers a loan secured by a building or mobile home 
located or to be located in a special flood hazard area, the bank shall 
notify the Director of FEMA (or the Director's designee) in writing of 
the identity of the servicer of the loan. The Director of FEMA has 
designated the insurance provider to receive the bank's notice of the 
servicer's identity. This notice may be provided electronically if 
electronic transmission is satisfactory to the Director of FEMA's 
designee.
    (b) Transfer of servicing rights. The bank shall notify the Director 
of FEMA (or the Director's designee) of any change in the servicer of a 
loan described in paragraph (a) of this section within 60 days after the 
effective date of the change. This notice may be provided electronically 
if electronic transmission is satisfactory to the Director of FEMA's 
designee. Upon any change in the servicing of a loan described in 
paragraph (a) of this section, the duty to provide notice under this 
paragraph (b) shall transfer to the transferee servicer.

 Appendix A to Part 22--Sample Form of Notice of Special Flood Hazards 
         and Availability of Federal Disaster Relief Assistance

    We are giving you this notice to inform you that:
    The building or mobile home securing the loan for which you have 
applied is or will be located in an area with special flood hazards.
    The area has been identified by the Director of the Federal 
Emergency Management Agency (FEMA) as a special flood hazard area using 
FEMA's Flood Insurance Rate Map or the Flood Hazard Boundary Map for the 
following community: ________________. This area has at least a one 
percent (1%) chance of a flood equal to or exceeding the base flood 
elevation (a 100-year flood) in any given year. During the life of a 30-
year mortgage loan, the risk of a 100-year flood in a special flood 
hazard area is 26 percent (26%).
    Federal law allows a lender and borrower jointly to request the 
Director of FEMA to review the determination of whether the property 
securing the loan is located in a special flood hazard area. If you 
would like to make such a request, please contact us for further 
information.
    ______ The community in which the property securing the loan is 
located participates in the National Flood Insurance Program (NFIP). 
Federal law will not allow us to make you the loan that you have applied 
for if you do not purchase flood insurance. The flood insurance must be 
maintained for the life of the loan. If you fail to purchase or renew 
flood insurance on the property, Federal law authorizes and requires us 
to purchase the flood insurance for you at your expense.

[[Page 203]]

     Flood insurance coverage under the NFIP may be purchased 
through an insurance agent who will obtain the policy either directly 
through the NFIP or through an insurance company that participates in 
the NFIP. Flood insurance also may be available from private insurers 
that do not participate in the NFIP.
     At a minimum, flood insurance purchased must cover the 
lesser of:
    (1) the outstanding principal balance of the loan; or
    (2) the maximum amount of coverage allowed for the type of property 
under the NFIP.
    Flood insurance coverage under the NFIP is limited to the overall 
value of the property securing the loan minus the value of the land on 
which the property is located.
     Federal disaster relief assistance (usually in the form of 
a low-interest loan) may be available for damages incurred in excess of 
your flood insurance if your community's participation in the NFIP is in 
accordance with NFIP requirements.
    ______ Flood insurance coverage under the NFIP is not available for 
the property securing the loan because the community in which the 
property is located does not participate in the NFIP. In addition, if 
the non-participating community has been identified for at least one 
year as containing a special flood hazard area, properties located in 
the community will not be eligible for Federal disaster relief 
assistance in the event of a Federally-declared flood disaster.

[61 FR 45702, Aug. 29, 1996]



PART 23--LEASING--Table of Contents




                      Subpart A--General Provisions

Sec.
23.1  Authority, purpose, and scope.
23.2  Definitions.
23.3  Lease requirements.
23.4  Investment in personal property.
23.5  Requirement for separate records.
23.6  Application of lending limits; restrictions on transactions with 
          affiliates.

                         Subpart B--CEBA Leases

23.10  General rule.
23.11  Lease term.
23.12  Transition rule.

                  Subpart C--Section 24(Seventh) Leases

23.20  General rule.
23.21  Estimated residual value.
23.22  Transition rule.

    Authority: 12 U.S.C. 1 et seq., 24(Seventh), 24(Tenth), and 93a.

    Source: 61 FR 66560, Dec. 18, 1996, unless otherwise noted.



                      Subpart A--General Provisions



Sec. 23.1  Authority, purpose, and scope.

    (a) Authority. A national bank may engage in personal property lease 
financing transactions pursuant to 12 U.S.C. 24(Seventh) or 12 U.S.C. 
24(Tenth).
    (b) Purpose. The purpose of this part is to set forth standards for 
personal property lease financing transactions authorized for national 
banks.
    (c) Scope. This part applies to the acquisition of personal property 
by a national bank for the purpose of, or in connection with, the 
leasing of that property.



Sec. 23.2  Definitions.

    (a) Affiliate means an affiliate as described in Sec. 23.6.
    (b) 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 (b)(1) of this section, as 
reported in the bank's Consolidated Report of Condition and Income filed 
under 12 U.S.C. 161.
    (c) CEBA Lease means a personal property lease authorized under 12 
U.S.C. 24(Tenth).
    (d) Conforming lease means:
    (1) A CEBA Lease that conforms with the requirements of subparts A 
and B of this part; or
    (2) A Section 24(Seventh) Lease that conforms with the requirements 
of subparts A and C of this part.
    (e) Full-payout lease means a lease in which the national bank 
reasonably expects to realize the return of its full investment in the 
leased property, plus the estimated cost of financing the property over 
the term of the lease, from:
    (1) Rentals;
    (2) Estimated tax benefits; and

[[Page 204]]

    (3) The estimated residual value of the property at the expiration 
of the lease term.
    (f) Net lease means a lease under which the national bank will not, 
directly or indirectly, provide or be obligated to provide for:
    (1) Servicing, repair, or maintenance of the leased property during 
the lease term;
    (2) Parts or accessories for the leased property;
    (3) Loan of replacement or substitute property while the leased 
property is being serviced;
    (4) Payment of insurance for the lessee, except where the lessee has 
failed in its contractual obligation to purchase or maintain required 
insurance; or
    (5) Renewal of any license or registration for the property unless 
renewal by the bank is necessary to protect its interest as owner or 
financier of the property.
    (g) Off-lease property means property that reverts to a national 
bank's possession or control upon the expiration of a lease or upon the 
default of the lessee.
    (h) Section 24(Seventh) Lease means a personal property lease 
authorized under 12 U.S.C. 24(Seventh).



Sec. 23.3  Lease requirements.

    (a) General requirements. A national bank may acquire personal 
property for the purpose of, or in connection with leasing that 
property, and may engage in activities incidental thereto, if the lease 
qualifies as a full-payout lease and a net lease.
    (b) Exceptions--(1) Change in condition. If, in good faith, a 
national bank believes that there has been a change in condition that 
threatens its financial position by increasing its exposure to loss, 
then the bank may:
    (i) Take reasonable and appropriate action, including the actions 
specified in Sec. 23.2(f), to salvage or protect the value of the leased 
property or its interests arising under the lease; and
    (ii) Acquire or perfect title to the leased property pursuant to any 
existing rights.
    (2) Provisions to protect the bank's interests. A national bank may 
include any provision in a lease, or make any additional agreement, to 
protect its financial position or investment in the event of a change in 
conditions that would increase its exposure to loss.
    (3) Arranging for services by a third party. A national bank may 
arrange for a third party to provide any of the services enumerated in 
Sec. 23.2(f) to the lessee at the expense of the lessee.



Sec. 23.4  Investment in personal property.

    (a) General rule. A national bank may acquire specific property to 
be leased only after the bank has entered into:
    (1) A conforming lease;
    (2) A legally binding written agreement that indemnifies the bank 
against loss in connection with its acquisition of the property; or
    (3) A legally binding written commitment to enter into a conforming 
lease.
    (b) Exception. A national bank may acquire property to be leased 
without complying with the requirements of paragraph (a) of this 
section, if:
    (1) The acquisition of the property is consistent with the leasing 
business then conducted by the bank or is consistent with a business 
plan for expansion of the bank's existing leasing business or for entry 
into the leasing business; and
    (2) The bank's aggregate investment in property held pursuant to 
this paragraph (b) does not exceed 15 percent of the bank's capital and 
surplus.
    (c) Holding period. At the expiration of the lease (including any 
renewals or extensions with the same lessee), or in the event of a 
default on a lease agreement prior to the expiration of the lease term, 
a national bank shall either liquidate the off-lease property or re-
lease it under a conforming lease as soon as practicable. Liquidation or 
re-lease must occur not later than five years from the date that the 
bank acquires the legal right to possession or control of the property, 
except the OCC may extend the period for up to an additional five years, 
if the bank provides a clearly convincing demonstration why any 
additional holding period is necessary. The bank must value off-lease 
property at the lower of current fair market value or book value 
promptly after the property becomes off-lease property.

[[Page 205]]

    (d) Bridge or interim leases. During the holding period allowed by 
paragraph (c) of this section, a national bank may enter into a short-
term bridge or interim lease pending the liquidation of off-lease 
property or the re-lease of the property under a conforming lease. A 
short-term bridge or interim lease must be a net lease, but need not 
comply with any requirement of subpart B or C of this part.



Sec. 23.5  Requirement for separate records.

    If a national bank enters into both CEBA Leases and Section 
24(Seventh) Leases, the bank's records must distinguish the CEBA Leases 
from the Section 24(Seventh) Leases.



Sec. 23.6  Application of lending limits; restrictions on transactions with affiliates.

    A lease entered into pursuant to this part is subject to the lending 
limits prescribed by 12 U.S.C. 84 or, if the lessee is an affiliate of 
the bank, to the restrictions on transactions with affiliates prescribed 
by 12 U.S.C. 371c and 371c-1. The OCC may also determine that other 
limits or restrictions apply. The term affiliate means an affiliate as 
defined in 12 U.S.C. 371c or 371c-1, as applicable. For the purpose of 
measuring compliance with the lending limits prescribed by 12 U.S.C. 84, 
a national bank records the investment in a lease net of any nonrecourse 
debt the bank has incurred to finance the acquisition of the leased 
asset.



                         Subpart B--CEBA Leases



Sec. 23.10  General rule.

    Pursuant to 12 U.S.C. 24(Tenth) a national bank may invest in 
tangible personal property, including vehicles, manufactured homes, 
machinery, equipment, or furniture, for the purpose of, or in connection 
with leasing that property, if the aggregate book value of the property 
does not exceed 10 percent of the bank's consolidated assets and the 
related lease is a conforming lease. For the purpose of measuring 
compliance with the 10 percent limit prescribed by this section, a 
national bank records the investment in a lease entered into pursuant to 
this subpart net of any nonrecourse debt the bank has incurred to 
finance the acquisition of the leased asset.



Sec. 23.11  Lease term.

    A CEBA Lease must have an initial term of not less than 90 days. A 
national bank may acquire property subject to an existing lease with a 
remaining maturity of less than 90 days if, at its inception, the lease 
was a conforming lease.



Sec. 23.12  Transition rule.

    (a) General rule. A CEBA Lease entered into prior to July 22, 1991, 
may continue to be administered in accordance with the lease terms in 
effect as of that date. For purposes of applying the lending limits and 
the restrictions on transactions with affiliates described in Sec. 23.6, 
however, a national bank that enters into a new extension of credit to a 
customer, including a lease, on or after July 22, 1991, shall include 
all outstanding leases regardless of the date on which they were made.
    (b) Renewal of non-conforming leases. A national bank may renew a 
CEBA Lease that was entered into prior to July 22, 1991, and that is not 
a conforming lease only if the following conditions are satisfied:
    (1) The bank entered into the CEBA Lease in good faith;
    (2) The expiring lease contains a binding agreement requiring that 
the bank renew the lease at the lessee's option, and the bank cannot 
reasonably avoid its commitment to do so; and
    (3) The bank determines in good faith, and demonstrates by 
appropriate documentation, that renewal of the lease is necessary to 
avoid financial loss and to recover its investment in, and its cost of 
financing, the leased property.



                  Subpart C--Section 24(Seventh) Leases



Sec. 23.20  General rule.

    Pursuant to 12 U.S.C. 24(Seventh) a national bank may invest in 
tangible or intangible personal property, including vehicles, 
manufactured homes, machinery, equipment, furniture, patents,

[[Page 206]]

copyrights, and other intellectual property, for the purpose of, or in 
connection with leasing that property, if the related lease is a 
conforming lease representing a noncancelable obligation of the lessee 
(notwithstanding the possible early termination of that lease).



Sec. 23.21  Estimated residual value.

    (a) Recovery of investment and costs. A national bank's estimate of 
the residual value of the property that the bank relies upon to satisfy 
the requirements of a full-payout lease, for purposes of this subpart:
    (1) Must be reasonable in light of the nature of the leased property 
and all circumstances relevant to the transaction; and
    (2) Any unguaranteed amount must not exceed 25 percent of the 
original cost of the property to the bank.
    (b) Estimated residual value subject to guarantee. The amount of any 
estimated residual value guaranteed by the manufacturer, the lessee, or 
other third party may exceed 25 percent of the original cost of the 
property if the bank determines, and demonstrates by appropriate 
documentation, that the guarantor has the resources to meet the 
guarantee and the guarantor is not an affiliate of the bank.
    (c) Leases to government entities. A bank's calculations of 
estimated residual value in connection with leases of personal property 
to Federal, State, or local governmental entities may be based on future 
transactions or renewals that the bank reasonably anticipates will 
occur.



Sec. 23.22  Transition rule.

    (a) Exclusion. A Section 24(Seventh) Lease entered into prior to 
June 12, 1979, may continue to be administered in accordance with the 
lease terms in effect as of that date. For purposes of applying the 
lending limits and the restrictions on transactions with affiliates 
described in Sec. 23.6, however, a national bank that enters into a new 
extension of credit to a customer, including a lease, on or after June 
12, 1979, shall include all outstanding leases regardless of the date on 
which they were made.
    (b) Renewal of non-conforming leases. A national bank may renew a 
Section 24(Seventh) Lease that was entered into prior to June 12, 1979, 
and that is not a conforming lease only if the following conditions are 
satisfied:
    (1) The bank entered into the Section 24(Seventh) Lease in good 
faith;
    (2) The expiring lease contains a binding agreement requiring that 
the bank renew the lease at the lessee's option, and the bank cannot 
reasonably avoid its commitment to do so; and
    (3) The bank determines in good faith, and demonstrates by 
appropriate documentation, that renewal of the lease is necessary to 
avoid financial loss and to recover its investment in, and its cost of 
financing, the leased property.



PART 24--COMMUNITY DEVELOPMENT CORPORATIONS, COMMUNITY DEVELOPMENT PROJECTS, AND OTHER PUBLIC WELFARE INVESTMENTS--Table of Contents




Sec.
24.1  Authority, purpose, and OMB control number.
24.2  Definitions.
24.3  Public welfare investments.
24.4  Investment limits.
24.5  Public welfare investment self-certification and prior approval 
          procedures.
24.6  Examples of qualifying public welfare investments.
24.7  Examination, records, and remedial action.

    Authority: 12 U.S.C. 24(Eleventh), 93a, 481 and 1818.

    Source: 61 FR 49660, Sept. 23, 1996, unless otherwise noted.



Sec. 24.1  Authority, purpose, and OMB control number.

    (a) Authority: The Office of the Comptroller of the Currency (OCC) 
issues this part pursuant to its authority under 12 U.S.C. 24(Eleventh), 
93a, and 481.
    (b) Purpose. This part implements 12 U.S.C. 24(Eleventh), which 
authorizes national banks to make investments designed primarily to 
promote the public welfare, including the welfare of low- and moderate-
income areas or individuals, such as by providing housing, services, or 
jobs. It is the OCC's policy to encourage national banks to make 
investments described in Sec. 24.3,

[[Page 207]]

consistent with safety and soundness. The OCC believes that national 
banks can promote the public welfare through a variety of investments, 
including those in community development corporations (CDCs) and 
community development projects (CD Projects) that develop affordable 
housing, foster revitalization or stabilization of low- and moderate-
income areas or other areas targeted for redevelopment by local, state, 
tribal or Federal government, or provide equity or debt financing for 
small businesses that are located in such areas or that produce or 
retain permanent jobs for low- and moderate-income persons. This part 
provides:
    (1) The standards that the OCC uses to determine whether an 
investment is designed primarily to promote the public welfare; and
    (2) The procedures that apply to these investments.
    (c) OMB control number. The collection of information requirements 
contained in this part were approved by the Office of Management and 
Budget under OMB control number 1557-0194.
    (d) National banks that make loans or investments that are designed 
primarily to promote the public welfare and that are authorized under 
provisions of the banking laws other than 12 U.S.C. 24(Eleventh), may do 
so without regard to the provisions of 12 U.S.C. 24(Eleventh) or this 
part.

[61 FR 49660, Sept. 23, 1996, as amended at 64 FR 70990, Dec. 20, 1999]

    Effective Date Note: At 64 FR 70990, Dec. 20, 1999, Sec. 24.1 was 
amended by adding paragraph (d), effective Jan. 19, 2000.



Sec. 24.2  Definitions.

    For purposes of this part, the following definitions apply:
    (a) Adequately capitalized has the same meaning as adequately 
capitalized in 12 CFR 6.4.
    (b) Capital and surplus means:
    (1) A bank's Tier 1 and Tier 2 capital calculated under the OCC's 
risk-based capital standards set out in Appendix A to 12 CFR part 3 as 
reported in the bank's Consolidated Report of Condition and Income as 
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 under Appendix A to 12 CFR part 3, as reported in 
the bank's Consolidated Report of Condition and Income as filed under 12 
U.S.C. 161.
    (c) Community development corporation (CDC) means a corporation 
established by one or more insured financial institutions, or by insured 
financial institutions and other investors, to make one or more 
investments that meet the requirements of Sec. 24.3.
    (d) Community development Project (CD Project) means a project to 
make an investment that meets the requirements of Sec. 24.3.
    (e) Eligible bank means, for purposes of Sec. 24.5, a national bank 
that:
    (1) Is well capitalized;
    (2) Has a composite rating of 1 or 2 under the Uniform Financial 
Institutions Rating System;
    (3) Has a Community Reinvestment Act (CRA) 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.
    (f) Low-income and moderate-income have the same meanings as ``low-
income'' and ``moderate-income'' in 12 CFR 25.12(n).
    (g) Significant risk to the deposit insurance fund means a 
substantial probability that any Federal deposit insurance fund could 
suffer a loss.
    (h) Small business means a business, including a minority-owned 
small business, that meets the qualifications for Small Business 
Administration Development Company or Small Business Investment Company 
loan programs in 13 CFR 121.301.
    (i) Well capitalized has the same meaning as well capitalized in 12 
CFR 6.4.



Sec. 24.3  Public welfare investments.

    A national bank may make an investment under this part if:
    (a) The investment primarily benefits low- and moderate-income 
individuals, low- and moderate-income areas,

[[Page 208]]

or other areas targeted for redevelopment by local, state, tribal or 
Federal government (including Federal enterprise communities and Federal 
empowerment zones) by providing or supporting one or more of the 
following activities:
    (1) Affordable housing, community services, or permanent jobs for 
low- and moderate-income individuals;
    (2) Equity or debt financing for small businesses;
    (3) Area revitalization or stabilization; or
    (4) Other activities, services, or facilities that primarily promote 
the public welfare;
    (b) The bank demonstrates non-bank community support for or 
participation in the investment. Community support or participation may 
be demonstrated in a variety of ways, including:
    (1) In the case of an investment in a CD entity with a board of 
directors, representation on the board of directors by non-bank 
community representatives with expertise relevant to the proposed 
investment;
    (2) Establishment of an advisory board for the bank's community 
development activities that includes non-bank community representatives 
with expertise relevant to the proposed investment;
    (3) Formation of a formal business relationship with a community-
based organization in connection with the proposed investment;
    (4) Contractual agreements with community partners to provide 
services in connection with the proposed investment;
    (5) Joint ventures with local small businesses in the proposed 
investment; and
    (6) Financing for the proposed investment from the public sector or 
community development organizations or the receipt of Federal low-income 
housing tax credits by the project in which the investment is made 
(directly or through a fund that invests in such projects).

[61 FR 49660, Sept. 23, 1996, as amended at 64 FR 70990, Dec. 20, 1999]

    Effective Date Note: At 64 FR 70990, Dec. 20, 1999, Sec. 24.3 was 
amended by removing paragraphs (b) and (c), redesignating paragraph (d) 
as paragraph (b), removing the words ``but not limited to'' from the 
newly designated paragraph (b) and revising the newly designated 
paragraph (b)(6), effective Jan. 19, 2000. For the convenience of the 
user, the superseded text is set forth as follows:

Sec. 24.3  Public welfare investments.

                                * * * * *

    (b) The bank demonstrates that it is not reasonably practicable to 
obtain other private market financing for the proposed investment;
    (c) The bank demonstrates the extent to which the investment 
benefits communities otherwise served by the bank; and
    (d)* * * 

                                * * * * *

    (6) Financing for the proposed investment from the public sector or 
community development organizations.



Sec. 24.4  Investment limits.

    (a) Limit on aggregate outstanding investments. A national bank's 
aggregate outstanding investments under this part may not exceed 5 
percent of its capital and surplus, unless the bank is at least 
adequately capitalized and the OCC determines, by written approval of 
the bank's proposed investment(s) pursuant to Sec. 24.5(b), that a 
higher amount will pose no significant risk to the deposit insurance 
fund. In no case may a bank's aggregate outstanding investments under 
this part exceed 10 percent of its capital and surplus.
    (b) Limited liability. A national bank may not make an investment 
under this part that would expose the bank to unlimited liability.

[61 FR 49660, Sept. 23, 1996, as amended at 64 FR 70991, Dec. 20, 1999]

    Effective Date Note: At 64 FR 70991, Dec. 20, 1999, Sec. 24.4 was 
amended by adding to paragraph (a) the phrase ``pursuant to 
Sec. 24.5(b)''after the phrase ``by written approval of the bank's 
proposed investments'', effective Jan. 19, 2000.



Sec. 24.5  Public welfare investment self-certification and prior approval procedures.

    (a) Self-certification of public welfare investments. (1) Subject to 
Sec. 24.4(a), an eligible bank may make an investment without prior 
notification to, or approval by, the OCC if the bank follows

[[Page 209]]

the self-certification procedures prescribed in this section.
    (2) To self-certify an investment, an eligible bank shall submit, 
within 10 working days after it makes an investment, a letter of self-
certification to the Director, Community Development Division, Office of 
the Comptroller of the Currency, Washington, DC 20219.
    (3) The bank's letter of self-certification must include:
    (i) The name of the CDC, CD Project, or other entity in which the 
bank has invested;
    (ii) The date the investment was made;
    (iii) The type of investment (equity or debt), the investment 
activity listed in Sec. 24.3(a) that the investment primarily supports, 
and a brief description of the particular investment;
    (iv) The amount of the bank's total investment in the CDC, CD 
Project or other entity, and the bank's aggregate outstanding 
investments under this part, including commitments and the investment 
being self-certified;
    (v) The percentage of the bank's capital and surplus represented by 
the bank's aggregate outstanding investments under this part, including 
commitments and the investment being self-certified; and
    (vi) A statement certifying compliance with the requirements of 
Sec. 24.3 and Sec. 24.4.
    (4) A national bank that is not an eligible bank but that is at 
least adequately capitalized, and has a composite rating of at least 3 
with improving trends under the Uniform Financial Institutions Rating 
System, may submit a letter to the Community Development Division 
requesting authority to self-certify investments. The Community 
Development Division considers these requests on a case-by-case basis.
    (5) Notwithstanding the provisions of this section, a bank may not 
self-certify an investment if:
    (i) The investment involves properties carried on the bank's books 
as ``other real estate owned''; or
    (ii) The OCC determines, in published guidance, that the investment 
is inappropriate for self-certification.
    (b) Investments requiring prior approval. (1) If a national bank 
does not meet the requirements for self-certification set forth in this 
part, the bank must submit a proposal for an investment to the Director, 
Community Development Division, Office of the Comptroller of the 
Currency, Washington, DC 20219.
    (2) The bank's investment proposal must include:
    (i) The name of the CDC, CD Project, or other entity in which the 
bank intends to invest;
    (ii) The date on which the bank intends to make the investment;
    (iii) The type of investment (equity or debt), the investment 
activity listed in Sec. 24.3(a) that the investment primarily supports, 
and a description of the particular investment;
    (iv) The amount of the bank's total investment in the CDC, CD 
Project or other entity, and the bank's aggregate outstanding 
investments under this part (including commitments and the investment 
being proposed);
    (v) The percentage of the bank's capital and surplus represented by 
the bank's aggregate outstanding investments under this part (including 
commitments and the investment being proposed); and
    (vi) A statement certifying compliance with the requirements of 
Sec. 24.3 and Sec. 24.4.
    (3) In reviewing a proposal, the OCC considers the following factors 
and other available information:
    (i) Whether the investment satisfies the requirements of Sec. 24.3 
and Sec. 24.4;
    (ii) Whether the investment is consistent with the safe and sound 
operation of the bank; and
    (iii) Whether the investment is consistent with the requirements of 
this part and the OCC's policies.
    (4) Unless otherwise notified in writing by the OCC, and subject to 
Sec. 24.4(a), the proposed investment is deemed approved after 30 
calendar days from the date on which the OCC receives the bank's 
investment proposal.
    (5) The OCC, by notifying the bank, may extend its period for 
reviewing the investment proposal. If so notified, the bank may make the 
investment only with the OCC's written approval.
    (6) The OCC may impose one or more conditions in connection with its 
approval of an investment under this

[[Page 210]]

part. All approvals are subject to the condition that a national bank 
must conduct the approved activity in a manner consistent with any 
published guidance issued by the OCC regarding the activity.

[61 FR 49660, Sept. 23, 1996, as amended at 64 FR 70991, Dec. 20, 1999]

    Effective Date Note: At 64 FR 70991, Dec. 20, 1999, Sec. 24.5 was 
amended by revising paragraphs (a)(1) and (a)(3)(iii); paragraph 
(a)(3)(v) was amended by adding the word ``and'' at the end of the 
paragraph; paragraph (a)(3)(vi) was amended by removing the term ``; 
and'' and adding a period in its place; paragraph (a)(3)(vii) was 
removed; a new paragraph (a)(5) was added and paragraphs (b)(1) and 
(b)(2)(iii) were revised; effective Jan. 19, 2000. For the convenience 
of the user, the superseded text is set forth as follows:

Sec. 24.5  Public welfare investment self-certification and prior 
          approval procedures.

    (a) * * *
    (1) Subject to Sec. 24.4(a), an eligible bank may make an investment 
described in Sec. 24.6(a) without prior notification to, or approval by, 
the OCC if the bank follows the self-certification procedures prescribed 
in this section.

                                * * * * *

    (3) * * *
    (iii) The type of investment (equity or debt), the investment 
activity listed in Sec. 24.6(a) that the investment supports, and a 
brief description of the particular investment;

                                * * * * *

    (vii) If a portion of the investment funds projects outside of the 
areas in which the bank maintains its main office or branches, a 
statement certifying that no more than 25 percent of the investment 
funds projects in a state or metropolitan area other than the states or 
metropolitan areas in which the bank maintains its main office or 
branches.
    (b) * * *
    (1) If a national bank or its proposed investment does not meet the 
requirements for self-certification set forth in paragraph (a) of this 
section, the bank shall submit a proposal for an investment to the 
Director, Community Development Division, Office of the Comptroller of 
the Currency, Washington, DC 20219.
    (2) * * *
    (iii) The type of investment (equity or debt), the investment 
activity listed in Sec. 24.3(a) that the investment supports, and a 
description of the particular investment;

                                * * * * *



Sec. 24.6  Examples of qualifying public welfare investments.

    (a) Investments that primarily support the following types of 
activities are examples of investments that meet the requirements of 
Sec. 24.3(a):
    (1) Investments in an entity that finances, acquires, develops, 
rehabilitates, manages, sells, or rents housing primarily for low- and 
moderate-income individuals;
    (2) Investments that finance small businesses (including equity or 
debt financing and investments in an entity that provides loan 
guarantees) that are located in low- and moderate-income areas or that 
produce or retain permanent jobs, the majority of which are held by low- 
and moderate-income individuals;
    (3) Investments that provide credit counseling, job training, 
community development research, and similar technical assistance 
services for non-profit community development organizations, low- and 
moderate-income individuals or areas, or small businesses located in 
low- and moderate-income areas or that produce or retain permanent jobs, 
the majority of which are held by low- and moderate-income individuals;
    (4) Investments in an entity that acquires, develops, rehabilitates, 
manages, sells, or rents commercial or industrial property that is 
located in a low- and moderate-income area and occupied primarily by 
small businesses, or that is occupied primarily by small businesses that 
produce or retain permanent jobs, the majority of which are held by low- 
and moderate-income individuals;
    (5) Investments in a project that qualifies for the Federal low-
income housing tax credit;
    (6) Investments in low- and moderate-income areas that produce or 
retain permanent jobs, the majority of which are held by low- and 
moderate-income individuals;
    (7) Investments in a national bank that has been approved by the OCC 
as

[[Page 211]]

a national bank with a community development focus;
    (8) Investments of a type approved by the Federal Reserve Board 
under 12 CFR 208.22 for state member banks that are consistent with the 
requirements of Sec. 24.3;
    (9) Investments in a community development financial institution, as 
defined in 12 U.S.C. 4702(5); and
    (10) Investments of a type previously determined by the OCC to be 
permissible under this part.
    (b) [Reserved]

 [61 FR 49660, Sept. 23, 1996, as amended at 64 FR 70991, Dec. 20, 1999]

    Effective Date Note: At 64 FR 70991, Dec. 20, 1999, Sec. 24.6 was 
amended by revising the section heading, paragraph (a) introductory 
text, paragraph (a)(5) and paragraph (a)(8); paragraph (a)(9) was 
redesignated as paragraph (a)(10); paragraph (a)(9) was added and 
paragraph (b) was removed and reserved, effective Jan. 19, 2000. For the 
convenience of the user, the superseded text is set forth as follows:

Sec. 24.6  Activities eligible for self-certification.

    (a) Eligible activities. In accordance with the process described in 
Sec. 24.5(a), a bank may self-certify the following investments without 
prior notice to, or approval by, the OCC:

                                * * * * *

    (5) Investments as a limited partner, or as a partner in an entity 
that is itself a limited partner, in a project with a general partner 
that is, or is primarily owned and operated by, a 26 U.S.C. 501(c) (3) 
or (4) non-profit corporation and that qualifies for the Federal low-
income housing tax credit;

                                * * * * *

    (8) Investments of a type approved by the Federal Reserve Board 
under 12 CFR 208.21 for state member banks that are consistent with the 
requirements of Sec. 24.3; and

                                * * * * *

    (b) Ineligible activities. Notwithstanding the provisions of this 
section, a bank may not self-certify an investment if:
    (1) The investment involves properties carried on the bank's books 
as ``other real estate owned'';
    (2) More than 25 percent of the investment funds projects in a state 
or metropolitan area other than the states or metropolitan areas in 
which the bank maintains its main office or branches; or
    (3) The OCC determines, in published guidance, that the investment 
is inappropriate for self-certification.



Sec. 24.7  Examination, records, and remedial action.

    (a) Examination. National bank investments under this part are 
subject to the examination provisions of 12 U.S.C. 481.
    (b) Records. Each national bank shall maintain in its files 
information adequate to demonstrate that it is in compliance with the 
requirements of this part.
    (c) Remedial action. If the OCC finds that an investment under this 
part is in violation of law or regulation, is inconsistent with the safe 
and sound operation of the bank, or poses a significant risk to a 
Federal deposit insurance fund, the national bank shall take appropriate 
remedial action as determined by the OCC.



PART 25--COMMUNITY REINVESTMENT ACT AND INTERSTATE DEPOSIT PRODUCTION REGULATIONS--Table of Contents




                               Regulations

                           Subpart A--General

Sec.
25.11  Authority, purposes, and scope.
25.12  Definitions.

             Subpart B--Standards for Assessing Performance

25.21  Performance tests, standards, and ratings, in general.
25.22  Lending test.
25.23  Investment test.
25.24  Service test.
25.25  Community development test for wholesale or limited purpose 
          banks.
25.26  Small bank performance standards.
25.27  Strategic plan.
25.28  Assigned ratings.
25.29  Effect of CRA performance on applications.

       Subpart C--Records, Reporting, and Disclosure Requirements

25.41  Assessment area delineation.
25.42  Data collection, reporting, and disclosure.
25.43  Content and availability of public file.
25.44  Public notice by banks.

[[Page 212]]

25.45  Publication of planned examination schedule.

Subpart D [Reserved]

Subpart E--Prohibition Against Use of Interstate Branches Primarily for 
                           Deposit Production

25.61  Purpose and scope.
25.62  Definitions.
25.63  Loan-to-deposit ratio screen.
25.64  Credit needs determination.
25.65  Sanctions.

Appendix A to Part 25--Ratings
Appendix B to Part 25--CRA Notice

    Authority: 12 U.S.C. 21, 22, 26, 27, 30, 36, 93a, 161, 215, 215a, 
481, 1814, 1816, 1828(c), 1835a, 2901 through 2907, and 3101 through 
3111.

    Source: 43 FR 47146, Oct. 12, 1978, unless otherwise noted.

                               Regulations



                           Subpart A--General



Sec. 25.11  Authority, purposes, and scope.

    (a) Authority and OMB control number--(1) Authority. The authority 
for subparts A, B, C, D, and E is 12 U.S.C. 21, 22, 26, 27, 30, 36, 93a, 
161, 215, 215a, 481, 1814, 1816, 1828(c), 1835a, 2901 through 2907, and 
3101 through 3111.
    (2) OMB control number. The information collection requirements 
contained in this part were approved by the Office of Management and 
Budget under the provisions of 44 U.S.C. 3501 et seq. and have been 
assigned OMB control number 1557-0160.
    (b) Purposes. In enacting the Community Reinvestment Act (CRA), the 
Congress required each appropriate Federal financial supervisory agency 
to assess an institution's record of helping to meet the credit needs of 
the local communities in which the institution is chartered, consistent 
with the safe and sound operation of the institution, and to take this 
record into account in the agency's evaluation of an application for a 
deposit facility by the institution. This part is intended to carry out 
the purposes of the CRA by:
    (1) Establishing the framework and criteria by which the Office of 
the Comptroller of the Currency (OCC) assesses a bank's record of 
helping to meet the credit needs of its entire community, including low- 
and moderate-income neighborhoods, consistent with the safe and sound 
operation of the bank; and
    (2) Providing that the OCC takes that record into account in 
considering certain applications.
    (c) Scope--(1) General. This part applies to all banks except as 
provided in paragraphs (c)(2) and (c)(3) of this section.
    (2) Federal branches and agencies. (i) This part applies to all 
insured Federal branches and to any Federal branch that is uninsured 
that results from an acquisition described in section 5(a)(8) of the 
International Banking Act of 1978 (12 U.S.C. 3103(a)(8)).
    (ii) Except as provided in paragraph (c)(2)(i) of this section, this 
part does not apply to Federal branches that are uninsured, limited 
Federal branches, or Federal agencies, as those terms are defined in 
part 28 of this chapter.
    (3) Certain special purpose banks. This part does not apply to 
special purpose banks that do not perform commercial or retail banking 
services by granting credit to the public in the ordinary course of 
business, other than as incident to their specialized operations. These 
banks include banker's banks, as defined in 12 U.S.C. 24 (Seventh), and 
banks that engage only in one or more of the following activities: 
providing cash management controlled disbursement services or serving as 
correspondent banks, trust companies, or clearing agents.

[60 FR 22178, May 4, 1995, as amended at 62 FR 47734, Sept. 10, 1997]



Sec. 25.12  Definitions.

    For purposes of this part, the following definitions apply:
    (a) Affiliate means any company that controls, is controlled by, or 
is under common control with another company. The term ``control'' has 
the meaning given to that term in 12 U.S.C. 1841(a)(2), and a company is 
under common control with another company if both companies are directly 
or indirectly controlled by the same company.
    (b) Area median income means:
    (1) The median family income for the MSA, if a person or geography 
is located in an MSA; or

[[Page 213]]

    (2) The statewide nonmetropolitan median family income, if a person 
or geography is located outside an MSA.
    (c) Assessment area means a geographic area delineated in accordance 
with Sec. 25.41.
    (d) Automated teller machine (ATM) means an automated, unstaffed 
banking facility owned or operated by, or operated exclusively for, the 
bank at which deposits are received, cash dispersed, or money lent.
    (e) Bank means a national bank (including a Federal branch as 
defined in part 28 of this chapter) with Federally insured deposits, 
except as provided in Sec. 25.11(c).
    (f) Branch means a staffed banking facility authorized as a branch, 
whether shared or unshared, including, for example, a mini-branch in a 
grocery store or a branch operated in conjunction with any other local 
business or nonprofit organization.
    (g) CMSA means a consolidated metropolitan statistical area as 
defined by the Director of the Office of Management and Budget.
    (h) Community development means:
    (1) Affordable housing (including multifamily rental housing) for 
low- or moderate-income individuals;
    (2) Community services targeted to low- or moderate-income 
individuals;
    (3) Activities that promote economic development by financing 
businesses or farms that meet the size eligibility standards of the 
Small Business Administration's Development Company or Small Business 
Investment Company programs (13 CFR 121.301) or have gross annual 
revenues of $1 million or less; or
    (4) Activities that revitalize or stabilize low- or moderate-income 
geographies.
    (i) Community development loan means a loan that:
    (1) Has as its primary purpose community development; and
    (2) Except in the case of a wholesale or limited purpose bank:
    (i) Has not been reported or collected by the bank or an affiliate 
for consideration in the bank's assessment as a home mortgage, small 
business, small farm, or consumer loan, unless it is a multifamily 
dwelling loan (as described in appendix A to part 203 of this title); 
and
    (ii) Benefits the bank's assessment area(s) or a broader statewide 
or regional area that includes the bank's assessment area(s).
    (j) Community development service means a service that:
    (1) Has as its primary purpose community development;
    (2) Is related to the provision of financial services; and
    (3) Has not been considered in the evaluation of the bank's retail 
banking services under Sec. 25.24(d).
    (k) Consumer loan means a loan to one or more individuals for 
household, family, or other personal expenditures. A consumer loan does 
not include a home mortgage, small business, or small farm loan. 
Consumer loans include the following categories of loans:
    (1) Motor vehicle loan, which is a consumer loan extended for the 
purchase of and secured by a motor vehicle;
    (2) Credit card loan, which is a line of credit for household, 
family, or other personal expenditures that is accessed by a borrower's 
use of a ``credit card,'' as this term is defined in Sec. 226.2 of this 
title;
    (3) Home equity loan, which is a consumer loan secured by a 
residence of the borrower;
    (4) Other secured consumer loan, which is a secured consumer loan 
that is not included in one of the other categories of consumer loans; 
and
    (5) Other unsecured consumer loan, which is an unsecured consumer 
loan that is not included in one of the other categories of consumer 
loans.
    (l) Geography means a census tract or a block numbering area 
delineated by the United States Bureau of the Census in the most recent 
decennial census.
    (m) Home mortgage loan means a ``home improvement loan'' or a ``home 
purchase loan'' as defined in Sec. 203.2 of this title.
    (n) Income level includes:
    (1) Low-income, which means an individual income that is less than 
50 percent of the area median income, or a median family income that is 
less than 50 percent, in the case of a geography.
    (2) Moderate-income, which means an individual income that is at 
least 50 percent and less than 80 percent of the

[[Page 214]]

area median income, or a median family income that is at least 50 and 
less than 80 percent, in the case of a geography.
    (3) Middle-income, which means an individual income that is at least 
80 percent and less than 120 percent of the area median income, or a 
median family income that is at least 80 and less than 120 percent, in 
the case of a geography.
    (4) Upper-income, which means an individual income that is 120 
percent or more of the area median income, or a median family income 
that is 120 percent or more, in the case of a geography.
    (o) Limited purpose bank means a bank that offers only a narrow 
product line (such as credit card or motor vehicle loans) to a regional 
or broader market and for which a designation as a limited purpose bank 
is in effect, in accordance with Sec. 25.25(b).
    (p) Loan location. A loan is located as follows:
    (1) A consumer loan is located in the geography where the borrower 
resides;
    (2) A home mortgage loan is located in the geography where the 
property to which the loan relates is located; and
    (3) A small business or small farm loan is located in the geography 
where the main business facility or farm is located or where the loan 
proceeds otherwise will be applied, as indicated by the borrower.
    (q) Loan production office means a staffed facility, other than a 
branch, that is open to the public and that provides lending-related 
services, such as loan information and applications.
    (r) MSA means a metropolitan statistical area or a primary 
metropolitan statistical area as defined by the Director of the Office 
of Management and Budget.
    (s) Qualified investment means a lawful investment, deposit, 
membership share, or grant that has as its primary purpose community 
development.
    (t) Small bank means a bank that, as of December 31 of either of the 
prior two calendar years, had total assets of less than $250 million and 
was independent or an affiliate of a holding company that, as of 
December 31 of either of the prior two calendar years, had total banking 
and thrift assets of less than $1 billion.
    (u) Small business loan means a loan included in ``loans to small 
businesses'' as defined in the instructions for preparation of the 
Consolidated Report of Condition and Income.
    (v) Small farm loan means a loan included in ``loans to small 
farms'' as defined in the instructions for preparation of the 
Consolidated Report of Condition and Income.
    (w) Wholesale bank means a bank that is not in the business of 
extending home mortgage, small business, small farm, or consumer loans 
to retail customers, and for which a designation as a wholesale bank is 
in effect, in accordance with Sec. 25.25(b).

[60 FR 22178, May 4, 1995, as amended at 60 FR 66050, Dec. 20, 1995; 61 
FR 21363, May 10, 1996]



             Subpart B--Standards for Assessing Performance

    Source: 60 FR 22180, May 4, 1995, unless otherwise noted.



Sec. 25.21  Performance tests, standards, and ratings, in general.

    (a) Performance tests and standards. The OCC assesses the CRA 
performance of a bank in an examination as follows:
    (1) Lending, investment, and service tests. The OCC applies the 
lending, investment, and service tests, as provided in Secs. 25.22 
through 25.24, in evaluating the performance of a bank, except as 
provided in paragraphs (a)(2), (a)(3), and (a)(4) of this section.
    (2) Community development test for wholesale or limited purpose 
banks. The OCC applies the community development test for a wholesale or 
limited purpose bank, as provided in Sec. 25.25, except as provided in 
paragraph (a)(4) of this section.
    (3) Small bank performance standards. The OCC applies the small bank 
performance standards as provided in Sec. 25.26 in evaluating the 
performance of a small bank or a bank that was a small bank during the 
prior calendar year, unless the bank elects to be assessed as provided 
in paragraphs (a)(1), (a)(2), or (a)(4) of this section. The bank may 
elect to be assessed as provided in paragraph (a)(1) of this section 
only if

[[Page 215]]

it collects and reports the data required for other banks under 
Sec. 25.42.
    (4) Strategic plan. The OCC evaluates the performance of a bank 
under a strategic plan if the bank submits, and the OCC approves, a 
strategic plan as provided in Sec. 25.27.
    (b) Performance context. The OCC applies the tests and standards in 
paragraph (a) of this section and also considers whether to approve a 
proposed strategic plan in the context of:
    (1) Demographic data on median income levels, distribution of 
household income, nature of housing stock, housing costs, and other 
relevant data pertaining to a bank's assessment area(s);
    (2) Any information about lending, investment, and service 
opportunities in the bank's assessment area(s) maintained by the bank or 
obtained from community organizations, state, local, and tribal 
governments, economic development agencies, or other sources;
    (3) The bank's product offerings and business strategy as determined 
from data provided by the bank;
    (4) Institutional capacity and constraints, including the size and 
financial condition of the bank, the economic climate (national, 
regional, and local), safety and soundness limitations, and any other 
factors that significantly affect the bank's ability to provide lending, 
investments, or services in its assessment area(s);
    (5) The bank's past performance and the performance of similarly 
situated lenders;
    (6) The bank's public file, as described in Sec. 25.43, and any 
written comments about the bank's CRA performance submitted to the bank 
or the OCC; and
    (7) Any other information deemed relevant by the OCC.
    (c) Assigned ratings. The OCC assigns to a bank one of the following 
four ratings pursuant to Sec. 25.28 and appendix A of this part: 
``outstanding''; ``satisfactory''; ``needs to improve''; or 
``substantial noncompliance'' as provided in 12 U.S.C. 2906(b)(2). The 
rating assigned by the OCC reflects the bank's record of helping to meet 
the credit needs of its entire community, including low- and moderate-
income neighborhoods, consistent with the safe and sound operation of 
the bank.
    (d) Safe and sound operations. This part and the CRA do not require 
a bank to make loans or investments or to provide services that are 
inconsistent with safe and sound operations. To the contrary, the OCC 
anticipates banks can meet the standards of this part with safe and 
sound loans, investments, and services on which the banks expect to make 
a profit. Banks are permitted and encouraged to develop and apply 
flexible underwriting standards for loans that benefit low- or moderate-
income geographies or individuals, only if consistent with safe and 
sound operations.



Sec. 25.22  Lending test.

    (a) Scope of test. (1) The lending test evaluates a bank's record of 
helping to meet the credit needs of its assessment area(s) through its 
lending activities by considering a bank's home mortgage, small 
business, small farm, and community development lending. If consumer 
lending constitutes a substantial majority of a bank's business, the OCC 
will evaluate the bank's consumer lending in one or more of the 
following categories: motor vehicle, credit card, home equity, other 
secured, and other unsecured loans. In addition, at a bank's option, the 
OCC will evaluate one or more categories of consumer lending, if the 
bank has collected and maintained, as required in Sec. 25.42(c)(1), the 
data for each category that the bank elects to have the OCC evaluate.
    (2) The OCC considers originations and purchases of loans. The OCC 
will also consider any other loan data the bank may choose to provide, 
including data on loans outstanding, commitments and letters of credit.
    (3) A bank may ask the OCC to consider loans originated or purchased 
by consortia in which the bank participates or by third parties in which 
the bank has invested only if the loans meet the definition of community 
development loans and only in accordance with paragraph (d) of this 
section. The OCC will not consider these loans under any criterion of 
the lending test except the community development lending criterion.

[[Page 216]]

    (b) Performance criteria. The OCC evaluates a bank's lending 
performance pursuant to the following criteria:
    (1) Lending activity. The number and amount of the bank's home 
mortgage, small business, small farm, and consumer loans, if applicable, 
in the bank's assessment area(s);
    (2) Geographic distribution. The geographic distribution of the 
bank's home mortgage, small business, small farm, and consumer loans, if 
applicable, based on the loan location, including:
    (i) The proportion of the bank's lending in the bank's assessment 
area(s);
    (ii) The dispersion of lending in the bank's assessment area(s); and
    (iii) The number and amount of loans in low-, moderate-, middle-, 
and upper-income geographies in the bank's assessment area(s);
    (3) Borrower characteristics. The distribution, particularly in the 
bank's assessment area(s), of the bank's home mortgage, small business, 
small farm, and consumer loans, if applicable, based on borrower 
characteristics, including the number and amount of:
    (i) Home mortgage loans to low-, moderate-, middle-, and upper-
income individuals;
    (ii) Small business and small farm loans to businesses and farms 
with gross annual revenues of $1 million or less;
    (iii) Small business and small farm loans by loan amount at 
origination; and
    (iv) Consumer loans, if applicable, to low-, moderate-, middle-, and 
upper-income individuals;
    (4) Community development lending. The bank's community development 
lending, including the number and amount of community development loans, 
and their complexity and innovativeness; and
    (5) Innovative or flexible lending practices. The bank's use of 
innovative or flexible lending practices in a safe and sound manner to 
address the credit needs of low- or moderate-income individuals or 
geographies.
    (c) Affiliate lending. (1) At a bank's option, the OCC will consider 
loans by an affiliate of the bank, if the bank provides data on the 
affiliate's loans pursuant to Sec. 25.42.
    (2) The OCC considers affiliate lending subject to the following 
constraints:
    (i) No affiliate may claim a loan origination or loan purchase if 
another institution claims the same loan origination or purchase; and
    (ii) If a bank elects to have the OCC consider loans within a 
particular lending category made by one or more of the bank's affiliates 
in a particular assessment area, the bank shall elect to have the OCC 
consider, in accordance with paragraph (c)(1) of this section, all the 
loans within that lending category in that particular assessment area 
made by all of the bank's affiliates.
    (3) The OCC does not consider affiliate lending in assessing a 
bank's performance under paragraph (b)(2)(i) of this section.
    (d) Lending by a consortium or a third party. Community development 
loans originated or purchased by a consortium in which the bank 
participates or by a third party in which the bank has invested:
    (1) Will be considered, at the bank's option, if the bank reports 
the data pertaining to these loans under Sec. 25.42(b)(2); and
    (2) May be allocated among participants or investors, as they 
choose, for purposes of the lending test, except that no participant or 
investor:
    (i) May claim a loan origination or loan purchase if another 
participant or investor claims the same loan origination or purchase; or
    (ii) May claim loans accounting for more than its percentage share 
(based on the level of its participation or investment) of the total 
loans originated by the consortium or third party.
    (e) Lending performance rating. The OCC rates a bank's lending 
performance as provided in appendix A of this part.



Sec. 25.23  Investment test.

    (a) Scope of test. The investment test evaluates a bank's record of 
helping to meet the credit needs of its assessment area(s) through 
qualified investments that benefit its assessment area(s) or a broader 
statewide or regional area that includes the bank's assessment area(s).
    (b) Exclusion. Activities considered under the lending or service 
tests may

[[Page 217]]

not be considered under the investment test.
    (c) Affiliate investment. At a bank's option, the OCC will consider, 
in its assessment of a bank's investment performance, a qualified 
investment made by an affiliate of the bank, if the qualified investment 
is not claimed by any other institution.
    (d) Disposition of branch premises. Donating, selling on favorable 
terms, or making available on a rent-free basis a branch of the bank 
that is located in a predominantly minority neighborhood to a minority 
depository institution or women's depository institution (as these terms 
are defined in 12 U.S.C. 2907(b)) will be considered as a qualified 
investment.
    (e) Performance criteria. The OCC evaluates the investment 
performance of a bank pursuant to the following criteria:
    (1) The dollar amount of qualified investments;
    (2) The innovativeness or complexity of qualified investments;
    (3) The responsiveness of qualified investments to credit and 
community development needs; and
    (4) The degree to which the qualified investments are not routinely 
provided by private investors.
    (f) Investment performance rating. The OCC rates a bank's investment 
performance as provided in appendix A of this part.



Sec. 25.24  Service test.

    (a) Scope of test. The service test evaluates a bank's record of 
helping to meet the credit needs of its assessment area(s) by analyzing 
both the availability and effectiveness of a bank's systems for 
delivering retail banking services and the extent and innovativeness of 
its community development services.
    (b) Area(s) benefitted. Community development services must benefit 
a bank's assessment area(s) or a broader statewide or regional area that 
includes the bank's assessment area(s).
    (c) Affiliate service. At a bank's option, the OCC will consider, in 
its assessment of a bank's service performance, a community development 
service provided by an affiliate of the bank, if the community 
development service is not claimed by any other institution.
    (d) Performance criteria--retail banking services. The OCC evaluates 
the availability and effectiveness of a bank's systems for delivering 
retail banking services, pursuant to the following criteria:
    (1) The current distribution of the bank's branches among low-,

moderate-, middle-, and upper-income geographies;
    (2) In the context of its current distribution of the bank's 
branches, the bank's record of opening and closing branches, 
particularly branches located in low- or moderate-income geographies or 
primarily serving low- or moderate-income individuals;
    (3) The availability and effectiveness of alternative systems for 
delivering retail banking services (e.g., ATMs, ATMs not owned or 
operated by or exclusively for the bank, banking by telephone or 
computer, loan production offices, and bank-at-work or bank-by-mail 
programs) in low- and moderate-income geographies and to low- and 
moderate-income individuals; and
    (4) The range of services provided in low-, moderate-, middle-, and 
upper-income geographies and the degree to which the services are 
tailored to meet the needs of those geographies.
    (e) Performance criteria--community development services. The OCC 
evaluates community development services pursuant to the following 
criteria:
    (1) The extent to which the bank provides community development 
services; and
    (2) The innovativeness and responsiveness of community development 
services.
    (f) Service performance rating. The OCC rates a bank's service 
performance as provided in appendix A of this part.



Sec. 25.25  Community development test for wholesale or limited purpose banks.

    (a) Scope of test. The OCC assesses a wholesale or limited purpose 
bank's record of helping to meet the credit needs of its assessment 
area(s) under the community development test through its community 
development lending, qualified investments, or community development 
services.

[[Page 218]]

    (b) Designation as a wholesale or limited purpose bank. In order to 
receive a designation as a wholesale or limited purpose bank, a bank 
shall file a request, in writing, with the OCC, at least three months 
prior to the proposed effective date of the designation. If the OCC 
approves the designation, it remains in effect until the bank requests 
revocation of the designation or until one year after the OCC notifies 
the bank that the OCC has revoked the designation on its own initiative.
    (c) Performance criteria. The OCC evaluates the community 
development performance of a wholesale or limited purpose bank pursuant 
to the following criteria:
    (1) The number and amount of community development loans (including 
originations and purchases of loans and other community development loan 
data provided by the bank, such as data on loans outstanding, 
commitments, and letters of credit), qualified investments, or community 
development services;
    (2) The use of innovative or complex qualified investments, 
community development loans, or community development services and the 
extent to which the investments are not routinely provided by private 
investors; and
    (3) The bank's responsiveness to credit and community development 
needs.
    (d) Indirect activities. At a bank's option, the OCC will consider 
in its community development performance assessment:
    (1) Qualified investments or community development services provided 
by an affiliate of the bank, if the investments or services are not 
claimed by any other institution; and
    (2) Community development lending by affiliates, consortia and third 
parties, subject to the requirements and limitations in Sec. 25.22(c) 
and (d).
    (e) Benefit to assessment area(s)--(1) Benefit inside assessment 
area(s). The OCC considers all qualified investments, community 
development loans, and community development services that benefit areas 
within the bank's assessment area(s) or a broader statewide or regional 
area that includes the bank's assessment area(s).
    (2) Benefit outside assessment area(s). The OCC considers the 
qualified investments, community development loans, and community 
development services that benefit areas outside the bank's assessment 
area(s), if the bank has adequately addressed the needs of its 
assessment area(s).
    (f) Community development performance rating. The OCC rates a bank's 
community development performance as provided in appendix A of this 
part.



Sec. 25.26  Small bank performance standards.

    (a) Performance criteria. The OCC evaluates the record of a small 
bank, or a bank that was a small bank during the prior calendar year, of 
helping to meet the credit needs of its assessment area(s) pursuant to 
the following criteria:
    (1) The bank's loan-to-deposit ratio, adjusted for seasonal 
variation and, as appropriate, other lending-related activities, such as 
loan originations for sale to the secondary markets, community 
development loans, or qualified investments;
    (2) The percentage of loans and, as appropriate, other lending-
related activities located in the bank's assessment area(s);
    (3) The bank's record of lending to and, as appropriate, engaging in 
other lending-related activities for borrowers of different income 
levels and businesses and farms of different sizes;
    (4) The geographic distribution of the bank's loans; and
    (5) The bank's record of taking action, if warranted, in response to 
written complaints about its performance in helping to meet credit needs 
in its assessment area(s).
    (b) Small bank performance rating. The OCC rates the performance of 
a bank evaluated under this section as provided in appendix A of this 
part.



Sec. 25.27  Strategic plan.

    (a) Alternative election. The OCC will assess a bank's record of 
helping to meet the credit needs of its assessment area(s) under a 
strategic plan if:
    (1) The bank has submitted the plan to the OCC as provided for in 
this section;
    (2) The OCC has approved the plan;

[[Page 219]]

    (3) The plan is in effect; and
    (4) The bank has been operating under an approved plan for at least 
one year.
    (b) Data reporting. The OCC's approval of a plan does not affect the 
bank's obligation, if any, to report data as required by Sec. 25.42.
    (c) Plans in general--(1) Term. A plan may have a term of no more 
than five years, and any multi-year plan must include annual interim 
measurable goals under which the OCC will evaluate the bank's 
performance.
    (2) Multiple assessment areas. A bank with more than one assessment 
area may prepare a single plan for all of its assessment areas or one or 
more plans for one or more of its assessment areas.
    (3) Treatment of affiliates. Affiliated institutions may prepare a 
joint plan if the plan provides measurable goals for each institution. 
Activities may be allocated among institutions at the institutions' 
option, provided that the same activities are not considered for more 
than one institution.
    (d) Public participation in plan development. Before submitting a 
plan to the OCC for approval, a bank shall:
    (1) Informally seek suggestions from members of the public in its 
assessment area(s) covered by the plan while developing the plan;
    (2) Once the bank has developed a plan, formally solicit public 
comment on the plan for at least 30 days by publishing notice in at 
least one newspaper of general circulation in each assessment area 
covered by the plan; and
    (3) During the period of formal public comment, make copies of the 
plan available for review by the public at no cost at all offices of the 
bank in any assessment area covered by the plan and provide copies of 
the plan upon request for a reasonable fee to cover copying and mailing, 
if applicable.
    (e) Submission of plan. The bank shall submit its plan to the OCC at 
least three months prior to the proposed effective date of the plan. The 
bank shall also submit with its plan a description of its informal 
efforts to seek suggestions from members of the public, any written 
public comment received, and, if the plan was revised in light of the 
comment received, the initial plan as released for public comment.
    (f) Plan content--(1) Measurable goals. (i) A bank shall specify in 
its plan measurable goals for helping to meet the credit needs of each 
assessment area covered by the plan, particularly the needs of low- and 
moderate-income geographies and low- and moderate-income individuals, 
through lending, investment, and services, as appropriate.
    (ii) A bank shall address in its plan all three performance 
categories and, unless the bank has been designated as a wholesale or 
limited purpose bank, shall emphasize lending and lending-related 
activities. Nevertheless, a different emphasis, including a focus on one 
or more performance categories, may be appropriate if responsive to the 
characteristics and credit needs of its assessment area(s), considering 
public comment and the bank's capacity and constraints, product 
offerings, and business strategy.
    (2) Confidential information. A bank may submit additional 
information to the OCC on a confidential basis, but the goals stated in 
the plan must be sufficiently specific to enable the public and the OCC 
to judge the merits of the plan.
    (3) Satisfactory and outstanding goals. A bank shall specify in its 
plan measurable goals that constitute ``satisfactory'' performance. A 
plan may specify measurable goals that constitute ``outstanding'' 
performance. If a bank submits, and the OCC approves, both 
``satisfactory'' and ``outstanding'' performance goals, the OCC will 
consider the bank eligible for an ``outstanding'' performance rating.
    (4) Election if satisfactory goals not substantially met. A bank may 
elect in its plan that, if the bank fails to meet substantially its plan 
goals for a satisfactory rating, the OCC will evaluate the bank's 
performance under the lending, investment, and service tests, the 
community development test, or the small bank performance standards, as 
appropriate.
    (g) Plan approval--(1) Timing. The OCC will act upon a plan within 
60 calendar days after the OCC receives the complete plan and other 
material required under paragraph (d) of this section. If the OCC fails 
to act within this time period, the plan shall be deemed

[[Page 220]]

approved unless the OCC extends the review period for good cause.
    (2) Public participation. In evaluating the plan's goals, the OCC 
considers the public's involvement in formulating the plan, written 
public comment on the plan, and any response by the bank to public 
comment on the plan.
    (3) Criteria for evaluating plan. The OCC evaluates a plan's 
measurable goals using the following criteria, as appropriate:
    (i) The extent and breadth of lending or lending-related activities, 
including, as appropriate, the distribution of loans among different 
geographies, businesses and farms of different sizes, and individuals of 
different income levels, the extent of community development lending, 
and the use of innovative or flexible lending practices to address 
credit needs;
    (ii) The amount and innovativeness, complexity, and responsiveness 
of the bank's qualified investments; and
    (iii) The availability and effectiveness of the bank's systems for 
delivering retail banking services and the extent and innovativeness of 
the bank's community development services.
    (h) Plan amendment. During the term of a plan, a bank may request 
the OCC to approve an amendment to the plan on grounds that there has 
been a material change in circumstances. The bank shall develop an 
amendment to a previously approved plan in accordance with the public 
participation requirements of paragraph (d) of this section.
    (i) Plan assessment. The OCC approves the goals and assesses 
performance under a plan as provided for in appendix A of this part.

[60 FR 22180, May 4, 1995, as amended at 60 FR 66050, Dec. 20, 1995]



Sec. 25.28  Assigned ratings.

    (a) Ratings in general. Subject to paragraphs (b) and (c) of this 
section, the OCC assigns to a bank a rating of ``outstanding,'' 
``satisfactory,'' ``needs to improve,'' or ``substantial noncompliance'' 
based on the bank's performance under the lending, investment and 
service tests, the community development test, the small bank 
performance standards, or an approved strategic plan, as applicable.
    (b) Lending, investment, and service tests. The OCC assigns a rating 
for a bank assessed under the lending, investment, and service tests in 
accordance with the following principles:
    (1) A bank that receives an ``outstanding'' rating on the lending 
test receives an assigned rating of at least ``satisfactory'';
    (2) A bank that receives an ``outstanding'' rating on both the 
service test and the investment test and a rating of at least ``high 
satisfactory'' on the lending test receives an assigned rating of 
``outstanding''; and
    (3) No bank may receive an assigned rating of ``satisfactory'' or 
higher unless it receives a rating of at least ``low satisfactory'' on 
the lending test.
    (c) Effect of evidence of discriminatory or other illegal credit 
practices. Evidence of discriminatory or other illegal credit practices 
adversely affects the OCC's evaluation of a bank's performance. In 
determining the effect on the bank's assigned rating, the OCC considers 
the nature and extent of the evidence, the policies and procedures that 
the bank has in place to prevent discriminatory or other illegal credit 
practices, any corrective action that the bank has taken or has 
committed to take, particularly voluntary corrective action resulting 
from self-assessment, and other relevant information.



Sec. 25.29  Effect of CRA performance on applications.

    (a) CRA performance. Among other factors, the OCC takes into account 
the record of performance under the CRA of each applicant bank in 
considering an application for:
    (1) The establishment of a domestic branch;
    (2) The relocation of the main office or a branch;
    (3) Under the Bank Merger Act (12 U.S.C. 1828(c)), the merger or 
consolidation with or the acquisition of assets or assumption of 
liabilities of an insured depository institution; and
    (4) The conversion of an insured depository institution to a 
national bank charter.
    (b) Charter application. An applicant (other than an insured 
depository institution) for a national bank charter

[[Page 221]]

shall submit with its application a description of how it will meet its 
CRA objectives. The OCC takes the description into account in 
considering the application and may deny or condition approval on that 
basis.
    (c) Interested parties. The OCC takes into account any views 
expressed by interested parties that are submitted in accordance with 
the OCC's procedures set forth in part 5 of this chapter in considering 
CRA performance in an application listed in paragraphs (a) and (b) of 
this section.
    (d) Denial or conditional approval of application. A bank's record 
of performance may be the basis for denying or conditioning approval of 
an application listed in paragraph (a) of this section.
    (e) Insured depository institution. For purposes of this section, 
the term ``insured depository institution'' has the meaning given to 
that term in 12 U.S.C. 1813.



       Subpart C--Records, Reporting, and Disclosure Requirements

    Source: 60 FR 22184, May 4, 1995, unless otherwise noted.



Sec. 25.41  Assessment area delineation.

    (a) In general. A bank shall delineate one or more assessment areas 
within which the OCC evaluates the bank's record of helping to meet the 
credit needs of its community. The OCC does not evaluate the bank's 
delineation of its assessment area(s) as a separate performance 
criterion, but the OCC reviews the delineation for compliance with the 
requirements of this section.
    (b) Geographic area(s) for wholesale or limited purpose banks. The 
assessment area(s) for a wholesale or limited purpose bank must consist 
generally of one or more MSAs (using the MSA boundaries that were in 
effect as of January 1 of the calendar year in which the delineation is 
made) or one or more contiguous political subdivisions, such as 
counties, cities, or towns, in which the bank has its main office, 
branches, and deposit-taking ATMs.
    (c) Geographic area(s) for other banks. The assessment area(s) for a 
bank other than a wholesale or limited purpose bank must:
    (1) Consist generally of one or more MSAs (using the MSA boundaries 
that were in effect as of January 1 of the calendar year in which the 
delineation is made) or one or more contiguous political subdivisions, 
such as counties, cities, or towns; and
    (2) Include the geographies in which the bank has its main office, 
its branches, and its deposit-taking ATMs, as well as the surrounding 
geographies in which the bank has originated or purchased a substantial 
portion of its loans (including home mortgage loans, small business and 
small farm loans, and any other loans the bank chooses, such as those 
consumer loans on which the bank elects to have its performance 
assessed).
    (d) Adjustments to geographic area(s). A bank may adjust the 
boundaries of its assessment area(s) to include only the portion of a 
political subdivision that it reasonably can be expected to serve. An 
adjustment is particularly appropriate in the case of an assessment area 
that otherwise would be extremely large, of unusual configuration, or 
divided by significant geographic barriers.
    (e) Limitations on the delineation of an assessment area. Each 
bank's assessment area(s):
    (1) Must consist only of whole geographies;
    (2) May not reflect illegal discrimination;
    (3) May not arbitrarily exclude low- or moderate-income geographies, 
taking into account the bank's size and financial condition; and
    (4) May not extend substantially beyond a CMSA boundary or beyond a 
state boundary unless the assessment area is located in a multistate 
MSA. If a bank serves a geographic area that extends substantially 
beyond a state boundary, the bank shall delineate separate assessment 
areas for the areas in each state. If a bank serves a geographic area 
that extends substantially beyond a CMSA boundary, the bank shall 
delineate separate assessment areas for the areas inside and outside the 
CMSA.
    (f) Banks serving military personnel. Notwithstanding the 
requirements of this section, a bank whose business predominantly 
consists of serving the

[[Page 222]]

needs of military personnel or their dependents who are not located 
within a defined geographic area may delineate its entire deposit 
customer base as its assessment area.
    (g) Use of assessment area(s). The OCC uses the assessment area(s) 
delineated by a bank in its evaluation of the bank's CRA performance 
unless the OCC determines that the assessment area(s) do not comply with 
the requirements of this section.



Sec. 25.42  Data collection, reporting, and disclosure.

    (a) Loan information required to be collected and maintained. A 
bank, except a small bank, shall collect, and maintain in machine 
readable form (as prescribed by the OCC) until the completion of its 
next CRA examination, the following data for each small business or 
small farm loan originated or purchased by the bank:
    (1) A unique number or alpha-numeric symbol that can be used to 
identify the relevant loan file;
    (2) The loan amount at origination;
    (3) The loan location; and
    (4) An indicator whether the loan was to a business or farm with 
gross annual revenues of $1 million or less.
    (b) Loan information required to be reported. A bank, except a small 
bank or a bank that was a small bank during the prior calendar year, 
shall report annually by March 1 to the OCC in machine readable form (as 
prescribed by the OCC) the following data for the prior calendar year:
    (1) Small business and small farm loan data. For each geography in 
which the bank originated or purchased a small business or small farm 
loan, the aggregate number and amount of loans:
    (i) With an amount at origination of $100,000 or less;
    (ii) With amount at origination of more than $100,000 but less than 
or equal to $250,000;
    (iii) With an amount at origination of more than $250,000; and
    (iv) To businesses and farms with gross annual revenues of $1 
million or less (using the revenues that the bank considered in making 
its credit decision);
    (2) Community development loan data. The aggregate number and 
aggregate amount of community development loans originated or purchased; 
and
    (3) Home mortgage loans. If the bank is subject to reporting under 
part 203 of this title, the location of each home mortgage loan 
application, origination, or purchase outside the MSAs in which the bank 
has a home or branch office (or outside any MSA) in accordance with the 
requirements of part 203 of this title.
    (c) Optional data collection and maintenance--(1) Consumer loans. A 
bank may collect and maintain in machine readable form (as prescribed by 
the OCC) data for consumer loans originated or purchased by the bank for 
consideration under the lending test. A bank may maintain data for one 
or more of the following categories of consumer loans: motor vehicle, 
credit card, home equity, other secured, and other unsecured. If the 
bank maintains data for loans in a certain category, it shall maintain 
data for all loans originated or purchased within that category. The 
bank shall maintain data separately for each category, including for 
each loan:
    (i) A unique number or alpha-numeric symbol that can be used to 
identify the relevant loan file;
    (ii) The loan amount at origination or purchase;
    (iii) The loan location; and
    (iv) The gross annual income of the borrower that the bank 
considered in making its credit decision.
    (2) Other loan data. At its option, a bank may provide other 
information concerning its lending performance, including additional 
loan distribution data.
    (d) Data on affiliate lending. A bank that elects to have the OCC 
consider loans by an affiliate, for purposes of the lending or community 
development test or an approved strategic plan, shall collect, maintain, 
and report for those loans the data that the bank would have collected, 
maintained, and reported pursuant to paragraphs (a), (b), and (c) of 
this section had the loans been originated or purchased by the bank. For 
home mortgage loans, the bank shall also be prepared to identify the 
home mortgage loans reported under part 203 of this title by the 
affiliate.

[[Page 223]]

    (e) Data on lending by a consortium or a third party. A bank that 
elects to have the OCC consider community development loans by a 
consortium or third party, for purposes of the lending or community 
development tests or an approved strategic plan, shall report for those 
loans the data that the bank would have reported under paragraph (b)(2) 
of this section had the loans been originated or purchased by the bank.
    (f) Small banks electing evaluation under the lending, investment, 
and service tests. A bank that qualifies for evaluation under the small 
bank performance standards but elects evaluation under the lending, 
investment, and service tests shall collect, maintain, and report the 
data required for other banks pursuant to paragraphs (a) and (b) of this 
section.
    (g) Assessment area data. A bank, except a small bank or a bank that 
was a small bank during the prior calendar year, shall collect and 
report to the OCC by March 1 of each year a list for each assessment 
area showing the geographies within the area.
    (h) CRA Disclosure Statement. The OCC prepares annually for each 
bank that reports data pursuant to this section a CRA Disclosure 
Statement that contains, on a state-by-state basis:
    (1) For each county (and for each assessment area smaller than a 
county) with a population of 500,000 persons or fewer in which the bank 
reported a small business or small farm loan:
    (i) The number and amount of small business and small farm loans 
reported as originated or purchased located in low-, moderate-, middle-, 
and upper-income geographies;
    (ii) A list grouping each geography according to whether the 
geography is low-, moderate-, middle-, or upper-income;
    (iii) A list showing each geography in which the bank reported a 
small business or small farm loan; and
    (iv) The number and amount of small business and small farm loans to 
businesses and farms with gross annual revenues of $1 million or less;
    (2) For each county (and for each assessment area smaller than a 
county) with a population in excess of 500,000 persons in which the bank 
reported a small business or small farm loan:
    (i) The number and amount of small business and small farm loans 
reported as originated or purchased located in geographies with median 
income relative to the area median income of less than 10 percent, 10 or 
more but less than 20 percent, 20 or more but less than 30 percent, 30 
or more but less than 40 percent, 40 or more but less than 50 percent, 
50 or more but less than 60 percent, 60 or more but less than 70 
percent, 70 or more but less than 80 percent, 80 or more but less than 
90 percent, 90 or more but less than 100 percent, 100 or more but less 
than 110 percent, 110 or more but less than 120 percent, and 120 percent 
or more;
    (ii) A list grouping each geography in the county or assessment area 
according to whether the median income in the geography relative to the 
area median income is less than 10 percent, 10 or more but less than 20 
percent, 20 or more but less than 30 percent, 30 or more but less than 
40 percent, 40 or more but less than 50 percent, 50 or more but less 
than 60 percent, 60 or more but less than 70 percent, 70 or more but 
less than 80 percent, 80 or more but less than 90 percent, 90 or more 
but less than 100 percent, 100 or more but less than 110 percent, 110 or 
more but less than 120 percent, and 120 percent or more;
    (iii) A list showing each geography in which the bank reported a 
small business or small farm loan; and
    (iv) The number and amount of small business and small farm loans to 
businesses and farms with gross annual revenues of $1 million or less;
    (3) The number and amount of small business and small farm loans 
located inside each assessment area reported by the bank and the number 
and amount of small business and small farm loans located outside the 
assessment area(s) reported by the bank; and
    (4) The number and amount of community development loans reported as 
originated or purchased.
    (i) Aggregate disclosure statements. The OCC, in conjunction with 
the Board of Governors of the Federal Reserve System, the Federal 
Deposit Insurance Corporation, and the Office of Thrift Supervision, 
prepares annually, for each MSA (including an MSA that

[[Page 224]]

crosses a state boundary) and the non-MSA portion of each state, an 
aggregate disclosure statement of small business and small farm lending 
by all institutions subject to reporting under this part or parts 228, 
345, or 563e of this title. These disclosure statements indicate, for 
each geography, the number and amount of all small business and small 
farm loans originated or purchased by reporting institutions, except 
that the OCC may adjust the form of the disclosure if necessary, because 
of special circumstances, to protect the privacy of a borrower or the 
competitive position of an institution.
    (j) Central data depositories. The OCC makes the aggregate 
disclosure statements, described in paragraph (i) of this section, and 
the individual bank CRA Disclosure Statements, described in paragraph 
(h) of this section, available to the public at central data 
depositories. The OCC publishes a list of the depositories at which the 
statements are available.



Sec. 25.43  Content and availability of public file.

    (a) Information available to the public. A bank shall maintain a 
public file that includes the following information:
    (1) All written comments received from the public for the current 
year and each of the prior two calendar years that specifically relate 
to the bank's performance in helping to meet community credit needs, and 
any response to the comments by the bank, if neither the comments nor 
the responses contain statements that reflect adversely on the good name 
or reputation of any persons other than the bank or publication of which 
would violate specific provisions of law;
    (2) A copy of the public section of the bank's most recent CRA 
Performance Evaluation prepared by the OCC. The bank shall place this 
copy in the public file within 30 business days after its receipt from 
the OCC;
    (3) A list of the bank's branches, their street addresses, and 
geographies;
    (4) A list of branches opened or closed by the bank during the 
current year and each of the prior two calendar years, their street 
addresses, and geographies;
    (5) A list of services (including hours of operation, available loan 
and deposit products, and transaction fees) generally offered at the 
bank's branches and descriptions of material differences in the 
availability or cost of services at particular branches, if any. At its 
option, a bank may include information regarding the availability of 
alternative systems for delivering retail banking services (e.g., ATMs, 
ATMs not owned or operated by or exclusively for the bank, banking by 
telephone or computer, loan production offices, and bank-at-work or 
bank-by-mail programs);
    (6) A map of each assessment area showing the boundaries of the area 
and identifying the geographies contained within the area, either on the 
map or in a separate list; and
    (7) Any other information the bank chooses.
    (b) Additional information available to the public--(1) Banks other 
than small banks. A bank, except a small bank or a bank that was a small 
bank during the prior calendar year, shall include in its public file 
the following information pertaining to the bank and its affiliates, if 
applicable, for each of the prior two calendar years:
    (i) If the bank has elected to have one or more categories of its 
consumer loans considered under the lending test, for each of these 
categories, the number and amount of loans:
    (A) To low-, moderate-, middle-, and upper-income individuals;
    (B) Located in low-, moderate-, middle-, and upper-income census 
tracts; and
    (C) Located inside the bank's assessment area(s) and outside the 
bank's assessment area(s); and
    (ii) The bank's CRA Disclosure Statement. The bank shall place the 
statement in the public file within three business days of its receipt 
from the OCC.
    (2) Banks required to report Home Mortgage Disclosure Act (HMDA) 
data. A bank required to report home mortgage loan data pursuant part 
203 of this title shall include in its public file a copy of the HMDA 
Disclosure Statement provided by the Federal Financial Institutions 
Examination Council pertaining to the bank for each of the prior two

[[Page 225]]

calendar years. In addition, a bank that elected to have the OCC 
consider the mortgage lending of an affiliate for any of these years 
shall include in its public file the affiliate's HMDA Disclosure 
Statement for those years. The bank shall place the statement(s) in the 
public file within three business days after its receipt.
    (3) Small banks. A small bank or a bank that was a small bank during 
the prior calendar year shall include in its public file:
    (i) The bank's loan-to-deposit ratio for each quarter of the prior 
calendar year and, at its option, additional data on its loan-to-deposit 
ratio; and
    (ii) The information required for other banks by paragraph (b)(1) of 
this section, if the bank has elected to be evaluated under the lending, 
investment, and service tests.
    (4) Banks with strategic plans. A bank that has been approved to be 
assessed under a strategic plan shall include in its public file a copy 
of that plan. A bank need not include information submitted to the OCC 
on a confidential basis in conjunction with the plan.
    (5) Banks with less than satisfactory ratings. A bank that received 
a less than satisfactory rating during its most recent examination shall 
include in its public file a description of its current efforts to 
improve its performance in helping to meet the credit needs of its 
entire community. The bank shall update the description quarterly.
    (c) Location of public information. A bank shall make available to 
the public for inspection upon request and at no cost the information 
required in this section as follows:
    (1) At the main office and, if an interstate bank, at one branch 
office in each state, all information in the public file; and
    (2) At each branch:
    (i) A copy of the public section of the bank's most recent CRA 
Performance Evaluation and a list of services provided by the branch; 
and
    (ii) Within five calendar days of the request, all the information 
in the public file relating to the assessment area in which the branch 
is located.
    (d) Copies. Upon request, a bank shall provide copies, either on 
paper or in another form acceptable to the person making the request, of 
the information in its public file. The bank may charge a reasonable fee 
not to exceed the cost of copying and mailing (if applicable).
    (e) Updating. Except as otherwise provided in this section, a bank 
shall ensure that the information required by this section is current as 
of April 1 of each year.



Sec. 25.44  Public notice by banks.

    A bank shall provide in the public lobby of its main office and each 
of its branches the appropriate public notice set forth in appendix B of 
this part. Only a branch of a bank having more than one assessment area 
shall include the bracketed material in the notice for branch offices. 
Only a bank that is an affiliate of a holding company shall include the 
next to the last sentence of the notices. A bank shall include the last 
sentence of the notices only if it is an affiliate of a holding company 
that is not prevented by statute from acquiring additional banks.



Sec. 25.45  Publication of planned examination schedule.

    The OCC publishes at least 30 days in advance of the beginning of 
each calendar quarter a list of banks scheduled for CRA examinations in 
that quarter.  Subpart D [Reserved]



Subpart E--Prohibition Against Use of Interstate Branches Primarily for 
                           Deposit Production

    Source: 62 FR 47734, Sept. 10, 1997, unless otherwise noted.



Sec. 25.61  Purpose and scope.

    (a) Purpose. The purpose of this subpart is to implement section 109 
(12 U.S.C. 1835a) of the Riegle-Neal Interstate Banking and Branching 
Efficiency Act of 1994 (Interstate Act).
    (b) Scope. (1) This subpart applies to any national bank that has 
operated a covered interstate branch for a period of at least one year, 
and any foreign bank that has operated a covered interstate branch that 
is a Federal branch for a period of at least one year.
    (2) This subpart describes the requirements imposed under 12 U.S.C. 
1835a, which requires the appropriate

[[Page 226]]

Federal banking agencies (the OCC, the Board of Governors of the Federal 
Reserve System, and the Federal Deposit Insurance Corporation) to 
prescribe uniform rules that prohibit a bank from using any authority to 
engage in interstate branching pursuant to the Interstate Act, or any 
amendment made by the Interstate Act to any other provision of law, 
primarily for the purpose of deposit production.



Sec. 25.62  Definitions.

    For purposes of this subpart, the following definitions apply:
    (a) Bank means, unless the context indicates otherwise:
    (1) A national bank; and
    (2) A foreign bank as that term is defined in 12 U.S.C. 3101(7) and 
12 CFR 28.11(j).
    (b) Covered interstate branch means any branch of a national bank, 
and any Federal branch of a foreign bank, that:
    (1) Is established or acquired outside the bank's home state 
pursuant to the interstate branching authority granted by the Interstate 
Act or by any amendment made by the Interstate Act to any other 
provision of law; or
    (2) Could not have been established or acquired outside of the 
bank's home state but for the establishment or acquisition of a branch 
described in paragraph (b)(1) of this section.
    (c) Federal branch means Federal branch as that term is defined in 
12 U.S.C. 3101(6) and 12 CFR 28.11(i).
    (d) Home state means:
    (1) With respect to a state bank, the state that chartered the bank;
    (2) With respect to a national bank, the state in which the main 
office of the bank is located; and
    (3) With respect to a foreign bank, the home state of the foreign 
bank as determined in accordance with 12 U.S.C. 3103(c) and 12 CFR 
28.11(o).
    (e) Host state means a state in which a bank establishes or acquires 
a covered interstate branch.
    (f) Host state loan-to-deposit ratio generally means, with respect 
to a particular host state, the ratio of total loans in the host state 
relative to total deposits from the host state for all banks (including 
institutions covered under the definition of ``bank'' in 12 U.S.C. 
1813(a)(1)) that have that state as their home state, as determined and 
updated periodically by the appropriate Federal banking agencies and 
made available to the public.
    (g) State means state as that term is defined in 12 U.S.C. 
1813(a)(3).
    (h) Statewide loan-to-deposit ratio means, with respect to a bank, 
the ratio of the bank's loans to its deposits in a state in which the 
bank has one or more covered interstate branches, as determined by the 
OCC.



Sec. 25.63  Loan-to-deposit ratio screen.

    (a) Application of screen. Beginning no earlier than one year after 
a bank establishes or acquires a covered interstate branch, the OCC will 
consider whether the bank's statewide loan-to-deposit ratio is less than 
50 percent of the relevant host state loan-to-deposit ratio.
    (b) Results of screen. (1) If the OCC determines that the bank's 
statewide loan-to-deposit ratio is 50 percent or more of the host state 
loan-to-deposit ratio, no further consideration under this subpart is 
required.
    (2) If the OCC determines that the bank's statewide loan-to-deposit 
ratio is less than 50 percent of the host state loan-to-deposit ratio, 
or if reasonably available data are insufficient to calculate the bank's 
statewide loan-to-deposit ratio, the OCC will make a credit needs 
determination for the bank as provided in Sec. 25.64.



Sec. 25.64  Credit needs determination.

    (a) In general. The OCC will review the loan portfolio of the bank 
and determine whether the bank is reasonably helping to meet the credit 
needs of the communities in the host state that are served by the bank.
    (b) Guidelines. The OCC will use the following considerations as 
guidelines when making the determination pursuant to paragraph (a) of 
this section:
    (1) Whether covered interstate branches were formerly part of a 
failed or failing depository institution;
    (2) Whether covered interstate branches were acquired under 
circumstances where there was a low loan-to-deposit ratio because of the 
nature of the acquired institution's business or loan portfolio;

[[Page 227]]

    (3) Whether covered interstate branches have a high concentration of 
commercial or credit card lending, trust services, or other specialized 
activities, including the extent to which the covered interstate 
branches accept deposits in the host state;
    (4) The CRA ratings received by the bank, if any;
    (5) Economic conditions, including the level of loan demand, within 
the communities served by the covered interstate branches;
    (6) The safe and sound operation and condition of the bank; and
    (7) The OCC's CRA regulations (subparts A through D of this part) 
and interpretations of those regulations.



Sec. 25.65  Sanctions.

    (a) In general. If the OCC determines that a bank is not reasonably 
helping to meet the credit needs of the communities served by the bank 
in the host state, and that the bank's statewide loan-to-deposit ratio 
is less than 50 percent of the host state loan-to-deposit ratio, the 
OCC:
    (1) May order that a bank's covered interstate branch or branches be 
closed unless the bank provides reasonable assurances to the 
satisfaction of the OCC, after an opportunity for public comment, that 
the bank has an acceptable plan under which the bank will reasonably 
help to meet the credit needs of the communities served by the bank in 
the host state; and
    (2) Will not permit the bank to open a new branch in the host state 
that would be considered to be a covered interstate branch unless the 
bank provides reasonable assurances to the satisfaction of the OCC, 
after an opportunity for public comment, that the bank will reasonably 
help to meet the credit needs of the community that the new branch will 
serve.
    (b) Notice prior to closure of a covered interstate branch. Before 
exercising the OCC's authority to order the bank to close a covered 
interstate branch, the OCC will issue to the bank a notice of the OCC's 
intent to order the closure and will schedule a hearing within 60 days 
of issuing the notice.
    (c) Hearing. The OCC will conduct a hearing scheduled under 
paragraph (b) of this section in accordance with the provisions of 12 
U.S.C. 1818(h) and 12 CFR part 19.

                     Appendix A to Part 25--Ratings

    (a) Ratings in general. (1) In assigning a rating, the OCC evaluates 
a bank's performance under the applicable performance criteria in this 
part, in accordance with Secs. 25.21, and 25.28, which provides for 
adjustments on the basis of evidence of discriminatory or other illegal 
credit practices.
    (2) A bank's performance need not fit each aspect of a particular 
rating profile in order to receive that rating, and exceptionally strong 
performance with respect to some aspects may compensate for weak 
performance in others. The bank's overall performance, however, must be 
consistent with safe and sound banking practices and generally with the 
appropriate rating profile as follows.
    (b) Banks evaluated under the lending, investment, and service 
tests. (1) Lending performance rating. The OCC assigns each bank's 
lending performance one of the five following ratings.
    (i) Outstanding. The OCC rates a bank's lending performance 
``outstanding'' if, in general, it demonstrates:
    (A) Excellent responsiveness to credit needs in its assessment 
area(s), taking into account the number and amount of home mortgage, 
small business, small farm, and consumer loans, if applicable, in its 
assessment area(s);
    (B) A substantial majority of its loans are made in its assessment 
area(s);
    (C) An excellent geographic distribution of loans in its assessment 
area(s);
    (D) An excellent distribution, particularly in its assessment 
area(s), of loans among individuals of different income levels and 
businesses (including farms) of different sizes, given the product lines 
offered by the bank;
    (E) An excellent record of serving the credit needs of highly 
economically disadvantaged areas in its assessment area(s), low-income 
individuals, or businesses (including farms) with gross annual revenues 
of $1 million or less, consistent with safe and sound operations;
    (F) Extensive use of innovative or flexible lending practices in a 
safe and sound manner to address the credit needs of low- or moderate-
income individuals or geographies; and
    (G) It is a leader in making community development loans.
    (ii) High satisfactory. The OCC rates a bank's lending performance 
``high satisfactory'' if, in general, it demonstrates:
    (A) Good responsiveness to credit needs in its assessment area(s), 
taking into account the number and amount of home mortgage, small 
business, small farm, and consumer loans, if applicable, in its 
assessment area(s);
    (B) A high percentage of its loans are made in its assessment 
area(s);

[[Page 228]]

    (C) A good geographic distribution of loans in its assessment 
area(s);
    (D) A good distribution, particularly in its assessment area(s), of 
loans among individuals of different income levels and businesses 
(including farms) of different sizes, given the product lines offered by 
the bank;
    (E) A good record of serving the credit needs of highly economically 
disadvantaged areas in its assessment area(s), low-income individuals, 
or businesses (including farms) with gross annual revenues of $1 million 
or less, consistent with safe and sound operations;
    (F) Use of innovative or flexible lending practices in a safe and 
sound manner to address the credit needs of low- or moderate-income 
individuals or geographies; and
    (G) It has made a relatively high level of community development 
loans.
    (iii) Low satisfactory. The OCC rates a bank's lending performance 
``low satisfactory'' if, in general, it demonstrates:
    (A) Adequate responsiveness to credit needs in its assessment 
area(s), taking into account the number and amount of home mortgage, 
small business, small farm, and consumer loans, if applicable, in its 
assessment area(s);
    (B) An adequate percentage of its loans are made in its assessment 
area(s);
    (C) An adequate geographic distribution of loans in its assessment 
area(s);
    (D) An adequate distribution, particularly in its assessment 
area(s), of loans among individuals of different income levels and 
businesses (including farms) of different sizes, given the product lines 
offered by the bank;
    (E) An adequate record of serving the credit needs of highly 
economically disadvantaged areas in its assessment area(s), low-income 
individuals, or businesses (including farms) with gross annual revenues 
of $1 million or less, consistent with safe and sound operations;
    (F) Limited use of innovative or flexible lending practices in a 
safe and sound manner to address the credit needs of low- or moderate-
income individuals or geographies; and
    (G) It has made an adequate level of community development loans.
    (iv) Needs to improve. The OCC rates a bank's lending performance 
``needs to improve'' if, in general, it demonstrates:
    (A) Poor responsiveness to credit needs in its assessment area(s), 
taking into account the number and amount of home mortgage, small 
business, small farm, and consumer loans, if applicable, in its 
assessment area(s);
    (B) A small percentage of its loans are made in its assessment 
area(s);
    (C) A poor geographic distribution of loans, particularly to low- or 
moderate-income geographies, in its assessment area(s);
    (D) A poor distribution, particularly in its assessment area(s), of 
loans among individuals of different income levels and businesses 
(including farms) of different sizes, given the product lines offered by 
the bank;
    (E) A poor record of serving the credit needs of highly economically 
disadvantaged areas in its assessment area(s), low-income individuals, 
or businesses (including farms) with gross annual revenues of $1 million 
or less, consistent with safe and sound operations;
    (F) Little use of innovative or flexible lending practices in a safe 
and sound manner to address the credit needs of low- or moderate-income 
individuals or geographies; and
    (G) It has made a low level of community development loans.
    (v) Substantial noncompliance. The OCC rates a bank's lending 
performance as being in ``substantial noncompliance'' if, in general, it 
demonstrates:
    (A) A very poor responsiveness to credit needs in its assessment 
area(s), taking into account the number and amount of home mortgage, 
small business, small farm, and consumer loans, if applicable, in its 
assessment area(s);
    (B) A very small percentage of its loans are made in its assessment 
area(s);
    (C) A very poor geographic distribution of loans, particularly to 
low- or moderate-income geographies, in its assessment area(s);
    (D) A very poor distribution, particularly in its assessment 
area(s), of loans among individuals of different income levels and 
businesses (including farms) of different sizes, given the product lines 
offered by the bank;
    (E) A very poor record of serving the credit needs of highly 
economically disadvantaged areas in its assessment area(s), low-income 
individuals, or businesses (including farms) with gross annual revenues 
of $1 million or less, consistent with safe and sound operations;
    (F) No use of innovative or flexible lending practices in a safe and 
sound manner to address the credit needs of low- or moderate-income 
individuals or geographies; and
    (G) It has made few, if any, community development loans.
    (2) Investment performance rating. The OCC assigns each bank's 
investment performance one of the five following ratings.
    (i) Outstanding. The OCC rates a bank's investment performance 
``outstanding'' if, in general, it demonstrates:
    (A) An excellent level of qualified investments, particularly those 
that are not routinely provided by private investors, often in a 
leadership position;
    (B) Extensive use of innovative or complex qualified investments; 
and
    (C) Excellent responsiveness to credit and community development 
needs.
    (ii) High satisfactory. The OCC rates a bank's investment 
performance ``high satisfactory'' if, in general, it demonstrates:

[[Page 229]]

    (A) A significant level of qualified investments, particularly those 
that are not routinely provided by private investors, occasionally in a 
leadership position;
    (B) Significant use of innovative or complex qualified investments; 
and
    (C) Good responsiveness to credit and community development needs.
    (iii) Low satisfactory. The OCC rates a bank's investment 
performance ``low satisfactory'' if, in general, it demonstrates:
    (A) An adequate level of qualified investments, particularly those 
that are not routinely provided by private investors, although rarely in 
a leadership position;
    (B) Occasional use of innovative or complex qualified investments; 
and
    (C) Adequate responsiveness to credit and community development 
needs. 
    (iv) Needs to improve. The OCC rates a bank's investment performance 
``needs to improve'' if, in general, it demonstrates:
    (A) A poor level of qualified investments, particularly those that 
are not routinely provided by private investors;
    (B) Rare use of innovative or complex qualified investments; and
    (C) Poor responsiveness to credit and community development needs.
    (v) Substantial noncompliance. The OCC rates a bank's investment 
performance as being in ``substantial noncompliance'' if, in general, it 
demonstrates:
    (A) Few, if any, qualified investments, particularly those that are 
not routinely provided by private investors;
    (B) No use of innovative or complex qualified investments; and
    (C) Very poor responsiveness to credit and community development 
needs.
    (3) Service performance rating. The OCC assigns each bank's service 
performance one of the five following ratings.
    (i) Outstanding. The OCC rates a bank's service performance 
``outstanding'' if, in general, the bank demonstrates:
    (A) Its service delivery systems are readily accessible to 
geographies and individuals of different income levels in its assessment 
area(s);
    (B) To the extent changes have been made, its record of opening and 
closing branches has improved the accessibility of its delivery systems, 
particularly in low- or moderate-income geographies or to low- or 
moderate-income individuals;
    (C) Its services (including, where appropriate, business hours) are 
tailored to the convenience and needs of its assessment area(s), 
particularly low- or moderate-income geographies or low- or moderate-
income individuals; and
    (D) It is a leader in providing community development services.
    (ii) High satisfactory. The OCC rates a bank's service performance 
``high satisfactory'' if, in general, the bank demonstrates:
    (A) Its service delivery systems are accessible to geographies and 
individuals of different income levels in its assessment area(s);
    (B) To the extent changes have been made, its record of opening and 
closing branches has not adversely affected the accessibility of its 
delivery systems, particularly in low- and moderate-income geographies 
and to low- and moderate-income individuals;
    (C) Its services (including, where appropriate, business hours) do 
not vary in a way that inconveniences its assessment area(s), 
particularly low- and moderate-income geographies and low- and moderate-
income individuals; and
    (D) It provides a relatively high level of community development 
services.
    (iii) Low satisfactory. The OCC rates a bank's service performance 
``low satisfactory'' if, in general, the bank demonstrates:
    (A) Its service delivery systems are reasonably accessible to 
geographies and individuals of different income levels in its assessment 
area(s);
    (B) To the extent changes have been made, its record of opening and 
closing branches has generally not adversely affected the accessibility 
of its delivery systems, particularly in low- and moderate-income 
geographies and to low- and moderate-income individuals;
    (C) Its services (including, where appropriate, business hours) do 
not vary in a way that inconveniences its assessment area(s), 
particularly low- and moderate-income geographies and low- and moderate-
income individuals; and
    (D) It provides an adequate level of community development services.
    (iv) Needs to improve. The OCC rates a bank's service performance 
``needs to improve'' if, in general, the bank demonstrates:
    (A) Its service delivery systems are unreasonably inaccessible to 
portions of its assessment area(s), particularly to low- or moderate-
income geographies or to low- or moderate-income individuals;
    (B) To the extent changes have been made, its record of opening and 
closing branches has adversely affected the accessibility its delivery 
systems, particularly in low- or moderate-income geographies or to low- 
or moderate-income individuals;
    (C) Its services (including, where appropriate, business hours) vary 
in a way that inconveniences its assessment area(s), particularly low- 
or moderate-income geographies or low- or moderate-income individuals; 
and
    (D) It provides a limited level of community development services.
    (v) Substantial noncompliance. The OCC rates a bank's service 
performance as being in ``substantial noncompliance'' if, in general, 
the bank demonstrates:
    (A) Its service delivery systems are unreasonably inaccessible to 
significant portions

[[Page 230]]

of its assessment area(s), particularly to low- or moderate-income 
geographies or to low- or moderate-income individuals;
    (B) To the extent changes have been made, its record of opening and 
closing branches has significantly adversely affected the accessibility 
of its delivery systems, particularly in low- or moderate-income 
geographies or to low- or moderate-income individuals;
    (C) Its services (including, where appropriate, business hours) vary 
in a way that significantly inconveniences its assessment area(s), 
particularly low- or moderate-income geographies or low- or moderate-
income individuals; and
    (D) It provides few, if any, community development services.
    (c) Wholesale or limited purpose banks. The OCC assigns each 
wholesale or limited purpose bank's community development performance 
one of the four following ratings.
    (1) Outstanding. The OCC rates a wholesale or limited purpose bank's 
community development performance ``outstanding'' if, in general, it 
demonstrates:
    (i) A high level of community development loans, community 
development services, or qualified investments, particularly investments 
that are not routinely provided by private investors;
    (ii) Extensive use of innovative or complex qualified investments, 
community development loans, or community development services; and
    (iii) Excellent responsiveness to credit and community development 
needs in its assessment area(s).
    (2) Satisfactory. The OCC rates a wholesale or limited purpose 
bank's community development performance ``satisfactory'' if, in 
general, it demonstrates:
    (i) An adequate level of community development loans, community 
development services, or qualified investments, particularly investments 
that are not routinely provided by private investors;
    (ii) Occasional use of innovative or complex qualified investments, 
community development loans, or community development services; and
    (iii) Adequate responsiveness to credit and community development 
needs in its assessment area(s).
    (3) Needs to improve. The OCC rates a wholesale or limited purpose 
bank's community development performance as ``needs to improve'' if, in 
general, it demonstrates:
    (i) A poor level of community development loans, community 
development services, or qualified investments, particularly investments 
that are not routinely provided by private investors;
    (ii) Rare use of innovative or complex qualified investments, 
community development loans, or community development services; and
    (iii) Poor responsiveness to credit and community development needs 
in its assessment area(s).
    (4) Substantial noncompliance. The OCC rates a wholesale or limited 
purpose bank's community development performance in ``substantial 
noncompliance'' if, in general, it demonstrates:
    (i) Few, if any, community development loans, community development 
services, or qualified investments, particularly investments that are 
not routinely provided by private investors;
    (ii) No use of innovative or complex qualified investments, 
community development loans, or community development services; and
    (iii) Very poor responsiveness to credit and community development 
needs in its assessment area(s).
    (d) Banks evaluated under the small bank performance standards. The 
OCC rates the performance of each bank evaluated under the small bank 
performance standards as follows:
    (1) Eligibility for a satisfactory rating. The OCC rates a bank's 
performance ``satisfactory'' if, in general, the bank demonstrates:
    (i) A reasonable loan-to-deposit ratio (considering seasonal 
variations) given the bank's size, financial condition, the credit needs 
of its assessment area(s), and taking into account, as appropriate, 
lending-related activities such as loan originations for sale to the 
secondary markets and community development loans and qualified 
investments;
    (ii) A majority of its loans and, as appropriate, other lending-
related activities are in its assessment area(s);
    (iii) A distribution of loans to and, as appropriate, other lending 
related-activities for individuals of different income levels (including 
low- and moderate-income individuals) and businesses and farms of 
different sizes that is reasonable given the demographics of the bank's 
assessment area(s);
    (iv) A record of taking appropriate action, as warranted, in 
response to written complaints, if any, about the bank's performance in 
helping to meet the credit needs of its assessment area(s); and
    (v) A reasonable geographic distribution of loans given the bank's 
assessment area(s).
    (2) Eligibility for an outstanding rating. A bank that meets each of 
the standards for a ``satisfactory'' rating under this paragraph and 
exceeds some or all of those standards may warrant consideration for an 
overall rating of ``outstanding.'' In assessing whether a bank's 
performance is ``outstanding,'' the OCC considers the extent to which 
the bank exceeds each of the performance standards for a 
``satisfactory'' rating and its performance in making qualified 
investments and its performance in providing branches and other services 
and delivery systems that

[[Page 231]]

enhance credit availability in its assessment area(s).
    (3) Needs to improve or substantial noncompliance ratings. A bank 
also may receive a rating of ``needs to improve'' or ``substantial 
noncompliance'' depending on the degree to which its performance has 
failed to meet the standards for a ``satisfactory'' rating.
    (e) Strategic plan assessment and rating--(1) Satisfactory goals. 
The OCC approves as ``satisfactory'' measurable goals that adequately 
help to meet the credit needs of the bank's assessment area(s).
    (2) Outstanding goals. If the plan identifies a separate group of 
measurable goals that substantially exceed the levels approved as 
``satisfactory,'' the OCC will approve those goals as ``outstanding.''
    (3) Rating. The OCC assesses the performance of a bank operating 
under an approved plan to determine if the bank has met its plan goals:
    (i) If the bank substantially achieves its plan goals for a 
satisfactory rating, the OCC will rate the bank's performance under the 
plan as ``satisfactory.''
    (ii) If the bank exceeds its plan goals for a satisfactory rating 
and substantially achieves its plan goals for an outstanding rating, the 
OCC will rate the bank's performance under the plan as ``outstanding.''
    (iii) If the bank fails to meet substantially its plan goals for a 
satisfactory rating, the OCC will rate the bank as either ``needs to 
improve'' or ``substantial noncompliance,'' depending on the extent to 
which it falls short of its plan goals, unless the bank elected in its 
plan to be rated otherwise, as provided in Sec. 25.27(f)(4).

[60 FR 22186, May 4, 1995]

                    Appendix B to Part 25--CRA Notice

    (a) Notice for main offices and, if an interstate bank, one branch 
office in each state.

                    Community Reinvestment Act Notice

    Under the Federal Community Reinvestment Act (CRA), the Comptroller 
of the Currency evaluates our record of helping to meet the credit needs 
of this community consistent with safe and sound operations. The 
Comptroller also takes this record into account when deciding on certain 
applications submitted by us.
    Your involvement is encouraged.
    You are entitled to certain information about our operations and our 
performance under the CRA, including, for example, information about our 
branches, such as their location and services provided at them; the 
public section of our most recent CRA Performance Evaluation, prepared 
by the Comptroller; and comments received from the public relating to 
our performance in helping to meet community credit needs, as well as 
our responses to those comments. You may review this information today.
    At least 30 days before the beginning of each quarter, the 
Comptroller publishes a nationwide list of the banks that are scheduled 
for CRA examination in that quarter. This list is available from the 
Deputy Comptroller (address). You may send written comments about our 
performance in helping to meet community credit needs to (name and 
address of official at bank) and Deputy Comptroller (address). Your 
letter, together with any response by us, will be considered by the 
Comptroller in evaluating our CRA performance and may be made public.
    You may ask to look at any comments received by the Deputy 
Comptroller. You may also request from the Deputy Comptroller an 
announcement of our applications covered by the CRA filed with the 
Comptroller. We are an affiliate of (name of holding company), a bank 
holding company. You may request from the (title of responsible 
official), Federal Reserve Bank of ________ (address) an announcement of 
applications covered by the CRA filed by bank holding companies.
    (b) Notice for branch offices.

                    Community Reinvestment Act Notice

    Under the Federal Community Reinvestment Act (CRA), the Comptroller 
of the Currency evaluates our record of helping to meet the credit needs 
of this community consistent with safe and sound operations. The 
Comptroller also takes this record into account when deciding on certain 
applications submitted by us.
    Your involvement is encouraged.
    You are entitled to certain information about our operations and our 
performance under the CRA. You may review today the public section of 
our most recent CRA evaluation, prepared by the Comptroller, and a list 
of services provided at this branch. You may also have access to the 
following additional information, which we will make available to you at 
this branch within five calendar days after you make a request to us: 
(1) A map showing the assessment area containing this branch, which is 
the area in which the Comptroller evaluates our CRA performance in this 
community; (2) information about our branches in this assessment area; 
(3) a list of services we provide at those locations; (4) data on our 
lending performance in this assessment area; and (5) copies of all 
written comments received by us that specifically relate to our CRA 
performance in this assessment area, and any responses we have made to 
those comments. If we are operating under an approved strategic plan, 
you may also have access to a copy of the plan.

[[Page 232]]

    [If you would like to review information about our CRA performance 
in other communities served by us, the public file for our entire bank 
is available at (name of office located in state), located at 
(address).]
    At least 30 days before the beginning of each quarter, the 
Comptroller publishes a nationwide list of the banks that are scheduled 
for CRA examination in that quarter. This list is available from the 
Deputy Comptroller (address). You may send written comments about our 
performance in helping to meet community credit needs to (name and 
address of official at bank) and Deputy Comptroller (address). Your 
letter, together with any response by us, will be considered by the 
Comptroller in evaluating our CRA performance and may be made public.
    You may ask to look at any comments received by the Deputy 
Comptroller. You may also request from the Deputy Comptroller an 
announcement of our applications covered by the CRA filed with the 
Comptroller. We are an affiliate of (name of holding company), a bank 
holding company. You may request from the (title of responsible 
official), Federal Reserve Bank of ________ (address) an announcement of 
applications covered by the CRA filed by bank holding companies.

[60 FR 22189, May 4, 1995]



PART 26--MANAGEMENT OFFICIAL INTERLOCKS--Table of Contents




Sec.
26.1  Authority, purpose, and scope.
26.2  Definitions.
26.3  Prohibitions.
26.4  Interlocking relationships permitted by statute.
26.5  Small market share exemption.
26.6  General exemption.
26.7  Change in circumstances.
26.8  Enforcement.

    Authority: 12 U.S.C. 93a and 3201-3208.

    Source: 61 FR 40300, Aug. 2, 1996, unless otherwise noted.



Sec. 26.1  Authority, purpose, and scope.

    (a) Authority. This part is issued under the provisions of the 
Depository Institution Management Interlocks Act (Interlocks Act) (12 
U.S.C. 3201 et seq.), as amended, and the OCC's general rulemaking 
authority in 12 U.S.C. 93a.
    (b) Purpose. The purpose of the Interlocks Act and this part is to 
foster competition by generally prohibiting a management official from 
serving two nonaffiliated depository organizations in situations where 
the management interlock likely would have an anticompetitive effect.
    (c) Scope. This part applies to management officials of national 
banks, District banks, and affiliates of either.



Sec. 26.2  Definitions.

    For purposes of this part, the following definitions apply:
    (a) Affiliate. (1) The term affiliate has the meaning given in 
section 202 of the Interlocks Act (12 U.S.C. 3201). For purposes of that 
section 202, shares held by an individual include shares held by members 
of his or her immediate family. ``Immediate family'' means spouse, 
mother, father, child, grandchild, sister, brother, or any of their 
spouses, whether or not any of their shares are held in trust.
    (2) For purposes of section 202(3)(B) of the Interlocks Act (12 
U.S.C. 3201(3)(B)), an affiliate relationship involving a national bank 
based on common ownership does not exist if the OCC determines, after 
giving the affected persons the opportunity to respond, that the 
asserted affiliation was established in order to avoid the prohibitions 
of the Interlocks Act and does not represent a true commonality of 
interest between the depository organizations. In making this 
determination, the OCC considers, among other things, whether a person, 
including members of his or her immediate family, whose shares are 
necessary to constitute the group owns a nominal percentage of the 
shares of one of the organizations and the percentage is substantially 
disproportionate to that person's ownership of shares in the other 
organization.
    (b) Area median income means:
    (1) The median family income for the metropolitan statistical area 
(MSA), if a depository organization is located in an MSA; or
    (2) The statewide nonmetropolitan median family income, if a 
depository organization is located outside an MSA.
    (c) Community means a city, town, or village, and contiguous or 
adjacent cities, towns, or villages.
    (d) Contiguous or adjacent cities, towns, or villages means cities, 
towns, or villages whose borders touch each other or whose borders are 
within 10 road

[[Page 233]]

miles of each other at their closest points. The property line of an 
office located in an unincorporated city, town, or village is the 
boundary line of that city, town, or village for the purpose of this 
definition.
    (e) Depository holding company means a bank holding company or a 
savings and loan holding company (as more fully defined in section 202 
of the Interlocks Act (12 U.S.C. 3201)) having its principal office 
located in the United States.
    (f) Depository institution means a commercial bank (including a 
private bank), a savings bank, a trust company, a savings and loan 
association, a building and loan association, a homestead association, a 
cooperative bank, an industrial bank, or a credit union, chartered under 
the laws of the United States and having a principal office located in 
the United States. Additionally, a United States office, including a 
branch or agency, of a foreign commercial bank is a depository 
institution.
    (g) Depository institution affiliate means a depository institution 
that is an affiliate of a depository organization.
    (h) Depository organization means a depository institution or a 
depository holding company.
    (i) District bank means any State bank operating under the Code of 
Law of the District of Columbia.
    (j) Low- and moderate-income areas means census tracts (or, if an 
area is not in a census tract, block numbering areas delineated by the 
United States Bureau of the Census) where the median family income is 
less than 100 percent of the area median income.
    (k) Management official. (1) The term management official means:
    (i) A director;
    (ii) An advisory or honorary director of a depository institution 
with total assets of $100 million or more;
    (iii) A senior executive officer as that term is defined in 12 CFR 
5.51(c)(3);
    (iv) A branch manager;
    (v) A trustee of a depository organization under the control of 
trustees; and
    (vi) Any person who has a representative or nominee serving in any 
of the capacities in this paragaph (m)(1).
    (2) The term management official does not include:
    (i) A person whose management functions relate exclusively to the 
business of retail merchandising or manufacturing;
    (ii) A person whose management functions relate principally to the 
business outside the United States of a foreign commercial bank; or
    (iii) A person described in the provisos of section 202(4) of the 
Interlocks Act (12 U.S.C. 3201(4)) (referring to an officer of a State-
chartered savings bank, cooperative bank, or trust company that neither 
makes real estate mortgage loans nor accepts savings).
    (l) Office means a principal or branch office of a depository 
institution located in the United States. Office does not include a 
representative office of a foreign commercial bank, an electronic 
terminal, or a loan production office.
    (m) Person means a natural person, corporation, or other business 
entity.
    (n) Relevant metropolitan statistical area (RMSA) means an MSA, a 
primary MSA, or a consolidated MSA that is not comprised of designated 
primary MSAs to the extent that these terms are defined and applied by 
the Office of Management and Budget.
    (o) Representative or nominee means a natural person who serves as a 
management official and has an obligation to act on behalf of another 
person with respect to management responsibilities. The OCC will find 
that a person has an obligation to act on behalf of another person only 
if the first person has an agreement, express or implied, to act on 
behalf of the second person with respect to management responsibilities. 
The OCC will determine, after giving the affected persons an opportunity 
to respond, whether a person is a representative or nominee.
    (p) Total assets. (1) The term total assets means assets measured on 
a consolidated basis and reported in the most recent fiscal year-end 
Consolidated Report of Condition and Income.
    (2) The term total assets does not include:
    (i) Assets of a diversified savings and loan holding company as 
defined by section 10(a)(1)(F) of the Home Owners' Loan Act (12 U.S.C. 
1467a(a)(1)(F))

[[Page 234]]

other than the assets of its depository institution affiliate;
    (ii) Assets of a bank holding company that is exempt from the 
prohibitions of section 4 of the Bank Holding Company Act of 1956 
pursuant to an order issued under section 4(d) of that Act (12 U.S.C. 
1843(d)) other than the assets of its depository institution affiliate; 
or
    (iii) Assets of offices of a foreign commercial bank other than the 
assets of its United States branch or agency.
    (q) United States means the United States of America, any State or 
territory of the United States of America, the District of Columbia, 
Puerto Rico, Guam, American Samoa, and the Virgin Islands.

[61 FR 40300, Aug. 2, 1996, as amended at 64 FR 51678, Sept. 24, 1999]



Sec. 26.3  Prohibitions.

    (a) Community. A management official of a depository organization 
may not serve at the same time as a management official of an 
unaffiliated depository organization if the depository organizations in 
question (or a depository institution affiliate thereof) have offices in 
the same community.
    (b) RMSA. A management official of a depository organization may not 
serve at the same time as a management official of an unaffiliated 
depository organization if the depository organizations in question (or 
a depository institution affiliate thereof) have offices in the same 
RMSA and each depository organization has total assets of $20 million or 
more.
    (c) Major assets. A management official of a depository organization 
with total assets exceeding $2.5 billion (or any affiliate of such an 
organization) may not serve at the same time as a management official of 
an unaffiliated depository organization with total assets exceeding $1.5 
billion (or any affiliate of such an organization), regardless of the 
location of the two depository organizations. The OCC will adjust these 
thresholds, as necessary, based on the year-to-year change in the 
average of the Consumer Price Index for the Urban Wage Earners and 
Clerical Workers, not seasonally adjusted, with rounding to the nearest 
$100 million. The OCC will announce the revised thresholds by publishing 
a final rule without notice and comment in the Federal Register.

[61 FR 40300, Aug. 2, 1996, as amended at 64 FR 51678, Sept. 24, 1999]



Sec. 26.4  Interlocking relationships permitted by statute.

    The prohibitions of Sec. 26.3 do not apply in the case of any one or 
more of the following organizations or to a subsidiary thereof:
    (a) A depository organization that has been placed formally in 
liquidation, or which is in the hands of a receiver, conservator, or 
other official exercising a similar function;
    (b) A corporation operating under section 25 or section 25A of the 
Federal Reserve Act (12 U.S.C. 601 et seq. and 12 U.S.C. 611 et seq., 
respectively) (Edge Corporations and Agreement Corporations);
    (c) A credit union being served by a management official of another 
credit union;
    (d) A depository organization that does not do business within the 
United States except as an incident to its activities outside the United 
States;
    (e) A State-chartered savings and loan guaranty corporation;
    (f) A Federal Home Loan Bank or any other bank organized solely to 
serve depository institutions (a bankers' bank) or solely for the 
purpose of providing securities clearing services and services related 
thereto for depository institutions and securities companies;
    (g) A depository organization that is closed or is in danger of 
closing as determined by the appropriate Federal depository institutions 
regulatory agency and is acquired by another depository organization. 
This exemption lasts for five years, beginning on the date the 
depository organization is acquired; and
    (h)(1) A diversified savings and loan holding company (as defined in 
section 10(a)(1)(F) of the Home Owners' Loan Act (12 U.S.C. 
1467a(a)(1)(F)) with respect to the service of a director of such 
company who also is a director of an unaffiliated depository 
organization if:
    (i) Both the diversified savings and loan holding company and the 
unaffiliated depository organization notify their appropriate Federal 
depository

[[Page 235]]

institutions regulatory agency at least 60 days before the dual service 
is proposed to begin; and
    (ii) The appropriate regulatory agency does not disapprove the dual 
service before the end of the 60-day period.
    (2) The OCC may disapprove a notice of proposed service if it finds 
that:
    (i) The service cannot be structured or limited so as to preclude an 
anticompetitive effect in financial services in any part of the United 
States;
    (ii) The service would lead to substantial conflicts of interest or 
unsafe or unsound practices; or
    (iii) The notificant failed to furnish all the information required 
by the OCC.
    (3) The OCC may require that any interlock permitted under this 
paragraph (h) be terminated if a change in circumstances occurs with 
respect to one of the interlocked depository organizations that would 
have provided a basis for disapproval of the interlock during the notice 
period.



Sec. 26.5  Small market share exemption.

    (a) Exemption. A management interlock that is prohibited by 
Sec. 26.3 is permissible, if:
    (1) The interlock is not prohibited by Sec. 26.3(c); and
    (2) The depository organizations (and their depository institution 
affiliates) hold, in the aggregate, no more than 20 percent of the 
deposits in each RMSA or community in which both depository 
organizations (or their depository institution affiliates) have offices. 
The amount of deposits shall be determined by reference to the most 
recent annual Summary of Deposits published by the FDIC for the RMSA or 
community.
    (b) Confirmation and records. Each depository organization must 
maintain records sufficient to support its determination of eligibility 
for the exemption under paragraph (a) of this section, and must 
reconfirm that determination on an annual basis.

[64 FR 51678, Sept. 24, 1999]



Sec. 26.6  General exemption.

    (a) Exemption. The OCC may by order issued following receipt of an 
application, exempt an interlock from the prohibitions in Sec. 26.3 if 
the OCC finds that the interlock would not result in a monopoly or 
substantial lessening of competition and would not present safety and 
soundness concerns.
    (b) Presumptions. In reviewing an application for an exemption under 
this section, the OCC will apply a rebuttable presumption that an 
interlock will not result in a monopoly or substantial lessening of 
competition if the depository organization seeking to add a management 
official:
    (1) Primarily serves low-and moderate-income areas;
    (2) Is controlled or managed by persons who are members of a 
minority group, or women;
    (3) Is a depository institution that has been chartered for less 
than two years; or
    (4) Is deemed to be in ``troubled condition'' as defined in 12 CFR 
5.51(c)(6).
    (c) Duration. Unless a specific expiration period is provided in the 
OCC approval, an exemption permitted by paragraph (a) of this section 
may continue so long as it does not result in a monopoly or substantial 
lessening of competition, or is unsafe or unsound. If the OCC grants an 
interlock exemption in reliance upon a presumption under paragraph (b) 
of this section, the interlock may continue for three years, unless 
otherwise provided by the OCC in writing.

[64 FR 51678, Sept. 24, 1999]



Sec. 26.7  Change in circumstances.

    (a) Termination. A management official shall terminate his or her 
service or apply for an exemption if a change in circumstances causes 
the service to become prohibited. A change in circumstances may include 
an increase in asset size of an organization, a change in the 
delineation of the RMSA or community, the establishment of an office, an 
increase in the aggregate deposits of the depository organization, or an 
acquisition, merger, consolidation, or any reorganization of the 
ownership structure of a depository organization that causes a 
previously permissible interlock to become prohibited.
    (b) Transition period. A management official described in paragraph 
(a) of this section may continue to serve the depository organization 
involved in the interlock for 15 months following the date of the change 
in circumstances.

[[Page 236]]

The OCC may shorten this period under appropriate circumstances.

[61 FR 40300, Aug. 2, 1996, as amended at 64 FR 51678, Sept. 24, 1999]



Sec. 26.8  Enforcement.

    Except as provided in this section, the OCC administers and enforces 
the Interlocks Act with respect to national banks, District banks, and 
affiliates of either, and may refer any case of a prohibited 
interlocking relationship involving these entities to the Attorney 
General of the United States to enforce compliance with the Interlocks 
Act and this part. If an affiliate of a national bank or a District bank 
is subject to the primary regulation of another Federal depository 
organization supervisory agency, then the OCC does not administer and 
enforce the Interlocks Act with respect to that affiliate.



PART 27--FAIR HOUSING HOME LOAN DATA SYSTEM--Table of Contents




Sec.
27.1  Scope and OMB control number.
27.2  Definitions.
27.3  Recordkeeping requirements.
27.4  Inquiry/Application Log.
27.5  Record retention period.
27.6  Substitute monitoring program.
27.7  Availability, submission and use of data.

Appendixes to Part 27
Appendix I--Monthly Home Loan Activity Format
Appendix II--Information for Government Monitoring Purposes
Appendix III--Fair Housing Lending Inquiry/Application Log Sheet
Appendix IV--Home Loan Data Submission

    Authority: 5 U.S.C. 301; 12 U.S.C. 1 et seq., 93a, 161, 481, and 
1818; 15 U.S.C. 1691 et seq.; 42 U.S.C. 3601 et seq.; 12 CFR part 202.

    Source: 44 FR 63089, Nov. 2, 1979, unless otherwise noted.



Sec. 27.1  Scope and OMB control number.

    (a) Scope. This part applies to the activities of national banks and 
banks located in the District of Columbia, and their subsidiaries, which 
make home loans for the purpose of purchasing, construction-permanent 
financing, or refinancing of residential real property.
    (b) OMB control number. The collection of information requirements 
contained in this part were approved by the Office of Management and 
Budget under OMB control number 1557-0160.

[49 FR 11825, Mar. 28, 1984]



Sec. 27.2  Definitions.

    For the purpose of this part, including all forms and instructions 
issued for use under this part:
    (a) Applicant means a natural person, including a co-applicant, who 
makes an application.
    (b) Application means an oral in-person or written request for an 
extension of credit for a home loan that is made in accordance with 
procedures established by a bank for the type of credit requested.
    (c) Bank means a national bank or bank located in the District of 
Columbia, and any subsidiaries of such a bank.
    (d) Completed application means an application in connection with 
which a bank has received all the information that it regularly obtains 
and considers in evaluating the amount and type of credit requested.
    (e) Decision center means the place where home loan applications are 
accepted or rejected.
    (f) Home loan means a real estate loan for the purchase, permanent 
financing for construction, or the refinancing of residential real 
property which the applicant intends to occupy as a principal residence.
    (g) Inquirer means a natural person who makes an inquiry.
    (h) Inquiry means a written or an oral in-person request for 
information about the terms of a home loan by a natural person on his/
her own behalf which is received on a bank's premises by any person at 
the bank who customarily receives or is authorized to receive such 
requests. Telephonic communications do not constitute an inquiry for 
purposes of this part.
    (i) Real estate loan means any loan secured by real estate where the 
bank relies upon such real estate as the primary security for the loan. 
Where the bank in its judgment relies substantially upon other factors, 
such as the general credit standing of the borrower, guaranties, or 
security other than real estate, the loan does not constitute a real 
estate loan, although as

[[Page 237]]

a matter of prudent banking practice it may also be secured by real 
estate.
    (1) A loan made in reliance upon the security of a mobile home will 
not be considered a real estate loan, although as a prudent banking 
practice the security interest is recorded or otherwise perfected as if 
the mobile home were real estate. For purposes of this part, a loan made 
in reliance upon the security of a mobile home and the parcel of land to 
which it is permanently affixed will be considered a real estate loan.
    (2) Where the bank relies substantially on the insurance guaranty of 
a governmental agency in making a loan, it does not constitute a real 
estate loan except for the purposes of Sec. 27.4 of this part (Inquiry/
Application Log).
    (j) Residential real property means improved real property (not 
vacant land) used or intended to be used for residential purposes, 
including single family homes, dwellings for from two to four families, 
and individual units of condominiums and cooperatives.



Sec. 27.3  Recordkeeping requirements.

    (a) Quarterly recordkeeping requirement. (1) A bank that is required 
to collect data on home loans under part 203 of this title shall present 
the data on Federal Reserve Form FR HMDA-LAR or in an automated format 
in accordance with the instructions, except that:
    (i) A bank shall maintain the reason(s) it denied a loan 
application, using the codes provided in part 203 of this title; and
    (ii) A bank shall record all information required by this paragraph 
and part 203 of this title within 30 calendar days after the end of each 
calendar quarter.
    (2) A bank that receives 50 or more home loan applications a year, 
as measured by the previous calendar year, and that is not required to 
collect data under paragraph (a)(1) of this section, shall record and 
maintain for each decision center the following information on home loan 
activity:
    (i) Number of applications received for each of the following: 
Purchase; construction-permanent; refinance.
    (ii) Number of loans closed for each of the following: Purchase; 
construction-permanent; refinance.
    (iii) Number of loans denied for each of the following: Purchase; 
construction-permanent; refinance.
    (iv) Number of loans withdrawn by applicant, for each of the 
following: Purchase; construction-permanent; refinance.
    (3) The information required to be maintained under paragraph (a)(2) 
of this section shall be updated quarterly, within 30 calendar days 
after the end of each calendar quarter, in a format consistent with the 
bank's recordkeeping procedures.
    (4) A bank exempted under paragraph (a)(2) of this section shall be 
covered by that requirement beginning the month following any quarter in 
which their average monthly volume of home loan applications exceeds 
four applications per month. Banks which are subject to this paragraph 
may discontinue keeping this information beginning the month following 
two consecutive quarters in which their average monthly volume of home 
loan applications drops to four or fewer applications per month. A bank 
which is otherwise exempted under this paragraph may be required upon 
notification received from the Comptroller, to record and maintain such 
information where there is cause to believe that the bank is not in 
compliance with the fair housing laws based on prior examinations and/or 
has substantive consumer complaints, among other factors.
    (5) A bank required to maintain information under paragraph (a)(2) 
or (a)(4) of this section may choose to comply with the quarterly 
recordkeeping requirement by maintaining information in accordance with 
paragraph (a)(1) of this section.
    (b) Information required on applications for home loans--(1) Each 
bank shall attempt to obtain all of the information listed below, as 
part of completed applications for home loans:
    (i) Loan Amount requested by the applicant(s).
    (ii) Interest rate requested by the applicant(s).
    (iii) Number of months requested to maturity by the applicant(s).
    (iv) Location. Complete street address, city, county, state and zip 
code of the dwelling which will secure the loan.

[[Page 238]]

    (v) Number of residential units (1-4) of the dwelling which will 
secure the loan.
    (vi) Year built. The year in which the dwelling which will secure 
the loan was built. If the exact year is unknown, approximate to the 
nearest decade.
    (vii) Purpose of the loan. Purchase; refinance; or construction-
permanent.
    (viii) Name and present address of applicant(s).
    (ix) Age of applicant(s).
    (x) Marital status of applicant(s) using the categories married, 
unmarried and separated.
    (xi) Number of years employed in present line of work or profession 
for the applicant(s).
    (xii) Years on present job. Number of continuous years employed by 
the current employer of the applicant(s). For self-employed persons, the 
number of continuous years self-employed.
    (xiii) Gross total monthly income of each applicant, comprising the 
sum of normal base salary, wages, overtime pay, bonuses, commissions, 
dividends, interest, rental income, retirement or disability income and 
income from part-time employment. For self-employed persons, include the 
average or normal monthly income. Include alimony, separate maintenance 
and child support income information only if the applicant has been 
advised that such information need not be provided and nevertheless 
elects to have it considered.
    (xiv) Proposed monthly housing payment, comprising the sum of 
principal and interest. The bank may also include insurance, real estate 
taxes and any monthly assessments for home owner dues or condominium 
fees, and/or utilities if the bank considers these factors in computing 
housing costs. However, if the bank includes any of these factors for 
computing the monthly housing payment, it must do so consistently. When 
a bank changes its regular practice, such change and its effective date 
should be identifiable with respect to the bank's new policy.
    (xv) Purchase price. Sales price or approximate current market value 
of the property which will secure the loan.
    (xvi) Applicant's or applicants' total monthly payments on all 
outstanding liabilities. Include installment debts, real estate loans 
and any alimony, child support or separate maintenance payments. Exclude 
any payments on liabilities which will be satisfied upon sale of real 
estate owned or upon refinancing of property associated with this 
application.
    (xvii) Net worth. Applicant's or applicants' total assets, including 
cash checking and savings accounts, stocks and bonds, cash value of life 
insurance, value of real estate owned, net worth of business owned, 
automobile, furniture and personal property and other assets, minus 
total liabilities, including installment debts, automobile loans, real 
estate loans, and any other debts, including stock pledges.
    (xviii) Date of application. The date on which a signed application 
is received by the bank.
    (xix) Sex of applicant(s).
    (xx) Race/national origin of applicant(s) using the categories: 
American Indian or Alaskan Native; Asian or Pacific Islander; Black, not 
of Hispanic origin; White, not of Hispanic origin; Hispanic; Other.
    (2) Information on race/national origin and sex.
    (i) Disclosure to applicant.
    (A) In collecting the information required under Sec. 27.3(b)(1) 
(xix) and (xx), the bank shall advise an applicant, either orally or in 
writing, that:
    (1) The information on race/national origin and sex is requested by 
the Federal Government if this loan is related to a home loan, in order 
to monitor the lender's compliance with equal credit opportunity and 
fair housing laws;
    (2) The applicant is not required to furnish the information but is 
encouraged to do so. The law provides that a lender may neither 
discriminate on the basis of this information, nor on whether the 
applicant chooses to furnish it;
    (3) However, if the applicant chooses not to furnish it, Federal 
regulations require the lender to note race and sex on the basis of 
visual observation or surname.
    (B) Banks which use the Federal Home Loan Mortgage Corporation/
Federal National Mortgage Association (FHLMC/FNMA) insert form 
(``Information for Government Monitoring

[[Page 239]]

Purposes'') requesting this information will be in compliance with 
paragraph (b)(2)(i) of this section. A copy of the insert form is set 
forth in appendix II.
    (ii) If the applicant does not voluntarily provide the information 
on sex and race/national origin which the bank is required to record and 
maintain under Sec. 27.3(b)(1) (xix) and (xx), the bank shall request 
the applicant to note that fact (by initials or otherwise) on the 
application, and the bank shall provide the information based on visual 
observation or surname. If the applicant does not voluntarily provide 
the information and does not initial or otherwise note that fact, the 
bank shall initial, or otherwise note that fact on the application, as 
well as provide the information based on visual observation or surname.
    (c) Additional information required in the loan file. In addition to 
the information required by Sec. 27.3(b), each bank shall maintain the 
following information in each of its home loan files:
    (1) If an appraisal is completed:
    (i) The appraised value; and
    (ii) The census tract number, where available, for those properties 
which are in a Standard Metropolitan Statistical Area (SMSA) in which 
the bank has a home office or branch office.
    (2) Disposition of loan application. The disposition of the 
completed applications using the following categories:
    (i) Withdrawn before terms were offered;
    (ii) Withdrawn after terms were offered;
    (iii) Denied;
    (iv) Terms offered and accepted by applicant(s).
    (3) If final terms are offered, whether or not accepted:
    (i) The loan amount.
    (ii) Whether private mortgage insurance is required, and if so, the 
terms of the insurance.
    (iii) Whether a deposit balance is required, and if so, the amount.
    (iv) The note (simple) interest rate.
    (v) The number of months to maturity of the loan offered.
    (vi) Points. The loan origination or discount fee(s) charged to the 
buyer, computed as a percentage of the loan amount.
    (4) Commitment date. The date final terms were offered.
    (5) The type of mortgage using the following categories: Standard 
Fixed Payment; Variable Rate; Graduated Payment; Rollover; Other.
    (6) The name or identification of the bank office where the 
application was submitted.
    (7) Whenever credit is denied, copy(s) of the Equal Credit 
Opportunity Act credit notice and statement of credit denial.
    (8) Any additional information used by the bank in determining 
whether or not to extend credit, or in establishing the terms, 
including, but not limited to, credit reports, employment verification 
forms, Federal Income Tax Forms, availability of insurance, and the 
complete appraisal.

[44 FR 63089, Nov. 2, 1979, as amended at 59 FR 26415, May 20, 1994]



Sec. 27.4  Inquiry/Application Log.

    (a) The Comptroller, among other things, may require a bank to 
maintain a Fair Housing Inquiry/Application Log (``Log''), based upon, 
but not limited to, one or more of the following causes:
    (1) There is reason(s) to believe that the bank may be prescreening 
or otherwise engaging in discriminatory practices on a prohibited basis.
    (2) Complaints filed with the Comptroller or letters in the 
Community Reinvestment Act file are found to be substantive in nature, 
indicating that the bank's home lending practices are, or may be, 
discriminatory.
    (3) Analysis of the data compiled by the bank under the provisions 
of the Home Mortgage Disclosure Act (12 U.S.C. 2801 et seq. and 
Regulation C of the Federal Reserve Board, 12 CFR part 203) indicates a 
pattern of significant variation in the number of home loans between 
census tracts with similar incomes and home ownership levels, 
differentiated only by race or national origin (i.e., possible racial 
redlining).
    (b) The Comptroller, when requiring the maintenance of a Log, will 
specify in writing:
    (1) The location(s) where the information shall be obtained;
    (2) The length of time it shall be maintained;

[[Page 240]]

    (3) The frequency with which it shall be submitted to the 
Comptroller; and
    (4) The reason(s) for imposing this requirement.
    (c) A bank which has been directed by the Comptroller to maintain a 
Log shall obtain and note all of the following information regarding 
each inquiry or application for the extension of a home loan and each 
inquiry or application for a government insured home loan (not otherwise 
included in this part):
    (1) Date of application or inquiry.
    (2) Type of loan using the categories: purchase, construction-
permanent; refinance; and government insured by type of insurance, i.e., 
FHA, VA, and FmHA (if applicable).
    (3) Indication of whether the entry refers to an application or an 
inquiry.
    (4) Case identification (either a unique number which permits the 
application file to be located, or the name(s) and address(es) of the 
applicant(s)).
    (5) Race/national origin of the inquirer(s) or applicant(s) using 
the categories: American Indian or Alaskan Native; Asian or Pacific 
Islander; Black, not of Hispanic origin; White, not of Hispanic origin; 
Hispanic; Other. In the case of inquiries, this item shall be noted on 
the basis of visual observation or surname(s) only. In the case of 
applications, the information shall be obtained pursuant to 
Sec. 27.3(b)(2).
    (6) Location. Complete street address, city, county, state and zip 
code of the property which will secure the extension of credit. The 
census tract shall also be recorded when the property is located in an 
SMSA in which the bank has a home office or branch office.
    (d) The information required under Sec. 27.4(c), of this part, shall 
be recorded and maintained on the form set forth in appendix III. 
Additional information may be recorded and maintained at the bank's 
discretion.

[44 FR 63089, Nov. 2, 1979, as amended at 59 FR 26415, May 20, 1994]



Sec. 27.5  Record retention period.

    (a) Each bank shall retain the records required under Sec. 27.3 for 
25 months after the bank notifies an applicant of action taken on an 
application, or after withdrawal of an application. This requirement 
also applies to records of home loans which are originated by the bank 
and subsequently sold.
    (b) The Comptroller of the Currency may, by written notice to a 
bank, extend the retention period.



Sec. 27.6  Substitute monitoring program.

    The recordkeeping provisions of Sec. 27.3 constitute a substitute 
monitoring program as authorized under Sec. 202.13(d) of Regulation B of 
the Federal Reserve Board (12 CFR 202.13(d)). A bank collecting the data 
in compliance with Sec. 27.3 of this part will be in compliance with the 
requirements of Sec. 202.13 of Regulation B.



Sec. 27.7  Availability, submission and use of data.

    (a) Each bank shall make all information collected under Sec. 27.3 
and Sec. 27.4 available for review at the bank to national bank 
examiners upon request.
    (b) Prior to a scheduled bank examination, the Comptroller may 
request the information maintained under Sec. 27.3(a). A bank required 
to maintain information under Sec. 27.3(a)(2) shall submit the 
information to the Comptroller on the form prescribed in appendix I of 
this part. A bank which is exempt from maintaining the information 
required under Sec. 27.3(a) shall notify the Comptroller of this fact in 
writing within 30 calendar days of its receipt of the Comptroller's 
request.
    (c) If, upon review of the information maintained under 
Sec. 27.3(a), the Comptroller determines that statistical analysis prior 
to examination is warranted, the bank will be notified.
    (1) Within 30 calendar days after receipt of notification from the 
Comptroller, the bank shall submit, for application records specified by 
the Comptroller, completed Home Loan Data Submission Forms (set forth as 
appendix IV). The Comptroller may, upon the request of a bank and for 
good reason, extend the 30-day period.
    (2) The number of Home Loan Data Submission Forms requested by the 
Comptroller will not exceed 250 per decision center, or 2,000 per bank 
with multiple decision centers, unless there is cause to believe that a 
bank is not in compliance with fair housing laws

[[Page 241]]

based on examination findings or substantiated complaints, among other 
factors.
    (3) A bank with fewer than 75 home loan applications in the 
preceding year will not be required to submit such forms unless:
    (i) The home loan activity is concentrated in the few months 
preceding the request for data, indicating the likelihood of increased 
activity over the subsequent year, or
    (ii) There is cause to believe that a bank is not in compliance with 
the fair housing laws based on prior examinations and/or complaints, 
among other factors.
    (d) If there is cause to believe that a bank is in noncompliance 
with fair housing laws, the Comptroller may require submission of 
additional Home Loan Data Submission Forms. The Comptroller may also 
require submission of the information maintained under Sec. 27.3(a) and 
Home Loan Data Submission Forms at more frequent intervals than 
specified in paragraphs (b) and (c) of this section.

[44 FR 63089, Nov. 2, 1979, as amended at 59 FR 26415, May 20, 1994]

                          Appendixes to Part 27

[[Page 242]]

[GRAPHIC] [TIFF OMITTED] TC22SE91.001


[[Page 243]]



       Appendix II--Information for Government Monitoring Purposes

    The following language is approved by the Comptroller of the 
Currency and will satisfy the requirements of 12 CFR part 27. It may be 
inserted to complete the ``Information for Government Monitoring 
Purposes'' section of the Residential Loan Application Form (FHLMC Form 
65/FNMA 1003) or may be used separately. This information may also be 
provided orally by the applicant.
    The following information is requested by the Federal Government if 
this loan is related to a dwelling, in order to monitor the lender's 
compliance with equal credit opportunity and fair housing laws. You are 
not required to furnish this information, but are encourage to do so. 
The law provides that a lender may neither discriminate on the basis of 
this information, nor on whether you choose to furnish it. However, if 
you choose not to furnish it, under Federal regulations this lender is 
required to note race and sex on the basis of visual observation or 
surname. If you do not wish to furnish the above information, please 
initial below.

                                Borrower

    I do not wish to furnish this information (initial)________.

                          Race/National Origin

    {time}  American Indian or Alaskan Native
    {time}  Asian or Pacific Islander
    {time}  Black, not of Hispanic origin
    {time}  Hispanic
    {time}  White, not of Hispanic origin
    {time}  Other (specify)________

                                   Sex

    {time}  Female
    {time}  Male

                               Co-borrower

    I do not wish to furnish this information (initial)________.

                          Race/National Origin

    {time}  American Indian or Alaskan Native
    {time}  Asian or Pacific Islander
    {time}  Black, not of Hispanic origin
    {time}  Hispanic
    {time}  White, not of Hispanic origin
    {time}  Other (specify)________

                                   Sex

    {time}  Female
    {time}  Male

[59 FR 26415, May 20, 1994]

[[Page 244]]

[GRAPHIC] [TIFF OMITTED] TR20MY94.003

[59 FR 26417, May 20, 1994]

[[Page 245]]

[GRAPHIC] [TIFF OMITTED] TR21JN94.003


[[Page 246]]


[GRAPHIC] [TIFF OMITTED] TR21JN94.004

[59 FR 31925, June 21, 1994]

[[Page 247]]



PART 28--INTERNATIONAL BANKING ACTIVITIES--Table of Contents




             Subpart A--Foreign Operations of National Banks

Sec.
28.1  Authority, purpose, and scope.
28.2  Definitions.
28.3  Filing requirements for foreign operations of a national bank.
28.4  Permissible activities.
28.5  Filing of notice.

        Subpart B--Federal Branches and Agencies of Foreign Banks

28.10  Authority, purpose, and scope.
28.11  Definitions.
28.12  Approval of a Federal branch or agency.
28.13  Permissible activities.
28.14  Limitations based upon capital of a foreign bank.
28.15  Capital equivalency deposits.
28.16  Deposit-taking by an uninsured Federal branch.
28.17  Notice of change in activity or operations.
28.18  Recordkeeping and reporting.
28.19  Enforcement.
28.20  Maintenance of assets.
28.21  Service of process.
28.22  Voluntary liquidation.
28.23  Termination of a Federal branch or agency.

              Subpart C--International Lending Supervision

28.50  Authority, purpose, and scope.
28.51  Definitions.
28.52  Allocated transfer risk reserve.
28.53  Accounting for fees on international loans.
28.54  Reporting and disclosure of international assets.

    Authority: 12 U.S.C. 1 et seq., 93a, 161, 602, 1818, 3102, 3108, and 
3901 et seq.

    Source: 61 FR 19532, May 2, 1996, unless otherwiswe noted.



             Subpart A--Foreign Operations of National Banks



Sec. 28.1  Authority, purpose, and scope.

    (a) Authority. This subpart is issued pursuant to 12 U.S.C. 1 et 
se